05/13/2007
VOLUME 299
Companies featured in the current edition of the newsletter: ADSX, ARGA, AVGOE, CGXP, CHIP, CYTR, EEEI, GNBT, GSHF, HSOA, HYTM, IRBO, ITUI, MBIF, MBND, NTRN, OXIS, PBIO, PCLI, POIG, RTK, SCLL, TAGS, VOII, VQPH
Stocks continued their forward climb as the market reacted positively to the Fed’s actions last week. With signs pointing to a moderating economy, and inflation appearing manageable, investors are banking on the Fed engineering a “soft landing”which will eventually lead to rate cuts further later in the year. The Dow set two all-time highs this week, one by reaching an intra-day high of 13,410 on Wednesday and the second by achieving its highest close ever on Friday of 13,326. For the week, the Dow rose 61 points, and is up 6.9% for the year. The Nasdaq fell 9 points for the week, reducing yearly gains to 6%. The S&P was up 0.2% for the week bringing annual gains to 6.1%. The Russell fell 3 points for the week and is now underperforming the other indices, posting a gain of 5.3%.
A number of reports released last week showed continued economic weakness, as March wholesale inventories grew at a slower than expected rate of 0.3%. Retail sales surprisingly fell 0.2% in April. The impact of rising gas prices is being hard felt by many leading merchants as same-store sales are slowing due to declining consumer spending. Additionally, forecasts for the housing sector remained weak continue to overhang economic growth. The National Association of Realtors predicted that existing home sales will fall 2.9% this year, compared to its earlier estimate of sales declining by 2.2%. By week’s end, investors took comfort in the producer price index report released by the Labor Department, which showed an increase in April of 0.7%, lower than the 1% reading in March, indicating tamer inflation. With inflation concerns being at the core of the Fed’s focus, much attention will be centered on the Consumer Price Index released this week that if positive, could appease the Fed’s concerns over rising prices.
What should investors look for this week? With over 90% of the S&P 500 companies having already reported results, there are few market moving earnings reports left this week. Tuesday morning Daimler Chrysler (NYSE: DCX) and Home Depot (NYSE: HD) release numbers. Later that evening Applied Materials (NASDAQ: AMAT) reports earnings. Before the opening on Wednesday, Deere (NYSE: DE) announce results followed by Hewlett-Packard (NYSE: HPQ) after the close. Thursday evening Agilent (NYSE: A) and Intuit (NASDAQ: INTU) release results. Owens Corning (NYSE: OC) hosts investors on Wednesday. PPG Industries (NYSE: PPG) holds its Semiannual Investor Day on Friday.
There are a number of notable conferences this week. The two-day UBS Global Financial Services Conference begins in New York starting Monday. The two-day Acumen BioFion Rodman & Renshaw 4th Annual Global Healthcare Conference starts on Monday in Monte Carlo, Monaco. CytRx Corporation (NASDAQ: CYTR), OXIS International (OTCBB: OXIS) and Avicena Group, Inc. (OTCBB: AVGOE) are scheduled to present on May 14th. Ceragenix Pharmaceuticals, Inc. (OTCBB: CGXP) will present on May 15th. Rentech (AMEX: RTK) presents at the UBS Alternative Energy Conference on Monday in New York and at the Merriman Curhan Ford 2007 Next Generation Energy Conference on Tuesday in New York. Also, Credit Suisse hosts its two-day SC3: Semiconductor & Supply-Chain Summit in New York starting Tuesday. Also on Tuesday, the three-day Deutsche Bank Securities 2007 Technology Conference in San Francisco starts and the two-day Morgan Stanley Communications Conference in Washington D.C. begins. Goldman Sachs hosts its two-day Basic Materials Conference beginning Wednesday in New York and Bank of America Securities holds a Smid Cap Conference in Boston on Thursday.
The economic calendar holds several key reports this week that should peak the interest of the market. Tuesday prior to the opening, the all-important April CPI will be reported along with the May NY Empire State Index and March Net Foreign Purchases. Wednesday morning, April Housing Starts and April Building Permits will be released along with April Industrial Production and Capacity Utilization figures. Weekly Crude Inventories will be announced shortly after the opening bell. Weekly Jobless claims will be announced Thursday morning with the May Philadelphia Fed Report being reported at 12 noon. After the opening on Friday, May Preliminary Michigan Sentiment Index will be released. On Monday, Dallas Fed President Fisher talks on the service sector, while Atlanta Fed President Lockhart opens a financial markets conference. Fed official Kohn speaks on derivatives at an Atlanta conference on Wednesday. On Thursday, Fisher talks on globalization, Moskow speaks at a banking conference while Bernanke speaks at a Chicago banking conference.
Hythiam, Inc. (NASDAQ: HYTM), a provider of healthcare services, announced results for the first quarter ended March 31, 2007 which included consolidated results from Comprehensive Care Corporation (CompCare). For the first quarter, sales totaled $8.8 million, exceeding expectations, as revenue from the healthcare services division benefited from a number of items including higher fees charged to licensees, increased sales from PROMETA Centers and international operations as well as third party payers. The number of patients treated with PROMETA increased by 61.4% to 155 patients compared to last year, while the number of licensee sites grew to 30 from 19 in the first quarter of 2006. HYTM reiterated full-year guidance of roughly $50 million, which includes the consolidation of financials of CompCare that will represent a large portion of overall sales. Perhaps more significant is that over the next few days the company is expected to disclose the top-line study data from Cedars Sinai on PROMETA for the treatment of alcohol dependence, which could serve as a significant catalyst for the stock. Lead investigator Dr. Jeffrey Wilkins is the endowed chair of addiction treatment at Cedars Sinai and was the first investigator to design a study around PROMETA for alcoholism. With over 1,500 patients already treated by PROMETA, the results should be strong, consistent with other studies that have been conducted by third parties. However, Cedars Sinai is by far the largest and most credible institution to conduct such a study to date, and a positive result could serve as a catalyst for sales of PROMETA to state governments and managed care entities. Separately, the company reported last week that legislatures of two states have authorized $1.5 million in initial funding that can be used for PROMETA protocol programs within drug courts at both the county and state level. State funding in both states will commence in July. The company also said it working on multiple seven-figure annual funding opportunities for the use of PROMETA in both criminal justice and other populations by other state and county governments. In addition to the completed drug court pilots in Washington and Indiana, evaluations of PROMETA are currently ongoing in Texas, Georgia and Louisiana. It’s also being evaluated for use in a methamphetamine-dependent Medicaid eligible population in Arizona. Once data from a double-blind placebo controlled study is available later this year, the company expects to find opportunities beyond drug courts, such as other criminal justice programs requiring drug and alcohol compliance including probation, corrections and parole. Shares ended the week at $7.76, up 56 cents.
Volume Alert: Home Solutions of America, Inc. (NASDAQ: HSOA), a provider of restoration, construction and interior services to commercial and residential customers, traded over 5.5 times average volume after reporting Q1 results for the first quarter ended March 31, 2007. We have said for several weeks that with modest year-over-year comparisons and relatively low expectations, that a better-than-feared earnings report could drive significant appreciation. We were correct. Revenue for the quarter rose 107.1% to $39.9 million compared to the same period last year. Operating income jumped 162% to $10.5 million and net income reached record levels of $5.7 million, reflecting an increase of 83.9% from last year. HSOA expanded into new markets and overcame many of the operational issues that affected last quarter’s results. Notably, the company, which has been plagued by delays in funding for rebuilding projects in New Orleans, said that just 25% of its revenue for Q1 came from New Orleans and it expected similar levels for Q2, suggesting that it has made significant progress in diversifying its revenue base through the acquisition of Fireline. HSOA expects Q2 sales of $44 million to $48 million with net income of $0.14 to $0.17 per diluted share. Current backlog expected to be completed in 2007 stands at $112 million. This backlog excludes any revenue to be generated from the Interior Services Division which contributed $39 million to sales in 2006. With the stock trading at a P/E multiple of just 13 times trailing 12-month earnings (11x the ’07 analyst estimate), much less than half of the multiple of publicly-traded industry peers such as Shaw Group and Tetra Tech, the stock looks cheap. Shares rose 18.1% last week to close at $5.54, up 85 cents.
Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, reported financial results for its first quarter ended March 31, 2007. Q1 revenue was $31.4 million, in-line with revenue from the fourth quarter of 2006. The results included revenue from the company’s majority-owned subsidiary VeriChip (NASDAQ: CHIP), where revenue grew 5.7% to $7.4 million from the 2006 fourth quarter, reflecting growth in sales of VeriChip’s infant protection systems. ADSX’s cash at the end of the quarter was $26.1 million compared to $7.4 million as of December 31, 2006. VeriChip achieved significant milestones in the first quarter, most notably the completion of its initial public offering. With over 500 hospitals having agreed to adopt the VeriMed Patient Identification System, VeriChip continues to penetrate its target market. Additionally, VeriChip reported last week that the State of Georgia, through the Georgia Bureau of Investigation, purchased the VeriTrace system for disaster relief and emergency management needs. VeriChip also said that William J. Caragol had been promoted to President of the company while also maintaining his current role as CFO. Shares ended the week at $1.36, down 2 cents.
Pressure BioSciences Inc. (NASDAQ: PBIO), a life sciences company engaged in the development and commercialization of pressure cycling technology, last week announced that its flagship Pressure Cycling Technology (PCT) system, the Barocycler NEP3229, has received CE Mark approval, and has been found in compliance with the IEC 61010-1 international safety standards for electrical equipment. The CE Mark is a mandatory European marking for certain products to indicate conformity with certain European requirements, allowing Pressure BioSciences to sell the Barocycler NEP3229 to all countries in the E.U., as well as other countries that accept the CE Mark. With a number of meetings planned with European, Pacific Rim, Canadian, and other companies attending BIO 2007 this week, these approvals should be instrumental in furthering the company’s burgeoning international marketing efforts. Shares closed at $5.44 for the week, up 24 cents.
Rentech, Inc. (AMEX: RTK), a developer of technologies that transform under-utilized energy resources into valuable and clean alternative fuels, reported results for its second quarter ended March 31, 2007. Revenue totaled $16.9 million for the fiscal 2007 second quarter, compared to $25,000 for the same period last year. Net loss totaled $17.2 million for the quarter versus a net loss of $12.5 million last year. For the six months ended March 31, 2007, revenue of $52.3 million was reported compared to $66,000, with net loss equaling $25.9 million compared to a net loss of $18.2 million. The significant increase in sales resulted primarily from Rentech’s nitrogen products manufacturing plant in East Dubuque, Illinois that was acquired in April of last year. The financial health of the company is strong as cash and marketable securities represented $34.9 million at the end of the quarter, which excludes the $30 million revolving line of credit that Rentech has access to. Additionally, at the end of April the company completed a registered direct equity offering with net proceeds of approximately $51.8 million, further bolstering its financial position. Rentech is optimistic going forward as management anticipates that demand for ammonia fertilizer will remain strong throughout this planting season that began in mid-March. The conversion process continues to go as planned at the REMC facility in East Dubuque as implementation of the next phase of the commercialization strategy is underway. Shares remained unchanged for the week, to close at $2.42.
CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical research and development company, reported financial results for the three months ended March 31, 2007. Revenue was $1.6 million, consisting primarily of service revenue from the ALS Charitable Remainder Trust, with a net loss totaling $4.7 million reflect research and development expenses. The company’s ended Q1 with approximately $35.3 million in cash, excluding a $37 million financing completed subsequent to quarter-end. Proceeds are expected to be used to develop its highly-promising molecular chaperone technology, a potential clinical development for stroke recovery and to begin a Phase IIb efficacy trial in ALS planned for the second half of this year. The company also said it contributed $15 million to RXi, raising its ownership stake in its promising RNAi subsidiary to approximately 90%. Shares ended the week at $4.18, down 10 cents.
Earnings Preview: Shares of Multiband Corporation (NASDAQ: MBND), a leading provider of video, data, and voice systems and services to multiple dwelling units, rose to their highest level since late February, ahead of the company’s first quarter earnings release, scheduled for Tuesday. Investors are likely to look for additional details on the company’s recently announced decision to focus primarily on providing services to operators without the need to own the customer. The move is expected to dramatically improve MBND’s financial results, although gains are not likely to be seen until later this year. Recently, the company said that it had entered into a definitive agreement with DirecTech MDU, Inc. based in Cincinnati, Ohio to sell 911 Ohio-based video subscribers for approximately $683,000. DirecTech MDU is a wholly owned subsidiary of DirecTech Holdings Company, Inc., a Home Satellite Provisioner for DirecTV. Although the transaction is small, it demonstrates that it is executing on this strategy. Shares ended the week at $0.58, up 15 cents.
Drug delivery company Generex Biotechnology Corporation (NASDAQ: GNBT) last week announced the launch of two new health-oriented products based upon its drug delivery expertise at The Home Health Care Efficient Program Planning Session in Fort Worth, Texas. BaBOOM!, an innovative, convenient and great-tasting instant energy spray, and GlucoBreak, a great-tasting and fat-free glucose spray that is used as an aid for diets, are for sale immediately at leading retailers nationwide. With the U.S. weight-loss industry estimated at over $55 billion in 2006, and the energy product business having grown to a $3 billion annual business, shareholders of Generex can look for sales of these new products to help fund future development and research. Shares ended the week at $1.43, down 11 cents.
Tarrant Apparel Group (NASDAQ: TAGS), an innovative design and sourcing company for private label and private brand casual apparel, announced financial results for the first quarter ended March 31, 2007 last week. Net sales fell 8.4% to $56.1 million compared to the same period last year due to lower sales of Tarrant’s Private Brands business that no longer carries Alain Weiz, Jessica Simpson and House of Dereon brands. Such decline was partially offset by an increase in sales of at the American Rag label. The company’s Private Label brand experienced sales growth of 14.4% to $48.2 million driven by higher sales to existing customers. Management was able to implement greater efficiency in sourcing that resulted in improved gross margins for the quarter to 22% from 20.4% from the same comparable period. The company is optimistic about the near-term as Tarrant continues to improve operating efficiencies while growing sales in its Private Label and American Rag CIE businesses. Full-year revenue guidance of $230 – $240 million was provided, signaling another year of solid growth for the company. Shares ended the week at $1.35, down 9 cents.
Earnings Preview: Electro Energy, Inc. (NASDAQ: EEEI), a provider of advanced battery technologies and associated systems, is scheduled to report first quarter results for the period ended March 31, 2007 on Tuesday. While financial results are unlikely to be significant improved from the prior year’s first quarter as the company’s Gainesville, Florida facility has not ramped production up significantly for commercial quantities of batteries, investors will pay close attention to what the company says about the timeline to do so. EEEI has targeted revenue of $10 million for full-year 2007, and had previously said that it had begun to ship test samples of batteries to customers. Consolidated total net revenue for 2006 was $4.7 million, a 21% increase from the previous year. Shares ended the week at $1.20, unchanged.
Avicena Group, Inc. (OTCBB: AVGOE), a biotechnology company focused on diseases of the central nervous system, announced full year 2006 financial results. Revenue was just shy of $375,000 with a net loss of $5.8 million. While the company continues to advance its pharmaceutical candidates into later-stage clinical trials, investors should monitor performance of sales associated with business from Estee Lauder for Avicena’s proprietary cellular energy-based skin care products. Many milestones were accomplished throughout the year including a strengthened relationship with the National Institutes of Health (NIH) for the company’s Parkinson’s drug candidate PD-02, with patient enrollment currently underway for a Phase III trial being funded by the NIH. The company also completed patient enrollment for its Phase II trial evaluating ALS-08 for the treatment of Lou Gehrig’s disease and experienced clinical success for its Nurigene skin-care product and HD-02 candidate for the treatment of Huntington’s Disease in Phase I/II trials. Additionally, results were presented last week at the Academic Society’s Annual Pediatric Neurology Meeting in Toronto, indicating that the defective creatine transporter gene (SLC6A8) is present in autistic patients. Avicena, in collaboration with the Cincinnati Children’s Hospital Medical Center and the University of Cincinnati Medical Center, is already developing a model that will allow for the rapid screening of carriers and patients who exhibit the general characteristics associated with creatine transport defect (CTD). The market potential could be enormous for Avicena as the continued development of a screening model will enable the company to rapidly and more broadly screen not only patients that exhibit mental retardation, but also the incidence of CTD in other areas. Such areas include developmental delay conditions, learning disabilities and neurodegenerative diseases. Shares ended the week at $5.58, down 2 cents.
Volume Alert: VioQuest Pharmaceuticals Inc. (OTCBB: VQPH), a biopharmaceutical company focused on acquiring, developing and commercializing targeted cancer compounds, traded roughly 6.6 times average volume. Last week, MDB Capital, a West-coast based brokerage firm, raised its rating of VQPH to a “Buy†rating and a price target of $1.50. The analyst cited the fact that “Recently, several positive developments have substantially changed the value proposition in VQPH. While the company was always focused on building a robust oncology pipeline, strategic corporate changes and positive clinical developments, particularly with the AKt inhibitor, have intensified the oncology focus and added to the pipeline.” With the VQD-002 (VioQuest’s direct Akt inhibitor) market opportunity representing $800 million, positive initial data from the Phase I trials appears to have positioned the company to begin Phase II trials as soon as possible, likely later this year. Shares ended the week at $0.55, up 5 cents.
TitleMatch Entertainment Group, a subsidiary of Protocall Technologies Incorporated (OTCBB: PCLI), a leading provider of DVD on-demand systems for retailers and etailers, last week announced three new agreements with independent movie studios for approximately 200 films that will be made available through the TitleMatch DVD On-Demand service. Singa Home Entertainment, an independent film distributor that was founded by veteran film industry executives, Monarch Films, Inc., a producer and distributor of non-fiction content, and Troma Entertainment, the oldest continually operating fully independent movie studio in the world, will complement TitleMatch’s independent film archive, which the company expects to be an important part of future market strategy and revenue. Shares were unchanged for the week, to close at $0.12.
Google went live last week in the U.K., using VoIP, Inc. (OTCBB: VOII), a provider of turnkey Voice over Internet Protocol communications solutions for service providers, resellers and consumers worldwide, click-to-call technology. VOII receives a fee for each call that users make to connect to a merchant. Recently, the company said that it expected fiscal 2007 revenue to exceed $30 million and profitability prior to the end of the fourth quarter. Shares ended the week at $0.16.
GreenShift Corporation (OTCBB: GSHF), a company devoted to facilitating the efficient use of natural resources, announced last week the execution of letters of intent that provide for the design, construction and operation of twelve corn oil extraction systems and four biodiesel production systems at four separate ethanol production facilities in the Mid-Western U.S. If successfully converted into executed contracts, this would result in a total of about $80 million in process engineering and equipment sales and certain ongoing royalties for majority-owned process engineering company, GS CleanTech, and about $12 million in one-time equipment sales and about $30 million per year in ongoing biodiesel sales for GS AgriFuels, GreenShift’s majority-owned clean fuel production company. Shares ended the week at $0.03, down 1 cent.
IR BioSciences Holdings, Inc. (OTCBB: IRBO), a development stage biotechnology company, last week announced that preliminary data from its influenza vaccine adjuvant study indicates Homspera elevates host immune responsiveness above that induced by vaccine alone system. These results, from an on-going study being performed in conjunction with GenPhar Inc., suggest that IR Bio’s proprietary compound, Homspera, may be capable of augmenting host immune system responsiveness to vaccines for diseases such as pandemic avian influenza, seasonal influenza, and others for which vaccines exist or are under development. With vaccines against avian influenza not available in the volumes needed to inoculate a significant percentage of the world’s population, and reports of the most effective prophylactic or therapeutic drug not being stockpiled in amounts adequate to provide protection to the at-risk population, the need for adjuvants to provide the capability to maximize the number of individuals that can be treated with a limited amount of vaccine is tremendous, and should provide a catalyst for IR Bio’s shares. Shares ended the week at $0.17, up 1 cent.
i2Telecom International, Inc. (OTCBB: ITUI), a developer of ultra-portable high quality Voice-over-Internet Protocol products and services, last week announced the formation of a Joint Marketing and Licensing Agreement with Axcess Online. This collaboration combines the technological strengths of each company in the completion of an online Digital Communications Portal, creating a feature rich environment combining secure voice communications with search engine functionality, IPTV, music and video downloads, unified messaging, IM chat, among others. The company said that its secure voice communications platform and technology, when used with AxCess’s portal engine platform and technology, should provide a world-class converged solution for delivering data and voice communications to large enterprise customers. Gross profits will be split 75/25 in favor of the company that originates the customer. Shares remained unchanged for the week to close at $0.14.
MBI Financial, Inc. (OTCBB:MBIF), a rapidly expanding national financial services company, announced last week the addition of new or increased warehouse lines from four financial institutions, allowing MBI Mortgage, Inc., its wholly owned subsidiary and mortgage banking operation, to fund over $32 million in new mortgage loans. This funding, in the midst of the country’s current sub-prime woes, demonstrates the lenders’ satisfaction with MBI Financial’s rigorous underwriting standards, and will increase the company’s profitability as a result of the higher loan volume. MBI Financial currently has operations in four states, and is expected to be licensed in an additional 24 states by the end of 2Q 2007. Shares closed at $0.42, unchanged for the week.
Neutron Enterprises, Inc. (OTCBB: NTRN), a developer of digital media solutions, announced last week that Forbes.com had selected Neutron’s Atlanta-based subsidiary Stock-Trak to deliver the technology and infrastructure for the Forbes.com “Fast Million Stock Portfolio Challenge” as a private label. Forbes.com, the No.1 business news source in the world, said the challenge, launched April 17, offers such prizes as $20,000, and a three-day cruise aboard the Forbes yacht Highlander. The competition is slated to get under way on May 17, after the registration period has ended. Shares closed at $1.60 for the week, down 7 cents.
Volume Alert: OXIS International (OTCBB: OXIS), a biopharmaceutical company focused on commercializing predictive biomarkers, clinical assays and nutraceutical and therapeutic products, traded over 3.1 times average volume after the company announced last week that its lead antioxidant compound L-ergothioneine (ERGO) increased viability by 15-20% in pre-clinical and clinical studies of sperm cells undergoing freezing and thawing. The experiments were designed by Lisa Metcalf, MS DVM Diplomate, American College of Theriogenology, and current Oregon Veterinary Racing Commissioner. ERGO is a naturally occurring antioxidant that is abundant in most plants and animals, but cannot be synthesized by humans. OXIS International was the first company to develop a patented, synthetic process for the manufacture of pure ERGO. The results indicate that ERGO has significant potential in the area of fertility, and other applications where cell preservation is critical, such as stem cells, sperm cells, oocytes (ova), chondrocytes (cartilage), and cell cloning. The company has filed protective patents to cover these potential new applications. Shares closed at $0.29 for the week, up 7 cents.
Independent energy exploration and development company Petrol Oil and Gas, Inc. (OTCBB: POIG), announced last week that President and CEO Paul Branagan retired as an officer and director, and that Loren Moll, the current Chairman was appointed by the Board to serve as interim President and Chief Executive Officer. The company also announced the resignation of director Suzanne Herring, as well as other changes made to enhance corporate governance. Petro Oil and Gas also reported that Stinson Morrison Hecker LLP, has been appointed new legal counsel. Additionally, the company reported last week that Kenton L. Hupp, a licensed petroleum engineer, and Stephen P. Clark, CPA, have been engaged as consultants to assist the Company’s operating management team. Both bring to Petrol Oil & Gas over thirty years of experience in their respective fields. Shares ended the week at $0.39, up 8 cents.
Cell biology company Stem Cell Innovations, Inc., (OTCBB: SCLL), last week announced an agreement with Denmark-based H. Lundbeck A/S, to examine hepatic metabolism of a set of Lundbeck compounds using StemCell’s proprietary C3A human liver cell-line. The C3A cell-line, originally developed for use in an artificial liver, exhibit a wide variety of human liver functions and are ideal for use in examining the effects of new drugs on the human liver, with a decreased likelihood of causing liver toxicity. This agreement, coupled with recent favorable patent rulings strengthening the company’s IP portfolio, should provide some bullish optimism for investors. Shares ended the week at $0.04, down 1 cent.
On the Wires: Auriga Laboratories, Inc. (OTCBB: ARGA) announced that it has appointed Elliot M. Maza to its Board of Directors. Mr. Maza is currently President and CFO for Intellect Neurosciences, Inc., and has extensive experience in the pharmaceutical and drug development industries. He was also appointed Chairman of the company’s Audit Committee.