Companies featured in the current edition of the newsletter: CETG, CHIP, CNLG, CVM, ENZ, ETGF, FMTI, GCEH, GNBT, HYTM, ITUI, MBND, MNDL, PLKH, SRRY, TAGS, TKO, XCR
There was little safe haven for investors last week as the market lost more ground due to a number of disappointing earnings reports and concerning economic releases. All of the major indices traded lower for the week as the Dow lost 446 points for the week, extending its annual loss to 35.9%. The Nasdaq fared no better, losing 131 points and increasing it year-to-date decline to 42.8%. The S&P dropped 58 points, equating to a yearly loss of 40.5%. The Russell 2000 lost 49 points, giving it a 40.4% deficit for the year.
Wall Street saw more losses over the past week as increasingly dire economic reports and corporate outlooks confirmed that the global economic slump is now hitting most industries. Hopes about consumer spending faded after a steeper than expected 2.8% drop in retail sales in October, weak outlooks from Best Buy and JC Penney. Similarly, a dire outlook from chipmaker Intel negatively impacted the technology sector. Corporate earnings are now heavily weighing on equities as Q4 earnings for S&P 500 companies are now expected to be down 18.4% from a year ago, compared with expectations for a drop of 13% just last week, according to Thomson Financial. In other economic news, weekly jobless claims reached a 25-year high of 516,000. Additionally, the G20 is meeting this weekend to discuss the global economy and while little concrete global action is expected, the stage could be set for further announcements from G20 governments and central banks after China announced a $586 billion economic stimulus package last Monday.
What should investors look for this week? The Earnings calendar will slow down with Lowe’s Cos. (NYSE: LOW) and Target Corp. NYSE: TGT) expected to report earnings Monday morning. Home Depot (NYSE: HD) and Medtronics (NYSE: MDT) will announce earnings before the opening bell on Tuesday. Dell (NASDAQ: DELL) and Gap Inc. (NYSE: GPS) will report on Thursday after the close. On Friday morning, look for results from HJ Heinz (NYSE: HNZ).
The economic data expected next week begins with the NY State Empire Index for November at 8:30 a.m. on Monday, with Industrial Production and Capacity Utilization for October coming at 9:15 a.m. Look for October PPI and Core PPI at 9:30 a.m. and September Net Foreign Purchases at 10:00 a.m. on Tuesday. CPI, Core CPI, Building Permits, and Housing Starts for the month of October will all released Wednesday morning at 8:30 a.m., while FOMC minutes from the latest meeting of the Fed will follow later that day at 2:00 p.m. On Thursday, weekly Initial Jobless Claims will be released at 8:30 a.m., followed by the Leading Indicators for October and the Philadelphia Fed Index for November at 10:00 a.m.
The conference schedule for the week kicks of with the two-day Goldman Sachs and Deutsche Bank Securities Gaming Investment Forum taking place in Las Vegas beginning on Monday. Also on Monday, Canaccord Adams will host its three-day Global Energy Conference in Miami; while it also holds it Cardiovascular Conference in New York on Tuesday. Enzo Biochem (NYSE: ENZ) will present at the two-day Lazard Capital Markets Healthcare Conference which begins on Tuesday in New York. The three-day UBS Global Technology and Services Conference will begin on Tuesday in New York. Similarly, Morgan Stanley will host its three-day Global Consumer & Retail Conference in New York beginning on Tuesday. Oppenheimer & Co. is set to host its two-day Mid and Small Cap ‘Best Ideas’ Conference in New York also beginning on Tuesday. Credit Suisse will host a one-day Insurance Conference in Boston on Tuesday, a two-day Aerospace & Defense Conference in New York starting on Wednesday, and a U.S. Natural Gas Research Dinner in Houston on Thursday night. Bank of America three-day 2008 Credit Conference will start on Wednesday in Orlando.
Multiband Corporation, (NASDAQ: MBND), the nation’s largest DIRECTV Master System Operator for Multiple Dwelling Units, announced record 2008 third quarter financial results for the period ended September 30, 2008. The quarter was by far the most profitable in the company’s history. Multiband recorded revenue of over $12.3 million, an increase of 238% compared to nearly $3.7 million for the comparable quarter in 2007. Revenue increased as a result of organic growth and the acquisition of Michigan MicroTech (from DirecTECH Holding Company) in March 2008, offset by strategic sales of previously-owned subscriptions that were unprofitable. The company generated net income of $0.85 million, compared to a net loss of $3.7 million in Q3 2007. Furthermore, Multiband is on solid financial ground with over $11 million in cash as of the end of September. Also, while the aforementioned acquisition of Michigan MicroTech has already led to substantial improvements in company’s financial results, investors should keep in mind that Multiband now intends to acquire the balance of DirecTECH’s operating businesses which will further improve Multiband’s financial performance. When the two companies first discussed a proposed merger last year, it was believed that combined revenues would exceed $200 million with significant operational efficiencies resulting from the combination, but investors will be able to learn more current details about this acquisition when the company holds its third quarter conference call on Monday at noon. We believe that the current downturn, which could cost consumers to spend more time at home, could serve as a catalyst for the company’s buinsess. Shares closed at $1.55, up 25 cents for the week.
Drug delivery company Generex Biotechnology Corporation (NASDAQ: GNBT) launched its flagship oral insulin product, Generex Oral-lyn, in India in partnership with the company’s local licensee Shreya Life Sciences. Oral-lyn is already approved for commercial sale in India for the treatment of both adults and children with Type 1 and Type 2 diabetes and the product will be marketed in the country under the brand name Oral-Recosulin by Shreya’s sales force of over 1,000 representatives. Additionally, Shreya will implement a continuing medical education program to introduce Oral-Recosulin to local doctors and expects that the product will eventually be available in more than 2,500 pharmacies in the country. This is an important milestone for the company as diabetes is reaching epidemic proportions in India, with over 40.8 million diagnosed patients and an estimated 35.9 million additional people with pre-diabetic conditions. Investors should also remember that Generex Oral-lyn is currently in the middle of a pivotal Phase III trial in the United States, Canada, Bulgaria, Poland, Romania, Russia, and Ukraine and therefore positive experience in India is likely to raise the company’s profile among doctors and patients around the world. Moreover, investors ought not to forget about GNBT’s Antigen Express subsidiary as was recently pointed out in a research report by Scimitar Equity entitled Breaking-out the Sum of the Parts: Antigen Express’ Novel Cancer Immunotherapy Emerges as a Jewel. Antigen Express’ technology has been applied to a number of immunotherapeutic clinical candidates focusing on breast, prostate and other novel cancer vaccines as well as avian flu and other prophylaxis vaccines. The research report estimates the total fair valuation of GNBT at $6.71 per share. Similarly, the company demonstrated its own belief that the market is currently undervaluing its shares by electing to make the next payment under its senior secured convertible notes in cash instead of issuing shares at current levels. This can be interpreted as a significant show of confidence from the management team. The stock ended last week unchanged at $0.35.
Volume Alert: Shares of medical device company Xcorporeal, Inc. (AMEX: XCR) surged higher last week on roughly 5 times average volume after the company said that it plans to introduce the smallest, lightest, and easiest to use dialysis machine ever conceived as it announced the XCR-6 Dialysis Platform for self-directed kidney hemodialysis. Xcorporeal is preparing for unattended/home use clinical trials of the XCR-6 in anticipation of commercialization in the near future. The company is extremely excited to announce the XCR-6 since it estimates that the home hemodialysis market represents a multi-billion dollar revenue opportunity. Meanwhile, the XCR-6 offers significant improvements over currently available equipment used by patients with chronic renal failure as the XCR-6 uses a very small amount of tap water, requires no special plumbing, runs on standard household electricity, is the size and weight of a small household appliance, and is easy to use and maintain. This new machine has the potential to finally make home-based dialysis a reality for millions of patients worldwide. Shares ended the week at $0.41, up 11 cents.
Capital City Energy Group, Inc. (OTCBB: CETG), a diversified oil and natural gas company with three separate divisions, announced financial results for the period ended September 30, 2008. The company reported that consolidated revenues increased to $2,005,957 during the first nine months of 2008, compared to revenue of $28,817 during the first nine months of 2007. Total net oil and gas production realized from principal investments was 10,439 barrels of oil and 63,136 thousand cubic feet of natural gas for the first nine months of 2008. Production for the same period of 2007 was 83 barrels of oil and 2,449 thousand cubic feet of natural gas. The stock declined by $0.10 for the week, to close at $2.10.
VeriChip Corporation (NASDAQ: CHIP), a provider of radio frequency identification systems for healthcare and patient-related needs, announced that its former Chairman and Chief Executive Officer, Scott R. Silverman, has purchased a controlling interest in the company from Digital Angel. In a separate transaction, the company has also purchased from Digital Angel all patents related to an embedded bio-sensor system for use in humans and any rights under a development agreement associated with the development of an implantable glucose-sensing microchip. Mr. Silverman, who will re-assume the role of Chairman of VeriChip’s Board of Directors and will oversee the day-to-day operations of the company, plans to reignite the VeriMed Health Link business including the patient, hospital and physician outreach activities. Furthermore, VeriChip will continue the development of the glucose-sensing microchip in conjunction with RECEPTORS LLC and intends to provide updates in the near future on the results of Phase I development of this glucose sensor. By purchasing a controlling interest in the company, Mr. Silverman strongly demonstrated his belief in the yet untapped potential of the company and its technology. The stock rose by $0.03 for the week, to close at $0.34.
Conolog Corporation (NASDAQ: CNLG), an engineering and design company that provides digital signal processing solutions to global electric utilities, announced that shipments for the month of October 2008 totaled $214,000, representing an increase of 180% compared to shipments for the month of October 2007. Such strong growth is proof that Conolog’s products are gaining market acceptance and should continue in the near future as the company looks to expand its marketing and production efforts while it gets ready to introduce the new CM-100 multiplexer product by the end of 2008. Shares ended the week at $0.43, up 1 cent.
CEL-SCI Corporation (AMEX: CVM), a company engaged in research and development of drugs and vaccines used in the treatment of cancer, presented new data at the 6th Annual GTCbio Vaccine Conference that indicates that CEL-2000, the company’s rheumatoid arthritis treatment vaccine, prevents or retards the permanent tissue damage caused by arthritis. The long-term results obtained from animal studies with CEL-2000 were in line with those seen with Enbrel, a leading arthritis treatment sold by Amgen and Wyeth with U.S. sales in 2007 of $3.2 billion. Meanwhile, CEL-2000 may offer a number of potential advantages over existing arthritis treatments such as Enbrel, including the need for fewer treatments, significantly lower expected cost, and potential use by patients who are unresponsive to existing anti-arthritis therapies. Shares lost 1 cent last week to close at $0.26.
Element 21 Golf Company (OTCBB: ETGF), the manufacturer of advanced Scandium Alloy golf and fishing equipment, announced results for its fiscal first quarter ended September 30, 2008. The company, once again, demonstrated impressive improvements in both its revenue growth and expense controls. Revenue for the quarter increased to approximately $555,000, an increase of 323% year over year, demonstrating strong growth momentum expected to continue in the near future. On the cost control front, the company was able to reduce general and administrative expenses by 5.7% during Q1 2009 while leveraging existing marketing relationships to capitalize on significant growth opportunities. Despite a challenging economic environment, management remains confident that the company’s ability to deliver a unique experience for the golfer and fisherman will allow ETGF to continue its rapid growth as it strives to reach profitability. Shares closed at $0.33, down 9 cents for the week.
Forbes Medi-Tech Inc. (NASDAQ: FMTI), a life sciences company focused on evidence-based nutritional solutions, announced its results for the third quarter ended September 30, 2008. Total revenues for the quarter decreased to approximately $2 million from nearly $2.4 million during last year’s quarter. However, net loss improved to $0.13 per share compared with a net loss of $0.65 per share for same period last year. The company continues to be focused on developing its nutraceutical business and has completed the sale of its pharmaceutical assets in San Diego in August 2008. Additionally, Forbes continued to expand its Reducol product portfolio during the most recent quarter, including launching a processed cheese slice in Finland and a new yogurt drink in Uruguay, as well as showcasing an innovative frozen fudge bar novelty at trade shows in the U.S. Reducol is a plant sterol blend which has been clinically shown to lower LDL or “bad” cholesterol levels safely and naturally. The company is currently working with certain customers to create higher value products and expects these products to result in increased revenues and margins in 2009. Shares gained 3 cents last week to close at $0.28.
Global Clean Energy Holdings, Inc. (OTCBB: GCEH), a renewable energy company in the biofuels industry, released its financials for Q3 ended September 30, 2008. Global Clean Energy is a development stage company, and has not had significant revenues from its operations or reached the level of planned operations. The company discontinued prior bio-pharmaceutical operations during March 2007 and in September 2007, commenced operations in its new Jatropha business, but is still in the pre-development agricultural stage of operations and, therefore, does not anticipate generating significant revenues from the sale of bio-fuel products until 2009. However, GCEH is attempting to generate cash flows in 2008 from the forward sale of carbon credits and possibly from future oil delivery contracts. To this end, the company recently entered into a binding term sheet with a leading international carbon offset provider for the forward sale of $1 million worth of certified carbon offsets, which are required to be generated from the company’s Jatropha farms in Mexico. The $1 million purchase price will be paid in four installments as certain Jatropha planting milestones are met and GCEH anticipates that the first payment will be received in the first quarter of 2009 while remaining payments will be earned within 12 months thereafter. In addition, in October 2008, GCEH acquired a 400 acre Jatropha plantation and operation in Belize, which is expected to generate a small amount of revenues on a monthly basis in the future. Shares were up 0.5 cent last week, closing at $0.035.
i2Telecom International, Inc. (OTCBB: ITUI), a developer of award-winning patented and innovative high-quality Voice-over-Internet Protocol products and services, announced third quarter results for the period ended September 30, 2008. While revenues for Q3 2008 decreased to $163,904 from Q3 2007 revenues of $242,300, the company continues to position itself to become a worldwide leader in the rapidly growing international telephony and content delivery space, especially on cell phones. ITUI’s combined offering of its MyGlobalTalk service along with MyGlobalTalk SIM card capabilities offers customers a true “Call Global, but Pay Local†value proposition with savings of up to 90% on long distance costs when using their cell phones to call from anywhere to anywhere else in the world. The stock fell $0.01 for the week, to close at $0.06.
ProLink Holdings Corp. (OTCBB: PLKH), the world’s leading provider of Global Positioning Satellite golf course management systems and digital out-of-home on-course advertising, filed financial results for its third quarter ended September 30, 2008. Total revenue for Q3 2008 was approximately $5.7 million, representing a 13.7% decline from last year’s period that was mainly the result of decreases in international sales and upgrades. International sales suffered after the relationship with the company’s international distributor, Elumina Iberica, was terminated in February 2008. Nevertheless, the company expects international sales to increase in the coming quarters as it has recently established relationships with new international distributors in France, Spain, Portugal, and South America as well as opened an office in the United Kingdom to serve markets in England, Scotland, Ireland and Wales. Just last week, the company announced that its exclusive South America distributor, Total News Golf, will install the ProLink GPS system at Argentina’s Pilar Golf Club. Ranked among the continent’s top courses, Pilar Golf Club is famous for its world-class amenities and will now become the first course in South America to feature ProLink’s industry-leading GPS system. Additionally, ProLink recently announced an expanded nationwide sales agreement with National Advertising Partners (NAP), the Fox-owned sales unit that represents sports networks across the country. Under this agreement, NAP plans to sell national advertising on ProLink GPS screens as part of integrated advertising programs that will include digital out-of-home, television, Internet and other advertising vehicles. The partnership with NAP could prove to be highly rewarding for ProLink once the new advertising programs are introduced in 2009. Shares ended the week at $0.10, down 8 cents.
Sancon Resources Recovery, Inc. (OTCBB: SRRY), a rapidly growing Chinese environmental services and waste recycling company, filed its quarterly 10Q report the period ended September 30, 2008. Sancon reported record quarterly revenue of approximately $3.9 million, representing a 189% increase from a year-earlier period. The company also reported improved gross margins of 46.1% for the quarter versus 31.6% a year ago, reflecting a more favorable mix of business. As was expected, this was the company’s third consecutive quarter of profitability with net income improving to $441,862, or $0.02 per share, compared to $77,514 in the year ago quarter. Company’s management will hold a conference call on Monday at 11 a.m. Shares ended the week at $0.32, down 1 cent.
Tarrant Apparel Group (NASDAQ: TAGS), a design and sourcing company for private label and private brand casual apparel, reported financial results for the third quarter of 2008. Net sales were $56.0 million, a 20% decrease compared to the same period in 2007. Private Brands sales decreased 15% to $10.2 million in the 2008 third quarter while Private Label sales for this quarter decreased 21% to $45.8 million. The decrease in Private Brands sales was primarily due to lower sales of the American Rag brand to Macy’s whilst the Private Label division suffered from an overall poor retail environment. While Tarrant continues to face a difficult retail environment, the company is taking cost cutting measures in an effort to improve its efficiency. Furthermore, Tarrant continues to evaluate the previously announced proposal of a management buyout and the company hopes to come to a conclusion in the near future. Shares ended the week at $0.46, down 5 cents.
Telkonet, Inc. (AMEX: TKO), the leading provider of innovative, centrally managed solutions for integrated energy management, networking, building automation and proactive support services, continued its impressive growth as the company reported Q3 results. Total revenue for the quarter was $5.7 million, an increase of 24% compared to 2007 third quarter, while gross margins improved to 39%, compared to 27% in the prior-year period, and 34% in the second quarter 2008. Even as some of Telkonet’s customers had to delay the implementation of its solutions due to uncertain economic conditions, the company continues to strive towards achieve its goal of operating cash flow break-even by the end of the year. Telkonet made significant strides toward this goal during the most recent quarter as it reduced its EBITDA loss to $(0.4) million in Q3 from $(1.2) million in Q2 and $(2.0) million in Q1. The fact that the company is able to continue posting impressive revenue growth despite the current economic backdrop is a testament to the near-term return that its energy solutions deliver customers. Shares rose 9 cents to finish the week at $0.25.
On the Wires: Hythiam, Inc. (NASDAQ: HYTM) appointed Maurice Hebert, CPA to the position of Chief Financial Officer. Mr. Hebert previously served as the company’s Vice President and Controller. Hythiam also added Greg McLane as Senior Vice President, Sales and Marketing. Mr. McLane, who previously was Vice President of Corporate Marketing for Magellan Health Services, will now be responsible for the company’s sales and marketing efforts to capitalize on the strong interest it has seen in its Catasys integrated substance abuse program.
SPECIAL SITUATIONS:
Mandalay Media, Inc. (OTCBB: MNDL) $1.00
It appears that we, as a society, can no longer survive without our cell phones, or more accurately, our mobile devices. The past couple of years have witnessed a transformation of the wireless industry from basically offering handheld cellular phones which we simply used to make or receive an occasional call to now offering true multifunctional devices that utilize the latest technology to simplify our everyday lives as well as make them a little bit more entertaining. Mobile devices can now be used for virtually anything, ranging from text and email messaging to watching highlights from your favorite team’s game to checking stock quotes and sending order to your broker to listening to your favorite music to obtaining real-time driving directions, and the list goes on and on. Of course good, old-fashioned phone calls are also as easy as ever.
So while this new breed of mobile devices is definitely packed with a great deal of functionally and applications, thorough-thinking investors may ask themselves: Who actually produced the games on my phone? Or, how does this TV show actually get to my device? This is where Mandalay Media, Inc. comes in. MNDL’s mission is to build a unique combination of new media distribution and content companies throughout the world. To this end, MNDL merged with Twistbox Entertainment in February 2008. Twistbox has direct on-deck distribution with over 100 mobile operators (such as Verizon, T-Mobile, Orange, Alltel, and Vodafone), operates in more than 40 countries and has products and services including video rich WAP sites, mobile TV and in-house developed mobile games that reach more than one billion handsets.
But while Twistbox is the foundation for Mandalay Media’s mobile and interactive offerings, MNDL wasted little time in its efforts to become a global digital media company and in October 2008 acquired AMV Holding Limited, a European leader in direct-to-consumer mobile Internet content and services. AMV will shortly be integrated with Twistbox, and the combined company will employ over 200 people, with offices in the Unites States, United Kingdom, Germany, Poland, Russia, Mexico and Brazil. The combination of Twistbox’s global on-deck distribution with AMV’s direct-to-consumer expertise uniquely positions Mandalay Media to deliver compelling consumer propositions while maximizing revenues for its wireless operator and content partners. Twistbox and AMV have a combined distribution and reach in excess of 1.2 billion mobile devices. On a monthly basis, the company’s current services and destinations represent a growing base of more than three million mobile subscribers and in excess of 100 million page views.
At this point, investors may be intrigued by Mandalay Media’s compelling story, but what about the company’s investment merits? It turns out that the company expects to record in excess of $30 million in revenues during the six-month period from October 2008 through March 2009 (which is the second half of MNDL’s fiscal year). During the same period, EBITDA (excluding stock option expense) is expected to come in at roughly $4 million. Such expectations were based purely on historical operating results for both AMV and Twistbox and do not include any impact from the anticipated operating efficiencies or synergies of the combination. As a result, here’s a company with expected annual revenues of $60 million and expected EBITDA of $8 million, but its current market capitalization is still under $40 million. Even during the current value-oriented investment environment, investment opportunities with a projected price-to-sales ratio of 0.7 and an EBITDA multiple of 5 don’t come very often. Accordingly, investors may benefit from taking a closer look at Mandalay Media’s investment proposition.
