11/26/2006
VOLUME 265
Companies featured in the current edition of the newsletter: CDSS, EEEI, ENZ, FLWE, FMTI, IMMG, ISON, NTST, OXMI, SFP, TEGRE
With investors increasingly turning to year-end activities like the key holiday shopping period, the market turned in a mixed performance last week during the holiday-shortened Thanksgiving week. With few economic or earnings reports, activity was muted, with the Nasdaq turning in the best performance. The Dow ended the week down 62 points, reducing its year to date gain to 14.6%. The S&P 500 was also down nominally for the week, decreasing its year to date gain to 12.2%. The Nasdaq ended the week up 14 points, increasing its year to date gain to 11.6%, while the Russell 2000 finished the week up 3 points, increasing its year to date gain to 17.7%.
One area that appears to be supporting gains in the market has been a high level of merger and acquisition activity. Last week, the Nasdaq made a bid for the final portion of the London Stock exchange that it did not own and Freeport-Morgan made $26 billion dollar bid for Phelps Dodge. Already this year, Special Situation companies Netsmart Technologies (NASDAQ: NTST) and Citadel Security Software (OTCBB: CDSS) have been subject to takeover offers, and Salton, Inc. (NYSE: SFP) has essentially put itself “in play” through the announcement that it had entered into negotiations to sell itself to one of its largest investors, suggesting that the merger frenzy has not been the exclusive domain of larger companies. With private equity investors aggressively pursuing targets at unprecedented valuations, further activity could support additional gains for stocks.
With stocks declining the day after Thanksgiving for the first time in 15 years on concerns about a sharp drop in the dollar, what does the rest of the year portend for equities? Certainly, the key elements that have supported robust gains in the market this year will continue to remain a focus for investors…energy and interest rates. Last week, crude rose slightly less than $1, and with warm weather throughout much of the country this week, supplies should remain abundant. Likewise, the interest rate environment is expected to remain benign, with only a December 12th Fed Meeting left for the year. Expectations are that rates will remain unchanged. While these factors should help underpin stocks, stocks could experience a short-term pullback in light of frothy sentiment indicators. The VIX closed below 10 last week for the first time in 14 years.
What should investors look for in the upcoming week? There will be few companies posting results that have the ability to impact the market. Expect to see results from Tiffany & Company (NYSE: TIF) Wednesday before the bell. Earnings announcement activity will pick up slightly on Thursday with announcements from Del Monte (NYSE: DEL), Dollar General (NYSE: DG), and HJ Heinz (NYSE: HNZ). Warner Music Group’s (NYSE: WMG) before the bell announcement on Friday will close out the week for earnings reports.
With the Thanksgiving holiday over, the economic calendar will be busier this week. The activity is all about spending and begins Tuesday beginning with the announcement of October Durable Orders before the market opens. Announcements for November Consumer Confidence and October Existing Home Sales will come in mid-morning Tuesday. Investors can expect to see the preliminary announcements for the Q3 GDP and Chain Deflator before the bell Wednesday and October New Home Sales, along with weekly Crude Inventories, will be announced mid-morning Wednesday. The most notable announcement for Wednesday will be the release of the Fed’s Beige Book following the close of the market. It will be an active Thursday morning with before the bell announcements of both October Personal Spending and Personal Income, as well as the weekly Initial Unemployment Claims. Investors can expect to see announcements for the November Chicago PMI and the October Help Wanted Index mid-morning Thursday. November Truck and Auto sales will be announced at midnight on Friday. Look for Friday morning announcements for October Construction Spending and the November ISM Index.
The conference schedule ramps up next week with the two-day Gold and Precious Metals Investment Conference in San Francisco beginning Sunday. The two-day FBR Investor Conference at the Grand Hyatt New York, as well as the two-day CIBC World Markets Mid and Small Cap “Best Ideas” Conference at the Millennium Broadway Hotel in New York will begin Tuesday. The four-day Credit Suisse Annual Technology Conference in Scottsdale, the two-day Merrill Lynch Health Services Investor Conference in New York, the two-day JP Morgan Consumer and Retail Conference in New York, and the two-day Lazard Third Annual Life Sciences Conference at the New York Palace Hotel, also begin Tuesday. Enzo Biochem, Inc. (NYSE: ENZ) will present Tuesday at 4:30 p.m. Piper Jaffray is scheduled to hold its 18th annual Healthcare conference in New York. The three-day conference begins Wednesday. Other Wednesday conferences include the two-day Bear Stearns Commodities and Capital Goods Conference in New York. The conference schedule for the week wraps up Thursday with the single-day Calyon Securities US Utilities and Energy Merchant Conference in New York.
With the calendar turning towards December, Forbes Medi-Tech (NASDAQ: FMTI), a life sciences company focused on the prevention and treatment primarily of cardiovascular disease, is expected to report results from its Phase II trial of its cholesterol-lowering drug, FM-VP4 shortly, as topline results from this trial are expected to be released within the first two weeks of December. The primary efficacy objective of this trial is to determine the effect of two doses of FM-VP4, 450mg and 900mg, given for 12 weeks, compared to placebo, on low density lipoprotein-cholesterol (LDL-C). The goal of this trial is to demonstrate a minimum of 15% reduction from baseline in LDL-C at Week 12. FM-VP4 is part of the fastest growing category within the anti-dyslipidemics market called cholesterol absorption inhibitors (CAIs). CAIs are less potent than statins, but can provide enhanced safety as well as a synergistic efficacy in combination therapy. Sales of Merck/Schering’s product Zetia® exceeded $1.4 billion in 2005, despite its launch just two years ago. Some may recall that shares of FMTI soared to $8.67 in March, 2004 as investors anticipated favorable results from the first Phase II trial of FM-VP4 conducted in Europe. However, shares lost more than half of their value in early April of that year, after the company said that the reduction in LDL cholesterol, as compared to placebo, was 11%, making it inferior to Zetia. 33% of the subjects given 400 mg per day achieved a greater than 15% LDL reduction. Additionally, the time-response to FM-VP4 indicated that LDL cholesterol levels may continue to decrease when given to patients for longer than 4 weeks, the duration of the completed trial, and that optimal efficacy may not have been achieved in the first trial. If data from the first study proves correct, than the current double-blind study, which is for a longer time period (12 weeks versus 4) and at higher dosage levels (450/900 mg compared to 200/400/800 mg) than the previous one, could lead to a superior result. Shares ended the week at $2.10, down 20 cents.
Volume Alert: Shares of Isonics Corporation (NASDAQ: ISON), a developer of innovative solutions for the homeland security and semiconductor markets, surged 30% on more than 5 times average volume after the company announced that it expects to report unaudited revenue for its semiconductor products and services segment of approximately $3.5 million for the quarter ended October 31, 2006. This represents a 188% increase compared to the quarter ended October 31, 2005. Isonics also announced last week that the company’s partner DualDraw LLC has placed a purchase order for the upgrade of six of DualDraw’s AirCHX mail inspection workstations. The workstations at various federal government facilities will be upgraded with chemical and explosive capabilities using Isonic’s ion mobility spectroscopy instruments. The first two AirCHX upgrades have been completed and the remaining four units are scheduled for installation during the remainder of November. The IMS-equipped AirCHX workstations are able to identify homemade explosives, toxic chemicals and chemical warfare agents. Isonics is confident in the ability of the company’s “sniffer” technology to create an additional level of security for a variety of products, including personal portals and x-ray baggage technology. The order represents the first significant sales of Isonics’ homeland security products to protect federal government facilities. Shares ended the week at $0.80, up $0.20.
Electro Energy, Inc. (NASDAQ: EEEI), a developer and manufacturer of advanced rechargeable batteries, posted improved third quarter results for the period ended September 30, 2006 last week. The company reported revenue of $1.2 million a 26.1% increase versus the year earlier period. Net loss for the third quarter was $1.4 million or $0.06 loss per share, compared to a loss of $0.7 million or $0.05 per share for the same period in 2005. Adoption of SFAS 123 for stock-based compensation resulted in a non-cash expense of $247,084 in the third quarter. The third quarter net loss was primarily a result of increased research and development expenses associated with the company’s application for its proprietary bipolar nickel metal hydride batteries to hybrid electric vehicles and plug-in hybrid electric vehicles, the company’s preparation for manufacturing operations of the Gainesville, Florida Facility and bipolar lithium for advanced military applications. With a significantly stronger infrastructure, the company is now well positioned to support higher levels of sales. The stock ended the week up 27 cents at $1.54.
Netsmart Technologies, Inc. (NASDAQ: NTST), a leading provider of enterprise-wide software for health and human services organizations, announced that it entered into a definitive agreement to be acquired by Insight Venture Partners and Bessemer Venture Partners. The transaction is valued at approximately $115 million. The board of directors of Netsmart, acting on the unanimous recommendation of a special committee of independent directors, approved the agreement and will recommend that Netsmart’s stockholders approve the merger. Under the terms of agreement, Netsmart Technologies shareholders will receive $16.50 in cash in exchange for each share of Netsmart stock. Members of the executive management team of the Netsmart will take part in the ownership of the company. The company believes that the deal will permit it to better balance for anticipated growth, both naturally and through the acquisition. This will also provide the company with easier access to resources for pioneering product development and technology innovations to better serve customers. The deal is expected to close in early 2007. The company also announced last week that it has signed a contract with the State of Iowa Department of Human Services totaling nearly $2.5 million over a six-year period to provide an integrated behavioral health information system for six DHS facilities. Netsmart’s CCHIT CertifiedAvatar 2006 software will replace the census, billing, clinical, and scheduling and reporting modules of a State of Iowa DHS legacy software system. The contract also includes professional services for project management, implementation services, data conversion, training and access to extensive clinical information from the Wiley Treatment Planning Libraries via Avatar Clinician Workstation. Avatar is an integrated behavioral software solution. The stock ended at $16.24, up $1.54 from last week.
Oxford Media, Inc. (OTCBB: OXMI), a leading developer of scalable, turnkey hybrid digital VOD and PPV entertainment systems, announced last week third quarter results for the period ended September 30, 2006. Oxford had revenue of $5,667,790, a 176.6% increase compared to $2,049,287 for the same period in 2005. The increase in revenue was primarily due to the acquisition of SVI. Gross profit increased by 403% from $0.6 million in the 2005 third quarter to $3 million in the 2006 third quarter. The Company lost $0.9 million as compared with $2.2 million for the preceding quarter. Shares ended the week at $0.36, down $0.03.
Terra Energy & Resource Technologies, Inc. (OTCBB: TEGRE), an energy technology company that combines satellite-based technology with traditional exploration services, which does business through Terra Insight Corporation, its wholly owned subsidiary, announced that Terra Insight delivered its first stage STeP report on a 1,000,000 acre oil and gas exploration project in Eastern Turkey, pursuant to a service contract with Calik Enerji Sanayi ve Ticaret, A. S. The agreement provides for the company to receive a 20% working interest in the project, as well as undiscounted rates to be paid out of future returns of the project. Under the contract, Terra Insight is providing studies of the area of interest, for identification of prospective drilling sites and mapping of hydrocarbon anomalies using proprietary STeP technology. The company believes that the role of its STeP technology in the search for gas and oil, as well as other minerals, without depth limitations, will become increasingly recognizable to leading oil and gas exploration companies. Shares ended the week at $0.27, down $0.02.
IMPART Media Group, Inc. (OTCBB: IMMG), an innovator in the creation of out-of-home digital advertising content and information network management, announced a 16% increase in revenue to $1.7 million during the three months ended September 30, 2006. The increase was primarily due to higher media services revenues of $659,000 derived as a result of the company’s acquisition of E&M Advertising, Inc. and its affiliates in February 2006 and increased recurring revenues of approximately $90,000 from the acquisition of Media SideStreet Corp. in June 2005. This was offset by a decrease of $462,000 in revenue from sales of commodity, audio-video equipment. The decrease of $462,000 in revenue was primarily due to a shift in Impart’s long-term business strategy, which was implemented in the third quarter of 2005. The E&M Advertising business unit showed its best performance to date, with gross billings of approximately $6.6 million. The stock ended the week down a penny at $0.52.
Junior energy company Fellows Energy Ltd. (OTCBB: FLWE) announced that the company, with its 50% joint venture partner Thunderbird Resource Corp, had successfully completed a considerable portion of the second phase of its workover operations on its Carbon County project. Fellows’ preliminary work, which began in early May, on the GCS 1A-18-14-8 and the GCS 1-19-14-8 wells doubled production from approximately 20 million cubic feet per month at the time of the acquisition in March to 40 million cubic feet per month beginning in July. With the second phase of workovers nearly completed, it is estimated that field production could increase in excess of 60 million cubic feet per month. Preliminary reserve report estimates by the independent engineering firm of MHA & Associates have assigned a total of 7.46 billion cubic feet of gas to proven reserve categories, as a result of the success of the workovers and the consistency of the production achieved since Fellows assumed operations in March 2006. Proven reserves are made up of proven developed producing, proven developed non-producing, and proven undeveloped categories. This represents more than a 250% increase over the reserves in the proven category at the time of the acquisition of the project in March 2006. Proven reserves plus probable and possible reserves are estimated to be in excess of 20 billion cubic feet. Shares ended the week at $0.07, down $0.01.
