11/25/2007
VOLUME 327
Companies featured in the current edition of the newsletter:AVGO, CGXP, CYTR, DVLY, ENZ, HSOA, MBND, PLRS, RVEP, SFPI, SWVC, USAT
Accompanied by continuing volatility that has come to define the stock market as of late, the major indices all lost ground during the holiday-shortened week. The technology-heavy Nasdaq remains the best performing Index in 2007 as, even after giving up 41 points last week, it is up 7.5% on the year. The Dow lost another 196 points last week, paring its year-to-date gains to 4.2% while the broader-based S&P 500 lost 18 points to trim its year-to-date gains to only 1.6%. The small-cap based Russell 2000 continued to underperform as it declined by 14 points, increasing its yearly loss to 4.1%. However, the drubbing for micro-cap issues has been even worse, as t he Russell Microcap Index, which includes the 1,000 smallest companies in the Russell 2000 and the next 1,000 companies ranked by capitalization, is down 9% year-to-date.
U.S. stocks continued their slide over the past week due to concerns over consumer spending and the overall economy weighing on investor sentiment amid persisting weakness in the housing market, further credit write-downs, and rising oil prices. Further weighing down on the market were Goldman Sachs’ downgrade of Citigroup to “Sell,” and its estimate that the banking giant may have to write off as much $15 billion for debt losses over the next two quarters. Exacerbating the situation were disappointing third quarter profits from Lowe’s Cos., a sharp third quarter loss for Freddie Mac, and a disappointing quarterly report from Target. On a brighter note, October housing starts jumped 3.0% to a 1.226 million annual rate. That number was stronger than expected and may be an early signal of a turnaround within the housing sector. On the economic front, the Federal Reserve cut its 2008 GDP forecast given the financial turmoil in the summer, which suggests the possibility of further rate cuts. Meanwhile, initial jobless claims fell by 11,000 last week, a positive sign for the labor market.
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 Staples (NASDAQ: SPLS) and Tech Data (NASDAQ: TECD) Monday before the bell. Earnings announcement activity will pick up slightly on Thursday with announcements from Sears (NASDAQ: HLDG), Dell (NASDAQ: DELL), Smithfield Foods (NYSE: SFD), (Del Monte (NYSE: DEL), HJ Heinz (NYSE: HNZ), Warner Music Group (NYSE: WMG), and Vimpel Comms (NYSE: VIP).
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 November Consumer Confidence. Investors can also expect comments from Philadelphia Fed President Ploser and Chicago Fed President Evans on Tuesday. October Durable Orders will be released prior to the open on Wednesday while Existing Home Sales for October will follow later in the trading day. Also on Wednesday, weekly oil inventories will be announced as well as the ever-popular Fed’s Beige Book. Dallas Fed President Fisher will speak on Wednesday as well. Investors can expect to see the preliminary announcements for the Q3 GDP and weekly unemployment claims before the bell on Thursday while New Home Sales for October will follow in the mid-morning. Comments from Fed Chief Bernanke on Thursday may help investors get an insight into the outlook for the economy. It will be an active Friday morning with before-the-open announcement of Personal Income and Spending for October. Investors can also expect to see announcements for the November Chicago PMI and the October Construction Spending on Friday as well as comments from Fed Presidents Plosser and Poole and Fed Governor Kroszner.
The conference schedule ramps up next week with the three-day Piper Jaffray Healthcare Conference in New York beginning on Tuesday. Also on Tuesday, CIBC World Markets will kick off its two-day 3rd Annual Mid & Small Cap Best Ideas Conference in New York while Credit Suisse will commence its three-day 2007 Annual Technology Conference in Phoenix and Lazard Capital Markets will hold its two-day healthcare Healthcare Conference in New York. Enzo Biochem (NYSE: ENZ) will present at the event on Wednesday at 2 p.m. The Bear Stearns Commodities & Capital Goods Conference and the Merrill Lynch Health Services Investor Conference will both take place in New York on Tuesday and Wednesday. The two-day UBS Global Real Estate Conference in London will round up the week on Thursday and Friday.
Rio Vista Energy Partners L.P. (NASDAQ: RVEP), an energy master limited partnership, announced this week that its indirect, wholly-owned subsidiaries, Rio Vista Penny LLC and Rio Vista GO LLC, have completed the acquisition of assets and equity including certain leasehold interests of oil and gas producing properties and associated pipeline gathering systems from three privately held companies based in East Central Oklahoma which have geographically contiguous operations. The acquisitions are expected to be immediately accretive to Rio Vista’s 2007 financial results. The acquisition of these properties establishes a significant reserve position for Rio Vista and provides excellent prospective drilling candidates. The funding for these projects has already been arranged and is expected to begin immediately. Upon completion the company expects to significantly enhance its revenue, cash flow and reported earnings. These properties may be the foundation in transforming Rio Vista into a diversified oil and gas producer. There are an additional 114 identified drilling locations in the upper formations with upside potential. Rio Vista’s subsidiaries intend to explore the additional upside opportunities that exist in the deeper formations located on the properties such as the Caney Shale and Woodford Shale. Based on recently completed reserve reports, the Properties have estimated natural gas reserves of approximately 25.0 BCF, made up of approximately 8.8 BCF proved developed reserves and 16.2 BCF proved undeveloped reserves. The stock ended the week at $11.45, down 59 cents.
Biopharmaceutical company CytRx Corp (NASDAQ: CYTR) said it may periodically sell up to $100 million in stock, according to a filing the company made late Friday. The company said it intends to use the proceeds to augment working capital and for general corporate purposes. Under a shelf registration filed with the U.S. Securities and Exchange Commission, a company may sell securities in one or more separate offerings with the size, price and terms to be determined at the time of sale. The stock ended the week at $3.23, down 18 cents.
USA Technologies Inc. (NASDAQ: USAT), a producer of wireless noncash transaction systems, reached a new agreement with MasterCard to install 4,000 e-Ports on vending machines. These e-Ports will allow customers to pay at the vending machines through PayPass, a contactless card payment technology. The new agreement is the fourth between the two companies and brings to 17,5000 the number of e-Ports installed as part of the deals. Shares of the stock fell 78 cents to end the week at $5.75.
Ceragenix Pharmaceuticals, Inc. (OTCB: CGXP), a biopharmaceutical company focused on infectious disease and dermatology, entered into an exclusive distribution and supply agreement with Dr. Reddy’s Laboratories, Inc., a subsidiary of Dr. Reddy’s Laboratories Limited (NYSE: RDY), to commercialize EpiCeram, a prescription topical cream for treating atopic dermatitis and other dry skin conditions, in the United States. Dr Reddy’s expects to launch EpiCeram within a year through a new salesforce targeting dermatologists. Ceragenix received $1.5 million upon inking the deal, and can receive an additional $3.5 million if it meets certain conditions. Reddy’s will purchase EpiCeram from CGXP at a price equal to the cost of manufacturing plus a percentage of the net sales of the product. The percentage of net sales starts in the low double digits and can increase incrementally based on annual net sales levels. Additionally, the company can earn up to an additional $21.25 million in milestone payments based on cumulative net sales of EpiCeram and the satisfaction of other performance requirements. The stock closed at $1.47, down 38 cents.
Avicena Group, Inc. (OTCBB: AVGO), a biotechnology company that develops central nervous system therapeutics for neurodegenerative diseases, presented results of its novel Huntington’s disease treatment candidate HD-02 at the 2007 World Congress on Huntington’s Disease in Dresden, Germany. These findings demonstrate the disease-modifying potential of HD-02 and provided the rationale for a Phase III study to further evaluate its efficacy at the 30-gram dose. AVGO anticipates commencing a Phase III trial of HD-02 in the second half of 2008. In addition, the company also reported financial results for the nine months ended September 30, 2007. Revenue for the period was $342,000, an increase of 9% from the corresponding 2006 period. The past quarter also saw the first sales of the company’s new Nurigene dermaceutical product. This regimen of 5 complimentary skin products was introduced during the final week of the quarter. Overall, the company ended the quarter with over $1.5 million in cash reserves. Shares ended the week down 3 cents to close at $0.77.
Deer Valley Corporation (OTCBB: DVLY) announced that the company and the original founders have entered into a revised earn-out agreement. The revision to the original 2006 agreement will dramatically reduce accruing cash liabilities related to the original earn-out agreement. As a result of the rapid growth and strong profitability of Deer Valley Homebuilders, DVLY now expect to see the full satisfaction of the earn-out criteria, to occur two years prior to original expectations. This revision to the earn-out agreement confirms the operating team’s expectations of a rising share price. Shares were down 6 cents on the week, closing at $0.95.
Seaway Valley Capital Corporation (OTCBB: SWVC) released a letter to shareholders in which it discussed future growth opportunities for Hacketts, a retailer located in upstate New York, as well as potential acquisitions of additional assets. Hacketts management will begin to convert the recently acquired WiseBuys stores to Hacketts stores. Once completed, there will be a total of nine Hacketts stores with projected combined annual sales of over $30 million and earnings of $1.5-$2 million. Hacketts’ Phase I goal is to prudently but rapidly expand its presence to 25 to 30 stores with revenues approaching $100 million. Seaway Valley is also currently seeking additional acquisitions and investments whereby it could increase shareholder value as well as diversify its holdings. These acquisitions may be either minority or majority stakes in companies seeking growth capital and that are well positioned for appreciation. Of particular interest to Seaway Valley are software and technology companies, restaurant and hotel groups, and energy companies. Shares ended the week unchanged at $0.01.
On The Wires: Salton, Inc. (OTCPK: SFPI), which designs, markets, and distributes small appliances, home decor, and personal care products, announced that Daniel J. Stubler resigned from the Board of Directors of Salton, Inc. Home Solutions of America, Inc. (NASDAQ: HSOA), a provider of restoration, construction and interior services to commercial and residential customers, announced that it received a notice on November 15, 2007 from the Nasdaq Stock Market stating that it is not in compliance with Nasdaq’s Marketplace Rule 4310(c)(14) because it has not timely filed its report on Form 10-Q for the quarter ended September 30, 2007. Multiband Corporation, (NASDAQ:MBND), the nation’s largest DIRECTV Master System Operator (MSO) for Multiple Dwelling Units, announced the receipt of a NASDAQ Staff Determination letter on November 21, 2007 indicating that the Company fails to comply with NASDAQ Marketplace Rule 4310(c)(3), and that the Nasdaq Staff is reviewing Multiband’s securities for continued listing on the Nasdaq Capital Market. Shares of Pluristem (OTCBB: PLRS), a bio-therapeutics company dedicated to the commercialization of non-personalized (allogeneic) cell therapy products for a variety of malignant, Ischemic and auto-immune disorders, will begin trading post a 1-for-200 reverse split on Monday morning under the ticker symbol PSTI. The company previously said that it was effecting a reverse split in connection with an application to list on the Nasdaq Capital Market.