10/01/2006
VOLUME 257
Companies featured in the current edition of the newsletter: ADSX, ALRX, CPPT, CYTR, GNBT, HMWM, HYTM, ISON, ITRO, MBND, PTCH, POIG, SFP, SLS, USAT, VOII
It was certainly a September to Remember, as the S&P 500 had its largest third quarter gain, 5.2%, since 1997 and the Dow flirted with a record close. The Dow added 170 points last week, or 1.5% and twice closed above its January 2000 closing high. It is now up 8.9% for the year. The Nasdaq added 39 points, or 1.8% and is now up 2.4%, trailing all of the other indexes. The Russell 2000 rose 7 points, or 1% and is up 7.8% year-to-date, while the S&P 500 tacked on 21 points, helping it increase annual gains to 7.8%. The S&P 500 is still 15% below its 2000 high.
Despite a near-record level for the Dow, the stock market appears to lack the euphoria of 2000. Retail investors took $3.7 billion out of domestic stock funds in August, and another $1 billion in September. So what does the fourth quarter look like, and has much of the easy money been made? Note that the S&P, when it makes a September high as it has eight times since 1982, has typically declined in October. However, strong third quarter results could bolster stocks further, as the number of companies warning of lower than expected earnings for the third quarter has been very low. Receding concerns about oil and inflation should also be supportive of equities.
What should investors look for in the upcoming week? It will be another tame week for earnings announcement, but a few big names could attract attention. Soft drink bottler Pepsi Bottling (NYSE: PBG) announces results Tuesday pre-market. Semiconductor concern Micron (NYSE: MU) is schedule to report results on Wednesday after the close. Constellation Brands (NYSE: STZ) and Marriott (NYSE: MAR) report results Thursday before the market open. Global electronics manufacturer Solectron Corporation (NYSE: SLR) releases earnings data after the close of the market on Thursday. Ford (NYSE: F) and General Motors (NYSE: GM) report September sales results on Tuesday. Many retailers will report September Sales results on Wednesday and Thursday, providing another indication on the health of the consumer. Starbucks (NYSE: SBX) meets with analysts on Thursday.
The conference schedule begins Tuesday with the two-day Bio Human Resources Conference at the Venetian Hotel in Las Vegas. Tuesday also marks the start of the Citigroup Ethanol on the Cob Biofuels Conference in New York. The Standard & Poors Healthcare Seminar in New York City begins Thursday and the Merrill Lynch Small Cap Corporate Access One on One Conference in New York starts Friday.
Next week is brimming with economic news and will reflect recent spending. Expect to see releases for August Construction Spending and the September ISM Index shortly after the market opens Monday. September Auto and Truck sales will be announced at midnight on Tuesday and look for the August Factory Orders and September ISM Services releases mid-morning on Wednesday. September Crude Inventories will also be announced, but later Wednesday morning. The Initial Claims for the week ending September 30th release will be announced Thursday before the bell. Friday is packed with releases for the September Average Workweek, Hourly Earnings, Non-farm Payrolls, and Unemployment Rate announced before the bell. The week ends with the announcement of the August Consumer Credit Report Friday afternoon. Fed officials will be speaking in a variety of venues. Kansas City Fed chief Thomas Hoenig speaks on the economy on Tuesday. On Wednesday, Fed Chairman Ben Bernanke speaks to an economic club, New York Fed President Timothy Geithner talks on emerging markets and Fed Governor Donald Kohn speaks at a private event as well. On Thursday, Chicago Fed President Michael Moskow gives remarks at a conference while newly appointed Philadelphia Fed official Charles Plosser gives first speech
Hythiam, Inc. (NASDAQ: HYTM), a healthcare services management company that licenses the PROMETA™ physiological protocols designed to treat substance dependence, announced that the PROMETA™ protocols have been licensed for initial use at up to four locations of the largest outpatient substance dependence provider in Massachusetts, Preventive Medicine Associates (PMA). PMA operates 17 facilities in Massachusetts and each year PMA treats 12,000 varying patients for substance dependencies among its network of addiction medicine providers with 36,000 patient visits per year. The agreement reflects the company’s ability to attract more active licensees, which is expected to drive the company’s licensing revenue in the coming quarters. Short interest in the stock remains stubbornly high, at approximately 28% of the float. Shares ended the week up 16 cents closing at $7.22.
Digital Angel Corporation, majority owned by Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, announced an aggressive nation wide initiative to target the $100 million plus equine market for identification products with its patented, temperature-sensing implantable microchip, following strong demand for its Bio-Thermo™ chip in California and a successful regional marketing program. The Bio-Thermoproduct, a microchip roughly the size of a grain of rice, will provide approximately 8 million horses in the United States with a unique identification marker and health status surveillance required by local and state equine animal health professionals. The chip monitors the horse’s temperature, a good indicator of the animal’s health, and also contains a unique identification number that, when activated by a scanner, can be connected to a database with the animal’s documentation. The stock ended the week up 4 cents at $1.62.
CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical company focused on developing products primarily in the area of small molecules and ribonucleic acid interference (RNAi), announced that its lead drug candidate arimoclomol was shown to be safe and well accepted at all three doses tested in its Phase IIa clinical trial in patients with amyotrophic lateral sclerosis (ALS, or Lou Gehrig’s disease). In addition to favorable safety results, tests indicated that arimoclomol effectively entered the cerebral spinal fluid, demonstrating that the drug passed the “blood:brain barrier,” overcoming a potential impediment for the development of drugs, like arimoclomol, that are intended to treat neurodegenerative diseases. Based on these results, CytRx plans to proceed with activities associated with initiating a Phase IIb clinical trial with arimoclomol for the treatment of ALS in the first half of 2007, subject to FDA approval. While safety was the primary endpoint of the study, the drug showed indications of efficacy at the highest dosage levels. Investors sold the stock off sharply after the results were announced, apparently disappointed that the trial did not show statistical significance on its secondary endpoints. However, due to the short period of the trial (3 months) and small study size (approximately 20 subjects in each group), the probability of demonstrating such a result was remote. The company will now continue an open label trial of the drug for 99% of the patients enrolled in the Phase IIa, with the results expected to be announced in early February. CytRx also announced last week it had been awarded a Small Business Innovative Research grant of approximately $222,000 to develop its novel inhibitors to fatty acid synthase for the treatment of type 2 diabetes and obesity. CytRx was awarded the grant by the National Institute of Diabetes and Digestive and Kidney Diseases, a part of the National Institutes of Heath, based on the company’s expertise in small molecule and structure-based drug design. The stock ended the week down 47 cents closing at $1.27.
Volume Alert: Shares of Generex Biotechnology Corporation (NASDAQ: GNBT), a leader in the area of buccal drug delivery, surged 14.6% last week on more than three times average volume after Torc Investments and Research LLC, a NASD registered broker-dealer, initiated research coverage of the company with a buy rating and a 12-month price target of $3-$3.50. The report discussed the position of GNBT’s main product in the lucrative and rapidly growing diabetes market. An estimated 350 million people worldwide will be affected by 2025 (increasing from 230 million currently). Diabetes is the fourth leading cause of death-by-disease globally, and according to the International Diabetes Federation, a person dies from diabetes-related causes every 10 seconds. Shares ended the week up 22 cents and closed at $1.72.
Isonics Corporation (NASDAQ: ISON), a developer of innovative solutions for the homeland security and semiconductor markets, announced the introduction its “Intelligent Building” security management system at the ASIS International 52nd Annual Seminar & Exhibits, the largest and most comprehensive networking and educational event dedicated to security, that took place last week at the San Diego convention center. The Intelligent Building system is a single point of integration for all physical security systems and components. The open architecture system is capable of coordinating multiple, dissimilar alerts, alarms, biometrics, intelligent video, sensors and access points and provides multifaceted event-driven responses. The resulting responses automate the first tier of responses normally provided by security personnel. The Intelligent Building System possesses multifunctional capabilities that allow it to open and close valves and switches; unlock and open doors for evacuations; shut down energy, water and electricity; and send multiple notifications via landlines, the Internet, cell phones, SMS, PDA devices and e-mails. The company also exhibited its line of explosive and chemical sniffers, EnviroSecure, and suite of intelligent video products and solutions. The stock ended the week down a nickel and closed at 79 cents.
Junior energy company Petrol Oil and Gas, Inc. (OTCBB: POIG), announced that the company received approval from the Kansas Corporation Commission to operate two new salt water disposal (SWD) wells on its Coal Creek Project. While a number of Petrol’s Coal Creek coal bed methane (CBM) wells have recently been in various stages of de-watering, these additional new SWD wells double the previous daily water disposal capacity and will allow the de-watering of wells to accelerate significantly. Petrol has 43 gas production wells on its 92,000 gross-acre Coal Creek Project. Initial water production rates from the CBM wells in this development area were higher than anticipated, forcing the original 3 SWD wells to operate at capacity and limiting the number of production wells that could be de-watered simultaneously. De-watering of coal beds is a standard and essential part of any CBM well development program that allows gas production to increase as the water is pumped out of the coals. Previous Kansas Geological Survey publications note that CBM wells in south-east Kansas come on line with low gas production rates that increase and peak, on average, within 6 to 12 months as a result of the de-watering process. Petrol holds a 100% working interest and an average 80% Net Revenue Interest in the Coal Creek Project. On a long-term basis, Petrol believes the Coal Creek Project has the potential to support approximately 550 producing gas wells. The stock ended the week up 10 cents at 56 cents.
Small appliance maker Salton, Inc. (NYSE: SFP), announced that the company requested a 15-day extension from the Securities and Exchange Commission to file its annual 10-K financial report for the fiscal year ended July 1. The maker of the George Foreman grill said its filing will be late due to delays in assembling certain information needed to complete the reviews of its consolidated financial statements and annual report. Shares ended the week unchanged at $2.30.
SLS International (AMEX: SLS), the leading provider of premium quality sound systems for professional, cinema and home entertainment markets, announced that the company will file a plan with the American Stock Exchange outlining the actions it will take that would bring it into compliance with the applicable continued listing standards. SLS previously announced that it was not in compliance with AMEX’s continued listing standards and would be subject to delisting unless it submits a plan to AMEX. If the AMEX accepts the company’s plan, SLS may be able to continue its listing during the plan period of up to 18 months, during which time it will be subject to periodic review to determine whether the company is making progress consistent with the plan. The stock ended the week at 25 cents, down 2 cents from last week.
CompuPrint, Inc. (OTCBB: CPPT), 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 last week that key investors have converted all $5 million of its outstanding debentures into common stock at a conversion price of $0.50 a share. This represents a significantly higher (more than a 150%) premium over the current trading price of its common stock. The transaction with Enficon Establishment, and its affiliate, Kiev Investment Group, resulted in the issuance of 10 million shares of the company’s restricted common stock in exchange for the surrender of the $5 million of debentures with maturity dates of December 31, 2007 and 2008. Shares ended the week up 2 cents to close at $0.21.
USA Technologies, Inc. (OTCBB: USAT), a developer of cashless vending and energy management products, agreed to a deal, announced results for its fiscal year ended June 30, 2006 last week. USAT had record revenue of more than $6.4 million, an increase of 37% compared to fiscal 2005 when the company had revenue of roughly $4.6 million. This increase was primarily attributed to increases in sales of the company’s EnergyMiser™ energy management solutions, along with higher sales of e-Port® cashless transaction solution, and e-Suds™ online laundry system. Gross profit for the fiscal year ended June 30, 2006 was $2,010,346, compared to $1,199,316 for the fiscal year ended June 30, 2005. The increase of 68% or $811,030 was due to sales of higher margin energy management products. The company also said it expects strong revenue growth during its fiscal 2007 year which could lead to profitability. The stock closed down 35 cents at $6.10.
Volume Alert: Shares of VoIP, Inc. (OTCBB: VOII), a leading provider of Voice over Internet Protocol (VoIP) communications solutions for service providers, resellers and consumers, surged 8.8% last week on more than three times average volume, after subsidiary, VoiceOne™ Communications, LLC, said it inked a deal last week with Varitalk to act as the preferred service provider for an Internet and phone marketing campaign that allows fans to send and receive personalized phone messages from America’s Next Top Model star and personality Tyra Banks, as well as future campaigns. Vairtalk’s decision to use VoiceOne was a result of VoiceOne’s 100% reliability and a mid-campaign termination services provider switch in a previous endeavor that featured Samuel L. Jackson. The stock ended the week up 3 cents at $0.37.
Recently, a lingering question has been, “what’s happened to the business of printing photographs?” Camera phones and digital cameras are “all the rage” and printer manufacturers are even jumping on board the craze as the digital revolution continues to rally support. With all of the hype surrounding the advancements, one has to wonder if the traditional print is dead. Itronics, Inc. (OTCBB: ITRO), a “Creative Environmental Technology” company and a world technology leader in photochemical recycling, says, no. The company processes photochemicals, removing the heavy metals, like silver, and turns the leftover liquids into environmentally friendly fertilizers that it markets under the GOLD’n GRO label. Image print technology has two methods: Standard silver halide photographic prints, and ink jet prints. Silver halide prints cost less to produce, as compared to ink jet prints, but ink jet printer companies are making a major push to gain market share using discount pricing. Industry reports indicate that the use of silver halide print paper increased by 7 percent in the first part of 2006 indicating that silver halide prints are still the consumer favorite. And it is precisely these waste liquids from silver halide printing that represent Itronics’ bread and butter. The stock ended the week down a penny at 2 cents.
Junior oil and gas producer Patch International Inc. (OTCBB: PTCH) reported that the operator of the Lloydminster project advised that the company’s two recently drilled locations have been successfully completed as oil wells. The project was previously outlined in a press release from July 28, 2006. The operator anticipates that the wells will be placed in production within a month’s time. PTCH has a 50% working interest in one of the wells to earn 30% after payout and a 30% net working interest in the second well. Oil and natural gas continue to be high value commodities, especially in the North American market, and an oil and gas discovery at Lloydminster is very positive for the company. PTCH will monitor the sites closely as the operator progresses and will continue to provide updates to the investment community as the company receives progress reports from the wells. The company earns oil revenue from 20 oil wells that provide Patch with short-term and long-term cash flow. PTCH has drill programs on five properties in Alberta scheduled for this year, as well as other properties in North America, and has a property in the heart of the Alberta Oil Sands that will begin a work program in 2006. PTCH has a strong cash position and has no debt. Patch plans to use this strong cash position to build the company’s oil and gas assets, and just as Patch’s pioneering pharmaceutical efforts are coming to fruition, Patch believes that it is entering a period of tremendous success for its own domestic and international oil and gas prospects. The stock ended the week up 16 cents at 91 cents,
Diversified sports media company HumWare Media Corporation (OTC: HMWM), announced that Boondoggle Sports Network (BSN) has been deployed and is currently functioning in all five Humperdink’s Original Sport Restaurants in the Dallas metro area. The company also announced that it has licensed the Western Canadian Provinces of Alberta, British Columbia Manitoba and Saskatchewan for BSN. Boondoggle is America’s newest entertainment channel and provides free entertaining sports trivia and interactive fantasy sports to the hospitality industry. The patent pending BSN is delivered via the Internet and displayed on television monitors inside bars and restaurants to entertain patrons, increase traffic, and promote higher revenues. Establishments are also given a large inventory of ad space to promote in-house specials, food and beverage sales or upcoming events. BSN offers a more interactive and captive experience since the consumers are viewing the content for longer periods of time and playing games. The stock ended the week at 7 cents, down 2 cents from last week.
SPECIAL SITUATIONS:
Multiband Corporation (NASDAQ: MBND) $0.77
If cable companies are doing it, that is, bringing you your favorite sources of entertainment and communication services directly to your home without all of the additional hardware, then why can’t other service providers find a way to make it work? That is the challenge that Multiband Corporation, a leading provider of video data, and voice systems and services, has met with a headstrong attitude and successful approach. It’s watch, talk, and surf for this company and it shows it in the variety of different services it provides. The company is in the unique position of intermediary between the largest satellite television provider in the United States and the desirable and highly sought-after MDU market here as well.
Multiband specializes in providing the multiple dwelling unit (MDU) market, including apartments, condominiums, town-homes and master planned communities, with communication and entertainment services. The key to, and the main difference with, this style of service allows for the consolidation, and the avoidance, of the personal dishes into a centrally located, shared-dish antenna system that is capable of receiving a signal from a Direct Broadcast Satellite service. In the case of Multiband Corporation, DIRECTV® was the correct choice.
The company is a premier provider of DIRECTV® video (this service comprises 50% of revenue) and local and long distance services to residents of MDU dwellings. Multiband’s services are available for individual purchase, but the company specializes in bundling the different technologies to offer consumers more affordable and convenient options that cater to individuals’ needs. The proffered 24-hour service and back-end support also offers another level of absolute convenience for services that are valued and appreciated by all customers. Through DIRECTV®, Multiband is able to offer premium satellite technologies that allow residents to enjoy the ability to get reliable watch.talk.surf services from a single provider and receive just one monthly bill.
So what is watch.talk.surf and are those services available to you? Naturally, the services are dependent upon the community and break down as follows: Watch brings the community the dependable and quality services of DIRECTV®, talk offers reliable local and long distance telephone service, and surf hosts the capabilities for a variety of services like nationwide dial up, DSL (including transfer speed up to 1.5Mb), CMTS (with transfer speeds up to 10 Mb) and wireless surf (transfer speeds up to 45Mb), Web and FTP hosting, and Co-location. These services are also a benefit to the property owners and managers who take advantage of the accessibility of watch.talk.surf in order to offer residents added convenience and value.
This past summer, the company announced that it had acquired the video assets and rights of entry of Extreme Video in Cincinnati, Ohio. Extreme Video is a leading DirecTV system operator in Ohio with 5,567 homes under rights of entry and 928 subscribers. The systems are exclusively apartment and condominium based and according to company CEO, James L. Mandel, “represents the exact model we look for in our expansion modeling, a large footprint in a single area with tremendous opportunities for the addition of voice and data services.”
The company announced last month that it had acquired rights of entry to over 2,300 homes in California and the number continues to increase. The California deal is part of the Multiband strategy to “roll in” system operators to company owned subscribers. In March of 2006 the company also outlined plans to launch its 45 Megabit ultra high-speed data service, priced at $34.95 per month, to an extremely bandwidth-hungry audience of residents in California. While revenue and EBITDA have been growing, they don’t tell the entire story. For the six months ended June 30, 2006, revenue was $8.9 million, up from $7.9 million in the year-earlier period. The company had a narrow loss on an EBITDA basis. However, cable companies are valued on a per subscriber basis, and with 117,600 revenue generating units, the company’s valuation, based on existing customers, would far exceed its current level if an acquirer was willing to pay prevailing rates to purchase these customers.
The stock has performed dismally this year, losing 35.8% of its value since the beginning of the year. Its valuation, which is less than $50 million including a convertible preferred instrument, is the lowest since December, 2002. However, with a nominal valuation and a robust subscriber base, value-oriented investors should consider the investment opportunity with Multiband.
