07/29/2007
VOLUME 310
Companies featured in the current edition of the newsletter: ARGA, CBMC, CHIP, CYTR, GNBT, HSOA, ILNS, IWEB, JMAR, MBND, PLKH, PLRS, SFP, VQPH
It was the worst week for stocks in five years as worries over corporate loans and further weakness in the housing market drove stocks lower. On Thursday, the market posted one of its worst performances of the year after the Dow lost almost 450 points intra-day, before closing down 310 points for the day. For the week, the Dow lost 585 points, lowering yearly gains to 6.4%. The Nasdaq fell 125 points, reducing year-to-date gains to 6%. The S&P declined 75 points, lowering annual gains to 2.8%. Small-cap stocks were affected by the market meltdown more than others, as the Russell 2000 plunged 7.3%, erasing all of its yearly gains. It is now down 1.2% for the year.
What should have started out as a relatively quiet week due to the lack of significant economic news until mid-week turned into a difficult one for bulls, as larger than expected declines in both new and existing home sales rattled investors. Existing homes sales for June fell by 3.8%, and June new home sales fell 6.6%, more than triple the amount that was anticipated. Although such housing weakness is by no means new to the market, driving the decline in stocks were concerns that potential debt defaults in subprime loans would affect corporate earnings going forward. Additional concerns surrounding Wall Street stemmed from worries that higher borrowing costs for corporations would negatively affect takeover activity that had been fueling the upward move in the market. Not all news pertaining to the economy was bad as orders for big-ticket items rose by 1.4% in June, an impressive turnaround from the decline posted in May. Furthermore, economic growth in the second quarter came in at 3.4% driven by business spending. Despite this impressive performance, inflation appeared to be subdued as core prices, that exclude the volatile food and energy groups, rose only 1.4% in the second quarter. Such news should help the Federal Reserve engineer a soft landing.
However, the real news was the meltdown in the subprime and corporate debt markets. One of the areas that had supported the markets was a series of recently announced corporate buyouts. However, private-equity titans Cerberus Capital Management and KKR failed to raise the necessary funds to complete deals last week. Cerberus could not get $16.5 billion in loans sold to acquire an 80% stake in Chrysler. Another bank syndicate could not sell $10 billion in debt to help KKR close its purchase of U.K. drug store chain Alliance Boots. In the Chrysler loan case, J.P. Morgan was forced to take $10 billion of debt onto its balance sheet. Published reports have put the amount of debt that Citigroup has from unsold LBO loans at nearly $15 billion.
The massive sell-off last week created a significant amount of technical damage for those that follow the charts. The S&P 500 Index (SPY) fell for a 6th day since setting a high on July 19th, falling to a three-month low under the May/June support levels. The sell-off pushed the Index far below its Daily Lower Bollinger Band, an event seen only once or twice a year. Volume in the SPY on Thursday was more than 50% above the previous high volume level for the index, suggesting the kind of panic selling that often characterizes near-term bottoms. Interestingly, Thursday represented the highest level of corporate stock buybacks announced in one day since September 11th.
Small and micro-cap stocks bore the brunt of the selling last week, with the Russell 2000 falling on a percentage basis far more than any other index. One explanation may be rule changes that were enacted by the Securities and Exchange Commission earlier this month, which eliminated the short sale “tick test”, now enabling short sales when prices decline for small stocks. Since the rule, which had been in place for nearly 70 years, was eliminated effective July 6th, the Russell 2000 is down 7.5%. The “tick test” had already been eliminated for trading in stocks of many larger companies. The SEC also will eliminate the grandfathering and options market maker exceptions under Regulation SHO, reducing the ability to “naked short” small stocks. Unfortunately, since this change will not take effect until later in the year, it leaves small stocks open to near-term manipulation.
What should investors look for this week? There are still many companies scheduled to report earnings, including Humana (NYSE: HUM) and Loews Corp. (NYSE: LTR) on Monday prior to the opening, followed by Sun Microsystems (NASDAQ: SUNW) after the close. Tuesday morning, Alcatel-Lucent (NYSE: ALU), General Motors (NYSE: GM) and Liz Claiborne (NYSE: LIZ) will announce numbers. Wednesday evening, Sunoco (NYSE: SUN) and Walt Disney (NYSE: DIS) will release earnings.
The economic calendar will be busy as well, highlighted by June Personal Spending and Income and June Core PCE Inflation on Tuesday prior to the opening. Also before the bell on Tuesday, Q2 Employment Cost Index will be released, followed by July Chicago PMI, June Construction Spending and July Consumer Confidence shortly after the opening. Wednesday morning, July ISM Index and June Pending Home Sales will be reported at 10:00 a.m., followed by Weekly Crude Inventories at 10:30 a.m. July Auto & Truck Sales will be released late Wednesday afternoon. Prior to the opening on Thursday, Weekly Jobless Claims will be announced, with June Factory Orders being reported at 10:00 a.m. All eyes will be focused on July employment data being released on Friday before the bell, which consists of July Nonfarm Payrolls, Unemployment Rate, Hourly Earnings, and Average Workweek. Shortly after the opening, July ISM Services will be announced.
While shares of Home Solutions of America (NASDAQ: HSOA), a provider of restoration, construction and interior services to commercial and residential customers, closed at levels not seen since mid March, a closer inspection of the trading activity provides another perspective. While the stock has lost nearly 25% of its value since the company’s annual meeting in mid June, as the company has not responded to bears questioning the validity of its two $100 million contracts in New York and Tampa, it appears one of the elements that has contributed to the decline in the price of the stock has been a significant increase in positions by short sellers. To put this into perspective, from May 10-July 10, short sellers increased their positions in the stock by approximately 4 million shares, or approximately 10% of the float. Short interest (44% of the float) now exceeds reported institutional holdings. Interestingly, despite the decline in share price, according to the Nasdaq web site, institutions who have reported changes to their positions as of June 30, 2007 have increased their ownership in HSOA’s stock by approximately 700,000 shares. While it is disappointing that the company has not said anything about its business since mid-June, it appears that the effect has been to embolden short sellers and intimidate individual investors, rather than drive away more sophisticated investors. So who is right? We will find out soon, as the company, as an accelerated filer, needs to report its second quarter results by August 9th. The stock trades at its lowest P/E multiple ever. We believe that the recent weakness in the stock is a result of a lack of news or response to the claims of the bears, rather than any change in the company’s fundamentals. Shares ended the week at $4.50, down 43 cents.
CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical research and development company, announced last week that Windhover Information, a leading provider of business information products and services to senior executives in the pharmaceutical, biotechnology and medical device industries, has chosen CytRx’s lead product candidate, arimoclomol, as one of the top 10 most interesting neuroscience products available for partnering. Selection of the top 10 compounds was based on a number of criteria, including unmet medical needs, strong science and company, the potential for treatment of multiple indications and the potential for multi-level partnering. As part of the selection, CytRx’s management will be given the opportunity to present at the Windhover Information Therapeutic Area Partnerships Meeting, the only specific partnering meeting for biotechnology and pharmaceutical companies, being held on October 24-26, 2007 in Philadelphia, PA. The meeting of chief executive officers, business development executives, in-licensing executives and R&D directors is co-sponsored by Bristol-Myers Squibb, AstraZeneca and Merck, and should provide CytRx with much-needed exposure to industry leaders. CytRx’s RXi subsidiary was profiled in a story on RNAi technology in Investor’s Business Daily’s Monday edition (out on Saturday) in a favorable story on its technology. Shares ended the week at $3.28, down 49 cents.
Drug delivery company Generex Biotechnology Corporation (NASDAQ: GNBT) reported last week that Dr. Jaime Guevara-Aguirre was recently awarded the Vicente Rocafuerte Award for Scientific Merit, a top honor granted by the National Congress of Ecuador. Dr. Guevara-Aguirre was recognized specifically for his work towards Generex Oral-lyn, which began in 1995 with the first human clinical trial. Much of his work has been incorporated in the company’s Phase III protocol for global trials, including a Phase III trial in the U.S. expected to begin later this year. Oral-lyn is currently available for sale in Ecuador for the treatment of patients with Type-1 and Type-2 diabetes. The company also reported the expansion of retailers carrying its proprietary Glucose RapidSpray, adding online storefronts Amazon.com, Walgreens.com, as well as DiabeticExpress.com. Glucose RapidSpray delivers a fat-free, low-calorie glucose formulation directly into the buccal cavity using the company’s proprietary buccal drug delivery technologies, and is being marketed in the United States, Canada, and the Middle East. Shares ended the week at $1.57, down 14 cents.
VeriChip Corporation (NASDAQ: CHIP), a leading provider of identification and security technology, and a majority-owned subsidiary of Applied Digital, played an integral part of preventing a 3-day-old newborn from being stolen from Sentara Norfolk General Hospital on July 20, 2007. The company’s Hugs system that was in place at the hospital alerted staff of the incident as it was happening, where members held the suspect in place until police arrived. As a result, the abductor never made it out of the Maternity ward. This one incident demonstrates how VeriChip’s Hugs system can positively impact the safety and well-being of newborns and elderly patients who are at high risk of becoming lost or kidnapped. Shares ended the week at $5.86, down $1.15.
Multiband Corporation (NASDAQ: MBND), a leading provider of video, data, and voice systems and services to multiple dwelling units, last week reported that it has executed an asset purchase agreement to sell 11,166 subscribers and the related access agreement and telecommunication assets located in 189 multi-family properties to MDU Communications for $4.01 million in cash. Additional payments may accrue to Multiband over the next two years based on certain property and subscriber performance criteria. The company will continue to provide call center and subscriber management services for these subscribers, and will provide MDU Communications with billing and other support functions, reflecting the company’s previously stated initiative to sell its subscriber base while maintaining the servicing rights to the subscribers, a much higher margin business, a move that is expected to significantly improve the company’s operating results. Shares ended the week at $0.68, down 6 cents.
Shares of small appliance maker Salton, Inc. (NYSE: SFP), a leading designer, marketer and distributor of branded, high-quality small appliances, home decor and personal care products, plunged last week after it announced it could not assure the completion of its proposed merger with APN Holding Co. Inc., initially reported on February 7, 2007. Salton said its merger agreement with APN Holding provides that either company may terminate the agreement if the merger is not completed before July 31. Although the companies continue to engage in discussions, Salton and APN said there can be no assurance that the merger will occur upon its current terms or at all. Given the current challenges in completing many of the mergers, it is not surprising that Harbinger, the sponsor of the deal, would seek a better deal. Shares ended the week at $0.94, down 92 cents.
Auriga Laboratories, Inc. (OTCBB: ARGA), a specialty pharmaceutical company with products for the treatment of acute respiratory diseases and dermatological conditions, last week announced the launch of the Xyralid LP Lotion convenience kit that also contains Clere, a soap free cleanser. Xyralid LP Lotion provides anti-inflammatory anesthetic relief of pruritus (itching), abrasions, minor burns, hemorrhoids, anal fissures and similar conditions of the skin and mucous membranes. Use of soap-free cleansers is standard protocol in the care of most skin conditions. Xyralid LP lotion will be promoted to dermatologists, gastroenterologists and primary care practitioners by the company’s A.T.S. Pharmaceutical division, giving Auriga Labs another revenue stream in a very large skin-care market. Shares ended the week at $0.84, down 11 cents.
Volume Alert: Shares of JMAR Technologies, Inc. (OTCBB: JMAR), a leading developer of advanced laser, high resolution imaging and photonics technologies, traded over 5.5 times average volume last week after the company reported a successful demonstration of its man-portable, double-pulse laser technology intended for real-time spectrochemical hazard analysis. DP-LIBS (double-pulse laser induced breakdown spectroscopy) allows the detection and identification of very small traces of hazardous materials such as explosives and drugs, at close contact and stand-off distances, and other related applications. JMAR was the only contractor selected for a Phase II SBIR contract to design and build such a laser, based on its proprietary BriteLight laser technology, and exceeded the Army Research Laboratory’s stand-off distance performance specs by a factor of two. Adoption of DP-LIBS by the U.S. Army could lead to significant long-term opportunity for JMAR Tech, and other uses such as biological contaminant detection, and agricultural analysis, could have major commercial potential. Shares ended the week at $0.16, up 3 cents.
ProLink Holdings Corp. (OTCBB: PLKH), a leading provider of GPS golf-course management systems and on-course advertising, reported last week that Coyote Lakes Golf Club in Surprise, Arizona has installed the ProLink Solutions GPS system and plans to participate in ProLink’s exclusive national advertising opportunity. Coyote Lakes joins other popular state courses including Arizona National, Sedona Golf Resort, and Gold Canyon Golf Resort in providing golfers with easy-to-read graphics on a 10.4″ high-resolution color screen, including distances to the pin and hazards, pro tips, and pace-of-play timer, as well as the ability to order food and beverage items directly from their cart. The company also announced that the No. 2 ranked public course in Kansas, Sand Creek Station Golf Club in Newton, has installed the ProLink system. Sand Creek was considered one of America’s top 10 new public courses for 2006 by Golf Magazine. The system also offers ProLink’s advertisers, including GM, Citibank, Lexus, Toyota, Cadillac, Saab and HBO, access to high-end consumers. The company also announced a partnership agreement with Inverlogy to distribute the ProLink system at upscale courses and resorts throughout the Dominican Republic. One of the fastest-growing technology firms in the region with offices in Mexico, the Dominican Republic and Venezuela, Inverlogy is well positioned to promote ProLink’s systems in this rapidly growing market. ProLink GPS was installed for the first time in Portugal and Dubai earlier this year, and is now found at more than 750 courses in North America, Europe, Africa, Asia and the Middle East. Shares ended the week at $1.25, down 10 cents.
Pluristem Life Systems, Inc. (OTCBB: PLRS), a bio-therapeutics company dedicated to the commercialization of products for a variety of malignant, degenerative and auto-immune indications, announced last week that favorable results have been obtained in pre-clinical testing using the company’s proprietary PLX cells to treat limb ischemia, a potential market of over $1 billion. Such results are significant as they indicate that the PLX cells may be the first allogeneic, off-the-shelf product to treat this serious disease. Current therapeutic methodologies have proven ineffective for many severe limb ischemic situations and led the medical community to call for the development of cellular therapies, such as Pluristem’s PLX cells and other methods as alternative treatments. This creates a huge opportunity for Pluristem as it is estimated in the U.S. alone that 8-12 million people suffer from limb ischemia. The disease is associated with a high rate of mortality and the need for frequent hospitalization from surgical complications. Shares ended the week at $0.05, down 4 cents.
Volume Alert: Shares of VioQuest Pharmaceuticals Inc. (OTCBB: VQPH), a biopharmaceutical company focused on acquiring, developing and commercializing targeted cancer compounds, traded over 7.7 times average volume last week with shares rallying 47% as scientists continue to report positively on Akt, the company’s technology platform. Studies completed at the H. Lee Moffitt Cancer Center, Tampa suggest a role of p-Akt in the progression of Barrett esophagus to esophageal adenocarcinoma and provide the rationale for using p-Akt inhibitor API-2/triciribine, which is currently in clinical trials, in the treatment of esophageal adenocarcinoma. Esophageal cancer has the fastest growing incidence rate of all cancers in the United States, with a rate of 5.8 cases per 100,000 persons, and accounts for 10,000-11,000 deaths annually. Esophageal cancer is also the seventh leading cause of cancer deaths worldwide. VQPH’s platform utilizes triciribine, a novel inhibitor of activated Akt, which is found disproportionately in resistant and aggressive solid and hematologic tumors. Shares ended the week at $0.50, up 16 cents.
If insider buying sends a positive signal on the prospects for a company, investors appear to be noticing a series of stock purchases by IceWEB’s (OTCBB: IWEB) Chief Financial Officer. According to regulatory filings, the CFO for the provider of hosted software services for small business customers completed his third open-market purchase this month of the company’s stock last week. The company recently announced a series of contracts, including a $10 million contract from the U.S. government. Since May 23rd, the executive has made nine separate purchases of the company’s stock. Shares ended the week at $0.73, up 4 cents.
On the Wires: Intellect Neurosciences, Inc. (OTCBB: ILNS), a biopharmaceutical company focused on development of disease-modifying therapeutic agents for the treatment and prevention of Alzheimer’s disease and related disorders, last week announced the appointment of Dr. Thomas M. Wisniewski, M.D. to its Clinical Advisory Board. An internationally renowned scientist and clinical expert in Alzheimer’s disease, Dr. Wisniewski is Professor of Neurology, Pathology and Psychiatry at New York University Medical Center and is a board certified neurologist and neuropathologist.
SPECIAL SITUATIONS:
Calypte Biomedical Corporation (OTCBB: CBMC) $0.13
Diagnostic testing and education are key elements of HIV control efforts. At the present, over 39 million people are living with HIV, with roughly 4.3 million new HIV infections occurring worldwide during 2006. Over twenty-five years have passed since the HIV epidemic began, yet HIV continues to be a growing worldwide health problem. The need for accurate and novel HIV testing methods must be found to help address this disease. Calypte Biomedical Corporation recognizes this crucial aspect in HIV intervention and is dedicated to developing and marketing products for improved diagnosis of HIV infection (with the focus on STDs, and other chronic diseases likely to happen in the future).
Calypte’s product-line can be separated into two categories: products that determine HIV status, and products that estimate the rate of new HIV infections to assist HIV prevention programs. Regarding the first category, the company is commercializing tests for the determination of HIV under its Aware brand, which consists of two primary tests: Calypte Aware HIV-1/2 BSP Rapid Test which tests for HIV using blood and Calypte Aware HIV-1/2 OMT Rapid Test which tests for HIV using oral fluids. The company has also announced that is completing development of a second oral fluid rapid test that, in compliance with the World Health Organization (WHO) protocol, will enable one to confirm the initial screening results without the need for a blood test. All three of these tests offer unrivalled flexibility, as no single approach to HIV testing satisfies the needs of every testing environment. The company’s rapid tests take only 20 minutes to produce results and can detect the same diseases and conditions as the widely used EIA (enzyme immunoassay) and Western Blot HIV diagnostic tests, both which are widely used in the U.S. and around the world. Additionally, the oral fluid test has unique social advantages as a safe, non-invasive, easy-to-use and cost effective solution in the fight against HIV/AIDS. It is well-documented that the ease of diagnosis increases testing and increased testing is the catalyst to greater treatment and care is needed to control and contain the spread of HIV/AIDS.
Although Calypte targets a global audience and has an immediate focus on the developing world, the company is taking its first steps to reestablish its presence in the U.S. diagnostic test market by recently securing a new manufacturing facility in Portland, Oregon that will also serve as its new headquarters. This move is significant as the company moves toward approval of its Aware HIV-1/2 oral test in the U.S., with the objective of ultimately offering a product for sale over-the-counter (i.e. into drug stores.)
The company is well on its way of growing its brand name as it continues to achieve major milestones. Earlier this month it received approval for its oral fluid test in India, which represents 17% of the world population and has the 3rd highest HIV prevalence rate (next to South Africa and Nigeria.) In addition to India, the Awareâ„¢ products are currently approved for sale in Kenya, South Africa, and Uganda, as well as Russia and the UAE. The BSP test is on the USAID Waiver List and thus eligible for U.S. HIV/AIDS funding now totaling $30 billion. The oral fluid product has been evaluated by the U.S. CDC on behalf of USAID and the company expects that product to be added to the USAID Waiver List shortly. This market opportunity is, in our opinion, exciting for investors.
