11/19/2006
VOLUME 264
Companies featured in the current edition of the newsletter: ARGA, CYTR, ENZ, FMTI, FSN, GNBT, GSHF, HSOA, IMMG, ISON, MBND, NTST, PTCH, RTK, SFP, SLSZ, SOG, TAGS, TEGR, USAT, VOII
The bulls continued to maintain their stranglehold on Wall Street last week, as many of the key indexes established multi-year highs. The Dow closed the week up 234 points, increasing its year to date gain to 15.2%. The Nasdaq finished up 56 points and increased its year to date gain to 10.9%. The S&P 500 finished up 20 points and is now up 12.3% for the year, while the Russell 2000 rose 19 points and in the process the small-cap benchmark established an all-time high. It is up 17.1%
A combination of data which suggested that inflation was under control, as well as falling energy prices helped support the bullish momentum that has seen stocks stage a strong rally for approximately four months. A surprising decline in Producer Prices, along with October core CPI, which rose just 0.1%, helped convince investors that inflation concerns have been overblown. In fact, the core rate for November would have been flat if not for a 0.4% gain in the imputed owner’s equivalent rent measure of housing costs. This means that actual goods purchases showed no price increase and inflation pressures on the consumer level are subsiding. While the October 25 FOMC minutes revealed that the Fed is still concerned about the elevated levels of core inflation, positive data generated by last week’s reports should help quell those fears. A decline in oil prices this past week also helped boost optimism on the inflation front as the December contract for crude dropped all the way to $55.80 a barrel, down from over $60 at the end of the prior week.
With seasonal factors supporting further gains for the market (Thanksgiving Week usually higher), the path of least resistance should be higher. With most major earnings reports already in and the week shortened by the Thanksgiving holiday and half-day session of trading on Friday, announcements will be extremely slow. Monday is by far the most active day for announcements with Campbell Soup (NYSE: CPB) and Lowe’s (NYSE: LOW) reporting earnings before the market opens. Global medical technology leader Medtronic (NYSE: MDT) and Nordstrom will announce company earnings after the bell on Monday. John Deere manufacturer Deere & Company (NYSE: DE), Gamestop (NYSE: GME), and Tech Data (Nasdaq: TECD) announce earnings before the bell Tuesday. J. Crew (NYSE: JCG) and Payless shoes will report after the close. Wednesday marks the end of the week for announcements with Hormel Foods (NYSE: HRL) reporting company earnings before the bell.
The economic news and events for next week will also be lighter than usual. Look for the October Leading indicators mid-morning Monday. Investors will likely tune in to what Treasury Secretary Henry Paulson has to say in his discussion on capital markets in New York on Monday. Dallas’ Fed President Fisher will be speaking about the economy in Berlin on Monday as well and Richmond Fed President Lacker speaks to economists in Virginia on Tuesday. Wednesday will be the next, and final, day for announcements with the weekly Unemployment Claims announced before the market opens, the November Michigan Sentiment later in the morning and weekly Crude Inventories announced shortly before noon. No conferences are scheduled for the holiday week.
Enzo Biochem, Inc. (NYSE: ENZ), developer of innovative health care products based on molecular biology and genetic engineering techniques, said that the United States Patent and Trademark Office has declared a patent interference between an allowed patent application of its subsidiary, Enzo Life Sciences, Inc., and a patent held by California Institute of Technology and licensed exclusively to Applied Biosystems, Inc., a division of Applera Corporation. The technology involves gel sequencing, which is the primary technique for sequencing DNA. An interference is a proceeding brought before the U.S. Board of Patent Appeals and Interferences when a patent and an allowed patent application claim essentially the same invention. The purpose of the proceeding is to determine who “is” the first inventor and which party owns the patent rights to the invention. Enzo was declared the senior party in this interference because its original application predates by over a year Cal Tech’s original application. Cal Tech’s U.S. Patent No. 5,821,058 is named in the interference and was issued in 1998. This development is significant in that the results will determine the owner of the rights to DNA gel sequencing. Products that have already generated or are likely to generate substantial revenue are covered by this patent, so the stakes are high for both Applera and other genomics companies. The stock ended up $0.86 at $15.74.
New 52-week high: Shares of Netsmart Technologies, Inc. (NASDAQ: NTST), a leading provider of enterprise-wide software for health and human services organizations, soared 11.8% on heavy volume after it announced record results for the third quarter ended September 30, 2006. Revenue for the quarter was $15,392,000, an 81% increase from $8,517,000 for the quarter ended September 30, 2005. Net income for the third quarter was $1,026,000, an increase of 171% compared with net income of $379,000 for the same quarter in 2005. Net income per diluted share for the quarter was $0.15 compared with $0.07 for the same quarter last year. Backlog of orders at September 30, 2006 was a record $54.7 million, compared to $28.6 million at September 30, 2005. The stock ended the week at $14.70, up $1.56.
Isonics Corporation (NASDAQ: ISON), a developer of innovative solutions for the homeland security and semiconductor markets, announced that it has received the final $3.0 million tranche ($2.84 million in net proceeds) of a $16 million convertible debenture and warrant financing previously announced on May 31, 2006. The company continues to generate significant momentum in its Semiconductor Products and Services division and recently achieved operating profitability. This additional funding will allow Isonics to continue its expansion and to support the development and commercialization of the company’s homeland security products. The stock ended the week down 2 cents at $0.60.
CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical company focused on developing products primarily in the area of small molecules and ribonucleic acid interference (RNAi), last week announced third quarter results for the period ended September 30, 2006. Notably, the company had $33.7 million in cash and cash equivalents, which will allow it to complete a Phase IIb trial of arimoclomol. The company’s cash position rose as a result of the company selling a 1% royalty interest in the drug for $24.5 million from the privately-funded ALS Charitable Remainder Trust for a one-percent royalty interest in worldwide sales of arimoclomol for the treatment of ALS. Shares ended the week at $1.78, up $0.07.
Alternative energy company Rentech Inc. (AMEX: RTK), announced that the company has completed the sale of its wholly owned subsidiary Petroleum Mud Logging (PML) located in Oklahoma City, Oklahoma to privately held PML Exploration Services, LLC, a non-public entity, for approximately $5.4 million in cash. Rentech acquired the provider of well logging services to the oil and gas industry in 1999. The sale represents the completion of Rentech’s divestiture of its non-core subsidiaries as the company focuses its efforts and resources on a long-term business plan to commercialize Rentech’s technology to produce clean synthetic fuels. Rentech intends to use the proceeds from the sale for general corporate purposes, including the advancement of its domestic clean fuels commercialization activities in East Dubuque, Illinois and Natchez, Mississippi, as well as its joint development efforts with Peabody Coal and other potential domestic projects under review. The stock ended the week up $0.16 at $3.85.
Life sciences company Forbes-Medi-Tech Inc. (NASDAQ: FMTI), announced its financial results for the third quarter ended September 30, 2006, although the results were likely overshadowed by the upcoming release of Phase II data from the company’s clinical trial of cholesterol-lowering drug Fm-VP4, which is scheduled for the first part of December. For the third quarter, FMTI had revenue of $1.8 million up from $1.39 million for the three months ended September 30, 2005. Results reflect the sale of FMTI’s interest in the Phyto-Source joint venture. Shares ended the week down $0.08 at $2.30.
Fusion Telecommunications International, Inc. (AMEX: FSN), a provider of advanced VoIP services, announced financial results for the third quarter ended September 30, 2006. Revenue was $11.7 million, up 11.2% compared to revenue of $10.5 million for the second quarter ended June 30, 2006, attributable to an increase in carrier services traffic. Compared to the third quarter of 2005, revenue jumped 28.5%. The company also made bullish comments with respect to the recent launch of the company’s Efonica VoIP services. For the quarter ended September 30, 2006, the net loss was ($3.9) million or ($0.15) per share, compared to ($2.3) million or ($0.09) per share during the quarter ended September 30, 2005. The loss increased due to expenses surrounding the launch of Efonica. The stock ended week at $1.15, down $0.25.
Multiband Corporation (NASDAQ: MBND), a leading provider of video, data, and voice systems and services to multiple dwelling units, reported third quarter results for the period ended September 30, 2006.The company recorded third quarter revenue of $4.5 million, compared to $4.3 for the year-earlier period. Revenue from Multiband’s Multiple Dwelling Unit (MDU) segment, which includes results as the master service operator for DirecTV, increased to $2.6 million compared to $2.1 millionin the year-earlier period as a result of an increase in agent fees and subscriptions. In the third quarter of fiscal 2006, the company lost $230,219, compared to $392,487 in the third quarter of fiscal 2005, excluding interest and depreciation expense. The increased loss was primarily due to an expense of $169,846 for stock-based compensation under SFAS 123R. The stock ended the week down $0.07, at $0.57.
Generex Biotechnology Corporation (NASDAQ: GNBT), a leader in the area of buccal drug delivery, announced that the company was granted the first patent for its medicinal gum platform titled “Compositions for Oral Transmucosal Delivery of Metformin.” The patent covers claims to the composition, processes, and methodologies for the delivery of an oral transmucosal metformin composition via the oral mucosal membrane for absorption. This patent was issued by the Lebanese Ministry of National Economy Intellectual Property Protection Office and as a consequence of Lebanon’s accession to the international Patent Co-operation Treaty, this patent will open the door to further filings in the other PCT signatory countries. Metformin is a generic drug used to regulate blood sugar levels by reducing the amount of glucose produced by the liver, and by making the insulin produced by the body work more effectively to reduce the amount of glucose already in the blood. Metformin has been in use around the world for more than 30 years. It remains the most prescribed drug for Type-2 diabetes, proof to its effectiveness and its prominent place in diabetes therapy. The patent relates to an oral transmucosal metformin composition making up a pharmaceutically acceptable with capabilities of delivering a pharmaceutically effective amount of metformin to the oral mucosal membrane for absorption. Generex currently holds an aggregate of 80 patents of which 20 are United States Patents. In addition, the company has an aggregate of 60 patent applications pending in various jurisdictions. The stock ended the week up $0.08 at $2.13.
Small appliance maker Salton, Inc. (NYSE: SFP), announced last week fiscal results for its first quarter ended September 30, 2006. The company reported net sales of $138.3 million and a loss of $10.0 million, or $(0.70) per share, versus net sales of $148.4 million in the first quarter of fiscal 2006 and net income of $29.7 million, or $1.83 per diluted share. The net income reported in fiscal 2006 included a pre-tax gain of $21.7 million resulting from the early settlement of debt associated with the company’s private debt exchange offer and a $27.8 million gain associated with the sale of its 52.6% ownership interest in the South African subsidiary, AMAP. The decrease in sales in the first quarter of fiscal 2007 was mainly due to the sale of the tabletop business, other planned product discontinuation, and some inventory shortages that resulted from the company’s liquidity constraints at the beginning of the quarter. The liquidity constraints that impacted the fiscal 2007 first quarter results were resolved during the quarter as a result of the company receiving an amendment from the lenders under its senior secured credit facility. Gross profit for the first quarter of fiscal 2007 increased from $29.5 million (19.9%) in 2006 to $34.4 million (24.9%) in 2007. This increase is primarily a result of a more favorable product mix including fewer closeouts and a higher percentage of core products in 2007. The company reported operating income of $0.1 million in the first quarter of fiscal 2007, compared to an operating loss of $11.0 million in the first quarter of fiscal 2006. Later in the week, Salton said that the company has entered into an exclusivity agreement with Harbinger Capital Partners Master Fund I, Ltd. (Harbinger), which states that the parties will negotiate exclusively on an acquisition through December 15, 2006. Salton and Harbinger are currently in discussions with respect to a possible combination of Salton and Applica, which is currently being acquired by Harbinger Shares ended at $2.78, up $0.11 from last week.
Tarrant Apparel Group (NASDAQ: TAGS), an innovative design and sourcing company for private label and private brand casual apparel, announced results for its third quarter ended September 30, 2006. Net sales for the third quarter of 2006 decreased 21.4% to $54.6 million from $69.6 million reported in the same period last year. Sales of Private Label brands were $46.1 million compared to $47.0 million in the same period of 2005. Sales of Private Brands in the third quarter of 2006 were $8.5 million compared to $22.6 million in the same period of 2005. Gross profit for the quarter decreased to $11.8 million from $14.5 million in the year-ago period while gross margin percentage increased from 20.9% in the 2005 third quarter to 21.6% in the 2006 third quarter. As a result, the company reported a loss from operations in the third quarter of 2006 of $24.7 million, compared to income from operations of $3.0 million in the comparable period of 2005. The net loss for the third quarter of 2006 was $25.4 million or $0.83 per diluted share, compared to net income of $1.7 million or $0.06 per diluted share in the same quarter of last year. Net loss during the third quarter of 2006 was impacted by a non-cash reserve of $27.1 million recorded relating to certain notes receivable. Shares finished the week up a penny at $1.30.
Home Solutions of America, Inc. (NASDAQ: HSOA), a provider of recovery, restoration and rebuilding/remodeling services, reported third quarter results for the period ended September 30, 2006 last week. While the results were weaker than Wall Street was expecting, the “miss” on EPS was related to a two-cent GAAP expense for taxes. Revenue from continuing operations for the third quarter grew to $49.1 million, up from $19.0 million a year ago. We estimate that approximately $13 million of that revenue came from the acquisition of Fireline. Third quarter 2006 net income increased to $8.1 million, or $0.18 per diluted share compared to $2.4 million, or $0.08 per diluted share, in the same quarter last year. Third quarter 2006 EBITDA increased 239% to $13.8 million compared to $4.1 million in the 2005 third quarter. Third quarter gross margin was 42.8% compared to 45.2% in the same quarter of 2005 and compared to 47.1% in the second quarter 2006. Receivables also increased substantially, reflecting the acquisition of Fireline. While we were somewhat disappointed by the Q3 results and the company lowering Q4 revenue, all of the “bad news” appears to be already priced into the stock. To put it into perspective, if the company does $145 million in full-year 2006 revenue, which included $30 million from Fireline and $5 million from Associated, it still would have generated $110 million in revenue excluding acquisitions. This would still represent top-line growth of more than 60% from fiscal 2005. The stock, which ended the week down 48 cents, trades for just 12 times trailing twelve month EPS, closing at $5.36.
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 last week as investors recognized the launch of its VoIP platform with Google Maps. VoIP will supply the click-to-call technology to the Internet giant that will allow customers to directly contact merchants, although the company did not make a public announcement on the launch. VOII will receive a fee for each phone call that is placed to connect a customer with a merchant. Shares surged more than 21% on Friday on six times average volume. The stock finished the week at $0.40, up a nickel.
USA Technologies, Inc. (OTCBB: USAT), a developer of cashless vending and energy management products, announced record revenue for its fiscal year 2007 first quarter ended September 30, 2006. USAT had revenue totaling $2.0 million, an increase of 47% over the prior fiscal year. Gross profit was $615,536, an increase of 95% over gross profit of $314,927 for the three months ended September 30, 2005. The 47% increase in revenue was largely due to accelerating sales of the company’s e-Port® cashless payment product and strong sales of its EnergyMiser® energy management solutions. Perhaps more significantly, MasterCard® said 5,000 additional self service point-of-sale terminals, including vending machines, will be equipped with USAT’s e-Port® cashless transaction solution, which will begin accepting MasterCard® PayPass™. The deployment is the largest rollout to date of contactless technology in self service point of sale and vending machines and follows the recent successful deployment of the company’s e-Port by MasterCard and USA Technologies in vending machines in Philadelphia and the surrounding tri-state area. While the sale will generate approximately $2 million in revenue for USAT, it will also generate significant recurring revenue, which represents a key element in the company’s business model. Shares ended the week at $6.65, up $0.65.
GS AgriFuels, majority owned by environmental business development company GreenShift Corporation (OTCBB: GSHF), announced the company’s recent acquisition of nearly 10% of ZeroPoint Clean Tech, Inc. for $2.5 million. ZeroPoint is a development stage company commercializing patent-pending and proprietary biomass gasification, gas-to-liquids, gas processing and fuel reforming, and evaporation technologies. ZeroPoint’s Biomass Gasifier is designed to standardize variable cellulosic and other biomass feedstocks and optimize high yields of high-quality syngas in real-time with greatly increased capital and operating cost efficiencies at much smaller scales as compared to traditional gasification technologies. ZeroPoint has successfully demonstrated the capabilities of its technologies in a small scale pilot processing plant and it is currently building a commercial scale pilot plant based on its technologies at Clarkson University in Potsdam, New York. Under the terms of GS AgriFuels’ investment agreements with ZeroPoint, the company also received an option to purchase another 4% of ZeroPoint. Shares ended the week down a penny at $0.12
SLS International (OTC: SLSZ), a leading provider of premium quality sound systems for professional, cinema and home entertainment markets, reported third quarter results for the period ended September 30, 2006. The company generated revenue of $1.3 million, an increase of 4.2% compared to the year-earlier period which included a large, single shipment of introductory Q Line systems. SLS had gross profit of $392,854, an increase of 8.7% compared to $361,289 in the fiscal 2005 third quarter and had a loss from continuing operations of $1,717,158, compared to a loss from continuing operations of $2,952,023 in the 2005 third quarter. The company generated a 45% increase in revenue from its “core” Professional products during the third quarter, compared to the year-earlier period. During the quarter, the company entered into a distribution agreement with the Nationwide Marketing Group (NMG), under which NMG has begun to market the Q Line Silver System to a larger group of retailers. Shares ended the week up 3 cents at $0.20. Note that the company was delisted from the American Stock Exchange and is now trading on the Pink Sheets. The company plans to apply for a listing on the Bulletin Board.
CompuPrint, Inc., an energy technology company that combines satellite-based technology with traditional exploration services, which does business through Terra Insight Corporation, its wholly owned subsidiary, has reincorporated and changed its name to Terra Energy & Resource Technologies, Inc (OTCBB:TEGR). The move should generate broader interest from the investment community, as the company’s new name now reflects its business model and technology. The company’s common stock now trades on the OTC Bulletin Board with the ticker symbol of “TEGR”. The stock ended the week up 5 cents at $0.29.
Junior oil and gas producer Strategic Oil & Gas, Ltd. (TSX Venture: SOG), announced that, subject to regulatory approval, it will offer, on a non-brokered basis, up to 2 million units at $1.25 per unit, to be issued on a 100% flow-through basis. Each unit consists of one common share and one half of a warrant. Each whole warrant will entitle the holder to subscribe for an additional common share for $1.60 for 12 months from closing. Funds from this private placement will be used to meet anticipated drilling and completion costs in respect to the company’s current 2006 and planned 2007 drill program. The stock ended the week at $0.98, down $0.24.
Junior oil and gas producer, Patch International Inc. (OTCBB: PTCH), announced last week that the company was forced to forego payment of its previously announced proposed dividend to shareholders. Patch had proposed the distribution of a cash dividend on a pro-rata basis of 50% of the net proceeds of the sale of its investment in Pharmaxis. The payment of the cash dividend was deferred until restrictions on the Pharmaxis shares were lifted and the sale of shares sold in the market nearly completed. As the company approached the preferred payment date, it sought approvals from all applicable regulatory authorities. Despite its efforts, the NASD and the Securities and Exchange Commission have not approved an “ex-dividend” or record date of July 30, 2004, more than two years prior to the company’s desired dividend payment date. Instead, cash will be used towards the company’s oil and gas work programs and for general working capital purposes. Patch also announced that it has acquired a further 8 sections (5,061 acres) of oil sands leases at the recent Alberta Crown sale. These leases are contiguous or close to some of its existing oil sands holdings held in Patch Oilsands Limited Partnership, in which the company is the 75% majority partner. These new leases are 100% owned by Patch and are part of Patch’s strategy to grow a strategic mass of oil sands properties that would more readily allow for development to production at a future date if economic quantities of oil sands were found to exist on these properties after a work program. Shares ended the week up $0.05 at $0.85.
On the Wires: Auriga Laboratories, Inc. (OTCBB: ARGA), a specialty pharmaceutical company driving high-growth revenues through acquisition of valuable brand portfolios and innovative drug development programs, announced that the company has appointed Charles R. Bearchell, CPA, JD, as its new Chief Financial Officer. Mr. Bearchell has wide-ranging experience in directing finance and accounting operations for a variety of companies in the medical, aircraft, online service, furniture, consumer products and service industries.
We would like to wish all of our readers a Happy Thanksgiving.
