10/22/2006
VOLUME 260
Companies featured in the current edition of the newsletter: ADSX, ARGA, CPPT, EMIS, ENZ, FMTI, GNBT, GSHF, HYTM, HSOA, IMMG, NTST, OXMI, PTCH, QTXB, SFP, SLS, UDTT, USAT, VOIP
Solid earnings reports, reassuring news on inflation and declining energy prices provided the necessary ingredients for the Dow to eclipse 12,000 for the first time ever, as the Dow built on recent gains, which has seen it advance 12% this year, to close at 12,0002, up 55 points. The Nasdaq fell 4 points, reducing its year to date gains to 6.2%. The S&P 500 added 5 points, increasing year to date gains to 9.6%. The Russell 2000 also finished the week up 5 points increasing its year to date average to 13.2%. Once again, small cap stocks continue to outpace their larger peers.
A tame Consumer Price Index report last week, as well as declining crude oil prices (November contract down $2.07 per barrel) supported recent gains by the indexes. While many pundits feared that third quarter earnings would end the string of double-digit earnings growth, results to date suggest another quarter of robust increases. The 138 of S&P 500 companies that have reported results to date have shown profit growth of 15.6%. With few companies warning about fourth quarter results, prospects for the fourth quarter appear bright.
What should investors look for in the upcoming week? Earning season continues to flow steadily with more market moving companies announcing earnings results. Monday, before the bell, will be busy as investors can expect to see announcements from AT&T (NYSE: T), Halliburton (NYSE: HAL), Ford Motor Company (NYSE: F), and Xerox (NYSE: XRX). The action continues over the course of the day with a mid-day announcement from American Express (NYSE: AXP) and after the market closes as Kraft Foods (NYSE: KFT), Amgen (Nasdaq: AMGN), and Texas Instruments (NYSE: TXN) post results. Tuesday, pre-market announcements from Bell South (NYSE: BLS), railroad operator Burlington Northern Santa Fe Corp (NYSE: BNI), Countrywide (NYSE: CLC), DuPont (NYSE: DD), Lockheed Martin (NYSE: LMT), and appliance giant Whirlpool (NYSE: WHR) will set the stage for trading that day. Insurance provider Aflac (NYSE: AFL) and e-commerce company Amazon (Nadaq: AMZN) announce earnings after the bell on Tuesday. Look for earnings announcements from Boeing (NYSE: BA), Colgate Palmolive (NYSE: CL), automobile giant General Motors (NYSE: GM), Reynolds American (NYSE: RAI), and waste services provider Waste Management (NYSE: WMI) before the market open on Wednesday. Anheuser Busch (NYSE: BUD) announces earnings mid-day and Symantec (Nasdaq: SYMC) reports its numbers after the bell. Thursday action begins with pre-market announcements from insurance provider Aetna (NYSE: AET), Auto Nation (NYSE: AN), Blockbuster (NYSE:BBI), Comcast (Nasdaq: CMCSA), Dow Chemical (NYSE: DOW), Exxon Mobil (NYSE: XOM), Kellogg (NYSE: K), Royal Caribbean (NYSE: RCL), and US Airways (NYSE: LCC). Microsoft (Nasdaq: MSFT) and SunMicrosystems (Nasdaq: SUNW) announce earnings after the close on Thursday. As the week comes to a close, investors can expect to see announcements from Avon (NYSE: AVP) and Chevron (NYSE: CVX) before the open on Friday.
The economic news for next week will be tame and without a specific focus, but investors can expect to see news pick up by mid-week. September Existing Home Sales will be announced mid-morning Wednesday, followed shortly by Crude Inventories. The big news for the day, and the week, will be the announcement of the FOMC policy statement in the early afternoon on Wednesday. Expectations are that the Fed will again leave interest rates unchanged, and likely not alter its language on monetary policy. September Durable Orders and the weekly unemployment claims will be announced before the market opens on Thursday. Look for the September Help Wanted Index and September New Home Sales announcements before noon on Thursday. Other economic news for Thursday includes a speech by Fed Gov Randall Kroszner on banking regulations and Gary Stern, President Federal Reserve Bank of Minneapolis, will attend the World Bank conference as a panel member. Friday’s announcements include the widely watched Q3 GDP & Chain Deflator and the October Michigan Sentiment Index.
The conference schedule for next week is short and begins Sunday with the five-day Oracle OpenWorld event held in San Francisco. Monday conferences include the two-day Johnson Rice & Company Consumer Conference in New Orleans. The two-day Sanders Morris Harris Middle Market Investor Growth Conference will begin Monday in New York. Home Solutions of America (NASDAQ: HSOA) will present at the event on Tuesday at 10 a.m. The two-day Financial Research Associates Biofuels Finance & Investment Seminar in New York begins Tuesday.
Hythiam, Inc. (NASDAQ: HYTM), a healthcare services management company that licenses the PROMETA™ physiological protocols designed to treat substance dependence, announced via an 8K last week that it had inked its first license agreement for direct third party reimbursement of Hythiam’s PROMETA Protocols for alcoholism and stimulant dependence. The filing detailed that the third-party payor provides medical and behavioral health services for a specific patient population, with a high prevalence of both alcoholism and stimulant dependence, of approximately 5,500 individuals. Hythiam will receive its negotiated government reimbursement rate of $2,500 per individual treated for substance dependency with the PROMETA Protocols. It is expected that treatment of patients will commence immediately upon the completion of training. We believe that this agreement represents a milestone event for the company, and positions it to enter into additional deals with licensees that are even more significant. Moreover, with Prometa’s success within this patient population, broader reimbursement for similar populations throughout the U.S. can be achieved. Shares ended the week at $7.34, up 88 cents.
Volume Alert: Shares of small appliance maker Salton, Inc. (NYSE: SFP), jumped 15 percent on Friday on more than 10 times average volume, after one of the company’s largest shareholders said in an regulatory filing that it would like to acquire the company. Harbinger Partners, which owns 15% of the company’s stock on a convertible basis, recently acquired small appliance maker and rival Applica Inc. Harbinger, which has representation on Salton’s Board of Directors, has proposed a merger of the companies in a move that would likely reduce costs significantly. Salton recently announced fiscal results for its fourth quarter and year ended July 1, 2006. Salton reported net sales of $129.5 million and a loss of $50.8 million or ($3.57) per share for its fiscal 2006 fourth quarter compared to net sales of $151.2 million and a loss of $28.8 million or ($2.53) per share for the fiscal 2005 fourth quarter. Net sales decreased domestically by $29.7 million. The loss in the 2006 fourth quarter included a pretax charge of $21.9 million for non-cash intangible asset impairments associated with certain trade names and a $3.4 million non-cash valuation allowance against certain foreign deferred tax assets. Salton’s sales were $636.0 million for the year ended July 1, 2006 compared to $781.7 million in fiscal 2005, a reduction of $145.7 million. Domestic sales declined by $124.2 million due to the impact of the sale of the tabletop product lines in September 2005, inventory shortages, vendor and customer uncertainty, post-holiday overstocks at retailers and planned product discontinuation. Despite the weak results, Salton dramatically improved its balance sheet. It had, at year-end, approximately $293 million in indebtedness, net of approximately $44 million of cash, swap valuation and accrued interest on senior secured notes compared to $429.3 million as of July 2, 2005, net of approximately $21.9 million of cash and swap valuation. The company said that additional revenue from new product offerings as well as continued cost reductions are designed to return it to profitability. Shares ended the week up $0.21 at $2.35.
Volume Alert: Shares of life sciences company Forbes-Medi-Tech Inc. (NASDAQ: FMTI) surged 7.3% last week on more than five times average volume, as investors have begun to focus on upcoming results from its Phase 2 clinical trial of cholesterol-lowering drug FM-VP4 which are expected to be announced in VP4 was recognized last week as one of “Windhover’s Top 10 Unpartnered Cardiovascular Projects” for 2006 in a selection by an independent committee assembled by Windhover Information, a leading provider of business information products and services to senior executives in the pharmaceutical, biotechnology, and medical device industries. Results from the company’s first Phase 2 trial of VP4 were disappointing due to factors, we believe, relating to trial design rather than the drug’s efficacy. The primary 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. Significant growth in sales of cholesterol absorption inhibitors confirms the strength of the alternative therapy market for cholesterol lowering. FM-VP4 is one of few other inhibitors in development and, as such, has the potential to achieve a significant market share. Shares ended the week up $0.17 at $2.50.
Volume Alert: Shares of drug delivery company Emisphere Technologies (NASDAQ: EMIS) surged 7.6% last week on more than three times average volume, as investors have bid the stock higher in anticipation of the company announcing results from its Phase II oral insulin trial. The double-blind placebo controlled trial, which consists of 140 patients, was conducted in India. The trial was completed in September, and results are expected to be reported shortly. With approximately 25% of the float short, a favorable outcome could send shares soaring. The stock ended the week at $10.35, up 73 cents.
As we speculated last week, Home Solutions of America, Inc. (NASDAQ: HSOA), a provider of recovery, restoration and rebuilding/remodeling services, filed an 8K in which it provided the results of the audit of Fireline Restoration, a privately held restoration services company it acquired in August. The audited results contained few surprises, as Fireline showed dramatic growth in revenue ($4 million in fiscal 2003 which increased to $53 million in fiscal 2005), followed by a decline in revenue during the first half of 2006 ($18.6 million for the first six months) due to the absence of hurricanes. These results suggest that the acquisition could be mildly accretive in fiscal 2006, although they say nothing about HSOA’s overall prospects for the second half of the year, or whether it will meet its aggressive guidance of revenue for the full year of $160 to $165 million and diluted EPS of 56-60 cents. The acquisition of Fireline, however, will provide the company with the necessary pool of labor to complete larger projects, and should help the company meet its financial targets this year. While it is difficult to be an aggressive buyer of the stock until the company provides greater visibility into the second half of its fiscal year, which could occur when it presents at the Sanders Morris Investor Conference on Tuesday, it is unlikely that the stock would trade at significantly lower levels if the company is able to meet its financial targets, even with the acquisition included. Note that short interest is approximately 39% of the float. Shares ended the week at $5.57, down 54 cents.
Generex Biotechnology Corporation (NASDAQ: GNBT), a leader in the area of buccal drug delivery, filed its Form 10-K Annual Report for the fiscal year ended July 31, 2006 last week. The statements rt disclosed that Generex had cash, cash equivalents, and short-term investments in excess of $52 million which was the strongest financial position in the company’s history. Unlike previous reports, the auditor’s report in respect of those financial statements does not include a “going concern” qualification. The company also recently made a podium presentation at the 2006 Canadian Diabetes Association (CDA) Professional Conference and Annual Meetings in Toronto, Canada. The stock ended the week down $0.28 at $2.06.
Netsmart Technologies, Inc. (NASDAQ: NTST), a leading provider of enterprise-wide software for health and human services organizations, announced that the company had been awarded contracts totaling approximately $1.9 million over periods of up to three years for state-level behavioral healthcare software and services implementations in New York, Hawaii, Idaho and Arizona. Netsmart will continue to provide ASP hosting services to the State of New York Office of Alcoholism and Substance Abuse Services (OASAS) in support of the rollout of the Netsmart Avatar software. The three-year agreement for ASP hosting is designed to minimize up-front costs and software hosting and maintenance resource requirements for OASAS. OASAS has implemented Avatar PM (Practice Management) and Avatar CWS (Clinician Workstation) to support their day-to-day registration, billing and clinical documentation needs. In addition to Avatar software, Netsmart will support OASAS’s use of Crystal reports. The company will also provide licensed software, integration tools and implementation services, including HL7 interfaces, for the MediWare WORx(TM) medication management system for the State of Hawaii Department of Health. The MediWare system contract is an amendment that increases the products and services to be provided under an existing three-year agreement for a Netsmart- implemented integrated clinical management system designed to enable the state to effectively serve behavioral healthcare clients statewide. The stock ended the week up $0.24 at $13.32.
VeriChip Corporation, a subsidiary of Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, announced that 67 new healthcare facilities agreed to adopt the VeriMed Patient Identification System Network at the recently completed American College of Emergency Physicians Conference in New Orleans last week. The new healthcare facilities agreed to use the VeriMed reader as standard protocol to scan patients that arrive in emergency rooms unconscious, delirious or confused. The company continues to provide readers to hospitals and other healthcare facilities at no charge as part of its efforts to “seed” the infrastructure for the VeriMed patient identification system. The new healthcare facilities bring the total number of hospitals and healthcare facilities that have agreed to adopt the VeriMed System, to 252, well ahead of the company’s forecast. The VeriMed System, which consists of a hand-held radio frequency identification (RFID) scanner, an implantable RFID microchip, and a secure patient database, is being used to help rapidly identify and provide access to important health information on participating patients who arrive at the emergency department unconscious, delirious, or unable to communicate. The stock ended the week down 2 cents at $1.64.
SLS International (AMEX: SLS), the leading provider of premium quality sound systems for professional, cinema and home entertainment markets, announced that a dismissal has been entered by the Los Angeles Superior Court with regards to a lawsuit that had been filed against SLS and other parties by Jimmy Iovine and Andre Young. The lawsuit claimed that SLS had breached an oral contract relating to the design and promotion of certain patent pending headphone technology owned by SLS International. SLS was the only defendant dismissed from the lawsuit. The company feels that the dismissal will allow the company to move forward with other possible licensing agreements for its patent pending noise canceling headphone technology and other patented products. The stock ended the week down 2 cents at $0.19.
VoIP, Inc. (OTCBB: VOII),a leading provider of Voice over Internet Protocol (VoIP) communications solutions for service providers, resellers and consumers, announced that it has completed the first phase of its restructuring, streamlining operations, reducing its overall level of indebtedness and raising additional capital. The initiatives are expected to improve the company’s balance sheet and enhance operating results. The company will continue to pursue initiatives to increase efficiency. The company announced that it has terminated its Marketing and Distribution Agreement with Phone House, Inc., under which it was responsible for the wholesale distribution, marketing and selling of low-margin prepaid telephone calling cards by Phone House, Inc. VoIP has also entered into an agreement with certain investors where they converted approximately $7 million in debentures into common stock, and separately raised $2.3 million via a private placement, providing working capital for the continued development and marketing of its VoiceOne suite of services. Shares ended down a cent from last week and closed at $0.41
Specialty pharmaceutical company Auriga Laboratories, Inc. (OTCBB: ARGA) said last week that it had filed a new provisional patent application for a novel expectorant treatment option for inclusion in several of the company’s proprietary prescription drug products as well as strategic new indications. The recent filing employs select, innovative drug delivery technologies to administer the active ingredient and select combinations in prescription and potentially over-the-counter respiratory products. This will allow Auriga to further extend market exclusivity for its proven pharmaceutical brands. The company also recently finalized an agreement with River’s Edge Pharmaceuticals that significantly expands its product portfolio with an exclusive license to five new prescription dermatological product formulations. The agreement marks Auriga’s third major product acquisition or exclusive license in less than two months. It also enables the company to add the $5 billion dermatology marketplace to the growing list of medical therapeutic segments addressed by its products and development programs. Americans make more than 35 million visits to dermatologists each year, resulting in millions of prescriptions to address skin disorders and conditions. The agreement calls for River’s Edge to present Auriga with five single source dermatology pharmaceutical formulations for launch in the 1st quarter of 2007. The stock ended the week up 4 cents at $1.55.
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 that the company has received an initial payment from an exploration affiliate of a multi-billion dollar company to provide its proprietary satellite-based STeP® technology report to locate diamonds in a more than 1,000 square kilometer area in the Republic of Congo. The September 2006 service contract also provides for the company to receive, in addition to its undiscounted service rates out of project revenues, a 1% free participation interest and a 5% working interest in the project. The company has begun its preliminary analysis of the contracted prospect to determine the location of the kimberlite pipe(s) which is the potential source of the alluvial diamonds already found in the license area. The company’s co-venturer has already built a campsite to support the exploration activities. In preparing its analysis, the company utilizes proprietary STeP technology, which is based on interpretation of satellite data, to effectively identify kimberlite pipes containing diamonds, and for finding other natural resources subsurface, including oil and gas, gold and even water. The stock ended up 2 cents at $0.22.
GS AgriFuels Corporation announced the conversion by environmental business development company, and majority shareholder, GreenShift Corporation (OTCBB: GSHF), of its GS AgriFuels preferred stock into common stock. The conversion brings the company’s outstanding common stock to about 28 million shares, of which GreenShift holds 26 million. This amount does not include the impact of the GS AgriFuels’ June 2006 financing agreements with Cornell Capital Partners, LP, pursuant to which Cornell agreed to provide GS AgriFuels with $22 million in financing to support GS AgriFuels’ development efforts. Under the relevant financing agreements, Cornell agreed to purchase $22 million in GS AgriFuels debentures that are convertible into GS AgriFuels common stock at $3.00 per share. Cornell provided an initial $5.5 million of this amount in June 2006 and agreed to provide the balance in line with GS AgriFuels satisfaction of key benchmarks in its development plans. The company also recently announced its execution of an agreement to acquire NextGen Fuel, Inc., a producer of modular, continuous-flow multi-feedstock biodiesel process equipment based on NextGen’s patent-pending process intensification technology. Under the terms of the acquisition agreement, GS AgriFuels will acquire 100% of the stock of NextGen in return for about $20 million. The closing of the acquisition is subject to GS AgriFuels’ completion of financing and the agreement is terminable if the acquisition does not close on or before November 15, 2006. GS AgriFuels is currently developing several sites for the construction of its planned agrifuel production facilities. GS Carbon Trading, Inc. announced that its TerraPass division teamed up last month with Expedia to decrease the amount of carbon emissions released into the environment from air travel. GS AgriFuels Corporation also announced its execution of an agreement to merge with GS Energy Corporation. GreenShift Corporation, which currently owns about 90% of GS AgriFuels and about 80% of GS Energy in the form of preferred stock, will exchange its GS Energy stock for GS AgriFuels stock such that GreenShift will own about 85% of GS AgriFuels after completion of the merger. Shares ended the week unchanged at $0.12.
Volume Alert: Shares of IMPART Media Group, Inc. (OTCBB: IMMG), an innovator in the creation of out-of-home digital advertising content and information network management, surged 64% on more than 10 times average volume last week, after the company announced that it had been named supplier for Microsoft Corporation’s in-store interactive marketing initiatives for both the ZUNE™ personal media player and upcoming, Vista™ operating system release. The merchandising system employs an LCD touch screen and is based on the Microsoft XP Embedded(TM) platform — delivering a rich media experience to the consumer — at the point-of-sale. IMMG also said that it had recently reduced operating costs and overhead by approximately $100,000 per month. The stock ended the week up $0.32 at $0.82.
USA Technologies, Inc.(OTCBB: USAT), a developer of cashless vending and energy management products, announced the EnergyMiser® Conversion Program to aid vending machine owners and operators nationwide with conversion of their installed vending machines to meet ENERGY STAR requirements. The EnergyMiser Conversion Program is a comprehensive turnkey package of services and technology provided by USA Technologies for bottlers to capitalize on the new ENERGY STAR Refurbishment Program. This announcement came days after the Environmental Protection Agency announced the Rebuilt Beverage Vending Machine Program under which older and existing machines will be able to qualify for ENERGY STAR eligibility and carry the ENERGY STAR label. There are four million refrigerated vending machines in the U.S. alone, and of that installed base, approximately 200,000 are refurbished and remanufactured each year and USA Technologies has developed three critical services required to convert a used refrigerated vending machine into an ENERGY STAR vending machine. USA Technologies is listed as one of five vending machine manufacturers and component suppliers on the EPA’s ENERGY STAR web site for the rebuilt program. The stock ended down $0.25 at $6.20.
Junior oil and gas producer, Patch International Inc. (OTCBB: PTCH), reported that it has agreed to participate in a natural gas prospect located in northeast British Columbia by way of farmin and option. The company has entered into a Participation and Option Agreement with an Area of Mutual Interest (“AMI”) covering 35 square miles of land in northeast BC, located south of Fort St. John, called the Eight Mile Prospect (“Eight Mile”). PTCH has committed to drill and complete two wells in the initial program with drilling to commence during October 2006. The drilling of each commitment well will result in the earning of the section on which the commitment well is located plus an additional contiguous section. PTCH will have a continuous option following the drilling of the two commitment wells to earn a further interest in the remaining sections. The Farmor holds a 100% interest in 21 sections (21 square miles) within the AMI and the majority of the farm-out lands are contiguous. Under the terms of the Agreement, PTCH will pay 20% of the Farmor’s share of drilling and completion costs. For each earning well, PTCH will earn 20% of the Farmor’s working interest in the section, subject to a 12% convertible overriding royalty before payout and a 12% working interest after payout and a 12% working interest in a second contiguous section. Patch’s share of equipping and tie in costs will be based on its after payout working interest. Drilling of the proposed locations will target natural gas in the Triassic Doig formation as the primary zone with secondary targets in the Charlie Lake and Halfway zones. Shares ended down at penny at $0.84.
On the Wires: Auriga Laboratories, Inc. (OTCBB: ARGA) announced the appointment of biopharmaceutical industry veteran, Stephen C. Glover to the company’s Board of Directors, where he will provide important background and advice as Auriga expands its prescription drug marketing and product development programs. Enzo Biochem, Inc. (NYSE: ENZ), developer of innovative health care products based on molecular biology and genetic engineering techniques, announced the appointment of Gary C. Cupit, PharmD, to the newly created position of President of Enzo Therapeutics, Inc. Dr. Cupit is a senior executive with 20 years experience in the pharmaceutical industry who formerly headed Global Search and Evaluation in Business Development and Licensing for Novartis Pharmaceutical Company. Oxford Media, Inc. (OTCBB: OXMI), a leading developer of scalable, turnkey hybrid digital VOD and PPV entertainment systems, announced that it has appointed WiMAX visionary Hooman Honary as its Chief Technology Officer. Mr. Honary played an integral role in the development of wireless technology and strategies during his tenure at both Intel Corporation and Broadcom Corporation. Small appliance maker Salton, Inc. (NYSE: SFP), announced that William B. Rue has decided to retire from his positions as President and Chief Operating Officer and Director of the company, effective immediately. Mr. Rue will continue as consultant to the company for a transition period assisting in its business operations. QuantRx Biomedical Corporation (OTCBB: QTXB), a medical technology company with leading edge products targeting worldwide health needs, announced that its company information will be made available via Standard & Poor’s Market Access Program.
