Companies featured in the current edition of the newsletter: ACTC, AMAR, CGXP, CORG, CYTR, FMTID, GNBT, HSOA, IASCA, IFSG, MSHI, SEE.V, SMGY, SWVC, TAGS, TKO
In mixed trading last week, indexes diverged as strong gains on Monday where offset by losses later in week. The Dow lost 145 points for the week increasing its year-to-date loss to 7.9%. In similar fashion, the S&P fell 15 points contributing to a 10.4% decline this year. Meanwhile, the technology-oriented Nasdaq index stood its ground with a 3-point weekly gain, trimming its year-to-date loss to 14.7%, and the small-cap-heavy Russell rose 2 points, paring annual losses to 10.8%.
Last week started on a bullish note as JP Morgan Chase raised its bid for troubled Bear Stearns to $10 per share from $2 per share. The market also reacted favorably to existing home sales report for February, which showed the first monthly increase in a year of 2.9%. However as the week progressed, familiar concerns about the economy were able to cast a dark shadow over the stock market as several banks and brokerages witnessed their earnings forecasts getting reduced, while oil prices topped $107 per barrel, and both Oracle (NASDAQ: ORCL) and JC Penney (NYSE: JCP) issued cautious forecasts.
Monday marks the end to what has been a dismal first quarter for stocks, and in particular micro-cap issues. With equity markets in turmoil, the capital markets have essentially been closed to micro-cap companies for months, stoking fears that small companies will run out of money. While there are few indexes that measure the performance of smaller companies, one such Index is the Russell Microcap Growth Index, which tracks the growth of many small emerging growth issues. The Index is down 17.3% for the year, nearly 7 points below the Russell 2000 and by far the worst-performing Index among the 26 that Russell tracks.
One area that could “cheer” investors, is that investor sentiment levels are at their lowest since 1990 and second lowest since the American Association of Individual Investors (AAII) began tracking such behavior in 1987. On February 7, the eight-week moving average bull/bear spread reached the low of -25% and has since hovered below -20%. In the seven times that has happened since 1990, one-year returns for the S&P 500 have averaged 18%, while gains for small-cap value-oriented stocks have been 33%. History has also shown that when sentiment levels reach such extremes it has marked “bottoms” in the market.
What should investors look for in the upcoming week? Investors will turn their attention to economic data being released for further insight on the current economic turmoil. The March Chicago PMI will be reported at 9:45 on Monday. Tuesday morning Auto and Truck Sales will be announced, followed by the March ISM Index and February Construction Spending at 10am. Shortly after the opening on Wednesday, March ADP Employment Report, February Factory Orders, and Weekly Crude Inventories will be released. Weekly Jobless claims and March ISM Services will be reported on Thursday morning. Friday morning will be active as the March Average Workweek, Hourly Earnings, Nonfarm Payrolls and Unemployment Rate are scheduled to be released at 8:30AM.
This week will feature few prominent earnings reports. Shaw Group (NYSE: SGR) will announce earnings Monday before the market opens. Wednesday will be the busiest day of the week with announcements from Best Buy (NYSE: BBY), CarMax (NYSE: KMX), MasterCard (NYSE: MA), Monsanto (NYSE: MON), Micron (NYSE: MU), and Research In Motion (NASDAQ: RIMM). Mosaic (NYSE: MOS) will announce earnings on Thursday before the bell. Much more earnings activity will follow next week when aluminum giant Alcoa (NYSE: AA) officially kicks off this earnings season with an announcement on April 7.
The conference schedule is busy as Credit Suisse holds its four-day 11th Annual Asian Investment Conference in Hong Kong starting Monday. The four-day CTIA Wireless 2008 Conference also kicks off on Monday in Las Vegas. Additionally, Sanford C. Bernstein will hold its one-day Small Cap Oil Exploration & Production Conference in New York on Monday. On Tuesday, B. Riley & Company’s four-day Annual Investor Conference kicks of in Las Vegas. On Wednesday, Dresdner Kleinwort hosts a three-day Consumer Staples Conference in Frankfurt; while Morgan Stanley starts its two-day Global Electricity & Energy Conference in New York. On Thursday, Fortis Bank will bring a its one-day Biotechnology conference to investors in London.
Generex Biotechnology Corporation (NASDAQ: GNBT), the leader in drug delivery for metabolic diseases through the inner lining of the mouth, announced that it has received a purchase order for 210,000 canisters of Generex Oral-lyn, the company’s proprietary oral insulin spray product, from Shreya Life Sciences Pvt. Ltd., the company’s distributor in India. This is the first Indian commercial order for the Company’s flagship product. This order signifies Shreya’s commitment to a successful commercial launch of the product in the Indian market. A research note from Rodman & Renshaw (Market Outperform, price target $6) last week noted that, “The order indicates Shreya’s significant commitment to commercializing Oral-lyn in India, which received regulatory approval to sell the product in India in October 2007. As the fourth largest distributor of insulin in the Indian diabetes market and a major player in key therapeutic segments of metabolic diseases, we believe Shreya’s commitment to a successful Oral-lyn launch bodes well for significant share gains in India.” Generex Oral-lyn is presently in Phase III clinical trials at several sites around the world. Spurred by the news, shares gained 23 cents last week to close at $1.12.
CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical company engaged in the development and commercialization of human therapeutics, announced that it has filed a response with the U.S. Food and Drug Administration addressing issues cited by the FDA in its decision to place a clinical hold on the company’s Phase IIb clinical trial with arimoclomol for the treatment of amyotrophic lateral sclerosis. The company will continue working with the FDA to determine the need, if any, to conduct additional toxicology or other studies before or concurrently with the resumption of its Phase IIb clinical trial, or to modify the protocol for this trial. The shares were down 2 cents last week, closing at $1.17.
Earnings Preview: Telkonet, Inc. (AMEX: TKO), the leading provider of innovative, centrally managed solutions for integrated energy management, networking, building automation and proactive support services, will report 2007 fourth quarter and year-end results on Tuesday, April 1st after the market closes. The report will be the first one delivered by the new management team, which took over in December. The company is expected to continue to add to its recent revenue growth as previously reported sales for the first nine months of 2007 of $9.5 million were already well above full-year sales in 2006 of $5.2 million. Similarly, third quarter 2007 loss of $5 million was only half as much as the loss in the prior-year period. Investors will be looking for Telkonet to report continued progress for the fourth quarter as well. Separately, the company also announced last week a partnership with Mainline Information Systems, one of IBM’s largest business partners. The company is working with Mainline to offer secure, robust and reliable wired network connectivity, enabling high performance IP video surveillance in any location with an existing electrical infrastructure. As part of its innovative digital video surveillance solution, Mainline will be utilizing Telkonet’s proven powerline communications technology to address applications where traditional cabling is not a viable option because of the type of structure, environmental concerns or cost. The stock gained 12 cents last week, closing at $0.76 per share.
Tarrant Apparel Group (NASDAQ: TAGS), a design and sourcing company for private label and private brand casual apparel, released its financial results for the three months and year ended December 31, 2007. Despite a challenging economic environment, the company reported an increase in sales and earnings in 2007. For the twelve months ended December 31, 2007, Tarrant Apparel had net sales of $243.7 million compared to $232.4 million in the same period in fiscal 2006. However, the company’s fourth quarter sales of $53.7 million were a slight decrease compared to $57.4 million in the same period 2006. The company also reported net income of $1.7 million in the 2007 fiscal year, compared to a net loss of $22.2 million in fiscal 2006. Propelled by the announcement, the stock gained 10 cents last week, closing at $0.70 per share.
Shares of Advanced Cell Technology, Inc. (OTCBB: ACTC), a biotechnology company that engages in the development and commercialization of human stem cell technology in the field of regenerative medicine, could get a boost this week as the company’s technology is expected to be featured on a show on ABC Television called “Live to 150, Can You Do It?” hosted by Barbara Walters Tuesday night. The show will highlight the company’s technology for developing life-preserving stem cell lines without destroying the embryos. Shares ended the week unchanged at $0.17.
Amarillo Biosciences, Inc. (OTCBB: AMAR), a company that engages in the research and development of biologics for the treatment of human and animal diseases, announced that it has entered into a license and supply agreement with CytoPharm, Inc., a Taipei, Taiwan-based biopharmaceutical company whose parent company is Vita Genomics, Inc., the largest biotech company and specialty Clinical Research Organization in Taiwan specializing in pharmacogenomics. Under the terms of the agreement, CytoPharm and its subsidiary will conduct all animal clinical trials and seek regulatory approvals in both China and Taiwan to launch ABI’s low dose oral interferon for animal diseases. This agreement is of major significance to ABI because its low dose oral interferon will be tested in diseases which annually impact livestock worldwide. The stock gained 7 cents last week to close at $0.33.
Ceragenix Pharmaceuticals, Inc. (OTCBB: CGXP), a biopharmaceutical and medical device company focused on infectious disease and dermatology, announced that it has entered into a license agreement with FirstPoint Biotech, Inc., a privately held biopharmaceutical company, for the development of CSA-54 and other members of the Ceragenin family of preclinical compounds for use as potential systemic and topical therapies in the treatment and prevention of HIV and sexually transmitted diseases. The agreement covers the potential use of these compounds as both drugs and incorporation into medical devices such as condoms, sprays or gels. FirstPoint Biotech will have the responsibility to undertake the clinical development and commercialization of these compounds within these fields of use and Ceragenix will provide ongoing consultation. The stock reacted favorably to the news, gaining 12 cents to close the week at $1.02
Cordia Corporation (OTCBB: CORG), a global communications service provider of traditional CLEC and Voice over Internet Protocol technologies, announced that it will commence wireline service offerings in Michigan, Ohio, Illinois and Texas through an agreement with McLeodUSA Incorporated, a competitive communications carrier for businesses that was recently acquired by PAETEC Holding Corp. The company’s anticipated services include value-driven bundled offerings of traditional local, long distance, toll-free calling and DSL services to customers in these states. This new agreement not only expands the company’s geographic service area but also broadens its underlying service provider portfolio. The stock ended the week at $0.52, down 4 cents.
IAS Energy, Inc. (OTCBB: IASCA) announced that in addition to Video1314.com’s Chinese Web 2.0 platform which is similar to YouTube, the company has successfully launched “Marketplace.” Marketplace is Video1314′s platform that enables its members and users to buy and sell goods and services using its video technologies. The platform creates a unique customer experience through the display of featured items on the site, which is designed to drive a greater level of e-commerce activity. Users will be able to see a seller’s product in a video format rather than just a static picture. The company is also on track to completing and introducing another Chinese Web 2.0 social network, which will have similar functionalities to Facebook, before July this summer. The stock gained 5 cents last week to close at $0.30.
InfoSmart Group, Inc. (OTCBB: IFSG), a leading recordable digital versatile disc manufacturer in Hong Kong and Brazil, announced its recent purchase from the world’s only vertically integrated optical disc equipment maker. Anwell Technologies has sold their Blu-Ray Disc replication system to InfoSmart. The system will be installed in the company’s Hong Kong plant making it the first Blu-Ray Line in commercial use in China and Hong Kong. Blu-Ray production complements the company’s strategy to expand into optical discs with content and positions the company as the leader in Hong Kong and China. Shares closed at $0.27, a gain of 1 cent.
MSTI Holdings, Inc. (OTCBB: MSHI), a communications technology company that specializes in providing true quadruple play services, and Telkonet, Inc. (AMEX: TKO), a company that engages in the development and marketing of technology for the high-speed transmission of voice, video, and data communications, announced the first commercial installation of the next-generation 200Mbps Telkonet Series 5 powerline communications system, enabling broadband networking in a rapid deployment at 370 Lexington, a high-rise commercial office building located in the heart of Midtown Manhattan. MSTI and Telkonet are partnering to bring the groundbreaking Telkonet Series 5 platform to building owners throughout the Tri-State area as part of an aggressive marketing program. This first installation underlines Telkonet Series 5′s versatility for commercial Fast Ethernet network applications, enabling a building to be retrofitted with the most advanced communications infrastructure at significantly lower cost than competitive solutions. Shares of MSHI gained 11 cents last week, closing at $0.51.
Shares of Home Solutions of America, Inc. (OTC: HSOA), a provider of restoration, construction and interior services to commercial and residential customers, more than doubled last week from badly beaten down levels, after the company said that it had concluded the investigation by the Audit Committee, which should allow it to file its financial statements for 2007and regain listing on the Over-the-Counter Bulletin Board. The report appears to clear the company’s CEO of any wrongdoing. The company also took steps to bolster its management team, appointing as Chairman a large shareholder and replacing its CFO. The next event for the investment community will likely be the filing of its financial statements. Shares ended the week at $0.66, up 36 cents.
SeaMiles Limited (CDNX: SEE), North America’s premier cruise loyalty provider, announced that it has signed a definitive agreement to sell its remaining non-core real estate assets for $3.7 million. The sale is expected to close on June 16, 2008. The transaction will allow the company to eliminate its remaining real estate and convertible debt aggregating $3.6 million and result in savings to the company upwards of $400,000 per year. The sale will allow the company to improve its balance sheet, reduce operating expenses and to exclusively focus on the numerous opportunities in its core operations in order increase shareholder value. Shares gained 30 cents last week to close at $1.45.
Seaway Valley Capital Corporation (OTCBB: SWVC), a company that invests in equity, equity-related, and debt in companies that require expansion capital and in companies pursuing acquisition strategies, announced that its wholly owned subsidiary, Patrick Hackett Hardware Company, has finalized its assumption of the RadioShack franchise stores in Tupper Lake, NY and Pulaski, both former WiseBuys’ franchises. In addition to the assumption of these legacy stores, Hackett’s will be seeking to build upon and grow its relationship and partnerships with the RadioShack organization. The company also announced that it recently formed wholly owned subsidiary Seaway Realty Holdings, LLC, which was formed to manage the company’s real estate assets and will also look to acquire and develop additional commercial real estate assets. The company’s management feels that the current environment is presenting compelling opportunities to acquire or develop third-party commercial real estate projects that should eventually result in Seaway Realty as a stand alone, profit generating division. Shares remained unchanged at $0.01.
Smart Energy Solutions, Inc. (OTCBB: SMGY), a company that engages in the research and development, production, and distribution of Battery Brain, signed a 10-year distribution agreement with OnGuard Dealer Services, a specialized automotive dealer services business based in Florida, which will have exclusive nationwide rights (excluding California) to sell a private label version of the popular BatteryBrain electronic control system called the Reserve Power Module, in the new and used car dealer market segments. RPM is a specially developed product for this market segment and ensures that an engine battery will always maintain enough power to start and also prevents vehicle theft. This agreement with OnGuard provides SMGY the opportunity to rapidly increase its penetration in the American vehicle market. In addition, to the potential market of over 21,000 new car dealerships, there are approximately 40 million used vehicles sold each year. Overall, this is a tremendous growth opportunity for the company. Shares closed at $0.21, down 5 cents for the week.
On the Wires: CytRx Corporation (NASDAQ: CYTR) announced that Shi Chung Ng, Ph.D., the company’s Senior Vice President of Research and Development, will present at the Sixth International Workshop on The Molecular Biology of Stress Responses being held at the Chulabhorn Research Institute in Bangkok, Thailand.
Forbes Medi-Tech Inc. (NASDAQ: FMTID) $0.95
The pursuit of healthier lifestyles and the desire to live longer has led to a new attitude towards food. Now, more than ever before, the nutritional contents of food are scrutinized by discerning consumers in an effort to lower cholesterol and to maintain overall health. This has given rise to a new category of food products and dietary supplements referred to as “Nutraceuticals”. Nutraceuticals refer to extracts of foods claimed to have a medicinal effect on human health. The nutraceutical is usually contained in a medicinal format such as a capsule, tablet or powder in a prescribed dose. To address this growing market opportunity, Forbes Medi-Tech Inc., a Vancouver-based life sciences company that has focused on the research, development and commercialization of innovative products for the prevention and treatment of life-threatening diseases, has developed Reducol, a branded, non-GMO, clinically proven ingredient that helps lower LDL cholesterol safely and naturally.
The company’ss strategy and vision is to develop and market a portfolio of products for the benefit of all consumers, from the healthy person desiring consumer lifestyle products that can help reduce the risk of future disease, to medical patients needing therapeutic prescription products for the treatment of an established ailment. At one time, many believed that this company’s compound FM-VP4, a therapeutic for the prevention and treatment of cardiovascular disease through the reduction of cholesterol, could be the next blockbuster drug. Rumor had it that Pfizer was considering making a bid to acquire the company. However, when Phase II results were disappointing, the investment community all but gave up on FMTI, ignoring its nutraceutical business. However, that business today is anticipated to generate 2008 sales of $9.75 – $10.5 million, an increase of up to 20% compared to the range given for 2007 of $8.75 to $9.25 million (company has yet to report 2007 Q4 results).
Forbes’ scientific platform for the ingredient business is based on core sterol technology focused on the extraction of plant sterols from wood pulping by-products The company has recently established a San Diego research facility to further develop early stage pharmaceutical compounds focused on asthma and diabetes
The stock, like many small companies, has suffered mightily over the last six months. Today, it actually trades at a discount to its cash position ($5.7 million as of September 30, 2007), seemingly ignoring its nutraceutical business. If investors were to Value that business at even one times revenue, plus adding in the company’s cash position, would generate a stock price in excess of $2 per share. The company also announced earlier this month that it has secured $3.8 million in non-dilutive financing, which will further create value for investors. It also completed a reverse split in order to maintain its Nasdaq listing, which is why it will trade with a D after its symbol for a few days more. While the stock is unlikely to reach double-digits again as it did when the promise for FM-VP4 was high, at today’s valuation investors seemingly have thrown in the proverbial towel when a thriving business still exists, create the Special Situation opportunity.