08/28/2006
VOLUME 253
Companies featured in the current edition of the newsletter: ADSX, AOOR, ARSC, CLRI, CPPT, ENZ, FLWE, FSN, HMWM, HSOA, HYTM, IMMG, NTRN, PTCH, SFP, SWTS, USAT
It was a week of consolidation for the stock market. After posting their best gains in several months a week earlier, all of the major indexes retreated slightly on low volume and volatility. The Dow lost 97 points, trimming its year-to-date gain to 6.2%, while the S&P 500 gave back 7 points and is now up only 3.8% for the year. The tech-heavy Nasdaq continued to underperform as it lost 24 points to increase its year-to-date loss to 2.9%. Meanwhile, the small-cap Russell 2000 fell by 12 points, reducing its year-to-date gains to 3.9%.
The biggest news of the week was the continued weakness in housing data. On Wednesday, existing home sales for July were reported down 4.1%. Thursday brought the report that new home sales had fallen a similar 4.3% in July. Inventory of unsold home in each category rose sharply, and the median price increase in each was up less than 1% over the past year. There are concerns that economic growth is slowing substantially, and that a weak housing sector will curtail consumer spending via a negative wealth effect. Crude-oil continues to be in the spotlight as tropical storm Ernesto was upgraded to a Category 1 Hurricane this morning. The storm has the potential to further strengthen and reach theGulf of Mexico, holding out the potential to disrupt production of crude (see additional coverage of the storm below). Additionally, the Iranian situation remains uncertain. As a result, the benchmark October contract closed at $72.51 a barrel, a 0.6% gain for the week
Trading is again expected to be light this week, with few earnings reports of significance. Dollar General Corp. (NYSE: DG), H. J. Heinz Company (NYSE: HNZ), and retailer Tiffany & Co. (NYSE: TIF) all report earnings Thursday morning. Thursday after the close, H&R Block, Inc. (NYSE: HRB) posts results, while Russian mobile telecommunications provider, Vimpel-Communications (NYSE: VIP), announces results on Friday morning. On Thursday, Starbucks (NASDAQ: SBUX) will release August revenues, which could be more closely watched after disappointing July results. Friday, General Motors (NYSE:GM) and Ford (NYSE: F) report monthly car sales results.
The economic calendar will be filled with more significant events. On Tuesday morning, August Consumer Confidence will be released. Later that day, investors will pay close attention to FOMC minutes from the August 8th meeting for any insight into the Fed’s stance on inflation and interest rates. Wednesday marks the release of Weekly Crude Inventories and the preliminary Second Quarter GDP. Thursday, Weekly Jobless Claims will be announced, along with July Personal Income and Spending, July Factory Orders and August Chicago PMI. Finally, Friday brings the August Employment Report, July Construction Spending, and the August ISM Index. Dallas Fed President Fisher will speak at a luncheon in San Antonio on Tuesday and will discuss real estate on Wednesday in Dallas. Meanwhile, Fed Chairman Bernanke will speak at Clemson University on Thursday.
With Ernesto upgraded to a Category 1 Hurricane that was forecast to grow to a Category 2 storm expected to reach Cuba within the next 36 hours, shares of Home Solutions of America, Inc. (NASDAQ: HSOA), a provider of recovery, restoration and rebuilding/remodeling services, could receive a boost this week. The storm, which forecasters say may enter the Gulf of Mexico just as New Orleans marks the first anniversary of the devastating Katrina, which struck on August 29 last year, killing over 1,500 people in Louisiana and Mississippi and leaving hundreds of thousands homeless, could create a substantial amount of additional work for HSOA if it makes landfall in the U.S. by the end. While it is premature to suggest that Ernesto will cause the same amount of damage as last year’s storms or even reach the U.S., note that last year shares of Home Solutions doubled in less than a one month period beginning at virtually the same point in time last year (the final week of August), which represents the start of the peak hurricane period. Shares could be even more volatile this year, as approximately 40% of the float is short. While sentiment in the name has been lopsidedly negative, helped by a dramatic increase in short interest (rose approximately another 600,000 shares in August to 12.6 million), the stock posted small increases in price last week for three consecutive days, suggesting that sentiment could be finally turning. Last week, the company said that its subsidiary, Home Solutions Restoration of Louisiana, and a strategic partner had been awarded a contract valued at $5 million for restoration and rebuilding services in the historic French Market of New Orleans, reflecting our belief that rebuilding activity in the Gulf Region remains robust. The stock closed at $5.66, up 7 cents on the week.
Hythiam, Inc. (NASDAQ: HYTM), a healthcare services management company that licenses the PROMETA™ physiological protocols designed to treat substance dependence, has expanded access to PROMETA in Orange County, California by entering into a licensing agreement with Beau Monde Programs to initially offer its PROMETA protocols at Beau Monde’s flagship Newport Beach location, an ultra-exclusive residential treatment facility. Beau Monde Programs also operates private treatment centers in Laguna Beach and Hollywood catering to celebrities, pro athletes, executives, physicians and other high profile clientele. Orange County is a key geographic region to Hythiam and the addition of Beau Monde Programs as company’s newest licensee will help provide increased patient access for PROMETA in the Southern California region. With the company continuing to drive increased revenue from key licensees as a result of growing awareness of the protocols, the impact of new licensees should become increasingly significant. The stock ended the week at $5.24, up 1 cent.
Enzo Biochem, Inc. (NYSE: ENZ), a developer of innovative health care products based on molecular biology and genetic engineering techniques, said last week it had been granted two patent interferences designating an allowable Enzo patent application against patents held by Chiron Diagnostics and Princeton University for nucleic acid detection. An interference is a proceeding instituted by the U.S. Patent and Trademark Office when an issued 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 who will be granted patent rights to the invention. In the two interferences, Enzo is the senior party, since its original 1983 patent filing pre-dates those of Chiron and Princeton. This nucleic acid technology is the basis for several significant products in clinical diagnostics and in the life sciences field which are currently marketed or licensed by various commercial companies. According to trade reports, industry-wide annual sales of diagnostic products utilizing this technology are estimated to exceed $100 million in the United States alone. Among these products are the “VERSANT® Branched DNA (bDNA) Assays” sold by Bayer HealthCare. This is the second significant patent-related news the company has announced in the past three months. Previously, shares surged more than 50% after the company said in an 8-K that it had been granted a key patent for the detection of genetic material by polynucleotide probes. Note that August short interest rose more than 800,000 shares to approximately 20% of the float. Shares gained 42 cents week to close at $12.43.
Fusion Telecommunications International, Inc. (AMEX: FSN), a global Voice over Internet Protocol (VoIP) service provider, entered into a strategic partnership with Jinti, a rapidly growing Chinese community services site that attracts in excess of 3 million unique visitors from China each month. As part of the agreement, Fusion will market its Efonica brand of VoIP services throughout the Jinti website. In addition to category exclusivity, the Efonica service offerings will be integrated into Jinti’s consumer registration process. As visitors register for Jinti services, they will be prompted to register for Efonica’s offering. With a growing Internet community, presently numbering over 120 Million people online, China represents a key market for Fusion in the Asian Region and a tremendous opportunity for the company to continue to grow its worldwide community of users. This appears to be another cost-effective way for the company to acquire subscribers. Note that according to an article in Broadband Business, an industry trade publication, it has taken FSN less than 60 days to acquire 400,000 subscribers at less than $1 per subscriber, while it took Skype, which was ultimately acquired by eBay at a cost of approximately $2.5 billion, 51 days to acquire its first 100,000 subscribers. The article also noted that it costs Vonage $239 to acquire a customer. The stock closed at $2.00, up 3 cents on the week.
Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, announced that its VeriChip Corporation subsidiary made the first sale of a fully integrated system for infant protection, wander prevention, staff duress and asset protection to be installed in the new, state-of-the-art Brampton Civic Hospital, in Brampton, Ontario, scheduled to open in the Fall of 2007.This system will result in revenue of approximately $750,000. Additional sales should follow in the future as the healthcare market seeks a fully integrated solution like this that fits into other systems for security and nurse call. Separately, ADSX refinanced its outstanding debt by entering into a $13.5 million non-convertible debt financing transaction with Laurus Master Fund, Ltd. and repaying $12.7 million to Satellite Senior Income Fund, LLC. The stock ended the week at $1.65, up 4 cents.
Clearant, Inc. (OTCBB: CLRI), the developer of the patent-protected CLEARANT PROCESS® for pathogen inactivation, should receive additional publicity in the near future as FDA recently shut down a North Carolina tissue firm due to “serious deficiencies” in its processing, donor screening and record-keeping. This is the second scandal in less than a year in the booming tissue transplant industry after last year’s Biomedical Tissue Services fiasco, when the New Jersey company was accused of using stolen bodies and of shipping nearly 20,000 potentially tainted body parts. It is important to remember that improperly processed or poorly tested tissue can lead to infections like hepatitis and AIDS, or even death. Meanwhile, it is still too early to tell how big this tissue scandal will be, but it should increase doctor and patient interest in the CLEARANT Process-treated tissues as this patented sterilization process is clinically proven to deactivate all known pathogens resulting in safety and peace of mind for doctors, patients and their families. The stock gained 5 cents last week to close at $0.46.
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, filed Form 10-Q for the second quarter ended June 30, 2006. The company’s plan of operation for the next twelve months is to focus on obtaining royalty or ownership rights in projects on which it provides professional services. This emphasis on ownership rights has decreased the company’s ability to generate current cash income for services rendered. While CPPT had one paying customer during the first quarter of 2006, the company had no such paying customers during the second quarter of 2006. However, the company has been negotiating with a major foreign international oil company to render services on a cash basis. The stock ended the week at $0.19, down 1 cent.
Junior energy company Fellows Energy Ltd. (OTCBB: FLWE) filed Form 10-Q with financial results for its second quarter ended June 30, 2006. Revenue for the quarter was $283,000 which represents a substantial increase from none last year and $61,000 during the first quarter of the year. More importantly, Fellows’ two main projects, namely Carbon County and Creston, continue to be re-worked with production steadily increasing. For example, the company doubled production from the Carbon County field to 40 million cubic feet of natural gas per month in less than 6 months after acquiring it in March. Shares ended the week at $0.18, down 4 cent.
IMPART Media Group, Inc. (OTCBB: IMMG), an innovator in the creation of out-of-home digital advertising content and information network management, announced second quarter results with revenue for the quarter increasing to $1.4 million as compared to $1.0 million in the year earlier period. The company had a net loss of $3.1 million, or $.14 per share, compared to net income of $27,000, or $.01 per share in the second quarter of 2005. The difference in net loss is primarily attributable to the implementation of an aggressive growth strategy, which included the acquisition of Impart Media Advertising in New York, new technology infrastructure, and increased personnel, as well as general and administrative costs at Impart’s company headquarters in Seattle. The increase in 2006 revenue reflects the initial efforts of the company to transition its revenue base from that of a market perceived, audio-video-computer integration company to a full service, vertically integrated media public company focused on building both communications and audience reaching, out-of-home advertising & media content solutions centered around its new IQ media platform. Since its formal release in May 2006, the IQ media platform has begun to change the entire out-of-home digital advertising space, as demonstrated by several Fortune 500 companies, such as AT&T, Microsoft, Nordstrom, and many others. The stock closed the week at $1.00, down 6 cents.
USA Technologies, Inc. (OTCBB: USAT), a developer of cashless vending and energy management products, announced that its EnergyMiser energy management technology is being installed at Fort Hood Army Garrison in Texas, the largest military base in America. Fort Hood is installing VendingMisers on 600 vending machines located across the base, which is estimated to save an additional $100,000 a year in energy costs. Earlier, Fort Hood had already installed approximately 100 VendingMisers, saving an estimated $15,000 a year. USAT continues to see strong demand for its EnergyMiser products as other U.S. Military installs recently completed and underway include the Adjunct General’s Department, Texas, the Texas Air National Guard, Burnsville Air Force Base, the GSA Services Center, Tampa, the U.S. Naval Academy, the Naval Exchange Service, and the Naval Base Coronado and San Clement Island base, California . In addition, Emerging Growth Equities, an independent Philadelphia-based broker-dealer, initiated coverage of the company with a Buy Rating and $15 price target. The report noted that “USA Technologies has received a contract from MasterCard to deploy the company’s e-Port® with “Tap & Go” for contactless credit cards on 1,000 Coca-Cola vending machines in FY 07 Q1. Success with this program will open up one of the largest cash-based commercial segments in the U.S. to the use of credit cards. There are 8 million vending machines in the U.S. generating $45.0B in revenues. The credit card industry sees this as the next frontier to grow their transaction volumes. This will be facilitated by contactless credit cards of which 10 million have already been issued by AMEX, Visa and MasterCard. There are 30,000 merchants including CVS, 7-Eleven and McDonald’s currently equipped for these small ticket transactions. This technology speeds customer service and increases average transaction size in vending machines and coolers.” The stock ended the week at $7.40, down 15 cents.
Sweet Success Enterprises, Inc. (OTCBB : SWTS), which has relaunched a product line made popular by Nestle’s to tap into the rapidly growing demand for convenient and nutritious beverages, filed Form 10-Q containing financial results for its second quarter ended June 30, 2006. The company has grown sales to $91,000 for the first six months of 2006 from no sales during the same period last year. Sales should greatly increase in the future as over the next several weeks, the company will begin the initial production of the all-new “ChocKoala,” a delicious high protein beverage marketed for children and packed with immunity boosting ingredients, and a larger-sized “Chocolate Immunity Infusion” targeted for adults. Shortly thereafter, Sweet Success will produce “Ultra Greens Plus,” a health beverage packed with superfoods, and “Glucasafe,” a low glycemic raspberry flavored white and green tea drink with no artificial sweeteners. Meanwhile, Sweet Success products are already available in more than 500 stores and growing and have been ordered by a major national retailer for stocking in 2,500 stores coast to coast in the fall. Additionally, the company has completed a $3.3 million private placement with accredited investors to support its growth plans. With this new financing in place, the company now has access to the resources to accelerate marketing and developmental activities to capitalize on the growing demand for Sweet Success-branded products. Shares ended the week at $0.86, down 12 cents.
Volume Alert: Shares of American Security Resources Corporation (OTCBB: ARSC), a holding company that acquires and develops technologies that will advance the development of alternative energies, announced the signing of a funding agreement with Golden Gate Investors, Inc. providing a minimum of $3 million for operations over the next twelve months. The funding will be received on a monthly basis as needed and will be based on ARSC’s stock price at the time of receipt. This funding agreement allows ARSC to focus on bringing its HydraStax fuel cell to the market. Commercial production is slated for later this year and company’s Hydra Fuel Cell subsidiary should be cash flow positive before the end of this new funding agreement. Shares ended the week at $0.10, up 2 cents.
Neutron Enterprises, Inc. (OTCBB: NTRN), a developer of digital media solutions,filed Form 10-Q containing financial results for its second quarter ended June 30, 2006. Neutron continues to build upon the momentum established last year when revenue grew from zero in 2004 to over $1 million in 2005. Accordingly, revenue of $1.1 million for the first six months of 2006 (156% increase) are already equivalent to all of 2006’s. Furthermore, since February 2006, the company has retained a new executive management team with substantial experience in managing publicly held growth companies. The stock fell 5 cents last week to close at $2.40.
Junior oil and gas company Apollo Resources International, Inc. (OTCBB: AOOR) filed Form 10-Q for its second quarter ended June 30, 2006. The company recorded quarterly revenue of $10.1 million compared to just $42,000 for the same period in 2005. The increase reflects the company’s acquisition of its LNG businesses in December of 2005, which contributed $6.1 million of LNG sales for the second quarter of 2006. In addition, AOOR’s bio diesel production and sales subsidiary contributed $2.9 million of revenue during the second quarter of 2006. Also the addition of Mountain States, an oil and gas production company, acquired in December of 2005, contributed to increased oil and gas production revenue of $1.1 million. The stock ended the week at $0.34, down 14 cents.
Junior oil and gas producer, Patch International Inc. (OTCBB: PTCH), reported results for its fiscal year ended May 31, 2006 with oil & gas revenues increasing 83% as the increases in the market price of oil and production favorably impacted top-line growth. Such results reflect a very strong balance sheet with no debt. Going forward proceeds from the sale of its Pharmaxis shares will be used for the acquisition and exploration of additional oil and gas properties. The stock ended the week unchanged at $1.10.
Diversified sports media company HumWare Media Corporation (OTC: HMWM) announced that it has been named a finalist for two of the Fantasy Sports Trade Association’s 2006 Top Industry Awards. Other finalists for the Best in Innovation include CBS Sportsline.com, Mobile ESPN, FantasyAuctioneer.com, and Fantasy Sports & Mathematics. HumWare’s Fantasy Online Sports division has created and operated various online fantasy contests over the last ten years. In that time, more than 250,000 people have participated. With games in football, baseball, basketball, auto racing, hockey, golf, and unique single-event contests, the company has been able to capitalize on the fantasy sports market. Shares ended the week at $0.09, up 1 cent.
On the Wires: Neutron Enterprises, Inc. (OTCBB: NTRN) appointed Mark Wolinsky as its new Chief Operating Officer. Mr. Wolinsky joins Neutron with extensive business development, operations and transaction experience. Prior to joining the company, Mr. Wolinsky was the principal of the Maximus Group, a business strategy and financing consultancy focused on early stage and mid market technology and telecommunications companies. Additionally, Neutron also appointed Harry Hopmeyer and Steve Shaper to its Board of Directors. Both executives have extensive experience in the financial markets, have assisted in the development and sale of emerging companies and have expertise in the media sector. Sweet Success Enterprises, Inc. (OTCBB: SWTS) appointed Glenn Williamson as its new President and Chief Operating Officer. Previously, Mr. Williamson has been founder or senior officer of four Nasdaq National Market companies. Small appliance maker Salton, Inc. (NYSE: SFP) announced that the New York Stock Exchange has accepted its proposed plan for continued listing. The NYSE will conduct quarterly reviews of the company over an 18-month period to ensure compliance with the goals and initiatives outlined in the plan. Separately, David C. Sabin has decided to retire from his positions as Chairman of the Board and Director of the company, effective immediately. Mr. Sabin will continue as consultant to Salton for a transition period assisting the company in its customer relations activities and product development efforts. Home Solutions of America, Inc. (NASDAQ: HSOA) increased its Board of Directors from 5 members to 6 members and has appoint Brian Marshall as the sixth Director. Mr. Marshall is the President of Fireline Restoration, which was acquired by the company last month.
