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Hello Readers,
In the last two Newsletters, we said that the summer’s market action would most likely be dictated by the Fed’s actions at its June meeting. Break out the duck tape. Chairman Ben and the other Fed guys couldn’t wait to give us the news early. Our major concern is that the Fed too often over-reacts and can do more harm than good. Is the Ben Brigade setting the stage for another crash, or should we take the view that rate hikes are closer to the end rather than at the end of the beginning?
One thing is for certain. This is the ugliest market mood since the Enron, Worldcom et al scandals of four years ago. It is also the worst pounding that small stocks, including those in our Current Portfolio, have taken in many years. And, no, we did not close any positions, once again, over the last few weeks. When does the carnage end? We should be a lot closer to the bottom than we were a month ago, (sounds like something Yogi would say).
Here are the headlines since the last Newsletter about companies in our Current Portfolio. Dates in parentheses are when we first recommended them.
Curis (CRIS) (6/5/06). Issued U.S. patent covering drug discovery assays. Initiates strategic plan focused on later-stage drug development.
O2Diesel (OTD) (5/20/06). Announces progress towards remaining on AMEX.
Kintera (KNTA) (5/5/06). Wins “Best New Product” award. Software used by St. Johns College.
ThermoGenesis (KOOL) (4/5/06). Expands European distribution. GE Healthcare and N.Y. Blood Center announce milestone in cord blood banking using KOOL technology.
Cytogen (CYTO) (3/20/06). Announcements of positive data and demonstrations of its various technologies. Slates earnings call for August 7.
TII Network (TIII) (3/20/06). Introduces first intelligent network interface device enabling network over existing home phone and cable TV wiring. Forms new division.
Lipid Sciences (LIPD) (2/20/06). Initiates human clinical trial of plasma delipidation system.
Adherex (ADH) (2/20/06). Presents data on Eniluracil and various clinical trials on ADH-1.
Gateway (GTW) (2/5/06). Extends hi-def display line-up with debut of 19-inch widescreen LCD. Teams with Hitachi to provide $2.4 million in storage products to Texas utility company for disaster recovery.
MIND C.T.I. (MNDO) (2/5/06). Announces change in cash management policy.
8X8 (EGHT) (1/20/06). Awarded patent for hosted IP-PBX technology. CFO steps down.
Digital Angel (DOC) (12/20/05). Sees market opportunity in Canada’s decision to continue funding RFID readers. Gets $3.2 million deal from S.C. National Guard.
Fusion Telecom (FSN) (12/5/05). To announce global launch of free efonica VoIP service during week of June 19. Former Verizon VP joins advisory board.
Memory Pharmaceuticals (MEMY) (11/5/05). Coverage initiated by CIBC World Markets to “Sector Outperform” – who knows what it means, but it sounds good.
Westell (WSTL) (10/20/05). Announces new wireless gateway with SmartBeam smart antenna Technology. Adds three new solution partners. Announces new subscriber authentication application for TriLink IMS gateway.
Discovery Partners (DPII) (10/5/05). Galapagos to buy DPII drug discovery operations for $5.4 million in cash.
Nephros (NEP) (9/20/05). Completes $5 million private placement.
N.A. Scientific (NASI) (8/5/05). Closes $24 million private placement. 2nd QT numbers show revenue growth; balance sheet still looks okay; private placement should make it look better. Hosts symposium in China.
Zi Corp (ZICA) (8/5/05). Launches new advanced Chinese text messaging input system. Says Qix Service Discovery software helps deliver 33% ARPU increase for Virgin Mobile customers. Decuma now available for Arabic users.
Electric City (ELCY.OB) (7/5/05). Company kicked off the AMEX and now trades on the Bulletin Board. Plans a 1 for 15 reverse stock split. This one’s on the “Endangered List”.
Commerce Energy (EGR) (6/5/05). To present at the Friedland Capital 2006 confab on June 21. Company reports $1 million in net income for the last quarter; balance sheet still looks pretty good. Secures $50 million credit facility.
Vion Pharma (VION) (5/20/05). Half of leukemia patients in a subset study in a mid-stage clinical trial showed a complete response to VION’s Cloretazine treatment.
Verticalnet (VERT) (4/5/05). Several releases. This is on the “Endangered List”.
Loudeye (LOUD) (4/5/05). Regains NASDAQ compliance. This, too, is on the “Endangered List”.
Advancis Pharma (AVNC) (12/20/04). Completes enrollment in Amoxicillin PULSYS Phase III trial.
Applied Micro Circuits (AMCC) (11/20/04). SEC makes inquiry into stock option awards. Offers solution for mobile infrastructure market. Delays shareholder meeting and begins options review.
Network Engines (NENG) (6/5/04). Launches fully integrated enterprise security appliance powered by Microsoft ISA server enterprise edition. Signs partner pack with Getronics. Names Mambo Technology as new distributor. Inks OEM agreement for Availl WAFS software.
Palatin Technologies (PTN) (4/5/04). Responds to Competitive Technologies demand for arbitration.
NexMed (NEXM) (4/5/04). Names new CFO. Elects new board chairman. This one is on the “Endangered List”. Receives NASDAQ delisting notice.
Socket Communications (SCKT) (3/20/04). U.S. Army deploys company’s cordless bar code scanning technology. Enters into strategic pact with Odyssey Software to extend mobile device management software tools to business customers.
OpenTV (OPTV) (3/20/04). Inks multi-year licensing deal with Time Warner Cable for advance digital television solutions. Brings its hi-def TV technology to Sky Italia.
Insmed (INSM) (11/5/03). Court dismisses Tercica complaint against Insmed. Provides update on IPLEX launch.
Monogram Biosciences (MGRM) (7/20/01). Settles CVR liability.
Our picks for this Newsletter are another software company and the other is diversified into both biotech and information services, both trade on the NASDAQ.
BSQUARE CORPORATION (NASDAQ: BSQR) – $1.98. Twelve-month hi-low has been $4.06 – $1.84. Based in Bellevue, WA, with about 120 employees, this software company has 9.6 million shares outstanding, $17.23 million in total current assets, $19.57 million in total assets, little debt, and $7.73 million in total liabilities. Institutional ownership is around 28%. http://www.bsquare.com
When picking stocks, bad markets are no different than good ones. Look for promising technology and a good balance sheet, and that is why we now add BSQUARE Corporation to the Current Portfolio.
Founded in 1994, and public since 1999 when the stock hit nearly $180, BSQUARE provides software and engineering services to smart device market places. It targets smart devices such as set-top boxes, home gateways, point-of-sale terminals, kiosks, voting machines, game platforms, PDAs, personal media players, smart phones, and all such devices that use embedded versions of the Microsoft Windows family of operating systems. The company’s proprietary software products include Secure Digital Input Output solution (SDIO Now!) and its two updated versions, SDIO Now! 2.1 and SDIO Now! 2.2, which enable peripheral and memory cards to be used with smart devices; universal serial bus interfaces; adding MultiMediaCard, SD or SDIO cards, to converged devices; support for SD memory cards; and board support packages.
BSQUARE also offers portable media players; DevkitIDP line of Intel XScale technology-based development platforms; and SchemaBSP tool that enables code reuse across multiple lines. The company’s engineering services include device solution strategy consulting, software and hardware design and development services, systems integration, application development, quality assurance, customer technical support, and platform development training. BSQR also provides third party software products through multiple license and distribution agreements.
In May, BSQUARE was named Windows Embedded System Integrator of the Year by Microsoft. Also, last month, the company launched SDIO Hx enabling ultra-high performance for Windows Mobile Wi-Fi applications.
For FY2005, ending 12/31/05, revenue was $49.9 million with $1.3 million in losses. During the 1stQT of FY2006, ending 3/31/06, revenue was $11.6 million with $849,000 in losses, disappointing numbers that the company blamed on several contract signing delays.
BSQUARE seems to be one of those companies that should be able to retrieve revenue growth sooner rather than later.
Our 24-month target for the stock is $3.75 to $4.00.
For more information, contact BSQR’s Scott Mahan at 425-519-5900; investorrelations@bsquare.com
SPHERIX, INC. (NASDAQ: SPEX) – $1.82. Twelve-month hi-low has been $5.85 – $1.19. Located in Beltsville, MD, with about 320 employees, this tech/biotech has 13.7 million shares outstanding, $10.95 million in total current assets, $16.32 million in total assets, and $6.3 million in total liabilities, of which $180,000 is long-term debt. Institutional ownership is around 8%. http://www.spherix.com
It isn’t often that we stumble upon a small cap with some diversity and also a half-decent looking balance sheet, but Spherix, Inc. has just that.
Founded in 1967, and public for over 20 years, Spherix provides information services and engages in biotech R&D. It operates through two divisions, InfoSpherix and BioSpherix. The InfoSpherix division designs and operates contact centers providing information management and materials to the public on various subjects, as well as other information services, such as tourism. It researches, collects, organizes, and disseminates information by providing customized contact center services through combining data collection services, decision support systems, phone support using live operators, and advanced technologies, such as interactive voice response. This division also provides reservation services for campgrounds and other parks through its ReserveWorld business line.
Through BioSpherix, the company has patented the use of a naturally occurring sugar, tagatose, as a low-calorie, full-bulk sweetener under the brand name Naturlose. It has also patented the use of Naturlose in treating Type 2 diabetes and other conditions. It has a license agreement with Arla Foods Ingredients to manufacture and distribute tagatose as a food and beverage ingredient.
At the end of May, InfoSpherix won a four-year contract worth about $4.4 million to continue operating the central reservation system for Indiana State Parks. The company currently operates park reservation contracts for 12 states, three counties, and the National Park Service at its facilities in Maryland, Indiana, and South Dakota. Also, in May, BioSpherix signed a pact with a Singapore-based drug development company to conduct its Phase 3 clinical trial on the use of Naturlose as a treatment for Type 2 diabetes.
For FY2005, ending 12/31/05, revenue was $23 million with $2.85 million in losses. During the 1stQT of FY2006, ending 3/31/06, revenue was $5.92 million with $533,000 in losses.
Spherix may not be an overly sexy play, but we like the diversity.
Our 24-month target for the stock is $3.50 to $4.00.
For more information, contact SPEX investor relations at 301-419-7877; info@spherix.com
Look for the July 5, 2006 Newsletter to be posted on 6/30 or 7/5.
Thank you,
George