AMERICAN CARESOURCE HOLDINGS, INC. & NOVABAY PHARMACEUTICALS, INC.

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Hello Readers,

Since the last Newsletter, we closed three positions; two for gains and one for a loss.

AVANIR PHARMACEUTICALS (10/5/08). Closed position 4/12/10 at $3.38 for a 65% GAIN.

PLANAR SYSTEMS (9/20/08). Closed position 4/12/10 at $3.72 for a 52% GAIN.

HYTHIAM (7/20/08). Closed position 4/12/10 at 24 cents for a 87% LOSS.

Shares in Avanir Pharmaceuticals soared soon after the company presented Phase III data on a drug candidate and another brokerage firm flashed a “buy” on the stock. With Planar Systems, there did not appear to be any apparent news to give the stock an upward jolt. And, we closed Hythiam for a loss.

And so, the Zombie Market continues its upward slog, thanks mostly to the zero percent Fed Funds rate, adding further testament that much of this market is government starch. What constantly baffles us is that all of the government and media talking heads keep saying that things are improving, and, if that is so, why are rates still at zero? The investor public has turned full-throttled giddy, which should give any sane person pause. Why, heck, even the usually bearish crowd on Fox Business is turning bullish.

Here are the headlines since the last Newsletter about companies in the Current Portfolio; dates in parentheses are when we first recommended them. We are not giving updates about companies on the “Endangered List” unless we feel the news to be highly significant.

Cerus (CERS)(3/20/10). To release quarterly results on April 29. Secures $10 million credit facility.

Achillion Pharmaceuticals (ACHN)(3/5/10). Presents data from studies of ACH-1625 in Hepatitis C showing a significant reduction in HCV RNA.

Zagg, Inc (ZAGG)(2/20/10). Releases iPad photo App and invisibileSHIELD for iPad.

MicroTune (TUNE)(2/5/10). Plans earnings call for April 29. Sets annual shareholders meeting for May 20.

NIVS IntelliMedia (NIV)(1/20/10). Kuanda and China PTAC Communications Services execute purhcase agreement for NIVS Android system smartphone for China Telecom; deal valued at between $3 million and $7.5 million. Provides updates of purchase agreement for NIVS 3G mobile phone products.

CytRx (CYTR)(1/5/10). To initiate a Phase 2 clinical trial with Bafetinib in advanced prostate cancer.

Orchid Cellmark (ORCH)(12/5/09). Praises FBA re-evaluation of requirements for outsourcing DNA forensic testing to private labs. Acquires Strand Analytical’s paternity and immigration testing business unit.

Solta Medical (SLTM)(10/5/09). Claims Fraxel re:store dual laser proven effective in treating the precancerous skin condition Actinic Keratoses.

Investors Capital (ICH)(9/20/09). Lands Massachusetts’ Northeast Investment Advisors.

Anadys Pharmaceuticals (ANDS)(8/20/09). Announces that 72% of patients receiving ANA598 in Phase II combination study with interferon and Ribavirin achieve undetectable levels of virus at week eight.

BioClinica (BIOC)(8/5/09). Gives list of several industry conferences at which it plans to present capabilities. Launches WebSend and creates efficiencies for clinical trial imaging delivery.

USA Technologies (USAT)(6/5/09). Adds over 10,000 cashless connections for the quarter ending 3/31 increasing total to 73,000.

Durect (DRRX)(4/20/09). Commences Phase IIb ELADUR (TRANSDUR-Bupivacaine) clinical trial by King Pharmaceuticals.

Market Leader (LEDR)(12/20/08). To release 1stQT results on April 27.

Akena Solar (AKNS)(10/20/08). Sets earnings call for April 29. Touts 99.92% uptime for Andalay AC solar panels.

Identive Group (INVE)(10/5/08). Completes acquisition of RockWest Technology Group.

U.S. Geothermal (HTM)(8/5/08). Awarded large advanced steam concession Guatemala.

Bridgeline Digital (BLIN)(6/5/08). Gets $5 million credit line from Silicon Valley Bank.

Microvision (MVIS)(5/20/08). Receives $8.5 million purchase order for new PicoP laser projection display engine.

Biolase (BLTI)(4/5/08). Awarded new laser diode patent. Responds to patent suit over iLase, which the company doesn’t seem overly concerned with, for now.

Move, Inc (MOVE)(1/5/08). Sets earnings call for May 6.

Catalyst Pharmaceutical (CPRX)(12/20/07). Here’s another one that may be rising from the dead. Stock was at 80 cents two weeks ago and then began flying even before news that the company had inked a definite agreement with the National Institute on Drug Abuse to conduct a Phase IIb clinical trial for cocaine addiction. For now, we are still keeping it on the “Endangered List”. Wait and see.

LRAD Corp (LRAD)(10/5/07). Proposes spin-off of HSS business in tax-free distribution to shareholders. Says it will report record first-half FY revenues.

Radcom (RDCM)(7/20/07). To publish 1stQT results on April 26.

Alliance Fiber Optic (AFOP)(7/20/07). To release quarterly results on April 22.

TTI Team Telecom (TTIL)(3/5/07). Sets special meeting for shareholders for May 20.

Endologix (ELGX)(1/20/07). Slates earnings news for April 22. Announces first patient treated with PEVAR clinical trial.

The Inventure Group (SNAK)(3/5/06). Plans to release quarterly results on April 22.

8×8 (EGHT)(1/20/06). ECO2 turns to 8×8 Virtual Office hosted communications Services to support global sustainable forestry projects.

Our picks for this Newsletter are a NASDAQ-listed health services company and another small biotech listed on the AMEX.

AMERICAN CARESOURCE HOLDINGS, INC. (NASDAQ: ANCI) – $1.93. Twelve-month hi-low has been $8.74 – $1.46. Based in Dallas, TX, with about 55 employees, this health services company has 15.4 million shares outstanding, $20.74 million in total current assets, $28.99 million in total assets, little debt, and $9.7 million in total liabilities. Institutional ownership is around 34%. One analyst rates the stock a “strong buy” and one has it as a “hold”. www.anci-care.com

Sometimes we come across a company where “The Street” may have negatively over-reacted to the stock price because of its industry grouping. Our thinking about American Caresource Holdings, Inc. is that Obamacare is not going to be as great as the liberals claim nor as bad as the right has warned. The company, though facing some legacy challenges, still has revenue growth and earnings.

Founded in 1995 as Physician’s Referral Network, and public for just over four years, American Caresource is an ancillary benefits management company that offers cost alternatives to physicians and hospital-based services through a national network of approximately 4100 ancillary services providers at over 33,000 sites. These services supplement or support the care provided by hospitals and physicians, including the non-hospital, non-physician services associated with surgery centers, diagnostic imaging centers, home health and infusion, supply of durable medical equipment, orthotics and prosthetics, and laboratory services.

In addition, American Caresource provides payor customers with claims management, reporting, processing and payment services; and performs network/needs analysis to assess the benefits to payor customers of adding additional/different service providers to the payor customer-specific provider networks. It serves healthcare payor customers, which include preferred provider organizations, third party administrators, insurance companies, self-funded organizations, and Taft-Hartley union plans, as well as self-insured employers, indemnity insurers, HMOs, and federal and local governments.

For FY2009, ending 12/31/09, revenue was $68.31 million with $2.32 million in net income compared to FY2008 revenues of $58.28 million and net income of $3.6 million. During the 3rdQT, the company lost a key provider, as well as lower claims activity from key legacy clients, which will probably affect the 1stQT FY10 numbers, but the company still expects double-digit revenue growth and profit growth.

As we said, this appears to be a case of negative extremes.

Our 24-month target for the stock is $3.50 to $3.75.

For more information, contact ANCI at 972-308-6830.

NOVABAY PHARMACEUTICALS, INC. (AMEX: NBY) – $2.30. Twelve-month hi-low has been $3.24 – $1.62. Located in Emeryville, CA, with about 20 employees, this biotech has 23.3 million shares outstanding, $15.6 million in total current assets, $17.52 in total assets, little debt, and $4.2 million in total liabilities. Institutional ownership is around 10%. One analyst rates the stock a “strong buy” and one a “moderate buy”. www.novabaypharma.com

Other than its healthy-looking financial position, we like the sound of the companies that have formed alliances with NovaBay Pharmaceuticals, Inc.

Founded in 2000 as NovaCal Pharmaceuticals, and pubic for under three years, NovaBay is developing synthetic anti-infective product candidates to treat and prevent a range of infections, without developing resistance, in hospital and non-hospital environments. Its proprietary Aganocide compounds are synthetic forms of N-chlorinated antimicrobial molecules, which are anti-infective molecules produced by white blood cells when defending the body against pathogens. These compounds could form a platform to create various products to address the needs in treating and preventing bacterial and viral infections.

NovaBay’s lead product candidate, NVC-422, is used for treating eye, ear, and sinus infections, and for use in contact lens solutions, as well as to destroy bacteria in the bladder, and bacteria that have formed biofilm within the catheter. It also offers NVC-101, a proprietary solution of hypochlorous acid used as a wound cleanser and debriding agent.

The company has a licensing and research collaboration agreement with Alcon Manufacturing for use of its Aganocides in the eye, ear, and sinus, and in contact lens solutions, as well as an agreement with Galderma S.A. to develop and commercialize Aganocides in acne, impetigo, and other dermatological indications.

NovaBay is pretty typical of most small biotechs in that it runs through a lot of money and has very little revenue. However, during FY2009, ending 12/31/09, thanks to licensing and other fees, the company posted $15.68 million in revenue and showed net income of $2.69 million; and it only burned $800,000.

The company looks as if it has the wherewithal to get to where it needs to go, thanks partly to its partnerships.

Our 24-month target for the stock is $3.50 to $4.00.

For more information, contact NBY’s Tom Paulson at 510-899-8809; tpaulson@novabaypharma.com

Look for the May 5, 2010 Newsletter to be posted on May 3 or May 4.

Thank you,
George

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