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Dear Reader,

Since the last Newsletter, we closed three more positions, one for a nice gain and two for expected bad losses.

COMPUGEN (8/5/02). Closed position 1/23/03 at $2.48 for a 60% GAIN.

iPRINT (12/20/00). Closed position 1/2/03 at 1¢ for a 99% LOSS.

METAWAVE (7/5/01). Closed position 2/3/03 at 3¢ for a 99% LOSS.

Compugen’s stock took off on news of deals with Abbott Labs and Diagnostic Products, and, if the markets were better, we would have held it for a little bit longer. We meant to close iPrint earlier last month since the company looks to be history. Metawave blind-sided us because the stock, though on the “Endangered List”, appeared to be gaining ground at around 40¢, then, BOOM! – the company announced it was selling off its assets and that bankruptcy was looming.

What can we now say about the state of the markets that you don’t already know. It all appears to come down to Iraq, or so we hope. How many of you picked up on “Iran” during Bush’s State of the Union speech last week? Let’s hope he stops at Iraq and that it all works out. If Bush goes into Iran, expect a worldwide depression and a new president being sworn in on January 20, 2005.

During the last few weeks, small stocks have been clobbered. The Russell 2000, which had almost hit 400 in mid-January, is now hovering in the mid 360s and could plunge even lower once the bombs start falling. Needless to say, our own portfolio remains stagnant. A lot of our companies reported all sorts of good to great news, only to see their stock prices mark time or fall.

Here are the headlines about companies in the Current Portfolio since the last Newsletter. Dates in parentheses are when we first recommended them.

U.S. Gold (USGL) (8/20/97). Files 8-K to disclose changes in options pacts with certain officers. Back in November, stock was at 25¢ and then 75¢ about ten days ago, before drifting to current levels. As war clouds build, the stock has the potential to go much higher.

SONICblue (SBLU) (6/5/99). This one’s on the “Endangered List” and is now mulling a sale of the company.

Draxis Health (DRAX) (3/20/00). Ends pact with Cytogen. Receives FDA approval for new radiotherapeutic product. Manufacturing site okayed by UK regulator. (TIXX) (6/5/00). Nasdaq will delist stock on February 4. Should move onto the Bulletin Board. On “Endangered List”.

N2H2 (NTWO) (8/20/00). Announces positive cash flow for second straight quarter. On “Endangered List”.

DOR Biopharma (DOR) (9/20/00). Even though it is on the “Endangered List”, DOR has become our most intriguing story for 2003, so far. In November, the stock was around 34¢ and a slew of good news has the stock at about $1.50. Why the mystique? Could it be that new chairman Alexander Haig will soon land DOR some sort of bioterror contract? That appears to be the hype anyway.

Genetronics (GEB) (10/5/00). Dow Jones reports that Mellon Financial now has a 6.35% stake in GEB. Why? We don’t know. Still on “Endangered List”.

Antex (ANX) (11/20/00). Another one on the “Endangered List” that has been given a new shot at hope. FDA gives nod for trials of Helivax vaccine for illnesses related to peptic ulcers and stomach cancers. Also, Antex gets a boost from Bush BioShield plan since the company is working on several vaccines and drugs against possible germ warfare agents.

RateXchange (RTX) (1/20/01). Estimates 2003 revenue of $12 million and profitability by the 4th QT of 2003.

InSite Vision (ISV) (4/20/01). To start Phase 3 testing of ISV-401, its ocular antibiotic for conjunctivitis.

Electric Fuel (EFCX) (6/5/01). Announces new zinc-air military battery.

Pharsight (PHST) (8/20/01). Quarterly report not encouraging. Wait and see.

Abraxas Petroleum (ABP) (10/5/01). Completes deal and reduces long-term debt by 45%. Announces results from drilling activities.

Superconductor Technologies (SCON) (1/5/02). Ships 2000th system of its SuperLink Rx family. Says 4th QT should be in line with estimates.

Airspan (AIRN) (1/20/02). Introduces new WipLL 5 for 5.8GHz frequency band. BCL of New Zealand begins deployment with $7 million of Airspan’s wireless DSL equipment. Awarded $1 million wireless DSL order by PT YMM of Indonesia.

VASCO Security (VDSI) (2/5/02). Broadens range of Digipass Pack by adding compatibility with Stonesoft and Netilla Networks solutions.

Catalyst (CLYS) (3/20/02). Wins supply chain executions with Kunzler and the Legrand Group.

Magic Software (MGIC) (3/20/02). Announces investment and partnership pact with Enformia, Ltd. Signs million-dollar framework accord with Hungarian government. Announces dividend plan of 30¢ a share.

DigitalThink (DTHK) (4/5/02). 3rd QT numbers not bad, not good either. Balance sheet still healthy, though total assets are down 45% since last March.

Argonaut (AGNT) (4/20/02). Introduces the Advantage Series 4100 process scale-up reactor for pharmaceutical compound development. Also introduces work station for same.

eXegenics (EXEG) (5/5/02). Granted 180-day extension to remain on Nasdaq Small Caps.

BioTransplant (BTRN) (6/5/02). In dispute with a research partner. This too, is on “Endangered List”.

Hemispherx (HEB) (7/5/02). Presents new data on post-trial effects of Ampligen.

Orbital Sciences (ORB) (8/20/02). Announces new government contracts worth up to three-quarters of a billion dollars. Is it us, or shouldn’t this stock be much higher?

SpeechWorks (SPWX) (9/5/02). Year-end numbers show anticipated drop. Balance sheet still looks pretty good.

Millennium Cell (MCEL) (9/20/02). Stock gets a little bounce thanks to Bush’s hydrogen car initiative. Holders okay issuing convertible debentures.

Viewpoint (VWPT) (11/20/02). Stock keeps on getting clocked and we don’t know why. Lycos Europe licenses VWPT technology for use in all its European properties. Collaborates with MSN autos to unveil the new Beetle ragtop in online media pilot. Completes deal with eVox to become distributor of their automobile image library.

LogicVision (LGVN) (12/20/02). Year-end numbers not great, but were expected. Balance sheet still looks respectable.

Looksmart (LOOK) (1/5/03). Revenues jump and LOOK posts its first net profit. Appoints some powerhouses to its board.

KANA Software (KANA) (1/20/03). Closes 2002 with strong partner momentum and growth in key vertical industries. Announces FY2002 numbers. Expands European presence.

Allscripts (MDRX) (1/20/03). Says Rochester cardiopulmonary group will implement TouchWorks mEMR in 90 days.

Our picks for this Newsletter are another biotech and a media company.

APPLIED MOLECULAR EVOLUTION, INC. (NASDAQ: AMEV) – $2.45. Twelve-month hi-low has been $11.15 – $1.81. Located in San Diego, CA, with about 80 employees, this biotech has 20.6 million shares outstanding, $57 million in total current assets, $84 million in total assets, $10 million in long-term debt, and $4.6 million in total current liabilities. Institutional ownership is around 55%. One analyst rates the stock a “strong buy”, one a “moderate buy”, and two as a “hold”.

Yep, another one of those biotechs with a nice pile of money; in fact, it appears as if the stock is trading at near book value. However, Applied Molecular Evolution also has interesting technology that someday may garner some nice headlines.

Trading on NASDAQ for about two and a half years, AMEV bills itself as a leader in the application of directed molecular evolution to improve healthcare by optimizing and developing human biotherapeutics. In other words, the company is developing therapies to speed up the natural selection process. Its proprietary AMEsystem platform is to optimize genes and therapeutic proteins for specific commercial purposes. Employing this “directed evolution” AMEV optimizes the full range of proteins, including antibodies, cytokines, hormones and enzymes to develop versions of currently marketed FDA-approved biotherapeutics as well as novel human biopharmaceuticals. To accomplish this, AMEV basically adjusts a protein’s amino acids one at a time until the protein acquires the desired therapeutic characteristics.

AMEV has collaborations with Lilly, Centocor, Chiron, MedImmune, Bristol-Myer Squibb (BMS), Seattle Genetics, Cell Matrix, and Biosynexus. AMEV’s technology increased the potency of MedImmune’s anti-tumor drug Vitaxin, which the company helped develop; and BMS’ AMEV-improved anti-tumor drug BR96 has been licensed to Seattle Genetics for further development.

The potential news maker is that AMEV is developing an enzyme to treat cocaine addiction. A month ago, the company announced that its AME-359 provides complete protection from lethal cocaine overdose in an animal model system of acute cocaine toxicity. AMEV feels that AME-359 may be able to address cocaine overdose by accelerating the clearance of the drug from the bloodstream. Rats today, by maybe humans tomorrow?

Like most biotech startups AMEV loses a lot of money, but, unlike many, it is also generating some revenues. For the first nine months of FY2002, ending 9/30/02, revenue was $5.65 million with $13.46 million in net losses.

AMEV has nifty “push” therapies in the hopper for a dozen, or more, diseases and ailments, and most are being backed by top-gun biopharmas. Also, let’s not forget about AME-359.

Our 24-month target for the stock is $4.50 to $6.00.

For more information, contact AMEV’s Chris Erdman at 858-638-8635;

INTEREP NATIONAL RADIO SALES, INC. (NASDAQ: IREP) – $1.75. Twelve-month hi-low has been $5.52 – $1.50. Based in NY, NY, with about 525 employees, this media company has 9.7 million shares outstanding, $61.6 million in total current assets, $149.6 million in total assets, and $141.2 million in total liabilities of which $99 million is long-term debt. The CEO controls 46% of the voting power. Institutional ownership is around 55%. One analyst rates the stock a “strong buy”.

At some point, and we hope very very soon, business will start to spend heavily again on advertising. That thought, and what appears to be a cheap stock price, leads us to consider Interep National Radio Sales, Inc. And yes, we see that ugly debt number, but do not feel it is a major impediment for the time being.

Although its roots date 50 years ago, Interep took its present form in 1980 and has been public for less than three years. This advertising and marketing company is perhaps the largest national radio rep firm in the U.S. Through its nine radio representation firms and offices in nearly 20 cities, IREP represents over 2000 stations and broadcast groups, including ABC/Disney, Citadel, Emmis Communications, Entercom, Infinity Broadcasting, Jefferson Radio, Radio One, Spanish Broadcasting System, and Susquehanna Radio.

IREP is also the parent of Interep Interactive, its Internet representation and web publishing division specializing in sales and marketing of online advertising. This subsidiary also includes Winstar Interactive and Perfect Circle Media. In addition, Interep owns Morrison and Abraham/Fort Grace Strategies, a sales consulting company that works with media clients to develop sales promotions.

For FY2001, ending 12/31/01, revenue was $101.79 million with $19.8 million in net losses. During the first nine months of FY2002, ending 9/30/02, revenue was $69.79 million with $6.5 million in losses. Although revenue growth has dropped, IREP looks to be closing the gap on the red ink.

Our thinking is that soon the worst of this current economic cycle will abate, and advertising expenditures will begin a swift ascent again.

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

For more information, call IREP’s Ralph Guild at 212-916-0508.

Look for the February 20, 2003 issue on 2/17 or 2/18.

Only 44 more days until Spring,

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