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Hello Readers,

The good news is that the markets are pretty much at the same places they were at two weeks ago. That’s also the bad news. We feel the markets are still far from the bottoms that they need to reach; you know, the kind that make grown men and women weep openly. Until this happens we cannot have a new and sustainable bull market. Propping up the markets, presently, are headlines about the various government bailouts, but, eventually, markets must move on economic and earnings news, which have been awful. When do the true bottoms set in? Our best guess is between now and the end of May, when the worst of the jobless reports are behind us, hopefully. In the meantime, beware of bull head fakes. And yes, our Current Portfolio is still in shambles, so, patience, much patience, is in order.

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 is extremely noteworthy.

The Orchard (ORCD) (11/20/08). Selected to join the DDEX Board. Company and Avex forge Japan partnership. Announces substantial new additions to its classical offerings.

SCM Microsystems (SCMM) (10/5/08). Subsidiary in Japan joins SSFC.

Lexicon Pharmaceuticals (LXRX) (9/20/08). Cuts 102 jobs in effort to consolidate operations and focus resources on most advanced drug candidates.

Endeavour Silver (EXK) (9/5/08). Arranges $8 million (Canadian) private placement of subordinated convertibles.

Uranium Energy (UEC) (8/20/08). Announces inferred resource of 1.3 million pounds eU308 at Nichols Project in South Texas.

Digirad (DRAD) (8/20/08). Sets earnings call for February 5.

Icagen (ICGN) (8/5/08). Xmark questions company’s leadership and motives behind poison pill adoption plan.

Neurobiological Technologies (NTII) (7/5/08). Major shareholder Highland Capital urges board to liquidate company amid clinical trial failure for Viprinex.

Bridgeline Software (BLSW) (6/5/08). Launches new Web application for Partners HealthCare on iAPPS.

Replidyne (RDYN) (4/5/08). Stock is downgraded to a “sell” by Argus.

ActivIdentity (ACTI) (3/5/08). Slates earnings call for February 5.

Move, Inc.(MOVE) (1/5/08). Names new CEO.

Hollis-Eden Pharmaceuticals (HEPH) (12/20/07). To present at the 2009 BIO CEO and Investor Conference on February 10. UC-SD researchers present preclinical data demonstrating benefits of TRIOLEX in model of obesity induced metabolic disorders. HEPH researchers present new findings on mechanism of action for anti-cancer drug candidate APOPTONE.

Santarus (SNTS) (11/20/07). Submits New Drug Application to the FDA for ZEGERID tablet product.

Sunesis Pharmaceuticals (SNSS) (11/5/07). Stock downgraded by Rodman & Renshaw.

Nucryst Pharmaceuticals (NCST) (10/5/07). Appoints interim CEO.

Wave Systems (WAVX) (9/5/07). Hails industry standard and declares hardware encryption ‘ready for primetime’. This is on the “Endangered List” but stock had a very nice run over the last few weeks.

Radcom (RDCM) (7/20/07). Sets earnings call for February 2, the day we post this Newsletter. Boosts Omni-Q performance with HP technology.

Alliance Fiber Optic (AFOP) (7/20/07). Posts some pretty good FY2008 revenues and profits; balance sheet still looks okay.

Xenonics (XNN) (6/5/07). Receives non-compliance letter from NYSE Alternext. Gets $1 million in initial orders from New Master Distributors for its SuperVision high-def night vision products.

Oncolytics Biotech (ONCY) (6/5/07). Starts patient enrollment in translational clinical trial investigating REOLYSIN in patients with metastatic colorectal cancer.

Encorium Group (ENCO) (5/20/07). Signs $3.1 million of new business contracts including an extension of a current oncology clinical trial with a major pharmaceutical. We’re close to placing this on the “Endangered List” but want to see how the latest balance sheet looks.

ECtel (ECTX) (5/5/07). Plans to expand presence in the UK and Singapore. Slates earnings call for February 17 and issues preliminary results.

TTI Telecom (TTIL) (3/5/07). Announces internal probe of Telesens acquisition. Introduces TrafficGuard 2.0.

Urologix (ULGX) (2/20/07). Latest revenue numbers not great, but losses ease; balance sheet still seems okay.

UQM Technologies (UQM) (2/5/07). Recent quarterly numbers seem upbeat as does forecast; balance sheet still looks okay.

Lantronix (LTRX) (12/5/06). Extends partnership with Mitsubishi. Releases new hybrid Ethernet-terminal/multiport device servers. Earnings call set for February 4.

Thermogenesis (KOOL) (4/5/06). Sets earnings call for February 4. Announces MXP involvement in new regenerative medicine initiatives.

The Inventure Group (SNAK) (3/5/06). Investing $1.5 million in kettle chip plant.

MIND CTI (MNDO) (2/5/06). Gives update on buyback plan execution and expected results for 4thQT-2008.

8×8 (EGHT) (1/20/06). Revenues rise as company reports fifth consecutive quarter of net income; balance sheet still looks good. Should this stock, as many others in our Current Portfolio, be much higher? We think so.

Westell (WSTL) (10/20/05). Latest numbers not great; and even though balance sheet looks okay, we’re placing this on the “Endangered List” since the stock price has really tanked.

RAE Systems (RAE) (10/5/05). Company products on pre-approved vendor list for eleven states.

Nova Measuring (NVMI) (11/5/04). Earnings call slated for February 18.

Network Engines (NENG) (6/5/04). Revenues fall off the cliff but balance sheet still looks okay. However, due to the age of this pick, it’s going on the “Endangered List”.

Our picks for this Newsletter are a specialized semiconductor and another one of those small biotechs, both listed on the NASDAQ.

AUTHENTEC, INC. (NASDAQ: AUTH) – $1.65. Twelve-month hi-low has been $14.35 – $1.28. Based in Melbourne, FL, with about 110 employees, this specialized semiconductor has 28.6 million shares outstanding, $78.1 million in total current assets, $87.58 million in total assets, little debt, and $13.17 million in total liabilities. Institutional ownership is around 41%. Two analysts give the stock a “strong buy”, one a “moderate buy”, four as a “hold”, and one a “strong sell”.

AuthenTec, Inc. was recently hammered when it revised its guidance downward and then was hit with a shareholder lawsuit. Few companies haven’t revised their guidance downward in this market, and we question the merits of this suit. Even if the suit prevails, we like the company’s strong balance sheet and the fact they made money during the first three quarters of 2008. At under $2, the stock should be worth a flier.

Founded in 1998, and public for less than two years, AuthenTec is a mixed-signal semiconductor that provides fingerprint authentication sensors and solutions to the high-powered PC, wireless device, and access control markets. With its TruePrint technology the company offers a range of fingerprint sensors that allow users to access and control multiple functions on an electronic device by touching or sliding their finger across the sensor. The sensors use unique information in fingerprints to verify the identity of the individual, as well as the unique, individual fingers on the same person. These sensors are used in such applications as security password replacement, financial transaction authentication, and personalization applications.

AuthenTec’s products are used in a range of PC products and peripherals, including laptops, desktops, memory keys, hard drives, keyboards, mice, and other devices; and in wireless gizmos such as mobile phones, PDAs and personal navigational devices (GPS), as well as access to door locks, time and attendance devices, and remote wireless entry keys. With more than 40 million sensors sold worldwide, some of the company’s customers include Hitachi, LG, Qualcomm, Samsung, and Casio, to name a few.

In early January, AuthenTec announced it will offer Windows 7 beta program participants software that supports the use of its fingerprint sensors in Windows 7 based PCs.

For FY2007, ending 12/28/07, revenue was $52.34 million with $10.9 million in losses. During the first nine months of FY2008, ending 10/3/07, revenue was $52.33 million with $1.38 million in net income.

Okay, so AuthenTec guided downward. Does that warrant a lawsuit? Even with the reduced 4thQT outlook, management claims the midpoint of their guidance range still represents growth of about 25% when compared to revenue for the full year of 2007. For now, we’ll give them the benefit of the doubt. Maybe the lawyers saw the healthy balance sheet and drooled?

Our 24-month target for the stock is $3.00 to $3.25.

For more information, contact AUTH’s Brent Dietz at 321-308-1320;

SUPERGEN, INC. (NASDAQ: SUPG) – $2.25. Twelve-month hi-low has $3.85 – $1.11. Located in Dublin, CA, with about 80 employees, this drug maker has 57.6 million shares outstanding, $86.85 million in total current assets, $98.19 million in total assets, little debt, and $7.39 million in total liabilities. Institutional ownership is around 39%. One analyst gives the stock a “strong buy” and another has it on “hold”.

Some gurus are predicting that 2009 will be a good year for biotechs. That remains to be seen, but SuperGen, Inc. seems to have some promising drug candidates in its pipeline and a balance sheet that could get several of them into further development stages.

Founded in 1991, and public for nearly thirteen years, SuperGen is developing therapies to treat cancer patients. The company’s team includes experts in rational and fragment-based drug design, genetic model systems, small molecule drug development, and clinical trial design and execution which the company claims enables a seamless transition between pre-clinical and clinical development. SuperGen intends to produce two IND-ready clinical candidates each year. It sells its products to clinics, hospitals, and hospital buying groups as well as to drug distributors and wholesale buying groups.

SuperGen currently offers Orathecin, a Phase III clinical trial product for treating solid tumors; Mitozytrex, also for treating solid tumors, which is in the approval stage; Partaject busulfan, a Phase I/II clinical trial product for neoplastic meningitis/bone marrow transplant; Partaject Orathecin, a pre-clinical stage product for treating solid tumors; CZ 112, a Phase I clinical trial product for treating solid tumors; Avicine, a therapeutic vaccine for treating cancer, which is in Phase II trials; VEGF, a pre-clinical stage product for treating anti-angiogenesis; PZG, a Phase II clinical trial product for treating Type 2 diabetes; and AM454, a phosphocholine derivative, is in pre-clinical stage for obesity/diabetes.

In early December, 2008, SuperGen announced that its oral PIM kinase inhibitor, SGI-1776, was effective both in vitro and in vivo in preclinical models of acute lymphoblastic leukemia (ALL).

Unlike most small biotechs/drug makers, SuperGen has been posting some nice revenues, mainly from royalty payments. For FY2007, ending 12/31/07, revenue was $22.95 million with $13.08 million in net income. During the first nine months of FY2008, ending 9/30/08, revenue was $26.5 million with a net loss of $6.5 million.

This is one of those “what’s not to like” picks. We can only hope the company continues its aggressive R&D approach.

Our 24-month target for the stock is $3.75 to $4.25.

For more information, contact SUPG’s Mary Vegh at 925-560-2845;

Look for the February 20, 2009 Newsletter to be posted on 2/16 or 2/17.

Thank you,

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