AXT, Inc. & Market Leader, Inc.

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Hello Readers,

Since the last Newsletter, we closed one position for a nice gain.

GUIDANCE SOFTWARE (11/5/08). Closed position 12/5/08 at $4.41 for a 57% GAIN.

What’s this?!!! A 50%-plus gain in this market? We have no clue as to what propelled Guidance Software, but we’ll take anything right now.

As we end this year, we are less optimistic than we were a year ago. However, there may be a silver lining. Once the markets begin to get some good news, expect them to scream, really scream, for the simple reason that there are literally trillions of dollars sitting on the sidelines; and, to be trite, it is burning holes in a lot of impatient pockets. Our Current Portfolio could use some of it, also, since it has reached a new milestone. We now have 96 open positions, an all-time high in our 12-year history, of which nearly 20 are on the “Endangered List”, also a record. Ya gotta believe 2009 will be better than this.

Here are the headlines since the last Newsletter about companies in the Current Portfolio. Dates in parentheses are when we first recommended them. NOTE: Because of the holidays, there are not many news items.

ArQule (ARQL) (12/5/08). UBS gives the stock a “buy” signal.

The Orchard (ORCD) (11/20/08). Swedish carrier TeliaSonera starts unlimited subscription offering, including access to The Orchard.

Vimicro (VIMC) (11/5/08). Adopts shareholder rights plan.

SCM Microsystems (SCMM) (10/5/08). To merge with Hirsch Electronics, a player in the physical security business, with SCM offering cash and stock.

Lexicon Pharmaceuticals (LXRX) (9/20/08). Drug candidate for cognitive disorders completes Phase 2a clinical trial. Files IND application for diabetes drug.

Planar (PLNR) (9/20/08). Announces availability of Clarity Margay II, a 50-inch high-resolution rear-projection display.

Endeavour Silver (EXK) (9/5/08). Company drilling extends high-grade silver-gold mineralization in three new zones at Guanajuato Mines project in Mexico.

Uranium Energy (UEC) (8/20/08). Completes filing of final permit applications for the Goliad ISR project in South Texas. Yes, the stock has been killed since we picked it, largely due to the Obama victory. However, we aren’t sour on it, just yet, because UEC still appears to have a viable balance sheet.

Microvision (MVIS) (5/20/08). Announces $750,000 contract for high-definition eyewear display solution development.

GlobalScape (GSB) (5/20/08). Launches Chinese and Russian language products.

Ziopharm Oncology (ZIOP) (5/5/08). Present positive Darinaparsin Phase II data at ASH meeting.

Kopin (KOPN) (4/20/08). Receives NASA award to develop nanostructured indium gallium phosphide solar cell technology. Announces stock repurchase program. Awarded U.S. military program to develop world’s highest-resolution microdisplay.

Biolase Technology (BLTI) (4/5/08). Cuts quarterly fixed costs by $2 million with a 20% job cut.

Rodman & Renshaw (RODM) (3/20/08). To release investor presentation on December 15, the day we post this Newsletter. Offers $7 p/share for Cowen Group, which is rejected by Cowen.

Amicas (AMCS) (1/20/08). Company’s technology selected by both St. Paul Radiology and Cincinnati Children’s Hospital.

Hollywood Media (HOLL) (1/5/08). MovieTickets.com announces affiliate partnership with Clear Channel Radio.

Linktone (LTON) (11/5/07). Reports some nice-looking revenue numbers but losses widen; balance sheet still seems to be strong.

Sunesis (SNSS) (11/5/07). Says early AML trial results of Voreloxin clinical data look promising.

American Technology (ATCO) (10/5/07). Announces record FY revenues; balance sheet so-so.

Wave Systems (WAVX) (9/5/07). Gets NASDAQ extension to comply with market value rule. This is on the “Endangered List”.

SIGA Technologies (SIGA) (8/20/07). Completes human pharmacokinetic bridging study which it claims validates commercial validation.

American Fiber Optic (AFOP) (7/20/07). Says it has strengthened product line and balance sheet.

Xenonics (XNN) (6/5/07). Slates earnings call for December 17.

Oncolytics Biotech (ONCY) (6/5/07). REOLYSIN exceeds primary statistical endpoint in Phase 2 sarcoma study.

Hana Biosciences (HNAB) (5/5/07). Completes Phase 1 clinical trial of Menadione. This one is on the “Endangered List”.

Ore Pharma (ORXE) (4/20/07). Completes early trial of its bowel drug. This is on the “Endangered List”.

Eon Communications (EONC) (2/5/07). Gets GSA contract. On “Endangered List”.

AdvanSource Biomaterials (ASB) (12/20/06). Receives key ISO certifications for design and manufacture of polymers for the medical device industry. We haven’t placed this on the Endangered List because the balance sheet still appears viable.

Lantronix (LTRX) (12/5/06). Unveils enhanced software development kit for its embedded wired and wireless modules.

YM Biosciences (YMI) (11/5/06). Provides EU regulatory update. On “Endangered List”.

TVI Corp (TVIN) (9/5/06). Several news items. This is on the “Endangered List”.

Advanced Life Sciences (ADLS) (7/20/06). To stop development of memory drug. FDA to review ADLS drug. On “Endangered List”.

ThermoGenesis (KOOL) (4/5/06). Introduces new cell separation technology for veterinary use. Provides update on milestones. This is another one not on the Endangered List because its balance sheet still looks half decent.

Adherex (ADH) (2/20/06). Gets AMEX delisting notice. On the “Endangered List”.

EntreMed (ENMD) (9/5/05). Initiates ENMD-2076 clinical trial in multiple myeloma. On “Endangered List”.

Zi Corp (ZICA) (8/5/05). Board recommends shareholders reject buyout offer from Nuance of 40 cents a share. On “Endangered List”.

Our picks for this issue are another semiconductor and a Internet information provider, both listed on NASDAQ.

AXT, INC. (NASDAQ: AXTI) – $1.25. Twelve-month hi-low has been $7.20 – 86 cents. Based in Fremont, CA, with about 1000 employees, this semiconductor has 30.5 million shares outstanding, $84.87 million in total current assets, $114.58 million in total assets, little debt, and $18.64 million in total liabilities. Institutional ownership is around 65%. One analyst rates the stock a “moderate buy”. www.axt.com

We’ll admit it. Picking stocks in this market is like catching hornets without gloves. You look for the companies with decent balance sheets and respectable products, like AXT, Inc., and hope you don’t get stung.

Founded in 1986 as American Xtal Technology and changing its name in 2000, and public for over ten years, AXT manufactures and distributes compound and single element semiconductor substrates for wireless communications, lighting displays and fiber optic communications applications. AXT makes all of its semiconductor substrates using its vertical gradient freeze (VGF) technology. The company manufactures most of its products in China and invests in five joint ventures producing raw materials. It offers semi-insulating substrates made from gallium arsenide, which are used in power amplifiers and radio frequency integrated circuits of wireless handsets; direct broadcast TVs; high-performance transistors; and satellite communications applications.

AXT also provides semiconducting substrates made from gallium arsenide that are used for applications in light emitting diodes, lasers, and optical couplers; substrates made from indium phosphide, which are used in broadband and fiber optic communications; and substrates made from germanium used in satellite and terrestrial solar cells and for optical applications. The company sells its products through a direct sales force in the U.S. and through independent reps in France, Germany, Japan, South Korea, Taiwan, and the U.K.

For FY2007, ending 12/31/07, revenue was $58.2 million with net income of $5.28 million. During the first nine months of the current FY, ending 9/30/08, revenue has been $57.42 million with $1.68 million in net income. Revenue growth has been keeping pace, if not better, while net income has been falling, but still in the black; which in these times could be perceived as a good thing.

Yes, there really isn’t too much overly exciting about AXT, except the numbers.

Our 24-month target for the stock is $2.00 to $2.25.

For more information, contact AXTI’s Wilson Cheung at 510-683-5900.

MARKET LEADER, INC. (NASDAQ: LEDR) – $1.69. Twelve-month hi-low has been $3.57 – $1.50. Located in Kirkland, WA, with about 220 employees, this Internet information provider has 24.4 million shares outstanding, $64.55 million in total current assets, $80.72 million in total assets, little debt, and $6.83 million in total liabilities. Institutional ownership is around 55%. One analyst rates the stock a “strong buy”. www.marketleader.com

A while back, we picked MOVE, Inc with the idea that it would benefit from any sort of real estate upswing. That stock is now down almost 50%, thanks in part to the ever-sinking housing market. We have to believe that we are now on the short end of that slide and maybe Market Leader, Inc., as well as MOVE, will be a beneficiary of any upturn. The company seems to have the balance sheet to withstand further slumps, if any.

Founded as Housevalues in 1999, and public for nearly four years, Market Leader provides information and tools through Web sites to consumers (for free) and real estate professionals for both home buying and selling. Its subscription products include RealtyGenerator, a lead generation and lead management system for more than 200 real estate brokerages; and MarketLeader, a customer relationship management and lead management solution for real estates agents. The company also provides media buying and lead generation services to real estate professionals.

Market Leader’s consumer Web sites include JustListed.com, a service that notifies home buyers as soon as new homes hit the market; HouseValues.com, a service that provides home sellers with market valuations of their current homes; and HomePages.com, a real estate portal that allows consumers to see the home listings in their area, view neighborhood and school data, compare recent home sales, find local real estate agents, and find the value of their own homes. The company has also invested in the real estate social networking site ActiveRain, whose membership has grown to more than 115,000 members since its 2006 launch.

In early November, Market Leader introduced two new products: Growth Leader allows agents to cost-effectively generate a steady stream of prospects to their personal web site; and Team Leader, which is designed to address specific needs of real estate agent teams.

For FY2007, revenue was $59.8 million with $12.36 million in losses. During the first nine months of the current FY, ending 9/30/08, revenue has been $30.58 million with $4.27 million in losses. Yes, revenue for the current year will probably be way down, but maybe losses will be pared by almost half, if the trend continues.

This could take some time to work out, but this is another company that appears to have the balance sheet to get it there.

Our 24-month target for the stock is $3.25 to $3.50.

For more information, contact LEDR’s Mark Lamb at 425-952-5801; markl@marketleader.com

Look for the January 5, 2009 Newsletter to be posted on 1/5 or 1/6.

Have a Great Holiday and a Happy New Year!
George