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Hello Readers,

Boy, what a bunch of sissies! The first hint that Chairman Ben may gently turn the spigot from gusher mode to something- less-than gusher mode and all of those big bad hedge fund and ETF traders go into full panic. And that pretty much sums up the market downturn during June. What’s next? Right now, investors are trying to determine if the economy is healthy enough to withstand any Fed easing. If the verdict is that it can, then we could see a nice summer rally. If the opposite is perceived, then we could be in for a lot of ugliness.

Needless to say, it would have been difficult to close any Current Positions since the last Newsletter, due to the market turmoil, and we didn’t.

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 very significant.

Vical (VICL)(6/20/13). Company and Astellas announce initiation of Phase 3 trial of ASP0113 cytomegalovirus vaccine.

Antares Pharma (ATRS)(5/20/13). Receives new U.S. patent for OTREXUP.

Xoma Corp. (XOMA)(4/5/13). Company’s partner SERVIER launches proof-of-concept clinical program for Gevokizumab.

Apricus Biosciences (APRI)(2/5/13). Presents Vitaros poster at health conference.

Gevo, Inc. (GEVO)(1/20/13). Resumes commercial production at closed isobutanol site.

EnterMedics (ETRM)(1/20/13). Submits PMA application for FDA approval of VBLOC therapy in obesity.

TeleCommunication Systems (TSYS)(11/5/12). Closes new $130 million credit facility. Announces partnership with Direct Technology.

Anthera Pharmaceuticals (ANTH)(10/5/12). Initiates BRIGHT-SC Phase 2 clinical study. Receives NASDAQ delisting notice over price rule, which doesn’t concern us too much right now.

Zynga, Inc. (ZNGA)(10/5/12). The usual several dozen news stories and releases.

Capstone Turbine (CPST)(5/20/12). Receives first order in Slovenia for two C200s from regional hospital.

Air Media Group (AMCN)(4/20/12). Sets annual meeting for July 18.

Mattson Technology (MTSN)(4/5/12). Ships Helios XP Systems to major foundry for high volume 2Xnm production. To participate in CEO Investor Summit on July 10.

ECOtality (ECTY)(11/5/11). To be added to the Russell Microcap Index. Closes $8.2 million private placement.

On Track Innovations (OTIV)(6/20/11). Says it received favorable results in the patent infringement lawsuit again T-Mobil.

NeoStem (NBS)(5/20/11). Aegis Capital gives the company a “buy” rating. Gets intellectual coverage of AMR-002 in Canada.

Qualstar (QBAK)(10/20/09). More news on the shareholder battle. Company adds to authorized resellers in the U.S.

GlobalScape (GSB)(5/20/08). U.S. Army extends GSB’s support contract.

Our picks for this Newsletter are a medical device maker with whom we had a previous dance and a software provider, both NASDAQ-listed.

BAXANO SURGICAL, INC. (NASDAQ: BAXS) – $2.30. Twelve-month hi-low has been $3.40 – $1.55. Based in Raleigh, NC, with several dozen employees, this medical device company has 27.3 million shares outstanding, $23.33 million in total current assets, $25.53 million in total assets, little long-term debt, and $11.1 million in total liabilities. Institutional ownership is around 62%. Five analysts rate the stock a “strong buy”, and two as a “buy”.

At the end of May, this company became its current name, Baxano Surgical, Inc. Before that, it was TranS1, Inc., that some of you remember as a past pick of ours. And, so, once again, we go dancing with old partners, which have been paying off, of late. This time around, the company not only has a good balance sheet, but also over a half a dozen analysts behind it.

Founded in 2000, and public for nearly six years, Baxano designs and markets products to treat degenerative spinal conditions affecting the lumbar region. It develops its pre-sacral approach to allow spine surgeons to access and treat intervertebral spaces without compromising important surrounding soft tissue, nerves, and bone structures. The company markets its AxiaLIF family of products for single and multilevel lumbar fusion, the VEO lateral access and interbody fusion system, the iO-Flex minimally invasive lumbar decompression system, the iO-Tome facetectomy system, and the Vectre and Avatar posterior fixation systems, and Bi-Ostetic bone filler, a biologics product. All of the company’s products are delivered using its pre-sacral approach. Baxano gets its revenue from the sales of its implants and disposable instruments.

Not included in the above financial numbers is the $17.2 million secondary stock offering the company completed at the end of May, the same time TranS1 acquired Baxano and changed its name to that of the acquired company.

The acquisition may have been a good idea since the company’s numbers had been slipping. For FY2012, ending 12/31/12, revenue was $14.57 million with $29.9 million in losses compared to FY2011 revenue of $19.15 and $18.27 million in losses. For the 1st QT of 2013, ending 3/31/13, revenue was $3.09 million with $7.1 million in net losses.

The company seems to be shoring itself up for better things and we suspect that is what all of those analysts are thinking.

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

For more information, contact BAXS’ Joe Slattery at 919-825-0868.

COMMTOUCH SOFTWARE LTD. (NASDAQ: CTCH) – $3.20. Twelve-month hi-low has been $3.99 – $1.98. Based in Netanya, Israel, with about 195 employees, this software provider has 25.8 million shares outstanding, $15.77 million in total current assets, $59.25 million in total assets, $14.56 million in total current liabilities, and $10.83 million in total long-term liabilities. Institutional ownership is around 13%. Two analysts rate the stock a “strong buy” and two as a “buy”.

For the last several years, Commtouch Software Ltd. has been stuck in a non-growth rut, but, lately, the company appears to be growing revenues again. Helping this spurt are what appear to be some pretty nifty products.

Founded in 1991, and trading publicly for around fourteen years, Commtouch offers messaging, antivirus, and Web security solutions. These include Inbound Anti-Spam solution that enables customers to block their end users receipt of unwanted emails; Outbound Spam Protection solution, which allows service providers to block emails being sent from their system that contain spam, phishing or malware; and Zero-Hour Virus Outbreak Protection solution that allows the resellers customers to download an enterprise gateway. Commtouch also provides GlobalView Mail Reputation service that fights unwanted emails at a network’s perimeter before they enter the network; Command Antivirus; GlobalView URL Filtering, a Web security solution; Email Secaas, which comprises inbound and outbound anti-spam, and antivirus; and Email Security On-Premise, as well as Command Anti-Malware service and F-Prot antivirus client. The company claims to keep safe 350 million end users spread across 190 countries.

Toward the end of 2012 Commtouch acquired FRISK Software and Eleven GmbH, with the acquisition of the latter accelerating the delivery of the company’s “Security-as-a-Service quality and broadened it. This allows the company to provide more OEM services and private labeled applications as well as expanding its European footprint.

For FY2012, ending 12/31/12, revenue was $23.91 million with $1.48 million in net income compared to FY2011 revenues of $23 million and $4.59 million in net income. During the 1st QT of the current FY, ending 3/31/13, revenue was $7.92 million with losses of $1.26 million; this represents a 17% sequential rise in quarterly revenue and a 34% jump compared to the same period a year ago.

It goes without saying that Internet security will be a booming business for many years, given the increasing number of nut jobs who have way too much time on their hands; and Commtouch appears ready to take another revenue leg upward as a result.

Our 24-month target for the stock is $5.50 to $6.00.

For more information, contact CTCH at 650-864-2000;

Look for the July 20, 2013 Newsletter to be posted on 7/16 or 7/17.

Thank you,