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Dear Reader,

Since the last issue, we closed ten positions, six for gains and four for losses.

ARQULE (4/20/03). Closed position 4/29/03 at $4.33 for a 60% GAIN.

AVAYA (2/20/03). Closed position 4/29/03 at $3.60 for a 60% GAIN.

SPEECHWORKS (9/5/02). Closed position 4/24/03 at $4.45 for a 62% GAIN.

TICKETS.COM (6/5/00). Closed position 4/22/03 at 35¢ for a 98% LOSS.

N2H2 (8/20/00). Closed position 4/22/03 at 21¢ for a 94% LOSS.

FREEMARKETS (3/20/03). Closed position position 4/22/03 at $7.27 for a 62% GAIN.

LOOKSMART (1/5/03). Closed position 4/22/03 at $3.79 for a 58% GAIN.

KANA SOFTWARE (1/20/03). Closed position 4/16/03 at $5.45 for a 53% GAIN.

PENTACON (1/20/00). Closed position 4/16/03 at 4¢ for a 99% LOSS.

PHARSIGHT (8/20/01). Closed position 4/16/03 at 6¢ for a 96% LOSS.

We have not closed this many positions between Newsletters in nearly three years. Is the bear finally leaving us? ArQule, which we picked in the last issue, apparently rose steadily on good earnings news and an analyst upgrade. That was also pretty much the case with Avaya as it reported a much-narrower loss during the recent quarter. SpeechWorks has so far turned out to be our Cinderella story of the year – last issue it was at $2.41 but soared on news that it was being bought by ScanSoft. FreeMarkets kept going up on a slew of good news and an analyst upgrade. A new-found mini love affair with certain net stocks probably pushed LookSmart higher. For the last month or more, KANA kept hovering between 40% – 50% gains for us, so, it was time to take the gift. With Pentacon, there appears to be little hope at all for this former NYSE listing. In the cases of, N2H2, and Pharsight, all recently had either decent quarterly numbers or fair balance sheets, but the stocks hardly budged in this warmer market climate, and, so, it was time to say goodbye to these anguishing losses. As we have been saying for the last few months, there looks to be plenty of upside left in this market. Two reasons worth repeating: low interest rates and much cheaper crude. However, just keep in mind that a terrorist attack could turn the whole thing upside down.

And, oh, has anyone noticed that the Russell 2000 is flirting with 400. Can we dare hope for 500+ by year’s end?

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

Draxis Health (DRAX) (3/20/00). Establishes share buyback program.

RateXchange (RTX) (1/20/01). Reports a fair 1st QT.

InSite Vision (ISV) (4/20/01). Initiates human clinical trials with ISV-403 for the treatment of ocular bacterial infections.

CE Franklin (CFK) (5/5/01). 1st QT results show revenues down, but much better bottom line versus a year ago.

Arotech (ARTX) (6/5/01). Battery passes milestone testing with Dragon Eye unmanned drone. Subsidiary awarded $350,000 in contracts.

ViroLogic (VLGC) (7/20/01). Company AIDS study identifies drug resistance.

Abraxas Petroleum (ABP) (10/5/01). Announces effectiveness of registration statements. Discloses changes in certifying accountant.

Saba Software (SABA) (11/20/01). U.S. Army selects Saba for e-Learning implementation.

Superconductor Technologies (SCON) (1/5/02). Releases 1st QT numbers.

Airspan Networks (AIRN) (1/20/02). Releases 1st QT numbers and losses grow, but balance sheet still looks strong.

Aerogen (AEGN) (2/5/02). 1st QT numbers show almost a 50% drop in cash and cash equivalents. Sadly, we place this on the “Endangered List”.

VASCO Security (VDSI) (2/5/02). Offers new ID authentication tokens to the banking sector. Achieves profit and positive cash flow in recent quarter.

Catalyst (CLYS) (3/20/02). Rayovac will implement the Catalyst Supply Chain Execution system to manage floor production and distribution at new facility.

Magic Software (MGIC) (3/20/02). Commences joint campaign with IBM to promote iBOLT Integration Suite for iSeries. Sklar Peppler launches retailer extranet with MGIC product.

DigitalThink (DTHK) (4/5/02). Yearly numbers not too exciting, but 4th QT did show positive cash flow; balance sheet still appears pretty healthy.

Argonaut Tehcnologies (AGNT) (4/20/02). 1st QT report in line with guidance; balance sheet still appears to be half-decent.

Nanogen (NGEN) (5/20/02). Releases 1st QT numbers; balance sheet takes a hit, but still seems relatively healthy.

Optibase (OBAS) (5/20/02). Announces video over microwave in Germany.

Immersion (IMMR) (6/5/02). 1st QT about as expected. Along with three other companies, demonstrates auto industry’s first all-in-one interface design solution.

Hemispherx (HEB) (7/5/02). Extends distributor agreement for Alferon N injection. Reports expanded HIV data on Ampligen.

Rigel Pharmaceuticals (RIGL) (7/20/02). Signs definitive agreement for $46 million to support product candidates.

Millennium Cell(MCEL) (9/20/02). Team with Seaworthy Systems and Duffy Electric Boats to demonstrate hydrogen-on-demand in water taxi. Joins with Samsung on fuel cell systems for consumer electronics. Announces 1st QT operations results.

Harvard Bioscience (HBIO) (10/20/02). 1st QT numbers reflect revenue growth and improved balance sheet.

Interactive Intelligence (ININ) (12/5/02). Wins Product of the Year for contact center software. Reports first-ever quarterly profit and balance sheet still looks pretty fair.

LogicVision (LGVN) (12/20/02). 1st QT reflects some improvements over 4th QT of 2002; balance sheet still appears to be good.

Allscripts (MDRX) (1/20/03). NEA Clinic selects TouchWorks. Affiliated Community Medical Centers expands agreement with company. MDRX posts positive cash flow of $1.3 million in 1st QT and balance sheet still looks strong. Strategic partner selected by Oklahoma’s largest locally-owned healthcare system.

E*TRADE (ET) (2/20/03). New top analyst rankings. E*TRADE Japan falls into red on share loss.

Integrated Silicon (ISSI) (3/5/03). New top analyst rankings. Quarterly report shows continued revenue growth (and a slight paring of losses); balance sheet still looks to be very strong.

Interwoven (IWOV) (3/20/03). 1st QT report shows drop in revenues compared to previous quarter but balance sheet still seems to be quite strong. New top analyst rankings. Achieves SAP certication for portal. IWOV and NTT accelerate Japanese public sector IT initiative.

Concurrent Computer (CCUR) (4/5/03). Several product releases. New top analyst rankings. Quarterly numbers a little weak but balance sheet still looks good.

Nanometrics (NANO) (4/5/03). Quarterly numbers reflect a balance sheet that still appears to be relatively strong.

Medarex (MEDX) (4/20/03). Talk about timing. Within days after posting our last issue, MEDX and GenVec announced they would develop a potential SARS vaccine and the stock roared, although, truth be told, a vaccine is at least a few years off, according to health experts. Announces cancer product licensing agreement with Diatos. Enters antibody development partnership with Pfizer.

Our picks for this month are a real crap shoot (hey, we’re overdue for one) and another medical company with an apparently good balance sheet.

CRYO-CELL INTERNATIONAL, INC. (NASDAQ: CCEL) – $1.10. Twelve-month hi-low has been $5.98 – 61 cents. Based in Clearwater, FL, with nearly 40 employees, this medical firm has 12 million shares outstanding, $6.16 million in total current assets, $13.86 million in total assets, little debt, and $4.3 million in total liabilities.

Even with a novel business and what appears to be a half-decent balance sheet, Cryo-Cell Int’l is somewhat of a bottom-of-the-barrel crap shoot. The company recently reported that it may need to restate its financials, removed its CEO, fired its auditors, and replaced about half of its board members. Usually, all of these bombshells would send a small stock right down to 10-20 cents, but it hasn’t happened. So, CCEL may be worth a shot.

Founded in 1989, Cryo-Cell is engaged in cryogenic (freezing) cellular storage and designs and develops cellular storage devices. Now, from what we have been able to ascertain, there is no reason to get uptight, since there isn’t any visible evidence that the company is involved with unborn fetuses. Its current focus is on processing and preserving umbilical cord (U-Cord) blood stem cells for autologous/sibling use. CCEL believes it is the fastest growing commercial firm specializing in separated umbilical cord blood stem cell storage. CCEL makes expectant parents aware of its capabilities to store the U-Cord stem cells that will remain a perfect match for the baby throughout its life and have a 25%, or better, chance of being a perfect match for a sibling.

Of course, it is believed that stem cells hold future cures and treatments for a wide variety of diseases and therapies, such as bone marrow transplant, and treating strokes and brain injuries, and CCEL collaborates with the University of South Florida to research the latter two. The company has also pioneered several technologies that include a process for storing fractionated U-Cord stem cells and developing and patenting the first computer controlled, robotically operated cryogenic storage system, Mid last month, CCEL announced that it had processed and preserved its 50,000th cord blood specimen. Also, in April, the company received accreditation by the American Association of Blood Banks, making it one of only 16 cord blood facilities to garner this recognition.

Now, we will give you the numbers for the last FY, ending 11/30/02, but bear in mind that they will probably be amended: revenue was $7.07 million with $5.33 million in losses. What we like here is that all of the bad news seems to be behind CCEL, and the company appears to have made many right moves to set things straight. Any piece of good news could give the stock a nice pop.

Our 20-month target for the stock is $2.00 to $2.50.

For more information, call CCEL’s Jill Taymans at 727-450-8000.

SONIC INNOVATIONS, INC. (NASDAQ: SNCI) – $3.60. Twelve-month hi-low has been $7.45 – $1.94. Located in Salt Lake City, UT, with about 340 employees, this medical appliance maker has 19.8 million shares outstanding, $47.2 million in total current assets, $74.8 million in total assets, little debt, and $15.38 million in total current liabilities. Institutional ownership is about 41%. Two analysts rate the stock a “moderate buy” and one has it as a “hold”.

Unlike CCEL above, here’s one that does not seem to be much of a crapshoot. Sonic Innovations has an apparently healthy balance sheet and products that appear to be selling well, probably to a lot of aging baby boomers.

Public for almost three years, Sonic makes and markets advanced digital hearing aids by using its developed patented digital signal processing (DSP) technologies and embeds them in the smallest single-chip DSP platform ever installed in a hearing aid. They are sold principally to hearing care professionals and distributors.

The company’s products include its Natura and Altair hearing aids, which have a conventional fit, and the Conforma hearing aid, which fits entirely within the ear canal. Other brand names are the Tribute, Quartet, and the Adesso. Sonic also sells components of its DSP technology to other hearing aid companies on a limited basis. Its products are marketed in Europe through subsidiary Sonic Innovations A/S, and in Japan through Hoya Healthcare.

This is a company that doesn’t issue a lot of news releases, and, given its revenue growth over the last three years, probably doesn’t need to. For FY2002, ending 12/31/02, revenues were $68 million with net income of $32,000 vs. FY2001 revenue of $57.26 million and $5.6 million in losses. For the 1stQT of FY03, ending 3/31/03, revenue was $17 million with $846,000 in losses. There is nothing sexy here, but the company seems to be carving out a big niche in its niche market.

Our 24-month target for the stock is $6.00 to $7.00.

For more information, call SNCI at 801-365-3000.

Look for the May 20, 2003 issue to be posted on 5/16 or 5/19.

Thank you,

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