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Hello Readers,
May was probably one of the worst months for the markets in over a year. There just aren’t many four-letter adjectives to describe it. Stubbornly high oil prices and rising interest rates are the main culprits. There is also now a tug of war between the bulls and bears over whether this is a healthy market correction or the start of a major bear downturn. Whatever it is, it hasn’t helped our Current Portfolio one bit; once again, we did not close any positions since the last Newsletter. In fact, many of our picks had good to great news, only to mark time or slide down.
What’s going to happen next? Like we said in the last Newsletter, the Fed’s actions in a few weeks will perhaps dictate the direction of the markets over the next several months. The Fed’s statement may be just as important as its actions.
Here are the headlines since the last Newsletter about companies in the Current Portfolio. Dates in parentheses are when we first recommended them.
02Diesel (OTD) (5/20/06). Dutton Associates gives the stock a “speculative buy”, whatever that is; aren’t all buys speculative? 1st QT report pretty upbeat.
Kintera (KNTA) (5/5/06). Signs contract with California State university system, which should have sent the stock on a tear, but didn’t. As alluded to above, this sort of thing was indicative during May.
TRI-S Security (TRIS) (5/5/06). Sells stake in joint venture for $10.8 million. Quarterly numbers show growth; balance sheet still looks okay.
Pharmos (PARS) (4/20/06). Engages Burrill & Co. for business development initiatives; Burrill is a life sciences merchant bank based in San Francisco.
Investors Capital (ICH) (4/20/06). Named to the Boston Globe 100 for third straight year. Declares 4¢ a share dividend.
ClickSoftware (CKSW) (4/5/06). Wins major telecommunications customer in China with Xiangmin Technology.
ThermoGenesis (KOOL) (4/5/06). Jefferies & Co. gives the stock a “buy” signal.
Cytogen (CYTO) (3/20/06). Announces schedule for clinical data presentations. Mentioned in several studies and/or presentations.
Poore Brothers (SNAK) (3/5/06). Name of the company is now The Inventure Group.
Q Comm Int’l (QMM) (3/5/06). Quarterly numbers so-so; balance sheet still looks okay.
Gateway (GTW) (2/5/06). The usual dozen or so releases in which GTW is named or mentioned. Announces it will build a new plant in Nashville, TN. Wins Air Force Academy PC tablet contract.
MIND C.T.I. (MNDO) (2/5/06). To host annual share holders meeting June 29 in Yogneam, Israel.
8×8 (EGHT) (1/20/06). Releases some pretty good revenue numbers but losses are still a drag; balance sheet still looks okay.
Ceragon Networks (CRNT) (1/5/06). Unveils its new FibeAir IP-Max wireless gigabit Ethernet solution.
Digital Angel (DOC) (12/20/05). Signs two UK defense deals.
Westell (WSTL) (10/20/05). CEO to speak at SG Cowen confab on May 31, the day this Newsletter is posted.
Nephros (NEP) (9/20/05). To present at Dutton Associates Small Cap confab on May 31, the same day we post this Newsletter.
N.A. Scientific (NASI) (8/5/05). Signs pact with Novation LLC to offer Prospera brachytherapy sources to member hospitals.
Zi Corp (ZICA) (8/5/05). Names new CEO. ZICA’s Qix tops the charts with music search, says company.
Electric City (ELC) (7/5/05). Signs definitive accord to acquire Parke P.A.N.D.A. Company stock is now near all-time low and may soon be booted from AMEX. Remember, this one is on the “Endangered List”.
Commerce Energy (EGR) (6/5/05). Expands into the Maryland BGE market.
Vion Pharma (VION) (5/20/05). Initiates pivotal Phase II trial of single agent Cloretazine in elderly patients with DeNovo poor-risk acute myelogenous leukemia.
Verticalnet (VERT) (4/5/05). Gets financing and announces 1 for 7 reverse stock split. We are placing this on the “Endangered List”.
Loudeye (LOUD) (4/5/05). Announces 1 for 10 reverse split. We have also placed this one on the “Endangered List”.
B.O.S. (BOSC) (1/5/05). 1st QT numbers show a profit; balance sheet still seems okay.
Applied Micro Circuits (AMCC) (11/20/04). Adds ex-Motorla executive to board. Unveils storage technology roadmap.
Aviza (AVZA) (10/5/04). Ships next-generation single wafer ALD System to Inotera Memories of Taiwan. To present at SG Cowen confab on May 31, the day we post this Newsletter.
Chordiant (CHRD) (9/20/04). Says it now serves ten of top twenty largest publicly-traded banking companies.
Network Engines (NENG) (6/5/04). Nominated Security Product of the Year in Techworld Awards 2006.
TMNG Global(TMNG) (4/20/06). To present at confab on May 31, the day this Newsletter is posted.
Socket Communications (SCKT) (3/20/04). Teams with Computer Control Solutions to increase food distribution efficiency in Ireland.
OpenTV (OPTV) (3/20/04). Develops Indy 500 application for ESPN. Signs multi-year license pact with MC3 Global to power Play Platinum TV channel.
Insmed (INSM) (11/5/03). Announces IPLEX availability nationwide for children with severe short stature.
Monogram Bio (MGRM) (7/20/01). Intends to pay any CVR liability in cash. Announces allowance of U.S. patents for its HIV entry and co-receptor tropism technology. Closes Pfizer’s $25 million investment.
Our picks for this Newsletter are another biotech and another semiconductor, both NASDAQ-listed.
CURIS, INC. (NASDAQ: CRIS) – $1.55. Twelve-month hi-low has been $4.94 – $1.52. Located in Cambridge, MA, with about 65 employees, this biotech has 49 million shares outstanding, $44.9 million in total current assets, $59.6 million in total assets, and $22.28 million in total liabilities, of which $1.66 million is long-term debt. Institutional ownership is around 43%. Two analysts rate the stock a “strong buy”.http://www.curis.com
It isn’t often that we stumble across a small biotech with a half decent looking balance sheet that not only has collaborations with one giant drug company, but several. And, that is why we have added Curis, Inc. to the Current Portfolio.
Founded in 2000, and public since then, Curis is a therapeutic drug company whose technology focus is on regulatory pathways that control repair and regeneration. Its product development involves using proteins or small molecules to modulate these pathways. The purpose is to produce various preclinical product candidates for cancer, neurological disorders, kidney diseases, cardiovascular diseases, and hair growth. Curis is developing its product candidate programs in various signaling pathways, including the Hedgehog and Bone Morphogenetic Protein pathways.
Curis has a few collaborations with Genetech, one includes a co-development arrangement for its lead product candidate, which is a topical therapy for treating basal cell carcinoma (BCC) and is in Phase 1 clinical trial. The other venture is to discover and develop small molecule compounds that modulate a signaling pathway that plays an important role in cell proliferation. CRIS’ other collaborations are with Wyeth for nervous system disorders; Proctor & Gamble for hair growth; Ortho Biotech Products for kidney disease (this is a Johnson & Johnson subsidiary); and the Spinal Muscular Atrophy Foundation for, of course, spinal muscular atrophy.
A few weeks ago, Curis reported that the topical treatment candidate studied in 34 patients with BCC was generally well-tolerated; the trial is still ongoing to determine such outcomes as biological activity. In early May, Genetech extended funding for additional Hedgehog research through December, 2006, with an option to extend further research funding through June 11, 2007.
Worth repeating. Since this is a small R&D biotech, its P&L numbers are apt to be spastic. For FY2005, ending 12/31/05, revenue was $6 million with $14.9 million in losses. During the 1stQT of FY2006, ending 3/31/06, revenue was $2 million with $4.05 million in losses.
We are going with the idea that companies like Genetech, Wyeth, Proctor & Gamble, and J&J have some faith in Curis’ product candidates.
Our 24-month target for the stock is $3.00 to $3.75.
For more information, contact CRIS’ Megan Burns at 617-503-6500; mburns@curis.com
MICRO LINEAR CORPORATION (NASDAQ: MLIN) – $2.75. Twelve-month hi-low has been $6.24 – $1.46. Located in San Jose, CA, with about 40 employees, this semiconductor has 13 million shares outstanding, $16 million in total current assets, $16.35 million in total assets, little debt, and $3.5 million in total liabilities. Institutional ownership is around 23%. http://www.microlinear.com
Surprise. Surprise. There still are small techs out there with decent balance sheets and recent revenue growth. What better reasons for adding Micro Linear Corporation to the Current Portfolio. Let’s hope that, at some point, semiconductors soon see a resurrection.
Founded in 1983, and public for over ten years, Micro Linear designs and manufacturers radio frequency integrated circuits (RFICs) that are used in wireless products. It offers transceivers which are used in wireless information transfer in a variety of products, such as cordless phones, PHS handsets, wireless speakers and headphones, security cameras, game controllers, cordless headsets, and other electronic appliances, as well as in industrial applications. The company also provides media conversion products that enable implementation of fiber to the home or FITH systems. Micro Linear claims to have developed the world’s first 5.8GHz single-chip FSK transceiver; it also makes 900 MHz and 2.4 GHz transceivers and all are based on its RFIC design.
Of particular interest is that in 2005, international sales accounted for about 94% of MLIN’s net revenue. For FY2005, ending 12/31/05, revenue was $18.07 million with $5.86 million in losses compared to FY2004 revenues of $20.63 million with $4.1 million in losses. During the first quarter of FY2006, ending 3/31/05, revenue was $5.2 million with $95,000 in losses, which is a 25% revenue increase over the previous quarter.
The company attributes much of its 1stQT success to the overall strength of its digital cordless transceiver (DCT) business. Micro Linear also claims that it has made significant progress toward the completion of its next generation PHS product, the ML1950, and hopes to offer customers sample platforms within the next few months.
If the 1stQT results can replicate over the next few quarters, then it would appear that Micro Linear is back on track. Its next PHS could hold the key.
Our 24-month target for the stock is $5.25 to $5.75.
For more information, contact MLIN’s Michael Schradle at 408-433-5200.
Look for the June 20, 2006 Newsletter to be posted on 6/16 or 6/19.
Thank you,
George