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Hello Readers,
We would like to express our sincerest regrets and apologies to all of you for site being down for over a week, 8/4 to 8/12. This was the first time in our thirteen-year history that we experienced this kind of outage. We won’t bore you with all of the details as to what happened, but, based upon what the IT people have told us, the potential for future outages of this sort have been reduced.
Since the last Newsletter, we closed eight positions; five for gains and three for a losses.
SORL Auto Parts (5/5/09). Closed position 8/13/09 at $5.22 for a 68% GAIN.
Tomo Therapy (2/20/09). Closed position 8/11/09 at $4.06 for a 55% GAIN.
Vimicro (11/5/08). Closed position 8/10/09 at $2.89 for a 56% GAIN.
CSP (4/5/09). Closed position 8/10/09 at $4.25 for a 50% GAIN.
TRI-S Security (5/5/06). Closed position 8/8/09 at 50 cents for a 83% LOSS.
UQM Technologies (2/5/09). Closed position 8/5/09 at $5.60 for a 53% GAIN.
Pharmos (4/20/06). Closed position 8/5/09 at 40 cents for a 83% LOSS.
TVI (8/5/06). Closed position 8/5/09 at 3 cents for a 98% LOSS.
There is nothing like a great financial report to really juice a stock and that seems to be what happened as SORL Auto Parts released much better than expected numbers. Both Tomo Therapy and Vimicro popped on no real apparent news, which can happen in an overly giddy market. The prospect of good earnings news boosted CSP to our 50% threshold; the news did not turn out well, but this was probably a case of buy on the rumor and sell on the news. A $45 million grant from the Department of Energy sent UQM Technology shares on a tear. And, we closed TRI-S Security, TVI, and Pharmos for a nasty losses.
So are the blinders coming off? Are people finally asking “how much more lipstick can they put on this pig?”. Is the rally coming to an end? Some sort of sell-off is way overdo, since the markets have basically risen on psychology rather than on fundamentals. Also, all of the old stuff that no one seems to talk about anymore is still out there, and probably getting worse, such as the toxic assets, credit card debt, and the downward spiral in commercial real estate. At some point, the markets need to be priced on actual value, not on government intervention. But, in the meantime, this has really helped our Current Portfolio.
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 that the news is substantial.
Occam Networks (OCNW)(8/5/09). Helps Stayton Cooperative Telephone outpace competition with FTTH upgrade. Recent numbers not bad and show that company seems to be holding its own; balance sheet still looks strong.
Bioclinica (BIOC)(8/5/09). Recent numbers not great but probably anticipated; balance sheet still seems to be strong.
Salary.com (SLRY)(7/5/09). Recent quarterly numbers look okay as company completes 33rd consecutive quarter of revenue growth; balance sheet still looks okay. Company’s compensation survey reports that more than 60% of high tech companies have instituted wage freezes.
USA Technologies (USAT)(6/5/09). Completes rights offering.
The Hackett Group (HCKT)(4/20/09). Recent revenues and guidance in line with expectations; balance sheet still looks good.
Durect Corp (DRRX)(4/20/09). Recent balance sheet looks pretty good.
Ligand Pharmaceuticals (LGND)(2/20/09). Balance sheet still looks good. Terminates long-term lease obligation. Stocks downgraded by Merriman.
SuperGen (SUPG)(2/5/09). MP-470 demonstrates clinical benefit in small cell lung cancer and neuroendocrine tumor patients.
MakeMusic (MMUS)(1/20/09). Recent numbers look good compared to a year ago; balance sheet still seems okay.
Market Leader (LEDR)(12/20/08). Recent numbers reflect real estate slump; balance sheet still looks pretty strong.
The Orchard (ORCD)(11/20/08). Quarterly revenues increase from a year ago and so do losses. Announces new platform for marketing and digital content management.
SCM Microsystems (SCMM)(10/5/08). Releases pretty upbeat quarterly report and numbers; balance sheet still looks okay, even after expenditures for acquisition. Smart Card Readers ready for Windows 7.
Lexicon Pharmaceuticals (LXRX)(9/20/08). Moves into Phase II trials of arthritis drug.
Planar Systems (PLNR)(9/20/08). Two weeks ago, the stock was at $1.19 and then rocketed to its current levels. Why? Beats us, since the recent numbers were not that great; balance sheet still looks good.
Endeavour Silver (EXK)(9/5/08). Despite revenue slump company gives an upbeat quarterly report; balance sheet still looks okay.
ICAgen (ICGN)(8/5/08). FDA lifts partial clinical hold on company’s epilepsy drug. Balance sheet still looks good.
Applied Energetics (AERG)(7/5/08). Even though balance sheet still looks good, recent quarterly report shows a pretty big revenue drop. We are placing this on the “Endangered List”.
Neurobiological Technologies (NTII)(7/5/08). Announces termination of its license and cooperation agreement with Merz and Children’s Medical Center.
Energy Focus (EFOI)(6/5/08). Recent numbers not pretty, but improve over the previous quarter; balance sheet still looks okay.
Bridgeline Software (BLSW)(6/5/08). Company reports revenue and earnings growth compared to a year ago; balance sheet still looks okay.
Microvision (MVIS)(5/20/08). Balance sheet still looks pretty good.
GlobalScape (GSB)(5/20/08). 2ndQT revenue and earnings better than a year ago; balance sheet still looks good.
Ziopharm Oncology (ZIOP)(5/5/08). Reports 2ndQT financial results and updates clinical programs.
Biolase (BLTI)(4/5/08). Granted approval in China to sell Waterlase Dental Laser Systems. Recent numbers not great; balance sheet weakens since first of the year.
Rodman, Renshaw (RODM)(3/20/08). To hold its Global Investment Conference 9/9 to 9/11 in NYC.
ActiveIdentity (ACTI)(3/5/08). Releases pretty good quarterly report; balance sheet still looks very strong.
Amicas (AMCS)(1/20/08). Recent report shows huge increase in revenue growth; balance sheet still looks good.
Nanophase Technologies (NANX)(1/20/08). Balance sheet still looks good.
Move, Inc.(MOVE)(1/5/08). Revenues drop reflecting real estate market but company shows earnings in recent QT; balance sheet still looks pretty good.
Catalyst Pharmaceuticals (CPRX)(12/20/07). Balance sheet weakens. We are placing this on the “Endangered List”.
Santarus (SNTS)(11/20/07). Latest numbers show revenue growth and earnings compared to a year ago; balance sheet still looks good.
Continecare (CNU)(11/20/07). Expands service offerings through acquisition of sleep diagnostic centers.
American Technology (ATCO)(10/5/07). Recent numbers show growth year-over-year; balance sheet still looks okay.
XATA Corp (XATA)(9/20/07). Recent numbers look good; balance sheet looks okay.
Heska (HSKA)(7/5/07). Recent numbers show company holding its own; balance sheet looks okay.
Pharmacyclics (PCYC)(6/20/07). Says rights offering oversubscribed.
Xenonics (XNN)(6/5/07). Latest numbers not great and balance sheet shows weakness; however, company has made a few moves that makes us give it a “wait and see” for the time being.
ECTel (ECTX)(5/5/07). Recent numbers look okay as does balance sheet.
TTI Telecom (TTIL)(3/5/07). Settles dispute with Telesens.
The Inventure Group (SNAK)(3/5/06). Inks licensing agreement with Jamba Juice.
MIND C.T.I. (MNDO)(2/5/06). Hit with securities class action suit.
8×8 (EGHT)(1/20/06). Trunking deal with CallFire to deliver cloud telephony services to small businesses.
RAE Systems (RAE)(10/5/05). Numbers not great but better than the preceding quarter; balance sheet still looks okay.
Nova Measuring (NVMI)(11/5/04). Numbers better than the preceding quarter, but down year-over-year; balance sheet still looks good.
Our picks for this Newsletter are an oil and gas developer trading on the AMEX and another small biotech listed on the NASDAQ.
EVOLUTION PETROLEUM CORPORATION (AMEX: EPM) – $2.95. Twelve-month hi-low has been $5.15 – $1.00. Located in Houston, TX, with under 20 employees, this oil and gas outfit has 26.3 million shares outstanding, $8.96 million in total current assets, $37.98 million in total assets, little debt, and $5.94 million in total liabilities. Institutional ownership is around 27%. One analyst gives the stock a “strong buy”, one a “moderate buy”, and one has it as a “hold”. www.evolutionpetroleum.com
It is rare that we pick a small oil and gas company for the Current Portfolio since most of them have pretty lousy balance sheets and little revenues. However, this does not appear to be the case with Evolution Petroleum, Inc., which does have a good balance sheet and seems to generate some consistent revenues. Our thinking for choosing an energy company, at this point, is that oil could go higher, not so much because of an increase in economic activity, but because the dollar is being pounded, thanks to government policies.
Formerly known as Natural Gas Systems, Inc. and founded in 2003, and public for nearly five years, Evolution Petroleum, or EPM, simply put, acquires and develops properties for producing crude oil and natural gas. The company’s strategy is to buy controlling working interests in established fields and to exploit these properties through three specific initiatives: CO2 (EOR), using miscible and immiscible gas flooding to extract tertiary resources; Conventional re-development of bypassed resources, using technology-based redevelopment of overlooked primary resources in mature oil and gas fields; and Shallow Shale gas development, using modern stimulation and completion technologies to economically produce tight gas formations.
EPM’s crude oil is produced and sold from properties in the Delhi Field in Louisiana, the Tullos Field area in Louisiana, and the Giddings Field in Texas. It also has leases covering nearly 17,600 net acres in two shallow Woodford Shale gas projects in Oklahoma. All of its natural gas has been produced and sold from its properties in the Delhi and Giddings fields. Since June, 2006, the company is no longer the operator of the Delhi Field, due to a farm-out it completed with Denbury Onshore LLC. As of July 1, 2008, EPM had proved reserves of over 4 million barrels of oil equivalent.
For the FY ending 6/30/08, revenue was $4.25 million with $1.57 million in net losses. During the first nine months of the current FY, ending 3/31/09, revenue was $5.1 million with $1.9 million in net losses. Due to some recent developments, the company is expecting even higher revenues from certain properties during FY2010.
This is a small oil and gas outfit the seems to be doing things the right way. Its strategies, combined with a sinking dollar, should give the company a boost down the road.
Our 24-month target for the stock is $4.75 to $5.50.
For more information, contact EPM’s Sterling McDonald at 713-935-0122; smcdonald@evolutionpetroleum.com
ANADYS PHARMACEUTICALS, INC. (NASDAQ: ANDS) – $2.28. Twelve-month hi-low has been $8.43 – $1.44. Located in San Diego, CA, with about 50 employees, this biotech has 28.9 million shares outstanding, $33.19 million in total current assets, $34.15 million in total assets, little debt, and $8.77 million in total liabilities. Institutional ownership is around 51%. Eight analysts rate the stock a “strong buy” and three have it as a “hold”. www.anadyspharma.com
When nearly a dozen analysts express this much interest in a small biotech, we take notice. Anady Pharmaceuticals, Inc. recently got a nice lift due to news from the FDA, and the company’s balance sheet should help it get to where it needs to go.
Founded in 1992 as Scriptgen Pharmaceuticals, and public for over five years, Anadys focuses on developing medicines in the areas of hepatitis C and oncology. The company is developing ANA598, a non-nucleoside polymerase inhibitor of the NS5B polymerase for treating hepatitis C. It has also investigated ANA773, an inducer of endogenous interferons that acts via the Toll-Like Receptor, or TLR7, pathway in a Phase 1 clinical trial in hepatitis C. With ANA598 Anadys is focused on developing a direct-acting antiviral, meaning a product candidate that acts by interacting with, and blocking the function of, a component of the virus. With ANA773, the company is stimulating the patient’s own immune system to block cells infected with the hepatitis C virus from further producing more particles and amplifying the infection. ANA773 stimulates the immune system through activating a key receptor on immune cells known as TLR7. Activation of the TLR7 receptor may also allow the patient’s immune system to attack cancer cells, and this has been investigated in a separate Phase 1 trial for treating patients with advanced cancer.
At the end of July, Anadys received FDA clearance of the protocol for their Phase II trial of ANA598 in combination with pegylated interferon-alpha and ribavirin in hepatitis C patients. The product candidate will be dosed for twelve weeks in triple combination.
Anadys is pretty typical of small biotechs in that it has little to no revenues and massive losses. For example, during FY2008, ending 12/31/08, the company had zero revenue and $32.4 million in losses. Pretty much the same can be expected during this FY.
As we said, we are picking one because of its healthy balance and the eye-popping number of analysts that have lined up behind the stock.
Our 24-month target for the stock is $4.00 to $4.25.
For more information, contact ANDS’ Amy Conrad at 858-530-3607; aconrad@anadyspharma.com
Look for the September 5, 2009 Newsletter to be posted on 9/1 or 9/2.
Thank you,
George