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Hello Readers,

The new year is off to a decent start for the markets, thanks to an 11th-hour tax deal where the congressional Republicans caved. Some of their reasoning was fear that the markets would see a huge sell off, if they failed to act. Who would have cared about the sell off? Markets go up and markets go down. If they had tackled the spending issues right then, when they had some great leverage, they probably would have gotten much of the spending cuts they wanted, and the markets would be on a major tear, right now. So, what do they do? They drag the nonsense out even more. Does the GOP really think that they will get any real spending cuts, now that they trashed their real leverage? Oh sure, they think the debt ceiling clock is on their side, but that strategy failed in the mid-nineties and we suspect it will fail, again.

We have not yet closed any positions so far this year, but pockets of our Current Portfolio have seen improvement. A lot of our future, and that of the market, may be at Washington’s mercy. That’s the bad news. The good news, if you can call it that, is that the Fed is now pumping around $85 billion more liquidity into the financial markets each month.

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 highly significant.

Palatin Technologies (PTN)(12/5/12). Receives $1.75 million from sale of New Jersey state tax credits.

TeleCommunications Systems (TSYS)(11/5/12). To present at the Noble annual equity conference on January 22. Receives $3.4 million in incremental funding from U.S. Army for SNAP deployable satellite systems equipment and support. Awarded five-year contract renewal from GSA IT Schedule 70.

Lionbridge Technologies (LIOX)(11/5/12). Announces global marketing partner program with market leading technology providers. Selected by LivePerson to support international customers in multiple languages through

Delcath Systems (DCTH)(10/20/12). Company and Sky Ridge Medical Center initiate U.S. expanded access program.

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

ImmunoCellular Therapeutics (IMUC)(9/20/12). Provides update on corporate milestones.

AXT, Inc. (AXTI)(9/5/12). To present at the Needham Growth Stock Conference on January 17, the day after we post this Newsletter.

Meru Networks (MERU)(8/20/12). To report financial results on January 29.

SemiLEDS (LEDS)(8/20/12). Quarterly results disappoint, but balance sheet still looks strong.

Overland Storage (OVRL)(7/20/12). Introduces RapidRebuild feature for SnapScale clustered NAS.

Aviat Networks (AVNW)(7/20/12). Raises 2nd QT revenue guidance.

Athersys, Inc. (ATHX)(7/5/12). Files shelf registration to replace expiring S-3 registration statement.

Vermillion, Inc. (VRML)(6/20/12). Receives NASDAQ warning over lawsuit.

Capstone Turbine (CPST)(5/20/12). Gets delisting warning from NASDAQ, which we are not too concerned about, at this time.

Air Media Group (AMCN)(4/20/12). Raises quarterly revenue guidance.

Mattson Technology (MTSN)(4/5/12). To present at the Needham growth confab on January 16, the day we post this Newsletter. Increases Etch product line growth with shipment to major foundry. Plans for Phase IV cost-reduction program.

Echo Therapeutics (ECTE)(3/20/12). To present at the Noble equity conference on January 22. Seeking partnership deal as it readies glucose monitoring system. Provides update to shareholders.

Majesco Entertainment (COOL)(3/5/12). Collaborates with Disney Interactive on upcoming video game release for Phineas and Ferb. Quarterly numbers look okay, as does balance sheet, but guidance sends stock much lower. This has us worried.

Geron (GERN)(2/5/12). Sells stem cell assets to BioTime for future royalties, among other things.

Synthesis Energy (SYMX)(8/20/11). Enters agreement to study feasibility of using gasification technology to produce green chemicals in the U.S. Achieves first methanol production from Yima joint venture project.

NeoStem (NBS)(5/20/11). To present at three different conferences over the next few weeks. Announces research supporting VSEL technology. Red Chip Research initiates coverage on NBS. Subsidiary and Hackensack University Medical Center enter into a cell processing and storage services agreement. Announces receipt of Hellman Research Award by academic collaborator for VSEL research.

Energy Recovery (ERII)(5/5/11). To present at Gabelli confab on February 28.

GSE Systems (GVP)(4/20/11). Engages Valufinder Group to identify acquisition opportunities.

ThermoGenesis (KOOL)(4/5/11). Sells Thermoline product line to Helmer Scientific.

Jamba, Inc. (JMBA)(3/20/11). About a dozen releases and stories, most notable is the company announcing a comprehensive expansion of store portfolio and design.

Oculus Innovative Sciences (OCLS)(3/5/11). Announces plan to spin off biotechnology business.

Astex Pharmaceuticals (ASTX)(12/5/10). Initiates SGI-110 Phase 2 trial in Advanced Hepatocellular Carcinoma (HCC) patients.

Pixelworks (PXLW)(11/20/10). Sets earnings call for January 31. Introduces next generation video display processor. To present at the Needham confab on January 16, the day we post this Newsletter.

RELM Wireless (RWC)(11/5/10). To present at the Noble Financial conference January 22-23.

Inovio Pharmaceuticals (INO)(10/20/10). To initiate clinical trial for its Hepatitis C vaccine INO-8000 later this year. To test malaria vaccine.

NovaBay Pharmaceuticals (NBY)(4/20/10). Expands global ophthalmology study of pink eye to India. Announces smartphone investor app.

Qualstar (QBAK)(10/20/09). Enters into manufacturing pact with CTS.

Our picks for this Newsletter are a biofuels maker and a player in the fight against obesity, both NASDAQ-listed.

GEVO, INC. (NASDAQ: GEVO) – $1.90. Twelve-month hi-low has been $11.29 – $1.36. Located in Englewood, CO, with about 110 employees, this biofuels maker, has 39.4 million shares outstanding, $98.25 million in total current assets, $178.36 million in total assets, and $68.47 million in total liabilities, of which $45.35 million is long-term debt. Institutional ownership is around 85%. Four analysts rate the stock a “strong buy” and three as a “buy”.

Sometimes we pick a stock for kicks and giggles and Gevo, Inc. is one of them. To be blunt, it is one of those Al Gore- type companies that we have been burned on over the years. Having said that, the company, after a long rough patch, does have some nice cash reserves, strong institutional ownership, and over a half-dozen analysts lined up behind it.

Founded in 2005, and public for just less than two years, Gevo bills itself as a renewable chemicals and advanced biofuels company, focusing on the development of alternatives to petroleum-based products based on isobutanol produced from renewable feedstocks. The company is converting existing ethanol plants into biorefineries to make renewable building block products for the chemical and fuel industries. It plans to convert renewable raw materials into isobutanol and renewable hydrocarbons that can be directly integrated on a “drop in” basis into existing chemical and fuel products to hopefully deliver environmental and economic benefits. Gevo calls this process Gevo Integrated Fermentation Technology and has a development agreement with BioFuel Energy Corporation for production of isobutenol.

One of the main drags on the stock price was a lawsuit with Butamax Advanced Biofuels involving yeast engineered to produce isobutanol. At the end of November, 2012, a Federal Appeals Court made a ruling that strengthened Gevo’s position in the patent dispute with Butamax. This was the second judicial decision supporting Gevo’s patents. The company has been issued thirteen patents with rights to over 450 patents and patent applications.

For FY2011, ending 12/30/11, revenue was $64.54 million with $48.22 million in losses. During the first nine month of FY2012, ending 9/30/12, revenue was $19.9 million with $47.54 million in losses. The drop in revenue over the last year reflects the company’s transition process.

This is a company in flux, but, for the reasons stated above, such as the seven analysts behind the company, it may be worth a shot.

Our 24-month target for the stock is $3.50 to $3.75.

For more information, contact GEVO’s Chelsea DeLong at 303-858-8358;

ENTEROMEDICS, INC. (NASDAQ: ETRM) – $2.47. Located in St. Paul, MN, with about 30 employees, this medical device maker has 41.7 million shares outstanding, $29.63 million in total current assets, $30.72 million in total assets, little debt and $13.91 million in total liabilities. Institutional ownership is around 70%. One analyst rates the stock a “strong buy” and three analysts have it as a “buy”.

Sometimes we come across a company that has a nifty story and, with its anti-obesity technology, EnteroMedics, Inc. seems like a good fit in our Current Portfolio. It also helps that they have a decent balance sheet to help them get to where they need to go.

Founded in 2002, and trading on NASDAQ for over five years, EnteroMedics is developing medical devices that use neuroblocking technology to treat obesity, metabolic diseases, and other gastrointestinal disorders. Its proprietary neuroblocking technology, the VBLOC vagal blocking therapy, is designed to intermittently block the vagus nerve using electrical impulses. These are delivered by a pacemaker-like device called the Maestro Rechargeable System, which is designed to control both hunger and fullness by blocking the primary nerve which regulates the digestive system. It is intended to limit the stomach’s expansion, control hunger sensations between meals, reduce the frequency and intensity of stomach contractions, and produce a feeling of early and prolonged fullness.

EnteroMedics is evaluating the Maestro System in human clinical trials in the U.S., Australia, Mexico, Norway, and Switzerland. It has collaborations with the Mayo Clinic and the Australian Institute of Weight Control for R&D of its products. Maestro has received the CE mark in Europe for treating obesity, and has been listed on the Australian Register of Therapeutic Goods (ARTG).

This is another small R&D company with limited revenues and hefty losses, for example, during the quarter ending 9/30/12, revenue was zilch with losses of $5.85 million.

We like the technology and its tie-in to the Mayo Clinic, the number of analysts behind the stock, and the institutional ownership isn’t too shabby.

Our 24-month target for the stock is $4.00 to $4.50.

For more information, contact ETRM’s Greg Lea at 651-789-2860.

Look for the February 5, 2013 Newsletter to be posted on 2/1 or 2/4.

Thank you,