IPASS, INC. & XOMA CORPORATION

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Hello Readers,

Since the last Newsletter, we closed one position for a very nice and unexpected gain.

REVOLUTION LIGHTING (12/5/11). Closed position 3/27/13 at $2.46 for a 102% GAIN.

For those who wonder why we are reluctant to close stocks on the “Endangered List”, look no further than Revolution Lighting. The stock fell out of bed last year but really wasn’t dead. About a month ago, we noticed it was showing some signs of life; obviously, someone knew something. Then, BAM! Out of the blue RVLT announced the SeeSmart Tube Light, which grabbed some attention and we are happy to take the nosebleed gains. Now, before you go buying “Endangered List” stocks, remember that this sort of scenario has only occurred less than a dozen times since we began publishing in 1996.

Is Cyprus the canary in the coal mine? Yes, as was Greece, Italy, Spain, Portugal, Ireland, the UK, and the United States. The United States! No, they didn’t take our deposits, but, instead, robbed our money via zero-percent interest rates. Despite all of the bird songs, this market seems determined to melt up for the simple reason that the Fed is stoking the financial system, which will end badly at some point. When that is we, like everyone else, haven’t a clue. So, just enjoy this mega-rally, which is being dominated by big-cap and mid-cap stocks. The micro caps, which are in our end of the market, have not benefited much from the rising-tide effect over the last 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.

TranSwitch (TXCC)(2/5/13). To present at the Marcum MicroCap Conference on May 30. HDplay Transceiver selected by Tecnoroll for several video encoder solutions. Plans secondary offering which may put pressure on the stock.

Apricus Biosciences (APRI)(2/5/13). Balance sheet still looks okay.

Gevo, Inc. (GEVO)(1/20/13). Wins patent suit in Delaware court. Inks contract with Arabian American Development.

Horizon Pharma (HZNP)(12/20/12). Recent numbers show good revenue growth; balance sheet still looks very healthy. To present at the Future Leaders Conference on April 5.

Palatin Technologies (PTN)(12/5/12). Announces notification of patent allowance on Melanocortin Receptor-1 specific peptides.

TeleCommunication Systems (TSYS)(11/5/12). Achieves Cisco Master Service provider and Cisco Silver certificate partner re-certifications.

Lionbridge Technologies (LIOX)(11/5/12). Named as a finalist in Marketo’s 2013 revenue performance excellence awards.

Response Genetics (RGDX)(10/20/12). Revenue numbers for the quarter not bad; balance sheet could use more cash.

Anthera Pharmaceuticals (ANTH)(10/5/12). Balance sheet still looks good. Initiates CHABLIS-SC1 Phase 3 study in Lupus with Blisibimod.

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

ImmunoCellular Therapeutics (IMUC)(9/20/12). To present at the Future Leaders confab on April 5.

SemiLEDS (LEDS)(8/20/12). Sets earnings call for April 11.

pSivida (PSDV)(8/5/12). Reports updates on ILUVIEN for planned resubmission to FDA and European launch.

Overland Storage (OVRL)(7/20/12). Judge declares OVRL patent invalid in media storage library matter. Earns CRN 5-star rating. Wins “Hardware Product of the Year” at Network Computing awards.

Metbolix (MBLX)(7/5/12). Increases revenues but misses earnings expectations; balance sheet still looks good. Signs distribution and PHA supply agreements with Tianjin GreenBio Materials.

Vermillion (VRML)(6/20/12). Names new board chairman.

Rare Element Resources (REE)(6/20/12). Reports FY2012 results; balance sheet still has good cash balance and company claims substantial increase in rare earth resources.

Capstone Turbine (CPST)(5/20/12). Receives orders totaling 5MW from distributor in Mexico for key CHP and CCHP projects.

Bacterin Int’l Holdings (BONE)(5/5/12). Annual reports shows good revenue growth, but losses also increase; balance sheet still looks good.

Echo Therapeutics (ECTE)(3/20/12). Balance sheet could use more cash.

Ballard Power Systems (BLDP)(3/20/12). Just when it looked that the stock was finally getting out of the doldrums, the company decides to do a secondary at $1.10 a unit, and, kaput, down we go, again.

Anadigics (ANAD)(11/20/11). Names new board chairman.

Synthesis Energy Systems (SYMX)(8/20/11). Enters joint marketing agreement with Simon India Limited. Begins third and final gasifier operation at Yima joint venture plant.

Cover-All Technologies (COVR)(7/20/11). Revenue numbers disappointing; balance sheet could use more cash.

On Track Innovations (OTIV)(6/20/11). Another one with disappointing numbers; balance sheet still looks okay.

Jamba, Inc. (JMBA)(3/20/11). To present at TAG’s annual Spring Consumer Conference on April 10.

Neostem (NBS)(5/20/11). Issues update to shareholders. Awarded second year of NIAID research grant for the development of VSEL technology for radiation exposure.

Real Good Solar (RSOL)(1/20/11). Sets earnings call for April 2, the day after we post this Newsletter.

RELM Wireless (RWC)(11/5/10). Receives orders from various government entities totaling almost $6 million. The Street rates the stock a “buy”.

Inovio Pharmaceuticals (INO)(10/20/12). Recent balance sheet still looks good. To present at BioCentury’s “Future Leaders in the Biotech Industry” conference on April 5.

NovaBay Pharmaceuticals (NBY)(4/20/10). Says topline data from Phase IIb trials presents asymmetric investment opportunity.

Our picks for this Newsletter are a Wi-Fi services provider and another small biotech, both trading on NASDAQ.

IPASS, INC. (NASDAQ: IPAS) – $1.98. Twelve-month hi-low has been $2.80 – $1.65. Based in Redwood Shores, CA, with about 100 employees, this telecom services provider has 61.3 million shares outstanding, $49.14 million in total current assets, $60.12 million in total assets, little debt, and $23.22 million in total liabilities. Institutional ownership is around 49%. Two analysts rate the stock a “buy”. www.ipass.com

Over the last several years, iPass, Inc. has seen a steady decline in overall revenue, but it has made major strides in recent product launches. And, the company seems to have the sort of balance sheet to continue a turnaround.

Founded in 1996, and public for nearly nine years, iPass provides enterprise mobility services around the world. Its enterprise mobility services include cost analysis, reporting, and policy compliance management tools; and Wi-Fi network access to enterprise customers. The company provides Mobile Connect, a service that collects and transmits usage data and statistics from the mobile device; Mobile Insight to report and analyze mobile usage across networks, connections, and devices; Mobile Control, a policy enforcement service; Mobile Office, which delivers 3G mobile data, Wi-Fi hotspot, wired broadband, and dial-up access services; and Mobile Network that provides broadband and dial-up network coverage. The iPass Mobile Network is perhaps the world’s largest commercial-grade Wi-Fi network providing global broadband access with an overall footprint of over 1.2 million Wi-Fi hotspots in 124 countries and territories.

In addition, iPass offers Carrier Wi-Fi enablement services, managed network services (MNS) that offer wireline and wireless VPN connectivity services to branch locations of enterprises, retail stores, and financial institutions. The company has 3500 customers worldwide, including more than 420 of the Forbes Global 2000.

For FY2012, ending 12/31/13, revenue was $126.07 million with $4.38 million in losses compared to FY2011 revenues of $140.76 with $3.1 million in losses. Obviously, there was a year over year erosion on both the top and bottom lines, but there are some “buts”. Their Open Mobile revenue in the 4th QT grew about 20% over the 3rd QT revenue and the company continues to see a path to Wi-Fi network revenue growth. In the last year, Open Mobile revenue went from $9 million in 2011 to $27 million in 2012, almost a 300% increase.

The company appears to be turning the corner on its Open Mobile platform and that could get to be very interesting.

Our 24-month target for the stock is $3.40 to $3.75.

For more information, contact IPAS at 650-232-4110; ir@ipass.com

XOMA CORPORATION (NASDAQ: XOMA) – $3.49. Twelve-month hi-low has been $4.13 – $1.90. Based in Berkeley, CA, with about 160 employees, this biotech has 82.9 million shares outstanding, $95.83 million in total current assets, $105.67 million in total assets, and $84.21 million in total liabilities, of which $37.65 million is long-term debt. Institutional ownership is around 65%. Three analysts rate the stock a “strong buy”, four as a “buy”, and one as a “hold”. www.xoma.com

For our long-time subscribers the answer is yes, we did pick this a few years back Xoma Corporation worked out then, and we suspect it will, again. And, yes, the company has more debt than we usually accept, but it has a nice cash arsenal and has been showing some nice revenues, along with promising product candidates in the pipeline.

Founded in 1981, and public for over 22 years, Xoma is developing monoclonal antibodies with the potential to treat cardiovascular, infectious, inflammatory, and metabolic diseases. Its flagship candidate is gevokizumab, a humanized allosteric monoclonal antibody to interleukin beta (IL-1B). The company is enrolling patients in three Phase 3 and two Phase 2 clinical trials for moderate to severe acne and erosive osteoarthritis of the hand. Gevokzimab may also have the potential to address therapeutic needs in cardiovascular disease and other conditions associated with inflammation. XOMA is developing the gevokizumab in collaboration with Les Laboratoires Servier.

XOMA’s preclinical pipeline includes the XMet program, which consists of three separate classes of selective insulin receptor modulators (SIRMs). These are being developed to modulate the insulin receptor for the potential treatment of diabetes and other metabolic syndromes. The company also is developing XOMA 3AB, a three-antibody co-formulation drug product candidate to treat botulnum toxin poisoning, and is being developed with funding from the National Institute of Allergy and Infectious Diseases of the National Institutes of Health. XOMA has two product candidates that are being developed by Novartis: HCD122, a monoclonal antibody to CD40 and LFA102, a monoclonal antibody to the prolactin receptor which is currently in a Phase 1 clinical trial for certain breast and prostate cancers.

Over the years, XOMA has made some nice royalties from its products; some years have been better than others. For FY2012, ending 12/31/12, revenue was $33.78 million with $71.1 million in losses versus 2011 revenue of $58.19 million with $32.74 million in losses. The big losses are pretty typical of many small biotechs.

This is a case of ‘what’s not to like’? Over a half dozen analysts have some sort of ‘buy’ on the stock and the company has aligned themselves with some name partners in developing their products.

Our 24-month target for the stock is $5.00 to $5.50.

For more information, contact XOMA’s Ashleigh Barreto at 510-204-7482; barreto@xoma.com

Look for the April 20, 2013 Newsletter to be posted on 4/16 or 4/17.

Thank you,

George

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