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Hello Readers,

Since the last Newsletter, we were able to close one position for a gain.

REWARDS NETWORK (1/20/09). Closed position 3/11/09 at $3.30 for a 56% GAIN.

Shortly after reporting some very good numbers at the tail end of February, Rewards Network had a nice pop upward. It also probably helped that this is the type of company that should do well in a recession/near depression (pick one). We’re happy to get a nice gain during the current mess.

For the last several months, we have said where we feel the markets need to drop before the carnage is nearly over – 6000 to 6500 on the Dow, although 5800 on the lower end looks possible, and 1000 to 1200 on the NASDAQ. Both the good and bad news is that we are much closer to those estimates. We wish this wouldn’t be the case, but, in order to get serious buying back into the markets, investors must feel that the lows have been reached. And, once again, our own Current Portfolio remains battered and stagnant while all of this crap continues. We now have over 100 open positions, of which about 25 are on the “Endangered List”, both of these totals are at all-time levels since we started publishing close to thirteen years ago.

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 believe the news to be highly significant.

Virage Logic (VIRL)(3/5/09). ViXS Systems selects company’s high-performance Intelli DDR 2/3 memory interface IP solution for video processing systems. To present at the annual International Symposium on Quality Electronic Design on March 17. Selected by NEC Electronics as a trusted IP partner for advanced 40nm technologies.

SuperGen (SUPG)(2/5/09). Latest balance sheet still looks pretty healthy.

MakeMusic (MMUS)(1/20/09). Subscriptions increase 20% over the prior year. Recent 4thQT and year-end numbers looked okay, both showing profits; balance sheet still appears to be good.

Acadia Pharmaceuticals (ACAD)(11/20/08). Recent balance sheet still looks good.

Vimicro Int’l (VIMC)(11/5/08). Says China sales to surpass 50% of total.

Oilsands Quest (BQI)(10/20/08). Provides update on its independent evaluation of resource estimates.

Lexicon Pharmaceuticals (LXRX)(9/20/08). Presents clinical data on LX1032 for carcinoid syndrome at European meeting.

Endeavour Silver (EXK)(9/5/08). Gives a review of its 2008 silver production and outlook for 2009.

Digirad (DRAD)(8/20/08). Sells Arizona and Nevada hubs.

Icagen (ICGN)(8/5/08). Initiates study of Senicapoc in exercised-induced asthma. Recent balance sheet still appears to be okay.

Applied Energetics (AERG)(7/5/08). Sets earnings call for March 16, the day we post this Newsletter.

Energy Focus (EFOI)(6/5/08). Provides striking LED fountain lighting for the world famous Burj Dubai.

Bridgeline Software (BLSW)(6/5/08). To present at the RedChip Investor Conference on March 24.

Microvision (MVIS)(5/20/08). Recent numbers not great; balance sheet still looks good.

GlobalScape (GSB)(5/20/08). Introduces enterprise-class file transfer solution to SMB market.

Kopin (KOPN)(4/20/08). Ends year with some pretty nice numbers; balance sheet still looks very strong.

Biolase Technology (BLTI)(4/5/08). Names new CEO and new interim CFO. Sets earnings call for March 16, the day we post this Newsletter.

Rodman and Renshaw (RODM)(3/20/08). This brokerage firm reports a staggering $43 million loss for the 4thQT, and though the balance sheet still appears viable, we are placing this on the “Endangered List”.

ActivIdentity (ACTI)(3/5/08). SNS Bank selects ACTI’s Smart Employee ID solution for workforce security and mobility.

IncrediMail (MAIL)(2/20/08). Reports record revenues for 2008 along with some nice gains; balance sheet still looks good.

Amicas (AMCS)(1/20/08). Delivers advanced integration framework to Monroe Clinic.

Hollywood Media (HOLL)(1/5/08). Slates earnings call for March 16, the day we post this Newsletter.

Move,Inc (MOVE)(1/5/08). Revenues and earnings take a big hit; balance sheet still looks good.

Catalyst Pharmaceutical (CPRX)(12/20/07). To focus on its lead indication for CPP-109 for methamphetamine addiction.

Santarus (SNTS)(11/20/07). To present at Cowen & Co. annual healthcare confab on March 17. Revenue numbers improve and losses decrease; balance sheet still looks good.

Linktone (LTON)(11/5/07). Schedules earnings call for March 18.

Sunesis Pharmaceuticals (SNSS)(11/5/07). GET EARNINGS!!! Sells its LFA-1 inhibitor program to SARcode Corporation.

Continucare (CNU)(11/20/07). Okays a 2.5 million share increase to stock repurchase program.

Oncolytics Biotech (ONCY)(6/5/07). Starts enrollment in Phase 2 combination clinical trial for non-small cell lung cancer patients with K-RAS or EGFR-activated tumors. Recent balance sheet still seems viable, for now.

Endologix (ELGX)(1/20/07). Suprarenal study to be introduced March 19 at SCVS Symposium. Announces FDA approval of the IntuiTrak Express Delivery System.

Hydrogenics (HYGS)(9/20/06). Awarded $1.8 million of new orders. Sets earnings call for March 25.

Thermogenesis (KOOL)(4/5/06). Says its products surpass processing of more than one million units of cord blood stem cells at ten-year milestone.

8×8 (EGHT)(1/20/06). To present at the B.Riley Investor Conference on March 19.

RAE Systems (RAE)(10/5/05). 4thQT numbers act as drag for total year, but losses dwindle; balance sheet still looks good.

Our picks for this Newsletter are two more NASDAQ companies, one is a provider of data storage devices and the other is a fabless semiconductor.

ISILON SYSTEMS, INC. (NASDAQ: ISLN) – $2.12. Twelve-month hi-low has been $6.10 – $1.93. Located in Seattle, WA with about 390 employees, this provider of data storage devices, has 63.9 million shares outstanding, $108.89 million in total current assets, $120.19 million in total assets, little debt, and $50.17 million in total liabilities. Institutional ownership is around 34%. Three analysts have the stock as a “hold”.

Stock picking in this market is a lot like catching knives. The best thing to focus on is the balance sheet and Isilon Systems, Inc. appears to have one that’s stronger than most. And, yes, while the company has been showing good revenue growth, its losses are still a challenge.

Founded in 2001, and public for over two years, Isilon bills itself as the worldwide leader in clustered storage systems and software for filed based data. Companies turn to Isilon because their large and rapidly-growing stores of filed-based data present challenges that traditional, scale-up storage systems were not designed for. File-based data consumes large amounts of storage capacity, typically grows faster and more unpredictably than block-based data stores, and often requires high throughput and high concurrency. As of December 31, 2008 the company had sold its scale-out NAS (network attached storage) storage systems to more than 900 customers across a range of industries.

Isilon develops and markets these NAS systems for storing and managing digital content comprising video, audio, digital images, reference information, test and simulation data, and other unstructured data. Its products include Isilon IQ Platform Nodes that supports gigabit Ethernet interfaces for intra-cluster communication and provides front-side communication; Isilon IQ Accelerator, which enables customers to increase the performance, or aggregate write and read throughput of their data storage system; Isilon 6000, EX 9000, and EX 12000 products that increase data storage capacity; SyncIQ replication software application that provides asynchronous file-based replication to one or more Isilon IQ clusters over WAN/LAN IP network; and SmartConnect Load-Balancing Software application, which streamlines connection management by automatically distributing client connections across individual nodes in a cluster based on defined policies.

Isilon also offers other products such as SnapshotIQ Protection Software, SmartQuotas Data Management, and MigrationIQ Tiered Clustered Storage Software application. Its products are used in markets like entertainment and media, Internet, cable and telecommunications, oil and gas, life sciences, manufacturing, and government.

For FY2008, ending 12/31/08, revenue was $114.42 million with $25.1 million in net losses compared to FY2007 revenue of $88.99 million with $26.93 million in losses.

One would think that with the nice revenue gains that the company has products that have been much in demand. We hope they can pare the losses, soon.

Our 24-month target for the stock is $3.75 to $4.25.

For more information, contact ISLN’s Lucas Welch at 206-315-7621;

02MICRO INTERNATIONAL, LTD. (NASDAQ: OIIM) – $2.80. Twelve-month hi-low has been $9.75 – $1.77. Located in the Grand Cayman, with about 870 employees, this fabless semiconductor has 36.7 million shares outstanding, $134.62 million in total current assets, $193.27 million in total assets, little debt, and $13.49 million in total liabilities. Institutional ownership is around 71%. Four analysts give the stock a “strong buy”, one a “moderate buy”, and two have it as a “hold”.

And yes, here is another one with a very strong-looking balance sheet, although, in this case, the company had a very tough 2008. But, we also like the fact that a small slew of analysts still like O2Micro International, Ltd.

Founded in 1995, and public for under nine years, 02Micro develops and markets analog, digital, and mixed-signal integrated circuits, and semiconductor devices for power management, mobile, and security applications, as well as providing systems security solutions in consumer electronics, computer, industrial, and communications markets. Its integrated circuits use mixed signal designs, which combine analog and digital circuits within the same device. The company develops intelligent security software solutions, and silicon products and other engineered multi-layered structures for integrated circuits; and provides semiconductor assembly and testing services.

02Micro’s products include intelligent lighting, battery management, power management, SmartCardBus, and security products such as VPN/firewall system solutions. The company also licenses its intellectual property to third parties. Its products are used in liquid crystal display (LCD) notebook computer panels, LCD televisions, LCD monitors, and LCD panels for global positioning systems. 02Micro’s products are used in electronic devices currently sold by Acer, Compaq, Dell, Ericcson, Fujitsu, Hewlett-Packard, Hitachi, IBM, NEC, Sharp, Siemens, Sony, and Toshiba.

For FY2008, ending 12/31/08, revenue was $138.85 million with $16.24 million in net losses, much of this coming in the 4thQT, compared to FY2007 revenues of $165.54 million with $29.25 million in net income.

At some point, small tech stocks should make a nice comeback and we suspect this may be toward the latter part of this year when Microsoft releases Windows 7. 02Micro should be able to wing it until then.

Our 24-month target for the stock is $4.75 to $5.50.

For more information, contact OIIM at 408-987-5920;

Look for the April 5, 2009 Newsletter to be posted on 4/1 or 4/2.

Thank you and Happy St. Pat’s Day, George

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