LINKTONE, LTD. & SUNSESIS PHARMACEUTICALS, INC.

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Hello Readers,

The markets have had quite a carnival ride over the last several weeks, with the focus on big and mid caps. While money is gushing into these sectors, it is only still trickling into small stocks, grudgingly so. We still keep urging patience, but the watchword for now is caution. Things are getting a little too frothy as the markets keep climbing a wall of worry.

Here are the headlines since the last Newsletter about companies in the Current Portfolio. Dates in parentheses are when we first recommended them.

Orsus Xelent (ORS) (10/20/07). TheStreet.com upgrades stock from a “sell” to a “hold”, and, to this day, we still don’t know the meaning of “hold”, particularly when it is upgraded from a “sell”. Don’t you first need to “buy” it?

Nucryst Pharma (NCST) (10/5/07). Earnings call slated for November 7.

Boots and Coots (WEL) (9/20/07). Slates earnings call for November 5. RBC Capital Markets initiates coverage on the stock.

Wave Systems (WAVX) (9/5/07). Teams with Safend to offer complementary solutions for safeguarding data at rest and data in motion. TVTonic announces content licenses with the Weather Channel and with Next New Networks. Unveils SmartSigning Room, an extension of the eSign Transaction Management Suite.

Kodiak Oil (KOG) (9/5/07). Schedules 3rd QT earnings call for November 8. No, we haven’t a clue why the stock has been getting clocked. Let’s hope it has nothing to do with the upcoming numbers.

Radcom (RDCM) (7/20/07). Post 3rd QT loss and says it will cut workforce by 23%; balance sheet still looks okay. Selected by Telecom Argentina to monitor their NGN sites.

Alliance Fiber Optic (AFOP) (7/20/07). Reports pretty decent quarterly numbers; balance sheet still looks strong.

Heska (HSKA) (7/5/07). To present at investment confab on November 1, the day we post this Newsletter. Slates earnings news for November 7.

Pharmacyclics (PCYC) (6/20/07). Recent balance sheet still seems to be in good shape as company gives upbeat quarterly report.

Alphatec (ATEC) (6/20/07). FDA approves DYNAMO Rod System. To present at CIBC conference on November 5. Quarterly numbers an improvement over a year ago; balance sheet still looks very strong.

Xenonics (XNN) (6/5/07). SuperVision plays key role in arrest of one of Fort Worth area’s Most Wanted.

Oncolytics (ONCY) (6/5/07). Recent balance sheet still looks good. ONCY collaborators present positive interim results of UK Phase 1a/1b combination REOLYSIN and radiation clinical trial. Gets UK approval for UK clinical trial investigating REOLYSIN in combination with Cyclophosphamide.

Encorium Group (ENCO) (5/20/07). Announces $4 million of awarded new business contracts.

Hana Biosciences (HNAB) (5/5/07). Gets $30 million funding commitment from Deerfield Management. Sets earnings call/update for November 8. Presents positive preclinical data for three anti-cancer candidates and on Alocrest.

ECtel (ECTX) (5/5/07). Issues pretty good earnings release; balance sheet still looks good.

Gene Logic (GLGC) (4/20/07). Changing its name to Ore Pharmaceuticals. Identifies gene expression patterns associated with Multiple Sclerosis in blood cells. Recent numbers show company trimming its losses a little; balance sheet still looks healthy.

VocalTec (VOCL) (4/20/07). Announces 18 new service provider wins in Russia and CIS since 2006.

Immunicon (IMMC) (3/20/07). To present at Rodman & Renshaw confab on November 7. Sets earnings call for November 2.

Urologix (ULGX) (2/20/07). Quarterly numbers not great, not bad; balance sheet still looks good. Feltl & Co. downgrades stock from a “buy” to a “hold” (there’s that “hold”, again).

Eon Communications (EONC) (2/5/07). Ends FY on a low note, but sees future growth from China; balance sheet still looks okay.

UQM Technologies (UQM) (2/5/07). Holds conference call.

Endologix (ELGX) (1/20/07). Comes out with pretty decent quarterly numbers; balance sheet still looks good.

Lantronix(LTRX) (12/5/06). To report quarterly results on November 8.

WJ Communications (WJCI) (12/5/06). To present at AeA financial conference on November 6 and 7. Will web cast quarterly results on November 5. Expands family of second source frequency mixers to provide broad range of wireless applications.

Proxim Wireless (PRXM) (11/5/06). Introduces 4.9 GHz public safety broadband data access solutions for in-vehicle applications.

HealthStream (HSTM) (10/20/06). Recent numbers look pretty positive; balance sheet still seems to be okay.

Hydrogenics (HYGS) (9/20/06). To release quarterly results on November 8.

TVI Corp (TVIN) (9/5/06). To release quarterly results on November 8. This is on the “Endangered List”.

Advanced Life Sciences (ADLS) (7/20/06). To present at Rodman & Renshaw confab on November 6.

NTN Buzztime (NTN) (7/5/06). Agrees to sell ProHost assets. Earnings news set for November 8.

02Diesel (OTD) (5/20/06). Energenics invests $2 million to secure rights for OTD’s technology in the Indian and Asian markets via a joint venture and places a $2.2 million order. This is sill on the “Endangered List”, but if this sort of interest keeps up, we may change our thinking.

Tri-S Security (TRIS) (5/5/06). Sets earnings call for November 13.

Pharmos (PARS) (4/20/06). Recent balance sheet weakens. We’re placing this on the “Endangered List”.

Cytogen (CYTO) (3/20/06). Sets earnings call for November 5. This one is making us nervous.

Inventure Group (SNAK) (3/5/06). Quarterly numbers show revenue growth and a profit; balance sheet still looks pretty good.

Neose Technologies (NTEC) (2/20/07). To present at Acumen BioFin conference on November 6. Sets earnings call for November 8.

Lipid Sciences (LIPD) (2/20/06). To also present at Acumen confab on November 7.

Aherex (ADH) (2/20/06). ADH and International Childhood Liver Tumor Strategy Group announce launch of Phase 3 trial of STS. To participate in Windhover’s therapeutic area partnerships meeting.

MIND C.T.I. (MIND) (2/5/06). Earnings call set for November 6.

8×8 (EGHT) (1/20/06). Sets earnings call for November 1, the day we post this Newsletter. Awarded new VoIP patent. CompUSA to sell 8×8 phones. To present at AeA conference between November 4-7. And yes, we feel this stock should be much higher.

Digital Angel (DOC) (12/20/05). Sets earnings call for November 7.

Westell (WSTL) (10/20/05). 2nd QT results somewhat disappointing; balance sheet still looks strong. Takes equity stake in Contineo Systems.

RAE Systems (RAE) (10/5/05). To present at AeA confab on November 6. Sets earnings call for November 1, the day we post this Newsletter.

EntreMed (ENMD) (9/5/05). To present at healthcare confab on November 6. Showed increased survival with MKC-1 in preclinical renal cell cancer model. Reports Phase 1 PK and preclinical efficacy results for ENMD-1198. Presents results for Panzem NCD Phase 2 ovarian cancer study.

Zi Corporation (ZICA) (8/5/06). Licenses eZiTest to Tier 1 printer manufacturer, Wins excellence award in China. Signs licensing deal with Leadtek Research of Taiwan.

Innodata (INOD) (7/5/05). Sets earnings release for November 14.

B.O.S. (BOSC) (1/5/05). Announces acquisition of Summit Radio for up to $5.5 million. Receives $500,000 follow-on order from a European customer.

Applied Micro Circuits (AMCC) (11/20/04). Comes out with some nice quarterly numbers; balance sheet still looks very strong.

Nova Measuring (NVMI) (11/5/04). Slates earnings news for November 6. NVMI’s metrology solution chosen for largest memory fabrication facility in Taiwan.

Aviza (AVZA) (10/5/04). Receives etch system order from Robert Bosch GmbH.

Network Engines (NENG) (6/5/04). Earnings call set for November 8. Subsidiary announces new distribution pact with ZNYX Networks.

Palatin Technologies (PTN) (4/5/04). Starts human trials for treating congestive failure. This is on the “Endangered List”.

OpenTV (OPTV) (3/20/04). Earnings call set for November 7.

Our picks for this Newsletter are both trading on NASDAQ. One is a Chinese telecom play and the other is another one of those small biotechs, which, by the way, will be releasing new numbers on November 1, the day this letter is posted.

LINKTONE, LTD. (NASDAQ: LTON) – $3.40. Twelve-month hi-low has been $6.41 – $2.03. Based in Shanghai, China (PRC), with about 620 employees, this telecom value-added services provider, has 26.1 million shares outstanding, $65.66 million in total current assets, $94.49 million in total assets, little debt, and $10.1 million in total liabilities. Institutional ownership is only around 1% (but, it is safe to assume that the PRC may have some sort of stake). Four analysts rate the stocks as a “hold”. www.linktone.com

Last Newsletter, we picked our first Chinese stock in years with Orsus-Xelent. So, why not walk the tightrope and try another, in spite of the potential bubble now facing China markets; hey, when that pops, we all will feel it. Linktone, Ltd. has had a down year, but it has a good-looking balance sheet and has made some recent moves that may turn things around.

Founded in 1999, and public for less than four years, Linktone provides entertainment-oriented telecom value-added services to mobile phone users over the second-generation (2G) and 2.5G mobile telecommunications networks in China. The company specializes in developing, aggregating, marketing and distributing consumer wireless content and applications for access, primarily through the two main mobile operators, China Mobile and China Unicom. Linktone’s 2G short messaging service (SMS)-based services include ringtones, icons and screen savers, interactive SMS messaging in certain television programs, adventure, action, trivia and fortune telling games, lunar and western horoscopes, POP messaging, jokes, fan clubs, event-driven or entertainment news updates, and a virtual mobile amusement park called WonderWorld. Its 2.5G services comprise multimedia messaging services (MMS), such as animated cartoons and screensavers, comic strips, magazine style ‘mobile articles’ on various topics and event-driven news updates. In addition, these 2.5G offerings consist of wireless application protocol (WAP) services, such as WAP-based ringtones, screensavers, games and dating services, and advanced Java games. Linktone also offers audio-related services comprising ‘ringback’, which replaces the common ‘ring-ring’ sound heard by callers with music and sound effects; and interactive voice response services, which let users listen to songs, jokes, stories and news events.

As you will see, Linktone’s revenues have dropped a bit this year, however, during the second quarter, the company inked two pacts that may change the situation. It signed an agreement with eChinaCash (eCC) to purchase a 49% equity stake in eChinaMobile. As joint owners, both Linktone and eCC will cross-sell promotional opportunities by leveraging each others extensive customer resources. Linktone also entered a joint venture with ShanghaiHomer & Landau Cartoon Cultural Communication Co. (SHLCC) to establish a joint venture in Shanghai to operate value added services to an estimated 367 million teenagers in China using the content and promotional channels of SHLCC.

For FY2006, ending December 31, 2006, revenue was $76.53 million with $6.79 million in net income. During the first six month of the current FY, ending 6/30/07, revenue was $25.85 million with $5.43 million in losses. One of the highlights in the second quarter is that advertising service revenue accounted for 14% of total revenues compared to only 4% in the first quarter of this year. Could this be a harbinger?

Linktone is a crapshoot but we like the company’s recent alliances, especially the deal aimed at the teenagers who always seem bulletproof to bubbles and the like.

Our 24-month target for the stock is $5.75 to $6.25.

For more information, contact LTON’s Edward Liu at ir@linktone.com; phone: +86 (21) 6361 1583.

SUNESIS PHARMACEUTICALS, INC. (NASDAQ: SNSS) – $2.62. Twelve-month hi-low has been $5.75 – $2.11. Located in South San Francisco, CA, with about 108 employees, this biotech has 34.3 million shares outstanding, $66.64 million in total current assets, $72 million in total assets, and $12.71 million in total liabilities, of which $1.3 million is long-term debt. Institutional ownership is around 78%. Four analysts rate the stock a “strong buy”. www.sunesis.com

Seldom, do we just pick a stock based on analysts recommendations, but when you see four of them at “strong buys”, that makes for a compelling case. Of course, there are some other factors that seem favorable for Sunesis Pharmaceuticals, Inc. It has a strong-looking balance sheet, and we like the fact it cut staff before it really needed to, which shows a little vision; of course, when a company does this, the stock price usually sinks and this is perhaps why SNSS is trading near its 52-week low.

Founded in 1998 as Mosaic Pharmaceuticals, and public for just over two years, Sunesis calls itself a clinical-stage biopharma that targets small molecule therapeutics for use in oncology and other medical needs. It offers a fragment-based discovery approach, known as Tethering, which is a process whereby a protein known to be in a disease process is engineered to facilitate the binding of small drug fragments. The company’s proprietary oncology products are SNS-595, a cell-cycle inhibitor representing anti-tumor drugs, which is in Phase II clinical trial in small cell lung cancer, Phase II clinical trial in ovarian cancer, and Phase II clinical trial in acute leukemias; SNS-032, a targeted inhibitor of cyclin-dependent kinases, which is in Phase I clinical trial in patients with advanced solid tumors, and Phase I clinical trial in patients with advanced B-cell lymphoid malignancies; and SNS-314, a targeted inhibitor of the Aurora A, B, and C kinases for the treatment of cancer.

Sunesis also provides Raf kinase inhibitors program in strategic collaboration with Biogen; and small molecule leads that inhibit oncology and immunology kinase targets. In addition, the company offers Cathepsin S inhibitors program for inflammatory diseases with Johnson & Johnson’s R&D division; and BACE inhibitors for Alzheimer’s disease and anti-viral inhibitors program in collaboration with Merck.

In mid-September, Sunesis announced that patient dosing commenced in clinical trials for SNS-595 and SNS-314. It was in late August when the company announced cutting 25% of the workforce, which it says will reduce annual expenses by more than $10 million below planned levels for the next several years.

This is another of those small biotechs that has relatively little income and wide swatches of red ink. In Sunesis’ case, most of its income is derived from licensing fees. For example, during the quarter ending 6/30/07, revenue was $3.27 million with $9.77 million in losses.

The company has collaborations with three of the biggest names in pharma. It also has those four analysts with their “strong buys”. That’s a lot more than most small biopharmas have going for it.

Our 24-month target for the stock is $4.25 to $4.75.

For more information, contact SNSS at 650-266-3500.

Look for the November 20, 2007 Newsletter to be posted on 11/16 or 11/19.

Thank you,
George