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Dear Reader,

Since the last issue we have closed another nine positions: seven for gains and two for losses.

NANOMETRICS (4/5/03). Closed position 5/15/03 at $6.47 for a 60% GAIN.

INTELIDATA (6/20/02). Closed position 5/14/03 at $2.52 for a 68% GAIN.

APPLIED MOLECULAR (2/5/02). Closed position 5/14/03 at $3.80 for a 58% GAIN.

MEDAREX (4/20/03). Closed position 5/14/03 at $5.02 for a 57% GAIN.

ALLSCRIPTS (1/20/03). Closed position 5/6/03 at $3.58 for a 66% GAIN.

E*TRADE (2/20/03). Closed position 5/6/03 at $6.30 for a 66% GAIN.

INTERGRATED SILICON (3/5/03). Closed position 5/6/03 at $3.98 for a 50% GAIN.

TRIMEDYNE (4/20/00). Closed position 5/5/03 at 22¢ for a 93% LOSS.

AEROGEN (2/5/02). Closed position 5/5/03 at 22¢ for a 92% LOSS.

Apparently, Allscripts, Integrated Silicon, and Intelidata all got caught up in the recent buying spree for small tech stocks. Of course, E*TRADE had been rising steadily for over a month on good earnings news and analysts upgrades. We have no idea what drove Applied Molecular and Nanometrics, but we suspect that Medarex got a nice lift because of the SARS scare. In the cases of Trimedyne and Aerogen, not even a good market could budge these two, which had been on the Endangered List for quite some time.

So, can this market keep going higher? Yes, and for all of the reasons we have iterated for the last three months – low interest rates, cheaper crude, and low inflation. Now, add another, and that is there are now too many gurus giving us reasons as to why it can’t go much higher, and they are usually wrong.

Oh, has anyone picked up on the fact that small caps have been the unsung heroes of this market? The Russell 2000 hit 420, and, during the last few months, we have been closing out what seems like a ton of positions. Our portfolio is looking a heckava lot better than it did three or four months ago. Now, did we just jinx ourselves?

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

U.S. Gold (USGL) (8/20/97). Joins forces with BacTech to produce gold at Tonkin Springs. As we said a few issues back, we will probably be closing this one, soon. Long overdue.

Detwiler Mitchell (DMCO) (8/5/99). Reports difficult first quarter, which is understandable, but balance sheet seems to hold steady. We’d like to give this one even more time. Let’s see if they can make a few bucks during a semi-bull market.

DOR BioPharma (DOR) (9/20/00). Executes license agreement to recombinant botulinum toxin vaccine technology. This one is still on the “Endangered List”, but seems to be looking better.

RateXchange (RTX) (1/20/01). Announces Institutional Cash Distributors (ICD) as a division of its Merriman Curhan Ford & Co.

Hauppauge Digital (HAUP) (2/5/01). Stock gets a nice uptick on pretty good quarterly numbers; balance sheet still appears to be very healthy.

Digital Power (DPW) (2/20/01). Quarterly report reflects no significant improvements.

InSite Vision (ISV) (4/20/01). We have to place this one on the “Endangered List” as recent quarterly report shows further weakness.

Arotech (ARTX)(6/5/01). 1st QT numbers have a positive bent. NASA purchases company’s IES Simulator for Johnson Space Center. Subsidiary also delivers systems to police and law enforcement agencies nationwide.

ViroLogic (VLGC) (7/20/01). Company releases upbeat quarterly report; balance sheet still seems viable.

OXiGENE (OXGN) (9/20/01). Announces discovery of new vascular targeting agent that shows tumor growth control. 1st QT numbers shows balance sheet sagging a little bit.

Abraxas Petroleum (ABP) (10/5/01). Quarterly report reflects gain on sale of Canadian subsidiaries.

Access Pharmaceuticals (AKC) (11/5/01). Quarterly report shows balance sheet apparently still hanging in there.

Saba Software(SABAD) (12/20/01). Company implemented that 1 for 4 reverse split, which is seldomly a boon to present shareholders, so, we place it on the “Endangered List” with a “but”. That being the stock could see a few extra dollars from here. Also, a leading telecommunications group in Central Europe deploys Saba.

Orthovita (VITA) (12/20/01). Gets FDA okay to begin CORTOSS-R pilot study in vertebral compression fracture. 1st QT results not bad and balance sheet still looks pretty good.

Airspan Networks (AIRN) (1/20/02). Stock is up almost 50¢ since the last issue as a result of some good news. Companies in Chile and Peru both signed deals to use AIRN technology.

Epoch Biosciences (EBIO) (1/20/02). Quarterly report still shows a so-so balance sheet and positive revenue numbers.

VASCO Security (VDSI) (2/5/02). Launches VACMAN server 6.0.4 for RADIUS. Also, Digipass exceeds 10 millions units sold and ordered since 1991.

Mechanical Technology (MKTY) (3/5/02). Stock is at around $2.65 after being at 87¢ only a few weeks back, probably because fuel cells have become the latest buzz. Also, its latest QT report showed increased revenues and a break even on the bottom line. Balance sheet still looks very appealing.

Catalyst (CLYS) (3/20/02). A lousy quarterly report and balance sheet sent the stock tanking. We’re also adding this one to the “Endangered List”.

Magic Software (MGIC) (3/20/02). 1st QT shows company returning to the black with higher gross margins.

Spectrum Pharma (SPPI) (5/5/02). A handful of releases. Don’t forget, this one’s on the “Endangered List”.

eXegenics (EXEG) (5/5/02). Company claims cash-burn rate was dramatically reduced in 1st QT; balance sheet still looks okay.

Optibase (OBAS) (5/20/02). 1st QT numbers reflect a profit, and balance sheet still looks very healthy. Network Computing Magazine names MGW 2400 best digital convergence product of the year. Holocaust group picks OBAS for advanced video archiving system.

Bruker AXS (BAXS) (6/20/02). Pretty good quarterly numbers and balance still appears amazingly strong.

Diomed (DIO) (7/5/02). Yes, we are tempted to write this one off, but company has been pledged $1.2 million interim financing.

Hemispherx (HEB) (7/5/02). Here’s another that’s up big since the last issue on all sorts of product news dealing with West Nile Virus and SARS.

Rigel Pharmaceuticals (RIGL) (7/20/02). Quarterly numbers reflect a balance sheet that still seems okay, but don’t forget about that definitive agreement for $46 million financing.

Viewpoint (VWPT) (11/20/02). A few months back, we placed this one on the “Endangered List” because of questions about its accounting practices. However, recent quarterly numbers show nice improvements in revenue. Lets see what’s next.

Titan Pharma (TTP) (11/20/02). 1st QT balance sheet still looking very nice.

Interactive Intelligence (ININ) (12/5/02). Wins award for its Unified Communications software.

Logic Vision (LGVN) (12/20/02). Some product news. Names DI Corp. as exclusive distributor in South Korea.

Interep (IREP) (2/5/03). 1st QT a mixed bag showing revenue growth but a nasty loss.

Interwoven (IWOV) (3/20/03). Some product news. Also, announces that Air France is using IWOV to consolidate up to 6000 intranet sites.

Concurrent Computer (CCUR) (4/5/03). A handful of very positive releases about various products.

Sonic Innovations (SNCI) (5/5/03). Enters German hearing aid market with strategic acquisition.

Our picks for this issue are a semiconductor (do we dare!) and another company that fits the biotech genre.

MISONIX, INC. (NASDAQ: MSON) – $3.65. Twelve-month hi-low has been $8.75 – $2.25. Based in Farmingdale, NY, with nearly 190 employees, this technical instrument maker has 6.6 million shares outstanding, $19.8 million in total current assets, $28.5 million in total assets, $1.16 million in long-term debt/capital lease obligations, and $6.07 million in total current liabilities. Institutional ownership is around 11%. One analyst rates the stock a “moderate buy”. http://www.misonix.com

Here’s another one that can fall into the biotech genre (sort of) and it also has a fair balance sheet. More importantly, Misonix, Inc. has been making money over the last twelve months. Founded in 1959, and formerly called Heat Systems Ultrasonics, Misonix bills itself as a world leader in designing and manufacturing ultrasonic medical devices. It also makes industrial ultrasonic equipment, laboratory safety equipment, and air pollution control products. The company sells its products basically through several divisions. It also owns 95% of UK-based Labcaire Systems, which makes biohazard safety equipment for labs. Of interest, is that MSON develops much of its ultrasonics technology with United States Surgical.

Misonix has numerous products for a wide variety of applications. Its Sonicator is a liquid process primarily used to extract protein from cells and to strip away coating from viruses. Other devices include high intensity focused ultrasound for removing cancerous tumors, soft tissue aspirators, laproscopic cutting and coagulation instruments, tinnitus relief devices and neuroaspirators.

In the non-medical area MSON has such items as the Sonimist, which is a spray nozzle that removes radioactive particles and other debris from lab equipment. It also sells filtration and containment hoods, used to extract contaminants, to clinical and industrial labs. Misonix has been promoting its ductless fume enclosures for protection against anthrax. MSON’s forensic products line includes items for fingerprinting and evidence protection. And then, there is their air pollution control group that markets Scrubber systems, which remove difficult airborne contaminants emitted from small labs or large production facilities.

For FY2002, ending 6/30/02, revenues were $29.59 million with $176,661 in net income. During the first nine months of the current FY, ending 3/31/03, revenues were $29.9 million with $409,000 in net income. Also, at the end of March, MSON’s backlog of unfilled orders stood at $8 million.

What’s there not to like here? The company has an arsenal of what appears to be cutting-edge technologies, a fair balance sheet, and has been making money, which has been a rare feat for many companies over the last few years.

Our 24-month target for the stock is $6.00 to $7.00.

For more information, contact MSON’s Richard Zaremba at 631-694-9555; invest@misonix.com

MIPS TECHNOLOGIES, INC. (NASDAQ: MIPS) – $2.60. Twelve-month hi-low has been $8.02 – $1.24. Located in Mountain View, CA, with about 220 employees, this semiconductor has 40.1 million shares outstanding, $95.26 million in total current assets, $108.1 million in total assets, little debt, and $13.2 million in total current liabilities. Institutional ownership is around 78%. Two analysts have the stock as a “hold”. http://www.mips.com

Now that the economy has started to wipe some sleep out of its eyes, maybe parts of Silicon Valley may also wake up, such as a small semiconductor with an apparently decent balance sheet and a broad customer base like MIPS Technologies.

Founded in 1984 as MIPS Computer Systems and public since 1998, its stock nearly touched $60 in 1999 and 2000 during the halcyon days of the tech stock bubble. MIPS is a top designer of reduced instruction set computer (RISC) microprocessor chips, or what it likes to call a RISC-y business. High-end 32-and 64-bit RISC processors based on MIPS designs may be found in literally millions of electronic devices such as video games, laser printers, set-top boxes, and PDAs. If you have a digital cable set-top box or a video game console, chances are it is probably MIPS-based. Even your email is likely to travel through a MIPS-based CISCO router.

Much of the future growth for MIPS may be in 64-bit processor architecture for which the company is the industry leader. Fueling this growth is demand for features such as streaming audio and video, cryptography enhancements for commerce, processor clock speeds of 500 MHz in handheld devices, and the convergence of computing, communications, multimedia, and encryption.

Now, MIPS does not manufacture processors; instead the company licenses its intellectual property, and, unlike others in their business, MIPS just doesn’t license cores, it also licenses architecture. The company’s list of licensees reads like a Who’s Who of Tech Land and includes Sony, Cisco, Motorola, Agilent, Broadcom, IDT, LSI Logic, NEC, Philips, Toshiba, and, of course, Microsoft.

For FY2002, ending 6/30/02, revenue was $47.7 million with $9.4 million in losses, which is ugly compared to FY2001 revenues of $84.9 million and $19 million in net income. And the first nine months of FY2003, ending 3/31/03, also are not pretty with revenues of $29.29 million and $22.2 million in losses.

So, with all of the red ink, what’s the attraction? The semiconductor sector has been decimated during the last few years, but we are sensing a turn for the better. Companies like MIPS that still have decent balance sheets and that have kept their technologies up-to-par should fare well over the long term.

Our 24-month target for the stock is $4.50 to $5.00.

For more information, contact MIPS’ Bonnie Gardiner at 650-567-7007; bonnieg@mips.com
The June 5, 2003 issue should be posted on 6/2 or 6/3.

Have a safe holiday,

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