NUCRYST PHARMACEUTICALS CORPORATION & AMERICAN TECHNOLOGY CORPORATION

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Hello Readers,

Since the last Newsletter, we have closed five positions, three for gains and two for losses.

AIXTRON (7/5/04). Closed position 9/27/07 at $9.98 for 50% GAIN.

AMERICAN CARESOURCE (5/20/07). Closed position 9/21/07 at $2.58 for a 52% GAIN.

TARGETED LOGISITICS (11/20/06). Closed position 9/18/07 at $2.45 for an 11% GAIN.

GATEWAY (2/5/06). Closed position 9/18/07 at $1.89 for a 31% LOSS.

NEUROBIOLOGICAL (2/20/07). Closed position 9/18/07 at $3.95 for a 78% LOSS.

Yes, it took over three years to finally close AIXTRON, first recommended as Genus, for a nice gain. We don’t usually need to hold them this long, but there are times when a good company’s stock gets stuck in a rut, and it takes a little, or a lot, of patience for them to work. There wasn’t any major event that we could see to drive American Caresource for a good gain, and no need to wait for one. We were surprised to see Targeted Logistics be bought out by New Zealand’s Mainfreight, Ltd. and are forced to close the position for a minor gain. You all know about Gateway being acquired by Taiwan’s Acer. We’ve said this dozens of times over the years; we hate reverse stock splits, because seldomly do they benefit current shareholders, and Neurobiological Technology, for the moment, doesn’t appear to be the exception, so, we have closed the position.

Small stocks have recovered only marginally from the August carnage, and they still have miles to go before catching the major averages. Remember, when the mutual and hedge funds needed cash to bail from the subprime mess, many sold their small stocks. Since then, these same funds have pumped their money into what had been bargain-basement priced large and mid caps, which had been oversold. If history repeats, they should, soon, rediscover the small caps.

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

XATA (XATA) (9/20/07). Releases XATANET 4.0 for optimizing fleet operations.

Wave Systems (WAVX) (9/5/07). Collaborates with Ping Identity to provide authentication for federated single sign-on. TVTonic brings QuickTime Video to Windows Vista media center. To demonstrate platform module support for next-generation Intel vPro at Intel Developer Forum.

SIGA Technologies (SIGA) (8/20/07). Says its lead smallpox drug, ST-246, prevents mortality in primates.

Alphatec (ATEC) (6/20/07). Prices public offering at $2.45 a share; estimates $25 million in net proceeds. Underwriter exercises its full option to buy up to an additional 1.2 million shares.

ECtel (ECTX) (5/5/07). Launches roaming assurance solution as part of its IRM family.

VocalTec (VOCL) (4/20/07). Stock takes a hit as company expects substantial revenue growth over 2006, but below its original 70%-90% target.

UQM Technologies (UQM) (2/5/07). Receives U.S. Navy contract to develop advanced electric motor.

Lantronix (LTRX) (12/5/06). CEO steps down; names interim CEO.

YM Biosciences (YMI) (11/5/06). Year-end balance sheet still looks healthy.

Proxim Wireless (PRXM) (11/5/06). Teams with Hannah Engineering to deliver intrinsically safe wireless integrated technology systems for mining industry.

HealthSteam (HSTM) (10/20/06). Announces share repurchase program. Although these usually juice the stock momentarily, we prefer seeing the money put into R&D and marketing.

Advanced Life Sciences (ADLS) (7/20/06). Joins NASDAQ Capital Market. Presents further data on safety and efficacy of Cethromycin at confab.

02Diesel (OTD) (5/20/06). Senate committee okays continued funding for OTD’s demonstration program at Nellis AFB. AMEX accepts company’s plan of compliance. This is on the “Endangered List”.

Tri-S Security (TRIS) (5/5/06). Settles suit with former shareholders of Paragon involving claims totaling $6.5 million.

MIND C.T.I. (MNDO) (2/5/06). Announces follow-on orders.

8X8 (EGHT) (1/20/06). Inks exclusive agreement with VoIP service. Awarded speech processing patent.

Digital Angel (DOC) (12/20/05). Receives $800,000 order for S-VDR “black box” for commercial shipping.

Westell (WSTL) (10/20/05). Subsidiary Conference Plus and iLinc complete co-distribution pact. Stock is upgraded by firm Robert W. Baird.

RAE Systems (RAE) (10/5/05). Receives U.S. patent for oxygen sensor. Says its radiation detector meets ANSI Standards for Homeland Security.

EntreMed (ENMD) (9/5/05). Completes $20 million financing.

N.A. Scientific (NASI) (8/5/05). Releases 3rd QT numbers. This is on the “Endangered List”. Says ClearPath – HDR used in patient for the first time.

Vion Pharma (VION) (5/20/05). Receives NASDAQ notice. Announces Start of Phase I/II trial of Cloretazine. This is also on “Endangered List”.

Applied Micro Circuits (AMCC) (11/20/04). About half a dozen releases on various items. To present at three different investor confabs over the next thirty or so days. Will cut 4% of workforce.

Palatin (PTN) (4/5/04). Numerous releases. This is on “Endangered List”.

Pharmos (PARS) (4/20/06). Receives NASDAQ notice. We’re half tempted to place this on the “Endangered List”, but the balance sheet still appears to be half-decent.

Oncolytics (ONCY) (6/5/07). Reports positive interim results of U.K. Phase 1a/1b combination REOLYSIN and radiation clinical trial.

Our picks for this Newsletter are another biopharma and an electronics maker, both listed on the NASDAQ.

NUCRYST PHARMACEUTICALS CORPORATION (NASDAQ: NCST) – $3.05. Twelve-month hi-low has been $11.46 – $2.48. Located in Wakefield, MA, with about 150 employees, this pharmaceutical has 18.3 million shares outstanding, $32.7 million in total current assets, $46.36 million in total assets, little debt, and $3.89 million in total liabilities. Institutional ownership is around 18%. One analyst rates the stock a “strong buy”, one as a “moderate buy” and another as a “hold”. www.nucryst.com

There are few stocks that have the potential to double on good news, but, back in July, when the FDA approved its topical antibiotic, shares of Nucryst Pharmaceuticals Corporation did just that. Can it happen, again? We don’t know, but with a decent balance sheet and a potential for revenue growth, the company, at least, should do well over the long haul.

Founded in 1997, and public for less than two years, Nucryst makes products that fight infection and inflammation based on its patented atomically disordered nanocrystalline silver technology. It produces nanocrystalline silver as a coating for wound dressing products under the trademark SILCRYST and as a powder for use as a pharmaceutical ingredient known as NPI 32101. The company licenses its technology to Smith & Nephew plc, perhaps the world’s largest wound care company, which markets and sells NCST’s SILCRYST coatings. These products include Acticoat 3/Acticoat burn dressings; Acticoat 7 dressings; Acticoat Absorbent dressings; and Acticoat and Moisture Control dressing.

Nucryst has 21 issued U.S. patents and is pursuing another 21. Its products are used by hospitals, clinics, burn centers, doctors offices, home healthcare agencies, and nursing homes for treating various wounds such as chronic wounds, serious burns, and traumatic and surgical wounds.

The company also focuses on developing pharmaceutical products containing its NPI 32101 silver to extend their nanocrystalline silver technology to treating gastrointestinal conditions. In addition, Nucryst develops a topical cream containing NPI 32101 as a barrier to infection, and it was this product that received the FDA okay that led to the stock’s July surge.

For FY2006, ending 12/31/06, revenue was $24.36 million with $10.5 million in losses. During the first six months of the current FY, ending 6/30/07, revenue was $11.33 million with $4.86 million in losses.

We would like the see the losses come way down, but we are more anxious to see how the NPI 32101 topical cream influences revenue growth down the road.

Our 24-month target for the stock is $5.50 to $5.75.

For more information, contact NCST’s David Wills at 416-504-8464; info@nucryst.com

AMERICAN TECHNOLOGY CORPORATION (NASDAQ: ATCO) – $3.60. Twelve-month hi-low has been $5.26 – $2.70. Based in San Diego, CA, with around 40 employees, this electronics maker has 30.5 million shares outstanding, $13.78 million in total currents assets, $15.64 million in total assets, little debt, and $1.6 million in total liabilities. Institutional ownership is around 30%. One analyst rates the stock a “strong buy”. www.atcsd.com

A ton of money has been budgeted for the military and security sectors over the last several years, and some small companies, such as American Technology Corporation are seeing some of it come their way. This is another of these “non-sexy” companies with a decent balance sheet, and it appears to be growing its revenues while paring its losses.

Founded in 1980, recapitalized in 1992, and public for nearly five years, American Technology develops and delivers directed acoustic products that beam, focus, and control sound over short and long distances. The company’s four technology platforms include HyperSonic sounds, Long Range Acoustic Device, NeoPlanar, and SoundVector. HyperSonic is a parametric speaker technology that creates sound using ultrasonic frequencies above the normal range of hearing. The Long Range Acoustic Device produces a directed acoustic beam to communicate even in ambient noise environments. NeoPlanar is a thin film magnetic speaker that produces sound of low distortion and high volume. SoundVector is a directional sound technology for replacing sound pollution, generating omni-directional alarm systems, sirens, hazard signals, and other directed warnings or tones.

American Technology currently has over 320 U.S. and foreign patents and patent filings. The company’s commercial products include digital signage networks and kiosk systems; security for maritime, oil and gas, and industrial facilities; and mass notification for transportation terminals, educational, and healthcare facilities. ATCO’s government products encompass crowd control and mass notification for public safety agencies along with response capability for border patrol, harbor, and port police. It offers the military solutions for convoy protection; interdiction, detainee, and checkpoint operations; and mass notification for military vessels and hangar bays.

In its recent quarterly report, ATCO management said it is ramping up efforts aimed at the military and security industries on large LRAD installation opportunities. The company recently added domestic and international sales resources to increase its presence in these areas.

For FY2006, ending 9/30/06, revenue was $8.9 million with $7.7 million in net losses. During the first nine months of the current FY, ending 6/30/07, revenue was $8.3 million with $2.56 million in losses.

It seems that ATCO is hanging its hat on the military and security sectors to drive revenue growth, and, given the buckets of money spent in these areas, that may be good thinking.

Our 24-month target for the stock is $6.25 to $6.50.

For more information, contact ATCO at 858-676-0519; info@atcsd.com

Look for the October 20, 2007 Newsletter to be posted on 10/16 or 10/17.

Thank you,
George