NUVELO, INC. & TRIO-TECH INTERNATIONAL, INC.

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Hello Readers,

Since the last Newsletter, we did not cover any positions, though we are close to a handful. As we have said repeatedly over the years, these things always seem to come in bunches, i.e. in the 10/5 issue we reported on seven position that were closed (or covered) at the end of September. One encouraging sign is that several of our oldies have begun showing breaths of life. Aren’t bull markets great?

By now, many of you know that the Russell 2000 hit a three-year high several days back. Barring any global or domestic upset, expect to see 10K on the Dow and 2100 on the Nasdaq by year end. However, don’t be surprised by possible sell-offs in the interim; regardless of the reasons you may hear about the selling, in the end this will just be good-old fashioned profit taking coupled with year-end tax selling.

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

Mountain Province Diamonds (MPVI) (10/20/97). We were about to put our oldest surviving position on the “Endangered List”, but, on 10/14, a report was released that was very upbeat about their exploration program. So, we wait and see a little while longer. Hey! What’s another few moths after nearly seven years?

Draxis Health (DRAX) (3/20/00). Granted U.S. patent for Bifunctional Compounds.

DOR BioPharma (9/20/00). Amex accepts company’s compliance plan. DOR’s clinical program for orBeck on track. New NIH grants expand funding of bio-defense products.

Arotech (ARTX) (6/5/01). Subsidiary acquires Bristlecone Training Products.

Orthovita (VITA) (12/20/01). Pilot clinical study of CORTOSS shows significant reduction in pain and restoration of function for patients with vertebral compression fractures.

Superconductor Technologies (SCON) (1/5/02). Stock is up nearly $2 since the last issue and is nearing our 50% threshold, so, expect it to be closed by the next Newsletter, if not a lot sooner.

Airspan Networks (AIRN) (1/20/02). eircom of Ireland expands Airspan’s AS4000 network nationwide and incorporates Packet Drive capability.

VASCO Security (VSDI) (2/5/02). Launches Digipass for Sony Ericsson P800.

Hemispherx (HEB) (7/5/02). Expands SARS prevention/treatment initiative.

Generex (GNBT) (8/5/02). Announces a cancer research collaboration with Transgene on li suppression technology. Also, presentations made on various studies before various conferences.

Titan Pharma (TTP) (11/20/02). Has passed our 50% threshold, so, expect to see it closed within the next few days.

Interactive Intelligence (ININ) (12/5/02). Several upbeat press release about their software products.

Cryo-Cell (CCEL) (5/5/03). 3rd QT results not great, but not overly bad.

Jacada (JCDA) (6/20/03). Preliminary 3rd QT results pegged at $5.2M – $5.4M in revenue. Strengthens distributor network with Selesta S.p.A. in Italy.

Allos Therapeutics (ALTH) (6/20/03). Submits second part of rolling new drug application for RSR13 for the treatment of Brain Metastases from breast cancer.

Diedrich Coffee (DDRX) (7/20/03). Announces organizational changes.

Art Technology (ARTG) (8/5/03). Sees 3rd QT loss and stock drops a little. Provides Conseco with online enterprise solution. Unveils new certification exam for ATG Commerce. Helps Bestofmicro create new online commerce environment for French high technology market.

NIC, Inc. (EGOV) (8/5/03). Another one that has hit the 50% mark, and expect this, too, to be closed in a few days.

Marimba (MRBA) (9/20/03). Joins industry leaders in launching DCML.

GTC Biotherapeutics (GTCB) (9/20/03). Also, look for this one to be closed very soon since it has hit the 50% threshold.

Sunrise Telecom (SRTI) (9/20/03). Introduces handheld VOlP testing solution. Adds electrical interfaces to industry’s smallest 10 Gbps. SDH/SONET test set.

Targeted Genetics (TGEN) (10/5/03). Expands manufacturing agreement with GenVec. Converts all debt into stock, which looks to have been a good move.

MetaSolv (MSLV) (10/5/03). Says 3rd QT revenue to drop 22% from previous quarter due to delays by prospective customers.

Paradyne (PDYN) (7/20/03). And here’s another that has hit the 50% mark, most likely in anticipation of a positive earnings report due out on 10/16, so, this, too, will be closed in the next day or so.

Our picks for this issue are another biotech and another company tied into the semiconductor industry.

NUVELO, INC. (NASDAQ: NUVO) – $2.85. Twelve-month hi-low has been $4.01 – 64 cents. Based in Sunnyvale, CA, with about 190 employees, this biotech has 63.8 million shares outstanding, $29.28 million in total current assets, $49 million in total assets, $25.16 million in total current liabilities, and $33.77 million in total liabilities of which $8.62 million is long-term debt. Institutional ownership is around 23%. One analyst rates the stock a “moderate buy”. http://www.nuvelo.com

In the last Newsletter we recommended Targeted Genetics even though, at the time, it had more debt than we usually can bear. However, off-setting that debt was a mountain of proprietary technology owned by TGEN. In this respect, Nuvelo, Inc. is very similar.

Founded in 1994 as Hyseq Pharmaceuticals, the present day Nuvelo was formed when Hyseq merged with VARIAGENICS earlier this year. The company develops and commercializes therapeutics for treating disease. Over the years, Nuvelo has focused on building a proprietary collection of more than 10,000 novel and rarely expressed genes using the company’s high-throughput signature-by-hybridization (SBH) technology platform.

NUVO’s lead product candidate, Alfimeprase, is partnered with Amgen and recently completed a Phase 1 clinical trial in peripheral arterial occlusion (PAO). The company is currently conducting two Phase 2 trials in both PAO and catheter occlusion. In late September, Nuvelo successfully completed a planned interim analysis of its Phase 2 trial with Alfimeprase for the potential treatment of acute PAO.

Besides Amgen, Nuvelo’s other collaborations include: Kirin – using transgenic mouse models to identify and develop secreted proteins and associated antibodies with therapeutic utility; Deltagen – to develop biotherapeutics by applying the mouse gene knock-out approach to approximately 160 secreted protein genes; Chiron – identifies genes involved in solid tumor cancers and developing novel therapies for these cancers; and Celera and UCAL at San Francisco – expands an existing relationship between NUVO and UCSF involving a large-scale DNA sample collection from patients with cardiovascular diseases.

Earlier this month, the company raised $24.5 million through a secondary offering of 10 million shares.

For FY2002, ending 12/31/02, revenues were $26.43 million with $44.97 million in losses.

During the first six months of this FY, ending 6/30/03, revenue was $1.67 million with $29.9 million in losses. As we have stated many times over the years, these numbers are fairly typical for a small biotech.

The most intriguing aspect about Nuvelo is its arsenal of proprietary properties. It is also helps that they are in bed with some major drug companies.

Our 24-month target for the stock is $5.25 to $6.00.

For more information, contact NUVO at 408-524-8100.

TRIO-TECH INTERNATIONAL, INC. (AMEX: TRT) – $3.95. Twelve-month hi-low has been $3.95 – $1.50. Located in Van Nuys, CA, with about 390 employees, this semiconductor equipment provider has 2.9 million shares outstanding, $11.49 million in total current assets, $16.7 million in total assets, little debt, and $8.12 million in total liabilities. Institutional ownership is around 12%. http://www.triotech.com

We have had a recent fascination with equipment makers to the semiconductor industry due to reports that inventories are diminishing and that many semis are now retooling. So, a well-established company with a good balance sheet like Trio-Tech International, Inc. may be worth a flyer.

Founded in 1958, Trio-Tech designs and sells equipment used in the manufacturing and testing of semiconductors, primarily through its laboratories in Southeast Asia. The company also manufactures wet processing and cleaning stations used in the manufacture of semiconductor circuits and temperature control chucks that are used to make and test silicon wafers and other microelectronic subtrates in what is called the front-end or creation of semiconductor circuits. TRT also manufactures centrifuges, leak detectors, HAST systems (highly accelerated stress test) and burn-in systems that are used mainly in the back-end of the semiconductor-making process, and are used to test finished semiconductor devices and electronic components. The company also sells semiconductor testing equipment made by others.

During the last year or so, TRT did some belt-tightening and invested in equipment upgrades, so, the company feels it is well positioned to benefit as the semiconductor industry recovers. There may be some validity to this optimism since activity has increased at TRT’s semiconductor testing and burn-in facilities in the Far East both from among new and established customers. Proof of this comes from a testing services backlog that increased to $5.13 million at the end of June from $1.73 million at the end of March.

For FY2003, ending 6/30/03, revenue was $21.2 million with $81,000 in losses compared to FY2002 revenues of $19.6 million and $3.55 million in losses.

This is not a sexy stock. Its fortunes rest of the continued revival of the semiconductor industry, which we feel has been grossly underestimated.

Our 24-month target for the stock is $6.50 to $8.00.

For more information, contact TRT’s Dale Cheeseman at 818-787-7000, ext. 110; dcheeseman@triotech.com

Look for the November 5, 2003 issue to be posted on 11/3 or 11/4.

Thank you,
George