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Hello Readers,

Since the last Newsletter, we closed three more positions, two for gains and one for a loss.

NMT MEDICAL (6/20/09). Closed position 6/19/09 at $2.85 for a 54% GAIN.

URANIUM ENERGY (8/20/08). Closed position 6/19/09 at $3.17 for a 54% GAIN.

ENTREMED (11/5/04). Closed position 6/19/09 at 64 cents for a 75% LOSS.

We said it in the last Newsletter: seldom, do picks take off right after we post them, but NMT Medical did just that for no apparent reason, and we don’t need one to take a 50%-plus gain. Just three months ago, in April, Uranium Energy had sunk to 51 cents but seems to have enjoyed a rebirth thanks to an upturn in energy prices, which has fueled speculation about building more nuke plants. We closed EntreMed for a nasty loss.

It appears that the recent market action has finally begun to do what we have been expecting – waking up to reality. Gone may be the days when the markets moved on news of more Federal bailouts or because things appeared “less bad”. Things are bad. Our hope, right now, is that the markets finally sell off, reach true bottoms, and attain real values. When that happens, more people will be ready to jump back in.

Here are the headlines about companies in the Current Portfolio; dates in parentheses are when we recommended them. We are not giving updates about companies on the “Endangered List” unless we feel the news to be highly significant. NOTE: Because of the time of year, there are not many updates.

HealthGrades(HGRD)(5/20/09). Joins the Russell 3000.

Durect(DRRX)(4/20/09). Caris & Co. gives the stock a “buy”. Names chief medical officer.

Ligand Pharmaceuticals(LGND)(2/20/09). BVF Partners sells $2.42 million of stock. Licenses patents for desulfated heparin technology to ParinGenix. Initiates clinical trial with the Selective Androgen Receptor Modulator LGD-4033, a potential treatment of muscle and bone disorders.

AuthenTec(AUTH)(2/5/09). Brings touch-powered user features to new smart phone.

AXT, INC.(AXTI)(12/20/08). Sets earnings release for July 30.

The Orchard(ORCD)(11/20/08). Partners with Music Intelligence Solutions in global licensing pact.

Akeena Solar(AKNS)(10/20/08). AKNS and MCC Construction complete 660-kilowatt installation on California Air National Guard base in Fresno.

Bridgeline Software(BLSW)(6/5/08). iAPPS Content Manager and iAPPS Analytics selected by global producer of industrial materials.

Microvision(MVIS)(5/20/08). Walsin Lihwa to invest $15 million in company.

GlobalScape(GSB)(5/20/08). Launches enhanced wide area file services solution.

Amicas(AMCS)(1/20/08). To join Russell 3000 Index.

Move, Inc(MOVE)(1/5/08). Sells Welcome Wagon assets to a South Florida media group.

Santarus(SNTS)(11/20/07). Stock gets a nice pop on several pieces of good news. Joins Russell 3000 Index. Roth Capital gives the stock a “buy” right after FDA sets a December 2009 action date on its heartburn drug.

Continuecare(CNU)(11/20/07). To join Russell 3000.

Retractable Technologies(RVP)(10/20/07). Acts to reduce annual operating expenses by $6 million.

American Technology(ATCO)(10/5/07). Awarded $675,000 LRAD 300X order from U.S. Army’s Rapid Equipping Force.

XATA Corp(XATA)(9/20/07). Florilli Transportation renews contract with company.

VocalTec(VOCL)(4/20/07). Stock has shown new life lately, probably on some good tech news. This is still on the “Endangered List”.

Endologix(ELGX)(1/20/07). Added to Russell 2000 and Russell 3000 Indexes. Gets NASDAQ delisting notice due to lack of an independent director, which we hope the company will soon fix.

Lantronix(LTRX)(12/5/06). Ships two millionth XPort embedded ethernet device server.

The Inventure Group(SNAK)(3/5/06). To present at Canaccord Adams annual Global Growth confab on August 13.

RAE Systems(RAE)(10/5/05). Joins Russell 3000 and Microcap Indexes.

Nova Measuring(NVMI)(11/5/04). Claims it has revolutionized materials characterization for optical CD. Says it has won record orders for its stand-alone metrology equipment in the 2ndQT. We’ll see what the next balance sheet looks like, and, if it has weakened, this will be placed on “Endangered List”.

Our picks for this Newsletter are a couple of software providers, both listed on NASDAQ.

PDF SOLUTIONS, INC. (NASDAQ: PDFS) – $2.45. Twelve-month hi-low has been $6.89 – 97 cents. Based in San Jose, CA, with about 360 employees, this system software provider has 26.3 million shares outstanding, $63.1 million in total current assets, $71.21 million in total assets, and $18.51 million in total liabilities, of which $461,000 is long-term debt. Institutional ownership is around 55%. One analyst rates the stock a “strong buy” and one has it as a “hold”. http://www.pdf.com

The last few years have been the era for drubbings and PDF Solutions, Inc. has not escaped the carnage, but the company, with its strong balance sheet and technology, at some point, should see daylight.

Founded in 1992, and public for nearly eight years, PDF is a provider of infrastructure technologies and services that target the entire process life cycle, which is the term it has coined for the time from design of an integrated circuit (IC) through volume manufacturing of that IC. The company offers manufacturing process solutions that include process R&D, and process integration and yield ramp; volume manufacturing solutions; and design-for-manufacturing (DFM) solutions, such as logic DFM, circuit level DFM, memory DFM, and pdBRIX Physical IP solutions. The company also offers characterization vehicle (CV) infrastructure, which includes CV test chips, pdCV analysis software, and pdFasTest electrical wafer test system; Yield Ramp Simulator software that analyzes and IC design to compute its systematic and random yield loss; Circuit Surfer software, which estimates the parametric performance yield and manufacturability of analog/mixed-signal/radio frequency (RF) blocks; and pDfx environment that enhances the manufacturability of ICs.

PDF Solutions also provides the pdBRIX platform, which includes software for identifying and developing a set of physical IP building blocks; dataPOWER YMS platform that collects yield data, loads, and stores it in a database, and allows product engineers to identify and analyze production yield issues; Maestria FDC software, which provides fault detection and classification capabilities to identify sources of process variations and manufacturing excursions by monitoring equipment parameters; and YA-FDC service and software platform that allows online modeling to create real-time virtual measurements of final product attributes and processing. PDF has collaboration agreements with Samsung and SVTC Technologies, with whom it just recently agreed to expand their customer capabilities. Last October, the company acquired most of the assets of Triant Technologies.

For FY2008, ending 12/31/08, revenue was $74 million with $95.72 million in losses versus 2007 revenue of $94.46 million and $2.9 million in losses. Much of the 2008 loss can be blamed on a store repurchase plan and certain expenses relating to the Triant acquisition. During the 1stQT of the current FY, ending 3/31/09, revenue was $10.19 million with $7.32 million in losses.

Despite the recent slump, the company still boasts that it has the leading technologies in the industry, and until someone proves them wrong, this may be a good time to take a flyer.

Our 24-month target for the stock is $4.00 to $4.50.

For more information, contact PDFS’ Steve Melman at 408-938-6445; steve.melman@pdf.com

SALARY.COM, INC. (NASDAQ: SLRY) – $3.00 Twelve-month hi-low has been $5.40 – $1.28. Located in Waltham, MA, with about 360 employees, this application software provider has 16.18 million shares outstanding, $41.64 million in total current assets, $78.7 million in total assets, and $56.76 million in total liabilities, of which $1.74 million are long-term liabilities. Institutional ownership is around 30%. Three analysts give the stock a “strong buy” and two have it on “hold”. http://www.salary.com

Salary.com, Inc. caught our eye because of those analysts “strong buys”, and after reading about the company’s technologies and data bases, we can see why. It also helps that the company has had good revenue growth backed up by a decent balance sheet.

Founded in 1999, and public for just under three years, Salary.com provides on-demand compensation management solutions in what it calls the human capital software-as-a-service (SaaS) market – hey, there’s a name and an acronym for everything! Its software applications, proprietary content, and consulting services enable executives, line managers, and compensation professionals to automate, streamline, and optimize critical talent management processes, such as market pricing, compensation planning, performance management, competency management, and succession planning. These help their customers determine how much to pay new and existing employees and manage overall compensation programs. In FY2009, Salary.com added over 700 new enterprise customers increasing its total to more than 3500 (including 29% of the Fortune 500). Its data sets contain base, bonus, and incentive pay data for the top executives in over 10,000 U.S. public companies.

Salary.com also provides performance management applications to assist customers to establish and track performance goals in their organizations, and link each employee’s pay to performance against these goals, as well as plan for talent needs and future succession. In addition, the company offers implementation and data configuration services, as well as assisting with the configuration of its compensation and performance management solutions to the organization’s business needs. Further, it provides a series of customer and e-commerce solutions through its Web site to provide compensation information and tools. The company serves retail, consumer products, financial, and technology industries.

For the FY ending 3/31/09, revenue was $42.45 million with $26.45 million in net losses compared to the previous FY revenues of $34.5 million and $10.6 million in losses.

We would like to see the company pare its losses but much of the expenditures have been spent to give them 32 straight quarters of revenue growth.

Our 24-month target for the stock is $5.25 to $5.50.

For more information, contact SLRY at 781-464-7300.

Look for the July 20, 2009 Newsletter to be posted on 7/16 or 7/17.

Have a safe holiday, George

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