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Hello Readers,

Since the last Newsletter, we closed two more positions, for some gains.

INVESTORS CAPITAL (9/20/09). Closed position 7/19/10 at $3.15 for a 61% GAIN.

VOCALTECH (4/20/07). Closed position 7/16/10 at $3.30 for a 10% GAIN.

Ever since Investors Capital posted decent numbers at the end of June, the stock went on a mini tear. VocalTec surprised everyone by announcing that it was merging with YMAX/magicJack, which sent the stock up over 100% from its nearly an all-time low; while it’s not a 50%-plus gain for us, it’s not an ugly loss.

It is looking more and more as if the markets are hitting their high-water marks for the balance of the year, or almost. We are still stunned that they have had the run that they did over the last eighteen months. Looking ahead, there really is not much to propel the markets higher as economic clouds appear to darken, so, be very careful. And, yes, our Current Portfolio, still remains stagnant, as have the markets, since the end of May.

Here are the headlines since the last Newsletter about companies in the Current Portfolio; dates in parentheses are when we first recommended them. We are not giving updates about companies on the Endangered List unless we feel the news to be significant.

NAPCO Security (NSSC)(7/5/10). Issues update to shareholders.

Dusa Pharmaceuticals (DUSA)(6/5/10). Sets earnings call for August 3.

Clearfield (CLFD)(6/5/10). Releases upbeat earnings report showing decent profits; balance sheet still looks good.

Adolor (ADLR)(5/5/10). Balance sheet still seems to be okay.

American CareSource (ANCI)(4/20/10). To present at the BMO healthcare conference on August 5.

NovaBay Pharmaceuticals (NBY)(4/20/10). Says skin infection drug shows efficacy in Phase 2 trial.

China Direct Industries (CDII)(4/5/10). Receives new magnesium contracts valued at $9.6 million through its IMG Marketing unit.

Novavax (NVAX)(4/5/10. To report earnings on August 6.

Novavax (NVAX)(4/5/10). Is issued key U.S. patent for influenza virus-like particle (VLP) vaccines.

Cerus (CERS)(3/20/10). Releases pretty good product revenue numbers; balance sheet still looks okay.

Achillion Pharmaceuticals (ACHN)(3/5/10). Announces nomination of NS5A inhibitor as a lead clinical candidate for treating HCV.

Zagg, Inc (ZAGG)(2/20/10). To host earnings call on August 10. Company’s invisibleSHIELD offers solutions for iPhone 4 antenna concerns.

Microtune (TUNE)(2/5/10). Revenue and earnings numbers show nice year-over-year improvement; balance sheet still looks strong.

Cytokinetics (CYTK)(2/5/10). Balance sheet still looks pretty healthy. Receives Federal grant for preclinical and clinical development of CK-2017357 in Myasthenia Gravis.

NIVS IntelliMedia (NIV)(1/20/10). Gives preliminary 2ndQT numbers.

CytRx (CYTR)(1/5/10). Says that its Tamibarotene eradicates former NBA player’s advanced-stage leukemia. Announces progress with its Bafetinib clinical trials program.

Qualstar (QBAK)(10/20/09). Announces new record new order for XLS Libraries.

Solta Medical (SLTM)(10/5/09). Sets earnings news for August 3.

Anadys Pharmaceuticals (ANDS)(8/20/09). To present at the BMO healthcare confab on August 5. Balance sheet still looks good.

BioClinica (BIOC)(8/5/09). To present at BMO healthcare confab on August 5. Sets earnings call for August 4.

Performance Technologies (PTIX)(7/20/09). Latest numbers show revenue growth and paring of losses; balance sheet still looks good. Nigeria’s Starcomms evolves to all-IP next-gen network with company’s SEGway solution. (SLRY)(7/5/09). Slates earnings call for August 10.

Durect Corp (DRRX)(4/20/09). Sets earnings call for August 4. To present at the BMO healthcare confab on August 5.

Ligand Pharmaceuticals (LGND)(2/20/09). To present at BMO healthcare conference on August 5 and will report quarterly results on the same day.

The Orchard Enterprises (ORCD)(11/20/08). Completes acquisition by Dimensional Assoc. Consider this position closed and we will be posting it on the Track Record page, soon.

Akena Solar (WEST)(10/20/08). Company has changed its name to Westinghouse Solar and its stock symbol form AKNS to WEST. This is on the “Endangered List”.

Identive Group (INVE)(10/5/08). Receives $4 million in orders for systems capable of using PIV cards for access control. Research firm Morgan Joseph gives the stock a “buy” rating.

ICAgen (ICGN)(8/5/08). Earns $3 million milestone payment from Pfizer. This is on the “Endangered List”.

U.S. Geothermal (HTM)(8/5/08). Initiates $30 million vendor financed construction agreement for San Emidio.

Bridgeline Digital (BLIN)(6/5/08). National Children’s Museum powers web strategy on the iAPPS product platform.

GlobalScape (GSB)(5/20/08). To announce 2ndQT results on August 12.

ActivIdentity (ACTI)(3/5/08). Sets earnings news for August 5.

Hollywood Media (HOLL)(1/5/08). to provide online movie ticketing through Xbox 360.

Alliance Fiber Optic Products (AFOP)(7/20/07). Stock price gets a nice boost on good news quarterly report; balance sheet still looks very good.

Endologix (ELGX)(1/20/07). Receives FDA approval for new stent, the PowerFit Aortic. To present at the BMO confab on August 5 and at the Canaccord growth conference on August 10. Reports 19% 2ndQT revenue growth; balance sheet still looks strong.

Inventure Foods (SNAK)(3/5/06). Reports tenth straight quarter of year-over-year earnings growth as net income rises 32%; balance sheet still looks good.

8×8 (EGHT)(1/20/06). Announces record 1stQT FY2011 revenue and decent earnings; balance sheet still looks good. And, no, we have no clue as to why the stock has been stuck in a multi-year rut.

Our picks for this Newsletter are another small biotech and, surprise surprise, a bank, both NASDAQ-listed.

THRESHOLD PHARMACEUTICALS, INC. (NASDAQ: THLD) – $1.40. Twelve-month hi-low has been $3.87 – $1.27. Based in Redwood City, CA, with about 30 employees, this biotech has 33.6 million shares outstanding, $42.43 million in total current assets, $43.41 million in total assets, little debt, and $26.59 million in total liabilities. Institutional ownership is around 31%. One analyst rates the stock a “strong buy”.

Yes, Threshold Pharmaceuticals, Inc. is another of those low-priced biotechs with a decent balance sheet and some interesting candidates in its drug pipeline.

Founded in 2001, and publicly-traded for over five years, Threshold is focused on developing therapeutics based on Tumor Hypoxia, which it bills as a powerful scientific platform that offers broad potential to treat most solid tumors. The company claims that its drug pipeline holds promise to be more effective and less toxic to healthy tissues than conventional drugs. Its candidates include TH-302, which is in Phase 1/2 clinical trials, is a hypoxia-activated prodrug (HAP) for the potential treatment of solid tumors that is activated under the metabolic conditions typical of cancer cells; Glufosfamide has been investigated for the potential treatment of pancreatic cancer, small cell lung cancer, platinum-resistant ovarian cancer and advanced soft tissue sarcoma; and 2-Deoxyglucose, or 2DG, for treating solid tumors, has been evaluated in a Phase 1 clinical trial alone and in combination with Taxotere.

Around mid-July, Threshold presented preclinical results that showed TH-302 enhances efficacy of two antiangiogenic agents and, in a separate study, demonstrates selectivity in pancreatic cancer by targeting a distinct tumor compartment from that of Gemcitabine. At the end of June, the company initiated a randomized, controlled, Phase 2 clinical trial evaluating TH-302 in patients with advanced pancreatic cancer; and, at the same time, initiated a clinical trial evaluating TH-302 in patients with advanced leukemias.

Threshold is typical of many small biotechs in that it makes zilch profits and chalks up major red ink. For example, during the quarter ending 3/31/10, the company lost nearly $6 million.

We like the balance sheet, we like the stock price, and we like the drug pipeline. Sometimes the logic is as simple as that.

Our 24-month target for the stock is $2.25 to $2.50.

For more information, contact THLD’s Denise Powell at 650-474-8206;

BANNER CORPORATION (NASDAQ: BANR) – $2.34. Twelve-month hi-low has been $8.15 – $1.91. Based in Walla Walla, WA, with about 1000 employees, this bank holding company, has 23.5 million shares outstanding, $4.58 billion in total assets and $4.17 billion in total liabilities. Institutional ownership is around 8%. Two analysts rate the stock a “strong buy” and four as a “hold”.

Say what!? A bank? We have shied from these over the years, and for good reason. However, a recent story in Barron’s titled “Value in the Vault” caught our eye. Needless to say Banner Corporation was the lowest-priced bank mentioned. Not included in the above numbers are the proceeds from a nearly $160 million public offering that closed last month.

Founded in 1890 (you read that right), and trading on NASDAQ since 1995, Banner Corporation operates as a holding company for Banner Bank and Islanders Bank that provide commercial banking and financial products and services to individuals, businesses, and public sector entities. It generates the usual deposit instruments and originates the standard commercial and real estate loans. It also engages in mortgage banking operations primarily through the origination and sale of one to four-family residential loans. Banner bank operates 86 branch offices and 7 loan production offices located in Washington, Oregon, and Idaho; and Islanders Bank conducts business from three locations in San Juan County, Washington.

For FY2009, ending 12/31/09, revenues were $281 million with $35.76 million in losses. During the 1st quarter of the current FY, ending 3/31/10, revenue was $63.69 million with $1.52 million in losses. Is the first QT setting a better trend for 2010?

The Barron’s article cited Sy Jacobs, managing partner of hedge fund JAM Partners who likes small banks that have been recapitalized and are showing fresh signs of life and where “credit problems appear to be slowing” and deposit bases remain low cost and firm. Banner is one of those banks in which he has been taking a stake.

Banner just closed a pretty good secondary offering, is trading near its 52-week low, and has a hedge fund buying into it.

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

For more information, contact BANR’s Lloyd Baker at 509-527-3636.

Look for the August 20, 2010 Newsletter to be posted on 8/16 or 8/17.

Thank you,

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