TRANSGENE PINNACLE DATA SYSTEMS, INC.

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Hello Readers,

Since the last Newsletter, we closed another position for a nice little gain.

ALLOS THERAPEUTICS (6/20/03). Closed position 2/19/04 at $5.08 for a 54% GAIN.

Since we picked Allos last June, the stock had been gradually inching upward, and, in a choppy market, we’re happy to take the 54% gain.

Congrats are in order to none other than us. This issue launches our eight year of publishing on the Net.

As we said in the last few Newsletters, expect some selling during February, and that is what happened. After ten months of gains, it was time for profit taking, plain and simple. Of course, the markets needed an excuse to sell and we suspect that a main reason is the rocky political outlook. Presently, JFK (Kerry) is beating Bush in the polls, and, while we doubt the markets have a love affair with Dubya, the situation creates doubt and uncertainty, which always rankles investors. Still, barring terrorism or some other unforeseen disaster, expect the markets to take off again and have a good Spring season. Of course, it would help if Bush got his campaign act together.

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

Genetronics (GEB) (10/5/00). Competes FDA review and begins patient enrollment in Phase 3 recurrent head and neck cancer studies. This one is really starting to look better, compared to a few years ago.

Arotech (ARTX) (6/5/01). Subsidiary delivers $850,000 of MB2000 bus simulators to Los Angeles and Pittsburgh. Receives over $3 million in orders during February.

VASCO Security (VDSI) (2/5/02). Showcases Digipass pack for Novell at CeBIT 2004.

Argonaut Technologies (AGNT) (4/20/02). Year-end numbers reflect about a 40% reduction in losses and balance sheet still looks pretty good.

Generex (GNBT) (8/5/02), Enters into collaboration with the Chinese Academy of Science in Shanghai to develop a SARS vaccine. Raises $1.76 million through private placements.

CRYO-CELL (CCEL) (5/5/03). Settles licensing lawsuit.

Art Technology (ARTG) (8/5/03). Several releases about products.

Targeted Genetics (TGEN) (10/5/03). Germany begins its first AIDS vaccine trail; TGEN is a partner with the universities conducting the trail.

A.P. Pharma (APPA) (11/5/03). Study indicates APPA’s Polymer System could advance clinical utility of DNA vaccines against cancer and viral infections.

AVANT IMMUNO (AVAN) (12/5/03). Starts Phase IIb study of TP10 in women undergoing cardiac surgery using cardiopulmonary bypass. Year-end balance sheet still appears healthy.

SatCon (SATC) (12/5/03). Company’s 50 kilowatt photovoltaic power conversion system receives UL-1741 certification.

Actuate (ACTU) (1/5/04). KeyCorp presents company with 2003 “Vendor of the Year” award, which it received jointly with Cisco Systems.

Crossroads Systems (CRDS) (2/5/04). Releases 1st QT 04 numbers showing a year over year decrease in revenue reflecting their transition to a royalty model with its largest customer; balance sheet still looks good.

Analysts Int’l (ANLY) (2/5/04). Year-end numbers so-so, as was expected.

Our picks for this issue are a biotech – long overdue – and another software company.

TRANSGENE (NASDAQ: TRGNY) – $3.60. Twelve-month hi-low has been $4.70 – $1.05. Located in Strasbourg, France with about 160 employees, this biotech has 30.2 million shares outstanding, $46.99 million in total current assets, $57.5 million in total assets, $6.45 million in total current liabilities, and $7.6 million in long-term liabilities. http://www.transgene.fr

It has been almost three months since we’ve added a biotech to the Current Portfolio, so, this is long overdue. And, hopefully, you all have stopped totally hating the French, because, at times, they do run some fine companies. Transgene may be one of them.

Founded in 1979, and public since 1998, Transgene is developing gene therapy products, therapeutic vaccines, and delivery technologies for treating cancer. The company’s research is geared to identifying new therapeutic genes which will be carried by what are known as optimized vectors. These gene candidates are applied to vaccination and immunotherapy to overcome tumor-induced immunosuppression and suicide genes. They are administered alone or in combination with conventional therapies such as chemotherapy and radiotherapy.

Transgene has two vaccine product candidates in Phase 2 clinical trials for treating seven different clinical indications, namely breast cancer, prostate cancer, lung cancer, cervical cancer, cervical displasia, vulvar dysplasia, and renal cell carcinoma. It also has two immunotherapy product candidates that have completed Phase 1 clinical trials for treating various solid tumors, including malignant melanoma and cutaneous lymphoma, and one product candidate for treating cancer that is in preclinical research. The company is also developing a product for treating Duchenne’s Muscular Dystrophy, which is in Phase 1 clinical trials.

A few weeks ago, TRGNY reported positive interim Phase 2 data from its cancer vaccine candidate in lung, prostate, and kidney cancers. Last November, Transgene signed a pre-clinical AIDS vaccine manufacturing agreement with the French AIDS Research Agency and the French Institute for Health and Medical Research. In September, the company commenced clinical development of its anti-cancer product candidate, MVA-FCU1, which is a virus-directed enzyme-prodrug therapy designed to cause the production of a chemotherapeutic drug locally, within the tumor.

Transgene is typical of most small biotechs, meaning very little revenue and large outlays, mostly for R&D. For FY2003, ending 12/31/03, revenue was $3.15 million with $26.3 million in net losses.

We like the product pipeline and the fact that Transgene is now connected with two highly regarded French health agencies.

Our 24-month target for the stock is $5.50 to $6.50.

For more information call TRGNY at +33 3 88 27 91 00; 338-827-9121; communication@transgene.fr

PINNACLE DATA SYSTEMS, INC. (AMEX: PNS) – $2.40. Twelve-month hi-low has been $3.23 – 95 cents. Based in Groveport, OH with about 90 employees, this tech company has 5.5 million shares outstanding, $7.82 million in total current assets, $8.94 million in total assets, little debt, and $4.9 million in total liabilities. Institutional ownership is around 4.5%. http://www.pinnacle.com

Sometimes we stumble upon a company whose balance sheet is not quite to our liking, but it has been making money. In this case, Pinnacle Data Systems, Inc. has booked six straight quarters of net income going back to mid-2002 when most small companies were losing money.

Public since 1996, Pinnacle provides technical services and solutions to global OEMs (original equipment manufacturers) in high tech industries using electronics in their products, including computers and peripherals, digital imaging, process-control and telecommunications equipment. Specializing in high-density UNIX-based computing platforms, the company’s business model is a foundation of repair and logistics programs that supports the development and sale of high-potential PNS-engineered and manufactured embedded hardware solutions for specific customer and niche industry applications.

Pinnacle’s products serve the OEM market in a variety of functions, such as servers designed to facilitate the convergence of PSTN and IP networks; systems designed to facilitate specific medical and enterprise computing applications; and programs to provide complete product lifecycle support from design to end-of-life.

The company is a strategic Sun Microsystems engineering and design center, master value-added integrator, phase one virtual logistics network partner and exclusive manager of Sun consumables in the Americas. It is also the exclusive provider of board-level depot repair and supply chain management services for the Hewlett Packard UNIX desktop workstations worldwide.

During 2003, Pinnacle received technology awards from both Intel and Sun. Also, toward the end of last year, it received the largest single order in the company’s history for $3 million worth of controller boards for medical diagnostic equipment.

For FY2003, ending 12/31/03, sales were $22.88 million with net income of $473,000 compared to FY2002 sales of $15.67 million and $19,000 in losses.

Okay, Pinnacle is not an overly exciting company, but it has been showing steady revenue growth and profits. For FY2004, it expects to earn 11 cents a share. This seems like a mini-value play to us.

Our 24-month target for the stock is $4.75 to $5.25.

For more information, contact PNS’s Michael Sayre at 614-748-1150; Michael.Sayre@pinnacle.com

Look for the March 20, 2004 issue to be posted on 3/16 or 3/17.

Thank you,
George