WAVE SYSTEMS CORPORATION & KODIAK OIL & GAS CORPORATION

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Hello Readers,

First, the bad news: Despite the recent euphoria, the markets are really about where they were a few weeks ago. Second, even more bad news: September and October are traditionally ugly months for the market. Now, the good news: All too often, the markets do what they are not supposed to do. Yeah, we know, it’s a thin thread of hope. We suppose the roller coaster’s huge plunges followed by rocket days will continue for a while longer, because there are justified suspicions that more shoes will drop. Many stocks in our Current Portfolio inched up very slightly and are still in the red. A lot of our picks had good news since the last Newsletter, only to see their stock prices mark time, as did most of the small stock indexes. So, is it time to go bottom fishing? We’d like to think so, but….who knows?

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

Iomai (IOMI) (8/20/07). Data from Phase 2 field study of Traveler’s Diarrhea vaccine accepted for presentation at ICAAC.

SIGA Technologies (SIGA) (8/20/07). Latest balance sheet still looks good.

Radcom (RDCM) (7/20/07). Mediacom deploys Radcom’s VoIP service quality monitoring system. Receives NASDAQ delisting threat since stock has dropped to under a $1, which has affected $10 million equity requirement; however, they should be able to stay listed on some NASDAQ market.

Alliance Fiber Optic (AFOP) (7/20/07). Connectivity and passive devices complete third party ITL qualification.

SCOLR Pharma (DDD) (7/5/07). To present at the Roth Capital NYC conference on September 6.

Pharmacyclics (PCYC) (6/20/07). Stock is upgraded by BWS from a “sell” to a “hold”. Recent balance sheet still looks pretty good.

Alphatec (ATEC) (6/20/07). Files for $40 million shelf registration so as to periodically sell up to that amount in common stock.

Xenonics (XNN) (6/5/07). Ships $450,000 NightHunter order. Awarded over $10 million in contracts/purchase orders from the Defense Supply Center.

Encorium Group (ENCO) (5/20/07). Forms joint venture with Prospect Software in biostatistics, data management, and consulting services.

Hana Biosciences (HNAB) (5/5/07). Anti-cancer drug Marqibo gets FDA fast-track designation. Names new CEO. Stock is upgraded by Cantor Fitzgerald to a “buy”.

ECTel (ECTX) (5/5/07). Tele2 places a first-time order for ECTel’s Revenue Assurance solution.

Gene Logic (GLGC) (4/20/07). Enters into a drug repositioning pact with Solvay Pharma. Also, enters into a similar pact with Merck Serono. This is a perfect example of what we mentioned in the opening paragraph above. Usually, this sort of news would have sent the stock flying, yet, it’s at around the same price as two weeks ago.

Immunicon (IMMC) (3/20/07). Announces laboratory services and assay development agreements with Merck Serono. Files for $75 million mixed shelf registration.

Neurobiological Technologies (NTII) (2/20/07). Receives delisting notice from NASDAQ, but company feels it can regain compliance through its proposed $65 million secondary offering.

Urologix (ULGX) (2/20/07). Fourth quarter and FY numbers a little disappointing but balance sheet still looks good.

UQM Technologies (UQM) (2/5/07). Receives propulsion system order from Quantum Technologies for diesel hybrid vehicle being developed for the U.S. Army.

Endologix (ELGX) (1/20/07). Completes enrollment in Powerlink trial with 34 millimeter diameter infrarenal cuff.

Lantronix (LTRX) (12/5/06). Launches family of turnkey networking system-on-chip coprocessors for high-volume, low-cost products. Expands its distributed IT management product portfolio with launch of Branch Office Manager. Slates earnings call for September 6.

WJ Communications (WJCI) (12/5/06). To present at Merriman Curhan Ford investor confab on September 18.

YM Biosciences (YMI) (11/5/06). Cleared by FDA to initiate Phase 2 trial of Nimotuzumab in children with inoperable, recurrent brain cancer. European partner Oncoscience starts advanced Nimotuzumab trials in adult Glioma and pancreatic cancer. Announces compliance with Aim Rule 26.

Terabeam (TRBM) (11/5/06). To present at the Roth confab on September 5.

Advanced Life Sciences (ADLS) (7/20/06). To present at the Roth conference on September 26. Skin cancer drug gets FDA orphan drug status. Collaborates with U.S. government to study Cethromycin as anthrax treatment. Receives NASDAQ staff letter, but company should be able to work through this.

Cytogen (CYTO) (3/20/06). To present at the Roth conference on September 5-6, and at the Wall Street Analyst Forum on September 20. Let’s hope some of these guys get behind the stock.

Gateway (GTW) (2/5/06). When we first picked this, we said we would either look like heroes or goats; make it the latter. Company is being bought by Taiwan’s Acer for $1.90 a share; deal is expected to close by end of this year. Yes, we will put it on the Track Record page, soon, but we’d like to see if there is another offer in the wings.

MIND C.T.I. (MNDO) (2/5/06). Wins two new large deals in the U.S.

8×8 (EGHT) (1/20/06). To present at Kaufman investor confab on September 6. Adds eight countries to Packet8 Freedom unlimited calling area and lowers cost of Freedom Global Plan.

Digital Angel (DOC) (12/20/5). To present at Kaufman confab on September 5. Strikes deal in Paraguay. Settles patent infringement suit.

Westell (WSTL) (10//20/05). Announces space-saving addition to its line of environmental enclosures.

RAE Systems (RAE) (10/5/05). Implements costs reductions by cutting jobs and exiting the mobile and DVR markets; stock gets a little lift.

Zi Corp (ZICA) (8/5/05). eZiType featured on joint TELUS/ZTE phone. The sensible thing would be to place this on the “Endangered List” because its low stock price has triggered a NASDAQ letter, but the balance sheet and recent numbers looks okay. If price goes any lower, we may have to pull trigger.

AIXTRON (AIXG) (7/5/04). Sells Gen 3.5 manufacturing tools for flexible active-matrix displays.

TMNG Global (TMNG) (4/20/04). To present at Kaufman investor confab on September 6.

Palatin Technologies (PTN) (4/5/04). Stock dropped liked a rock when company and collaborator King Pharma announced that they need to delay PTN’s ED candidate’s Phase 3 testing, due to FDA’s concerns about rising blood pressure. Normally, we would place it on the “Endangered List”, but first we would like to see next balance sheet.

Open TV (OPTV) (3/20/04). To present at Kaufman confab on September 6. Names acting CEO. Named finalist in product of the year award. Announces new customer win in Israel.

Our picks for this issue are a peripherals maker listed on NASDAQ, and an AMEX-listed oil and gas company. WAVE SYSTEMS CORPORATION(NASDAQ: WAVX) – $1.60. Twelve-month hi-low has been $3.85 – $1.45. Located in Lee, MA, with about 95 employees, this maker of computer peripherals has 42.2 million shares outstanding, $13.8 million in total current assets, $14.4 million in total assets, little debt, and $3.2 million in total liabilities. Institutional ownership is around 8%. One analyst rates the stock a “strong buy”. www.wavesys.com

Sometimes we happen upon a company that has been in the revenue doldrums for an eternity, but looks as if they may finally be waking up, according to recent financials. Such may be the case with Wave Systems Corporation, which recently strengthened its balance sheet with a secondary offering.

Founded in 1988, experiencing a few name changes, and public since 2001, Wave Systems produces and markets products for hardware-based digital security, including security applications and services. Its products include The EMBASSY Trust Suite to bring what is claims are functionality and user value to Trusted Platform Module (TPM)-enabled products; The Trusted Computing Group (TCG)-enabled Toolkit to assist application developers writing new applications or modifying existing ones to function on TCG-compliant platforms; and TCG-enabled Cryptographic Service Provider that allows software developers to utilize the security of a TCG standards-based platform.

Wave also offers The EMBASSY Key Manager Server to provide corporate level backup and transition of the TPM keys; The EMBASSY Authentication Server to provide centralized management, provisioning, and enforcement of multifactor domain access policies based on TPM credentials, smart card credentials, user passwords, and fingerprint templates; and The EMBASSY Remote Administration Server that enables IT administrators to deploy and manage Trusted Drives and TPM systems. In addition, it provides digital signature and electronic document techno products that enable individuals to electronically sign and store virtually any format of document while connected to a server.

The company has a joint venture with Sarnoff Corporation to provide broadband content distribution products and services. Wave offers its products to semiconductor chip and PC OEMs, enterprise customers, and systems integrators.

For FY2006, ending 12/31/06, revenue was $3.11 million with $18.78 million in losses (ouch!). During the first six months of the current FY, ending 6/30/07, revenue was $2.69 million with $9.89 million in losses (another ouch!). Of significance may be that during the 2ndQT the company rang up record revenues of $1.4 million on continued strength in PC OEM software royalties.

Wave appears to be on the verge of a breakout in revenue growth, and, yes, we would like to see the losses narrow sometime over the next year.

Our 24-month target for the stock is $2.75 to $3.00.

For more information, contact WAVX’ Gerard Feeney at 413-243-1600; info@wavesys.com

KODIAK OIL & GAS CORPORATION (AMEX: KOG) – $3.55. Twelve-month hi-low has been $6.81 – $3.08. Located in Denver, CO, with about 12 employees, this energy exploration company has 87.6 million shares outstanding, $33.87 million in total current assets, $95.9 million in total assets, little debt, and $6.32 million in total liabilities. Institutional ownership is around 46%. Three analysts rate the stock a “strong buy” and one has it on “hold”. www.kodiakog.com

It has probably been six to eight years since we picked an energy exploration company. Reason being is that the few we did pick never panned out. However, that was in the days of $15 to $20 oil and calmer energy markets. Things have changed, obviously. So, we are adding Kodiak Oil & Gas Corporation to the Current Portfolio because it has a decent balance sheet, supposedly promising properties, and a bunch of analysts like the stock. Also, we feel that in the next year or two, oil could be between $100 to $125, which should give many small oil stocks a nice updraft.

Founded in 1972, experiencing several names changes, and public as Kodiak for nearly three years, the company is an independent focused on exploration, acquisition, and production of oil and natural gas. Kodiak’s oil and natural gas revenues are located in two Rocky Mountain basins in the U.S., namely the Green River Basin in Wyoming and Colorado; and the Williston Basin in Montana and North Dakota. All of its drilling activities are subcontracted to independent drilling contractors and the company does not own any drilling equipment. This may explain the low employee count.

At the end of 2006, Kodiak had several hundred lease agreements representing about 123,371 gross acres and 80,128 net acres. Since then, several thousand more acres have been added to these totals. So, is anything being extracted? For the first half of 2007, gas and natural gas liquid production volumes were 98.5 MMcf, as compared to 63.9 MMcf for the same period in 2006. Oil production was 52,135 barrels for 2007’s first half, compared to 23, 912 barrels during the first half of 2006. On a natural gas equivalent, the company produced 411.3 MMcfe for the first half of 2007, a 98% increase over the 207.4 MMcfe reported for the same period in 2006.

For FY2006, ending 12/31/06, revenue was $4.96 million with $2.79 million in losses. During the first six months of the current FY, ending 6/30/07, revenue was $4.46 million with a net loss of $14.9 million, of which $14 million was an “asset impairment” charge.

As we said, Kodiak is our first oil/gas play in years, and, sadly, because of the topsy-turvy energy situation, it seems like a good bet.

Our 24-month target for the stock is $5.50 to $6.25.

For more information, contact KOG’s Lynn Peterson at 303-592-8075.

Look for the September 20, 2007 Newsletter to be posted on 9/17 or 9/18.

Thank you,
George