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Hello Readers,
Since the last Newsletter, we have closed three more positions, two for some gains and one for a loss.
@ROAD (8/20/05). Closed position 11/11/05 at $5.47 for a 56% GAIN.
OPLINK (2/20/04). Closed position 11/11/05 at $12.55 for a 27% LOSS.
TRIO-TECH (10/20/03). Closed position 11/9/05 at $5.93 for a 50% GAIN.
@ROAD climbed pretty steadily every since we picked it in August; then, last week JP Morgan upgraded the stock, which gave it an added boost. We hate reverse splits, which is what happened at Oplink, because they seldom work out for current shareholders, and, so, we take the 27% loss. For the better part of two months, Trio-Tech had been teasing us with our 50% threshold and finally made it.
Our feelings about the market remain much the same as they have for the last month or two. Despite the current sloppiness, we still see a nice rally materializing around the holidays and lasting well into the Spring, providing fuel prices stay relatively tame.
Here are the headlines since the last Newsletter about companies in the Current Portfolio. Dates in parentheses are when we first recommended them.
Memory Pharma (MEMY) (11/5/05). Recent balance sheet looks pretty good. MEMY starts Phase 2a trial of MEM 1003 in Alzheimer’s disease.
Iona Technologies (IONA) (11/5/05). Partners with NS Solutions to deliver service oriented architecture (SOA). Brings SOA to telecommunications market.
Cognitronics (CGN) (10/20/05). Grants nonqualified inducement options to key personnel of ThinkEngine Networks, for which it paid $5 million at the end of October. Quarterly numbers about as expected; balance sheet still looks okay.
Westell (WSTL) (10/20/05). Partners with Entropic Communications on broadband gateway for networking of home digital entertainment. Strengthens Telco TV commitment. Adds dual MoCA technology in its UltraLine II advanced video gateways.
Discovery Partners (DPII) (10/5/05). CEO resigns over differences in strategic plans. Receives milestone payment in its lead finding collaboration with Seikagaku Corp. Recent quarterly numbers not too bad; balance sheet still seems to be very strong.
Dyadic (DIL) (9/20/05). Third quarter numbers could have been better; balance sheet still looks good.
Nephros (NEP) (9/20/05). Recent balance sheet still looks okay.
EntreMed (ENMD) (9/5/05). Will host an analyst and investor on November 22 in New York. Third quarter balance sheet looks very healthy.
Staktek Holdings (STAK) (9/5/05). Quarterly numbers exceed high end of expectations; balance sheet still appears very strong.
Zi Corp (ZICA) (8/5/05). Quarterly results disappointing; balance sheet still looks okay. Stock downgraded by Janco Partners.
CDC Corp (CHINA) (7/20/05). Announces $20 million stock repurchase plan. CDC subsidiary selected by International Absorbents to provide enterprise software.
Innodata (INOD) (7/5/05). Quarterly revenue not great but higher than expected; balance sheet still looks good. Stock upgraded to a “buy” by Miller Johnson.
Electric City (ELC) (7/5/05). Reports pretty good revenue increase. ELC newest subsidiary inks deal to provide eMAC HVAC technology at all Modell stores.
Telecommunication Systems (TSYS) (6/20/05). Awarded multi-year city-wide network systems contract from City of Baltimore. TSYS and Level 3 launch public safety VoIP E9-1-1 outreach campaign. Wins industry award. Quarterly numbers not too bad; balance sheet shows 50% less cash than last quarter.
Sirenza Microdevices (SMDI) (6/5/05). Opens sales office in Bangalore, India. Announces latest addition to new family of high performance broadband amplifier ICs.
Vion Pharma (VION) (5/20/05). Recent balance sheet looks very healthy.
Optical Communication (OCPI) (4/20/05). Slates earnings call for November 16, the day this Newsletter should be posted. Adds industrial temperature option to its Gigabit Ethernet CWDM SFP transceiver product line.
Verticalnet (VERT) (4/5/05). Expands relationship with Delta Air Lines. Third quarter numbers not great; balance sheet so-so.
Loudeye (LOUD) (4/5/05). Although revenues are increasing, losses are getting wider; balance sheet still seems okay. This is making us nervous.
Mindspeed (MSPD) (2/20/05). Company and Jungo Ltd. extend OpenMind third-party program with first scalable office-on-a-chip platform.
Xcyte Therapies (XCYT) (1//20/05). Releases quarterly numbers. This one is on the “Endangered List”.
Advancis Pharma (AVNC) (12/20/04). Begins pivotal Amoxicillin PULSYS Phase 3 trial.
Applied Micro Circuits (AMCC) (11/20/04). Showcases 24 terabytes of ATA storage with aggregate RAID speeds over 1.2GB/s at SuperComputing 2005. Completes MISSION solution family with robust multi-service software suite. Announces management changes.
Net2Phone (NTOP) (11/5/04). Here we go, again. Several months back, IDT made a $1.70 bid for the stock, which was rejected. Now, IDT is offering $2.00, which still seems too low for us. It’s up to NTOP’s board.
Nova Measuring (NVMI) (11/5/04). Stock drops even more due to losses; balance sheet not too bad.
iGATE (IGTE) (10/20/04). Stock gets a nice pop thanks to revenue growth from offshore business and a third QT profit; balance sheet still looks very strong.
Trikon (TRKN) (10/5/04). Quarterly numbers don’t seem too bad; balance sheet appears good. Sets December 1 vote on merger transaction with Aviza.
Chordiant (CHRD) (9/20/04). RSA Solutions picks CHRD software for its relationship sales and marketing business.
Tripath (TRPH) (8/5/04). Remember, this one’s on the “Endangered List”. Gets threat of NASDAQ delisting. Raises $5 million from convertibles.
Avanex (AVNX) (7/20/04). Quarterly numbers not great and balance sheet weakens. This, too, is on the “Endangered List”.
AIXTRON (AIXG) (7/5/04). Blames weak customer capital spending for lower than hoped for revenues; balance sheet still looks good. Other releases about product news.
Network Engines (NENG) (6/5/04). Company upbeat as revenues beat guidance; balance sheet still looks good. Glowpoint (GLOW.PK) (5/20/04). Rudin Management to introduce GLOW’s video conferencing into “high tech” real estate portfolio. Partners with ON24 to integrate services and launch joint marketing programs.
GoRemote (GRIC) (5/5/04). Teams with NSB Group to deliver complete managed broadband services to small and mid-sized retailers in the U.S. and Canada.
The Management Group (TMNG) (4/20/04). Recent numbers look okay and balance sheet still looks pretty good, but Kaufman Brothers downgrades stock from a “buy” to a “hold”.
AVI BioPharma (AVII) (4/20/04). Balance sheet still looks pretty good as company announces $22.6 million direct equity placement. And, yes, this has become an avian flu play.
Palatin (PTN) (4/5/04). Releases quarterly numbers that show wider losses due to R&D costs.
NexMed (NEXM) (4/5/04). Balance sheet not good, not bad. Enters into development pact for chronic pain product.
Socket Communications (SCKT) (3/20/04). Launches CF mag stripe credit card reader to improve efficiency of mobile retail solutions. Unveils Connect!Agent software and Windows Mobile 5.0 support for GPS Nav kit.
OpenTV (OPTV) (3/20/04). Weaker-than-expected quarter pushes stock down; balance sheet still looks good. Several analysts voice concerns over OPTV’s ability to gain ground. Stock downgraded by Oppenheimer.
Somera Communications (SMRA) (2/20/04). Releases upbeat quarterly report; balance sheet weakens a little but still seems viable. However, stock sinks further on NASDAQ deficiency notice – company has until May 1 to get stock to one dollar for 10 straight days.
Actuate (ACTU) (1/5/04). Announces Flexible framework.
AVANT Immuno (AVAN) (12/5/03). Stock gets a boost as company says it will try to develop Avian Flu vaccine. Another “bird flue” play.
Active Power (SCPW) (11/20/03). Inks deal with Fortune 100 company to evaluate ACPW’s new energy storage device, CoolAir DC. Names new president/COO.
Insmed (INSM) (11/5/03). Recent numbers show a weakened balance sheet.
Monogram Biosciences (MGRM) (7/20/01). Announces numerous presentations of eTag data. Announces Medicaid coverage for HIV drug resistance testing in Texas. And yes, we know that this pick is older than dirt.
Our picks for this Newsletter are a well-known name in online music and another software company, both on the NASDAQ.
NAPSTER, INC. (NASDAQ: NAPS) – $3.20. Twelve-month hi-low has been $10.40 – $2.95. Based in Los Angeles, CA, with about 130 employees, this online music provider has 43.8 million shares outstanding, $132.82 million in total current assets, $173.55 million in total assets, little debt, and $35.31 million in total liabilities. Institutional ownership is around 40%. One analyst rates the stock a “strong buy”, two as a “moderate buy”, three as a “hold”, one as a “strong sell” and another as a “moderate sell”. http://www.napster.com
Long regarded as the bane of the music industry, Napster, Inc., of course, has cleaned up its act, and has tried several business models, which really haven’t set the world on fire. However, it now appears that NAPS may have found a winning formula and its strong balance sheet may give it added muscle.
Founded in 2000 as Roxio, Inc., and public since 2001, Napster, as everyone knows, provides online music with its subscription services providing access to nearly one million songs. Users have access to songs from various labels and are able to stream or download these songs and store them on various media such as PCs, CDs, DVDs, and MP3 players. Customers access and acquire songs by searching or browsing the company’s catalog or accessing programmed content through radio stations or customer applications. NAPS subscribers also have access to community features, such as sharing songs with other members and searching their collections.
The company also provides a download music store, Napster Light, where non-subscribers can purchase individual tracks or albums.
Napster’s current subscriber base of about 450,000 represents 146% year-over-year subscriber growth. The company sells its online music services through its Web site, affiliate network, and universities that have site licenses, as well as prepaid cards. It has strategic partnerships with Microsoft, Intel, Dell, Dwango, IBM, Best Buy, Blockbuster, Radio Shack, The Link, and Nestle.
Earlier this month, Napster teamed with Instant Live, a Clear Channel division, for exclusive rights to offer music fans access to Instant Live’s recording of artists’ concert performances in digital format. It also recently announced that the University of California, Cal State, and the University of North Carolina will offer Napster service across their state-wide systems.
For FY2005, ending 3/31/05, revenue was $46.72 million with $29.5 million in net losses. During the first six months of FY2006, revenue was $44.38 million with $33.54 million in losses. Losses for the recent quarter were less than expected due to the growing subscriber base, according to the company.
It appears that Napster’s latest business model may be working. It expects subscriber growth to accelerate in December and soon plans to launch Napster in Germany.
Our 24-month target for the stock is $5.50 to $6.00.
For more information, contact NAPS’ Becky Farina at 310-281-5005; becky.farina@napster.com
NEON SYSTEMS, INC. (NASDAQ: NEON) – $3.90. Twelve-month hi-low has been $5.25 – $2.69. Located in Sugarland, TX, with about 85 employees, this software company has 9.6 million shares outstanding, $22.2 million in total current assets, $40.4 million in total assets, little debt, and $13.7 million in total liabilities. Institutional ownership is around 3%. http://www.neonsys.com
Here’ another beaten up tech with a decent balance sheet that’s been struggling for over the last year. However, a recent new product launch may put NEON Systems, Inc. back in the lights. Founded in 1991 and public for nearly seven years, NEON bills itself as a leading provider of enterprise class mainframe integration software. It develops and markets a mainframe integration platform that supports for service-oriented architecture (SOA) and event-driven architectures.
The company’s Shadow technology offers industry standard interfaces for mainframe integration, thereby allowing organizations to reclaim the value of mainframe-based services and events, providing integration across a range of data, program, and screen environments. NEON’s products provide access and integration of IBM mainframe data and applications from standard application client environments, including the Internet, application platforms, and client/server systems.
During 2004, NEON acquired InnerAccess Technologies and a substantial portion of the assets of ClientSoft, Inc. Through its acquisition of InnerAccess, NEON gained a mainframe Web services product and experience in supporting Computer Associates’ CA-IDMS database to the mainframe.
The new product launch that was unveiled in August is Shadow RTE, which NEON says is the industry’s first mainframe on-ramp for the enterprise service bus (ESB). The Shadow RTE enables customers to integrate mission critical mainframe resources into a real-time enterprise. Management claims that multiple customer engagements are underway.
At the end of October, brokerage firm FirstMerit upgraded its customer web banking through SOA using mainframe integration technology from NEON. In September, the company joined Google’s Enterprise Professional Program to extend enterprise search capabilities to the mainframe.
For FY2005, ending 3/31/05, revenues were $17.55 million with $631,000 in losses. During the first quarter of FY2006, ending 6/30/05, revenue was $4.29 million with $1 million in losses.
Other than the new product launch there have been other developments over the last six months which could put NEON back on the road to profitability.
Our 24-month target for the stock is $6.25 to $7.00.
For more information, contact NEON’s Calvin Fudge at 281-491-4200; calvin.fudge@neonsys.com
The December 5, 2005 Newsletter should be posted on 12/1 or 12/2.
Happy Thanksgiving,
George