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Hello Readers,
Looks as if we are caught in one of those occasional dry spells where it seems as if we won’t be able to close any positions for the next hundred years. During the last week of May, the markets and our own Current Portfolio showed some life as oil prices eased a bit. However, energy prices need to drop a lot more to get Bush’s poll numbers up again, and, ergo, lift the markets. Yes, we still feel that the reason the markets are shaky is because Bush is wobbly. Some help from Dubya’s OPEC buddies would sure go a long way.
Here are the headlines about companies in our Current Portfolio since the last Newsletter. Dates in parentheses are when we first recommended them.
DOR BioPharma (DOR) (9/20/00). Successful financing in March helps 1st QT balance sheet. Yes, this is our longest-running position and is driving us sort of nuts.
Genetronics (GEB) (10/5/00). GEB is driving us only slightly nuts thanks to their closing a $10.9 million preferred financing and signing a licensing pact with Merck.
Arotech (ARTX) (6/5/01). Subsidiary receives $2.2 million of orders in May. TSA purchases 12 interactive training simulators.
Cyro-Cell (CCEL) (5/5/03). Reports successful cord blood stem cell transplant.
Art Technology (ARTG) (8/5/03). Helps online travel companies build stronger relationships. Royal Mail selects ATG to provide better experiences for its online customers. A&E TV selects ATG Campaign Optimizer to increase visibility into consumer purchasing decisions.
Actuate (ACTU) (1/5/04). Stock has had a nice move since the last Newsletter thanks to several pieces of good news. Velsicol Chemical picks ACTU for financial and cost management. Company integrates enterprise reporting application development into BEA WebLogic workshop.
Peerless Systems (PRLS) (1/20/04). Quarterly numbers disappointing. Several releases on product shipments and a partnership with Seiko Epson.
Crossroads Systems (CRDS) (2/5/04). Pretty good quarterly numbers.
OpenTV (OPTV) (3/20/04). Company and Sky Italia ink pact to deploy OPTV Middleware and commit to launch PlayJam.
Socket Communications (SCKT) (3/20/04). Provides RFID product roadmap and developer path for mobile RFID readers.
Palatin (PTN) (4/5/04). PTN and FDA agree upon “NeutroSpec” as name for company’s infection imaging product now under FDA review.
AVI BioPharma (AVII) (4/20/04). Journal of Virology highlights antiviral activity of NEUGENE antisense compound. Legg Mason upgrades stock from a “sell” to a “hold”.
GRIC Communications (GRIC) (5/5/04). Changes name to GoRemote. Launches major new version of Mobile Office and also a new version of Branch Office.
Our picks for this issue are two small hitechs, both of which are heavily into network security.
NETWORK ENGINES, INC. (NASDAQ: NENG) – $3.15. Twelve-month hi-low has been $11.60 – $2.11. Based in Canton, MA, with about 90 employees, this Internet service provider has 36.8 million shares outstanding, $74.8 million in total current assets, $84.8 million in total assets, little debt, and $20.14 million in total current liabilities. Institutional ownership is around 21%. Two analysts rate the stock a “moderate buy”. http://www.networkengines.com
From all appearances, Network Engines, Inc. should be trading higher. It has a healthy-looking balance sheet and turned a profit during the last quarter. So, why is this stock at nearly its 12-month low? One main reason may be that there is a securities fraud class action complaint hanging over the company. However, the gamble here is that the suit may not be that harmful – read the press release and judge for yourself, or even read the complaint.
Founded in 1997, Network Engines bills itself as a leading appliance development, manufacturing, and distribution partner for independent software developers (ISVs) and network equipment providers. The company works with these partners so that they can deliver data storage and security networking applications to their customers. NENG’s distribution operations offer a full complement of server appliances, related products and components to over 400 value-added resellers (VARs).
To get a good flavor of NENG and also realize that this company doesn’t seem to stand still, look at what they’ve done over the last several months: announced the availability of the Mobile Backup Appliance, a co-branding with Computer Associates for the backup and restore of laptop and desktop computers; inked a deal to build security appliance for FaceTime Communications, which should broaden NENG’s presence in the security market; formed a new partnership with IntelliReach to develop, manufacture, and distribute their MessageScreen appliance, which is an anti-spam, anti-virus, and content filtering solution; inked a distribution partnership with Alacritech; announced the general availability of BackupReport, a backup reporting and analysis appliance co-branded with Bocada; entered a distribution pact with Sourcefire for its Network Sensor appliance that monitors and analyzes network traffic; and advanced a partnership with MTI Technology to provide professional services.
For FY2003, ending 9/30/03, revenue was $81.24 million with $1.39 million in net losses. During the first six months of FY2004, ending 3/31/04, revenue was $71.47 million with $1.1 million in net losses.
Putting aside that class action suit, our instincts suggest that the stock should be higher than its current levels.
Our 24-month target for the stock is $5.50 to $6.00.
For more information, contact NENG’s Erica Smith at 781-332-1000; ir@networkengines.com
BINDVIEW DEVELOPMENT CORPORATION (NASDAQ: BVEW) – $3.00. Twelve-month hi-low has been $5.19 – $1.16. Located in Houston, TX, with about 520 employees, this software provider has 47.6 million shares outstanding, $50.9 million in total current assets, $59.4 million in total assets, nearly $3.5 million in deferred/other revenue, and $23.4 million in total current liabilities. Institutional ownership is around 34%. http://www.bindview.com During the last few months, the Russell 2000 has taken a mild hit and so many small stocks have felt the rippling effect, namely BindView Development Corporation, which looks to have a pretty good balance sheet and widely-used technology.
Founded in 1990 and public since 1998, BindView claims to be a leading provider of proactive business policy, IT security, and directory management software worldwide. Its solutions enable customers to centralize and automate policy compliance, vulnerability assessment, directory administration, and migration across the entire organization. The company’s software helps safeguard its customers’ networks from the inside out, while helping to lower overall cost of ownership through automation of numerous administrative tasks and security reporting requirements.
BindView’s three main product lines are bv-Control, bv-Admin, and the BindView Policy Center. More than 20 million licenses have shipped to 5,000 companies worldwide. A few weeks ago, BindView bolstered patch management capabilities with a new highly scalable and fully integrated solution that provides assessment and deployment across Microsoft platforms. Also in May, the company garnered awards from Network Computing Magazine and SC Magazine.
For FY2003, ending 12/31/03, revenues were $67.8 million with a net loss of $3.6 million compared to 2002 revenues of $67 million and a net loss of $24.4 million. During the 1stQT of FY04, ending 3/31/04, revenue was $14.96 million with a net loss of $2.64 million. At the end of April, BVEW reaffirmed its first half and FY2004 outlook.
We like what appears to be BindView’s consistency in updating their technology, which seems more and more critical in today’s virus-plagued world. Also, when small stocks make another rebound, we suspect this stock could get caught in the backdraft.
Our 20-month target for the stock is $5.50 to $6.00.
For more information, contact BVEW’s Yvonne Donaldson at 713-561-4023; yvonne.donaldson@bindview.com
Look for the June 20, 2004 Newsletter to be posted on 6/16 or 6/17.
Thank you,
George