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TSIF (98.75)

Betting your hard earned coin on a court battle against Microsoft? Would you???

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September 03, 2009 – Comments (3) | RELATED TICKERS: VHC , MSFT

I wrote a lengthy pitch today (par for the course for me) on a company that briefly popped onto the top five loser board today.  It ssems the armour was pierced on this little company after an equity offering.  Having so much fun on the boards with one of our favorites Modovox.OB, I thought I'd toss up VirnetX Holding Corp (VHC) for a wider review......

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Now here' a "fun little equity".  It looks like a tidy piece of junk not getting it's just due here on CAPs.  This one is much like the popular CAPs stock MDVX.OB which specializes in suing big name companies over imaginary patent infringement cases. Unlike MDVX.OB, Virnetx seems to be holding some viable patents, (not on the word 'boombox"..... )

Virnetx Holding Corp is suing Microsoft over patent infringement on 3 of it's 25 or so patents. The case, (very quick read on my part), seems to have been going on since Feb '07 or over two years.  On July 31st Virmetx issued a press release that a Marksman report had been issued by the district court of Texas. Basically, all this means is that they ageed on some "wording" in the claim. The Virnetx share price shot up from $1.50 to $3 or doubling on the news on July 31st. Since then, all has been quiet until Virnetx announced today a stock issue to raise $12 Million in cash.  It's easy to see why they need the cash.  Virtually no revenues licensing any of it's patents, leaving it with a negative $3 Million balance sheet, $4,000 (yes thousand) in cash, and a burn rate of about $1.5 MILLION per quarter. The new issue should help them ramp up their court case and last another year?? or so??

I won't make any statements on their chances against Microsoft...I'll leave that to the reader.  I do know that from District Court to Superiour court where Microsoft would be willing to play is a multi-year battle. Settling out of court seems slim to me and if it occurred is unlikely to get any money to the shareholders. I'm not sure who speculates court cases to the tune of a $100 Million market cap on no revenue, but there are some "Fools" who do it.  I wish them luck, but personally I can find a better use for my idle coins than a multi-year court case against one of the world's best at litigation.

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Anyone else think that gambling over a court case is "FOOL"ish??  :)

3 Comments – Post Your Own

#1) On September 03, 2009 at 4:45 PM, TSIF (98.75) wrote:

I should "warn" the reader that Virnetx Holdings has a nice loyal following and a relatively small, (but consistant) volume.

Like MDVX.OB, it may take some time to "break down", especially if court battles linger. A negative ruling in the district court would shoot this downward.  A positive one would spike it upward until the appeal was filed.

Loyalists would point you to growing list of patents and the reesearch and development, (and a possible marketing play Virnetx might make with the intellectual property). They might also argue that the court case is meaningless in the scheme of things, since the intellectual property will win out in the end. I would reply to that that if it's meaningless, why did the stock double on a minor ruling?

I find that loyalists on some stocks are usually the type who will slit the throat of dissentors (verbally and on paper, I'm sure they are nice folk at heart). Reality when you're hypnotized can be tough to break through. While it's possible Virnetx could take their $12 Million and roll out some actual working products, or find a partner, I find this the koolaid that "rarely" matures. My point is that followers of this pick should do their own DD. Like many sub-$3 stocks on a downthumb call, it's slightly possible this one could bite back for awhile..... (i.e. ENCC.OB, PALG.OB, MXFD.OB, in this case I like the volume that will cause loyalists to think twice if the shell crumbles and a rout to occur.......)

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#2) On September 04, 2009 at 11:37 PM, Tastylunch (99.53) wrote:

Nice research TSIF!

Probably a good one to watch but not move on yet would be my guess. I've gotten sucked in too early on many of these court case survival shorts  before :(

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#3) On September 06, 2009 at 6:42 PM, techspecialist (< 20) wrote:

TSIF,

Good research TSIF and disclaimer. I generally like patent plays but really don't know enough to comment on the validity of the Virnetex patents. The key is being truly educated on the technology and the patents themselves. That said, I do know much more about the Modavox IP portfolio having done extensive research into their patents, viability and enforceability.

I would also mention your citing Modavox as having patented "Boombox" is a false statement. They own the US Trademark for Boombox which has nothing to do with their patent portfolio which covers the monetization of behavioral data for online advertisers. I too would bet against the company if all they had was the Trademark, its really just a little icing on the cake frankly and not foundational to the company's value whatsoever.   

I know we disagree on Modavox and that's totally fine, I respect you and your right to have a different opinion. I'd simply advise you to be careful should you decide to bet against some of these small companies who might just own some very valuable patents. As you note, it is a tough fight going up against some of these big companies in litigation, but sometimes in the cases like Rambus, TIVO and Qualcomm, they might really have something. It's also important to draw a distinction as to whether the companies are just acting as patent trolls trying to sue people or if they are defending their ip because they have to and if they have an ongoing business besides the licensing strategy.

In the case of Modavox, I'd watch for some nice revenue growth coming from the core business especially the recent Augme Mobile acquisition. Management there really is the real deal and I don't think people understand the true opportunity or value of that asset. You might look for some additional large brands to begin doing business with them soon. Recent deals included Colgate and Dupont, not small fish. The key is not too bet on a one trick pony where the patents is all they have or are reliant on, you must have a core busines capable of sustaining and generating positive cashflow. I'm sure you agree.  

These story stocks will obviously get overbought and swept away from time to time leaving great chances to fade them for profits, just make sure your entry is a good one and use tight stops. I do believe you will have that chance on MDVX at some point soon, but just be careful as I expect them to be acquired when all is said and done.

Good luck to you regardless of our differing thoughts on the matter. I wish you nothing but success.

Lastly, your comments to SC here will fall on deaf ears as his sole reason for posting and trying to harm Modaovox and its shareholders is 100% personal, something that an intelligent person like yourself would have long discovered.  

 

 

 

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