Newsletter

Enigma Software: Getting the Bad Guys Out of Your Computer

October 6, 2007
Volume VIII, Issue 67
Home Page : www.otcjournal.com
Email Questions or Comments To: editor@otcjournal.com

To OTC Journal Members:
 

What Do These Stocks Have in Common?

 

Yes, these are the three stocks I showed you on Thursday evening. One guy got them. These are not household names like Apple Computer (NASDAQ: AAPL). You probably never heard of any of them. Here's an overview:

1. Blue Coat Systems (NASDAQ: BCSI): Blue Coat provides hardware appliances and software for controlling and securing Web-based communications in the secure Internet gateway and WAN application delivery markets worldwide. These guys do a lot of corporate internet security. They keep bad guys out of corporate networks.
2. VM Ware (NYSE: VMW): I made a mistake on the symbol on the chart, but VMW is the right one. It's the right chart, just the wrong symbol. VMware's suite of virtualization solutions addresses a range of complex IT problems, including infrastructure optimization, business continuity, software lifecycle management, and desktop management.
3. Vasco Data Security (NASDAQ: VDSI): VASCO Data, through its subsidiaries, engages in the design, development, marketing, and support of hardware and software security systems that manage and secure access to information assets worldwide. These guys are all about securing financial transactions online.

Here's the bottom line. These companies are all involved in computer and network security, and the stocks are just rocketing. Doubles, triples, and quadruples in the last six months. It's all about the huge volume of transactions and information that flows over the internet in today's world, and the need for protection from the bad guys. Here's a company devoted to helping you.
 

Enigma Software (OTC BB: ENGM): Getting the Bad Guys Out of Your Computer

This company is all about protecting computer users from spyware, viruses, trojans, and identity theft. Every time you visit a web site, spyware can sit on your computer and provide stats and information to the bad guys against your wishes.

Here are some eye opening stats:

  • 8 out of 10 PC's are infected with some sort of Spyware, with an average of 24.4 spies per PC scanned.
  • Microsoft estimates that 50% of all PC crashes are due to spyware.
  • Dell reports that 20% of all technical support calls involve spyware.
  • In the first half of 2007, spyware infections prompted 850,000 U.S. households to replace their computers.
  • 1 out of every 11 surveyed had a major, often costly problem due to spyware.
  • The economic fallout per incident was $100 on average, with damage totaling $1.7 billion.
  • Although as many as 90% of U.S. home computers have been infected with spyware at some time, a majority of PC owners don't know how to solve the problem.
  • For the seventh consecutive year, identity theft topped the U.S. Federal Trade Commission's annual report on consumer fraud complaints, accounting for 36% of the 674,354 complaints received between January 1 and December 31, 2006.
  • Americans lost about $49.3 billion US in 2006 to criminals who stole their identities.
Enter the Enigma- Simply a Better Product

ENGM has developed a product known as SpyHunter- it's a very simple program that hunts out all the crap in your computer and eradicates it with one simple key stoke.

I have used both Symantec's and Mcafee's virus protection software. You must have it on your computer to keep it safe, but I find it cumbersome and difficult to use. It is simply not user friendly. When I run a virus scan, it always comes up with all sorts of stuff. I wants me to decide if I want to "quarantine", or delete offending files. It's a one by one process, with all kinds of inconclusive results. Usually, you don't know if you're doing the right thing, and most of the time it tells you that it can't do what you want any ways.

SpyHunter doesn't hit you with any of the techno jargon. If just scans your whole computer in about one hour, then provides you with a list of stuff that needs to be killed. Then, in one key stroke, it kills them all in about 10 seconds. No muss, no fuss, no choices, no confusion.

Then, ENGM takes it one step further. If you have some bad stuff in your computer that SpyHunter won't get rid of, you simply send a log via email to their customer service department, and boom- they send you back a customized solution for your needs.

Then, if you still have a problem, a technician from ENGM will literally take over your computer remotely, and get all the bad stuff out of it. Try to get that kind of service out of Symantec or Mcafee- it's not happening.
 

Growth, Growth, and More Growth

Over the past year, ENGM has evolved its model from a one time purchase to subscription based. They have a recurring revenue theme in place now that is working.

Let's cut to the chase on the numbers. Here's the top line:

  • Q2 Revs in 2007 were $769,000 vs $275,000 in '06- an increase of 180%
  • 6 month revs in 2007 were $1.25 million vs $550,000 in '06- an increase of 127%
  • They've had five consecutive quarters of top line growth.
By any standards, that's outstanding growth, especially in the high margin software business. Let's look at their weekly subscriber base growth:

I had to condense the size of this chart, but you can see a much better version on the Enigma Web Site. Click Here to see a better image. This chart shows the subscriber growth in three ways- New weekly subscriptions (red line), Renewals (blue line), and Third Party Subscriptions (yellow line). 

As you can see, new weekly subscriptions have grown steadily over the year. However- here's what I really like- look at the big swing up in renewals of late. That's the big upturn on the middle line in the month of September. Last month, close to 3,000 customers chose to renew their subscriptions- in my view, that's an endorsement of the product. They wouldn't renew if they weren't having a positive experience.

This company is delivering higher revenues, but here's what Wall Street really likes. The quality of those revenues is improving thanks to subscription renewals-their sales could gather momentum in a big way from here.
 

Conclusion: The Supply Demand Dynamic is Exciting

If you drill down into the financial statements of ENGM, you will only get confused. This is another situation where a weird and draconian accounting treatment skews the books dramatically. If you look at their cash flow, you will see a company that has only burned about $200k this year and paid down a substantial amount of debt.

Increasing revs from here should put them in the black, and continuing increases in subscription renewals should keep them there.

Now- here's probably the most interesting and exciting technical aspect of this idea- the number of shares I&O. The vast majority of this company is held in various preferred issues which have never been converted to common stock. In fact- fully, fully diluted many years down the road, there could be 150 million shares I&O. That will take at least five years.

Today the are only 4.6 million share I&O. Hence, something we all love- volatility- look at the chart:

Look what happened to the price of ENGM when there was a volume surge in June. The stock traded a mere 216,000 shares, and tripled from $.20 to $.60 in a matter of two days. 

This is both of concern and exciting at the same time. There are a very small number of shares available in the public market for investors to fight over. Hence, this could be a very volatile issue- moving up and down quite dramatically with volume surges on news.

Therefore, I would suggest trying to acquire this one below the $.20 mark- a great level to own it. There will be many future events to get investors excited- they are due to release a new version of SpyHunter any day now- one that doesn't just find the spyware in your computer- it prevents it from getting there in the first place. They are starting to expand to other countries in different languages.

As with Spicy Pickle- here's a company with a product everyone needs, and will continue to need for many years to come. Go to www.enigmasoftware.com and try the product. I have run it on 4 machines, including my 24 year old daughter's which was absolutely loaded with Spyware- it has done a great job cleaning it out, and it's very easy to use.

These guys market their product directly to consumers over the internet- no middle man, no distribution fees, no margin reduction. Symantec and Macafee hate them because they are eating into their market share without spending a fortune. They are Guerilla Marketers at their best. 

What's the difference between BCSI, VDM, and VDSI? growth rates are about the same, but ENGM hasn't moved because investors don't know about it. You have a competitive advantage now with your knowledge. For you penny stock lovers, this is a very strong idea.
 

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