Finjan: Poised To Pop With Tightly Held Float And Great Investors
Jul 10 2013, 14:27 | by Christopher Drose | about: FNJN.OB
http://m.seekingalpha.com/article/1542562
Finjan (FNJN.OB) is a fantastic opportunity with asymmetric risk/reward and significant upside. Finjan is a patent holding company, and it holds 20 patents in the computer security field. It has a solid patent portfolio, an excellent management, well respected venture capitalists behind it and a very tightly held float. These factors could combine to create explosive growth in Finjan.
Finjan is a new company as far as how long it has been publicly traded, but it has a long track record as a private company, dating back to 1997. It recently went public through a reverse-merger, and started trading under the Finjan name early this summer.
What Does It Do?
Finjan is a patent holding company, but unlike some "patent trolls" it only holds patents on items that it has invented. Finjan has actually generated revenue from licensing the patents. From the company website:
"Finjan, founded in 1997, is recognized as a pioneer in the endpoint, web and network security industries. Our early technology innovations and products helped define the state-of-the-art for detecting and deflecting software intrusions and malicious code delivery, over internet and private networks, to devices located at endpoint connections."
Since inception, Finjan has generated over $125 million in revenues from licensing its patents, and received $85 million in proceeds from licensing and court decisions in 2012.
"Finjan has 20 plus patents in an attractive industry, computer and internet security and a claim of being "one of the first companies to develop and patent technology and software that is capable of detecting previously unknown and emerging threats on a real-time, behavior-based basis, in contrast to signature-based methods of intercepting only known threats."
Why Is It A Good Investment Now?
It is hard to analyze these types of companies traditionally, especially a company that has been public for such a short amount of time, but there are several great reasons that make Finjan a great investment now.
Management and the Board of Directors
Note, all of this information is from the Finjan website.
CEO, Daniel Chin - Mr. Chin is the CEO of Finjan, Inc. and is a former partner at Israel Seed IV, which is an investment company focusing on Israeli information technology and life sciences. Before he joined Finjan he was the CEO of Seambiotic Ltd., a developer and producer of alternative energy sources from microalgae. He has been the CEO of Finjan since 2011. He is also a Partner of Tulchinsky Stern Marciano Cohen Levitski & Co., an Israeli law firm where he specializes in corporate and transactional matters. He has been with Finjan for seven years, both as a director and executive officer.
President, Phil Harstein - Phil Hartstein was appointed president of the company and will oversee the direction and management of current assets and future investments. Mr. Hartstein has served in a number of senior roles throughout his career. Previously, Mr. Hartstein was vice president and portfolio manager with IP Navigation Group (IPNav), a firm representing Fortune 500 clients, universities, private equity investors and smaller - sometimes individual inventor - companies in their licensing and enforcement activities.
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And my personal favorite person involved with management ...
Chairman of the Board, Michael Eisenberg - Michael Eisenberg joined Benchmark Capital as a general partner in July 2005 from Israel Seed Partners where he was a general partner since July 1997. Eisenberg began his career at Jerusalem Global where he started and led the firm's successful investment banking group and partnership with Montgomery Securities. Michael has focused on Internet investments since 1995 and has invested in and sat on the board of Israel's leading companies and start ups, such as Shopping.com (acquired by eBay), Conduit, Seeking Alpha, Gigya, Tunewiki, Wix, Answers.com, Tradeum (acquired) and Picturevison (acquired).
Look at those companies, Seeking Alpha included. Mr. Eisenberg obviously has an excellent track record and is well respected. In fact it was seeing his name associated with Finjan that caused me to further research it.
Excellent Investors
While management and the BOD have several excellent names with great track records on it, what intrigued me was the involvement of two well known and very well respected hedge funds. Iroquois Capital and Hudson Bay Capital, both hedge funds, have invested in this company while it was still private. From the June 4 8-K:
Pursuant to the Exchange Agreement, immediately following the effectiveness of the Reverse Merger, Hudson Bay and Iroquois exchanged an aggregate of $1,192,500 principal amount of our convertible notes, 13,281 shares of our 1% Series A Convertible Preferred Stock ("Series A Preferred Stock") and warrants to purchase an aggregate of 633,327,047 shares of our common stock for an aggregate of 21,473,628 shares of our common stock, or 8% of our outstanding common stock.
Hudson Bay was ranked the 74th best performing large hedge fund and included in the top 100 hedge funds by Bloomberg this January. Both Iroquois and Hudson Bay released Finjan from all debts, liabilities and other claims that it had against Finjan immediately after the reverse merger.
Tight Float
When a company has a very tightly held float you can see explosive moves. Finjan has a very tightly held float, but what is even better is the quality of the shareholders. Below are the biggest shareholders and what percent of the float owned:
(click to enlarge)
As you can see, there are some excellent names on that list and the float is very, very tightly held. The float will continue to be tightly held until the lockup period is over, which is in ten months. The lockup agreement, which forbids 96% of shareholders from selling until 10 months from now, will protect shareholder value from now until then.
"On June 3, 2013, in connection with the Reverse Merger, we entered into Lock-Up Agreements with former Finjan stockholders who hold, in the aggregate, 237,203,659 (or approximately 96.6%) of the shares of our common stock issued in the Reverse Merger. Pursuant to the Lock-Up Agreements, each stockholder party thereto agreed that, for the period commencing on the date of the closing of the Reverse Merger until the ten-month anniversary of the date that the SEC declares the registration statement filed pursuant to the Registration Rights Agreement effective, such stockholder will not offer, sell, contract to sell, pledge, give, donate, transfer or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exercisable for our common stock that we issue to such stockholder."
While this might be a concern for shareholders down the road, think about the makeup of the board and who owns the shares. Venture Capital firms and Private Equity firms make up the majority of shareholders. These type of firms are generally known for making longer term investments and I would guess that only a small number of shares will actually be sold, if at all, given the prospects of this company.
Positive Financials
According to an 8-K, Finjan had approximately $91.5 million of cash and cash equivalents, and $28.9 million of working capital as of December 31, 2012.
As of March 31, 2013, Finjan had approximately $29.3 million of cash and cash equivalents, and $28.8 million of working capital. The decrease in cash on hand as of March 31, 2013, as compared to cash on hand as of December 31, 2012, was primarily due to the repayment of intercompany indebtedness to FSI in connection with Finjan's reorganization. On a pro forma basis, our cash and cash equivalents as of March 31, 2013, totaled approximately $29.8 million and our working capital was approximately $29.0 million.
The fall in cash came from the company repaying its parent company, which is not a negative. There are, however, many positives in this filing. Finjan received $85 million in proceeds from two different settlements of patent settlements from 2010 from which it received the proceeds from in 2012. With a current market cap of $300 million, I believe that there is significant upside.
Summary
This company is so new that very few people have likely heard of it, only adding to the potential growth when it gets discovered. With such a great management team, successful venture capital and private equity firms backing it, and a very tightly held float, I believe the company could see explosive growth as it gains exposure.
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