LOS ANGELES, Oct. 9, 2003 -- AdZone Research, Inc. (OTCBB:ADZR), a pioneering Internet surveillance technology solutions provider, today reported that EquityNet Research, headquartered here, has initiated coverage of the company with a speculative buy recommendation.
The firm's founder and senior equity analyst, Randall D. Lewis, wrote the research report. Lewis is the holder of the Chartered Financial Analyst (CFA) designation, and a member of The Association for Investment Management and Research (AIMR), an international, nonprofit organization whose mission is to serve its members and investors as a global leader in educating and examining investment managers and analysts, and sustaining high standards of professional conduct.
In his report, Lewis points out that AdZone is "At a critical turning point as it is attempting to transition from a development stage to a revenue producing company. While such transitions generally entail a high degree of risk, they also have the potential to generate high levels of returns for investors. Assuming that AdZone is able to meet certain financial and operational targets, the stock may prove highly undervalued."
Noting that the U.S. government's focus on modernization through increased spending on information technology reflects the critical role that this capability plays both in national security and improving government efficiency, the report states, "...the war on terrorism, coupled with the rapid rate of technological change, has increased the U.S. military's need for more efficient and advanced information, communications, and military platform capabilities. It logically follows that the Internet will be a large part of this transformation, and with increased online use comes increased need for online security."
In his report, Lewis indicates that in matters of corporate security alone, "One third of companies are still not adequately equipped to deal with an attack on their computer networks by cyberterrorists," and that "AdZone's main goal is to apply its monitoring expertise as a cyber security tool for industry and government as part of the larger Homeland Security and other defense-related endeavors. Therefore," Lewis wrote, "the demand for NetGet is quite large and can potentially come from: 1. Defense and Intelligence Contractors; 2. Federal Intelligence and Defense Agencies; 3. State Intelligence and Defense Agencies; 4. Local Law Enforcement Agencies; 5. International Intelligence and Defense Agencies; 6. Domestic Corporations and 7. International Corporations."
In discussing the company's technology, the report notes: "AdZone's proprietary NetGet( system can monitor virtually anything on the Web. The original system, which incorporates logic from the field of astrophysics, was designed for maximum flexibility, allowing virtually any type of Web content to be monitored, stored and analyzed."
In discussing AdZone's competitive position, the report notes "Many of the firms that would be viewed as competitors are actually potential strategic partners. In addition, AdZone is believed to be an attractive partner for larger government contractors since it is headquartered in a HUBZone (Historically Underutilized Business Zone), and under the Small Business Administration, qualifies the large contractor to allocate up to 25% of the total contract to smaller subcontractors, thereby enhancing its likelihood of winning the bid."
Moreover, it says, "...from a technological standpoint, NetGet's competitive strengths are the facts that: It is the only commercially develop Web tracking product that is able to monitor data and information at the BIT level. No other product that we know about has the ability to break down data that small.
In addition, the report notes, "It is the only scanning technology that integrates logic from astrophysics. Based on the background of AdZone CEO Charles Cardona, these sophisticated applications are built into the system."
Equally important, Lewis notes, is that "Report analysis is more sophisticated. Because monitoring can be broken down like no other product, it follows that the analysis gleaned from the information will be superior."
In discussing current financial information, the report notes, "Since the company has not fully commenced operations, management is of the opinion that current financial results are not a meaningful indicator of future operations. And it indeed appears this is the case...AdZone has transitioned itself...to a firm with a bona-fide counter-terrorism initiative as its primary focus - and the contracts are in this area." The report also notes that that company is currently pursuing a $500,000 private placement to meet short term needs.
In its outlook and valuation section the report states "...AdZone has been positioning itself over the last several months to take advantage of a very large market where existing products are only marginally meeting the growing demands for anti-terrorism efforts at the technological level...
"First and foremost, the company is now in the mix with the major government contractors. As it relates to this fact, we believe the most likely scenario (and the pay-off to investors) is that AdZone will eventually become an acquisition target. There seems to be a consolidation wave in the defense industry right now. Lockheed Martin Corp.'s purchase of defense-information-technology company Titan Corp. has given other small information-technology companies a boost as investors consider which might be the next takeover target. In August, General Dynamics Corp. completed the acquisition of Veridian Corp., a network security and intelligence company. Chris Mecray, analyst with Deutsche Bank in New York, said the Lockheed deal with Titan confirms that the sector continues to consolidate.
"Big defense contractors," the report goes on to say, "seem eager to get their hands on the technology companies as the U.S. has changed its approach to defense to more intelligence gathering, which requires sophisticated computer networks and tracking, rather than big guns and equipment. AdZone certainly seems to fit into this mix, particularly having already signed a contract with a major defense firm. Of course, when the acquisition takes place and at what price cannot be known now.
"In the interim, we would expect relationships to continue to grow in the area of homeland security. It would be likely that as these relationships grow, a formal partnership arrangement could be formed whereby a larger firm (most likely a large defense contractor), would fund the company's R&D and marketing efforts. In addition to the potential grants and revenue that a partnership can bring, there are other reasons why partnering with large, established companies is a good idea:
- The government has difficulty dealing with small companies; - Potential partners would already have relationships with federal agencies and departments; - Defense contractors have already been cleared for the highest levels of security; - Potential partners would have visual enhancement and decryption technology to further exploit AdZone's findings.
"Of course," the report concludes, "valuing a start-up with solid potential is a daunting task at best...Therefore, we are not placing a specific price target for the stock, but have outlined a strong argument for undervaluation relative to its current $0.18 price in this report. As we see in the biotech world, companies that are just transitioning from start-up to potentially high revenue-generation are often afforded high valuations. In short, the current market cap of $11.2 million is very small relative to what can be realized in terms of earnings and revenues over the next several years."
The full text of the report is available at www.equitynet.net .
AdZone Research is headquartered in Calverton, N. Y., in a secured facility that formerly housed major defense contractor Northrop Grumman Corporation. The facility was earlier used for top-secret defense research and development, and was part of the United States Navy's Naval Defense Technology Center.
Through monitoring of more than 500,000 Web sites worldwide, AdZone provides tracking and monitoring of targeted information on the Internet, with an expanded focus on global Internet analysis of security-related data transmissions. For additional information, please visit the company's Web site at www.adzoneresearch.com.
Certain statements contained herein are "forward-looking" statements (as such term is defined in the Private Securities Reform Act of 1995). Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.
EquityNet Research is an independent research firm, and has been compensated $6,000 by the Investor Relations Network, AdZone's investor relations counsel, for the report's background research and preparation.
More information on Homeland Security issues, including news releases, events and experts available for comment, can be found on the Homeland Security Newsline at www.primezone.com/hs