Shares of Ipix (IPIX) surged 51% to $12.49 Thursday after the secretary of Homeland Security praised the maker of video-surveillance systems. In a speech at the Tennessee Valley Technology Corridor Summit, an economic symposium in Knoxville, Tenn., Ridge described Ipix as playing a vital role in the protection of America. Ipix has joint headquarters in Oak Ridge, Tenn., and San Ramon, Calif.
"ORNL [Oak Ridge National Laboratory] is an important player — along with local companies such as Ipix, Ortec, Nucsafe, Remotec and AquaSentinel — in our effort to build a vast R&D infrastructure to protect the homeland. These companies are already helping to make America more secure. They are examples of what can happen when we bring people and technology together," said Ridge in Tuesday's speech.
While upbeat, the Homeland Security chief's comments didn't go beyond the typical, crowd-pleasing praise of a local company that accompanies just about any political address. The summit, after all, was hosted by two Republican congressmen. The gist of the speech revolved around how the state's high-tech industry, including Oak Ridge National Laboratory, a nuclear research facility, could contribute to national security. That's it. Ipix was mentioned only in passing, and there certainly wasn't talk of lucrative government contracts either in Ridge's remarks or in the company's press release.
"The secretary did mention Ipix in the speech as an example of a local company that is providing new technology that could be helpful for homeland security," says Katy Mynster, a spokeswoman for the Department of Homeland Security. "This was a local company in the area where he was speaking that could offer tools that could prove to be helpful in our effort to strengthen homeland security."
A maker of digital-imaging software and video-surveillance technology, Ipix has become a player in the red-hot security sector. Since the 9/11 terrorist attacks, any company with even a hint of security operations, regardless of revenues and profitability, has attracted significant investor attention.
"There is a whole group of quote-unquote security companies that are frothy," says Kenneth Reid, editor of Spear's Security Industry Analyst, a financial newsletter that focuses on companies tied to homeland security. "These are what I would consider 'trash security stocks.' They are day-trading items for momentum players, and basically overvalued."
Ipix's public float is just 16.5 million shares. According to Reid, shares soared Thursday because short interest in the company's stock was so high — 44% — that short sellers heard about the speech and scrambled to cover their positions. Ipix was Nasdaq's volume leader and its largest percentage gainer of the day.
The product that captured investors' interest is a 360-degree video-surveillance camera. Ipix says the product can "observe and record an entire environment, seeing all activity in all directions with no blind spots, all with a single network enabled device." Launched in March, it recently won the award for best new product for digital video technology at the International Security Conference, a trade show held in Las Vegas. Neither the federal government nor any state has yet to order the camera. Sales at Ipix's security unit, so far, have been negligible.
"Our security division just started in March, and so far there have been no revenues," says Ipix Chief Financial Officer Paul Farmer. "But our technology is at the heart of what the Department of Homeland Security needs."
Ipix is a company on the mend. A year ago, it lost its biggest customer, eBay (EBAY), which accounted for 87% of 2003's $29 million in sales. EBay stopped outsourcing digital-imaging technology for its Web site pictures from Ipix, which sold eBay a perpetual nonexclusive license for $8 million. For the first quarter, Ipix posted a net loss of $3.6 million, or 41 cents a share, compared with a loss of $72,000, or a penny a share, a year earlier. Revenues plunged 88% to $722,000. As of March 31, the company had $9 million in cash, and it raised another $9 million selling stock in April. Its cash-burn rate was more than $3 million for the quarter.
Ipix is now banking on its new surveillance camera, which CFO Farmer says will be useful for protecting dams, bridges, railroad tracks, ports, borders, utilities and water-treatment facilities. The company has five distributors selling the product: three in the U.S., and one each in the United Kingdom and South Korea.
"Ipix's 360-degree technology may well have security applications, only no one is buying it yet," says Reid of Spear's Security Industry Analyst. "It doesn't have any deals yet. You've got to have the income. You've got to have the contract. That is something you can take to the bank. Companies like this are asking investors to be their venture capitalists." (Reid doesn't own shares of Ipix; Spear's Security Industry Analyst doesn't have a business relationship with the company.)
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"Video surveillance is a significant security application, but there are hundreds, if not thousands, of video-surveillance companies in the U.S," says Jay Meier, an analyst at Miller Johnson Steichen Kinnard, a Minneapolis investment bank. "And while the 360-degree camera may be impressive and Tom Ridge mentions the company's name in a campaign speech, that doesn't mean the government is willing to invest millions of dollars in the technology. That's not to say the technology doesn't have appeal, but show me the money." (Meier doesn't own shares of Ipix; Miller Johnson Steichen Kinnard doesn't have a investment-banking relationship with the company.)
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