Authentidate Holding Corp (nasd:ADAT)- $.43-This is an update to previous notes (1.CF Break-Even 12 months 2. Traction in Germany 3. Attractive Speculative Play). I remain optimistic towards ADAT given management’s forecast of cash-flow break-even in the December or March quarter. ADAT announced this intention earlier this year, and has continued to reiterate its guidance. I truly believe management would not provide this guidance unless they were very confident that it could be accomplished.

ADAT is trading for less than its $.53 cash/share and $.90 book value/share- and it has no debt. Thus, ADAT’s share price reflects the expectation that it will soon burn through its cash and close its doors. Management believes they can reverse the burn rate well before cash dries up. There is little doubt that significant revenue potential exists, rather doubt has been cast on its timing. The key issue facing investors is whether ADAT will run out of cash before revenues amass to a break-even level. In short, Management believes (so do I) that break-even will be achieved with cash to spare. When ADAT becomes cash-flow positive, I think we could easily be looking at a $2-$3 stock.

The business model is promising, but has been slow to gain traction. The introduction of the Inscrybe platform has accelerated adoption and generated impressive revenue growth. Due to the ~70% gross margins and amount of leverage in the model, there is considerable upside potential in profitability. After attaining sufficient revenue volume to cover fixed expenses, a very large portion of incremental revenue falls to the bottom line.

In my opinion, Authentidate is undervalued. Granted, there are significant risks, but the share price doesn’t reflect ADAT’s true value. Authentidate is unknown to many investors, and its low share price and trading volume make it difficult for institutions (and individuals) to invest. On average, 50k shares, or 25k in dollar volume, change hands daily.

Without analyst coverage, investors look to ADAT for company news. Management has been hesitant in providing details on business. Back in 2003-04, ADAT shot up to $20/share, and when expected sales traction failed to occur, the share price plummeted. Of course, this invited every ambulance-chasing law firm on Wall Street to file class action lawsuits. Even though those suits never materialized, it drained Authentidate’s strategic focus and checkbook. I believe this has led management to be more guarded in its statements to investors. The irony is that ADAT is claiming cash flow break-even in CY08. Given ADAT’s history of not providing much guidance, logic suggests that management would not make such a claim unless it was highly certain it will be achieved. The company also hinted that once progress begins to appear in the financial statements, that it will be much more involved with the investing public. In essence, the share price is not a product of broad based opinion, rather transactions of a few, thus ADAT is inefficiently priced.

About Authentidate:
Taken from Authentidate’s Press Release
Authentidate Holding Corp. is a worldwide provider of secure workflow management software and web-based services.