We believe iPass Inc. (IPAS) is close to creating a marginally profitable business with its subscription based model for enterprise connectivity. However, the true investment case for the stock is the company's software offering for security and device management, which could serve to differentiate iPass from traditional network access and drive meaningful margin improvement.

Despite over $1.00 per share in net cash and an improving income statement, iPass shares continue to fall in value. Shares of iPass are currently trading at 0.6x our 2008 sales estimate, representing a significant discount to the industry mean and the S&P.

Although we believe that iPass's transition to its new business model still poses significant risks, the worst appears to be behind it. The company's subscription model has been gaining traction of late and dial-up is falling as a percentage of revenue.

We believe that investors are waiting to see progress in the company's security offering in order to make an investment case for the stock. Although its Wi-Fi network does add value for business users, it is hard to view as a truly differentiated offering with a sustainable competitive advantage. We therefore maintain a Hold rating on the shares of IPAS and set a six-month price target of $2.00.