Wednesday, March 28, 2018

Vuzix - How bad is it?

Shares of VUZI have fallen precipitously since the company announced raising $30,000,000 via a share offering in January.  After trading as high as $11.40 inter-day on January 24th (as per Yahoo Finance) the PPS has tumbled all the way down to $5.90 as of this writing, a loss of $5.50 per share or 48% from that peak.  

Here's the chart:


The company filed its 10K on March 16th and the results, while probably expected, were far from stellar.  The loss attributable to common stockholders came in at $21,348,436 for the year ended December 31st 2017.  That was worse than 2016 when the loss was reported at $20,870,130 or in 2015 when it was $14,941,559 or 2014 at $7,868,858  

Readers can verify those numbers at the following link, page 31 or just do a CTRL+F search "loss attributable to common stockholders".  



Back last year in a release dated March 23rd 2017 the company wrote about a move "towards profiability".  Its the last bullet point, you can check the linked PR.


I don't think you require an MBA to realize that losing more money than the previous year, over and over and over again, that is not moving toward profitability.  Quite the opposite in fact.  

Compounding the dilution and losses was a bearish write up that came from a site called "Mox Reports" on March 16th, about the same time as the 10K.  It forecast an expected PPS of $0.50 and eventual delisting.  

Also included were allegations that Vuzix engaged in an undisclosed stock promotion to inflate the share price and raise $30 million.  You can read that report here.  


And that wasn't the end.  Next was a number of law firms issuing PRs about investigations into the claims made in the Mox Report and inviting those who've purchased shares to contact them.  Here are links to some of those PRs






That's a lot of bad news to absorb in a short period of time.  Dilution, losses and lawyers....OH MY!

On March 21st the company responded by issuing a business activity update:  


  
On top of that bullish sounding news bulls were buoyed by some insider buying:  


Three purchases by insiders totaling 11,252 shares between February 6th and March 26th.  

The purchases totaled over $73,000 according to my calculator.  As per Morningstar the CEO and CFO each earned in excess of $500,000 in 2016, down from the over $800,000 they earned in 2015.  Numbers are not yet available enumerating executive compensation for 2017.  The 10K filing says those numbers will be forthcoming within 120 days of Dec 31st 2017.  

Given that Vuzix is not a profitable company, having relied on the selling of shares to finance operations, the buys were a good move in my opinion.  

Salaries are not paid out of profits because there are none.  If Vuzix continues losing money, and the 10K discloses that they may not achieve profitability in the future, then continuing as a going concern will require the raising of more capital.

I know that many bulls are dreaming of a short squeeze, however longs should realize that if the company never achieves profitability and eventually gets delisted, then shorts would not be required to cover the shares they borrowed.  

It wouldn't be the first time that a company with what seemed like great potential failed to succeed, back in the dot bomb tech era it happened all the time, and many shareholders rode stocks all the way down to nothing.  

How bad is it?  Pretty bad to my eyes, which is why I own put options.  

Sunday, March 18, 2018

Sunday Musings on the next bear market...

As all my regular readers know, yes I mean both of you, on Sundays I sometimes like to comment on the things that daze and amaze, astound and confound, the market games that both thrill and send chills down the spines of retail investors.  

The 'Great Financial Crisis' of 2007/2008 is now 10 years in the rear view mirror.  There are players in the market who were still in high school, or even elementary school when it happened.  And that wasn't the first or only time we've seen a recession obviously.  There was the 2000/2002 market crash that came when the 'Dot Com Bubble' finally burst.  Before that the early 1990s saw interest rates explode into the high teens and low twenties.  The world economy teetered during what was called 'The Great Recession', and some pundits suggested we were headed for another depression.  

Boom then bust, boom then bust, boom then bust.  That's the way the market works.  

The broader markets have been on a tear, but obviously the bull will get tired at some point and the bear will come out of hibernation and take over for a while.  Some think that we already hit that point in January of this year, when the market started dropping.  The Dow went from over 26,000 to less than 24,000, it currently sits around 25,000

I don't think we're in a bear market yet.  Even if I'm right though, one is coming at some point, and I think it could be starting as early as this summer.  

The tax changes that were brought in this year by the Trump administration, I believe they will have a huge impact when companies start reporting their first quarter results for 2018.  If I'm right I expect that stock valuations will explode higher as companies report record earnings.  And if I'm also right on this count, then I expect that media talking heads to start proclaiming that the market is poised to go on a huge bull run.

If that happens, in my opinion caution is warranted.  In fact, if it does play out this way I will be afraid.  Contrarian investment strategy at its core means to be bold when the herd is afraid, and afraid when the herd is bold.  Smart money players sell high while the sheep buys high.  Why do the sheep get fooled?  Because they listen to the news and follow the advice of market "experts".  But that's the way it has to be, we all can't be buying and selling at the same time.


Not much more to say than that, happy Sunday everybody. 

Saturday, March 17, 2018

Vuzix slammed with allegations of fraud as 10K shows more big losses

Website Moxreports.com has published a report calling Vuzix a fraud, you can read it here:  


The biography on the website is of one Richard Pearson which says he has a degree in finance from USC.  The allegations are that Vuzix engaged in a stock promotion scheme involving dozens of mainstream media outlets to artificially pump the PPS which allowed the company to raise $30 million via a dilutive share offering in January of 2018.

As of this writing it does not appear that Vuzix has responded in any way to the allegations.  

This isn't the first time a publicly traded firm has been accused of being engaged in fraudulent activity. Just off the top of my head I can recall numerous claims being made over the past 20 odd years:  Enron, Nortel, Sino Forest Cynk Communications...its a long list, Warning Model Management, Adzone Research, Worldcom....I'm sure loyal fans of this miserable and pathetic little blog, (both of them) can think of a few dozen others.   

I will leave readers to go over the Mox Report article themselves and instead focus on the bottom line results as reported in the company's just released 10K for the year 2017.  I have written before that while the AR/VR space is certainly exciting, in the real world a company needs to  have revenues eventually exceed expenses in order to be viable.  

Vuzix has been around for over 20 years now, so let's see how they did.  Here's the link to the filing: 


For the year ended Dec. 31st 2017 the loss attributable to common shareholders came in at over $21.3 million.  That compares to the previous year when the loss was over $20.8 million.  

There will be a conference call on Monday, and just like last year I expect there will be talk about this being a pivotal year with all the usual forward looking and safe harbor protected hyperbole.  

There's not much more to say here obviously, the business is performing as it has in the past, losing money by the bucket full.  At the end of 2017 the accumulated deficit was at $96.4 million, assuming they've continued losing about $2 million per month that number is already over $100 million.  

If it weren't for the money generated from printing and selling shares into the market.....

Good luck in any case, maybe some more media outlets will write some nice things and help pump the price up again.  

Disclosure.  As mentioned in previous posts, I own VUZI put options.