Will Vuzix hold its gains this time? (VUZI)

I first wrote about Vuzix back in September of 2016 when it first popped onto my radar thanks to a lot of chatter on stock social media site Stock Twits where I participate with the name "growacet".

Vuzix - Time machine back to the tech bubble?

Back in September of 2016 shares were trading in and around the $9 area.  Now?  It looks like VUZI will be trading somewhere around $10 today (Wednesday Jan. 24th 2018). In between its been quite the roller coaster as evidenced by the chart below covering that period.

That's quite the roller coaster.  From up around $9 in September of 2016, then like a yo-yo on a downward escalator all the way below $5 by early November of 2017.  However while it took over a year for the PPS to fall so steadily, its only taken a couple of months to erase those losses, with VUZI now making new highs.

The big question though....Will it hold this time?

More importantly, especially for those who might be considering paying $10 or so per share at current levels.....Could the PPS climb even higher?  In fairness I have to allow that VUZI could very well not just maintain its current valuation, but that it could climb substantially higher.  

Do I think it will?  I do not know for certain, my time machine still isn't working, but I do consider it a very risky proposition.  Why risky?  Because of Vuzix's long history of wild price moves and poor bottom line performance.  

I know that some will look at the PPS more than doubling in less than 3 months as "PROOF" that the future must be bright, because for them, the PPS confirms it.  That was the same attitude that led many to buy, hold and to keep buying all manner of dot com disasters and money losing tech stocks in the late 1990's.  People saw their shares going up, Up, UP and thought the party would never end.  

The saddest cases rode companies like Pets.com, Digiscents and hundreds of others all the way to nothing.

Pumpers and promoters love to point to the Amazons, the Googles and Netflixes while conveniently leaving out the Gameflixes, Virtual Keyboards, Nortels, Worldcoms and countless others.  I would submit that for every Amazon and Microsoft that were huge winners, that there were hundreds of others that crashed and burned.  

I think it might be instructive to take a look at what has perhaps caused this sudden and rapid increase in Vuzix's valuation.  It doesn't seem to me it has anything to do with their last reported quarterly performance when they badly missed both revenue and earnings targets.  In that 10Q the compay reported losses of about $5.9 million for the three months ending September 30th 2017.

http://secfilings.nasdaq.com/filingFrameset.asp?FilingID=12372885&RcvdDate=11/9/2017&CoName=VUZIX%20CORP&FormType=10-Q&View=html

That is of course old information, over 3 months old now.  

As I've written many times on this blog before, with speculative stocks fundamentals often don't matter.  What does matter is the expectations of investors going forward.  If stocks were valued strictly on bottom line performance then Tesla's stock wouldn't be trading around $350 per share.  Tesla shareholders are betting that the electronic car maker will be an automotive giant.  If they're wrong, and Elon Musk's great adventure crashes and burns, oh well.  

So what's happened to cause investors to be bullish about Vuzix's future?  While I haven't seen any news with hard numbers attached there's been no shortage of Press Releases eminating from the company.   Since reporting the 3rd quarter numbers I count 24 releases on the company's website.

That's 24 PRs in less than 3 months, which comes to 2 or 3 per week.  Shareholderss who want or need constant communication are obviously happy.  That's far too many to disect each and every one, so I'll try to hit the highlights.

A day after reporting their 3rd quarter numbers Vuzix announced that they'd won CES 4 awards for their newest Blade product.  That might seem impressive, however its the same number of awards that the company won in 2017 and still their revenues were insufficient to forestall further dilution.

https://ir.vuzix.com/press-releases/detail/1524/vuzix-awarded-four-ces-2017-innovation-awards-for-its

After a number of releases about vairious shows, new hires and development deals news came out that seems to have had a big impact, a 3 year supply agreement with Toshiba.  

https://ir.vuzix.com/press-releases/detail/1597/vuzix-signs-3-year-supply-agreement-with-toshiba-for-custom

I find this PR to be very "cloudy" and replete with language that is....at best fuzzy.  Here's an example:

Any such sales will be made pursuant to purchase orders which Toshiba may submit in its discretion. (* denotes my emphasis)

What the PR lacks is what I consider definitive language.  After reading it, its hard to determine if this agreement will result in any meaningful revenue for Vuzix at all.  If Toshiba "may" submit purchase orders, then it stands to reason that they also "may not".  Later it says this:

Pursuant to the supply agreement, the Company agreed to sell such product exclusively to Toshiba for a period of up to 12 months, *subject to Toshiba's submitting a minimum of $5,000,000 of purchase orders. (* denotes my emphasis)

So does that mean Toshiba will be submitting orders for at least $5 million?  Not to me it doesn't.  To these eyes it suggests that this deal is contingent upon Toshiba submitting a minimum of $5 million in purchase orders.  If they fail to order $5 million in product over the ensuing 12 months, what then?

The latest news, and what is likely the catalyst for the current price surge over $10 came out yesterday, January 23rd.  It concerns an apparently successful pilot program with H-E-B.  

https://ir.vuzix.com/press-releases/detail/1524/vuzix-awarded-four-ces-2017-innovation-awards-for-its

Why do I say "apparently successful"?  Different people will obviously have differing views on what constitutes success.  Sometimes a professional sports team will lose a game, but the coach will declare the game a success regardless because he percieves some important objectives as having being met.  

For me success in business is about sales, and this PR says nothing about any orders.  The PR does end with Vuzix's COO saying he's looking forward to expanding the relationship between Vuzix and H-E-B.  But that is of course forward looking and safe harbor protected.  That's not to say there won't be large orders coming from this company, but if there aren't....oh well.  

So What's the Bottom Line - Full Disclosure

Okay, so I've just gone over a lot of old news, but investing is about the future as everyone knows.  Will shares of VUZI hold their current valuation?  Will they climb even higher?  Will it be a repeat of September 2016 all over again with the PPS crashing downward?  

It could be any of the above quite frankly.  I have a position on the short side, but I'm doing my best to not let that cloud my judgement and turn a blind eye to the potential for the PPS to climb.  

My ultimate opinion hasn't changed.  It is my view that Vuzix's buisness is not sustainable for the long term.  But in the short to medium term, anything is possible because the company has been very successful at attracting investors in spite of an ever increasing accumulated deficit and regular dilution to raise much needed cash.  

With the next filing I expect that bottom line performance will continue to show the company struggling with the bottom line, with more losses and an increase to that accumulated deficit.  But that may not matter.  Investors in the company may shrug it off as they did when the company reported losing almost $6 million for the 3 months ending September 30th.  

Vuzix employs a lot of IR promotional firms and they've been very successful at building a following for this company.  And if investors don't care about bottom line performance, then things can go nuts.  Many Nortel investors made a killing by selling when buyers were falling over each other, paying over $100 per share for that networking giant.  Those who held on right to the bitter end though watched big paper gains turn into large capital losses.

A final note on my playing the short side.  I'm not actually short any shares, I do not engage in borrowing shares and dumping them back into the market in hopes of buying them back cheaper for a profit.  I use the less risky form of playing the short side by buying put options.  Puts are a futures contract, and if the PPS for a stock falls before the contracts expire, then a buyer of Puts can make profits.  

Right now I am underwater, and that's okay....I only risked money that I could afford to lose.  They expire in April, and while I'm obviously hopeful that the PPS erodes before then, I know that there's every possibility the PPS could hold where it is or climb. 

I'll say one thing for Vuzix, its never dull.  Comments of course are welcome, just no profanity.  My ultimate wish is for retail investors to make money, whether long or short or with puts or calls.  But its a zero sum game, you can't have shares and the gains they've made too...the buyer gets shares, the seller gets cold hard cash.  I hope readers make bank, and remember....nobody ever went broke from taking profits.

Cheers. 

Want to understand Bitcoin? How well do you understand money?

Like a lot of people I have been trying to wrap my head around crypto currencies like Bitcoin and terms like Blockchain.  I think the concept is perhaps more easily grasped by people who've grown up in the Internet age than for a dinosaur like me whose first introduction to a machine for doing simple arithmetic was an abacus in grade school.  

No I don't mean Biblical times, I'm not THAT OLD.  There were adding machines around when I was a kid, but they were expensive and cumbersome and they didn't run on battery power.  

In trying to understand Bitcoin, Ethereum and the rest, I think its helpful if you take into consideration the history of money.  Understanding the evolution of currency won't help with the more technical aspects, but I think it helps explain why digital currencies have caught fire.  

In broad strokes money has evolved from coins, to paper, to digital transactions and now to digitized cryptocurrencies.  And with each step in this evolution there have been dinosaurs who prefer the older and, (for them) more trusted forms.  

When paper money was widely introduced in the 15h and 16th centuries I have no doubt there were some who preferred dealing with a coin containing some precious metal like silver or gold, something with hard and tangible value.  But over time paper money came to be accepted.

Paper money for hundreds of years was backed by precious metals, at one time there were "silver certificates" in circulation, pieces of paper backed by precious metals.  Then the so called "gold standard" was abandoned in most of the developed world and was replaced with what essentially are "fiat currencies".  

In a nutshell "fiat" means that the value of money is based on perception, or belief.  In turn that affects the normal market dynamics of supply and demand.  Why is the US Dollar worth more than the Canadian Dollar?  Because there is more demand for US Greenbacks than for Canadian Loonies.  And now we live in a world where physical money is used less and less, replaced by debit cards, credit cards and people using their cell phones with services like Apple Pay.   

That's a lot of preamble, but it shows money's evolution:

• From something of hard and tangible value, a coin made of gold, silver, copper.
• To a piece of paper leveraged against metals like gold and silver.
• To simply a piece of paper leveraged against nothing.  
• To a world where people transact thousands of dollars worth of monetary exchanges without ever once exchanging any physical currency.  

And now we have crypto currencies that literally do not exist in tangible form, they're digital.  

Alright alright....I can just hear my loyal readers (all three of them) saying:  "Thanks for the history lesson professor, you've told us what crypto currencies are not, now can you tell us what they are".

I can try, but understand I don't proclaim myself to be an expert, however I do think I have a decent enough handle on Bitcoin.

As I concluded at the end of that ham fisted history lesson, Bitcoin and the like are digital.  So it might help to understand them in terms of something else that is digital that pretty much everyone understand, digital pictures.  When you look at a picture on your smart phone you're looking at something that doesn't exist in physical form, its something that is written in digital code.  

Okay okay....I know what you're gonna say.  "Yeah the picture might be digital genius, but I can print it and hold the actual picture in my hand"!!  "How do I do that with Bitcoin"???

The short answer is, you can't.  Well, maybe.....but you might have to chop down a few redwoods for all the paper you're going to consume.  That's because each Bitcoin is line after line, after line after line after line, of encrypted code.  

That's what the blockchain is.  Everyone who touches the coin, every transaction and movement is included.  That's why the so called "mining" of Bitcoin is so expensive, it takes massive computing power and tons of electricity to extract these "coins".

Bitcoin miners all around the world, working as individuals or in teams are trying to unlock bitcoin by solving incredibly difficult puzzles.  I am not a computer programmer, so my explanation is going to fall short of a full and satisfactory explanation.  For those who want to understand beyond my layman's explanation, I'll direct you to investopedia's explanation here:

https://www.investopedia.com/tech/how-does-bitcoin-mining-work/

I am going to add just a bit more, about something else that is essential in the CryptoCurrency equation, something else that is intangible.  That other thing is TRUST.  

For older individuals like myself trusting digital currency is a hurdle.  I grew up getting an allowance, at the risk of dating myself I will tell you how much I got.  Once a week my father would give me a quarter, 25 cents.  He didn't use a smart phone, and there was no electronic transfer of 25 cents  into my account.  I would hold out my hand and be given a physical coin.

Things have evolved since then, I still like having actual physical money in my wallet, but I'm comfortable now paying my bills, my mortgage, and lots of other transactions without ever once touching any actual money.  Each month I transact thousands of dollars in economic activity without once having to hand over something that is physically real.  

The blockchain is what provides this trust for users of CryptoCurrencies like Bitcoin.  I do consider it a leap though for older individuals like myself.  But in another 10 or 20 years?  When debit cards were first introduced a lot of people said they wouldn't use them, and some still don't.  But the world is forever changing and evolving and I'm coming to the conclusion that things like Bitcoin are going to be adopted widely.

I'll have more to say on this later, especially about the market for stocks that are jumping on the CryptoCurrency BlockChain bandwagon. 

Glowpoint Inc - Buying the rumour (GLOW)

Glowpoint Inc is a stock that trades on the NYSE Amex.  I would never have heard of it were it not for a conversation last week with an acquaintance. Someone who travels on the periphery of some pretty deep pocketed and well known personalities, including some in the media.  

The rumour I heard is that Glowpoint may be looking to use its cloud based conferencing technology to get in on the digital currency bandwagon, specifically in the area of blockchain technology.

I don't know whether its true or not, but based on the chart and the increased trading of the past few months, I'm taking a flyer on this one.  

I haven't touched Bitcoin or any of the other digital currencies that have grabbed everyone's attention.  And if GLOW does end up moving into this sector it will be my first time investing in any stocks associated with the broader crypto-currency market.

I'm not concerned though, Riot Blockchain (RIOT) was reportedly a biotech company until a name change this past October.  This whole sector has heated up and there still aren't many publicly traded companies that have moved in. 

We shall see how it works out.  

A merry and blessed Christmas to all my readers

Greetings of the season, I won't be mentioning any stocks in this Christmas season posting.  I just want to thank all those who've been reading this blog over the past...well its coming up on two years soon. 

I hope that readers have been able to use some of the ideas, information and opinions expressed here to make better investment decisions.  And I pray that 2018 and beyond brings heath, peace and prosperity.  As a believer in the idea of paying it forward I will be making a donation to my church at year's end of $150 which is what was earned by ATB from the ads placed.  I belong to an awesome faith community that does great work in outreach and in helping out the migrant farm workers who come to to my area.

I am a Christian, however it doesn't matter to me what a person's faith tradition is.  My Christianity is about living in harmony with God's awesome creation, and it is through the teachings of my Lord and Saviour Jesus Christ that I choose to try and do that.  I do not always succeed in my efforts, but I do try. 

To those reading, no matter what your faith background may be, and even if you don't follow one, please accept my warmest wishes for this holiday season.  We are all connected, we are all one, and we are all worthy of God's abundant and unceasing love.

Again, a very merry Christmas.

Bullish on Resverlogix? You may want to consider warrants

If you're bullish on Resverlogix as an investment for the longer term, then share purchase warrants may be something you want to consider.  Resverlogix shares trade on the TSX under the symbol RVX, as do warrants under the symbol RVX.WT

I'm assuming most people reading this (all three of you) already know how warrants work.  But for those who don't, or for those who are a bit fuzzy I will explain.  Warrants are basically a futures contract, very much like calls.  They give the holder of the warrants the right to purchase shares at a fixed price up to a specific date. 

In the case of Resverlogix, their share purchase warrants give holders the option to buy shares at a price of $2.05 each and they expire in June of 2021, June 20th to be precise.  Obviously for the warrants to have any value the PPS for Resverlogix has to be trading above $2.05, otherwise there's not much point.  However because they don't expire for another three and a half years, there is the "time value of money" component which adds some value.  

I'm going to demonstrate how warrants can outperform shares using Resverlogix as an example.  The numbers I'm going to use come from the most recent day's trading, Monday December 11th 2017.

If you're going to buy warrants you should obviously be bullish on a company's longer term prospects.  In the case of Resverlogix's warrants, they've got a long way to go before expiry, over three years in fact.  In Monday's trading the PPS ranged between $2.07 and $2.47 so I'm going to pick the mid point, $2.27 and the warrants traded between $0.90 and $0.99 with a mid point of $0.945 so we'll call it 95 cents.

What makes more sense, buying shares for $2.27 or warrants for $0.95?  If you don't expect the PPS to do much, then shares would be the better option.  But if you read Dr. Kideckel's report for Beacon Securities and believe the 12 month price target of $8.55 is achievable, then the warrants are the better option.  Here's a link to StreetWiseReport's story on that analysis.

https://www.streetwisereports.com/article/2017/12/06/coverage-initiated-on-one-of-the-most-undervalued-biotech-companies-in-canada.html

Resverlogix doesn't even need for its share price to reach that $8.55 target for warrants to outperform shares.  Let's cut that number by more than half, and put it at $4.  

$10,000 invested in RVX shares @ $2.27 per would net 4,405 shares.  At $4 those same shares would be worth $17,620 for a gain of $7,620 or 76%.  Not bad.

$10,000 invested in RVX.WT warrants at 95 cents each would net 10,526 warrants.  At $4 those warrants would be trading "in the money" by $1.95, so they would be trading at least at that price plus a "time value of money" premium.  But to keep things simple we'll simply price them at $1.95 each.  10,526 warrants at $1.95 would net $19,500 for a gain of 95%.  

Who wouldn't want an extra 19% return?  And if Beacon's $8.55 price target is met, then the degree to which warrants outperform shares is even greater.  The shares would be up 277% using a buy at $2.27 as an example.  But the warrants would be up 584% because they'd be trading for at least $6.50, ($8.55 - the $2.05 exercise price).

Options trade just like shares, and just like shares you can either buy or sell them.  If a warrant holder chooses he/she can exercise their purchase option and convert the warrants into shares.  In the case of RVX hitting that $8.55 target price, the owner of 10,000 RVX.WT warrants would contact their broker and pay $20,500 plus fees which would then be forwarded to Resverlogix.  The company in turn would convert the warrants into shares. And those shares would be worth $85,500 at that $8.55 price.

Full disclosure, I own both RVX shares and RVX.WT warrants.  In the case of the warrants I expect I will simply trade them rather than convert if the PPS climbs as I'm expecting.  

For those wishing to do further reading and research, something I wholeheartedly encourage, here's a link to a story from Canada's Globe&Mail, it was first written in March of 2011 and last updated in March of 2017.

Warrants: An investing option that gets no respect

The China Connection - Pay attention to the details (RVX.TO / CREG / ACST)

Regardless of your opinions of U.S. President Donald Trump, his recent trip to China has coincided with some North American companies releasing news with a connection to the world's most populated country and fasted growing economy. 

I'm going to focus on three such companies: 

1. Acasti Pharma which trades on the Nasdaq with the symbol ACST.  
2. China Recycled Energy also on the Nasdaq with the symbol CREG. 
3. Resverlogix trades on Canada's TSX with the symbol RVX and as RVXCF in the U.S.

Acasti Pharma

They put out news on November 20th announcing a non-binding term sheet with a leading China based pharmaceutical company.  That news sparked a huge rally for ACST which previously had been trading around the $1.30 area on very thin volume, often less than 20,000 shares a day. 

After the news hit volumes exploded with over 20 million shares trading hands the day the news came out.  And the PPS exploded higher as well, reaching a peak of $3.36 inter-day.  Things have cooled off considerably since then however and the PPS has fallen all the way back to $1.64 with volumes having dropped to less than 1 million per day,  most recently falling below 200,000 trading.

While the news seems to have sparked a huge wave of excitement, in the days following I consider it probable that investors paid closer attention to the details.  This is a "non-binding" term sheet, which means it might not even come to fruition.  And the "leading" China "based" pharmaceutical company isn't even named.  

I'm always suspicious of the word "leading", because there are all manner of penny stock companies who refer to themselves as being a "leader" despite the fact that they're only able to stay in business by promoting their company and dumping freshly printed shares into the market.

In a nutshell they signed a deal that may not happen with a company that isn't even named.  I suspect that if the unnamed company hadn't been from China that the market probably would have yawned.

China Recycled Energy Corp

This one was absolutely crazy.  Their stock went from down around $1.20 to over $9 in a two day period that saw over 50 million shares trading.  The reason?  News was released on November 9th about China Energy Investment Corp signing an MOU to invest over $80 billion in projects in West Virginia.

In this case I believe investors got confused, and while thinking they were buying shares of China Energy Investment Corp, they instead bought shares in a completely different company with a similar name.  Think of it as one of those look alike doppelgangers who shows up at a Rock Concert and gets mobbed by people mistaking them for the real deal.  

And as probably should be expected CREG has cooled off considerably from that $9 peak and is currently trading around $3.  

Both ACST and CREG spiked big but pulled back. In both cases I believe a perceived connection to China helped spark a feeding frenzy.   But both cooled off, CREG because the news that sparked the interest was about a different company.  And Acasti because  a "maybe" deal with an unnamed company isn't exactly money in the bank.

Resverlogix

Resverlogix however is a different story.  They too announced a deal with a Chinese based pharmaceutical company, but it wasn't a "maybe" deal but rather one that was finalized.  Regulatory approval was given for an $87 million (CDN) investment in this small Calgary Biotech.  And it wasn't with an unnamed company, but with Shenzhen Hepalink, the world's largest producer of Herpain Sodium, a blood thinner.

As with ACST and CREG shares of RVX climbed sharply on the news.  But unlike those other two the gains didn't vanish, in fact the stock kept climbing right into Friday's closing bell.  The $2.20 closing price is the highest RVX's shares have been in the past 6 months.  And comparative volumes were much lighter, instead of 20+ million as seen with ACST and CREG, RVX by contrast didn't even reach 1 million on any single day.

Beacon Securities analyst David Kideckel's buy recommendation and 12 month price target of $8.55 from November 15 was repeated in a story put out by StreetWiseReports.  It highlighted how Dr. Kideckel referred to Resverlogix as one of Canada's most undervalued and impressive Biotechs.

http://www.thelifesciencesreport.com/article/2017/12/06/coverage-initiated-on-one-of-the-most-undervalued-biotech-companies-in-canada.html

Conclusion

The take away is fairly simple here.  Paying attention to the details often pays dividends down the road.  While its easy to get caught up in the excitement of a stock making unbelievable gains, its probably worth while to take the time to do the required research....to make sure the excitement is based on solid facts, and that you're sure of what the facts are.  

Full disclosure, I have no position in Acasti and no intention of opening one, long or short, anytime in the foreseeable future.  I do own some shares of CREG, however I sold off over two thirds of the shares I was holding before the PPS exploded and then pulled back.  

In Resverlogix I have what I consider to be a significant position and I added more share purchase warrants last week.  

Chinese investment driving Resverlogix's rise?

Shares of Resverlogix (RVX.TO and RVXCF) have been on the move, making a nice climb off recent lows.  After closing at $1.30 on October 31st 2017, it seems the Halloween ghosts and goblins scared the bears away and as of this writing shares are trading over $1.50 for a gain of more than 15% in just the past month.

What's behind it?

Investment from China may be driving some of the interest.  Shenzhen Hepalink is investing $87 million CDN into the company, which takes them to a 43% stake of this Calgary Biotech engaged in the exciting field of Epigenetics.and BET Inhibition.

Resverlogix's lead compound is Apabetalone, and it is currently in a Phase III clinical trial called BETonMACE which is aimed at proving that Apabetalone in combination with Statins will reduce the time to Major Adverse Cardiac Events versus treatment with Statins alone for treatment of patients with Diabetes Mellitus.

$87 million might sound like a lot, even in Canadian funds, but for the founders of Shenzhen Hepalink it probably isn't a huge sum.  Not after that company went public back in 2010, which made Li Li and Li Tan the richest couple in China at the time.  

http://www.chinabiotoday.com/articles/20100505_1

Shenzhen Hepalink is reported to be the world's largest producer of Heparin, a blood thinner.  

And Shenzhen Hepalink isn't the only big player with a stake in Resverlogix.  Eastern Capital, the investment arm of billionaire Kenneth Dart is also a major holder, along with NGN Capital and the company's CEO Donald McCaffrey.  

In Canada Resverlogix trades on the TSX with the symbol RVX.  In the United States shares trade OTC with the symbol RVXCF.  There may be a lot more upside for RVX yet.  In a recent report analyst David Kideckel of Beacon Securities set a 12 month target price of $8.55 CDN. 

Coverage Initiated on 'One of the Most Undervalued Biotech Companies in Canada

Disclosure, I am a shareholder so view my opinions in that light and verify all information.  Please read the disclaiming statement at the very bottom of this blog site.