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.  

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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. 
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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.

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Friday, February 16, 2018

Investors shouldn't fear higher interest rates

Back on Febuary 6th a subscriber to this blog sent me an email that included the following question:

"Can you do an article on what happens when interest rates rise and investors pull out for more favorable returns through bonds and if we should hold or sell and buy at a lower price"?

The inference is that with interest rates climbing, that means that fixed income type instruments and other vehicles such as bonds, that they'll be more attractive and could lead to people taking money out of the market.  

My opinion?  I'm not worried about interest rates climbing, in fact I consider it to be extremely bullish for stocks.  This is something I've written about before, and its one of the reasons why I think retail investor so often lose out when playing the market.  

Central banks use interest rate policy in an effort to influence the broader economy.  When interest rates drop retail investors will often get excited, thinking that it bodes well for the future because the cost of money is dropping.  Likewise when rates climb some retail players get scared, fearful that higher rates will lead to money leaving equity markets.  

But investors need to understand that when interest rates climb, it means that central banks are bullish about the overall economy.  Conversely when they drop rates, it means that the broader indicators are showing weakness.  The take away is that when you see interest rates climbing higher, in my opinion its a signal to be bullish on stocks, and when rates drop...that's the time to be fearful.

I'll toss in another couple of thoughts on broader market issues. The question from the subscriber suggests that bonds will be offering more favourable returns as rates climb.  Not true, not in the broader bond market.  Understand that with bond yields, the return is inverse to interest rates.  As rates climb bond yields drop, and as rates drop bond yields increase.

Huh?  When interest rates climb bond yields go down???  Yeppers.

Bonds trade like stocks, and there are two things in play.  The interest rate they pay and the coupon value.  Say you hold a $5,000 government bond paying 1.5%. and interest rates go to 3%.  Who's going to want to buy your $5,000 bond paying 1.5% when the ones being issued now pay 3%.  The coupon value (what your bond trades at) is going to drop, resulting in a lower yield.  

The flip side is when interest rates drop.  You're holding that $5,000 bond paying 3% and then rates drop to 1.5%....now the coupon value of your bond increases because its paying twice the interest as the bonds being issued currently.

I have money in ETFs and Mutual Funds, but its been over a year since I reduced my bond exposure to 0.  I'll look to move back into bonds when the central banks start signalling that cuts to the overnight lending rate are coming.

Okay....and my last thought, its about the volatility the market has been displaying of late.  My opinion, Fughettaboutit.  The reasons?  The changes to the US tax codes that take affect this year.

Right now we're in earnings season, but the numbers being reported aren't for 2018, they're for the 4th quarter and year end of 2017, before the tax changes came into effect.  I expect we'll be seeing companies taking whatever charges and write downs they can to reflect lower earnings than what might have been foretasted and for the capital markets to continue with the volatility we've been seeing of late.

Why?  Its that old buy low sell high bromide.  To buy low you need others willing to sell low, and nothing makes people more nervous than seeing the value of their holdings drop by 10% or more.  But if some people are scared and selling, there have to be others willing to buy.  

Come June when results from the first quarter come out I expect we'll see improved results, with the benefits of lower corporate taxes starting to show up on the books of profitable companies.  Do note that I'm expressing a broader market opinion here, and its with respect to profitable companies....I'm not commenting on money losing speculative companies.  Companies that are simply adding to their accumulated deficits won't see any benefit to lower taxes on corporate profits, because they don't have profits.

That's it for now.....happy trading, be careful out there and remember, nobody ever goes broke taking profits.  




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Friday, February 2, 2018

Vuzix - The reason for my fixation on this money losing and constantly diluting company

A question I'm frequently asked on social media sites like Stock Twits where I post with the user name growacet, is why I'm so fixated on a company like Vuzix when I have such a negative opinion.

Its a fair question certainly, and one I will attempt to explain.

Firstly let me deal with the subject line wherein I describe Vuzix as a company that is losing money and constantly diluting.  Is that factual?  There can be no question that Vuzix is a money losing company, all you have to do is read their filings.  Their last released 10Q quarterly report came out on the 9th of November 2017 covering third quarter results up to Sept 30th 2017.  Here's the link:


Just The Facts
All you have to do is a Ctrl F search for the "loss attributable to common stock holders" and you'll see that for the three months ending Sept 30th 2017 the company reported losses of over $5.9 million.  For the 9 months ending September 30th the losses come in at over $15 million.  

So depicting Vuzix as a money losing company is certainly accurate.  But what about constantly diluting?  

That will depend on one's definition of "constantly".  Obviously Vuzix isn't printing shares every single day of the week.  You might have a friend who is "constantly borrowing money" from you.  For some that might mean getting hit up every week, for others being asked 3 or 4 times a year for cash to "tide me over" would qualify as constant.  

So how often is Vuzix hitting up investors to raise much needed cash?

Dilution Dilution Dilution
-On August 9th 2017 the company announced raising a little over $8.6 million less fees and commissions by issuing 1,500,000 shares.  

-Then on December 14th 2017 they raised another $12.5 million, again less fees and commissions, by issuing another 2,066,116 shares.  That raise included issuing 1,033,058 warrants priced at $7 per share which can be converted 6 month after being issued.  This is significant because if Vuzix can manage to keep its share price above $7 into the summer then those warrants would be "in the money" which could result in further dilution.  Of course if VUZI falls back below $7, then they're basically worthless.

-The most recent raise was announced Jan 24th of 2018.  This one was for $30 million, and again that's less fees and commissions, by issuing 3,000,000 shares.  They also issued 1.2 million warrants with an exercise price of $10, but given the drop in the PPS those warrants are obviously well out of the money.  

So in less than 6 months Vuzix did three raises, issuing 6,566,116 shares raising a little over $51,000,000 less fees and commissions.  I don't know if everyone would qualify that as "constantly diluting", but its close enough in my books.  Especially considering there are warrants still outstanding.  

Then of course there's Intel's position, back in November of 2016 they ended their headset partnership and disclosed that they were looking for alternatives for their investment in the company.  If they liquidate you can add another 5,000,000 shares to the pile on conversion.  If that happens there won't be a cash infusion coming, Intel's $25 million from 2013 must be long gone or the company would not have needed to keep printing more and more shares.  After all, the accumulated deficit up to Sept 30th 2017 was already over $90.5 million.

Alright, I hear what you're saying.  I still haven't explained my fixation on this company.  All I've done is present some simple factual data which anyone with the time and inclination can research and verify.  

And that's what it comes down to.  Simple facts.  I love the capital markets the same way some people love politics.  When it comes to political arguments you see people fixated on an issue or a personality all the time.  Maybe never more so than with the battle between supporters of Hillary Clinton and Donald Trump in the most recent U.S. presidential election.

Why do people get fixated on Donald and Hillary?  I put it down to ego engagement, they want to express their opinion.  And personally I don't have an issue with someone supporting Clinton or Trump, but I do get my shorts in a bit of a knot when people misrepresent simple facts.  

Imagine a Hillary supporter saying:  "The fact is Hillary Clinton has never reversed herself on any position and has never accepted money from big business interests".  The Trump supporter's head would probably explode, mine too.  Or if a Donald fan said:  "The fact is Donald Trump holds women in the highest regard and has never used sexist language to describe any woman". You'd have to be living under a rock to not know how out to lunch that statement is. 

Support Clinton or Trump, I don't care because I thought (and still think) that they both suck. But for God's sake don't distort or simply ignore basic facts just to get people to agree with your point of view. 

The same thing holds true with a company like Vuzix, don't distort or ignore factual reality just to get people to risk money on the stock. That's what I see every day on stock forums and social media sites like Stock Twits.  

Of late I've been crossing swords with a user who posts with the name cthompson.  This individual loves to post about things like a "buyout" like there's an actual deal on the table, instead of just a mindless pump pulled out of his nether regions. Others tout Vuzix as having "solid fundamentals".  How you can describe a company that does three cash raises totalling over $50 million in roughly 6 month as being fundamentally solid is beyond my comprehension.

So put it down to ego engagement, that's why I fixate on a company like Vuzix.  My opinion is that this company is using promotional IR firms to get investors excited about a business that ultimately is not viable.  And when the PPS climbs big, there are individuals who think that a rising PPS confirms that the company's prospects must be good.

What does viable mean?  For me it means a business that is able to generate sufficient revenues to cover expenses with profits left over, if not now at least sometime in the next few years.  Others may view viable as meaning having an idea or a product capable of exciting investors enough for them to finance huge losses year after year, by this definition Vuzix is very viable in my opinion.

Dislcosure
Its always nice to have some skin in the game of course.  Shorting though is an incredibly risky proposition.  

Some people caught onto the fact that Nortel was a disaster waiting to happen when it was trading under $100 per share.  Another example would be Cynk Communications when that company was trading for $5 or even $10 per share.  Followers of the tech space know neither of those two stories ended well for those who bought and held on until the bitter end.  

But those who decided to sell short, even though their opinions were ultimately right....if they shorted Nortel when it first climbed to $80 or CYNK when it first went to $5 or even $10, they faced huge losses.  

Rather than going short by borrowing and then dumping shares back into the market, and exposing myself to potentially big losses as happened to Nortel and CYNK bears when those stocks got pumped to high heaven, instead I own put options.  With futures contracts like puts the risks are far less, and there's an absolute floor in terms of the potential for losses.  Short sellers on the other hand, theoretically at least the potential for losses is limitless.

I know that, even if I'm ultimately right in my opinion that Vuzix will never realize significant enough revenue to be earnings positive, that doesn't mean the stock still can't get pumped sky high.  All it would take is for a media personality with a big following to tout an investment in Vuzix as rock solid.  

I remember back in 2005 and 2006 when some sharp minds saw what was coming to the US housing market.  Still there were media "experts" out there telling people that buying a house was the best investment they could make, and as housing prices continued to climb the naysayers were trashed.

So go ahead Vuzix pumpers, trash me all you like.....but in the end I don't see this ending well.  With stocks its a zero sum game, some people will end up with shares, others will end up with money.  

Good luck, here's hoping my readers put cash in the bank.


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Friday, January 26, 2018

Vuzix - Shareholders should be thrilled (VUZI)

On Wednesday January 24th 2018 Vuzix announced a share offering that raised $30 million for the company after the market had closed.  If you missed it here is a link to the news:


Buyers had pushed shares of VUZI markedly higher before the news came out, paying as much as $11.40 per before the PPS settled at $10.80 at the closing bell on Wednesday.  One day later the PPS traded as low as $9.45 before recovering a bit to close at $9.75 for a one day drop of almost 10%.

The perplexing question is obvious....Why?  Why did the stock sell off causing the drop?  I can only assume that a significant number of shareholders were unhappy with the dilution.  

That suggests to me that a lot of investors failed to do adequate research before buying their shares.  In my opinion those who've done their research and due diligence before investing in Vuzix were not surprised by the dilution.  In fact they should have expected it.

Obviously researching a potential long term investment involves a lot more than simply reading over recent press releases.  Due Diligence isn't just scanning a company profile put out by some IR outfit that's being paid to promote a company. 

A bullish sounding PR may bring a company to an investor's attention.  A sharp looking video presentation might spur some interest.  Experienced investors know that PRs often talk up the potential for the future, but forward looking statements are not material representations of fact and cannot be relied upon.  Companies hired to attract investors will punctuate the positives, while either glossing over or completely ignoring any of the negatives.

Real research for me involves looking at a company's SEC filings, perhaps even researching the business background of key executives like the CEO.  Knowledge of the industry or space is obviously helpful.  If a brewing company is planning a big expansion into some place like Saudi Arabia, it might help to know that the Saudi kingdom has a ban on alcohol.

One quick note before I continue.  

I am writing this blog posting from the perspective of an investor who is looking for long term success in a company.  I'm not approaching this from the point of view of traders simply looking to scalp shares at a profit.  For those who play momentum, or who like to swing back and forth between long and short positions....you should probably stop reading right now.

Frankly in depth research is likely a waste of time for those simply looking to buy the dips and sell the rips.

Those looking at Vuzix as a buy and hold long term investment should already be aware of the fundamental realities.  The last 10Q came out November 9th just passed and reported the results of the 3rd quarter up to September 30th 2017.  Here's the link:  


Simple factual data from that filing is there for anyone who takes the time to look.

  • Shares totalled 22,203,911 as of Sept 30/17 up from the 20,674,742 issued as of June 30/17
  • Up to Sept 30/17 the accumulated deficit was $90,592,988
  • Loss attributable to common stockholders came in at ($5,937,563) for the quarter
  • Cash and cash equivalents totalled $8,677,341 as of Sept 30/17

Basically this paints a pretty clear picture for me.  Vuzix is a cash poor company with insufficient revenues to cover operating expenses.   This isn't a Google or Apple with billions of dollars on the balance sheet to spend on product development.  

Those who've done their homework on Vuzix already know that as of May 15th 2013, in the first 10Q after a 1:75 share consolidation, the company reported only 3,536,586 shares outstanding.  So its clear how the company funds operations, by share offerings.  

From Sept 30th 2017 to present I haven't seen any news about actual sales.  Yes there's been lots of reports about hopes of building relationships and about deals that "may" happen.  But anything that "may" happen...its reasonable to think they also "may not".  

Given that the company burned through almost $6 million in the three months leading up to Sept 30th, I think its reasonable to assume they've burned through at least that much in the 3+ months since Sept 30th, and probably more.  That would have meant that without further dilution the cash available would have been getting very low.  

Now they've raised $30 million with this most recent offering, on top of the $12.5 million they just raised in December 2017.  I don't have a PHD in advanced mathematics, but I make that to be a total of $42.5 million raised in a little over 1 month.  

That is pretty impressive in my books.  Even if they start losing $10 million every 3 months going forward they now have enough money raised to last another 12 months.  Shareholders with a long term view who are willing to take on the obvious risks should not have been surprised.   


Disclosure
I own put contracts, which is a way of playing the short side.  Obviously that means my overall opinion is bearish.  With that being said with all the money they've been able to raise Vuzix is going to be around for a while yet, and if they actually do start realizing signficant sales they could even become profitable. 

If they don't?  Eventually I expect the pool of investors willing to risk money on forward looking promise to shrink.  


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Wednesday, January 24, 2018

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.


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.


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.  


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.  


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. 
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