Looking through Vuzix (VUZI) eyewear, we see a future clouded by an SEC inquiry, paid promotions, more stock-diluting raises and more investor money thrown down the drain.
Based in West Henrietta, New York, the smart eyewear company targets the consumer, enterprise and entertainment fields.
Executive bullet points for Vuzix include:
1. Company is a glorified stock promotion.
2. Operates a minimal, declining business.
3. Under SEC inquiry.
4. Has nothing to do with Pokémon.
5. Vuzix is a habitual stock seller and we believe another stock-diluting raise is imminent.
Other viewpoints are here. Meanwhile, here are details on the top five reasons that TheStreetSweeper wants to toss out Vuzix and its goofy, not-that-smart eyewear:
*1. May 24: SEC Launches Vuzix Inquiry
On May 24, the Securities and Exchange Commission notified Vuzix that the company is under inquiry.
"On May 24, 2016, we received a letter from the SEC, dated May 19, 2016, notifying the Company that the SEC is conducting an informal inquiry relating to the Company, and requesting that the Company produce certain documents relating to the Company’s internal control over financial reporting. If, in connection with this informal inquiry, the SEC determines to take action against the Company, the Company’s financial position could be adversely affected."
On July 6, Vuzix finally mentioned the SEC inquiry. Instead of immediately disclosing this crucial matter in an 8-K, the company waited six weeks to disclose this crucial news near the bottom of its prospectus.
Why? First, let's look at recent events and then we'll put it all together ... Read on ....
*2. Promotion: After The SEC Notification
On June 9 - with the SEC letter in Vuzix' hands but not yet disclosed in filings - professional promoters pushed a video news release promoting a so-called collaborative agreement between Vuzix and an undisclosed party.
The CEOLive host quickly mentions that no licensing agreements or technology transfers have happened; but the parties have agreed to work toward a prototype; and that this "big" announcement is really just a follow-on effort - for a tiny company targeting a market crowded by well-resourced companies like Apple (AAPL,$53 billion net income); Google (Alphabet, GOOG, $78 billion revenue) and Nokia (NOK, $13 billion revenue).
So this June promo appears to be an oddly timed regurgitation of an old, small, tenuous deal. Regardless, the information helped fuel the stock rally.
*3. Investors Remain In The Dark
Incredibly, that June 9 promotion hit about two weeks after Vuzix got the SEC inquiry letter. At the time of the promotion, apparently only Vuzix managers knew about the SEC's inquiry.
But investors were in the dark.
Likewise, many investors may not have realized that the company had been struggling and stumbling along since before it ever began selling smart glasses in late 2013. Losses altogether had flown to more than $61 million. Losses last quarter alone hit $3.8 million.
The company also reported dismal losses and gross margins for 2015 versus 2014:
(Source: Company SEC filing)
And Vuzix sales -which were already paltry - have continued to deteriorate:
(Source: Company SEC filing)
Vuzix had about $8.2 million cash at the end of March. It has been blowing through $3.2 million quarterly. So at that rate - and with paltry sales - the company would have been able to operate just past the end of September.
But that promotion did nothing to indicate the company was even close to being on the ropes .... or under SEC inquiry.
*4. Well-Timed: Dilutive Stock Sale, More Needed
So the following month, on July 6, the market was generally naive about Vuzix' true condition. That's when diligent investors first read about the SEC inquiry and also learned the company would have to raise money by selling 1 million shares at $5.75 apiece.
This sale - which company filings say caused "immediate and substantial dilution" of stock held by existing stockholders - offered a temporarily life-sustaining $6 million cash infusion.
But that cash will help for just a while...Maybe a couple more quarters. Then Vuzix will once again be scrambling for money.
Meanwhile, those promotional efforts just kept on going....
*5. The Beat Goes On: Consistent Promotions
On July 11 - The day Vuzix closes its dilutive offering ... a company called S.A. Advisory emails Vuzix hype to subscribers. S.A. Advisory tells TheStreetSweeper that it is not a paid promoter and its Vuzix piece offered no quarantees about the stock.
On July 11 - Seeking Alpha contributor - a bull who has written 13 Vuzix articles - posts another piece trumpeting Vuzix. The contributor also frequently praises Vuzix on Twitter.
On July 14 - Promoter CEOLive posts another Vuzix video news release on YouTube.
The promoter disclosure states: CEOLIVE.TV offers digital investor relations and public relations services to paying clients and some of those clients host IR-Channels and forums on CEOLIVE.TV...CEOLIVE may accept direct compensation from some of the companies which it features. Additionally, CEOLIVE may accept compensation from third party consultants or shareholders on behalf of featured companies... This should be viewed as a conflict of interest by shareholders or prospective shareholders of featured companies.
Desperate companies often refer to their promoters as "investor relations services." Vuzix reports it issued 7,500 shares of common stock for investor relations services last quarter. Ditto for the previous quarter.
On July 15 - The company issues a press release regarding its waveguide effort and AR or augmented reality. The release promotes a company YouTube video featuring the company's marketing director next to a Pokémon Go character - - -- Though Vuzix has absolutely nothing to do with the story (Vuzix' few sales are industrial not entertainment), this promotional press release also mentions a recent New York Times story on the game craze PokémonGo.
On July 20 - Promoter CEOLive releases another promotional video featuring Vuzix CEO Paul Travers.
Part of the question and answer segment revolves around the July 15 Pokémon promotion. But Mr. Travers says the company video featuring a Pokémon character simply uses a phone with a flat lens, rather than a Vuzix product. The stock spikes again.
But Vuzix has nothing to do with Pokémon.
On July 27 - Vuzix issues a press release saying it's co-sponsoring a drone race in August. So five guys are racing their drones - not exactly the Indy 500, is it? This is just more desperate self-promotion.
Our chart below indicates how the stock price has risen and fallen on recent Vuzix events and promotional efforts.
Generally, within days or less, promotions spurred the stock ... And the bad news of the SEC inquiry and dilutive stock offering apparently got missed or minimized.
(Sources: Yahoo Finance, TheStreetSweeper)
It's mystifying that Vuzix and fans are brazen enough to continue to conduct blatant stock promotions - and issue a dilutive stock offering - while the SEC probes the company's internal financial control.
The whole situation is insulting to shareholders. They don't realize what they're buying into.
After 19 years of existence, Vuzix is blowing through cash, wallowing in forlorn fundamentals, reporting lower sales, expecting $-0.82 earnings next year and continues to be heavily promoted.
TheStreetSweeper has seen tales like this roll out a million times. People finally get sick and tired of these "good story" stock promotions that happily fund the business with repeated dilutive stock offerings and ultimately end up down and out, dragging unwary shareholders along with them.
Enough! Investors should be ready to stomp Vuzix eyewear to smithereens ... and crush this stock by a minimum of 50%.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in VUZI and stand to profit on any future declines in the stock price.
* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected].