Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Please may I interrupt the misunderstandings among some fine people to offer some thoughts on the stock - really it's more posing questions just to see how the various camps of thought might respond as they assert their bullish or bearish opinions. The preview/summary is that I believe that there are four elements holding back the stock price for now - investor relations, stock-price volatility, the wait for the second quarter reporting, and the number of years it will take for vaping to be proven safe via longitudinal studies.
I believe that one reason that the stock is not currently trading at a higher price is that the company has made three errors in relating with stockholders. The first error took place last spring when the company did not publicly condemn whoever was responsible for the pump and dump campaign of that time (that's when I was getting the daily e-mails from Investor Edge which in the end led Kiplinger Magazine and Seeking Alpha to comment upon the pump and dump scheming). I have some belief that VHUB itself was not the originator of the scheme, as you've got Kyle Winther for one holding 12.5 million shares that were not going to be sold during the pumping and would be worth less after the dumping.
The second error took place when the most recent loan, the 47 week very high annual percentage rate loan, was transacted. The company might have explained at the time why a further loan was required after the Tympenex commitment. I think the most recent loan actually might have been needed for the "cheerful" reason that sales were booming in the quarter and there were increased working capital needs related to increasing inventory and receivables. Profits often take time to translate into cash.
And the third error of course has to do with the sudden increase in authorized shares, which we all realize does not mean that dilution has taken place or that it soon will. The company might have explained to shareholders what portion of the increase in authorized shares involves SEC requirements related to the Tympenex transaction and what portion involves how many years of having incentive plans in place.
I'd believe that a second reason that the stock is not (yet) trading higher is the sheer volatility of the stock performance. If two investments have the same potential reward, but one requires assuming more risk than the other, then investors will tend to shy away from the riskier investment. One part of the risk in VHUB is that the spread between bid and ask is often so great that one can enter the stock at one moment and find himself with a 20% or greater paper loss (using the bid price for valuation) at the next moment. Another manifestation of risk is that the price multiplied after the most severe tax loss selling by nearly nine times (from .006 to an intra-day high of .0525) then dropped by about 60% to .02, not to mention the overall drop from an all-time intra-day high of 2.01 to .006 just around a couple of months ago. One other element of volatility (credit here to Cerp for documenting the point) is the extent of short selling, which of course would lead to magnifying the gains in share price when good news might appear.
The third reason that the stock is trading at current levels rather than higher is that some folks were not willing to risk a poor earnings report, and so they sold, while other folks prefer to wait to invest until the earnings for the quarter have reached the street. I'll venture my own opinion here - perhaps of equal importance to the income statement for the six months fiscal period will be the balance sheet as of December 31. If the (highly likely to be) improved earnings are translating to the enhancement of prospects to prepay loans in cash instead of stock, then the inherent risk of holding the stock has been reduced, which would make the stock price increase.
Finally, I believe that the fourth reason that the stock isn't trading higher (yet) is that there cannot yet be longitudinal studies (vaping hasn't been around long enough) to prove the safety versus traditional cigarettes to either traditional smokers or to second-hand inhalers. The early indications as regards traditional smokers have been very positive, while there aren't enough studies out there yet as regards second-hand effects (I've seen only one, from England recently).
Again, none of anything herein is intended to bash any person or any opinion. This company is a leader in an emerging product-market, and the question each potential investor asks is how much clarity do I need regarding the factors raised above before I invest (coupled with realizing that when there is clarity and the items resolved turn out to be favorable, it might be too late to get into the stock cheaply). Overall, I think no one is a fool for being a bull, and no one is a fool for being a bear; one risks becoming a fool only when not believing it worth the effort to understand the position contrary to one's own.
Thank you, Cerp, I appreciate the amplification and correction. So my 16 million share number would need to be ten times that, or 160 million shares, and you would believe that caution would dictate that the company would further increase the authorized shares to avoid needing to go back for another round of this (not to mention the need for shares to handle earned incentives, as you have pointed out). Again, thanks!
Dear Posters, I thought that it might shed some light on the debate now going on here if we were to read the Tympenex covenants, the link to which is below:
http://www.sec.gov/Archives/edgar/data/1515718/000151116414000630/form8k110414debtfinancingv3.htm
I'm not so good at this anymore in my old age, but it does appear to me that the Tympenex conversion price is set at ten cents and that the principal of the loan is $1.6 million. If I have done the math correctly, 16 million shares at ten cents each multiplies out to 1.6 million dollars. Therefore, sixteen million shares would need to be available in the authorized but unissued stock to take care of this need. Yet, before the Board increased the Authorized Shares, there were already far more than enough unauthorized shares available to handle the covenanted requirements of the loan (I'm working from memory here, but hasn't the company authorized something like 140 million shares yet issued so far only 68 million shares?).
The other purpose of increasing the Authorized Shares was to allow for an executive incentive bonus system. If I remember back to the September 10K filing, Kyle was being paid only $48,000 per year. So I can certainly see the wisdom of an incentive bonus program, though again I'm at a loss to figure out why the company foresaw the need to add almost 900 million authorized shares.
Nothing in this post should be taken as bashing the company or bashing any poster on this board (I have enormous respect for unemotional holders during this tempestuous time, just as I similarly respect the logic of the bears). I just thought that adding what I believe to be facts - and if I'm wrong, I apologize and deserve the rebuke I will receive - might help wiser people than I to add to the value of what they're placing on this board.
Personally, I think the company has substantial explaining to do, but I think that they might be able to do that explaining in the end. Time will tell, and the upcoming earnings release will bring a lot to the table, though management will need to opine whether this industry has a "holiday selling season" such that this particular quarter might not be a valid guide to what will follow in the final two fiscal quarters of their June 30 year.
Thank you, Sir, for going to the source on this. I hope that the explanation will be in the bulls' best interests (and also that the release will come as early in the day as possible).
My beliefs and guesses for whatever they're worth:
1. It would have been better Investor Relations tactics with shareholders to issue a press release BEFORE the Board vote and BEFORE the SEC filing indicating that the actions contemplated by the SEC filing were about to be voted on by the Board and were being proposed for whatever reasons that these actions are actually being taken.
2. I believe that the "sleeper" in the change in authorized shares is to authorize preferred stock (this may be at least as significant and possibly more significant in the increase in authorized common shares). Preferred stock is a way to offer a sweetener when taking on debt, working much the same way that conversion privilege into common stock often works, which is to reduce the interest rate demanded by the lender.
3. I would not believe that a forward split would lead to an increase in the value of one's holdings when the price per share is already in the single digits. Just a belief here that no one would feel better about holding a million shares valued at two cents per share than holding 500,000 shares valued at four cents each. I may be wrong as I'm nothing near an expert in any segment of the market, but especially this segment.
4. Overall, I believe that what this is mostly about is creating the ability to turn some of the current debt into equity, thus making the company less leveraged. "Less leveraged" is the positive other side of the coin from "dilution." What this means to me is that the company now has a much better chance than ever of surviving, and this would sooner or later increase the price/earnings multiple applied to its stock price(as risk has been reduced). In return for having a better chance to do well in the long term, what is sacrificed is some volatility in earnings (and stock price). So the upside is sacrificed somewhat in return for improving the chances that the company will be around for the long run.
If this is too wordy or redundant or unfortunately d(and without intention!) has come across as disrespectful to anyone else's beliefs, I ask your forgiveness. I'm only trying to do what all of you are doing now, which is trying to fill in the blanks that now exist in the absence of an explanatory press release,
Malvern, thanks for your kind words. Indeed I was trying to be "humble and respectful," but my own first rule of communication is that when the message is misunderstood, it's most often the fault of the writer, not the reader. So I'll take the hit here, and hopefully the post that I completed a couple of minutes ago will be clearer to Hostastock.
VHUB really is a fascinating and complex company, which makes for some great conversation. It also leads to passionate points of view, but somewhere we've all read that probably the biggest risk in investing is falling in love with a stock. The bulls here who can recite the list of risks for the industry as a whole and this company in particular have the best chance of converting the agnostics to believers.
It's been fascinating to see the responses to my post #2410. So let me take care of business here before calling it a night. First, I think it's a privilege, not a right, to post here, and the only way to exercise that privilege is to be courteous to all, whether in agreement or disagreement. And so, Hostastock, that notorious first sentence of my last paragraph is one I'd ask you to read again, or let me translate it right here and now:
I don't know you (which is my loss), and I had no idea how much background you have - at least I didn't until you told me in your response. I didn't want to be unfair to you in either direction, either by presuming too much or too little background on your part. ...and I don't claim to be "that intelligent"; if I had been more intelligent, perhaps I would have accomplished more in my career, and perhaps I might not have restricted myself to the non-profit sector.
Regarding my speculating on the future of the company, I would have imagined that the bulls would be welcoming additions to their list of how investment in VHUB might pay off. I believe that the greatest skill in the company right now is in product development, and that it is at least somewhat likely that an established company would buy the company just to get hold of that skill. I appreciate the response that Big Tobacco might not be the acquiring company due to different profiles, yet some of the large traditional tobacco companies do have a toe-hold into e-cigs (don't ask me to go research which ones, as I've forgotten what I've read awhile ago).
Regarding starting a business being different from buying a house as regards the debt/equity topic, I'll grant you that I cannot at this moment come up with a more fitting example. I'll sleep on it.
Finally, back to reviewing Cerp's response to my earlier post of the day, I appreciate the case you are making for the stock currently being undervalued. ...and I certainly appreciate the reality that the float is so low, even before reckoning into the calculation how much stock is being held by the long-term holders who post on this discussion board. So even a little good news will go a long way as regards boosting the stock. I'm only saying that it will be really helpful to see the balance sheet as well as the income statement on or around February 15. For all I know, the projected cash flow is going to look like it could really make a dent in all that debt. The question I would pose to you is why, other than pure ignorance, do you think there are sellers at current prices.
Again, thanks to all for letting me play in your pond. I'm learning a lot here, beginning with that a stock which has been pumped and dumped may be a gem after the dumping - especially when there is lots of reason to believe that the company itself was not the perpetrator (why would the CEO want to have the value of his millions of shares decline - he wasn't selling, and to me he seems to be a victim of the scheme). Good night, everyone.
Hostastock, thanks for asking. What I'm saying is that if anyone goes into business, s/he first invests his/her own money and then "leverages" that money through borrowing (debt). ...sort of like buying one's home: you put up 20% and in consideration that you have "skin in the game," the lender is willing to put in four dollars for every one dollar you put in.
VHUB is an interesting situation in that the last balance sheet I saw shows no stockholders' equity after absorbing initial losses, which means that the company is being financed basically completely via debt.
Now don't take that as a slam against the company, because it happens that some of that debt is owed to the founders, and more of the remaining debt is being secured by the personal assets of the founders. So indeed the Winther family does have "skin in the game." They're not going to default on company debt, if they possibly can avoid default, because the lenders can go after them.
Since this vaping industry is such a new industry, I wouldn't have available what a "normal" debt to equity ratio might be, but I do know that being so tilted in the direction of debt does raise a few eyebrows and a few questions. But again, those questions can be readily answered if truly sales and the actual collections from those sales are growing so fast that the company would be able to not only pay the operating expenses but also slice down the pile of debt pretty quickly. That's precisely what you as a bull on the stock are betting on.
I hope that I haven't written too technically for you on the one hand, and I hope that I haven't talked down to you on the other hand. ...and I'm sure that there are a bunch of other posters on this board who might have explained this better than I have. I wish you well!
Cerp, you make the case for the bulls very well. If I read between the lines of your comment, the big tobacco companies will themselves evolve into vaping as their primary source of revenues in coming decades. They can either create their own products in their labs, or they can buy "on the cheap" existing specialized talent in vaping product development.
Accordingly, the "end game" for VHUB would be to sell out to big tobacco, and this would help explain why VHUB has been so emphatic on having a capital structure that is so much more debt-centric than equity-centric. There will be more scientific studies done regarding safety in regard to both the consumer and the second-hand smoker, and we'll all see how that plays itself out.
It really is a fascinating question, Nebula, whether this company which has been so laser-focused on not diluting its stock can grow its sales so quickly that it can pare down its debt via "bootstrapping." ...or whether all that debt will prove to be just too much to service in the end.
And on the technical side of the ledger, it is similarly fascinating whether the old wisdom of buying on the rumor and selling on the news will play out here. It's very possible that the stock will experience a large run-up in the coming week, as it appears that the expectations are that the holiday selling season was very strong.
There is one aspect of the company that I believe to be very strong, and that would be that it picked a solid company to handle its public relations / press releases. The material has been easy to read and portrays the company in its best light.
I obviously don't know how all this will play out (remembering that I got interested in what would happen to the company and its stock after I had received numerous pumping e-mails last spring - and now I do believe that the company itself was not responsible), and I am impugning no one's motives or integrity. In the end, "time wounds all heels," and it's not for me to judge anyone's motives and actions other than my own.
I am certain that VHUB and its investors will not have a boring February, one way or the other. ...and I actually do hope that the product itself will be confirmed repeatedly over the course of time as being a highly desirable alternative to traditional smoking from the vantage point of safety; that will be the ultimate cornerstone of fundamental analysis!
Nebula, I've just got to commend you on your post! I can understand why some good folks are cheerleading, I can even understand the case for skepticism which I've expressed previously (issues of working capital challenges, prior endeavors - I now believe that the company itself had nothing to do with it - in the realm of pumping and dumping, the whole question of regulations upcoming, depth of management especially in the financial realm, etc.), and I almost imagine I can understand the chief basher becoming a major cheerleader in twelve hours.
But this discussion board probably can help the greatest number of people if those of us who visit here calmly present our beliefs and questions about the company and its stock, so that others may respond with what they think the answers might be. Personally, I'm fascinated by the depth of technical expertise by the patrons of this board - and yet so much depends upon the fundamental element of the upcoming earnings release.
Again thanks for bringing light instead of heat!
BigAl, thanks, I was only giving an example of what can be a step-variable cost, not asserting that the example I offered regarding sales clerks is occurring in this particular case. I do believe that VHUB is primarily web-based, though it does have one or two actual shops. Both the challenge and the opportunity for this company involve the concept of scalability - can they take what works at small levels of volume and make them work even better at much larger volume.
...and that's what the longer-terms bulls and bears are haggling over. In contrast, the short-term bulls are looking more at recent stock performance and the concept of momentum, and the short-term bears are believing that the "structural challenges" of this company - such as the emphasis of debt financing over equity financing - will bite the company on its Tochas sooner.
BigAl, thanks again for openness and civility. I have no idea what VHUB's filing schedule will be for quarterly reporting (whether informal or SEC-driven), though others on this board have used February 15 as a benchmark kind of date.
As regards how expenses would track against income, my belief - and I think Hosta may have just written much the same thing, though my phrasing will be more complex than his - is that there is a class of costs which is neither purely fixed nor purely variable. These "step-variable costs" kick in, for instance, when the company can't just pile more overtime on sales clerks, so they need to hire more of them, and then they need to hire more supervisors over those clerks. Within the next "relevant range" of sales activity, these costs will again remain fixed. Often these step-variable costs are classified as "growing pains."
There is one more concern I'd have in regard to this company, tracking back to last spring's pump and dump activity. I would wonder whether there might be some "shareholder derivative" suits being floated. I think the most common case is that there's no money or stock of any value left to pay any successful plaintiff, but if indeed VHUB does otherwise prosper, I wonder if this sort of litigation will emerge sooner or later.
Again, this is all within the context that all this discussion about the company and its stock is drawing more interest in both, and the "momentum investor community" will see how the stock has performed from December 31 on and believe that trends continue until something happens to stop them.
Thank you, BigAl, for the kind words. May I offer one technical amendment to your remarks? The company is on a June 30 fiscal year, so that the December 31 quarter will be their second quarter, not their fourth/last of the fiscal year. This is of some importance to you as you would make your case for the bears.
If you were to believe that the December quarter's potentially high sales represent the spike of a holiday shopping spree time and are not replicable in the final six months of the fiscal year, then you would say that the "best times" of the company for the 2014/2015 fiscal year are behind it, and that the two coming quarters will necessarily lag behind the December fiscal quarter.
But it is not for me to put words into your mouth, especially as you have been kind to me in regard to my words. Have a great week for yourself!
No disagreement from me, Cerp - Truly the bulls on this stock are "betting on potential," and they believe that it's a sound bet to make. As with all potentials, there are challenges and obstacles in the way. A good management team will predict, mitigate, and solve the challenges.
The bulls believe that indeed the management team is good, given what the bulls have observed in product development and marketing strategy. The doubters would need to see more evidence of financial expertise; perhaps less of a family-centered management team might also calm the doubters (the departure of Mr. Birnbaum last spring after just a few weeks as CEO reinforced the doubts).
Have a great week for yourself, and I appreciate that you have responded to me with logic and a friendly attitude.
Preface: I have no horse in this race, as I started following the stock when the pump and dump e-mail campaign of last spring was at its peak, and I was curious as to how this would play out.
Main Point: Both the bulls on the stock and the bears are raising valid themes - and that's what explains why the stock is neither selling at a penny or less anymore nor at a dime or more.
Case for the Bulls: This is a booming industry in its infancy. The company has the right products at the right time and is remarkably showing even a small profit very early in its history. Also, the technical case for the stock is strong, given how it's up six times from its low of .006. The company's emphasis on debt financing versus equity financing (which would be dilutive by definition) means the stock will be as volatile going up, based on earnings growth, as it was going down from the intraday high of $2.01 (the stock actually closed that day at $1.40, I believe). The fact that the company is not specifically involved in marijuana is a plus, as there may be an image issue with that involvement (e.g. the governor of Colorado recently has regretted that marijuana was legalized there).
Case for the Bears: The "quality" of the reported 44K earnings is weak, as interest expense hadn't yet fully kicked in as of the reporting period of the 44K earnings. Also, the managerial salaries are "artificially" low. G&A expenses will likely continue high, given the constant PR campaign. It is problematic that the company turned to the CPA firm of Winther and Company to resolve its "material weakness" in internal controls problem reported in its SEC filing (this just looks bad to deal with an issue in "segregation of duties" by retaining your own family to resolve it). FINRA issued its warning to be careful with e-cigarette stocks that started up via the way VHUB did, i.e. by absorbing the company which was involved in maintaining "hotels" for dogs. The fact (I believe that I've furnished the Kiplinger link in earlier postings) that this company itself has a pump and dump history is a red flag. That least addition to the debt, the six month loan with an astronomical real interest rate which needed to be guaranteed by primary stockholders, makes it look like the prior $1.6 million loan wasn't fully thought out by management as regards how much funding might be needed to support the growth of working capital while sales are booming. Finally, frankly the religious fervor of the bulls towards this stock actually helps the bear-case, as emotionally involved investors tend to do less well.
My Conclusion: You can't "fight the tape." The bulls are winning at the moment, gaining fervent investors daily, and this is decreasing the "effective float" rapidly (if we believe the new holders who are writing that they plan to be in the stock for years instead of days). The most likely moment for an exceptional run-up in the stock will be as rumors circulate about the great Christmas selling season. But one will need to read the balance sheet and the footnotes that will be issued with the earnings release, as there is a reasonable chance that working capital will remain problematic while interest expense will be kicking into full gear.
My Request: Can we be civil here, with both the bulls and the bears welcomed. It's OK for each group to challenge the other as regards whether a post is being offered based on emotion or based on fact, but each group is better served by listening to the case of the other group. ...and now I'm off to weigh in on another discussion board of vital national interest, Deflate-Gate. May you all have a good week, and thanks for letting me play in your pond!
It actually is cool to watch a stock that can very easily have a 25% range in value over the course of a day (not to mention the three-quarters rise in the last of 2014). Still, I'd personally get nervous buying stock where there's typically, though not always, such a large spread between bid and ask. In the end, it's all a matter of each individual's tolerance of risk.
I haven't looked back at the entire posting history of this Board-thread, but I think it might be fascinating to go back and see what the too-early bulls were feeling and believing as the stock was descending from over a dollar down to next to nothing where the most frequent current posters entered the picture. I wonder if any of the "earlier gang" (folks who purchased at prices anywhere from 30 cents to 80 cents)averaged down this past December and are feeling redeemed recently.
That's enough musing by an old man for one afternoon. Have a good weekend, and again good luck.
OK, I respect your opinion. In the end, it could be the case that their main supplier becomes the last and best source of financing. As I write this post, I see that the stock is behaving well today, so really the burden of proof is on me here.
I wrote that product development is necessary in this industry, but it is not sufficient by itself to lead a company to success. ...and that's the irony of it all: product development can quickly use up the cash generated by current sales - and the big challenge at VHUB is cash. Again, I have no disagreement with you about the importance of product development.
gr8investment, I believe that the case of the bears against VHUB does not center around the products nor around Kyle Winther as the developer of the products (yes, the interview is impressive). The bear case revolves around:
1. How did management let it happen that right after arranging for borrowing $1.6 million, they needed a quick 200K loan and could get that second loan only via an enormous rate of interest and co-signing by major company ownership? It looks like a cash flow budget wasn't really being prepared.
2. Overall, the company has no retained earnings (stockholders' equity), so being so maximally debt-funded is an enormous red flag. Lots of new companies have great ideas and even great products but run out of money before they can successfully build up working capital to fund their receivables and their needs for expansion.
3. The history last spring of "pump and dump" (I've given proper attribution to Kiplinger and others previously) casts a pall on the company as regards keeping trust with shareholders. FINRA more recently has jumped on the bandwagon as regards alerting folks to be cautious of pump and dump in this particular industry, especially when coupled with creating companies out of shells (as VHUB was created out of the dog-boarding company).
4. Further, the curious short rein at the top of Andrew Birnbaum, coupled with current "family-centered management" raises questions.
4. Finally, the wondrous emotions of the bulls on the stock (as evidenced by some contributors to this Board offering multiple comments daily) will attract bears who by nature tend to be less emotional. When the bulls have a passion for a stock that makes it look as if it were a religion to believe in that stock, that's a red flag for the stock.
To be fair, I can make the bullish case for the stock almost as easily, e.g. VHUB is the one bright light in an industry sector otherwise looking for leadership, coupled with "don't fight the tape" as the stock has soared from its .006 low (though way down from the intra-day high of 2.01). Overall, I would think that the company will simultaneously report in February for the December quarter that it made a marvelous net income, but also is on the verge of running out of money with no more sources to tap (working capital and product investment needs can easily make it possible to have a great income statement and a fatal balance sheet).
Overall, I'd stay away from the stock, as I think that product development is a necessary but not sufficient condition to build a winner in the longer run. In the shorter run, I'm pretty sure that there'll soon be an enthusiastic press release about sales in the December quarter which could drive the stock up further, but I don't think it's going to be pretty when subsequently the bulls all try to get out the door at the same time, perhaps in mid-February.
Most of all, and this is just personal preference, I hope that this Board stays civil and remains a good place to exchange differing opinions. I got interested in what the future would hold for VHUB when I started getting the incessant pumping e-mails last spring, and I've never been long or short in the stock - but it's been fun to follow its journey. Good luck to all.
If you're asking whether, presuming I were holding the stock (though I'm actually not), whether the company's press release regarding new products would make me more or less bullish on the company, I would say that it's a mixed bag. I'll grant you that the company has a great product line and is a leader in its industry.
But the under-capitalization of the company is a major downer. I haven't added up all the debt, but if you were to take the loans from Gotama, the 1.6 million loan recently negotiated, loans from officers of the company, and the bank loan from yesterday (though it's not long term debt), the debt/equity ratio would be through the roof (basically there is no equity yet).
As a total outsider here and having no emotional involvement, my belief is that the most likely future of this company is that it will run out of money and run out of lenders to lend them more money - which will lead them to offer themselves up to the major long-term competitive force in this industry, which is the various cigarette companies that have dipped their toes into vaping. So, bottom line - I think you may very well make some serious money here, but I would believe that the pot of gold at the end of your rainbow will be the sale of the company.
All of my commentary must be given and be taken with a few grains of salt. Before I retired, I was CFO of a major academic medical center, so I can claim no expertise in the for-profit arena and especially in the realm of true entrepreneurship, like the Winther family is demonstrating (though I'd feel better about the company's prospects if it were managed by professional managers rather than as a mom and son operation).
Again, I wish you well here.
Malvern, I don't want to derail the thread on a math technicality, but if you'll go back and take a look at Post #1620, you'll see (presuming that you're OK with my estimating)that the Annual Percentage Rate is a lot more like 150% than 40% per your post.
Personally, I think that the company is legitimate (real products, real stores, real customers, etc.) but is in trouble (when executives have to personally co-sign loans, the bank is not convinced that the company will survive). There was a pump and dump scheme last spring, as Kiplinger and others reported (and I even got the boiler room calls and the e-mails, which is why I follow this Board even though I'm not investing long or selling short), but I think what's going on now is more likely the honest enthusiasm of people on this Board getting to be "infectious" in the penny stock community.
Overall, I think that management needs to be honest in its PR about why it needs to borrow at enormous rates, coupled with doing something to explain how the company's stock got involved in a pump and dump some months ago.
Good luck in all your endeavors!
Regarding the loan, I wonder if you might have another question for Investor Relations of the Company. Let me copy into this posting the relevant part of the 8K:
Pursuant to the agreement, the Company borrowed $200,000 USD from the Bank and received net proceeds of $195,000 USD after deducting an origination fee of $5,000 USD. The loan is payable in 147 payments of $1,727.89 due each business day beginning on and after January 5, 2015, with the total repayment amount (subject to certain exceptions) being equal to $253,999.83 USD (the “Total Repayment Amount”).
I'm going to do an approximation here rather than a precise calculation, so please bear with me. The total interest on the loan is roughly 59K (the excess of 254K over 200K, plus the 5K origination fee). The average amount being borrowed is roughly 98K, which is half of the 195K remaining after the origination fee, because the loan is being amortized over these 147 days rather than being repaid in full at the end of the term. So if we create a fraction of 59K divided by 98K, that's a 60% interest rate for 147 days. Since 147 days is roughly only 40% of a year, then we need to annualize the 60% interest rate for the partial year by multiplying it by 2 1/2, which means that the Annual Percentage Rate would be something like 150%.
I may very well have made an error in the calculations and a fool of myself, but if not, you might ask Investor Relations why the Company would prefer a large (usurious?) interest rate to dilution. None of this is meant as any disrespect to the bulls in VHUB or to the Company - it's just a reasonable question from someone who is out of the market, but enjoys keeping up with this Board.
Ognib, let me venture a reply to the question that nags you, i.e. the 99% drop. As I've written in prior posts, I'm not invested in this stock, but I've followed it, initially because I was so intrigued by the pumping e-mails and calls I got that I wanted to personally see how long it would take for it to flush itself down the drain, and then later because I've so much enjoyed the camaraderie and banter on this board (as long as it has remained civil).
Let me copy into this note a paragraph from my post #1117 which may go a long way towards explaining the drop:
First, let me state my biases. I am a bear for the long term on this stock, given the "pump and dump" history of last spring, the family-centered management team, the "material weakness" reported as to their internal controls which they are mitigating by utilizing the services of Winther & Co. CPAs, the pile of debt financing which might find its way into becoming issued shares of stock, and the fact that rapid growth in sales generally requires commensurate growth in funds serving as working capital.
What I forgot to include in the above paragraph is that you'll see via their SEC filings that they did hire an outside CEO, Andrew Birnbaum, who bolted after just a few months. That is an enormous red flag, especially when a company is as family-centric in management as this one is.
What's keeping the stock price down is the company's history of playing in the nasty world of pumping and dumping, the increased attention being paid by FINRA and eventually by the investing community to such manipulative schemes, and the fact that a high growth rate means a high need for increased working capital which does not come cheap. I'd add that family-centric management probably also is a factor on the negative side here as well, though our bullish colleagues on this board could rightly throw Walmart in my face.
All this aside, the bulls on our board may very well prevail at least in the short term (which is where they tend to live), because it does appear to be the case that there will be press releases forthcoming about how great the holiday selling period was. Also, the end of tax-loss selling will lift a short-term cloud that has been hanging over the stock.
Ognib, you are clearly an eager student of investing, and if I were to try to add to your store of knowledge, it would be that evaluating a company itself is not the same as evaluating its stock.
Ognib, your post #1148 answered your own question to me about the historical "pump and dump," and if you Google FINRA and "pump and dump" I do believe you will see their recent alert about the likelihood of additional such schemes. Actually, I just did the work for you, so see http://www.finra.org/Investors/ProtectYourself/InvestorAlerts/FraudsAndScams/P602197
But to be a bit more balanced here, it does appear - as one follows this Board - that this is a real company with real products, growing sales, physical locations, etc. But that doesn't mean that the family management in place can manage all the challenges that come with rapid growth, such as how to finance it without "giving away the company" via dilutive financing.
This Board tends to be populated by traders even more than longer-term investors, and the traders would believe that the upcoming reports of rapid growth coupled with the end of year-end tax loss selling will give the stock a good push. That may very well happen. The "pump" part of the next pump and dump (if there will indeed be one) will also give a short term boost to the stock.
But timing is everything with this stock, and it is very hard to out-smart everyone else. I wonder if anyone but market-makers actually picked up the stock at its low of .006 and truly has gotten to enjoy the more-than-doubling of the stock price from its low. I'd wager that far more people got in at anywhere from .30 and up, and are not happy campers right now.
Good luck in whatever decision you may make here!
Now here's a good moment for me, Sam85, when I get to fully agree with you. This stock has shown enormous volatility, propelled by the low float. When it was generally on an uptrend, there were "squalls" that pushed it down before rebounding. And even during the downtrend, there were days when on an intra-day basis the stock was soaring before falling back.
I do think that it takes enormous skill in trading, far beyond any skill that I have, to capitalize on these large swings. The additional challenge is that the market-makers, in order to protect themselves (if one wants to be kind to that sector of the market), maintain a huge spread between bid and ask prices, so that it is very hard to get in or get out where you want to. And perhaps the greatest challenge may occur when the bulls have a few good days (and I personally believe this is going to happen per my earlier post), as I have visions of what this Board will look like when the bulls begin to ask each other whether it's time to "take the money and run."
I'll end as I began - you are right that low float creates volatility, and that volatility creates opportunity.
But Sam, I did say that this is a real company. In fact, my comment was that their problems include managing growth. Also, I concluded with speaking about the value of their patents. "Growth" and "patents" are hallmarks of real companies. Nonetheless, the first rule of communication is that whenever someone is misunderstood, it is generally the lack of skill of the one communicating rather than the one listening or reading (my wife has misunderstood me for 45 years by now, and it is always my fault!). So please give my original post another read and perhaps reconsider whether I've actually failed to give credit to this company for being real. And if it wasn't clear when I originally wrote about how real they are, let me emphasize right now that I think the company is real - real operating locations and real products as testified to on this Board by some actual vendors of those products.
No, Sir, I do not hold a position in the stock. I have followed the stock in its constant (until recently) decline ever since I started getting the insufferable e-mails and calls from brokers and consultants involved in the springtime pump and dump shenanigans. I somehow found this Board in my travels and have gotten to enjoy all the back-and-forth among the gang, except when people took a break from being civil with each other. I wish you well, and your respect of my opinion actually does mean a lot to me.
Sam85, let me respond to your suggestion that the company be aggressive in PR at this time. First, let me state my biases. I am a bear for the long term on this stock, given the "pump and dump" history of last spring, the family-centered management team, the "material weakness" reported as to their internal controls which they are mitigating by utilizing the services of Winther & Co. CPAs, the pile of debt financing which might find its way into becoming issued shares of stock, and the fact that rapid growth in sales generally requires commensurate growth in funds serving as working capital.
Surprisingly perhaps, my second bias is much more favorable to your point of view. As we enter the new calendar year, the tax-selling pressure will be off and some of those who tax-sold may be ready to buy back in. ...all this happening at a time when a robust sales period has been completed.
So, my friend, I would believe that the "gun of PR" ought to be kept in the holster for the moment. They have issued a lot of press releases in recent weeks, and, at least to my untrained eye, much more of this will start to look like a return to the "pump and dump" of some months back, now being done at a time when FINRA has just issued their alert about such schemes in the vaping industry. I do think this is a real company having real products and growing sales, but I also am far from persuaded that there is a management team in place that can manage the growth. In the end, I think that the value of this company will revolve around the value of any patents they might be holding in regard to the products they are selling.
There has been a lot of emotion going on in this Board, and I hope that a calm, balanced posting is acceptable to both bulls and bears, whether anyone might agree with me or not.
Just a curiosity/question I'll pose to those more experienced than I in the market for penny stocks. I notice the following on this website:
Bid Ask
0.006 0.0174
It seems a bit odd to me that the Ask would be nearly three times the Bid. So my question would be what sort of underlying situation might lead to such a wide spread. I realize that by the time I hit "submit post" this spread may have narrowed significantly, but at this moment I'm just wondering.
Also, as regards on the one hand, the opinions of the bulls on this Board that this stock is the real deal, and on the other hand the recent FINRA caution does relate to situations like that of DOGI morphing into VHUB (coupled with a well-documented pump and dump scheme when this stock was to be found at a much higher price), I'll guess that there will be selling pressure on VHUB based on the FINRA pronouncement, as it's hard for one stock to escape "the halo effect" of industry news. Perhaps that's why the "NOOB" was OK with getting out of his position with a market sell-order.
TPHAM83, I enjoyed the quality/depth of your post. If I were to press you about VHUB, it would be in regard to the following:
1. Management (which you've mentioned) - this company is in that awkward stage when growth is rapid, and the few are doing the jobs of what ordinarily would be done by the many. Can VHUB avoid "the fatal error" during this time frame?
2. Step-variable costs - At the moment, the gross margin on sales is wondrously large, but there comes a point when what had been fixed costs blow past their relevant range, and new resources need to be added to meet the growth (and then these costs remain fixed again, albeit at a higher level of volume). Can VHUB create enough profit fast enough to add the next layer of resources? (This is sort of expanding the first point beyond management depth to now include production and sales resources.)
3. Overhang of stock from those who bought too early - Not all the holders of under-water positions will sell in December, and there will be those who will in the future keep some lid on the price of the stock by looking to sell as the stock would tend to climb.
4. Cost of working capital - VHUB will be financing lots of receivables in coming months, and it may be a challenge to match the due date of payables with the expected liquidation of receivables into cash. This is part of the dilution issue which you and others have raised; at some point, interest expense becomes sufficiently prohibitive that you're stuck selling stock.
5. Ethics baggage - Can a company which was in the "pump and dump" game not that long ago be trusted in terms of its financial statements? We already have on record management addressing their self-identified material weakness of insufficient segregation of duties by retaining a CPA firm to come up with a plan. That would be fine, if only the selected CPA firm were not Winther & Company. That gives self-dealing a bad name...
I do realize that the swing trading mentality banks on the emotions of others creating momentum, and that the mantra is that it's not the company one invests in, but rather the stock. So I would not deny the distinct possibility that the stock will become a "cult favorite" (I sort of like the idea myself of a vaping company keeping itself "pure" by not getting into drugs, even a drug which has been legalized here and there). Still, when all of the bulls on this very message board head for the exits at the same time, I don't believe it will be a pretty sight.
Thanks again for your excellent analysis!
I would otherwise agree with your calculations and conclusions, but three items would lead me to be skeptical:
1. If I am remembering correctly, in May the interest expense on the new debt (which has been described upthread as "toxic") will kick in. At 10% on an eventual loan of $1.6 million, that would be $160,000 per year or $40,000 per quarter - almost enough by itself to offset the current level of quarterly net income. Alternatively, if the debt converts to equity, the per-share earnings will still plummet.
2. Again, if I am remembering correctly from SEC documents, Kyle is taking a below-market salary of 48K per year. When he plays catch-up, "that will leave a mark."
3. There is an integrity problem with the company. Most of us had gotten the "pump and dump" literature this past spring, and we also had the very quick resignation of Mr. Birnbaum. Now we have gotten to read in the SEC filing that the company has self-identified a material weakness in internal controls. That would be laudable, except that the CPA firm retained to consult in the matter in Winther & Co. That doesn't quite pass the smell test.
For these reasons, I would believe that the stock would not merit even the 15X price-earnings ratio you ascribe as even being conservative. On a more technical basis regarding the stock, the next few weeks, I believe, will see many of the victims of the pump and dump scheme unload their shares for tax purposes.
Full disclosure: I'm not an investor nor a short-seller in the stock. I started following it when the pumping e-mails and phone calls started to come and was curious how long it would take for the crash and burn to inevitably come. After it did, I've remained curious and have also enjoyed the fellowship of the message board.
Thanks for taking the extra moments to explain your reading of the conversion-related phrases. I wouldn't be surprised in the least if you're correct here. As regards guessing on the future of where the company will go from here - and by some implication where its stock may go from here - only time will tell. I tend to go more on fundamentals than on technicals, and the "hill of risks" that this company in this industry needs to climb really looks daunting to me, especially when the company leadership is so much in the direction of family-centric which already let the Pump and Dump machinery dirty their laundry.
Thanks for your response. As regards the conversion price, the note-holders, I believe, wouldn't care about the stock price unless and until the stock reaches Fifteen Cents; they would be indifferent between having the stock price before conversion at one cent or ten cents, because their conversion price would still be fifteen cents (the language of the conversion terms was "the greater of...").
Above fifteen cents in stock price, of course, the note-holders would want the lowest underlying stock price possible, until the stock were to decline to fifteen cents at which point the stock price wouldn't matter anymore. I would believe that the stock will never again see fifteen cents, as there is not enough hype that could be created, whether legally or otherwise, to drive the stock to that level. ...though I will admit that I'm not that knowledgeable about the "repeatability" of pump and dump schemes on the same stock.
Again, your work in regard to tracing Gotama to the Marshall Islands was excellent.
I appreciate the effort and depth of your analysis, especially the extra energy expended in trying to track down Gotama. I may be missing your point as regards keeping the stock price as low as possible for the benefit of the note-holders. Let me copy the terms of conversion from your post: "price equal to the greater of $0.15 or 90% of the average closing prices of the Company’s common stock." I'm therefore missing where there is any benefit to the note-holders in keeping the price under $.15, which is about ten times where the stock is holding these days.
FWIW, my take on the company and its stock is that it truly is a family business based on the line-up of the board/officers of the company, that Mr. Birnbaum who was the short-term CEO is an ethical person, and that that the pump-and-dump schemes were offensive to him. I would also believe that "the ultimate dumping" will take place as tax-loss selling in December, as the buyers at "pump-time" will take their medicine and the tax benefit of the their loss.
Yes, this is a real company with real store-locations, but it will need an intensive infusion of capital to keep going, which means that any future earnings stream is going to be very diluted.