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.
Surprised you're discussing par value
Thought your we're more informed than to raise a meaningless point.
It's quite simple
If you believe what Anshu said, the stock is a screaming buy. If you don't,sell and move on.
AS increase
In the short run, as I previously explained, it was done to remove the default liability from the balance sheet. That goes a long way towards getting book value to positive territory.
In the medium term, it's for M&A. If he uses the shares judiciously, shareholders should benefit.
Now we need to see the results of all of the activity behind the scenes.
Sello getting back in?
Did he hear what he wanted?
I think the most interesting part of the tweet storm was the statement that they've completed negotiations with new funding sources. Look forward to hearing about that.
Should be an interesting month.
One other thing to keep in mind
Assuming the company was close to breakeven on a pre-tax basis in Q4, getting the converts off the books would bring book equity into positive territory. That would be a big milestone for uplisting.
If Anshu wants to uplist to NYSE, the most likely scenario, he'll have to satisfy the pre-tax income test. He can get there conceivably in FY 19 if he can unlock a substantial portion of the backlog. That obviously requires incremental capital or a merger partner that can give him scale.
Unfortunately, this is all deductive reasoning and conjecture. Anshu needs to explain.
AS/OS ratios for growth companies
One other thing to keep in mind is that for most growth companies, the ratio of AS/OS is at least 4:1. Tesla's is almost 12:1 and it's a capital intensive business. So VRUS' current ratio falls within norms.
As far as the R/S is concerned, they had one approved in late 2016 and never executed it. They're just keeping their options open IMO.
I don't believe this is like other serial dilution stories as the management team isn't paying themselves big salaries. Anshu, in particular, really only makes serious money through the stock. Furthermore, the company is close to breakeven on an operating basis, so it's not a cash consumptive operation excluding acquisitions. It's quite likely, ignoring charges, that the company had positive operating income in Q4 if the performance in Q3 continued.
The company should have a conference call ASAP to explain their thinking. IMO, that's the big problem here. Mark expects investors to be patient, but they need to communicate a lot better. Tweets and PRs aren't enough.
My take
The magnitude of the increase does look alarming, but a few points to consider.
1. Can't run a business with A/S maxed out. I was hoping they would buyback some stock to address the issue, but they clearly need more money for something, most likely one or more deals. I was thinking they'd increase it to 3-4bn, but I'm in the dark as to the rest of the plan that Mark alludes to.
2. Had to address the convert and default provision that they put on the balance sheet on the last 10-Q. That provision was due to having insufficient shares. Remember the following from the last 10-Q:
Additionally, at July 31, 2018, the Company was in default with respect to certain convertible notes as a result of not having sufficient shares of common stock available for issuance upon the conversion of such notes and certain cross-default provisions. The default provisions include 1) default interest rates ranging from 18% to 24% per annum, 2) daily fixed dollar penalties, and 3) an increase in the total amount due calculated by multiplying the aggregate of the then outstanding principal amount of the note, together with accrued and unpaid interest thereon, plus default interest and fixed dollar penalties by 200%. As of July 31, 2018, the principal amount of the notes together with interest accrued thereon and penalties totaled $855,398, consisting of $793,327 of default principal and $62,071 of default interest.
They also have the Monaco note coming due at the end of this month. So, to address all of that and reverse the provision of ~$800k they booked in the last 10-Q, they had to increase authorized shares so auditors would sign off.
3. M&A. Clearly, equity is their vehicle to do deals. Need shares for that. A central question will be how much of the backlog they can unlock now with some flexibility on the equity front. In addition, how much additional revenue can they book now? Anshu has made it clear in PRs that he wants to maximize growth. Unfortunately, that's entailed dilution at awful prices, and it curbs the upside, but there's still a lot of upside potential.
4. They need to PR the reasons for the increase much like Mark indicated in his emails. That needs to be broadly disseminated by Anshu to boost confidence.
I'm not arguing that the stock won't be down on Monday, particularly at the open and in the absence of an explanatory PR. Don't ping me with obvious statements in that regard. I'm trying to make sense of what transpired in that filing.
That's my hypothesis
And it removes the liability for shares they didn't have to cover the converts.
That said, they need a PR to explain.
That's true
Questions:
1. Did he do this to clean up the balance sheet liability that he had to record due to insufficient shares?
2. Did he increase the A/S in anticipation of deals (ie. reverse merger to acquire additional assets)?
The R/S is largely irrelevant at this point since even a 400-1 split doesn't accomplish much. Moreover, they already had a RS approved.
Company needs to follow up with a PR to explain why these actions were taken. Everyone should ping Mark demanding some answers.
CSE is a Canadian entity
Why would the shutdown impact the listing?
I doubt it
He only got ~250k shares pro forma for the reverse split. I bet he was gone a long time ago.
I'd disagree
It's up to Anshu to step up now. Many of us have held and accumulated all the way down while not a single insider, Anshu included, has bought on the open market. We've stood by the company and expect them to reward us.
Can anyone explain, other than JF, where huge blocks would be coming from?
I would imagine it has to be a PP holder. Sad that they have so little confidence that they're willing to sell at such a paltry valuation.
Huge load on the ask
Selling doesn't want to stop here. Sad.
So it takes 9 months because it's Chinese?
You believe that?
If they do, it's most likely because the deal(s) aren't finalized
No big deal..didn't report last year until late March. Relax.
No news?
"Refer to the filings," Mark Lubchenco
Hey Mark, in case you haven't figured out already, that's not enough for an OTC stock that is an emerging growth story.
Would be nice if they looked out for shareholders
Not an auspicious beginning as a public company.
Agreed
Management should have figured out a way to transfer JF's shares to insiders or funds in a much less disruptive manner. That's what bankers do and Alain should have figured something out.
Some additional points from the Super League filing
Super League was essentially generating the same revenues as GMER on a run-rate basis in 2016 and 2017, but generating huge operating losses. Nevertheless, the company was able to raise $8.3mm in the first nine months of 2017 at a price per share of $3.60. That put the pre-money valuation of the company at ~$41mm! Obviously, investors weren't paying that valuation for current revenues- they are expecting big growth.
As of now, Super League has ~13.8mm shares and 7.2mm warrants (strike at $3.60 per shares or a discount of 15% to the IPO price, whichever is lower). If we use the last funding round's price to assess the current private market value of Super League, it is being valued at $75mm, which is the low end of the valuation range that I indicated in my first posting regarding this topic. Super League also has net debt of ~$4mm (likely more after burning cash in Q4), and is burning approximately $3mm/quarter.
In contrast, GMER has a current market cap of ~$760k with debt mostly related to an affiliated party. GMER is obviously reluctant to raise cash at such a paltry valuation, which is smart and ViaOne is funding this on an as-needed basis to protect its stock position. I think the valuation disparity, on a relative basis, is almost absurd, but draw your own conclusions. One of the keys for GMER will be to sign up some sponsorship deals for their esports tournaments. Brand & Media partnerships has been the big driver of Super League's revenue growth, not subscriptions or player counts from what I can tell.
Hopefully Dorwart will give us some good news on the sponsorship front soon.
They actually did tweet that they're shipping
Against the $1mm order. We don't know the amounts so far or the run-rate, but at least that got started.
Super League Gaming files for IPO
Looking to raise up to $25mm, which probably means a high end valuation of $75-$100mm. Will obviously depend on market conditions and other factors.
Huge operating losses, much bigger than GMER, but higher run-rate revenues. I think GMER is in much better financial shape on a comparative basis.
That said, it's good to have a comp for the market to price GMER off of.
https://www.sec.gov/Archives/edgar/data/1621672/000165495419000144/slgs1-jan2019.htm
Still have $2 warrants
May be out of reach, but I'm sure they'd like to see those exercised.
They also need to raise at least $5mm in order to start paying salaries. Not really possible without penal dilution unless the stock is at least $1.50. We know management makes money here almost exclusively via stock, so they will be prudent with dilution.
Me too
Patiently waiting to hear their views.
Price targets are just opinions
Formulate your own. What matters is the risk/reward relative to other investments.
That said, I am looking forward to being enlightened by bunnyslopes.
It was vague and poorly worded in my view
Certainly not what the market was hoping for. I hope his intent was something different.
Hoping for a better Q1 2019
I hope the management team got their act together and have some positive news to report in early 2019. So far, not impressed from a capital markets perspective, but Alex shows signs of promise.
Congrats to whomever picked it off at the open
Some rookie must have put in a market order at open.
He's well spoken
I'm impressed. Wish he had been involved sooner.
It's obvious management never thought that the stock would get this low and that the current valuation is rational. Why else would they exercise options at $0.50 and strike warrants at $1 and $2? That said, they didn't really present news that would merit a big move, IMO, and didn't do a good job presenting the company's outlook and strategy- until Alex arrived. Since then, IMO, we've succumbed to PP holder exits and tax loss selling.
I was encouraged by some big buying in the late day yesterday. Let's hope they have some news flow lined up in early 2019.
Because there's no deal
Just an empty shell that will compete with security tokens in 2019. His financials are going to be stale soon too.
Richards missed his opportunity and it sailed. Question is how much longer he keeps the shell alive if he understands the competitive threats.
If you're anchoring around $0.19 as a fair price
I personally think that's an absurd bear market valuation.
They won't be exercised
So yes, they would be worthless and the holders won't exercise. That means the company wouldn't get any cash coming in.
Mgmt is highly incentivized to get the stock a lot higher. Our interests are fully aligned.
$2 warrants
Set to expire in the first several weeks of the New Year. Hope they have some news flow lined up to get those in-the-money.
Anshu and Mark, let's see some progress on this..
From the PR dated 9/24/2018
" but clearly that is just a small measure of what we can do with more capital to deploy"
"So, our focus is on strategies that will unlock these sources of revenue as quickly as possible.”
Point being, the $20mm revenue guidance should be viewed as a base case run-rate target, hopefully by Q2 FY 2019 at the latest. That said, there is considerable upside with proper financing. Why is it taking so long? IMO, it is likely M&A related. Nevertheless, the company could do a much better job keeping investors informed. It's been three months since we got a meaningful PR update.
Growth stock
You don't know the revenues for most "growth" stocks with any sort of precision. Even SaaS companies have valuations that depend primarily on bookings growth, which is uncertain.
It's a guessing game..it's partially why they are so volatile. They have high equity durations with their valuations primarily dependent on "terminal" value.
The difference here is that you're dealing with a consumer staples company operating in high GDP/capita and growing end markets. Moreover, we have SEC filed contracts. The only constraint is financing.
If you subscribe to ApollyonZ and bunnyslopes valuation approaches, then move on...if you understand growth stock investing like Sello and R17, stick around. Our downside is limited and our upside is several multiples above this level.
End of debate
In one camp, Sello and R17...in another camp, bunnyslopes..
Time is the great arbiter for such questions...hopefully we'll get some sort of resolution soon with the stock price significantly higher and better reflecting the inherent value of the company.
End of debate for me. It's not going anywhere productive at this point.
Agreed
The approach to communicating with the market has been very poor. I do blame MKR for that.
We're in agreement on the valuation discount. Time should resolve that.
Follow up point
Anshu made this comment in the last earnings release:
“We have the funding right now through our trade financing to achieve annual revenue of close to $20M if everything falls into place, but clearly that is just a small measure of what we can do with more capital to deploy. While our newest contract has flexible financing and can expand to meet our customer’s needs, our legacy contracts are performing at a maintenance level pending different forms of additional financing. So, our focus is on strategies that will unlock these sources of revenue as quickly as possible.”
Now, if bunnyslopes doesn't believe in the guidance, then that's fine. That said, the author of the post with price targets took a perfectly valid approach to figuring out price targets. Markets are supposed to discount FORWARD estimates in determining valuations subject to a high degree of uncertainty. It's obvious that the degree of uncertainty applied to Verus is extraordinarily large, but that offers a margin of safety too. Once some of the uncertainties are resolved, the gap between price and value should narrow.
Distinction between market value and intrinsic value
We know the run-rate revenues and that particular post was deriving price targets based on different revenue multiple assumptions inclusive of the $12mm contract only (ie. factoring little incremental recognition of the prior backlog). The sell-side community sets price targets based on far less information and more dubious assumptions all the time. Valuations are inherently uncertain, but if you wait for the uncertainty to resolve itself, you'll oftentimes miss the biggest part of the potential gain.
If you disagree with the assumption, which I believe was fair and based on management's guidance (again, the market bases valuations on forward guidance as a standard practice),that's your decision. The market offers you the opportunity to sell and deploy capital elsewhere. Your argument would suggest that trailing revenues are all that matters in valuation. I totally disagree with that. If that were true, all biotech stocks would trade at their net cash values adjusted for expected burn rates. That obviously isn't true.
The fact that the current price isn't reflecting the backlog and revenue potential could be attributable to a myriad of factors. First, we're in a bear market and small-cap gets particularly hurt in those conditions. Fear is trumping greed at the current time and that may persist for some time. Second, there is very little institutional involvement in OTC stocks to support prices and valuations. OTC stock price setters are primarily retail investors that have very short attention spans and trade off of news flow or technicals. That offers the opportunity to purchase shares at substantial discount to intrinsic value.
So while it's obviously true that all we know are reported financials, it's also true that valuations are based on forward looking estimates, not historical financials.
Markets are anticipatory
We have been given guidance on revenue capacity. It is reasonable to make projections. Disagree with your approach.