This ad has made the rounds before, under different headlines, but now it’s coming in with an Apple-related tease, which usually gets attention… and the newsletter itself has changed names, too, so we’re taking another look.
Here’s part of the tease from the latest ad for Jason Simpkins’ Wall Street’s Proving Ground newsletter (currently being sold at $99/yr, formerly called The Wealth Warrior)…
“The last time a technology like this was innovated, during World War II, it helped us beat the Axis Powers… and launched a small group of companies for historic gains as high as 21,608%.
“Now history is about to repeat itself…..
“There’s a COVID-19 fighting technology that is rolling out to “every public space in America.”
“… one tiny company has all the patents… and it trades for only $0.20.
“It just went IPO, and few know its ticker symbol…
“But that won’t last much longer.
“When its name becomes known, it won’t trade under $1 for long. Or even $10 or $25.”
Sounds irresistible, right? The “helped us beat the Axis Powers” stuff is about night vision technology, which he says helped defeat the Germans and Japanese when they were able to evade radar… and which is based on infrared technology, pioneered by Honeywell back then, and those defense contracts helped to turn Honeywell into a much larger company over time (though it certainly wasn’t all because of their night vision products).
And the emails introducing the ad drop the Apple name…
“This is a new patent filed by Apple for its next iPhone upgrade:
“In the details lies the KEY to a brand-new $19 trillion technology…
“One that Apple has invested $390 million in….
“Facebook is all in with a $100 million bet.
“Amazon is rolling out this tech in every single one of its warehouses.
“And Tesla has installed it in every new Model 3.
“The Washington Post calls this ‘a nationwide gold rush.'”
So what’s the big technology this time around? It doesn’t really have much to do specifically with that Apple patent, which is just one of many different patents for sensors built into the screen of electronic devices, but it is thematically in that neighborhood. More from the ad:
“One unlikely technology just jumped to the forefront of the war against coronavirus.
“Before the pandemic, it wasn’t involved at all in viruses.
“It stopped mass shootings in schools…Are you getting our free Daily Update
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“It prevented terror attacks in public arenas…
“And it made companies billions in sales.
“This saves lives and company profits.
“So why is it now on the front lines against COVID-19?
“Because all of its customers — big Fortune 100 companies and governments — are realizing something:
“The same technology that detects invisible security threats…
“Can be used to detect COVID-19 cases.
“It can scan big crowds, identify viral infections individually, and it can alert medical workers — all by itself.”
OK, that’s starting to sound a little familiar… not the COVID stuff, but the “mass shootings” and “made companies billions in sales” hints. Simpkins pitched a stock along those lines early in 2019, so is this just a repeat of that spiel?
(Spoiler alert: Yep. And no, it hasn’t below 20 cents since November of last year)
Let’s check a few more of the clues…
“It is not a vaccine. It’s not a test. It’s not even a medical device.
“Rather, this proprietary software combines artificial intelligence, thermal imaging, and machine learning…
“To expose the ‘invisible enemy’ wherever it rears its ugly head…
“Allowing us to stop infections from EVER breaking out in the first place.
“It’s sort of like a K-9 unit, sniffing out the virus everywhere it hides.”
And some wild overpromising about the capabilities of this technology to stop the coronavirus spread:
“I call it ‘Invisible Detection.’
“Because it is totally hidden. It’s unobtrusive.
“And it’s capable of bringing every single coronavirus infection to light. Instantly.
“This means NO second wave. NO second shutdown. NO more disastrous death toll.
“This won’t just save lives. It won’t just put our $19 trillion economy back in the fast lane…
“It’ll launch a slew of massive stock gains, the kind not seen since World War II.”
OK, he can call it “Invisible Detection”… I call it, “Hyperbole.”
There are several specific examples cited, in which Simpkins implies (but doesn’t quite say outright) that this company’s technology is the key….
“… an Amazon warehouse in Des Moines, Iowa.
“Over 15 million items flow through it daily…
“And it hasn’t missed a beat since the pandemic struck.
“It’s never shut down.
“Every worker that enters the door is automatically screened…
“It’s not intrusive. Nobody sees it.
“And it never misses the virus. It detects it every single time.
“Because it screens for not one, but three ultimate indicators of COVID-19…
“Oxygen saturation levels
“That’s how it pinpoints the infected with stunning accuracy.”
OK, so as folks who know nothing about how to scan for disease that sounds pretty impressive, right?
And we get some hints that things are going great so far…
“Business Insider says “demand is skyrocketing as companies plan to reopen.”
“One industry insider says “on a scale of 1 to 10, interest is at 110 — it’s totally off the charts.”
“In the Coming Weeks, This Device Will Spread To Every Public Area in America
“It’s being rapidly deployed to dozens of the biggest companies… rebooting $19 trillion in economic activity.”
OK, so those are quotes about the general demand for “fever cameras” and similar technology, not necessarily for the demand for this particular company’s product. Which is a reminder, alas, of one of the core strategies of an investment promo piece… first, conjure up and describe the very real demand for a product or service; second, skip over the possibility that there might be thousands of companies who can provide this product or service, and put all that potential in the hands of “one tiny company.” The human brain is predestined to believe a narrative, a logical story that moves from Point A to Point B to Point C… and sometimes we don’t notice when the story, if well-crafted, moves from Point A to Point C without ever mentioning Point B.
In case you’re curious, that quote about “demand skyrocketing” is about thermal cameras and facial recognition in general, you can see that Business Insider article here.
And the quote about interest being “off the charts” is, again, just a reference to “smart cameras” in general, those that can be used to alert when people are crowding too close together, not wearing a mask, etc. — it’s from a Fast Company article here.
This pandemic has created sharp increases in demand for all kinds of screening and monitoring technologies, as people search for solutions that will allow them to reopen or make customers or employees feel safe, and, as always happens during times of scary change, it has also created entrepreneurial opportunities for anyone who wants to try to sell a thermal scanning product — so I’m sure that any company that makes infrared cameras or surveillance software is trying to sell it as a COVID solution (including Feevr and Athena Security, who have been scolded by IPVM, which tests surveillance systems (and now lists a directory of 206 suppliers that are trying to sell something like a “fever detector”).
And there’s yet more that tries to emphasize the size of the demand:
“This is why Big Tech is opening the purse strings for this.
“Apple is spending $390 million to use it in the iPhone 12.
“Facebook is buying in to the tune of $60 million.
“Google put down $45 million.
“Microsoft’s Bill Gates is betting big time, with a $74 million investment.
“And Alibaba led a fundraising round worth $600 million!
“The list goes on and on.
“As you can see, America’s richest men are loading their fortunes into it…
“And while they fully endorse “Invisible Detection” technology…
“They’re not at the forefront. Nor is anyone in Corporate America.
“One tiny company is…”
Those are at best apples-to-oranges comparisons, of course — Apple’s $390 million is probably a reference to the investment they made with Finisar to boost their production of VCSELs, the laser scanners used for the iPhone’s face scan. I don’t know what the Facebook one was, but it might have been their $60 million purchase of Face.com (which does photo tagging by face recognition). And Microsoft did participate in a $74 million funding round for an Israeli facial recognition startup last year, but they sold it after the company came under investigation this year. You get the idea — yes, we know that surveillance and scanning and facial recognition are all areas with heavy investment from everybody in technology these days. That predates COVID, and probably will have little to do with managing the response to the pandemic, but I guess we’ll see.
Anything else about this stock?
“It stops school shootings and terror attacks…
“Allowing us to safely attend concerts, games, churches, casinos, and so on.
“It boosts marketing profits — without fancy ads.
“So it’s a total no-brainer for any Fortune 100 company.
“Which is why so many are lining up. And why they’ll keep this technology long after COVID-19 is done….
“The New York Times reports, “Airports, office buildings, warehouses and restaurant chains are rushing to install this technology.”
“Forbes says, ‘it will soon be a part of the way we live and work.’
“Wired says, ‘Many businesses, religious groups, and public health officials see it as a key tool to prevent people with the disease from spreading coronavirus.'”
That NY Times report, by the way, was about the ACLU’s warning against fever-screening tools as an overly intrusive and flawed way to encourage work and travel. It was not about this specific (or any specific) company.
But Simpkins goes on to say that this company is in the lead…
“With the global rush for fever screening…
“Some companies are launching their own thermal devices.
“None are close to the technology I’m sharing with you today….”
“It just went IPO, and few know its ticker symbol…”
And he says that this particular company is doing something more than just scanning your skin to see if you might have a temperature…
“Using facial scanning technology…
“It scans the inner core of the eye, which research shows is the only way to measure core body temperature from the surface.
“And that’s only half of what it does…
“After all, not all COVID-19 cases have fever symptoms.
“In fact, half of all infections are entirely non-feverish!
“Take your oxygen saturation level, which is a crucial marker.
“COVID-19 attacks your lungs. It cuts off their ability to supply oxygen to the bloodstream.
“And fills the air sacs with fluid instead.
“It literally suffocates you.
“There are three key markers of COVID-19…
“Body temperature below the surface
“Oxygen saturation levels
“And this one technology detects them all. Much as a doctor would.”
That’s a really bold claim. But we’ve got enough now to turn to the Thinkolator…
… and yes, Thinkolator sez this is still VSBLTY (VSBY on the CSE in Canada, VSBGF OTC in the US), the same stock Jason Simpkins has been teasing for about two years, starting when it was a newly public “50 cent stock” with a $40 million market cap back in April of 2019 — things have changed quite a bit over that year and a half or so, the stock got down to a C$10 million market cap and a share price of about 12 cents last Summer, and then bounced back with all the attention on hot story stocks in December and January.
Here’s what I wrote in the Quick Take when I first covered this stock in April of 2019, for a little context:
“This is a really teensy young company that came public a couple months ago on the CSE, with no real revenue and a suite of products they’re trying to launch that combine in-store marketing (interactive billboard type displays) with facial recognition for both marketing and security purposes (scanning for known baddies, scanning to see what customers look at or what their mood is). No idea whether they’ll succeed in getting their pilot projects into place or converting them to real customers, their part of the business is the software that runs it, but it’s likely to be years before we have any idea whether it might be successful or not and both interactive displays and security/facial recognition technology are extremely competitive markets with lots of established and startup companies. I’m not interested in gambling on a little $40 million company, though it’s pretty cool-looking technology and they are likely to try hard to appeal to investors this year, so perhaps you’ll find enough to entice you.”
They’ve issued a bunch of convertible debt to keep the lights on over the past year, and last year did a big offering (for them) of about C$5.6 million at the end of August… so they have about 160 million shares outstanding (without the potential dilution of the warrants or convertible debentures, that adds about 50 million more), so the market cap is up to almost $100 million now at around 60 cents (both US$). They sold those new shares at 12 cents (Canadian$) back in August, when things looked pretty dire, but they also had to throw in a three-year warrant with each share to entice investors (August 2023 expiration, 17 cent strike price), so there’s more dilution to come.
The business has been moving forward, though the focus of their work is not entirely clear — they revamped their website some to focus on their “COVID-19 Emergency Reopening Solutions“, but there isn’t much “real” about that potential business just yet, as far as I can tell.
The good news is that they have generated a bit of revenue over the past year, and have a few contracts underway, with the most meaningful one being a software contract with Energetika in Mexico City to provide “integrated security” using data from a huge network of security cameras, they expect this to generate “$10M USD in SaaS revenue over a three year period.” They also have a few smaller deals in place that they now say, as of their Q1 2021 Investor Presentation will generate something like $6-8 million in revenue in 2021, with a little more than half of that being potentially recurring SaaS revenue.
And the big transformational deal they hope to be taking off soon is with ABInbev’s Grupo Modelo to form a joint venture advertising network in Latin America, based on screens in the Modelorama convenience stores and other neighorhood retailers that will use VSBLTY’s technology for ad serving and security monitoring. That was what really sent the shares soaring in December, as covered in Bloomberg here, and the basic numbers sound pretty appealing — they hope to get to 5,000 locations in the first year and 10X that many in four years, and at $10/store/month for license revenue to VSBLTY, along with a one third share of the JV’s media revenue from advertising (which could certainly be in the millions within a year or two if it works out well), the revenue could become meaningful for a tiny company quite quickly. 5,000 locations would mean $600-900,000 in annual licensing revenue, which would presumably hit VSBLTY’s income statement at a very high margin.
They indicate in their presentation that other big stuff is brewing, too, with reseller agreements and system integration partners coming on in the next few months, and with a large US store client likely by June, and they describe 2021 as their “breakout year” with $15-20 million in bookings (though the presentation does make sure to point out that “Readers are cautioned not to place undue reliance on the financial projections.”
VSBLTY has not yet really reported any meaningful revenue yet, their only real financial filing so far was the interim report for the period ending September 30, posted back in November. I don’t know what the deadline is for posting their full 2020 numbers but presumably we’re getting fairly close to another financial report. Their revenue last year came almost entirely from a “product extension and licensing agreement with a very large international corporation” that remains undisclosed.
And yes, they do have plans to offer a package, with a sensor developer, that could help screen for COVID-19 — they said that they expect to develop a prototype very quickly because the technology already exists, but didn’t specify when they might start selling it… here’s the disclosure from the SEDAR filing they made for the June quarter, on August 28 (that’s where I got the info about the Energetika contract and other current operational info as well, if you want to see the actual source):
“On April 21, 2020, the Company announced a collaboration with Photon-X, developers of sensor technologies that enable biometric verification, document security, CGI motion imaging and photo mapping, to develop advanced camera applications to help screen for persons who may be infected with COVID-19 as they enter buildings. The two firms are collaborating to develop a multi-sensor camera capability specifically for security and smart buildings applications. Photon-X object recognition and analytics combined with VSBLTY facial recognition will provide an advanced screening tool for facilities to identify and validate that someone with a high temperature is about to enter a building. Fever, cough and difficulty breathing are some of the common symptoms of COVID-19. The Companies expect to develop a prototype very quickly as it is simply a matter of integrating existing solutions. The new model will have several advanced features to the typical infrared cameras that are currently being used to measure body surface temperature. The VSBLTY-Photon-X cameras will additionally measure heartbeat and oxygen saturation levels with the goal of helping to produce less false positives than the standard infrared cameras now in use.”
That still sounds entirely speculative to me, Photon-X is an existing military contractor that does have some AI-based screening systems that they say can screen for health issues and identify emotions, among other things, but they’re really not particularly active outside of military contracting at the moment, it appears. We also know that FLIR (FLIR) and all the other big companies who sell or can develop infrared systems are working on screening solutions for COVID, so it’s hard to guess where the opportunities might lie, particularly before VSBLTY even has a prototype. So far, none of these solutions have really been part of the public health response in the US, and I don’t think I’ve heard of any being particularly successful anywhere, though similar monitoring and scanning systems have been tried in other countries.
I will admit that their Modelo convenience store deal has some appeal, even though Modelo is getting a bunch of warrants in exchange for that licensing agreement and JV… and the security camera network deal with Energetika does stand out as a little bit interesting… if only because I seem hard-wired to prick up my ears at the notion of “SaaS revenue” these days. If they can expand on that Energetika product offering beyond this initial installation, then SaaS revenue that could build to that expected $3+ million/year or go beyond that with more customers could be worthy of attention…. and if they can really hit those targets of tens of thousands of stores hosting their video ad screens, then that could become a meaningful business, too, maybe even fairly quickly. Managing security camera feeds and scanning for noteworthy stuff is a competitive field, though, as is in-store advertising, and I don’t know how their products compare to others. Lots of investors are happy to pay 10-20X revenue for subscription software businesses these days — and while it’s way too early to be counting on anything like that from this little microcap, which hasn’t yet really recorded any of that revenue from its signed deals or preliminary agreements, but it does offer a little glimmer of hope that there’s a sustainable business below this bluster from Simpkins.
So no, VSBLTY is probably not going to solve the COVID crisis — they might play a small role in that someday, and they do sell themselves as being a strong possible solution for AI-fueled screening of crowds (they don’t make the actual cameras or sensors, they’re just trying to sell the software systems to integrate it all and highlight risks)… but they are far from being the only company involved in developing mass screening systems for temperature, facial recognition and other risk factors, and the lack of urgent contract deals or even pilot projects so far this year tells me that their system is probably not unique enough to have garnered much attention from big customers. Maybe it will, but in these kinds of cases where a technology hasn’t demonstrated traction, it very often turns out that a little $10 million (or $100 million) company stays little for a reason. That could be unfair, but if you want more slack while you try to build a company you should take venture funding or investments from strategic partners who might be more patient and helpful, not hit up individual shareholders who get tempted by penny stocks.
The other business that’s actually generating revenue right now, which sounds like it’s probably a combination marketing/crowd scanning product for “big crowd” events with that unnamed partner, is less clear. Maybe it will become something, maybe not. I was not particularly impressed with the “marketing kiosk” nature of most of their business before all of this, but they do have partnerships with a couple large in-store display companies, so one never knows. Every pitch I’ve seen for higher-tech in-store marketing in the past decade has ended up being a flop, so perhaps I’m a little more skeptical than most about this stuff.
I do want to be clear: This $10 million in expected revenue from the Energetika work, the one part of the company that made me pause to take them more seriously starting last fall, is not new. They announced it when they signed the deal, about a year ago and began deployment back in November of 2019. They refer to this regularly as a “$10 million contract,” but other than the fact that the contract expires two years from now, it’s not clear to me what that covers or whether it’s extendable or provides any scalable revenue beyond that for VSBLTY (scalability and predictability are why we love subscription SaaS revenue — you want your system to be integral to the operations and to grow in value, and you want to earn more money as more end points are added… I have no idea how the contract is structured in this initial phase, or how it might change when the first term expires).
So I wouldn’t hold out much hope for the COVID screening potential — that doesn’t mean it’s impossible, just that they haven’t announced the availability of any products yet, a year into this crisis, and that makes it seem pretty unlikely that they’re going to be getting a windfall of sales anything soon. But that Energetika deal and the Grupo Modelo deal sound real enough that I will pay attention. Not real enough that I’m filled with profit-lust about this little microcap stock, but enough that I’m willing to take it a little more seriously… we’ll see, maybe I’ll even be able to talk myself into buying it someday. Not today, though. Gotta at least get the taste of that COVID-19 overpromising out of my mouth first.
How do the numbers from all those projected and early-stage deals look? The best guess I have is something in the neighborhood of $7 million in average SaaS revenue per year over the next 2-3 years from their existing deals, agreements, letters of intent, or however they categorize each project… assuming that their projections are reasonable, that they don’t get any other big deals that move quickly, and that none of these pilot projects or initial deals are scrapped or delayed. All big assumptions.
We don’t know what these deals will cost, since they haven’t really hit commercial scale in any products in the past, but as of the last quarter their cost of goods sold hit a recent new low of about 40%, so if we go by that gross margin (meaning, providing the service and any associated hardware costs them 40% of the revenue they bring in on these deals, leaving the other 60% to cover overhead, growth capital, and maybe profits someday), then $7 million a year would bring in about $4.2 million in gross profit. Their selling, general and administrative expenses have exploded as they’ve tried to sell their story to partners and investors, but if we assume those don’t grow further from here then those operating expenses should come in near $5 million. That means they have some chance to slow the cash burn over the next two years, but for right now they’re looking at a very strong likelihood that they will have to raise money again soon. If you love the story, the next capital raise could perhaps be an opportunity to buy at a lower cost, but you never know… we’ll get more clarity on all of this, and particularly on how much of their press release and presentation success has made it into actual revenue (or even contracted revenue) when they next update their financials, but that’s how it looks to me today. I continue to not own the shares, though the headline stories and the plans and projections sound appealing, I get the feeling that I want to hold out for something a little more real.
That’s just what I think, though, and maybe I’m too skeptical (I felt similarly when the shares were at 10 cents, and before that at 50 cents, and buying at those points would have obviously worked out well with the stock at 58 cents this afternoon)… and with your money, of course, it’s your call. Interested in VSBLTY? Did you remember it from the previous times I covered the pitch (or maybe you even own shares?) Think it’s too speculative, or see any other skeletons in their filings that I didn’t mention? Let us know with a comment below.
Disclosure: Among the companies mentioned above, I own shares of Amazon. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.