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Edward Schneider, CFA

 
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  • 10 More Overvalued Shorts [View article]
    Notatrader,
    I was referring to another LATX promotion campaign:
    "LATX (OTC.QB) 1,250 cash for 10 days social media/marketing services Sept 9 2014", whose services included the aforementioned news release.
    Oct 9, 2014. 01:37 PM | Likes Like |Link to Comment
  • POET Technologies Revisited [View article]
    Dear fairchij,
    Thank you for your input again. But you are mistaken. I specifically responded to the company's response to Scott Elder's EE Times comments in Reality vs Claims (point #1 above), as well as in Trying to Defy History (point #3 above).
    As for the rest of your comments, there are a lot of claims, grins and winks, but more concrete data and milestones are needed. Furthermore, I think that you underestimate the monumental task required to get POET's technology to high volume production.
    I hope for your sake that POET will find a way to commercialize its technology in the not too distant future. I wish you good luck with POET and your other endeavors.
    Ed Schneider
    Sep 29, 2014. 07:26 PM | 1 Like Like |Link to Comment
  • POET Technologies Revisited [View article]
    Keubiko,
    Thank you for your input. Mr. Iwentash and his Pinetree Capital fund, both are major shareholders of POET. I agree with you that this is a negative, given Mr. Iwentash's past regulatory investigations for insider trading and manipulative trading - see http://bit.ly/1rnpFCy, as well as the high indebtedness of Pinetree Capital.

    I also would like to take this opportunity to address the 30 comments and growing from fervent POET longs and promoters below:

    1) Reality versus claims
    Today's reality is that POET is still trying to perfect a GaAs chip production process at 100nm node. Management is exploring ways to reach 40nm node in 2015. POET claims to be able to overcome a major density weakness versus silicon via "less buffering and upsizing of logic cells". POET claims to overcome a huge cost disadvantage versus silicon by offering more value in speed and power. But the speed and power claims only at best gets POET even (on just speed and power alone, ignoring cost and density) with silicon's current 14nm node (with Si moving to 10nm, and then 7nm by the time POET would ever be ready). Even worse, this assumes that POET is fully producing at 40nm node, which has not even been proven yet. This reality flies in the face of the company's much-publicized-below rebuttal to Scott Elder's negative POET commentary in EE Times (among other critical commentaries of POET not mentioned by POET bulls).

    2) Deductive reasoning
    Deductive reasoning based on irrefutable assumptions that subsequently can be supported by real-world data (as opposed to twisting information to fit personal biases) is the way to obtain factual agreement.

    So, first of all, there are certain laws of physics and economics that all parties here should acknowledge. I will use Wikipedia as a well-recognized neutral data source - http://bit.ly/1rnpEyu. Wikipedia sites the following key advantages of Si versus POET's GaAs technology: a) Si is abundant and cheap to process, b) Si is more stable, a natural insulator between adherent layers, can be grown to very large diameters, and can be processed at very high yields, c) Si has a nearly perfect lattice, impurity density is very low and allows very small structures to be built. GaAs in contrast has a very high impurity density, which makes it difficult to build integrated circuits with small structures, and finally, d) Si has huge production economies of scale advantages over GaAs.
    On the other hand, GaAs (and other III/V materials) have the following key advantages over Si: a) greater speed and mobility, b) higher temperature resistance, c) can absorb and emit light more efficiently, and d) provides better isolation between devices and circuits. But then we would need to compare GaAs to graphene (Gr), which would remove GaAs from the equation.
    But let's forget about Gr for now, and just sum up what Wikipedia says and what the industry has actually done in relation to GaAs. Basically, GaAs is a good material for specialized high-speed communication fields such as in mobile phones, satellite communications, microwave point-to-point links and higher frequency radar systems. The laws of physics prevent GaAs from reaching the same high-volume logic production efficiency of Si (Si is on 12" wafers going to 18" vs GaAs trying to move from 6" to 8", for complex multi-layer chips GaAs cannot match Si, for stability, yields, impurity levels, etc.) This cannot be ignored.
    Moreover, how many decades will it take for GaAs to overcome the hundreds of billions of dollars invested in the global silicon ecosystem in terms of economies of scale? In principle, it should never happen. The Si wafer production process is much simpler, more scalable, and cheaper than MBE. In fact, in the III/V world, MOCVD wafer production scales much better than MBE - see http://bit.ly/1rnpEyv. Thus, the laws of economics, as well as the laws of physics, relegate GaAs, especially with POET's MBE process, to non-logic markets with very specific needs.

    3) Trying to defy history
    Partly realizing its dilemma, the company modified its claims (in the last paragraph of responding to Scott Elder in the EE Times article) by saying that it will not replace Si CMOS, but complement it. Well, what end customer, many of whom will be working at 28nm or 22nm node by the time POET is ready at 40nm (if that ever happens), will switch back at least one node and pay more for an unknown technology. Usually, new processes lead advanced technology nodes by a few years to get designed into the International Technology Roadmap for Semiconductors (ITRS). Never in history has a technology succeeded by revamping an old technology node. What old fab, in harvest mode, not investment mode, would make such a capex commitment for an untested production process?

    4) Silicon is not standing still.
    Si continues to progress on many fronts including FinFETs. TSMC just announced the results of its 16nm FinFET networking processors: "The 16 nm FinFET process can improve ICs' speeds and power consumption and reduce electric current leakage. In comparison with 28HPM (28nm high performance mobile computing) process, the 16nm FinFET process reaches double gate density, a more than 40% higher speed at the same power consumption or over 60% lower power consumption at the same speed." - see http://bit.ly/1rmzpgp. This is reality, and conflicts with arguments against FinFETs construed below. Moreover, their efficiency will only get better. This is the tenacity of Si. It keeps on improving, so it cannot be supplanted. It becomes a fait accompli - Intel, TSMC, and other leaders back it with billions of dollars of capacity investment, and all others follow.

    5) A word about promoters and my DD process
    There has been over 80 comments in the last two weeks coming from the same group of POET longs and promoters trying to obscure the facts and reality about POET. These are just desperate attempts to attack my credibility in order to scare-off people from selling POET. If you look at the past, the more numerous and vehement the attacks (STSI, ABKI, etc.), the greater the fall.
    Most of these comments below were not data driven and used twisted logic to turn my words into something I did not say. Here is one of MANY examples: "Mentioning the age of Taylor and Manocha is a cheap shot. Apple is doing fine and Steve Jobs died at age 56. Scientists keep meticulous lab notes. I am sure all of Dr. Taylor's trade secrets are well documented for successors to exploit."
    First of all, false logic by association is misleading. POET is not Apple, and Geoff Taylor is not Steve Jobs. Secondly, what I said was "both Ajit Manocha and Geoff Taylor are at retirement age." This is not a low blow. This is a fact. Moreover, neither of them are full-time employees, Dr. Taylor is also a professor at UConn, and Mr. Monocha holds the title of Executive Chairman (no operational role). The bigger picture, which received very little comment, was the absence of a full-fledged team, not even a permanent CEO. Not even a real facility to house the company exists, just a lab at UConn. This is a perpetual start-up, that has a long way to go. That is reality.
    Here is another reality check. Try calling POET. I tried a few times and got nowhere. First, the company's listed number goes to its IR firm in New York, which gave no information. Then I left a message at the Toronto office, which was never returned. Then I called again and spoke to the corporate secretary, in an attempt to speak with the CTO, Chief Scientist, and interim CEO. Left my name and phone number, but to no avail. But it's ironic how quickly the POET network (possibly including management - fairchij?) responds to my article on a Saturday no less. I gave management every opportunity to speak with me, but they never did. What are they afraid of?
    As mentioned, I expended a lot of time and research before becoming negative on POET. I then went through the exceptional step of starting all over again, and to the dismay of POET bulls, still coming to a negative view of POET at its current ~$200M market cap. But instead of being part of the problem, I did try to offer some humble constructive input to how POET can realize some value, which the POET bulls have sadly ignored given their myopic comments.

    6) Conclusion
    POET is a lot of talk, without a lot to show for it. After all these years, management needs to start showing substantial revenues and at least a pathway to profitability. Some of these POET bulls are claiming big revenues in the next six months (not saying how, just claiming). There needs to be substantial commercial announcements, well beyond what the company has been sending out. It's time to put up or shut up.
    Sep 29, 2014. 11:05 AM | Likes Like |Link to Comment
  • 5 New Extremely Overvalued Shorts [View article]
    Actually, two of the five have worked out well so far - CBCA -30% and BLCK -20%. As for the other three, time is on our side.
    Sep 25, 2014. 03:46 AM | Likes Like |Link to Comment
  • 10 More Overvalued Shorts [View article]
    juanvaldez,
    Thank you for your input.
    Near the beginning of the article, the average daily trading volume is provided for each of the ten stocks. Four of them trade between $300k and $13M per day. Five of the remaining six trade over $20k per day.
    As mentioned in the article, you should also refer to my February piece - http://seekingalpha.co... - for practical advice on how to go about shorting these stocks including borrowing.
    Ed Schneider
    Sep 19, 2014. 05:21 AM | Likes Like |Link to Comment
  • 10 More Overvalued Shorts [View article]
    Krisantosh,
    The press release stated the following: "same-store sales growth of 7.7% for July and August 2014, versus the comparable 2013 two-month period". So either you are incorrect (or used incomparable year-ago figures), or LATX needs to issue a new press release. In any case, the big picture is these single-digit same-store sales increases will not make a dent in the tremendous losses that the company is incurring. Opening another money-losing store in Albany, NY will not help (in fact, the losses will be even greater at the onset until the store establishes a customer base). You cannot ignore a gross margin of only 7%, an operating loss that is greater than total revenues, and on top of that, interest expense that is 7x greater than gross profits. How is LATX ever going to pay back $41M in debt, and $22M in short-term account payables?

    I can see that you are a passionate supporter of Latitude 360. However, you just can't bury your head in the sand, and ignore reality. But instead of being the bearer of bad news, let me try to help:

    These are large facilities with high leasing costs that require a lot of staff. This creates a very high revenue breakeven point. Somehow, we have to lower that revenue breakeven point or turbo-boost sales. Operating business as usual will not work. Here are some unconventional ideas that may help: 1) Get local subsidized support - your entertainment centers are providing a lot of jobs as well as clean, fun entertainment to the public. Why not have local government support. Albany, NY has a new semiconductor research facility plus is the state capital. It should have some funds for local community support. Doesn't hurt to ask. 2) cut costs - SG&A of $1.1M for the June quarter, which is primarily the month of June, is way too high. 3) Create premium entertainment that carries a higher price tag (e.g. certain comedians that may give you a price-break if you provide some goodwill services for them). Look, I'm just winging this. I am sure management is more capable than myself to find alternatives. But the point is, management needs to start taking MAJOR STEPS NOW, to have any chance of saving the company.

    I wish you the best of luck with LATX and your other investments.

    Ed Schneider
    Sep 19, 2014. 05:10 AM | 1 Like Like |Link to Comment
  • 10 More Overvalued Shorts [View article]
    Krisantosh,
    Thanks for your input. Latitude 360 may be an interesting concept. The comedy club/restaurant anchor, with bowling alley and other entertainment add-ons can provide good entertainment value in their targeted cities. The problem is that numbers are not even close to working. Annualized loss of -$29M, debt and capital leases of $41M, cash of only $117k, all at an enterprise value of $279M! Revenues rising 7.7% (y-o-y) to some unknown level does not make a dent in LATX's dire situation. Either LATX will go bankrupt or they will have to issue a ton of shares (and heavily dilute shareholders) to cover this burden (and we cannot wait 3 months, forget 3 years under the current capital structure).

    By the way, the news release that you refer to was a promotional piece from a well-known penny stock promoter. If you look at the bottom of the disclosure - http://bit.ly/1u352wz - you will see that LATX paid cash for this news release as part of a social media/marketing campaign that expires tomorrow. You may also notice that Seraphim (the parent co of Tomorrows Bluechips) is currently promoting GRILLiT (GRLT), a Latin-Caribbean-fusion 3-restaurant chain with additional licensees that is actually profitable so far in 2014, albeit with lower revenues than LATX. But GRLT has an enterprise value of about $2M including preferred stock, as opposed to LATX's EV of $279M. Seraphin's compensation for the GRLT promotion is 50k of preferred stock (as opposed to the strictly cash deal with LATX).
    Sep 18, 2014. 05:22 AM | 2 Likes Like |Link to Comment
  • 10 More Overvalued Shorts [View article]
    Dear Platonicbomb,
    The fact that there are all these unsubstantiated comments from this Peanut Gallery of stock promoters and longs actually reinforces the shorting of POET. If you look at these comments, they are not even data driven (and when they did discuss relevant points in the article, they twisted my words into something that I did not say). These are just desperate attempts to attack my credibility in order to scare-off people from selling POET. If you look at the past, the more numerous and vehement the attacks (STSI, ABKI, etc.), the greater the fall.
    That said, I plan to submit a longer article on POET that will include the bull case for POET as well as address its weaknesses in more detail. You may want to wait until then.
    Thank you for your interest.
    Ed Schneider
    Sep 16, 2014. 05:21 AM | Likes Like |Link to Comment
  • KiOR's Epitaph [View article]
    Paul,
    Thank you for your additional input. Let me address your concerns one more time.

    1) "KiOR's main problem... is a death-knell for most venture companies ... Again, most biotech companies meet that criteria."

    We do NOT short most companies with large market caps and no revenues, which often have a very long time horizon to projected profits. Many of the companies that we leave alone are biotech cos. The difference between some biotech cos and KiOR is that certain highly-valued biotech cos have much better business prospects and potential profits than KiOR. They also have clearer Phase II or III milestones that create value for shareholders until profitability or a buy-out is reached. I never said that all companies with a five-year time horizon to profitability should not be public. But to more clear for you, certain ones should not be public. BTW, I see that you were a supporter of ParkerVision, a far worse company than KiOR in my opinion, that questionably solicited tens of millions of dollars from public retail investors.

    2) "If one of the primary functions of the market is to raise capital and disperse risk for risky ventures trying to develop something new how does your philosophy help that?... So from my viewpoint as a society we are worse off because of the failure not better."

    One of the primary functions of the market is to EFFICIENTLY raise capital, and most risky ventures are privately funded, not publicly funded. Only the most successful innovative companies are able to have IPOs. If all risky ventures were protected or subsidized, we as a society would go broke. Weaker companies have to be allowed to fail for the greater good.

    On that note, when you say "it would have been a nice societal advance to be able to generate enough diesel to run the public buses from the tree trimmings and other waste cellulose", why are you implying that Quan's shorting of KiOR would prevent this from happening? To the contrary, there are several peers that may provide this societal advance such as Cool Planet Biofuels, which is privately-funded by Google Ventures, North Bridge Venture Partners, GE, and BP. KiOR is just the weaker competitor today that will probably go bankrupt (whether we shorted the stock or not). BTW, Vinod Khosla is not giving up on KiOR, he is just trying to take it private. So in the end, Kior may also provide this service if they can overcome the technical challenges, and effectively compete with well-financed peers.

    3) "If you want to take some money like you do from failing concerns then go ahead but don't gloat. To the extent that people agree with your philosophy and stop funding risky ventures you kill your own market."

    Paul, the intention of the article was not to gloat. It was to provide a follow-up article to my Seeking Alpha followers, provide instructive commentary on why this was a successful sale, and to offer some advice on whether or not to continue shorting KiOR. I apologize for any misunderstanding.

    And again, my philosophy does not deter funding risky ventures at all. It just eliminates the weakest ones, saving society more money (to the extent that my shorts have that much influence) and allowing more capital to flow to the stronger ventures.

    4) "I see you don't seem to extend your skills to shorting any of the overvalued, large, liquid, leaders of which there are many."

    Exactly. I tend to short where the risk-return trade-off is the greatest. In fact, KiOR was about near my limit for illegitimate companies. Most of the companies I short literally have no fundamental value - dysfunctional business models, highly questionable officer(s), no revenues, high cash burn, but somehow sport valuations in the hundreds of millions to billions of dollars. It would be a dis-service to my investors to pursue shorting more legitimate liquid leaders.
    Aug 8, 2014. 02:58 PM | 2 Likes Like |Link to Comment
  • KiOR's Epitaph [View article]
    Paul,
    Your input is deeply appreciated. However, you may have taken this one article out of context. If you read some of my other articles or looked at my bio, you would see that the funds I manage - Quan Technology Fund and Quan Ventures actually invest in technology start-ups. The short portion of the Quan Technology Fund is less than 10%. So maybe we got off on the wrong foot (see this interview for more color - http://bit.ly/1q12t7l).

    KiOR's main problem was that it should not have been public in the first place. KiOR had at least a five-year time horizon for its business plan to potentially succeed. Public-market investors have a quarter-to-quarter time horizon. This time horizon mismatch is a death-knell for most public venture companies. Companies like KiOR should stay private with more patient investors/VCs, until they are mature enough for the public markets.

    The public capital markets are unforgiving. If a company is not worth $1.7B, then its stock will be punished. This is actually a good thing. In aggregate, efficient markets maximize our investments and economic welfare. In fact, shorting makes the markets more efficient, which minimizes the public's savings from being lost in weaker investments.

    Also, Quan does not short every company with a billion dollar market cap and no revenues; most we leave alone. We have to be fairly certain that these select shorts are in fact extremely overvalued and destined to fail.

    In the end, our goal is to maximize our investors' returns, and shorting a small portion of our fund currently helps us do that.

    Thank you again for your comments.

    Ed Schneider
    Aug 8, 2014. 12:07 PM | 3 Likes Like |Link to Comment
  • Parrot: Accelerating Growth And Revaluation [View article]
    Innovative company in an ongoing transition. We sold our position a while ago, and are waiting for more visibility in the new automobile infotainment systems.
    Aug 5, 2014. 08:32 AM | Likes Like |Link to Comment
  • Shorting Overvalued OTCBB Stocks - Results And Advice [View article]
    Joe - to minimize risk, the short positions are more numerous and each are a smaller percentage of the Fund compared to the more concentrated long part of the Fund. I do not have a hard max size limit for the shorts, and often short more on the way up. I am able to do this because the initial positions are small, and I keep enough cash in the Fund to avoid any margin calls. Regards... Ed
    Jul 12, 2014. 08:28 AM | Likes Like |Link to Comment
  • Shorting Overvalued OTCBB Stocks - Results And Advice [View article]
    BJV - the majority of my articles are about longs. Most recent articles featured CEVA, ATTU, and SQNS. Regards... Ed
    Jul 12, 2014. 01:26 AM | Likes Like |Link to Comment
  • Reflections From The Road (Part II) [View article]
    Stephen,
    Thank you for your kind words.
    I am glad that you enjoyed the article.
    Ed
    Jun 11, 2014. 09:15 AM | Likes Like |Link to Comment
  • Attunity: Time Is On Our Side [View article]
    jayurbain,
    Attunity's technological/competitive advantages are 1) speed and ease of transporting mega-data (management claims 10 faster than peers), 2) transfer of data across a large number of enterprise software platforms, operating systems, and networks, and 3) Attunity is independent - unlike main competitor Oracle/Golden Gate which competes with its customer - which partly explains Attunity's major partnerships with Microsoft, Teradata, EMC, IBM, Amazon, etc.
    For more information, please refer to the section Technological/Competitive Advantage.
    May 26, 2014. 07:23 AM | Likes Like |Link to Comment
COMMENTS STATS
59 Comments
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