RATING: STRONG BUY – $PLFX Pulse Evolution Corporation : UPDATING COVERAGE

 

Updating Coverage – Strong Buy

7/16/18

6 Month Price Target Range $1.00 – $1.30

Closing Stock Price on 7/12/18 $.25

Pulse Evolution Corporation

(OTC: PLFX)
www.pulse.co

 

Research Analyst:  Michael Sheikh
509-624-1099

 

Unlocking the Value in Pulse Evolution’s Arbitrage Play

 

  • Time to close deal (3 months).
  • Backed by the John Textor name.
  • Irrational investor sentiment.
  • Tender offer $1.38/share vs $.25.
  • Extraordinary returns.
  • Uplisting to a national exchange.

 

It is not very common to see an arbitrage play opportunity in the small cap marketplace let alone one that is so telegraphed and with so much profit potential.  Arbitrage plays by their definition is taking advantage of the price differential within two or more markets. Pulse Evolution Corporation (PLFX) is being purchased by Recall Studios (BTOP) in a tender offer for $1.38 yet the stock sits at a $.25 stock price.  PLFX has a 206,553,546 shares issued and outstanding which give the stock a market capitalization of $42.8 million. BTOP has 87,288,159 shares issued and outstanding with a market capitalization of $87.3 million but BTOP has audited financials and is current in its reporting requirement unlike PLFX.  These two companies are slated to merge together and if their respective market caps were mushed together it would result in $130.1 million with 293.8 million shares outstanding with a post-merger price of $.44/share. At $1.38 per share the combined market capitalization is supposed to be $405.4 million not $130.1 million.  There is a big market disconnect and this article will explore why.

Timing of Deal – Up to 3 months

In any arbitrage deal, the timing and the opportunity cost of the money sitting in the position for the exit is central to the analysis.  In this deal it is unclear on how long the deal will last but enough is known to speculate and make a reasonable guess. Recall Studios made the Tender Offer to PLFX and was waiting on a definitive answer from the board of directors.  On July 10, 2018 Pulse Evolution’s board of directors went on record and said “based on the information provided to us, but subject to a further evaluation of the definitive tender offer, the Board of Directors of Pulse tentatively supports the proposed acquisition and tender offer by Recall Studios.  We will provide a definitive decision following receipt of additional information about the transaction.” On July 12, 2018 Recall Studios announced their intent to move forward with the tender now that PLFX is formally supporting it.  

The key words are following the receipt of additional information which could be a reference to the timing of the transaction or the procedures of the tender.  Since all these board members know each other or are on familiar terms this additional information could come in the form of an email with the final definitive merger agreement being drafted by the attorneys for review.  The “additional information about the transaction” could also be the terms of the convertible notes.  Assuming the attorney review process takes 2 – 4 weeks, the next step in the process is a shareholder proxy by PLFX shareholders with the board’s recommendation for approval.  This would add another 4 – 6 weeks onto the time table. The final step would be the definitive merger agreement and the issuance of the new shares in a fully compliant New York Stock Exchange or NASDAQ uplisting at a conversion ratio of $1.38.  This final step could take anywhere from 1 – 2 weeks which conservatively estimates a 3 month exit time frame on this deal.

The beauty of this transaction is that this is a prepackaged way to get uplisted using the process of an S-4 merger registration.  This registration triggers a fair market evaluation and appraisal of the contracts and technology. Recall Studios will also need to complete and audit with a combined proforma within 75 days.   When they meet the uplisting requirements of price, audited financials, corporate governance, and balance sheet strength they will request a review from NASDAQ or AMEX for final approval.

Recall Studios, Inc. – Underlying Strength

Arguably the most vital element in an arbitrage deal is the underlying creditworthiness of the tendering party.  Well in this particular case the track record of Recall Studios is almost non-existent until investors take the time to connect the dots.  This is the likely reason the stock pair is trading at such a huge discount to the closing transaction price of $1.38. Recall Studios effected a 1 for 10,000 share split in Jan 2017 which reduced the share count to 28 million in the float.  After key management issued themselves more stock based compensation the percentage owned by management increased to 73.4%. This was the structure of the corporation before the acquisition. In 2018 Recall Studios started raising capital via convertible promissory notes.  According to the latest 10-Q “as of march 31, 2018, outstanding balance of the notes payable amounted to $878,500, accrued interest of 10,295 and unamortized note discount of 747,626. “ 12 new convertible promissory notes were used to raise capital which left the company with $428,000 in cash and cash equivalents.  Recall Studios is a pre-revenue company working on developing its intellectual property into a viable business.

With the low share price, no one is connecting the dots.  The back story is needed to make the connection. John Textor is the key to the story as he was the ex-chairman of PLFX and the CEO of Evolution AI Corporation.  In July 2017 in a conference call Textor stepped down as president and announced the appointment of Jordan Fixenbaum to move the entertainment business forward. Then his intentions were to later known as he pursued the development of the Evolution AI business which is focused around creating hyper realistic digital humans that are the visual piece of artificial intelligence.  So instead of visualizing IBM’s Watson as a blue ball it would have a face we could relate to.

The real action started in January 2018 as Pulse Acquisition Corp started filing Form 4’s with share counts that resembled some key long term holders. By mid-March Pulse Acquisition Corp filed a beneficial interest of 72,271,706 shares on a Form 4 filing that appeared to represent 11 different shareholder’s interests.  Then Evolution AI Corporation started filing Form 4’s consolidating the Series A Preferred Stock of PLFX.  By the end of April in a Form 4 filing Evolution AI controlled 2,204,136 common stock and 1,819,200 Series A Preferred Stock.  The great momentum in March waned so the tender offer was increased to $1.10/share in May.  Then Recall got involved for the final push to increase the tender to $1.38.  At this point Textor withdrew his tender offer at $1.10 and let Recall Studios take lead to purchase a 60% controlling interest from Evolution AI which owned 60% of the shares of PLFX.  Investors should now see that Textor is behind the acquisition of his ex-company Pulse Evolution.

Why would Textor go through all this headache?  Well that comes down to financial reporting and uplisting on an exchange that would recognize the true value of the assets.  For 3 years PLFX was behind on its filings so the stock is suffering from a severe case of investor fatigue. The show side of the business was financed on an as needed basis without any concern for the public filing requirements and the need to keep investors updated on progress.  With some major shows in the pipeline like virtual Abba this company could generate billions of revenue in the next couple of years if the shows are as successful as projected. In 2014 Abba turned down a $1.0 Billion reunion offer.   The stock has never traded at it true potential of even one times expected revenues and Textor was probably trying to maximize the value before attempting to raise money at dilutive levels that would hurt existing shareholders.  

In June 2018 Evolution AI the private company and BTOP struck a deal to acquire Evolution AI and its stock holdings (60%) in PLFX for $200 million subject to adjustments.  The assumed value of BTOP is $.50 which works out to Evolution AI getting 400 million newly minted share of BTOP for their share of the company.  This leaves Evolution AI as the new controlling interest with 82.1% of the shares in an OTCQB fully reporting entity. So the final structure in BTOP would be 82.4 million shares tendered at $1.38 plus the 87.3 million shares of BTOP which would leave a float of 169.7 million shares out of 569.7 million shares with perceived market cap of $786.2 million. Under this preliminary structure Textor could raise the money needed to pay off the cash tender offers while raising some additional funds to execute the business plan under non-dilutive terms.   

Irrational Investor Sentiment

According to investors there are many reasons NOT to buy PLFX stock.  Investor fatigue has set in to an irrational level. Investors on the chat boards are complaining about the time it will take to do the deal, they don’t believe the funding is in place, and the volume is thin.  What is so curious about all these comments it that these are exactly the reason to buy the stock with extreme prejudice right now. It’s only a matter of time before a hedge fund comes by and looks at this deal and runs the numbers and calculates the return.

Reiterations of Deal – Not Heeded by Market

There are 5 separate instances where public announcements of the deal did nothing to persuade investors that it was going to close.  Even the use of the word definitive in the press release didn’t work. From the Jul 10th press release Pulse said “Based on the information provided to us, but subject to a further evaluation of the definitive tender offer, the Board of Directors of Pulse tentatively supports the proposed acquisition and tender offer by Recall Studios.  We will provide a definitive decision following receipt of additional information about the transactions.”  

Evolution|AI Corporation Offers to Purchase PLFX Unrestricted, ‘Public Float’ Shares at $1.10 per ShareEvolution|AI Corporation to Host Public Shareholder Call, Reiterates Offer to Purchase Shares of Pulse Evolution Corporation at $1.10 per Share
Evolution|AI Corporation Increases Offer to Acquire Pulse Evolution Corporation
Pulse Evolution Announces Opinion Regarding Commencement of Tender Offer by Recall Studios

Tender Offer $1.38/share Guarantee to PLFX shareholders

Step one in an arbitrage play is to calculate the total returns.  Assuming the current market price is $.25 there are two possible alternatives in this deal.  If you are a PLFX shareholder your return is capped at $1.38 per share in the combined entity.  If you are a BTOP shareholder then your shares will be converted at whatever rate is necessary to provide $1.38 to the PLFX shareholders.  The total return for the stock swap is 452%. The estimated duration of this deal is 3 months and it won’t be necessary to go through any governmental filings.  The maximum float of free trading PLFX shareholders is 20 million. This means that in a worst case scenario BTOP shareholders would be required to provide 20 million x $1.38 = $27.6 million worth of shares.  Assuming the market has fully digested and baked in the effect of the 400 million share issuance to Evolution AI, at the current price of $.50 55.2 million shares will be added on behalf of PLFX shareholders. In the event that the stock rises to $1.00  27.6 million shares will be added on behalf of PLFX. If the stock were to fall to $.15 then 184 million shares would be issued to PLFX.

Uplisting to National Stock Exchange

In the latest press release the CEO of PLFX, Jordan Fiskenbaum stated “we also believe our company and our shareholders will benefit greatly from an improved disposition as a fully reporting public company and the expected qualification on a national stock exchange.”  Fiskenbaum laid it out there that once this deal was completed BTOP would be a fully reporting company. For shareholders this listing gives instant credibility and liquidity in a vertically integrated virtual reality company with top quality celebrity licenses. The float of the uplisted merged company is going to be approximately 25% of the outstanding shares

Investment Summary

It’s clear that John Textor’s name and reputation is on the line if investors connect the dots.  The investors fear that nothing is backing this deal is far from true. BTOP is a structure of Textor’s design to increase the value of the stock to a more reasonable level with the idea that the company will uplist or raise additional capital.  The corporate structure of BTOP still need to be cleaned up more. The preferred convertible stock will likely be taken out on the first successful fundraising. Investors should consider that this is a structural arbitrage deal and that most of the risks like the approval of the deal have been reduced if not eliminated.  There remains a chance for unusually large returns in this deal. The stock is very thinly traded so a big positon could move the stock in either direction.

DATI (StreetWiseReports) Breaking the Mold of Financing Startups: Who’s Funding the Next Big Thing?

Accelerators have been around for years. Rising up as a product of the dotcom era, accelerators seem to be reinventing themselves as companies struggle to find capital in a regulated burdened OTC market. It is nearly impossible to raise money in the current OTC market space, especially when most of the money raised goes into SEC compliance instead of technology. Accelerators typically focus on different market segments like hardware development, biotech, space, nano-tech, and artificial intelligence. A typical accelerator would facilitate the seed capital needed to get an idea off the ground in exchange for equity. The accelerator would also provide mentoring and assistance to keep the project moving in the right direction. The concept is that an idea has to result in commercial viability in order to get additional funding from Venture Capital. This sounds a lot like what an angel investor does with one key difference and that is the project has a hard milestone culminating in a pitch for additional funding or the project dies. The next evolution of the accelerators is a Public Accelerator-Incubator (PAI).

Distinction between Incubator and Accelerator and PAI

Incubators are local in nature and want to attract large technology companies to come to their region to take advantage of the talent pool. Accelerators have a cookie cutter approach to investment and try to grow startups in a petri dish for a set amount of time and end with a demo day—culling the less productive group and then putting money into the most promising ones to keep progressing.

Accelerators can have huge market valuations as their projects start to take root. With the great risk there is also great reward. Google is well known for its Launch Pad project that seeks to cultivate the top talent developing software, network and application solutions for emerging markets. Another well-known company is Y Combinator, which invests $120,000 for 7% and also has a demo day. It has credit for accelerating some monster startups like Airbnb, Reddit, CoinBase and Dropbox. The company claims to have funded 1,588 startups having a combined valuation of over $80 billion. The biggest, or most visible, seems to be TechStars, located in Boulder, CO. Techstars has an international footprint in 150 countries. There are concentrations of accelerators, but small and large incubators are spread out throughout the country and many are located near college campuses.

Angel Investor Insight

The reason angel investors participate in funding small startups is the tremendous reward for being first to spot an idea. Angel investors know it’s a numbers game and sprinkle their money amongst different deals. However, the long-term nature of the investment means it could be years until they have an opportunity to monetize their investment. Stephen Morsette wrote an informative article called “A Profile of Angel Investors,” which compiled data from various sources that put numbers and perspective on the angel investor.

  • 400,000 angels provide $50 billion in capital to over 50,000 companies each year
  • Average age of angel investors is between 47 and 50 years old
  • Typical Investment $50-75K
  • Frequency is 18–24 months
  • Five-year Time Horizon
  • 80-90% of deals have multiple angels
  • ROI 25-30% expected

Particular attention should be paid to the five-year time horizon and the frequency in which they do deals. Any disruptive or structural change to this model could have a huge multiplier effect on capital formation. The market saw an explosion of ICOs in 2017 and all angel investors could do is sit on the sidelines until their capital accumulated. A funding mechanism that could unlock capital quicker and deploy it faster is desperately needed. Market participants are going to need to pivot to keep up with the massive inflow of funds coming into ICOs.

In an economy moving at the speed of cryptocurrency, the biggest risk to angel investors today is opportunity risk. Digital Arts Media Network Inc. (DATI:OTC.MKTS), led by Ajene Watson, has come up with a hybrid model of an accelerator coined the Public Accelerator-Incubator (PAI). The PAI combines the process of careful vetting, and mentoring, with an equity sweetener that strikes a chord with each and every angel investor. Put yourself in the shoes of an angel investor and paint a scenario where an angel investor comes across the deal of a lifetime but is unable to participate to the level he wants because funds are currently tied up. Or, there is an innate fear of how long the investment will be tied up for.

In an October 2015 article by Forbes contributor Marianne Hudson, David Gitlin from Philadelphia-based law firm Greenberg Traurig LP talks about the need for “structured exits.” The key bullet points in her article were quicker liquidity, less risk, flexibility of deal structure and equity kickers upon exit. The PAI structure from Digital Arts Media Network encompasses all these traits.

Opportunity cost tends to make angel investors very selective. This is where the PAI comes into play and allows the investor to diversify his holding yet keeps all the upside of his original Investment. In short, PAIs provide more liquidity to private investors faster, so that they can deploy more money to more companies more often.

 

 

How a PAI Works

The most important facet in understanding the PAI concept is to realize that it doesn’t compete with Accelerators or Incubators. A PAI complements what accelerators like TechStars are doing by offering an equity kicker to angel investors in the form of DATI equity. A startup company looking to raise money would give a small slice of its equity to DATI (normally 1–6%) in exchange for access to its Angels+ platform.

Angels would put an investment into the startup company as they normally would. In this case however, the angel investor receives a sweetener from the startup: equity in DATI. This equity, although separate and apart from the private investment in the startup, reflects a percentage of the private investment. This sweetener (DATI equity) can begin to be liquidated by the angel investor within 24 months.

DATI’s primary assets are a portfolio of investments in high-growth tech startups with a $1–$5 million pre-money valuation. DATI is highly selective and tends to follow established smart money investors such as Jonathan Teo, Howard Marks and Robert Sigler. The angel investors get shares in the startup AND shares of DATI, which is a portfolio of other highly vetted startups that could be the next Snapchat or Dropbox.

Equity Kicker

When angel investors get an equity kicker in a public company that has no relation to the value of the underlying investment, they have access to part of their investment capital within 12 months without touching their original investment in the startup. Additionally, they don’t feel any remorse if they have to sell the equity kicker because it doesn’t affect their underlying investment. This equity kicker equates to an insurance policy on their investment that has the potential to grow unencumbered. An example of this type of equity kicker is analogous to a teenager getting car insurance on his own versus getting put on to their parents’ policy. The teenager who got the car insurance on his or her own would likely need to work every waking hour just to keep the car insurance in place and would have little time for homework, which is akin to project development. The teenager on the parents’ insurance policy would have to work a little to make the insurance payment but would still be able to devote a lot more time to his or her studies or in the case of the startup, the actual project development. It’s easy to see in this example that the startup with the equity kicker is more likely to succeed because they aren’t struggling for capital and if they did have a misstep or a set back the angel investor got a return on some of the money and might be more apt to put that back into the company if they were close to a milestone. The equity kicker is a win for the startup, a win for DATI, and a win for the angel investor.

DATI Portfolio

Vezt Inc. was the first company to leverage DATI’s angel accelerator program. Vezt hopes to be the primary stock exchange of the music industry. Movie productions currently get funding through slate financings. Until now no mechanism existed for musicians to get financing. Vezt is rolling out initial song offerings (ISOs) so that musicians have a platform in which to sell their music to their fans. This platform will eliminate intermediaries. Before the Vezt ICO, DATI was engaged by Vezt for the Angels+ equity enhancement for its initial development raise [for music royalty rights platform and blockchain development] and earned 1.5% of the private startup in return. Through Angels+, investors received a 10% kicker in DATI stock. Currently, Vezt holds 35% of the token float, which represents 43.75 million tokens trading at $1.42/token. The market capitalization of Vezt is $21.74 million and DATI owns $1.5% or $326,000.

Fundanna is the first Regulation Crowdfunding platform for cannabis businesses. Founded by cannabis industry supporters, Fundanna was the first reg CF portal dedicated exclusively to the cannabis businesses in the United States. There are so many market segments in the cannabis space but a central overriding theme is that banks and lenders have limitations on funding “sin” based businesses. There is a void in the market and Fundanna’s goal is to fill the void by giving investors access to early-stage cannabis investments and entrepreneurs. Guidelines allow startups to raise up to $1,070,000 each year through the Jobs Act. Fundanna’s goal is to go to the crowdfunding portal when funding cannabis projects.

Openvision Labs Inc. OVL is a developer of live-streaming media communication products and services, which includes Openvision Networks and Real-Time Studio. With an estimated value of $5 million, OVL is currently running four major development programs:

  • International streaming deals (African Network distribution demos)
  • Live-streaming deals with event venues
  • Exclusive content generation with actor Adam Beach
  • Development of a new and improved live-streaming media player

As more consumers turn to internet-based streaming solutions for their viewing enjoyment, a unique niche opportunity presented itself to OVL. While other streaming companies focus on streaming recorded content, many consumers still have trouble finding live-streaming events and real-time news outlets without cable subscriptions. This is one gap that OpenVision plans to fill, along with reaching for those international markets that are underserved by existing providers.

Additionally, many streaming companies have seen tremendous success with exclusive content. OpenVision is working with actor Adam Beach to develop content exclusive to the OVL’s online media streaming platform

Market Structure

DATI has 200 million shares authorized and currently has 21.5 million shares outstanding. This represents a lot of room for the company to grow the Angels plus platform and build out its portfolio of companies. There are currently 11.3 million shares in the float providing angel investors with enough liquidity for them to feel comfortable of the exit strategy should that need arise.

DATI Investment Thesis

The true value of DATI is in the valuation of the portfolio of companies that sign up for the Angels + platform. The startups that DATI is attracting have $1 million to $5 million pre-money valuations and have already raised considerable funds, which means they are ready to hit new milestones and raise more money in a higher round of financing, which would typically boost the value of DATI’s underlying portfolio. These companies are on a parabolic growth trajectory and are attracting smart money. Adding more startups to the portfolio serves to enhance the equity kicker to the angel investors as they could see growth on their underlying investment and the equity kicker as the portfolio grows. Angel investors are long term oriented so the equity stock that they are awarded in DATI could be locked up for a considerable time until they see an investment worthy of new investment. Then they would sell DATI stock and probably demand another DATI equity kicker in the new venture perpetuating this ecosystem. As long as DATI maintains a liquid market for its securities and continually builds its portfolio of companies, there is no reason why this portfolio of startups couldn’t outperform all the major indices.

Michael Sheikh is the founder of Falcon Strategic Research, which focuses on small-cap and micro-cap companies that are not covered by traditional analysts on Wall Street. Sheikh is an Air Force Academy graduate with a degree in economics; he was a KC-135 pilot. He was a stock broker for Dean Witter and was a research analyst for National Securities, covering the aerospace sector. He is a contract CFO for various public companies.

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Disclosure: 
1) Michael Sheikh: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. An affiliate company currently has a financial relationship with the following companies mentioned in this article: DATI. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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Charts and images provided by the author.

GMUI (StreetWiseReport) New App Could Push Social Media to a New Level  Contributed Opinion

Source: Michael Sheikh for Streetwise Reports  (1/4/18)

Michael SheikhAs social media has evolved, it has attracted more and more users. Michael Sheikh of Falcon Strategic Research discusses a company with an app that he believes will break through the constraints of social media.

Smartphone

Right now, daily usage levels, the amount of time users invest in social media daily, has grown to new heights. According to Statista, the average daily usage is at 135 minutes per day. The next level of social media will be even more encompassing than where it is now. It will need to push the boundaries of the very constraining social circles that we use for communication. The new VITA app, the first app release from VITA Mobile Systems Inc. (GMUI:OTCBB), pushes social media to a new level and solves the plaguing constraint in social media of how to access information that isn’t part of your social circle. Think about how many times you search daily and find the real-time answer is on a social media app but you are unable to access it because you aren’t in their social network. The VITA app closes the loop and the solution is crowdsourcing.

The other factors weighing on today’s social media is information overload. Users have so much information flying at them that they are unable to process it and have grown accustomed to simply tuning things out. Intelligent algorithms attempt to filter out the spam but traditionally do too much or do too little. They haven’t found the magic balance. VITA’s solution to this balance is to develop a social network for the public that eliminates profiles, eliminates friends, and essentially breaks down all barriers to allow information sharing all the time. In a nutshell the VITA app has information for everyone to view and this unfiltered information is organized and available at any time it is wanted.

VITA App

The VITA app is a community driven platform that allows users to take pictures of everyday life and post them as a living archive of location-based content. Users are motivated by sharing with this community their uncensored and unfiltered pictures devoid of the social pressure to take the perfect shot at the perfect angle with the perfect lighting. People are capturing life like they see it and posting to the archive. It’s crowdsourcing location-based content.

SEE IT, TAKE IT

POST IT

When pictures and videos are posted using the VITA application, its proprietary algorithms create a searchable location based content engine for public consumption. With the growth of social media, it has become apparent that one picture is not enough to tell a complete story. There are billions of pictures that are taken every year but only 1–2% of them make it to social media; VITA is after the other 98% of the media that doesn’t see the light of day today. VITA will compile the multitude of pictures and videos submitted to locations and events to provide a comprehensive narrative, giving today’s culture exactly what they are craving. VITA’s platform will enable users worldwide to provide or view first-hand accounts and live updates of events as they happen, as opposed to blindly searching current social media outlets such as Instagram, Twitter and Facebook or relying on a narrow media reporting of news outlets.

Evolution

The first baby steps of social media were taken by the social sites Friendster and Myspace. Then Facebook (FB) came along and set the tone of social media as we recognize it today with heavy use of text supplemented with pictures. Twitter (TWTR) evolved with posts limited to 140 characters of text supplemented with a picture. This made sharing of pictures easier which increased the amount of posts users would do. Less thought was need to come up with a full description/caption increasing user engagement. Eventually sharing photos became popular and Instagram was heavily weighted towards pictures and video supplemented with a small amount of text. This imagery based posting was easier because less thought was needed to post a picture. Instagram and Facebook posting are wildly popular but it is limited and hasn’t realized its full potential because users have to spend time selecting the perfect picture to post to capture the true essence of the moment. This selection process takes up valuable time because users are concerned that their peers would judge them by the quality of their posts. The social pressure led to Snapchat, which allowed the user to take short clips of video and pictures on a real-time basis. Social pressures of selecting the perfect post diminished because the content disappeared after 24 hours and there was no history on the user’s social profile. A major shortcoming was that this content was only available to friends and doesn’t allow the public to view everyone’s post.

VITA emerges from the EVOLUTIONVITA takes note of this evolution and integrates the successful tools within this progression. VITA breaks down all restrictive barriers associated with finding, viewing and posting content. VITA allows a user to post clips and pics to describe large events or every day sightings for EVERYONE to see. All found in an easy to use google maps platform. Along with essentially creating a powerhouse search engine catalogue for geo-location based content, this should open the door for VITA to achieve the most use and most volume of posts.

Frequency of Usage

At every step along the progression of social media, frequency of usage was a key metric pushing the next of evolution. Vita as the next evolution breaks down the boundaries of tradition social circles and expands them to a more universal harmonious social network based on one’s geo location. The pure community based nature of the network is all about creating opportunities for unfiltered content that is posted as pictures for public consumption. The VITA app has appeal to people that just see interesting things and take an unfiltered look at life around them and share it with the idea that it will make the community stronger.

Once VITA launches, it’s expected that the VITA app could even surpass WhatsApp and other popular social apps in terms of the percentage of daily users. If this high frequency of use is maintained and the content network builds, VITA has the potential to be one of the new leaders in social media.

Shortcomings with current location-based Social Media

Right now, Twitter is great for communicating news ideas but it fails if you don’t put in the right hash tag. Facebook live is a great way to share a concert that you know about in your social circle but what about the small concert happening at the local pub? Waze is great about telling us about traffic but what about other social events? Linkedin also had permission-based social circles that don’t allow out of network sharing without a fee. The VITA app creates a community of See it, Take it, Post it. There are no more boundaries. It crowdsources real-time live looks at life happening around us.

Here are some real world applications of HOW VITA WORKS:

  • Up-close looks of the car accident around the corner
  • First-person views of the protest downtown and video of police handing the masses
  • The out of control brush fire that is inching closer to your neighborhood
  • A candid sighting of a movie star at the gym
  • Seeing an actual look at the construction project that shut down a freeway on-ramp
  • Pictures of a lost animal found in the street
  • Flash sales and daily deals posted by local store and restaurants managers

Reasons for Enormous Potential

Almost all social platforms are built around users developing their own social circles. This foundation of a user-centric social circle means that most of the content is tailored after the image of the user and uploaded to make the user feel good about his or her image. Facebook, Twitter, SnapChat, and Instagram have all tried geo-location-based content but it grossly misses the mark because a majority of the images are selfies and just not useful. A good example of the differences between VITA and the other social networks might be the local mall. With the other social networks you are likely to get close-ups of people having a great time making faces and doing silly things. On the other end of the spectrum you will get people taking pictures of crowds or pictures of sales specials stores are running. Nothing in these pictures gives context with what to expect at the location. With VITA the difference is readily apparent because users post pictures of the outside of the mall so you can identify the different entrances, a picture of the parking lot so you can see how many cars can park, and a picture of the food court so you can see the variety of selection. The VITA app is not just another social media app it is the next evolution in social media where the crowd posts things for the greater good of the community. It is true location-based content that isn’t muddled with selfies and pictures and nothing of interest.

The defining factor is that the VITA app clearly defines the boundaries that the content on this platform is for public versus private consumption. The anonymous nature of the photos makes posting extremely easy and will ultimately lead to more posts per user daily. The true value of the platform lies in the data mining gathered from the pictures and user behaviors captured during the applications use. The company’s proprietary algorithms will be able to analyze the millions of pictures and videos shared daily, to interpret behavior, anticipate need, and satisfy the public’s growing thirst for immediate information. VITA has the potential to be one of the largest disrupters in social media because it has all the tools and consumer data that media and targeted advertising campaigns need. This potentially enormous databank could make VITA the leader in Artificial Intelligence and Augmented Reality.

VITA and Twitter Synergies

One of the most frustrating things about Twitter is that the content a user is looking for is probably there but the user can’t find it because he or she don’t know the right hash tag. With the VITA app all users have to do is get close to the geographic location and then view the archive of photos or the pictures happening in real time. VITA with its Google maps functionality makes it incredibly easy for the user to categorize pictures in this platform. It’s not hard to imagine the integration of the two platforms combining Twitter’s hashtag search with the Google maps geographic search encapsulated in the VITA application. There are additional similarities between the platforms because Twitter is a micro-blog platform based on random thought when events are happening. VITA seems to be a pictorial or video extension of those random thoughts that allows users to capture happenings around them for posting on VITA’s public social network.

Twitter has been struggling over the past years trying to monetize its gargantuan user base estimated at 330 million active users in Q3 of 2017. In Q3 the company finally delivered good news to Wall Street posting better than expected growth in international revenue per user and strength in the video and data enterprise solutions. The underlying issue with Twitter still remains because there has been little change in the platform and nothing in the works for Twitter users to get excited about. VITA could be the killer application Twitter has been looking for because it enhances its exposure in pictures and video and has the killer application to drive user engagement to new levels, allowing Twitter to charge its advertisers more. If integrated correctly, the VITA media could be Tweeted with the geo location embedded in the Tweet. Twitter users can then see what visual media is available around their current location without having to ‘FOLLOW’ the right people or having to rely on their actual network for updates. The VITA tools would optimize Twitter to act like a local drone, which allows a user to view updates within proximity of their location. VITA would also instantly make Twitter an aggregator of valuable meta-tagged big data and also opens a new revenue stream in hyper-local advertising. The fusion of VITA and Twitter seem to be a natural add on that would only make Twitter better.

Market Structure

The corporate name of VITA Mobile Systems is still Gold Mining USA Inc. (GMUI). The company has discontinued all mining operations and is only involved with application development. The company has executed all the documents necessary to effect the name change and is simply waiting on regulatory approval from FINRA in order to execute it. From the quarterly report, VITA shows $2.69 million in development costs on the balance sheet indicating a sizeable development project justifying the current valuation. The market capitalization is roughly $15 million with 3.0 billion shares authorized and 968,265,132 outstanding. There are only 79,472,792 million shares in the float and this represents 8.2% of the outstanding. From stock purchase agreement 800 million shares are subject to a lock up for a minimum of 30 months. Another interesting point about the structure is that North Coast Ventures has 40 million free trading shares, which roughly represent half the shares of the float. Based on trading volume since the acquisition, it seems to be sitting patiently on the sidelines. A thorough review of the balance sheet shows no toxic convertible debt and any of the debt currently on the books was a result of funding in support of the VITA business.

Investment Summary

Investors willing to take a step back and look at the whole picture might realize that that VITA has the next big thing in social media. VITA has a fully functioning app currently going through Beta testing. The company has invested millions to develop this platform. The share structure is very accommodative and its thin market depth makes it a perfect candidate for price appreciation. An argument can be made that VITA is a possible acquisition target of top tier companies. If the platform takes root the data mined off the user’s interactions will contain valuable marketing data corporations would be paying a handsome premium for. The platform lends itself to toward multiple pathways of revenue generation allowing VITA to monitor the data and repackage it for media advertisers. VITA Mobile Systems (GMUI) is a ground floor opportunity investment as Twitter was years ago before the Twitter revolution took hold. This investment could be the single biggest play in social media and warrants an investment before the obvious catalysts like the name change and the beta launch get this in the hands of the masses that take it viral.

Michael Sheikh is the founder of Falcon Strategic Research, which focuses on small-cap and micro-cap companies that are not covered by traditional analysts on Wall Street. Sheikh is an Air Force Academy graduate with a degree in economics; he was a KC-135 pilot. He was a stock broker for Dean Witter and was a research analyst for National Securities, covering the aerospace sector. He is a contract CFO for various public companies.

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Disclosure: 
1) Michael Sheikh: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: VITA Mobile Systems Inc. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company currently has a financial relationship with the following companies mentioned in this article: None. I determined which companies would be included in this article based on my research and understanding of the sector.
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GRCK (PSInvestor.com) Grey Cloak Delivers Eqova Acquision with Solid Structure Sets Stage for Rebound

Grey Cloak Set Stage for Rebound

  • Performance Based Compensation
  • Tiered Vesting based on Sales Generation
  • Dilution is not a Factor Going Forward
  • Targeting Underserved Medical Practitioner Market
  • Inventory in Place

Grey Cloak Tech (GRCK) delivered on its promise to close the Eqova Life Sciences acquisition within 15 days.  This also followed on the heels of news of their recent upgrade to the OTCQB.  Yesterday in fact the company traded in the top 5 most active on OTCQB with 8,849,907 shares traded.  The fact that they drew a line in the sand and delivered on these milestones is very impressive and sets the tone for future news releases.  The Eqova acquisition was a very thoughtfully structured deal with the right incentives for management balanced with shareholder protection for non-performance.  This management team seems very interested in building credibility with its shareholders.

Terms of Agreement

Employment agreements were struck with Fred Covely, William Bossung, and Patrick Stiles.  Both Stiles and Bossung will receive base pay packages of $140,000 annually.  The terms of their employment are considered “at will” which means that either party may terminate the agreement at any time.  This type of structure allows the board to protect the shareholders if management is not performing.  Bossum does have a modest 3 month severance package built into his agreement but it also comes with a 1 year non-compete clause.  Fred Covely the CTO settled his obligations with a $30,000 convertible promissory note with a maturity date set about one year from now with a 50% discounted conversion price.  Additionally he was awarded 1.2 million 3 year warrants at an exercise price of $.25.  Pay based on performance seems to be a central theme.

The Share Exchange agreement permitted the exchange of Eqova stock for 1.1 million shares of Grey Cloak Tech Series A Convertible Preferred Stock.  Half the preferred stock vests immediately but the other half is subject to sales performance.  Eqova must produce $100,000 in gross sales for 3 consecutive months or $300,000 in sales per quarter.  If the shares aren’t vested by next year then the company can buy the stock back at $.01/share.  The shares would fully convert into 66% of the outstanding common based on the date of conversion.  To put this transaction into perspective, the management team gets 33% to start and within a year if they meet the sales milestones they will have earned 66% of the outstanding stock.  From an investor perspective management has a big incentive to produce $300K or more per quarter or sales of $1.2 million annually.  If the management team hits these modest numbers they will generate gross profit of $480,000 assuming 40% margins.  When you take away their salary the company is left with about $200,000 in net profit which could be considered an accretive acquisition.  Anything above this would translate into extraordinary returns for shareholders.

Recent Dilution Tailing Off

The dilution from convertible noteholders appears to be at an end and any new dilution resulting from this deal is at a worst case 9 months away.  If management hits its sales targets in the first quarter they would vest the balance of the shares and give notice of their intention to convert.  Then these newly converted shares are subject to Rule 144 and could not be sold for an additional 6 months and when they are sold they can only sell 1% of the outstanding shares every 90 days.  The shares on the market would be nominal but the real news would be the growth in sales.  The Hemp Oil market is in fact growing according the Hemp Business Journal and expected to reach $2.1 billion in annual sales by 2020.

Medical Practitioner – Underserved Market   

  • Standardized Dosing
  • Unique Delivery

Medical practitioners have unique needs and Eqova is exclusively focused on meeting the demands of this underserved market.  Eqova feels they are going to “dominate the medical practitioner market.”  This means they will take a consultative approach by finding the exact dosages and formulations that practitioners demand.  According to Stiles consumers “demand superior products but also want it back up with education.”  This means Eqova will source high grade CBD oil and have manufactures blend it into the proper dosages with standardized labeling.  The products will have to pass rigorous third-party testing before being labeled as clinical-grade product made in CGMP Compliant Labs.  As part of the recent exhibition in Denver, Eqova Life Sciences also debuted its new CannaBio Salve, an innovative topical salve infused with several aromatic natural oils.  This unique delivery mechanism is another way Eqova can distance itself from the competition.

Sales Pipeline Bulging

News of the sales and pending sales this calendar year should excite shareholders looking forward to a company targeting a large untapped market.  The acquisition terms point to great growth prospects because the sales milestones seem very conservative and easy to meet.  Investors shouldn’t be surprised by the lumpiness in the sales as the marketing team gets started.

Inventory in Place

The surprise in this deal is that they have a starter amount of $150,000 inventory to turn.  Based on typical metrics they should be able to turn this inventory into about $300,000 in sales by the end of the year.  If they reinvest the profits into more inventory they could double sales in the following quarter assuming a constant sales force.  This is very big news because investors won’t have to worry about facing dilution to keep sales momentum going.

Upcoming Catalysts

– Sales projections
– Significant Sales
– Regional distributors
– Roll Out New Products

The story of this company is in its infancy but the pedigree of the management and the proven track record in the nutraceutical space should give investors high confidence that this team will be able to execute on its business plan.  The company has a simple business model of targeting a high margin product in an underserved market and growing sales exponentially.  The inventory is a key ingredient in the maintenance of a successful product launch.  The inventory stockpile considerably reduces the  amount of dilution risk away.  The company will be sales centric so there are many upcoming catalyst that could drive valuation higher.  The stock is sitting at about a $1.3 mil market capitalization or close to one times projected annual sales.   The supply of stock won’t last long at these levels.

This article was submitted by Mike Sheikh. Mike is a contributor for Seeking Alpha. Mike (or PSinvestor) have NOT been compensated for this article and currently holds a position in the company, but may trade it in the near future. You can follow Michael on TWITTER @breckskifan

GALT (Seeking Alpha) NASH Stocks Brace For Shockwaves From Galectin Therapeutics Trial Results

Summary

Market Void from Intercepts FDA Warning Letter.

Solid Case for Efficacy in Trial Results.

Negative Publicity from FX Trial Haunts Valuation.

Frenzied Response to PositiveTrial Results Likely.

Galectin Therapeutics (GALT), the leader in NASH will unveil its highly anticipated phase 2b pivotal clinical trial results in early December. If the market serves as any guide it has completely discounted any positive result. A NASH drug that works is worth anywhere between $2 – 5 Billion based on Allergan’s (AGN) purchase of Tobira for $2.1 billion. Ever since Intercept Pharmaceuticals (ICPT)’s FDA warning letter there has been a contraction of value in the NASH space and ironically ICPT’s loss of market cap has not been made up by the other players in NASH like Genfit (OTCPK:GNFTF) Cognatus (CNAT) or GALT. Investors need to realize that the FDA warning letter didn’t magically shrink the size of the NASH market in half. The epidemic still exists and continues to grow and there should have been a transfer of market cap from the loser ICPT to a winner. This gaping divergence exists in the NASH space and might see a resolution on GALT’s NASH CX trial results.

NASH Stocks – Market Cap Should be Increasing

The pure play NASH stocks lead by ICPT with its Breakthrough Therapy designation was on track to hit a total market cap for this basket of stocks of $5.0 Billion by the end of 2017. As estimates of the disease increase so should the market capitalization. The derailment happened on Sept 21, 2017 when the FDA warned doctors after 19 Deaths due to Ocalvia. There was a loss in the basket of pure play NASH stocks of almost $1.5 billion in market cap. The disconnect from the market reaction on this news is that participant correctly discounted ICPT’s shares but investors didn’t buy any of the other players.Right now there is about a $2.8 billion void in the basket of these NASH stocks as the market has failed to find a leader but in truth the most likely leader should have been the next company due to report pivotal trial results and that clearly is GALT with top line trial results due in early December. Since ICPT’s fall only GALT and MNOV have had any gains in market capitalization and they have been paltry at best. The market has completely discounted any favorable result by GALT.

Read much more of the article here: https://seekingalpha.com/article/4129548-nash-stocks-brace-shockwaves-galectin-therapeutics-trial-results?page=2

GOPH (PSInvestor.com) Gopher Protocol Transitions to Revenue with Pet Tracker Device

Gopher Protocol Transitions to Revenue with Pet Tracker Device

  • Indiegogo product launch heightens awareness of pet tracking technology
  • Company transitions from concept to revenue generation
  • Large Intellectual Portfolio with licensing potential
  • Nationwide decentralized network using IoT possible

Gopher Protocol (GOPH) has its roots deeply entrenched in intellectual property and the creation of a market forming technology the world has only seen in Science Fiction movies such as Terminator.  GOPH is in the early stages of building a national network using the Internet of Things (IoT) one device at a time.  The vison is to have the Gopher Chip in as many devices as possible allowing information to freely flow from node to node creating a smart mesh network where each device act as a repeater.  The IoT connected device market is estimated over $14 Trillion by 2020.  The enormous upside potential of this technology is the foundation for a company that is transitioning from concept to revenue.  When any technology company transitions from concept to revenue the stock valuations tend to expand.  While the company still has a nominal corporate burn rate, it will remain constant as revenues start to flow.  Once revenues reach that inflection point of profitability then quarter over quarter growth comparisons will be the guiding force for the stock price.  The recent announcement of the Guardian Orb on the Indiegogo platform demonstrates the company’s commitment to becoming a revenue company.

Pet Market

According to Grand View Research, Inc. “the global pet wearable market is expected to reach USD $2.36 billion by 2022.” The pet market in general is recession proof and pet lovers will spend whatever is needed to spoil their pets.  The pet tracking market is fragmented utilizing all types of technologies which is why it’s not hard to understand why the National Human Society reported 10 million pets are lost each year in the United States.  A robust, durable, longer lasting, and most importantly a cost effective solution is needed.  The monthly subscription service model never seemed to take root for pet consumers who want a plug and play product at a good price point and no billing hassles.  It makes sense that a cheaper and more robust tracking system will fill a market void and result in better adoption rates by pet owners.

Guardian Orb

GOPH’s first product to launch is the Guardian Orb which is one of the most robust long range pet trackers to hit the market.  It’s the size of a sneaker ball and easily attaches to a dog collar and only needed recharging every 30 days due to its Gopher Chip which manages the power.  What makes the pet tracker stand out is its ability to use the FM spectrum to locate the pet up to a 50 mile range.  This is the same technology that allowed researchers to track endangered animals.  The battery life of the Orb pet tracker is roughly 4 weeks and can recharge in just an hour. This seems to be the hassle free from the pet owner’s perspective.  The most robust feature of the system is that the application also checks for battery life.  Simply put, if the Orb is low on power the chip sends a message through the airwaves and then the Application alerts you to ensure that you put the Orb back on the charger so that your pet is able to be found.  This is the first consumer product to launch by GOPH and they plan to feature it on  Indiegogo.  Based on all the video content they have produced surrounding the product, this campaign is sure to build awareness and sales.  By visiting the Indiegogo website, consumers will see the starter package is priced at $118.  Arrow Electronics (ARRW) has given its seal of approval regarding the electronics architecture.  This is a starter price for early adopters, but once production begins retail pricing will be much prices will me much more favorable.

 

Follow On Products

The Guardian Patch is basically a sticky patch with a one-year battery and location tracking that is intended  to affix to your vehicle.  This gadget allows for continuous tracking and when set in a discrete part of your car would assist in the recovery of your car should it ever be stolen.  The best feature of this technology is that thieves can’t hide because of it triple redundant tracking technology.  It still works  without GPS or Cellular network.  The Guardian Patch once affixed to the intended object doubles as an emergency beacon if you tear off the patch off the vehicle.  Each Guardian patch has a unique identifier that when activated can be tracked using your phone application.  The application is available in Android and Apple.  With all the GPS trackers out there the marquee features are range and competitive pricing.    Due to it triple redundant technology only Lojack can compete in terms of range.  The phone app allows instant monitoring and will actually alarm you if your car is moving while you are in a fixed location.  The app also monitors the battery power and sends an alert when replacement is needed.  The target price to consumers is $40 but replacements will be needed every year as the battery runs out.  This disposable model is more friendly to consumers who don’t seem to want to hassle with monthly billing plans.

The next consumer product to launch after the Guardian patch should be the Guardian Bracelet which will come in children and adult sizes and allow personal tracking of children and elderly.  If you are a parent or a caregiver you will be able to have peace of mind that you won’t lose track of your family members.  These products are not disposable and need to be rechargeable every week.  When the final design is complete it will have a similar form factor to the fitness trackers like Fitbit (FBIT).

The end game is for the company to manufacture a chip, Dr Rittman calls it the GopherInsightTMmicrochip.  This chip would eventually go into all cell phones that allows access to the IoT network using a private network protocol circumventing conventional networks like GPS, Wifi, and Cellular.  Since the chip also contains artificial intelligence (AI) and is capable of learning, it will use the optimal resources and pathway to transmit the data.  It is clear that his vision is the Gopher Protocol installed on billions of mobile devices including phones, laptops, and tablets by the year 2020.  To access this network it is as simple as replacing a Sim card but use of the service would be unlimited and without cost since the network would be completely open and decentralized.  Imagine a world with unlimited data and voice at no cost.  The most compelling concept behind this network is that the more people join the more robust it becomes.  The existing mobile architecture actually degrades with an increase in users.  The more people that are on the Gopher Protocol network the more robust it becomes.  This is a true market forming technology that turns handheld phones with the Gopher Protocol into network nodes.  Imagine the possibilities.

Licensing Potential

All the IP for the Gopher Protocol is held in the company.  Simply put this means that they can structure licensing deals with anyone.  The most likely first targets are the hardware manufacturers like Qualcomm (QCOM) which has a global presence and would easily allow them to buildout their IoT network.  After securing the mobile market they could go after television, computer, and appliance manufactures with the idea that all of these devices have computing power and could be nodes in a global network.  This would accelerate the innovations that could come to these devices allowing a seamless way for them to talk to each other.  There is a very interesting anecdote that demonstrates the company’s licensing vision.  When reading through the filings what stand out is there discussion about their trademark Gopher Inside.  Intel objected to it and instead of fighting the company essentially rolled over and went with GopherInsightTM which is about as close to Gopher Inside as they were going to get but this demonstrates the Company’s vision.

Pure IoT Play

For investors that see the huge potential in the IoT space this company has the framework for a lot of future innovations.  As a technology play the stock seem undervalued given the significant disruptive threat it could have on the mobile carries in the USA and worldwide.  This technology could be licensed at any time and that could bring in significant revenue and create significant cash flows for the company.  From a product point of view if they get traction in the market from their Indiegogo campaign this could turn into an exponential growth story with double digit growth quarter over quarter.  Their CTO Danny Rittman is a solid asset of the company but if they are able to make any strategic hires that have product branding experience the combination should accelerate their sales.  If they are able to secure additional funding for R&D of the Gopher Insight chip then the threat of disruption becomes real.

This article was submitted by Mike Sheikh. Mike is a contributor for Seeking Alpha. Mike (or PSinvestor) have NOT been compensated for this article and currently does not hold a position in the company, but may trade it in the near future. You can follow Michael on TWITTER @breckskifan