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Vuzix conference call and desalination vote -4

16:59 18-May-22


In advance of its conference call, Vuzix has issued a press release which says the company has signed a series of agreements with Atomistic which provide for an exclusive license of key microLED technology, the design of a custom backplane and, dependent upon achievement of various technical stages, the ability to acquire the enterprise.  For the record, I could but am not going to keep using the company's μLED label for microLED. 

The 8-K filing contains the real detail.  Vuzix is footing the bill for custom design and tooling of a backplanes using Atomistic technology and paying $30M in installments between now and the end of 2023 to do so.  In return it would get royalties on any products that Atomistic manages to sell.  Vuzix is also purchasing 25,250 shares of Atomistic Series B Preferred Stock for $2.5M and between 1,750,000 and 2,843,750 VUZI shares, based on their price of at the times of purchase, subject to a floor of $8 and a ceiling of $13.  The first purchase by Vuzix of 8,480 Atomistic shares will occur in about eleven months, and the remaining shares will be purchased following that as 7 milestones are completed by Atomistic, subject to Vuzix’s right to waive.  The shares of Series B Preferred Stock will automatically convert to shares of Series A Preferred Stock of Atomistic, which are worth 1000 common shares each, upon being purchased by Vuzix.  This would effectively give Vuzix complete ownership of Atomistic, subject to a possible 15% further dilution to Vuzix shareholders.

I consider myself fairly educated on display technology, and I have never heard of Atomistic.  This is a risky bet-the-company moment for Vuzix, even though the installments are just about a quarter of the cash on the balance sheet amassed by diluting shareholder already.  That bet could pay off mostly depending on how desperate someone like Meta gets.  VUZI shares were initially fractionally up, but are now fractionally further down.  I understand why Vuzix management is taking this chance, as I do agree that microLED will eventually be the future of displays and waveguides are the technology of choice for Augmented Reality.  However, there are many other much better funded players in the industry.  Perhaps more importantly, history is littered with companies (and investors) who have underestimated the cost and risk of such development and mass manufacturing.  I want no part of this risk this point, and I doubt the ongoing conference call is going to change that.  Management attempted to gloss over the terms at the end of prepared remarks.  Q&A is just beginning and some skepticism is already evident in the first question.

I've also been meaning to document that the California Coastal Commission rejected plans to build a desalination plant in Huntington Beach.  The situation in the state is bad enough that this doesn't rule out other such plans in California, but it raises the bar and time matters in investing, making this is incremental negative for ERII.