For those interested (and it doesn't seem like anyone is--if you are long you will be on Monday, though) it appears that the author of the Barron's article has sunk his teeth into a devastating story about the apparently unethical manager/owners of VTCH. Lest anyone think the author did not have help in his "research" consider the following:
Short Interest on VTCH:
10/96....0 shs
11/96....59430...........(early short interest is most likely the 12/96....12470...........underwriter using an overallotment to support
01/97.... 9950........... the deal)
02/97.... 2298
03/97.... 5774
04/97....249278
05/97....476526
06/97....TBA
Jaye Scholl, from Barron's, was obviously handed "the file" on this disaster by those who got themselves placed comfortably short in April, May and probably recently, as well. I would love to see attribution given to the "short" that gave him the story. I don't believe that it would change the facts of the story much. But it would be a pleasant change to see full disclosure given by the journalist in cases such as these.
Anyway, I am not able to speak to the veracity of the accusations toward management that they, through legal manuevering, have in the past skirted their obligations to pay debts owed to large corporations. I don't have access to court records regarding the damning information. (Make no mistake this article IS damning and will crush this stock.)
But I am able to give the results of some of my research.
First, the oversights or lack of thorough investigation that I see in the Barron's article by Jaye Scholl:
#1.... He states that "Wm St. Laurent said Coopers and Lybrand never served as Vitech's auditors." and further that in a letter Asher (CFO) stated that Vitech's consolidated financial statements were audited by Coopers. He also states that "whatever the relationship between Vitech and Coopers and Lybrand, the two parted company last year."
I think "parting company" begs the question of poor ethics on management's part, so the reader is lead to believe that Coopers dropped them. In the face of the other accusations this is unfair. But the fact, according to the S-1 in October, 1996 is that Coopers was the auditor for a group called Meris and Co. who had loaned Vitech $2M pre-IPO. They audited two years ('94 and '95) of financials from Vitech before Meris put up the $2 million. So there is no discrepancy here from management's comments.
#2...He talks of Vitech's largest customer in Brazil, Vitoria Technologia, (76% of '95 sales) controlled by none other than Wm St. Laurent. But he does not say that the current make-up of revenues (as of last quarter) from Vitech does not exceed 32% from any one customer.
He does have a grasp on the fodder for shorts:
...cash burn
...financial incest amongst management
...ballooning inventories and receivables
...low cash position
Some negatives he missed are:
...exorbitant bank credit (2%-3% per month after the first200k @ 8.5%)
...comparatively low debt service pre-IPO vs. post-IPO; George,jr loaned @9% with equity option kicker; 11 accredited investors loaned at 9% with equity and warrants tossed in (wonder who they are); Meris (the guy who used Coopers) loaned @ 12%.
...the Meris loan was paid off; But Meris came back and said that he was promised equity and threatened litigation. The St. Laurents (Wm. and George, III)just folded their tents and said that they would take the shares out of their personal holdings to settle the deal. But if you go back and read the agreement as it is written between Melis and Vitech it clearly cuts Meris out of any equity once the loan was paid off. Wonder if Meris knows something that St. Laurent doesn't want anyone to hear (just speculation).
This is my first glance at Vitech. I do not own any shares, nor am I short any shares. I looked into this with the possibility of going short. But the key here is that this company is burning cash and only appears to have a sustainable growth rate of less than 5%. Even if there were absolutely no truth to the ethics charges, this company will have to continuously pump the capital markets to get the growth that Wall Street expects. How deep are Daddy's pockets? Because as of today, IMHO, you won't see any tapping of the equity market and the banks apparently have Vitech's number.
PS: Jim Krawiecki, I tried to send you an email message. It appears that your address is not accessible. |
