VECTOR HOLDINGS CORP. (OTCBB:VCTH), PART II – HEADED TO SOUTH BEACH, OR JUST HEADED SOUTH?
September 9, 2002
In Part I of this series we explored Vector Holdings Corp.’s (OTCBB: VCTH) current operations - distributing specialty foods, operating a company that provides business “leads,” and selling stuffed potatoes at The Potato Sack, a fast food outlet located in Florida’s Aventura Mall. Does that portfolio give investors any reason to believe that Vector is poised to become a power in trendy South Beach, Florida?
Some promoters seem to think so. Then again, what do they know that we don’t?
Today Potatoes. Tomorrow Hotels
Vector claims that The Potato Sack will give it a “platform” to use for “concessions in our future hotel operations.” The June 12th press release followed up on this theme, stating that Vector’s “present strategy [is] to maximize shareholder value [by acquiring] ‘boutique’ hotels located in South Beach, Florida.
The reference to South Beach sounds sexy, but how does Vector plan to accomplish that goal? As of June 30, 2002 the Company had about $52,000 in cash, and was depending on The Potato Sack, Universal Data Services and Bestfoodonline for future revenues. No significant future funding appears to be on the immediate horizon.
This is not the first mention of Vector’s plan to acquire hotels. In October 2001 an online stock promotion service called “The Stock Genie” published a “research report” touting the Company’s plans. That report claimed that Vector would purchase its first hotel, The Astor, “within 30 days” for $16 million.
That was not all. According to The Stock Genie:
[Vector] intends to acquire 9 hotels by the end of calendar year 2002 that will be running at an annualized revenue rate in excess of $100 MILLION DOLLARS. These 9 hotels assets will be in excess of $200 MILLION DOLLARS. [Vector] intends to close on 3 of the nine hotels by the end of this calendar year (2001). These three hotels are estimated to generate $12.8 Million Dollars in revenue's and Net Operating Income (NOI) of $2.5 Million Dollars on assets of $28 Million Dollars in 2002.
With less than four months to go in 2002, Vector still is nine hotels short of that goal.
What happened to the proposed acquisition of The Astor? According to Vector’s Form 10-K for the year ended December 2001, the transaction still had not closed by April 2002, and the parties had agreed to extend the agreement “indefinitely.”
Where did the Stock Genie get this information – or other “facts” – including its claim that Vector was “in talks” with one of the “most popular restaurants in the world” for its first hotel property, and planned to expand to Las Vegas and Arizona? Or its assertion that Vector was “doing 1 million in revenues? The authors of the report certainly do not seem to have reviewed the Company’s public filings, which reflected revenues of around $243,000, and operating losses of $128,000, for the first six months of 2001. If they had reviewed the Company’s Form 10-Q for the quarter ending June 30, 2001, they would also have seen that, as of June 30, 2001, Vector had no cash.
The Stock Genie claimed to provide “information on selected public companies.” How does it select those companies? In this case, The Stock Genie conceded that it received 100,000 free-trading shares of Vector common stock as consideration for its services.
The Stock Genie has not been the only analyst recommending that investors buy shares of Vector. In April 2002, a service called Equity Net Research published an “Equity Research Report,” with a buy recommendation and a six to twelve month price target of 89 cents for Vector shares. As the basis for that recommendation, the report claimed that Vector was “uniquely positioned to capitalize on the lucrative South Beach, FL. market …[t]hrough a combination of food distribution, lodging and restaurant consolidation, and lead generation.”
It is difficult to understand how Vector is “uniquely positioned” to take advantage of any business in South Beach. At present, the Company does not appear to have any presence in South Beach – unless it happens to distribute gourmet foods to some hotels or businesses located there. It certainly does not own any South Beach hotels or restaurants, does not have the funds on hand to make any significant acquisitions in South Beach, and has articulated no plans for future financing.
Despite such limitations, Equity Net Research, insisted that Vector’s plan was “simply taking existing hotels and attempting to make them better.” It claimed that Vector planned to acquire six hotels by the end of 2002, and was “under contract” to acquire a boutique hotel in South Beach that generated about $5.5 million in revenue and $1 million in net operating income in 2000. Was this the famous Astor Hotel, which, according to The Stock Genie, Vector was scheduled to buy before the end of the year 2001? Equity Net Research did not identify the hotel.
Equity Net Research projected revenues of almost $7.5 million for Vector in 2002, most of which would be generated by the “Hotel Initiatives.” But was there any basis for believing that Vector would acquire six hotels before the end of 2002? Not to repeat ourselves, but with less than four months left in the year, the Company is six hotels short of that goal.
Despite this glowing optimism, Equity Net Research did note that Vector has financial concerns, including overdrawn bank accounts and numerous notices from the IRS for unpaid payroll taxes. Still, the report insisted that those potential liabilities are less than $34,000, “hardly an amount that casts doubt on the Company.” Unless, of course, you consider the fact that the Company had less than $52,000 in its bank account at last report.
Like The Stock Genie, Equity Net Research was well-compensated for its report. It received 60,000 shares of Vector common stock in return for publishing the initial report and subsequent updates, and another 55,000 shares and $5,000 in cash for preparing a business plan for Vector.
Selling Shares
While promoters were giving investors a host of reasons – however thin - to buy shares of Vector, the Company was registering plenty of shares to sell. On April 18, 2002, less than one week before the Equity Net Research report was issued, the Company filed a Form S-8 to register 5,250,000 shares to be issued to employees and bona fide consultants and advisors.
The Company did not say who would be receiving the shares, or when, but trading volume for Vector shares was brisk in the days following the Form S-8 filing. On April 16, 2002, 62,300 shares of Vector common stock were traded. The following day, April 17th, volume was 218,000 shares, and remained brisk. While fewer than 2 million shares were traded in March 2002, 4.6 million shares changed hands in April, and another 16 million shares were traded in May – including 8 million shares that were sold in the eight days following the May 9th Potato Sack press release. Volume was lower, but still significant, in the following months, with 3 million shares traded in June, 6 million in July, and 4.3 million in August.
Share prices have fared less well. Vector common stock, which was trading at less than 20 cents per share in early April 2002, hit 43 cents on May 6th on the eve of the Potato Sack deal, but now languishes at around 3 cents. Still, the Company is looking for shareholders who are willing to accept the premise that Vector is “uniquely positioned to capitalize on the lucrative South Beach, Florida market.” On September 5th, Vector announced that it had secured a booth at the MoneyWatch Show to be held in Houston, Texas on September 21st and 22nd.
The Company says this will give it a chance to “interact with more potential shareholders.” Maybe they’ll even have some potatoes to share.
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