We first noticed Vector Holdings Corp. (OTCBB: VCTH) last spring, after we received a faxed “alert” from “Wall Street Trader” touting the Company as an up and coming player in the specialty food and hospitality industry. We looked a little further over the next several months and found that several online promoters had been recommending Vector.
So we decided to take a look and see what Vector was doing to earn those accolades. The Company’s principal ventures include an online gourmet food business, a subsidiary that sells business “leads,” and a fast food booth that sells stuffed potatoes.
Now we like potatoes as much as the next guy. French fried, mashed, baked, home fried, you name it – we’ve got a yen for spuds. And, unlike Dan Quayle, we can spell them as well as eat them.
We even like them stuffed. We just were not sure how a stuffed potato booth at a regional mall qualified as a cornerstone of a public company that promoters claim is “uniquely positioned to capitalize on the lucrative South Beach, Fl. Market.”
So we decided to take a further look.
Very Short Arms
Vector didn’t have to go far to find its principal operating business. The Company operates Bestfoodonline, Inc., an online seller of specialty foods which, according to Vector’s most recent Form 10-Q, is currently focused on the wholesale distribution of specialty products to supermarkets and the resort industry.The Company acquired Bestfoodonline on January 3, 2001 from Allen Weintraub, who just happened to be both the sole shareholder of Bestfoodonline and the President, Chief Executive Officer, and controlling shareholder of Vector. The negotiations apparently were quite amicable. Before the acquisition, Mr. Weintraub owned 714,268 Vector common shares, or 57% of the Company. Then Mr. Weintraub sold his private company (Bestfoodonline) to the public company he controlled (Vector).
It appeared to be a generous deal. Mr. Weintraub received an additional 4 million shares of Vector common stock in return for all of his stock in Bestfoodonline. That left him even more firmly in control of Vector – with 89.7% of the outstanding shares.
The acquisition seemed to be a win-win scenario for Mr. Weintraub. He retained his de facto control over Bestfoodonline (since he was running Vector and owned almost 90% of the Company), and, at the same time, solidified and increased his holdings in the public Company.
Vector conceded at the time that the transaction was not at “arms-length” because Mr. Weintraub controlled both entities, but insisted that Mr. Weintraub evaluated “the risks and merits” of the acquisition.
Unlike Vector, which had no revenues at the time, Bestfoodonline had sales of around $690,000 in 2000, although operating losses were around $8300. At the time of the acquisition, Bestfoodonline claimed to be “one of the growing regional wholesale food distributors in South Florida with distribution throughout the South Florida market to the Florida Keys, and to island resorts in the Bahamas and Caribbean.”
Eighteen months later, the prospects appeared to be less promising, and suggested that the operation was shrinking rather than growing. Revenues had deteriorated since the acquisition. For the six months ended June 30, 2002, Vector’s sales – from all divisions, including Bestfoodonline - totaled $148,082. Operating losses for that six month period were more than $7 million.
The Company attributed its decreased sales primarily to “the poor economic climate caused by the world event of the Trade Center tragedy of September 11, 2001.” It appears, however, that sales for Bestfoodonline were down long before the terrorists attacked. For the nine months ended September 30, 2001, Vector’s sales were about $252,000 – putting them on a pace to fall well short of the 2000 sales figures.
Business may be off, but Mr. Weintraub has continued to accumulate Vector shares. On April 11, 2002 he converted 1,245,143 shares of the Company’s preferred stock into ten times that many common shares – 12,451,430 shares. Vector says that those common shares were issued to a company owned by Mr. Weintraub – although it does not name that company.
Then, on April 25, 2002, Mr. Weintraub was issued an additional 14 million shares of Vector common stock. The Company’s Form 10-Q for the quarter ended June 30, 2002, states that he received those shares “in exchange for a collateral fee for a loan made to [Vector] from a related party of Allen’s.” Clearly, the Company and Mr. Weintraub are on a first name basis. Again, the shares were issued to “a company owned by Mr. Weintraub.”
The Form 10-Q did not indicate the amount of the loan, the identity of the lender, its relationship to Mr. Weintraub, or why the Company’s President, Mr. Weintraub, was entitled to a “collateral fee” valued at more than $5 million, based on the Vector stock price (36 cents) at the time the shares were issued.
Vector has not specified the “company owned by Mr. Weintraub” that has been receiving all of these shares, but there may be a clue in the public records. On July 16, 2002, a company called Miami Venture Cap Inc. filed a Form 144 stating its intention to sell 380,000 Vector shares valued at $39,900. Miami Venture Cap gave its address as PO Box 800303, Aventura, Florida. Three days later, on July 19th, Mr. Weintraub filed a Form 144 indicating his plan to sell 380,000 Vector shares for $75,000. He also listed his address as PO Box 800303, Aventura, Florida.
Miami Venture Cap and Mr. Weintraub each listed their telephone number as (305) 466-2411. We called that number and were told that both Mr. Weintraub and Miami Venture Cap maintain offices at that location, and that all mail for both parties should be sent to the PO Box listed on the Forms 144.
The records of the Florida Secretary of State indicate that Miami Venture Capital, Inc. (apparently the full name of Miami Venture Cap) was formed on October 23, 1998 as O.P.M. Management of Florida, Inc. Its directors were Allen Weintraub and Michele Weintraub, and the incorporator was Elsie Sanchez whose address is listed as 343 Almeria Avenue, Coral Gables, Florida - the same address as Miami Venture Capital’s attorneys, Spiegel & Utrera, PA. OPM changed its name to Miami Venture Capital in June 2000.
Spiegel & Utrera also were identified as the attorneys for Vector at the time of its incorporation in August 2000 as Vector Aeromotive Corporation. Vector’s incorporator was Elsie Sanchez.
Elsie Sanchez was the incorporator of another recent Vector acquisition. On April 1, 2002, the Company acquired certain assets from Universal Data Services of Broward Inc. in exchange for 500,000 common shares of Vector. Universal Data, which was formed in April 2001 by Ms. Sanchez is in the business of generating “leads” to businesses in the financial and travel industries. The Company claims that Universal Data provides leads to such customers as Morgan Stanley/Dean Witter, Capital One Financial and MBNA Corporation.
Does Universal Data have any value to Vector? The assets acquired by Vector consisted of equipment, furniture, and “lead lists” valued, collectively, at $10,000. In its Form 10-Q for the quarter ended March 31, 2002, the Company insisted that the acquisition was too insignificant to trigger the filing of a Form 8-K “ due to immateriality of the purchase to our consolidated financial statements taken as a whole.”
Still, the Company was eager to trumpet the deal. Consider the contrast between the abbreviated disclosure in the Form 10-Q and this statement from Vector’s April 24, 2002 press release announcing the acquisition:
The purchase…is expected to add significant revenue to Vector Holdings…The addition of Universal Data will not only enhance the shareholder value of the company due to the profit the company generates, it will also enhance the profitability of our future hotels with leads to generate occupancy.
The Company went on to suggest that Universal Data “is generating more than $700,000 annually, and is projected to report over $1 million in revenue in 2002.” Vector promised that “all financial information regarding this transaction will be included in the 1st quarter 10Qs.”
Vector’s March 30, 2002 Form 10-Q did not appear to include any discrete financial information for Universal Data. Revenues reported in the June 30, 2002 Form 10-Q, - $148,000 for the first six months of the year - hardly suggested that Universal Data, or any other Vector operation, was on a pace for $1 million in revenues in 2002.
In any event, the acquisition could unwind before long. According to the contract between Vector and Universal Data (which is attached to the Company’s June 30, 2002 Form 10-Q) Universal Data may, in its sole discretion, cancel the deal and return the shares if Vector’s common stock price drops below .25 cents before April 2, 2003.
That clock already is ticking. On September 4, 2002 Vector stock closed at .035 cents per share.
Who sold Universal Data Services to Vector? Universal Data’s owner and president is not identified in the abbreviated “contract” attached to the Form 10-Q. However, the records of the Florida Secretary of State indicate that the sole officer and director of Universal Data Services was Michele Valiton. Now there’s another similarity between Miami Venture Capital and Vector. They both have directors with the first name “Michele” – Michele Valiton and Michele Weintraub.
The Stuff Potatoes Are Made Of
Vector’s only other operating business is a fast food booth called The Potato Sack, which features baked potatoes with a variety of stuffings and toppings. The Potato Sack is located in The Food Court at Florida’s Aventura Mall (along with Alan King’s Deli, Pita Nosh Knish USA, Salad Scene, Oriental Delight, and a handful of other similar offerings). The Company acquired the assets of The Potato Sack for $47,500 on June 11, 2002, including the equipment, the inventory and, we presume, the potatoes.The Company announced its entry into the stuffed potato business with considerable fanfare. A May 9, 2002 press release noted that “the acquisition further fulfills a goal of Vector Holdings Corp. to acquire and expand a chain of quick service restaurants geographically and include a variety of specialty items and menu options to meet consumer demand.”
The Company went on to claim that it would “seek to acquire and set up numerous quick service restaurants in shopping malls and hotels, which will accommodate the high percentage of pedestrian traffic typical of the respective areas.” It is not clear whether that would include more potatoes. According to the online “World Franchising” report from Source Book Publications, there are only six Potato Sack outlets operating - two in Florida and another four in Pennsylvania, with no new units projected over the next year.
If the expectations for The Potato Sack seemed rather ambitious coming from a Company that had just acquired its first retail food outlet – a stuffed potato stand at that – consider the following statement from Vector CEO and President Allen Weintraub:
With the approval of the Aventura Mall for our new 10-year lease to begin June 1, this will be the same day we close on the Potato Sack. The addition of this profitable entry to the Vector family will increase our sales approximately $1,000,000 a year. It will also give us a platform to use this concession in our future hotel acquisitions.
$1 million a year certainly is a lot of potatoes, but the May 9th press release did not provide any further details on sales, or include any audited financial statements for The Potato Sack operation.
A second press release, issued on June 12, 2002 to announce that the acquisition had been completed, claimed that The Potato Sack had revenues of “approximately $600,000 a year.” Once again, however, the Company did not provide audited financial statements verifying those sales. Vector claimed that it would renovate the booth in September 2002, and expected to add additional – but unidentified – food items that would boost annual revenues to the $1 million level.
And then there was that intriguing reference to “future hotel acquisitions.” Exactly what was the plan? Where are the hotels that supposedly would position Vector as a player in Florida’s trendy South Beach?
More on that in Part II of this series.
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