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So, I suppose PB was the one that picked up the bum units to be evaluated and repaired, and that’s how they came into possession of them?
Unless I am missing something, that implies that about one in three of the kiosks VEND delivered failed to perform satisfactorily.
With the margins VEND has, that’s not a sustainable business model.
When they take a malfunctioning machine back, they don’t reverse the revenue.
So, they showed 426 installations for the year ended 6-30-19, but it looks like they took 140 back. That would bring them down to 286 plus whatever they had as of 6-30-18. Wasn’t that 3 kiosks?
So it looks like the net number of installs was less than 300.
The mysterious 160 finished units on hand?
I think I found a clue as to the explanation. It appears that most, if not all, of those kiosks were units that had been installed but had to be taken back for problems. And VEND estimates that 25% of those will turn out not to be "recoverable".
Since they don't know how many are "recoverable", they aren't in a position to sell or deliver any of the units that are on hand unless/until they figure out what's wrong with each one and fix it.
Not so good for cash flow.
They must be running on fumes by now. And they are 71 days into their 90-day period for evaluating their options.
The Illinois case is the one I posted about a week or two ago. They bought 3 kiosks at first, signed up to buy some more and deposited $400,000 to $500,000 or so.
The first 3 kiosks were delivered very late and had problems. The remaining kiosks were never delivered. Then it turned out that Chicago has an ordinance that will not permit the frozen yogurt to be sold without a human involved. It's one very unhappy franchisee.
The Lindstrom case is a suit by the party to a settlement agreement that VEND didn't honor. The former general counsel (whose name doesn't have a "d" in it) is actually the attorney of record for VEND and the other defendants.
The Atlanta case was filed in January, and from the looks of things, they are spending real money chasing VEND, so I would think that the amount in controversy must be substantial.
The 10-K lists the pending lawsuits. Included are Atlanta, Chicago, San Antonio (I believe) and a couple others. The Atlanta deal was described as a $21 million deal when VEND announced it.
Strange but true- VEND filed its 10-K at 9:30 last night. Not much in it, which only makes me wonder why it couldn’t be filed on time.
If you’re interested, I can provide lawsuit info and/or links. There’s Chicago, San Antonio, Atlanta and one other I don’t recall.
And that $360,000 matches the amount that doesitreallymaters had mentioned.
Time’s up, no 10-K.
It’s not that hard to file a 10-K, although VEND may even lack those fairly modest resources.
The consequences for not filing can be severe, but I guess that’s going to take a while to happen and it probably won’t matter much by then.
Pretty strange sentiments, RoBo.
You claim to be an investor, yet you mock them. You are your own reward.
You have a fair point, and I completely understand your preference for waiting until the news comes out of the horse's mouth. For my part, I prefer to find things out before then, even if I have to take some of them with a grain of salt. I have developed a sense of which posters have credibility and which ones don't, so that's all I need. Others would understandably have a completely different impression of who is credible and whether to rely in any way on what is posted.
There are certainly some who take to these boards to spread misinformation, so there's some merit to waiting on the company. I think there would be less of an inclination to seek out news, even if it's only rumored, if the company were more transparent and reliable in its own announcements. I may be wrong, but I'd believe a number of folks on here (including you) long before I would believe anything that comes from Nick Yates.
Oh, thanks, that was very helpful. NOW I'm convinced!
How, specifically, are we "very wrong"?
Tell us something good happening at VEND.
Instead of promising to provide explanations and facts, why don't you try doing it for a change? The vagueness of your complaints and your failure to follow through are very telling. And we haven't forgotten how you claimed to have schooled folks when your own "facts" were incorrect.
I'm still waiting for Franky to fulfill his promise to explain franchise laws to me.
As to the 8-K, there have been quite a few developments at VEND over the past year that probably should have been the subject of an 8-K, if only to correct the misimpression they created in previous announcements (Remember when they announced that Stoelting was going to be their manufacturer, for example?).
And anyone who confesses they have paid illegal commissions on stock sales and hasn't bothered to correct it is a lot less worried about compliance than things like appropriate 8-Ks. Whether to file an 8-K may be a legitimate judgment call, but payment of commissions to unregistered salespeople is black and white.
Franky, "Just the Facts, Man/Ma'am"!
There is a fact (or a few related facts) that I've been curious about. I think I know, but since you are the guy with Claridgevoyance, I thought I'd ask you.
The credit and debit card revenues for each kiosk are paid by the processor to VEND, right? Then VEND turns around and pays the franchisees, right?
- Is my understanding correct?
- How often does VEND pay the franchisees? Monthly?
- What time of the month does VEND make those payments?
Thanks in advance. I know I can always count on you for the facts.
I doubt that the 10-K will be filed next week. And that means the franchise docs won't be updated and renewed on time. If I'm right, by about this time next week, there will be -
- Non-compliance with SEC requirements
In addition to -
- No manufacturing
- No ability to sell new franchises
- Answers coming due in a few lawsuits
- No investors saving the day
But, hey, they did get an answer on file to one of the lawsuits, and payroll expenses are going down! And they still have (some?) of those kiosks!
From what I'm hearing, there are plenty of free parking spots, so NY's replacement can probably take two of them. Lots of offices and desks to choose from, too. HQ is emptying out.
If there’s an investor willing to invest in unsecured converts in VEND, I have a domed stadium I’d like to sell him. For that matter, even if it’s secured debt, I would be interested in selling him downtown Houston.
The options weren't worthless after all!
Any option has some value, but I had described Yates' forfeited options as likely worthless because I had assumed they were out of the money. Nope, 5,000,000 of them, 2.5 million of which had vested, had a strike price of 16 cents a share.
So, he forfeited real value there! What the heck is going on?
And yet, there's still a 36 cent bid on the shares! Do those folks even read the press releases and 8-Ks?
Clear the decks!
Yates is completely off the Board and has forfeited his (worthless?) unexercised options.
Would love to know what led to that, but I suspect we won't have to wait long to find out.
I have a fair amount of bankruptcy experience from a past life, so I can shed a bit of light on that possibility.
It would take a minimum of 3 petitioning creditors to file an involuntary in VEND’s case, and you usually want one or two more just in case. It can be difficult to sign up petitioning creditors. It costs money (legal fees), it carries the risk of being sued by the debtor, and it’s not likely to result in financial satisfaction. So, involuntary bankruptcies are relatively rare. When they do happen, it’s often because the creditors are fed up and angry, or they may have concerns that the debtor is being pillaged.
So, while I can see VEND becoming the subject of an involuntary, it’s more likely that the filing will be voluntary. And typically, the voluntary filing doesn’t happen until the debtor is almost out of gas. Well-advised debtors might choose to file sooner, but management often resists. One thing that would accelerate a filing would be the arrival of a deal that is conditioned on a bankruptcy clean-up. As I said, I think the most likely deal would be what’s known as a “363” deal where the assets are sold quickly to a third party.
I think VEND will continue to shop deals until it either finds one or runs out of cash. I cannot imagine anyone wanting to buy into a non-operating company (because, let’s face it-no manufacturing, almost no new sales), and I only suppose that a 363 sale is a possibility if it’s pulled off before the franchisees give up. In either case, a savvy buyer would want this mess to get washed through a bankruptcy. I am sure that Nick and company are dreaming of a recapitalization with new investors (private equity or family office money), but that’s not realistic.
Maybe Nick should get himself a spot on Shark Tank! That would be entertaining!
Not a good sign, but not a surprise. That won't help their efforts to raise capital, and it will delay their filing of the franchise renewals.
So, at least we know how the quarter's bottom line turned out - a $3.4 million loss on $8.2 million in revenues.
Giving them a very big benefit of the assumptions, the 1st quarter FYE 2020 loss looks like it will be another $2.5 million, and with the way things are going, the 2nd quarter outlook is similar.
Since efforts to raise capital don't seem to have succeeded and relatively few new franchises are being sold, the source of funds must have become the liquidation of inventory. Maybe that's why the Flex arrangement ended - VEND could no longer afford to prepay since it needed the cash to fund operating losses.
Maybe they have enough inventory to squeak by until early 2020? But only if they want to augur this thing into the ground.
I have been wondering about the 10-K. On the one hand, they are clearly scrambling and would have to deal with recent developments such as the lawsuits, so it wouldn't be a surprise for them to extend until mid-October. On the other hand, they have a life-or-death offering circulating, and it won't help if they can't provide the 10-K - a draft might have to suffice, but it won't provide the same level of comfort. Also, they said last year that the sale of franchises had to be shut down temporarily while they awaited the filing of the 10-K (to be filed as an exhibit to the franchise disclosure documents). On balance, with what I would imagine to be a bunch of people running around with their hair on fire, I expect them to miss the deadline.
I appreciate the offer to share info. I don't have any material non-public information myself. As Franky can attest, I run the risk of angering or boring people on this board by sharing everything I know or can sleuth out. I enjoy digging for the unrevealed truthful revelations.
At first, I was very tempted to take you up on your offer to provide me additional info, but I suppose prudence dictates that I decline. I over-share as it is, but I don't have to give any thought to whether I am being too indiscrete. If I knew what you know and it's something that you think shouldn't be shared with the board, I would have to keep that in mind. I think that it will all be coming out shortly anyway, between SEC filings, franchise disclosure documents, lawsuits and, eventually, a bankruptcy filing. I need to think about it. It is very tempting to an information junky like me.
Trouble in Atlanta, Texas and Indiana, too.
So, I had mentioned a few months ago that VEND had been sued by what appeared to the franchisee in that big Atlanta deal. Sure enough, that's who the plaintiff is. The case is still pending.
VEND has also been sued by someone who appears to be from the San Antonio area. That lawsuit relates to VEND's breach of a settlement agreement.
Then there's another suit filed just this week by an entity incorporated in Indiana. Another breach of contract suit.
The Atlanta lawsuit has been pending for a while, but there have been 3 new lawsuits within the last 60 days. The pace is picking up.
The Chicago franchisee is a bit unhappy.
They filed suit against Reis & Irvy's about two weeks ago. Among their complaints:
- Machines that they purchased in December 2018 were not delivered until May and July 2019.
- The 3 kiosks that were delivered didn't work properly. They required upwards of 10 to 15 hours a week of maintenance. Their wifi didn't operate properly (thereby depriving the owners of notices of machine malfunctions).
- R&I replaced one machine, but the replacement was also defective.
- Other than the one replacement, R&I hasn't repaired or replaced kiosks.
- R&I failed to deliver the cleaning cart that they purchased.
- They purchased 9 more machines and, at R&I's urging, released funds (regrettably) for an expedited delivery. Despite that, R&I failed to deliver the machines and hasn't even specified locations for them.
The topper, though, is that after the franchisee had spent a few thousand getting set up to install a kiosk within Chicago, they were advised by the City of Chicago that they couldn't sell unpackaged goods without a human operator.
Now, these are all unproven allegations, and R&I hasn't answered the complaint yet. We need to hear VEND's side of the story, eh?
For what it's worth, I had occasion to see the kiosk that I had previously spotted in a downtown Houston office complex's food court/mini-mall.
I was there for meetings on two days. When I arrived mid-afternoon on the first day, I watched for a while, and the machine seemed to be doing fairly steady business, with a sale every 10-15 minutes or so. It was fairly clean, with only a bit of debris from misguided sprinkles.
On the second day, I arrived at 8:00 a.m. and the area was dead - no business being done by anyone, including the kiosk. I came back through at lunchtime - 11:30 to noon - and the kiosk did no business at all. In the half hour or so that I watched, there were a couple of people who stopped to check it out from curiosity, but no sales. I noted that the machine seemed to have been cleaned from one day to the next since the sprinkle debris was gone.
As I said the first time I posted about the machine, which was a relatively recent placement, the location is OK but not great. Its potential customers are primarily office workers. There's hardly anyone there on weekends. There doesn't seem to be any morning business, while the mid-afternoon business seems to be fairly brisk. I'm not sure about lunch-time, which I thought would be good. The food court businesses close up around 4:00 or 5:00, and there seems to be a modest amount of late afternoon business from workers who are working late.
My second encounter confirms my thoughts the first time I saw the kiosk. This location may do OK business, but nothing to write home about. It's a recent placement by VEND, and it suffers from a curse similar to some of their other placements - Office environments just aren't good spots.
Speculation about the board and CEO changes....
It occurs to me that if there is a Chapter 11 filing coming, there could be a fight over whether the company continues to be run by current management. Creditors might seek the appointment of a trustee to run things.
Nick presents a couple of problems in that battle. He has a very checkered past, for one thing. He seems to be rewarding himself a bit too lucratively, for another. And finally, he owes the company money for those illegal stock commissions he was paid.
So, I think the advice VEND received was to get Nick out of the CEO spot and to create a board with a majority of independent directors so that the company has a better chance of avoiding the appointment of a trustee.
I think that was smart planning. It’s of particular value to Nick if he wants to get his own payoff out of the deal, but it’s probably still for the best for the company. A bankruptcy trustee might not be able to preserve any value at all.
Ah, so there’s a private Facebook group for VEND investors, eh? I think you may have mentioned it before. If it includes a bunch of franchise owners, I guess it’s a good source of information. And I suppose it also has some insiders or quasi-insiders like this board.
I hope it’s a happy positive-thinking group that cranky Franky can join. I pledge to keep an eye peeled for positive developments at VEND, but I am afraid there won’t be many.
Thanks, Franky.
Not nearly as interesting as your explanation of why Phil Mickelson wasn't a spokesperson.
Nowhere near as interesting as all those facts you offered to provide.
And definitely less riveting than your explanation of franchise law.
Speaking of California...It's been over 2 months since VEND got clearance from the California Department of Public Health, but it looks as though franchisees such as the folks at R&I SoCal are still awaiting delivery.
It's fair for you to speculate, too.
I confess that I've been tempted to short VEND recently.
Until now, I never had any desire to short VEND. Recently, with my predictions that the end is nigh, I was tempted to put my money where my mouth is and short the stock.
I'm convinced that it will go to zero, but I know that it can take a while to get there and while it does, the irrational enthusiasm of some true believers can prop the price up. Just look at how the price went up despite the really bad news in the most recent press release. Nevertheless, I don't think there's that much time left before lack of cash kills them. There may be a small rabbit pulled out of the financing hat, not enough to lead to survival, but perhaps enough to continue the charade a while longer, so there's that risk, too. So, there could be a couple of bumps along the way, and it may require more patience, but I see this stock going to 5 to 10 cents a share in the reasonably near future.
In short, I think a short sale is a winner here.
Then I was confronted with reality. I took a look to confirm that the stock is shortable, and lo and behold, it is. Then the bad news - for the privilege of shorting the stock, you have to pay the lender of the stock a premium at a rate of over 33% a year. And that's on top of the risk that the stock you borrowed gets pulled out from under you before you're ready to close your short.
I'm amazed that with 70 to 100 million shares out there, it's that tough to find shares to borrow. I have seen one web site publish data suggesting that it's not that widely shorted, but I suspect that is inaccurate. There must be a larger short position in VEND than public data might lead one to understand.
So, I won't be shorting VEND, which is probably for the best anyway.
Looks like a lot of Flex employees in South Carolina are in the job market. Probably some of them have nothing to do with VEND kiosk manufacturing, but some of them clearly do. A significant percentage of the job-seekers are in quality control positions.
Yep, speculating we are.
But announcing that you have 160 freaking kiosks available when your franchisees have been awaiting deliveries sort of invites speculation, don’t you think? Like, how the heck does that make any sense? There’s more to the story.
It would be great if they had explained it (and if I were a franchisee awaiting delivery, I would be demanding an explanation). But for whatever reason, VEND is being coy.
Good point about the possibility that the manufacturing contract might specify California law.
That would probably appeal to both of them.
I got curious about VEND's lien status. Here's what I found.
There are no UCC filings of record, so there are no normal creditors who have any lien rights on any VEND assets.
Whether Flex has a lien of some kind may depend on the terms of their contract with VEND and the location of manufacturing.
If the contract with VEND specifies that title doesn't pass to VEND until payment is received, then Flex might actually own and have the right to retain (pending payment) the kiosks in its possession.
That doesn't seem consistent with VEND's statement strongly suggesting that it owns the 160 kiosks. It's hard to say. Flex would have been smart to provide that title doesn't pass before payment (or shipping that would only occur upon receipt of payment), but who knows?
That would leave some sort of possessory lien in favor of a manufacturer.
There is a provision under California law granting a person who performs services on a debtor's personal property to claim a lien on that personal property, but only while the property is in that creditor's possession. So, if Flex's manufacturing occurs in California, it would seem to have a lien on any kiosks it holds.
There is no such provision under Texas law, which is the other most likely location of Flex's manufacturing. I note that Flex has a Reis & Irvy's kiosk located in its Austin facility, so it may be that the work is done in Texas.
If Flex doesn't have title or lien rights, then that's good news for VEND. In bankruptcy, VEND would be free to sell those kiosks for cash and ignore any obligation to deliver them to purchasers who made deposits, thereby creating some "bankruptcy cash flow". So, I still think there's a potential of up to $8 million in liquidity that could be achieved in the event of a bankruptcy.
That said, once the $8 million (or less) was obtained, the well would run dry. That's not enough to fund operations and reorganize the company, even assuming that a manufacturer could be enticed to come on board.
Here's what I see happening - The VEND proposals to potential investors that would be accomplished out of court will fail - There's no collateral and no value in the equity because of the overhanging obligations. The alternative VEND proposals that call for a transaction in bankruptcy will, if successful at all, result in either (a) a takeover of the company by a new investor, with no recovery on the common stock, or (b) what's known as a "363" sale to a new investor. I doubt there's any benefit to a new investor taking over VEND, and that would take a lot longer than a 363 sale. So, I think that this process will end with a 363 sale of the remaining assets of VEND to some new investor who continues the business under his ownership. The common will see nothing, and the creditors will see the typical pennies on the dollar recovery.
The Flex relationship must have ended in July, given the low number of installs reported for that month.
I had wondered whether some of the 160 units in inventory are those that were returned by unhappy franchisees in settlements, but that could have happened only to the extent that those franchisees were willing to accept a VEND promissory note in return, and that's a bad trade.
The other possibility that doesitreallymatter mentioned also seems more likely than most to me - there are 160 finished units, but Flex won't release them pending some payment.
If that’s true, then he should take action. Or does he not mind that there is an imposter posting here?
Please speak to Nick (not us).
160 kiosks for financial flexibility?
Thanks for the thoughts, guys, my outlook has broadened.
Since VEND has retained someone whose specialty is financial restructuring / bankruptcy restructuring, it occurs to me that financial flexibility is being emphasized.
Liquidity is key to survival, so I was thinking that it's mysterious that 160 kiosks are sitting undelivered. If they were delivered, that would generate both revenues and, perhaps to a lesser extent, cash flow.
In a bankruptcy and potentially (but less likely) in a workout environment, you can pick and choose the obligations that you will observe and perform. So, if you hang onto 160 valuable kiosks, maybe you can deploy them in a way that produces better results - to a national chain, to a new franchisee, to an existing franchisee who has agreed to pay more, to an existing franchisee whose funds are in escrow rather than having been already received and spent, etc.
So, there's a chance that those franchisees who parted with cash and didn't have it held in escrow are about to be disappointed and that those franchisees who bought in at a low price might be about to be disappointed and maybe some franchisees who signed up a long time ago and have been awaiting delivery......
So, maybe some kiosks will be delivered to generate necessary cash flow and some will be retained for future opportunities to the extent cash requirements permit.
The thing is - First, cash requirements seem pretty high right now, and second, there's only so much additional value to be wrung from those 160 kiosks. A probably unachievable best case would seem to be around $8 million. But maybe that's enough?