Friday, June 23, 2017

Activism and a Possible Sale of QDLC

A concerned shareholder group has started a proxy fight at QDLC by calling a special meeting on July 11 to elect a new board.  Their stated intention is increase communication and sell the company ASAP.  The current QDLC board has fought back by calling their first annual meeting in over a decade on July 10.  It's a lot of drama and the craziest part is the CEO is part of the concerned shareholder group!

This is a call to action for all QDLC shareholders to ignore the company proxy and vote yes on the concerned shareholder group's proxy for all new directors.


First let me make clear if you are on the side of the concerned shareholders it's very important you do not respond to the QDLC company proxy.  Do not even vote for their accounting firm proposal.  No response at all.  The concerned shareholder group has called their special meeting on July 11 under a New York state law that says 10% shareholders can call a special meeting to elect directors if the company has not had an annual meeting in over a year.  QDLC has purposely called an annual meeting on July 10 to void the concerned shareholders' meeting.  But QDLC's annual meeting will only be valid if they have a quorum, meaning they have to get some sort of voting response from at least 50% of the shares.  

Now to back up a little bit.  I invite you to read my prior QDLC blog posts for some history:
QDLC de-registered from the SEC in 2004 and last posted a report with the SEC in 2000.  They just stopped communicating.  In 2012 they posted a report on their website then again we got nothing.  On April 21, 2017 they posted financials and a press release.  For years the company has said they will be posting reports regularly but not followed through.  

I have always found this story interesting; it's one reason I bought in and the main reason I haven't sold as the price recently spiked up.  I have asked the company a number of times over the past couple years why they would start posting reports again.  It's just so weird that a company would be absolutely dark with zero communication then suddenly change their mind to become transparent once again.  The company has always told me they just want to start communicating again but I don't buy it.  It just has to be because someone wants to sell their stock.  

Now that we see the concerned shareholder group I think we know the answer.  I think the April posting of financials and PR are completely from the CEO and this concerned shareholder group.  I think the concerned shareholder group told the company of their intentions and the company threw them a bone by releasing some numbers.  They are all large shareholders that have been in the stock forever and they want out.  They know the company is worth more than the stock price and the only way to get out fairly is increase transparency, communicate with the market, and sell the company.  

So now you're asking yourself why the CEO would be proxy fighting his own board?!  It's craziness and at first glance I didn't know who to believe.  We have the concerned shareholder group saying the company has shirked their responsibility to shareholders by being dark and not holding annual meetings.  Then we have the company saying the CEO is part of the problem and he could have resolved this long ago if he really wanted so don't trust that guy.  What I think is the CEO has definitely been part of the problem in the past but something changed and he wants out.  He got in touch with Peter Fagan (who used to work at QDLC) and the other concerned shareholder group members to start down this road.  The current board at QDLC does not want to sell so they are fighting back and here we are.  

Onto the transaction.  QDLC has 11.4M shares outstanding.  The concerned shareholder group holds 3M = 26%.  I have talked with Peter Fagan and if you have questions I encourage you to do the same (email: hunterlake@aol.com and I will give his phone number if you email me).  Currently neither side has 50% of the vote so they are both working to get there.  Your vote matters.  

One interesting thing mentioned in the concerned shareholder group proxy is "significant undisclosed transactions that the current Board has entered into or is considering with foreign business entities".  I wonder if this has to do with the recently announced licensing deals in Mexico.  The licensing deals look good and I asked the company about them a few months ago.  Company told me they are government related and only Mexican companies can bid on the contracts so somehow QDLC worked out a deal with some Mexican contractor.  I don't know the details.  An astute and curious reader forwarded me this article written in Spanish from August 2016.  Google translate shows it says QDLC's Mexican partner, Pounce Consulting, acquired 51% of QDLC.  I think something is lost in the translation because we wouldn't have this proxy fight if anyone owned 51% of the company.  I wonder if this is really 51% of a JV with Pounce or 51% of revenue coming out of Mexico.  Maybe we'll find out more someday.  

Below I will post the letters and proxies I've received in chronological order.  The concerned shareholder group's proxy is especially must read.  Email me if you'd like a copy of the files.  As you can see the concerned shareholder group intends to publicize the company and sell as soon as they can.  This is the chance for long term shareholders to finally get a return.  I don't know what they'll get for the company but I'm sure they are targeting something much higher than the current price of $0.70.  

I think if the company wins they will go back to being completely silent.  We won't hear from them again until someone gets old and ready to move on.  If the concerned shareholders win we will see audits, press releases, financial statements, and a 3rd party valuation.  They will attempt to sell and pay out the cash.  Shareholders are due


--Dan
disclosure: long QDLC

Letter from the concerned shareholders group received May 28, 2017:


Letter from the concerned shareholders group dated June 7, 2017:


Proxy from the current QDLC board received June 22, 2017:


Proxy from the concerned shareholders group received June 23, 2017:

8 comments:

  1. I just got a second letter from the current Board of QDLC (yesterday). While inexplicably unsigned, it was on QDLC letterhead. They had no problem denigrating the CEO but somehow failed to address the significant issues raised by the "concerned shareholders group." While I only own 10,000 shares, I voted in favor of a new Board and as instructed, did not complete QDLC's formal proxy. It will be another 10 or more years until we hear from them again should they win this battle.

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    1. yeah I got that too. They do not like the Concerned Shareholder Group or the CEO.

      While it was nice to see some communication from them it's way too little too late. F them. They haven't told us anything for years until the Concerned Shareholder Group came along

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  2. BUT looking at the reports on the web site it appears the problems were caused by the group out of power and the group in charge has finally turned the co around. Am i seeing it wrong?

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    1. I don't think we have enough information to make that statement but certainly that's what the current board wants us to believe. For one thing it's hard to define "group out of power" and "group in charge" because the same CEO has been there all along. From the sound of it, his role has been reduced as the President pressed into Jamaica and Mexico. Going from the public reports on their website we have revenue peaking in 2012 at $17M then falling down to the current level of $12M. We have no info before 2011. Fagan (guy leading the Controlled Shareholder Group) was COO from 2000 to 2009 and they were dark that whole time so who knows what their numbers looked like.

      Going by the timing and contracts mentioned in the company reports and PR recently I get revenue estimates of $14M in 2017, $15M in 2018, $17M in 2019, and $12M in 2020. I don't have much to go on with those estimates other than the couple Mexico contracts they have disclosed and the company has not answered some of my questions on timing so I will probably be wrong. The point here is with the President doing his thing we have revenue at or below where it was 5 years ago so it is really that great now and was it really that bad then or are we just seeing the normal ebb and flow of a business?

      The main thing to me is communication. Who cares about operations if the company will not tell anyone about it. The existing board has shown, for many years, they do not care about communicating with shareholders. They would not even show financials to the shareholders as required by state law. They haven't held an annual meeting in over a decade even though it's required by state law. So to hell with them and get them out of here.

      Other side to the story is the CEO. He certainly shares in the blame for the company no communicating and not holding an annual meeting. But it seems he has changed his mind and is now on the side of a group of people looking to bring transparency back.

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  3. By the way when the company proxy came out last week I tried contacting both sides to get their story. Fagan of the Controlled Shareholder Group called me a couple hours later and we talked for quite a while. He responds to all my emails promptly. QDLC's CFO has yet to respond to my email.

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    1. QDLC also has yet to respond to the multiple emails I have sent over the past few months with questions regarding the Mexico contracts

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  4. Replies
    1. The process is still on-going. Both the company meeting on July 10 and the concerned shareholder group meeting on July 11 have been postponed until Aug 8. Right now the two sides are talking, trying to get to a resolution agreeable to both. If they are not able to come to an agreement then the votes will be counted on Aug 8 and we'll go from there

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