Veltex Corp (VLXC) is one of my gambles. There is no revenue or operations. They issue shares to pay bills. Here is the investment thesis in one sentence: VLXC has been awarded $153M in damages from a lawsuit and has a market cap of $9M.
First my warning. I am no expert on anything law related. I'm only a guy who has read a few filings.
The financial statements show no debt. They have been selling about $100k worth of stock each year to pay fees but that went up to $500k last year for some reason. They have 68M shares outstanding which grows as necessary to stay alive. The company has about $3M in NOLs.
The Veltex website has a good history on the litigation and news. I'll give you the condensed version. In Aug 2008 a lawsuit was filed in Utah alleging the CEO of VLXC, along with others, illegally transferred 120M shares of Veltex without shareholder approval. VLXC was a clothing or textile company at the time. In Mar 2012 final judgement was issued by the Utah court granting VLXC shareholders $103M plus interest. The defendants are Javeed Azziz Matin, Mazhar Haque, Wilshire Equity, Inc. aka Wilshire Equities, Inc., Tanzila Sultana, Michael J. Moore, Moore & Associates, Chartered, Veltex Apparel, Inc., Veltex Industries, Inc. and Veltex USA, Inc. The final judgement shows 3 separate claims all saying the defendants have to pay back the $100M but in each claim there are separate groupings of these defendants. I don't know how the money would be split up between defendants.
Fast forward to today and the company is still trying to get the money. Interest is piling up and the latest press release shows the total is up to $153M. The same PR announced the appointment of a new CEO. The company is fighting legal battles in multiple states as well as federal court. This has been going on for almost a decade now and who knows how much longer it'll continue.
Of course the question is will VLXC retrieve any money and when will that be. I don't know the answers but the stock price shows the market thinks VLXC's chances are slim and/or the timeframe is long. The company had this to say in the most recent annual report: "Management is unable to address with reasonable certainty the collectibility of these legal judgements, but will continue to pursue them within its legal rights" and this to say after the most recent annual meeting "Veltex has continuously sought the advice of foremost legal and accounting firms to enforce, protect and expand upon these potential valuable assets."
There have been some positive developments. First they are up to date with filings through OTC Markets so they are not hiding in the dark. In Nov 2012 one of the defendants filed for bankruptcy and the company was able to collect money through the courts (only $57k but still). In Oct 2014 they announced the "corporation has received notice from the Depository Trust Company ("DTCC") that effective October 17, 2014 DTCC has reinstated all services for Veltex Corporation ("Veltex") common shares currently listed on the OTC market." In Jan 2015 the company revised the interest rate for litigation receivables, up from $2M to $25M. The latest annual notes the company has "settled, under strict confidentiality agreements, with numerous defendants" and "The Company has begun the process of collection in Los Angeles County, California." In July 2017 VLXC announced a court win in Nevada, "The debtor will pay $300,000 and the estate may proceed to enforce the collection on a $2,000,000 outstanding contract currently in place"
The company is working on the situation but these things take time. In Sept 2016 they announced a partnership with, and investment by, Batuta Capital Advisors "to assist the Company in exploring strategic alternatives." Some quotes:
These alternatives will focus on building upon Veltex's current settlements, property liens, federal judgments, state judgments, and currently booked net operating loss conversions, which could include selling, partnering, or raising capital to operate as a stand-alone firm.No stock analysis is complete without a chart so here you go. Pretty flat and boring, just the way I like it. You can see shareholders selling out with the lawsuits in 2008.
Moreover, Mr. Zyngier has made a substantial restricted equity investment in Veltex. Mr. Zyngier commented "Veltex completely fits our model for investment – an undervalued equity with sizable complex legal structures and with meaningful opportunities to growth.
Following a detailed evaluation over the past several months, we have determined that it is prudent to undertake a review of our strategic options to determine which alternative or alternatives, including our stand-alone plans, are in fact the best way to maximize shareholder value.
The Board of Directors for Veltex has determined that it is in the best interest of its shareholders to consider itself a possible acquisition target, at a minimum, to a strategic company that possesses the necessary resources to invest in and capitalize on the significant potential asset value of Veltex's current booked NOL carry forwards and value in the current legal judgments of approximately $150 million dollars.
The 5 year chart shows support around $0.10. And you can see a jump when the "strategic alternatives" were announced a year ago.
I look at this one purely as upside versus downside with patience. I think the share price is low for two reasons: value is unknown and too much patience is required to find out. I am willing to wait. Worst that can happen is I lose my $0.135. Best that can happen is we get the full $153M = $2.25 per share. I'll take that bet
disclosure: long VLXC