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If
It Quacks Like A Duck
Occasionally
we receive complaints about companies who do not live up to their
promises. When we do, we are forced to remind our readers that you
must be responsible for conducting due diligence before you sign
anything. The following is offered as an example of the importance
of doing your homework before making any commitments.
This journey began with an innocent conversation at a convention
with a man who had an innovative idea. He revealed that he was in
the “online grocery” business and his business model seemed
somewhat unique.
• Franchises were offered to “reps” for purchase.
• New technology was developed to enable disabled
customers to easily use the ordering system.
• Billing was conducted via a phone bill, but plans
were under way to use wireless POS terminals.
• Groceries were delivered to each customer after
being gathered at the local warehouse.
• The cost was just $4.95 per month.
He represented that this was a nationwide company. Revenues came
from the purchase of a franchise, advertising sold on the Web site
and in catalogs, rental of the special order system, and
groceries. They were publicly traded on the OTC BB. Sounds pretty
good but...
A little digging on the Internet revealed that there is more to
this business model than meets the eye. The company began in
Vancouver, B.C. in 1996. It was incorporated in January 1997 and
went public in June of that year. In December 1997, a stock
newsletter plugged the company. In October of 1998, the SEC
charged the same newsletter for not revealing that the tips they
offered were actually paid promotions.
We found some interesting facts as we reviewed company press
releases and letters from the CEO to investors:
December 1997: Reports an
expansion into Seattle, Calgary, and Alberta. Claims to be
profitable.
June 1998: Reports an expansion
into Denver, Dallas, Chicago, Toronto, Atlanta, New York, and Los
Angeles.
July 1998: Announces their
readiness to launch wireless POS terminals in Vancouver and
Seattle. (Note: Up until now there was no indication that they
were actually operating in Seattle, let alone launching wireless
POS terminals.)
December 1998: States they are
filing a UFOC so they could begin selling franchises in Seattle. A
firm is also selected to audit financials.
January 1999: Reports that they
are preparing filings for the SEC and describe themselves as an
“online” grocery service even though the Web site is not
interactive.
February 1999: Announces that
they are adding online grocery ordering to their online grocery
ordering services.
June 1999: Announces approval
for its UFOC and ability to offer franchises in Salt Lake City.
(Note: first mention of Salt Lake City.)
July 1999: States that audited
financials are finished and will be filed with the SEC.
August 1999: Announces launch of
wireless POS terminals in Vancouver. (Note: Also announced in July
of 1998 but never accomplished. The previous announcement included
Seattle.)
October 1998: States that the
filing for the SEC is being worked on. In the meantime, the stock
symbol will be appended with an “E” indicating its suspension
and move to the “pink sheets” (this is the listing for
companies not completing the appropriate filings with the SEC) on
December 1, 1999.
October 1999: Reports that 36
franchises had been sold in Seattle.
November 1999: Announces that 20
franchises were sold in Utah.
March 30 2000: Announces they
are open for business in Salt Lake City.
Despite the announcements of franchise sales and being open for
business, to date there has been no filing with the SEC and
audited financials have never been released to the stockholders.
The UFOC has expired and it is not clear if it has been renewed.
The Vancouver warehouse was closed in February and the CEO
acknowledged in a recent newspaper article that the rent was in
arrears. The warehouse has not been reopened. As of the writing of
this, no groceries are being delivered in Salt Lake City.
An interesting twist to this tale has been the investors in this
company. In June, a small group of the investors demanded the
resignation of the CEO. They claim to be currently searching for a
new CEO. The old one has apparently been retained to head up
sales.
Even though franchises have been sold in Seattle, there are no
indications that groceries are being delivered. The same is true
for Salt Lake City. So, this “nationwide” online grocery
company delivers groceries in no cities. The Web site lists prices
only in Canadian dollars, even though there are no longer any
operations in Canada and the company claims to be operating in the
U.S. It was further revealed that the CEO has been convicted of
fraud in the past. The technology that was supposed to help
disabled people use online ordering has never been delivered.
The point is this: Even though the idea seems good on the surface,
things are not always what they seem to be. A little time spent
researching can reveal many interesting facts. This information
was discovered by reading (and really paying attention to) the
company press releases and letters from the CEO, checking out the
stock symbol, reading investment message boards, searching for
newspaper articles, checking for corporate filings, and checking
for SEC fillings. Useful resources for finding this type of
information include:
Always read all information carefully and look for any
inconsistencies. Pay attention to your “gut” instincts. And
remember, if it quacks like a duck, it probably is a duck.
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