B2BSTORES.COM: Little Shop of Horrors

With IPOs soaring, it is no surprise that investors associate them with
instant profits. So, when an IPO does not surge on its first day, it looks
like an opportunity to buy a bargain. This is especially the case if the
company is in a red-hot industry.

An example of this is
B2BSTORES.COM (BTBC)
. The company had its IPO last week and on its first day of trading,
only increased 1/8 to 8-1/8. Bargain, right? And it’s in the red-hot
business-to-business sector. Well, the stock has been going up, reaching a
high of 14-1/4. Yesterday, the stock closed up 2-9/16 to 12-3/4.

But, looking deep into the company’s financials, things do not look so
bright. The company had small underwriters, which do not register on the
radar screens of Goldman Sachs or Morgan Stanley. They were Gaines, Berland
and Nolan Securities. This helps explain why B2BSTORES.COM was only able
to raise $29.7 million. In the IPO game, this is a measly sum (for some
companies, this is a first round of venture capital).

The B2BSTORES.COM site allows businesses to conduct “e-commerce,
communications and other online interaction with their customers, suppliers
and colleagues.” There are products for office supplies, safey and
industrial supplies, janitorial supplies, desktop computer systems,
computer supplies and so on.

The company is basically a work-in-progress, as it was formed in June 1999
and the site was launched in September 1999. The run-rate at the end of
1999 was 40,000 hits (on a monthly basis).

So it is not a surprise that the company’s prospectus indicates that the
company had “minimal” revenues. However, the losses were definitely material. The company has racked-up $2.9 million in red ink (as of the end of
1999). In fact, the company has made it difficult to make any money. They
have signed an agreement with Netgateway: In exchange for building the
e-commerce technology, Netgateway will share equally in all advertising and
“click-through” revenues from the Web site.

In fact, because of the riskiness of the investment, California placed
extra restrictions on the IPO. Basically, a California investor had to be
accredited (that is, be wealthy) and have the financial wherewithal to take
a big hit.

But it does not matter whether you are rich or poor. At its current price,
buying the stock should make you poorer.

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