I did my best to warn investors. Honestly, I did. But b2bstores.com 2bstores’s debut, Kandel
snuck onto the Nasdaq anyway. For those of you who
don’t know, I moonlight as an IPO analyst for a handful of financial media
publications, and I wrote about this
wannabe B2B stinker when it first hit the IPO docket. If you’re not up to
speed on this one, I encourage you to stop and surf on over to read a brief
but entertaining rundown by yours truly.
Now it looks like the goofs behind this shell game are laughing all the way
to the bank. Believe me, I’ve seen my share of shady IPOs trying to tap the
new issues, but this start-up walks a fine line between immoral and illegal
behavior. The sibling of Enviro-Clean
its penny stock shenanigans to the big show, and the SEC ought to get off
their duffs and take a closer look at this one.
B2bstores.com was cooked up by
Richard Kandel as a shameless get-rich-quick scheme just on the coattails
of B2B mania. He ran Enviro-Clean of America, a de-listed penny stock that
sold urinal deodorizers, before he created b2bstores out of thin air and
filed to take the dog public just three months later.
In a bold conflict of interest, he conveniently juggled duel roles as CEO
of Enviro-Clean while serving as chairman of b2bstores. Both companies were
in the exact same business, but one ready-made newcomer had clean books and
the other could barely afford to pay the light bills.
The Ponzi scheme worked like this. Create a bevy of phony-baloney billings
by parent company Enviro-Clean that b2bstores would have to repay once it
came into some IPO cash. Execs would pay themselves lavish salaries and
so-long rags, hello riches. After a few stalled attempts to take the
company public, b2bstores quietly slipped on over to the Nasdaq the day
after Valentines day.
Look at b2bstores’ latest quarterly filing. It’s a made-for-TV comedy
sketch. $4,192 in revenue for its latest quarter, on losses of $1.7
million. Four thousand dollars!? That’s $1,397 a month. I know a few
lemonade stands that make more money; but last time I checked the docket,
there weren’t any fresh squeezed firms filing to go public.
But that didn’t keep execs from drawing 250k in salaries and 90k in travel
and entertainment costs. I can just picture Richard Kandel playing a round
of eighteen, joking with his new caddy about how he’d struck Net gold off
some poor Joe’s life savings.
Blame also falls on Gaines, Berland who served as master of ceremonies on
the offering. This firm couldn’t resist the temptation to stuff its wallet
with the lucrative underwriting fees collected from the IPO. They were full
party to the plan of dumping worthless stock onto unsuspecting retail
investors, and they ought to be ashamed.
To see what I mean, look no further than the fine print on this deal.
Insiders are typically held to a 180-day lock-up expiration. In this case,
Gaines imposed a longer restriction on insiders to the tune of one year.
You only see that to cover someone’s behind when the offering in question
is riskier than a hot potato or a scam. Take your pick.
A Zero Hero
It looks like a few people behind the scenes already saw the handwriting on
the wall and left the burning building before things start to turn ugly.
Last week, board members John Higgins, William Strauss, and Philip Ellett
pushed past one another to get out the door. But Richard Kandel likes the
view just fine.
So when a reader of mine solicited an opinion on b2bstores’ latest news
that it’s retained an investment banker to explore strategic alternatives
for the company, double speak for putting oneself on the auction block, I
laced up the gloves again. Let me break it to you like this.
On March 14 of this year, just thirty days after b
and company filed to hand off a million insider shares worth about $7 million to an outfit by the name of
ZERO.NET. Ironic, isn’t it? It’s a clever
workaround to get cash for Enviro-Clean by saddling someone else with the
year-long lock-up period.
But ZERO’s plans are crystal clear. The Internet holding company is looking
for a Nasdaq listing by way of pseudo-reverse merger into a shell company.
Which is essentially what b2bstores is. ZERO’s management and board of
directors will likely take things over, and urinal deodorizers will become
a distant memory.
Kandel is ready to retire to the Caymans and content to have someone else
make him wealthy. The irony here is that ZERO may be the company to do it.
Floundering at $4 apiece, b2bstores sure doesn’t deserve a bailout.
Instead, the company merits a fate far worse than its shareholders have
been forced to endure.
In closing, I’ll leave you with a curious piece of fan mail I received
following my initial flogging of b2bstores:
With regards to Ms Black’s comments on b2bstores, I find them highly
unprofessional with regards to editorial ethics. Reporters should adhere to
strict journalistic standards and report stories in an accurate, fair,
objective and unbiased manner.
Please revise Ms Black’s comments as I find them to be highly
unprofessional and irresponsible.
Any questions or comments, love letters or hate mail? As always, feel free
to forward them to [email protected].
2bstores’s debut, Kandel