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A Thing If It Quacks Like A Duck


  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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