THE WALL STREET JOURNAL INTERACTIVE EDITION
When IRT Industries decided to jettison its casino roots and make a play
on the Internet, investors took notice, sending the company's stock soaring
fivefold in two weeks and chatting up its prospects in online message
boards.
The former casino operator plans to buy
ThinkBid (www.thinkbid.com), a privately
held online auction site that IRT, in its press
releases, likened to those of
electronic-commerce leaders eBay and Amazon.com. Among other things,
IRT promises to offer "live" auctions that combine the "real-time
excitement of stock market day trading, with the online auction arena."
Lost in all of the hype is the fact that although ThinkBid, based in
Amityville, N.Y., has its site up and running, it has attracted few bids in its
online auctions so far. A visit to the Web site this week showed just one
bid had been made in auctions for more than 300 products that were listed
in the four product categories -- notebook computers, desktop computers,
camcorders and jewelry -- featured prominently on its home page.
Meanwhile, there may be more than IRT's press releases behind the gains
in its stock. A Web site called Investrek recently promoted IRT as a stock
with "tremendous growth potential." Investrek, an investing site with a Star
Trek theme, was run by ThinkBid's creator, Raymond Barton.
Shares of IRT jumped as high as $2.562 on the Nasdaq OTC Bulletin
Board on March 31, the day the company made its most recent
announcement about the deal with ThinkBid. Just two weeks earlier, the
stock was quoted around 50 cents. On Wednesday, it closed at $1.50, up
25 cents for the day.
Mr. Barton says he didn't update Investrek during the time that he was in
talks to sell ThinkBid to IRT and, indeed, the IRT profile didn't mention
the company's plans to move into Internet ventures. But the IRT promotion
was visible on the Internet during the talks. In late March, Investrek's
home page carried a notice saying that the site was "inactive."
Arnold Wrobel, the president of IRT, says he hadn't heard of Investrek,
and says that Mr. Barton has "never received a dime" from IRT in
exchange for the promotion. Mr. Barton, too, says he wasn't paid for
profiling IRT. However, a disclaimer on the Investrek site stated that
companies featured on the site "pay consideration to Investrek."
Mr. Barton says he considered the site to be a beta test, and says he has
"abandoned it at this point."
(Investrek had registered as an affiliate of the Interactive Journal. Affiliates
distribute a handful of news headlines and market data from the Interactive
Journal and are given a small payment for each subscription they generate
for the Interactive Journal.)
IRT, based in Fort Lauderdale, Fla., has been promoted in the past by
newsletters and in mass electronic mailings, known as spam. One of the
promotions was examined by the U.S. Securities and Exchange
Commission in its sweep against Internet fraud last autumn. The SEC,
however, didn't accuse IRT of wrongdoing or allege that the company had
made any payments to the promoter.
In the SEC case, John Wesley Savage of Princeton Research, without
admitting or denying guilt, agreed to pay $40,000 to settle civil charges
that Princeton Research broke securities rules in promoting seven
companies, including IRT. The SEC, in a case filed in U.S. a District Court
in Southern Florida, alleged that Princeton Research made inaccurate
statements about IRT's earnings in newsletters between 1996 and 1998.
Mr. Savage recently died.
Mr. Wrobel, who says he became president of IRT in January and was a
creditor of the company before that, says he isn't familiar with the matter.
Richard Rossi, who is listed in company documents filed with the SEC as
the former president of IRT, couldn't be reached for comment.
A year ago, IRT also was the subject of another stock promotion involving
unsolicited e-mails from Harvard Equity Research touting the company's
stock. Mr. Wrobel says that before he took over as IRT's chief executive
early this year, IRT gave Harvard Equity stock as payment for the
promotion. A spokesman for Harvard Equity couldn't be reached for
comment.
IRT says it previously ran two casinos in Costa Rica, but set a plan to
focus on Internet-related businesses shortly after Mr. Wrobel took control.
The company says it sold the casinos, and first disclosed its talks to
acquire ThinkBid in early March. IRT says it plans to acquire ThinkBid for
$2 million dollars in restricted stock, plus a convertible note. The company
hasn't disclosed additional terms of the deal.
IRT faces considerable challenges in using ThinkBid to carve out a stake in
the Internet auction business. "It is hard for a newcomer to get into [the
online auction] business. If someone else already has a lot of buyers and
sellers, why would [customers] switch," says Paul Resnick, an associate
professor at the University of Michigan's School of Information, who does
research on electronic commerce. "It's an uphill battle," he says.
Nearly all of the products listed in auctions on the ThinkBid site earlier this
week were being offered by ThinkBid itself. In contrast, most of the goods
sold on eBay are offered by users of the site. Mr. Barton says he made
arrangements to list merchandise provided by wholesalers to bulk up the
number of auctions available on the site while it builds a user base.
"We have agreements with a few major wholesalers. We sell for a very
small markup," Mr. Barton says. "It came out of a need to have a wide
selection of merchandise."
Some bids were found in the site's computer-printer category. The 25
items listed had attracted a total of five bids.
Mr. Barton says the site receives more than 100,000 unique page views
each month and has 2,200 registered users. eBay says it has more than 2
million users and lists more than 1.8 million items for sale every week.
"We'll need to get our traffic up two or three times to get some activity,"
says Mr. Barton.
Mr. Barton refuses to provide earnings information about ThinkBid, other
than to say the company generates around $2,000 a week in net revenue,
which he said is enough to cover the company's "overhead." As a private
company, ThinkBid isn't required to release detailed earnings data.
IRT reported a loss of $1.2 million for the nine months ended March
1998, the most recent results for IRT before it was delisted by the
Philadelphia Stock Exchange for failing to meet registration requirements.
Mr. Barton says he has invested less than $10,000 in ThinkBid since it
was created about eight months ago. Mr. Wrobel says he hasn't yet put
any money into the company, but plans to once the acquisition is
completed. The closing of the deal, which had been expected for this
week, couldn't be confirmed.
Meanwhile, online investors have been ecstatic. On the financial Web site
Raging Bull (www.ragingbull.com) more than 1,000 posts have been made
in the past three weeks about IRT. Prior to that, fewer than 70 postings
had been made to the message board since its creation in November
1998. "We are on the forefront of something huge!!! Word is getting out
big time," writes one participant in a posting made late last month.
"This has all the ingredients for a mind numbing run. Auction site + search
engine + innovative live auction site + very low float = big money," writes
another in late March in a posting made to the message board devoted to
IRT on the Silicon Investor site (www.techstocks.com). The ThinkBid site
also includes a search engine called ThinkFind.
Mr. Wrobel worked as a broker in the early 1990s. Records from the
National Association of Securities Dealers show that regulators in Kansas
accused Mr. Wrobel last year of defrauding an investor by making
misleading statements. That case is pending. Mr. Wrobel says the case is
about a "disgruntled investor who lost some money" by investing in a
business in which Mr. Wrobel was an officer.
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