Stockwatch Street Wire: WSi Suffers with the Industry
WSi Interactive Corp - Street Wire.
WSi suffers with the industry
WSi Interactive Corp WIZ
Shares issued 50,679,745 Oct 26 close $0.36
Thu 26 Oct 2000 Street Wire.
Also (U:IFAN)
Also (U:SWEB)
TOUGH TIMES FOR FINANCIAL SITES
by Stockwatch Business Reporter
These are tough times for financial Web sites. The self-proclaimed leader,
MarketWatch.com Inc., on Wednesday reported a net loss of $20.3-million in
the three months ended Sept. 30. That brings the company's net losses for
this year (the nine months to Sept. 30) to $66.9-million. Its cash position
is down to $48.4-million (working capital, $61.5-million), a depressing
drop from the $103.8-million it raised since its January, 1999, initial
public offering and subsequent private financings.
(All figures are in U.S. dollars unless otherwise noted.)
For MarketWatch's investors the latest quarter was just more of the same as
the market had already punished the company for its inability to turn
around its finances. Its shares, which had traded intraday at $130 on Jan.
15, 1999, the day of its IPO, now trade at around $4.
The declining fortunes of MarketWatch are mirrored by those of fellow U.S.
financial Web site TheStreet.com Inc. TheStreet.com's trading high was $60,
reached shortly after its May, 1999, IPO that, together with other
financings, left it with $127-million on June 30, 1999. A year later, on
June 30, 2000, TheStreet.com's treasury was down to $90.6-million in cash
and a working capital position of $81.3-million.
The reversals of fortune among major financial Web sites have been equally
acute among Canada's would-be's and want-to-be's in the sector.
Vancouver-based Stockgroup.com Holdings Inc., which often draws dubious
comparisons between it and TheStreet.com, peaked at $4-15/16 in February,
2000, and more recently has been wobbling around a dollar. Its financial
losses have not been as dramatic, but Stockgroup had less to start with. It
raised $5.4-million in a private financing in March, 1999. With a peak of
just over 100 employees in early 2000, an expensive advertising campaign
and not nearly enough revenue to offset its expenses, the company's cash
position declined to $1.6-million on Dec. 31, 1999, and working capital of
$2.2-million. It then raised $3-million raised in April, 2000.
The latter financing, a floorless convertible led by U.S.-based Deephaven
Financial LLP, was partially repaid by Stockgroup in August (four months
later) on the lenders' demand; nearly $900,000 in principal, interest and
on-time "penalties" was paid back. Before Stockgroup made that payment, its
finances were already cause for concern. On June 30, 2000, its working
capital position was a negative $238,000.
WSi Interactive is another Vancouver Internet company that has seen better
times. It traded as high as $8 (Canadian) in March, 2000, but now trades
around 40 Canadian cents, in spite of a reasonably healthy $2.56-million
(Canadian) working capital position as of June 30, 2000. In an attempt to
reverse the decline, WSi bolstered its board by appointing Marcus New,
chief executive of the wobbly Stockgroup.com Holdings, early last month.
Initial market reaction to this pairing was favourable, with WSi shares
gaining 17 Canadian cents to 91 Canadian cents on unusually strong volume
of 521,310 shares. The appointment was viewed by WSi president Theo Sanidas
as a major event in WSi's history; Mr. New, he said, was "an acknowledged
authority on investing on the Internet."
Securing Mr. New on the board may well be a signal event in WSi's
less-than-spectacular history, but whatever it may signal will by necessity
be some distance away. WSi was listed originally as ATS Wheel Inc., in
November, 1993, and failed to capture much market attention. Renamed JSS
Resources Inc. in July, 1998, the company never got further into natural
resources than its name, and by May, 1999, the company's backers said JSS
would buy the private WSI Management Group Inc.
WSi was launched as the holding company for three complementary companies
-- Western Shores Direct Marketing Group Inc., Medianet Solutions Inc. and
Targetpacks Enterprises Corp. Other holdings included yourwinestore.com and
Stocksecrets.com. Its business plan is to acquire start-up Internet
companies and, applying management's expertise and experience in these
matters, develop them to the point that they could be spun off to companies
impressed with the results.
The tough times for dot.coms is so pronounced that when WSi attempted to
spin off its Stocksecrets subsidiary into a U.S.-listed company earlier
this year, the exercise ended in failure. The deal's collapse came in spite
of pronouncements along the way from the U.S.-listed company in question,
Internetfinancialcorp.com Inc., that the financing to complete the deal was
solid and would proceed. In the end, it turned out the financing was not
solid and the deal collapsed.
FINANCIAL WHIZZES
Mr. New, a financial guru according to his own press, brings considerable
experience in promoting companies, including his own, having operated
Stockgroup since 1995. In the early days it was the private Stock Research
Group Inc. and was purely devoted to promoting other companies. Later, as
the OTC-listed Stockgroup, it gained a news component, which today has been
gutted for its drain on the company's dwindling finances. Its pay-for-news
subscriber service, launched in March, 2000, flopped.
Mr. New's appointment to the WSi board is not the only connection between
WSi and Stockgroup, but it is probably the most promoted. Former WSi board
member Randy Buchamer worked for Jim Pattison Group, the same company that
Stockgroup president Les Landes departed to join Stockgroup. Mr. Buchamer
collects $12,500 (Canadian) per month for what the company describes as
"management services."
Mr. Landes and Mr. New are the two most responsible for arranging
Stockgroup's $3-million floorless convertible financing from Deephaven in
April. (Floorless convertibles are a nasty piece of financial work also
known as death-spiral financings. The key feature is that they hand lenders
enormous power, giving them the ability to dilute current shareholders
practically out of existence -- including present management -- should they
so choose. Of course, the party line is that Deephaven is on Stockgroup
management's side and would never seriously consider such a hostile act.
The suicidal financing was trumpeted as a victory by the company for having
secured such a reputable "institutional" backer and later defended as an
indication of how sour the market for dot.coms turned earlier this year --
meaning, the company was lucky to get even this financing.)
With Mr. New's appointment and a recent price of 40 Canadian cents, WSi is
still searching for that special combination of business-plan execution,
hype and market mood that will make this high-tech promotion a success. As
a result of Mr. New's current predicament with Deephaven, any special
combinations will have to wait until an accord is reached with the lender.
TOUT, HYPE, TOUT
Soon after the appointment, Mr. New's Stockgroup was touted in an E-mail
transmission by Stocksecrets.com. In step with Stockgroup's other paid
touts, the Stocksecrets message made much of a recommendation in July by
First Colonial Securities. In it, First Colonial vice-president Jonathan
Rich put out a lengthy get-aboard-now report expressing the opinion that
Stockgroup would be $14 in 18 months. In spite of the many words provided
by First Colonial over the course of 12 pages, Mr. Rich made no mention of
the potential death-spiral dilution hanging over Stockgroup's shares.
Stockgroup "is positioned to explode and could become one of the market's
best performers this year," Stocksecrets gushed in the Oct. 1 E-mail
transmission. "In marked contrast to most other technology businesses, the
Company anticipates turning cash flow positive by the first quarter of
2001, putting SWEB on a trajectory to achieve profitability for full year
2001."
In addition to the First Colonial Securities recommendation, Stocksecrets
hyped a tout by Investrend Research, also known as Public Analysis and
Review, or PAR. Pay-for-recommendation Investrend provided Stockgroup with
a "buy" rating and a 12-month price target of $12 (U.S.). Stocksecrets also
says that Stockgroup has "massive international potential," with growth
plans set for Europe and Asia through strategic acquisitions, and by taking
"equity positions in certain companies to which the Company licenses its
proprietary technology." Stockgroup paid other Internet services, including
Stockwatch, to distribute Colonial's promotional words. In response to wide
distribution, Stockgroup's shares spiked sharply upward from $1 to $2.80.
Mr. New took full advantage of his situation by selling 80,500 shares at
prices ranging from $1.29 to $2.80. Then the stock went back down.
Stockgroup's recent touter, Stocksecrets, was one of WSi's first promotable
products, appearing in September, 1999, about two months after the company
changed its name from JSS Resources. On Sept. 9, 1999, Mr. Sanidas claimed
that subsidiary stocksecrets was "already profitable." On Sept. 27, 1999,
he boasted that Stocksecrets would offer free real-time stock quotes for
all North American markets as part of a co-branding promotion with
worldwide financial Web sites.
WSi investors next heard of Stocksecrets in February, 2000, when WSi
announced plans to sell the business, as per WSi's self-proclaimed mandate
of taking early-stage companies and adding "significant value" to the
investment through its network of relationships and agreements. The plan
was to apply management's experience and expertise in helping Internet
companies build traffic, develop brands and capitalize on a variety of
revenue streams.
Whether this expertise has been applied to Stocksecrets is a matter of
debate. The Web site, which is free, is incomplete and greatly
underdeveloped -- in spite of its hoopla launch more than a year ago. Its
news feed (one of the most straight-forward components for a programmer to
link to a financial Web site) is remarkably free of relevant financial
news. The top recent story was about allegations that Hillary Clinton was
less than truthful, while another story concerned police questioning
suspects in the Yemen ship bombing. The discussion forums appeared
remarkably free of discussion, while the "secrets" section contained brief
accounts of junior stocks such as bike-parts supplier AirBomb.com Inc.,
recently 44 cents, that looked a lot like advertorials. In addition, its
highly hyped promise of free real-time quotes, not to mention futures
quotes, are not available.
Measured against the dozens of competing sites (CBS MarketWatch, Quicken,
Raging Bull and Vancouver-based offerings smallcapcentre and StockHouse),
Stocksecrets is well back of the pack in terms of quality. Its other
function, as a tout site, is not done with much flair or even competence.
It offers "profiles" of touted companies; not surprisingly, WSi is featured
prominently. Other featured disasters include Cyber America Corp., Global
Media Corp., M&A West Inc. and Vancouver's uber-hype-job SiegeSoft Internet
Solutions Inc., recently 22 cents.
In a July, 2000, Form 10-KSB disclosure, WSi speaks cautiously, not about
how good Stocksecrets is, but how good it will be. WSi says it anticipates
more than 100,000 users and that "new and useful information will be added
or updated on a daily basis. E-mail is the primary vehicle, being a
powerful, flexible, marketing tool able to reach a local or worldwide
audience instantly and inexpensively." While the market has seen it send
many E-mail touts, including for Mr. New's Stockgroup, the question
remains: When is it going to actually do things that might bring in viewers
that will call Stocksecrets their favourite financial Web site?
"Tell me a website that stocksecrets blows away -- just on format, I won't
even worry about all the bugs," complains former WSi supporter Bullettrain
on Raging Bull's discussion forum recently. "Stocksecrets is a complete
joke." Other posters say they like the Stocksecrets site and say that one
day it will be a show-stopper, but as Bullettrain points out, few of its
boosters make their posts on Stocksecrets' discussion forum, in spite of
their glowing comments about the Web site.
CARIBBEAN SHELL
On Feb. 4, 2000, Mr. Sanidas reported that WSi was in discussions which, if
successfully concluded, would have resulted in the spinoff
Stocksecrets.com, to a U.S. publicly traded company. The veracity of Mr.
Sanidas's statement is open to debate. At the time the WSi sale was
completed, March 30, the public company, Internetfinancialcorp.com, (which
is better known by its symbol, IFAN) had been trading for several weeks,
but when WSi was busy hyping the imminent Stocksecrets sale, in February,
the purchaser was still a non-trading shell named Caribbean Ventures Inc.
It had two unpaid employee-officer-directors and operated out of 100 square
feet of office space in Fountain Hills, Ariz., near Scottsdale, that were
supplied by its president, Donna Harper.
Caribbean Ventures was incorporated in Nevada in April, 1997, as Dom Caribe
Ltd. The founders, Ms. Harper of Scottsdale and Earl Gilbrech of Phoenix,
Ariz., authorized the issue of 2.45 million shares at one-tenth of a U.S.
cent to themselves, while 31 others received a total of 550,000 shares for
services rendered to the company. The company's total shares outstanding
was three million, for a share capital of $3,000. One of those 31 was
Robert E. Nicholson, who was named president.
In July, 1998, the company's name was changed to Caribbean Ventures. Its
stated intention was to build a resort in Belize for scuba divers. As a
shell, however, the most active it got was negotiating with landowners in
Belize for the site of its resort. For this, Mr. Gilbrech travelled to
Belize at his own expense. The parties could not agree on terms.
In October, 1998, initial president and director Mr. Nicholson resigned and
transferred all of his shares to Ms. Harper for a total consideration of
$1.
By Dec. 31, 1998, Caribbean Ventures still counted Ms. Harper and Mr.
Gilbrech as its two sole unpaid officers/directors. By that time, the
shareholder structure had changed somewhat. Ms. Harper then owned 44.23 per
cent of the company's shares (1,327,000 shares), and Mr. Gilbrech owned
44.16 per cent (1,325,000 shares), for a total of 2,652,000, up from the
earlier 2.45 million. The total still came to three million shares,
however.
Ms. Harper was president, and Mr. Gilbrech was secretary/treasurer.
When not tending to the affairs of their shell, Ms. Harper is a
businesswoman involved in Phoenix real estate and mortgage broking. Mr.
Gilbrech has told the U.S. Securities and Exchange Commission he was a
director or officer of more than 14 Central American, Canadian and United
States firms. Whether these companies were predominantly shells or
near-shells was not disclosed. One of the companies he listed was Caribbean
Casinos Ltd., a non-reporting casino consulting company. He also described
himself as a "consultant in worldwide trade negotiations."
In addition to having travelled to Belize on his own dime, another
indication that Mr. Gilbrech was probably the party most interested in the
affairs of Caribbean Ventures was that he agreed to provide the company
with interest-free funds. These funds were so that the company could comply
with the particulars of U.S. securities legislation.
While Caribbean Ventures had nothing to say about the impending deal with
WSi until March 3, 2000, WSi itself was full of hype-filled comment,
beginning in September, 1999. At that time, while Mr. Sanidas was hyping
Stocksecrets' profitability and its free real-time quotes, he was also busy
explaining to investors the good things that happen when financial Web
sites are sold. Mr. Sanidas said Quote.com, "another financial Web property
offering real-time quotes and other information, was sold to Lycos for
approximately $78.3-million."
As goes Quote.com, so goes Stocksecrets, was the implication.
DEALING WITH A WINNER
The next investors heard about Stocksecrets was on Feb. 4, 2000, when Mr.
Sanidas said in a press release that WSi had recently entered into
negotiations which, if successfully concluded, would result in the spinoff
by WSi of Stocksecrets.com "to a U.S. publicly traded company."
The impression Mr. Sanidas gave was that WSi was about to do a deal with an
established U.S. reporting company, probably a high-tech Internet company
and perhaps a sizable one.
In fact, it was the Gilbrech-Harper shell Caribbean Ventures, the company
that hitherto was ambitious to help scuba divers in Central America. In
February, 2000, the company was not trading. IFAN began trading on March 2.
On Feb. 11, Caribbean Ventures changed its name to
Internetfinancialcorp.com Inc. and underwent a 5:1 split, increasing the
issued shares from three million to 15 million. Mr. Gilbrech resigned and
was replaced as secretary-treasurer by WSi vice-president Lance Morginn,
the stepson of a broker at Canaccord Capital Corp. Also resigning was Ms.
Harper, who was replaced by WSi president Mr. Sanidas.
In addition, Calgary businessman Silvio Forigo was appointed as director.
Mr. Forigo helped found the Canadian Venture Exchange company Heritage
Ventures Ltd., which IFAN describes as "a technology-based company that
takes new high-tech products to market." When IFAN was telling this to the
SEC, on July 18, 2000, Heritage had one week earlier succeeded in getting a
September, 1999, cease-trade order revoked. It last traded in May, 1999, at
10 Canadian cents, and its most recent press release (besides the five
statements from Canadian regulators) was March, 1999.
As part of the sale, IFAN changed its principal office address from
Fountain Hills to 2080 E. Flamingo Rd., Suite 112, Las Vegas, Nev.
In March, 2000, Mr. Sanidas described IFAN as a Los Angeles-based financial
Internet incubator that was "aggressively pursuing the acquisition of
established financial service companies both traditional and
Internet-based." To date, IFAN has not acquired any financial service
companies, traditional or otherwise, and any negotiations that are taking
place have not been made public.
NOW YOU SEE IT
More importantly, on March 30, 2000, IFAN director Mr. Forigo said the
company had secured a $1-million financing that was needed for the
Stocksecrets deal to proceed. "Internetfinancialcorp.com, Inc. (OTCBB:IFAN)
today has secured a $1 million US financing," Mr. Forigo said.
"Internetfinancialcorp.com will be issuing 400,000 shares at $US2.50 each.
On completion of the financing Internetfinancialcorp.com will have
15,400,000 shares outstanding."
In Vancouver, WSi's Mr. Sanidas said WSi "has been advised" by IFAN -- the
company that he was also president and director of at the time -- that IFAN
had secured the $1-million financing.
NOW YOU DON'T
By a less-than-startling coincidence, their March 31 statements coincided
with IFAN reaching its all-time high of $5-1/8. There ensued a two-month
period in which the shares slid to $2 by May 31, when Mr. Sanidas said the
IFAN deal was dead. The reason for the deal's collapse was because the
$1-million financing would not proceed, for reasons that were not
explained. Mr. Sanidas did not attempt to reconcile the statement by WSi's
appointee on the IFAN board that the financing was completed with the
reality that the financing was not completed. Neither Mr. Forigo nor anyone
else from IFAN issued a statement about the collapsed financing -- either
in a press release or in a disclosure. Its most recent annual report, for
the year ended April 30 and filed on July 18, had no reference to the
matter. WSi's Mr. Sanidas produced a statement that was buried in an
announcement about company's third quarter financials; this press release
was, however, sent out under the IFAN symbol in addition to the WSi symbol.
On May 31, Mr. Sanidas said in the press release: "In March, WSi announced
that it was selling its Stocksecrets.com business to a U.S. public company,
Internetfinancialcorp.com, the shares of which trade on the OTC Bulletin
Board market with ticker symbol 'IFAN.' It was a condition of the
transaction that IFAN would conclude a $1-million (U.S.) financing which
would be used to develop and run the Stocksecrets.com business. IFAN has
now advised WSi that its previously announced $1-million (U.S.) financing
is not proceeding. Consequently, WSi is not going forward with this sale.
Despite IFAN's default, the business of Stocksecrets is moving forward
according to plan and continues to generate revenue. WSi is currently
considering alternative options for the future spinoff of Stocksecrets and
will announce any material information at the appropriate time."
In June, 2000, Mr. Sanidas resigned as IFAN president and was later
replaced by WSi's Mr. Morginn, then 27, who retained his duties at IFAN as
secretary, treasurer and director.
Until another buyer can be found for Stocksecrets, or until IFAN can raise
some money, the tout service remains in the WSi stable, where it can again
help director Mr. New promote his Stockgroup shares. Whether these two
struggling members of the Internet financial services sector might better
survive the current shakeout as one is anyone's guess. It will remain that
way for at least as long as Stockgroup's death spiral financing is
outstanding.
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