Dentist has second thoughts about promoting Hoopla. com

Brent Wong cancels meeting for prospective investors in Kelowna seed stock deal

Brent Wong was brimming with enthusiasm when he announced that he and his wife would host a meeting for potential seed stock investors in Kelowna- based Hoopla. com Entertainment Inc. at their Winnipeg home last night.

Hoopla ( formerly known as Play Your Debt Away Ltd.) plans to develop a free gaming website that offers prizes such as televisions, automobiles and vacations on a random basis. Revenue will be generated from advertisers and shared with charitable organizations.

To finance the business, the company initially sold 17 million shares to the insider group for one- tenth of a cent each. Since then, the company has sold another three million treasury shares to private investors, starting at $ 1.25 per share and steadily increasing to $ 3.25.

These sorts of seed stock deals give investors the opportunity to invest in companies at relatively cheap prices while they are still in the development stage. The hope is that the company will eventually go public and investors will be able to cash out at much higher prices.

The main risk, as with any start- up company, is that it will never develop into anything worthwhile. Exacerbating that risk is the fact that seed shares are subject to severe resale restrictions, so if the company goes into the tank before it goes public, the investor goes with it.

If Wong was apprehensive about the risk, he didn’t show it. In a video presentation, the Winnipeg dentist said the “nearest rival” to Hoopla is Pogo. com, a free gaming site that was acquired by Electronic Arts several years ago for $ 40 million.

He hinted that Hoopla could follow suit: “Two top executives from Disney Corp. have come to the top executives at Hoopla to find out more information, because they are interested in possibly partnering or buying this stock,” he said in the video.

Wong said the company had been endorsed by the Minnesota- based Starkey Hearing Foundation, and “the people who have endorsed Starkey have also endorsed Hoopla,” including Kevin Costner, Whoopi Goldberg, Miley Cyrus, Bill Clinton and Reba McEntire.

He said he and his wife bought $ 225,000 worth of shares at $ 1.44 each. He said the current selling price is $ 3.50, but for the next 45 days only, investors could buy them for just $ 2.50 each.

He said the original plan was to list the shares on the Toronto Stock Exchange, but “now we are going to the New York Stock Exchange because the buzz has told us that this thing is going to be huge … It’s going to open up, from what I know, at least $ 6 to $ 8 per share.”

Wong said the company’s chief executive officer, Paul Bickert of Kelowna, worked as a chiropractor before going into his own businesses. “His first business I think got to something like $ 200 million, his second business got to $ 900 million … so he’s no slouch.”

He said Hoopla’s president, Duane Lockwood, “is a big- time bank guy, so we’ve got some of the best of the best here.”

I found Wong’s sales pitch interesting, to say the least. First, it is illegal to represent to prospective investors that you are taking a company public, or to make representations about the stock’s future share price.

Second, Bickert’s two business ventures, Globus Wireless Ltd. and Canada’s Choice Spring Water Inc., never generated anywhere near the sales that Wong claims.

Bickert served as the principal officer of Globus, which designed and marketed wireless communications devices, from 1993 to 1999. During this period, the company generated only a few hundred thousand dollars of revenue. During the last two years he was there, it generated zero revenues and racked up nearly $ 1.6 million in losses.

Bickert served as a director of Canada’s Choice Spring Water from 1997 to 2001. During that period, revenues climbed to $ 7.7 million. The year after he left, revenues peaked at $ 22 million, but the company was a huge money loser and soon became insolvent.

Third, the suggestion that Lockwood is a “big- time bank guy” is news to me. I know him as a former life insurance salesman in Kelowna.

Fourth, the limited time offer of $ 2.50 per share doesn’t seem like much of a deal to me. A Calgary man told me that Lockwood offered him shares a few days ago at $ 1.25, which is half the price.

Another concern is whether these shares are being sold by the company, with proceeds going into the treasury, or by the principals, with proceeds going into their pockets.

When I wrote about his deal last September, some of the company insiders were selling their own shares to investors, sometimes at a discount to the price at which the treasury shares are being sold.

Bickert argued that selling already issued shares reduces the dilution that would otherwise occur by issuing treasury shares. I say these company insiders are enriching themselves and depriving the company of much- needed capital. ( Keep in mind, the insiders bought their shares for one- tenth of a cent each. Even if they sell them for $ 1.25 each — which they are legally entitled to do — their profit margin would be stupendous.)

I wanted to talk to Bickert and Lockwood about all this, but I couldn’t reach Bickert and when I called Lockwood, he said he would call back in 10 minutes, but never did.

I asked Wong whether the insiders were offering their own shares in the $ 2.50 limited- time offer, but he didn’t know.

I also asked where he got the information about the company going public, the celebrity endorsements and the principals’ business backgrounds, but he declined to say.

It was clear, however, that his ardour for this deal was cooling: “In the last 24 hours, a lot of things came to light. I’m cancelling this meeting tonight. I had done some due diligence, but I’m going to do more before I try to get anyone else involved. I’m going to talk to Paul Bickert right now. I need to get answers before we introduce the concept to people we care about.”