I Bill, You Bill, We All Scream for iBill: Is the check finally in the mail?
AVN Online.com
By: Dash Hamilton
The Deerfield Beach, Fla., Chamber of Commerce boasts that it's "the
pride of Broward County, located on the Atlantic Ocean, just two miles
south of the Palm Beaches and 20 miles north of Fort Lauderdale."
Known for its serene beaches, Deerfield Beach was primarily an
agricultural village until the late 1940s. Today it's considered a
tourist mecca. And it is also the new home and corporate headquarters
for Internet Billing Company LLC, better known as the beleaguered
credit card processor iBill.
The story of iBill's rise and fall and possible resurrection is a tale
so complicated it would take a whole team of SEC lawyers and a couple of
round-the-clock paralegals just to make sense of it all.
Without question, the financial and ethical integrity of iBill has
been sorely compromised. When Deerfield Beach-based Interactive Brand
Development (IBD), formerly Care Concepts I, completed its acquisition
of the third-party processor from Penthouse International on January
21, 2005, they were taking on a company with a smoldering history of
corporate takeovers, accusations of gross mismanagement, a flurry of
lawsuits, and the revocation of the company's merchant account.
On September 16, 2004, iBill's contract with First Data Merchant
Services -- their bank -- expired and was not renewed. Penthouse
International reportedly knew First Data was backing out several months
beforehand, yet did not have another bank lined up. First Data
subsequently withheld the release of millions of dollars due to webmasters.
That's a large responsibility for IBD to assume, yet a careful
examination of the company's chess moves reveals a business strategy
based on risk. IBD corporate officers Steven Markley and Gary Spaniak
Jr. either enjoy hazard-fraught enterprises or they are engaged in a
series of deadly miscalculations that will perhaps remand iBill to the
dustbin of corporate history.
"Are we crazy? Probably, but the reality is we bought this thing and
took it on when we could of thrown it in bankruptcy and not paid the
webmasters," Spaniak said. "We've paid back over $30 million because we
believed in the concept and believed we could fix it."
On April 12, 2005, IBD announced that it would begin making long
past-due payments to affiliates using iBill, payments that would only
represent a portion of what webmasters are owed because IBD does not
have the capital to pay everyone in full. Affiliates were asked to log
into their merchant accounts and download the note payable for 100
percent on the dollar -- in 50 percent increments over two years with a
meager 3 percent interest.
On April 29, 2005, after several webmasters who maintained affiliate
programs with iBill complained about not being paid, IBD blamed a
temporary accounting glitch. The money, iBill president Gary Spaniak
said, had been accidentally diverted to another account.
Still, the question remains. Why would IBD want to buy a company that
was obviously in serious trouble to begin with?
Spaniak says IBD essentially didn't have a choice.
On October 5, 2004, IBD announced the purchase of 35 percent
of Penthouse Media Group, formerly General Media Inc., an acquisition
that had been in the works for some time. The caveat, according to
Spaniak, was that IBD also had to buy iBill.
"When we did the financing to buy Penthouse, the bondholders made us use
iBill as collateral when we closed on it. I had no choice but to close
on iBill. If I didn't close on iBill, I lost the $20 million we borrowed
for Penthouse Media Group. All of those notes would have been called if
I didn't close on iBill. I had no choice but to close and that's why we
got delisted on the American Stock Exchange," Spaniak said.
"It's in the contracts with the people who loaned us the money to buy
Penthouse Media Group. They said you have to have that asset in your
portfolio or we're going to foreclose."
Sometimes a great notion
The company that would become Interactive Brand Development was
originally established in Nevada in July 1988 as Amsterdam Capital
Corporation. In November 1992, the company changed its state of
incorporation to Delaware. On November 26, 2002, a wholly owned
subsidiary of Amsterdam Capital merged with and into iBid America
Inc., a Florida corporation, and Care Concepts I was born.
Care Concepts bloomed into a self-dubbed "media and marketing holding
company" with assets that included: a controlling interest in Foster
Sports Inc., a sports-oriented, multimedia company that produces
sports radio talk shows in the Florida marketplace; and its flagship
enterprise, iBidUSA.com, a website showcasing products and services in
an auction format.
If Care Concepts was attempting to muscle in on eBay's territory with
iBidUSA -- which is reasonable to assume -- the most fitting analogy would
be an online bookseller offering only 20 unique book titles and hoping
to position itself to compete with Amazon. At iBidUSA, consumers bid to
acquire gift certificates redeemable for such items as hotel
accommodations, restaurant meals, concerts, golf courses, shopping
experiences, and personal services. The certificates are provided by
regional commercial establishments seeking to promote their businesses,
introduce new products and services, develop new customers, and generate
consumer awareness.
Indeed, when Care Concepts first made overtures to acquire iBill the
company boasted in a press release: "Similar to the combination of
PayPal and eBay, the acquisition of iBill provides our auction
operations with an exciting strategic solution to vertically integrate
online payment services into an auction environment."
After Care Concepts was reborn as Interactive Brand Development with a
new business plan to build a presence as a media holding company in
the adult entertainment industry, the company licensed its flagship
and wholly owned subsidiary iBidUSA to a second party, LTC Group
Inc. on March 1, 2005, proclaiming the following in its annual report
for 2004:
"The Company believes that the limited revenue generated by this
division, which consum[ing] a disproportionate amount of the
Company's man-hours in training, advertising, and marketing, will
be increased over time by this agreement. The Company receives 20
percent of the gross earnings of the business, while its resources are
allocated to other areas of the company growth."
The key words in the statement are "limited revenue."
When the relationship just isn't working ...
Certainly Foster Sports was turning a profit for Care Concepts/IBD but
in November 2004, shortly before the ink was dry on the iBill
acquisition, the company divested its ownership interest in Foster and
discontinued its "pursuits of business combinations with entities
involved in radio media."
One month before shedding itself of Foster Sports, IBD consummated a
transaction to acquire a 34.7 percent minority equity interest in the
post-bankruptcy, reorganized Penthouse Media Group Inc.
A little background on Penthouse is necessary here in order to see not
only the strategic blunder of IBD's investment but the incestuous nature
of the iBill enterprise.
Founded by Bob Guccione in 1965, the Penthouse trademark became one of
the most recognized consumer brands in the world and was widely
identified with premium entertainment for adult audiences. The
magazine's closest competitors were Playboy and Hustler.
Maxim(um) threat
By 1998, Penthouse publisher Guccione found himself stuck between the
widespread saturation of adult product on the Internet and the
monumental popularity of nonexplicit men's magazines like Maxim.
Penthouse's response to the threat was to change its format and begin
featuring sexually explicit photo layouts that included oral and vaginal
penetration and female models urinating. The latter taboo firmly put
Penthouse's foot on the third rail of the defining limits of illegal
obscenity.
The new format for Penthouse cost General Media, the parent company of
the magazine, dearly. The magazine lost subscribers and newsstand
circulation dropped significantly.
On August 12, 2003, General Media, the publishing and distribution arm
of Penthouse, filed for Chapter 11 bankruptcy protection when it could
not meet its bond payments. Two months later, it was announced that
Penthouse was being put on the auction block as part of a deal with
its creditors. Penthouse International, an umbrella company for
several business units that include Penthouse magazine, was not
involved in the petition.
Crime, drugs, and soft drinks! Soft drinks!
Enter Garrett Bender, former president and CEO of iBill, and Jason
Galanis, who described himself to Forbes magazine as "part of the
investment banking team" that took Penthouse magazine public in 2002.
Jason Galanis is the son of John Peter Galanis, a convicted and highly
prolific white-collar criminal. The Philadelphia Inquirer called the
father of Jason Galanis "a brilliant and charming swindler who uses a
maze of national and foreign corporations to carry out his deals," a
businessman who "has faced law enforcement scrutiny, a six-month jail
term, indictments in the United States and Canada, civil suits, and a
lengthy fight in U.S. Bankruptcy Court." By his own admission in
court, according to the Inquirer, Galanis "plundered a Panamanian
investment fund, Armstrong Capital, in 1970, and the investors are
still trying to collect $3.5 million in principal and interest."
Jason Galanis has never been convicted of a crime. He was arrested on
October 19, 2001, along with his brother and business partner Derek in
part of a two-day Drug Enforcement Agency takedown of a
methamphetamine and Ecstasy trafficking organization. The DEA found
that Jason's involvement in the narcotics operation was "minimal"
and charges were dropped. But Derek Galanis was convicted and
sentenced to 11 years in jail.
Through a complicated set of maneuvers that would outwit even Donald
Trump, former iBill CEO Garrett Bender and Jason Galanis helped form
Media Billing LLC and seated Dr. Luis Enrique Molina as one of the
principal stockholders of Penthouse.
A Mexican soft drink entrepreneur, Molina reportedly ponied up more than
$70 million to pay off Guccione's debts and the liens on his New York
mansion. Molina and Penthouse agreed to purchase General Media preferred
stock from the sellers for approximately $10.25 million, payable on
March 31, 2008, under an 8 percent increasing rate note given by Molina
and guaranteed by Penthouse. Molina reportedly also sunk another $107
million into Penthouse in a real estate and equity swap.
Confused yet? It gets more torturous.
Deceit, betrayal
On March 23, 2004, InterCept Payment Solutions -- embattled by investors
for not disclosing just how much of iBill's revenue was derived from
porn processing -- sold iBill to Media Billing LLC, a 99 percent-owned
subsidiary of Penthouse International.
When InterCept sold iBill, the processor was a mess. Not only were the
company's own shareholders suing it, but iBill also had a substantial
debt. Media Billing purchased iBill for a mere $700,000 in cash and an
$800,000 short-term note. They agreed to assume a $22 million working
capital deficit.
Where _the hell_ did all that money go?
Well, an iBill insider says it went with InterCept, who reportedly
rode off into the sunset with nearly $31 million that was owed to
iBill clients. On paper, Media Billing essentially paid $23.5 million
for iBill.
A few more disastrous bumps occur in the road, and on July 30, 2004,
Care Concepts announced it was buying both Media Billing LLC and iBill
from Penthouse for $55 million in an all-stock deal.
On October 4, 2004, General Media emerged from bankruptcy protection
and was renamed Penthouse Media Group. Boca Raton, Florida, financier
Marc Bell, who heads the private equity firm Marc Bell Capital
Partners, led an investment group that collected 89 percent of the
magazine's approximately $45 million in bonds and announced plans
to invest up to $50 million to turn the magazine around.
"We want to realign the magazine and take it to the center," Bell told
the Miami Herald in February 2004. "It's got very hardcore and lost
a lot of readership because of that."
It's anyone's guess why IBD would consider the purchase of 34.7
percent ownership in Penthouse Media Group "part of a strategic
investment that is synergistic" with its desire to become a major
player in the "highly-fragmented multibillion-dollar adult market"
(according to an April 2005 IBD Press Release,). Penthouse's
circulation is down from 5.2 million copies in its heyday to a current
circulation of roughly 460,000.
Judging from posts on a July 5, 2005 discussion thread at
http://Xxxporntalk.com, the new and improved Penthouse is less than
enthralling:
"Has anyone seen the newest Penthouse issue?" photographer Holly Randall
asks. "The centerfold is blah, and the printing is absolute crap. In
fact, every layout in this issue is horrible. The softcore angle on
this mag just ain't working. What are they trying to do, a really bad
version of Playboy? Just when I thought the magazine couldn't get any
worse, it does. Bob may have been a bit nuts, but at least he could put
out a decent magazine. This is so amateur looking it blows my mind."
Another poster adds:
"[Penthouse is] running on fumes, I think. If they don't have hot
photos, they don't have anything. The articles haven't been much for a
long time. They've stuck with such a tired formula, it's
antiquated. The only thing it had that was great were some of the
photo sets, which were far hotter than Playboy[s] and more classy than
Hustler[s].
"They've probably worked out a bottom line budget that allows the mag to
run on cruise control and generate a little profit while they work the
licensing end," another ads. "But it looks like the glory days are over
for good."
In the company's annual report for 2004, IBD notes that "the actual
current commercial value of the Penthouse brand name is not determinable
at this time, but it will not impact the company's financial position or
results of operations except to the extent such value indicates that an
impairment has occurred."
On March 31, 2005, IBD acquired a minority equity interest in
Interactive Television Networks, Inc (ITVN), formerly XTV Inc., an
IPTV broadband video content provider with a strong emphasis on
direct-to-consumer adult programming delivery. Aside from its
Pay-Per-View revenue sources, ITVN also offers video-phone sex.
IBD acquired 6,250 shares of ITVN common stock from XTV Investments
LLC for a 25 percent equity ownership of ITVN, in exchange for 4,000
shares of Convertible Preferred Stock Series H, which will convert
into 40,000,000 shares of IBD common stock and $1,700,000 in cash.
On June 15, 2005, Radium Ventures Inc., a public company based in
Canada, announced that it had acquired ITVN in a merger. As part of
the deal, Radium canceled 750,000 of the outstanding shares of its
common stock and issued 22,117,550 shares of its common stock to the
existing stockholders of ITVN. IBD received 5,500,000 restricted
common shares of Radium.
Ruined reputations?
What is Radium Ventures? Until acquiring ITVN, Radium was a two-man
enterprise that provided document-editing services and used an
Internet marketing plan and the proprietary software Einscribe. In
fiscal year 2005, Radium completely discontinued its editing
operations and announced plans to rename itself after the acquired
company, Interactive Television Networks.
While IBD doesn't have a controlling interest in ITVN, there is a bit of
acrimony between the companies, at least on ITVN's part. Part of that,
Spaniak says, is because the relationship to iBill has made XTV's
affiliates concerned about getting paid.
Ironically, the CEO of ITVN is Charles Prast, former CEO of Private
Media Group and president of iBill during the Media Billing days, who
is quick to dismiss any IBD involvement in ITVN.
"We don't have a relationship with IBD. We don't have a bad relationship
or a good relationship, we just don't have any relationship whatsoever,"
Prast says.
"They have no board seats. They have no representation whatsoever in the
management or the direction of the company. They are purely a passive
investor; We have nada to do with them."
Between iBill, Penthouse International, Media Billing LLC, ITVN,
Radium Ventures, and, of course, Interactive Brand Development Inc.,
nee Care Concepts, at the center of it all, millions of dollars in
stock and cash are exchanging hands, and yet there is not a company of
established value anywhere in the mix. The reputations of both
Penthouse and iBill have been seriously damaged, perhaps permanently,
and ITVN is not yet a proven entity.
In its Annual Report for 2004, Interactive Brand Development invokes
generalities to predict its future growth, an evasive business ploy
that was a favorite of the many now-defunct dot-com boomers. In the
dot-com days, an online bookseller, for instance, would cite analyst
reports that reflected an upward trend in consumer book buying in the
next fiscal year, coupled with another analyst report that reflected a
wave of new Internet users on the horizon. Here is an example of how
those same overly optimistic forward-looking statements sound like
coming direct from IBD's report:
"Demand for adult entertainment products has grown substantially in
recent years. According to a 2003 Reuters report, the total worldwide
adult entertainment market exceeds $31 billion annually -- The
proliferation of easy to use electronic equipment, such as VCRs and DVD
players, has boosted demand for adult media content compatible with
these formats. Also, the evolution of the Internet as a channel of
commerce and content distribution has stimulated additional demand for
adult media content. The next generation of mobile devices provides a
global opportunity for growth in content distribution."
In the same report, IBD says that it has "depleted the cash resources
that it has available." The company currently believes, however, that
operating cash flows and borrowings will be adequate to meet the
company's operating needs and capital requirements through 2005.
"Such operating needs and capital requirements include short-term
commitments, and market penetration of our iBill and ITVN services,"
the report states.
As for iBill, IBD warns in its report that its "competitors have
substantially greater capital and other financial resources than iBill
does" and that any sharp competitive change in the credit card
processing business can "make it more difficult for iBill to retain
and attract customers."
Not to mention the numerous lawsuits filed against iBill in both
federal and state circuit courts. From the 2004 report:
"The Company believes that the results of operations from iBill should
improve as the Company regains lost customers and increases operating
efficiencies. However, the Company must obtain additional financing to
permit it to expand its iBill operations and facilitate its business
plan."
In the absence of financing, IBD warns, "the Company will be unable to
satisfy its past due and other obligations."
Spaniak insists, and recent developments look promising, that IBD will
bring iBill back.
"I think we're pretty close to being fixed. We've paid back over $30
million, our processing is up and our clients are getting paid, he said.
"We feel good about the direction we're going. We're going to save this
thing."
In other words, the check is in the mail.
Note: A former newspaper editor and amateur boxer, Dash Hamilton lives in the
Pacific Northwest. He is currently writing a critical study on the works
of Jacqueline Susanne.
MJ MacMahon also contributed to this story.
[TELECOM Digest Editor's Note: Ah ... internet porn ... what a
wonderful business to be in. As we read here, if you did business with
a porn company over the past three or four years, chances are likely
your email address has been spammed internationally; and the webmaster
you signed up through has never yet gotten paid for it. PAT]
Dash Hamilton (avnonline@telecom-digest.org)