Inside Scoop: What Went Wrong At CorpLogoWare

By Matt Histand

 

Jack Levine, the president and CEO of
CorpLogoWare who has a history of corporate financial impropriety, said that his company took on too many financial commitments that made the operation unprofitable.

These partners first met while working together at a Chili’s restaurant during college. Now best friends, can they turn their unequal partnership into a thriving business enterprise?

When you’re an account executive on a sinking ship, you have no choice but to do what you always do: sell. “I’m just trying to get jobs done for my clients,” said one CorpLogoWare (asi/168827) regional manager, who requested anonymity. “We’ve been on credit hold with suppliers, so it’s difficult to do my job. This is all emotionally exhausting.”SThis salesperson was speaking in the beginning of March, when Counselor first reported that Top 40 distributor CorpLogoWare was dealing with massive financial problems. The company reportedly owed about $5 million to suppliers, $13 million to Comerica Bank and more than $8 million to another debt company. Ultimately, the organization succumbed to its financial problems when it ceased operations on March 17.

“We announced a shutdown this morning,” said Bob Evers, CFO of the company, on a conference call with employees and account executives the afternoon of March 17. “The bank has put us in default so we’re actively starting to liquidate the company today. For now, this isn’t a bankruptcy situation and hopefully our creditors won’t take legal action against the company.”

As of March 17, Comerica Bank put the liquidating effort into the hands of Evers and a small transition team that was focused on collecting on accounts receivables and any other assets that CorpLogoWare had. To collect its assets, Evers told employees that they’d have to go so far as to send all of their computer equipment and any other electronics owned by Corp­LogoWare back to the company. And, Evers said, the bank would not be paying employees for any untaken vacation time and for commissions that salespeople believe they’re still owed. He also said that the bank would have to evaluate its position with any vendors in the market.

“The bank has a lot of leeway in this situation because they’re owed a lot of money and we can’t pay back our loans,” Evers told employees. “They own all of our assets now and they’re trying to recoup as much money as they can. So, they’re not really going to be in a position to write checks to anybody right now. Vendors most likely won’t see any money out of this liquidation.”

“I take full responsibility for everything that went wrong with CorpLogoWare.”

– Jack Levine, CorpLogoWare president and CEO

In an exclusive interview with Counselor, Jack Levine, the president and CEO of Corp­LogoWare admitted to growing the company too fast and taking on too much overhead. “I pressed too far too fast, and I’m to blame for that,” he said. “We weren’t operating efficiently, and I stressed the financial side of the business way too much.”

Indeed. Suppliers were reporting that they were holding invoices that were reaching into the millions of dollars, and that they hadn’t been paid in months. Many had put CorpLogoWare on credit hold months earlier and others were just beginning to realize the extent of the problems. One supplier, Shedrain Corp. (asi/86785), had recently sent a $25,000 CorpLogoWare bill to a collection agency. And the distributor’s credit score as reported in ASICreditConnect was rated as high risk, with more than $500,000 in past-due bills reported by suppliers in February alone.

Counselor spoke with one supplier who claims that CorpLogoWare tried to settle a bill in early March with a bad check. Truebite Inc. (asi/92275) fulfilled an order for CorpLogoWare that was placed on February 15 and had an in-hand date of February 29. Truebite delivered the goods, but didn’t receive payment, so executives followed up with CorpLogoWare to get paid for the $4,300 order. “They agreed to overnight a check to me,” said Ed Calafut of Truebite. “And, the check bounced the next day. It seems like they’re still out there messing with suppliers, even after the company’s problems have come out.”

Another executive with a large supplier firm, who requested anonymity, said his company is owed in the “six figures” by CorpLogoWare. “We’ve been going back and forth with CorpLogoWare for at least four months, having been assured that they would pay us,” said the principal of this Top 40 supplier. “At this point, I’d be surprised to get any of it back.”

In Too Deep
Levine said that a few efforts to grow his company actually ended up hurting. First, he points to the overly aggressive hiring of account executives and being too free with cash advances on commissions in an effort to get reps ramped up quickly. At its height, before some salespeople began defecting amid financial issues, CorpLogoWare had 130 account executives, and Levine said, “We probably went through double that amount before we found the ones we really wanted. It was a very expensive undertaking.”

Levine also said that he mistakenly handed out advances on commissions to new salespeople, but that he wasn’t tough enough in cutting off the payments. “We brought in some bad salespeople, and we just didn’t do a good enough job in discriminating who we gave payments to,” he said. “We needed to be tougher because it became a financial strain on the business.”

Other efforts that hurt the financial side of CorpLogoWare, Levine said, included some strategic errors with some acquisitions as well as large investments in corporate programs that took too long from which to realize profits. “It just became too much financial stress,” said Levine, who claims to have invested more than $3 million of his own money into the company. “We didn’t do deep enough due diligence on these companies and we ended up taking on too much debt within the acquisitions. It added to all of our cash flow problems.”

Meanwhile, Counselor has learned that this isn’t the first time that Levine has headed up a company with financial troubles. After filing for personal bankruptcy in 1987 because of a failed business venture in the restaurant industry, Levine became president of a public company named Ciro. He was president of the fashion jewelry company in the early 1990s, when the SEC accused the company’s management of filing false quarterly and annual reports. The SEC charged at the time that Levine used phony franchise fees and fictitious sales reports to turn losses into profits. Court papers charge that Ciro reported a profit of $1.2 million in 1991, when the company actually lost $2.4 million. Ultimately, Levine signed a settlement with the SEC in which he paid a $50,000 fine, agreed to never become a director or officer of a public company, but did not admit or deny guilt of the charges.

“Along with the owner of the company, I did not act honorably,” Levine said. “He put money into the company as licensing fees to cover up the fact that the business was not doing well, and I as president helped him do it.”

Levine left Ciro in April 1993 and started work on his next venture, in which he was a founder of online lending company Mortgage.com. When the company had an IPO in 1999, Levine’s status with the firm was changed to “shadow director,” as the SEC had barred him from being an officer of a public company. Mortgage.com ended up going out of business in late 2000, and the company’s creditors ultimately won a court settlement from Mortgage.com for $4.68 million. Of that, Levine was ordered to pay a sum less than $400,000, as creditors charged that he and others received money from an investor as a stock buyout when the money was meant for Mortgage.com operations.

Levine said there was no truth to the accusations in that court case. “We operated Mortgage.com in a totally ethical and honest fashion,” he said, “even though it fell victim to the dot-com bust.”

And now, he has overseen financial issues at CorpLogoWare that he attributes to his own mismanagement. “I wanted Corp-LogoWare to be as successful as it should have been if I had been managing it well,” he said. “Now, the impact of what I did to ensure that has resulted in the exact opposite of what I was trying to accomplish. And I hurt the very people I was trying to protect. I take full responsibility for everything that went wrong with CorpLogoWare.”

No Win Situation
At the same time that the company was dealing with huge financial shortfalls, Levine was actively trying to sell any aspect of CorpLogoWare that he could. The initial talks were unsuccessful, as more than a week after Levine told Counselor that he would have a deal closed, the company was still floundering in trying to placate suppliers demanding payment and salespeople who were increasingly fleeing the firm. And at presstime, CorpLogoWare had no deal to speak of.

Counselor spoke with a half-dozen other industry distributors who admitted to looking into striking a deal with Corp-LogoWare, but then shied away because of the financial situation. “Once I got a look at the debt they had and the problems they were trying to overcome, I realized that there was no way they could get an acquisition deal done,” said one distributor principal who admits to initial talks to acquire CorpLogoWare.

Another distributor said that once they dug deeper into the situation, they couldn’t have possibly moved forward with any deal. “No one can buy that company with the situation it’s in,” this person said. “There were substantial irregularities that led the company’s bank to terminate its line of credit.”

During this process, CorpLogoWare was also trying to assure employees that they were actively trying to salvage the company. In a letter obtained by Counselor that was sent out to employees on March 12, the company said it had “three parties interested in purchasing and investing in us. All we can say now [is] that it appears to us that a purchase is better for all parties than bankruptcy, which is where we are headed without a suitor.”

The letter, which was signed by Bob Evers, CFO; J.T. Marburger, CEO of Incentive Marketing (a subsidiary of Corp­LogoWare), and Marvin Baida, COO of CorpLogoWare, goes on to ask employees to remain patient and to continue their operations as best they can. “We are working to try to keep the facilities open and the lights on where we can, but obviously without funding that is a challenge. This has been an extremely trying time for our end clients, AEs, employees and vendors, and we know damage has been done by the series of events that have taken place, but please hang in there as long as you can to see how this plays out, as we believe it is in everyone’s best interest to do so.”

Salespeople, though, were in fact leaving CorpLogoWare. Counselor confirmed at presstime that some had already signed with Boundless Network (asi/143717), Geiger (asi/202900), iPromoteU (asi/232119), and Proforma (asi/300094).

In the face of these defections, Corp-LogoWare executives continued to keep salespeople in the dark about the situation for much of the time and, according to Counselor’s sources, misled suppliers about their financial viability and the possibility for an acquisition. Reports of bounced checks from CorpLogoWare to suppliers were rampant through the weeks leading up to the situation becoming public.

One small supplier executive said that their company provided goods recently to CorpLogoWare that the distributor never paid for, but that the supplier has confirmed were actually paid for by the client. “The salespeople I deal with at CorpLogoWare told me that some of their clients [the end-users] were told that if they paid early for their order – which some of them did – they would get a discount,” said this supplier. “So now you have CLW’s clients asking, ‘where’s the stuff I paid for?’ and the suppliers asking, ‘where’s the money for the goods we supplied you?’”

And salespeople for the distributor are the ones who were left to deal with both their vendors and their clients. “They haven’t told us much throughout this whole mess,” said a CorpLogoWare salesperson. “They said that the bank has frozen our funds. I just don’t understand where all the money has gone. We bring in a lot of revenue at good margins, but then we don’t have any money to pay vendors? I’m devastated by this. Somebody I trusted ended up screwing me.”

CorpLogoWare, which Levine founded in 2002, ranked number 32 on Counselor’s Top 40 last year, with $42 million in reported ad specialty sales in 2006.


Sponsored By: