System Builder B3 Leaves Michigan High And Dry

Officials in Michigan were aware that system builder B3PC had run up debt in California prior to extending $650,000 in loans that helped restart the company's operations in the state in March 2004, a Marquette County, Mich., official said.

The system builder, after operating in Michigan under the new name of B3 Computers for two years, suddently closed shop in late June or early July after defaulting on three economic development loans, according to state and county officials

"The state of Michigan did have some due diligence done on the company and that review did identify that this would be a risky project, and I believe it did include some reference to debt in California," Marquette County Administrator Steve Powers said. "The decision was made to proceed knowing this was a risky project."

Powers said the justification for proceeding with the project, despite the risks, was that B3 promised to bring 110 high-tech jobs to rural Marquette county and diversify the economy. "We have very few technology jobs in our area, and B3 was seen a small step toward that diversification," Powers said.

Powers said county officials have since been in contact with B3 executives, but are still trying to decide what steps, if any, to take to recover assets.

Now the second guessing begins.

Bill Carr, the system builder's CEO, had been doing business as B3PC, incorporated under the name CGA Computers, in San Diego, Calif., when the company ceased operations in early 2004, according to various accounts. About two months later, Carr started up B3 Computers in Michigan at the former K.I. Sawyer Air Force Base, now an economic development project in Marquette County. CRN could not reach Carr for comment.

"When they left San Diego, they didn't tell anybody, and all of the sudden they popped up in the Midwest," said Jerry Koutavas, vice president of vendor relations for the ASCII Group, which had a three-year relationship with B3. "Our members were taken a little bit back by that because the communication on the move, the change, was not really done. Once they got there, things seemed to get back on track."

ASCII Group members did about half a million dollars in business with B3 under the association's purchasing agreement last year, according to Alan Weinberger, ASCII chairman and CEO. The ASCII Group was attempting to negotiate a barter agreement with B3 for about $15,000 in transaction fees that the vendor owed the association, he said.

"They owed us money for over a year," Weinberger said. "They were still shipping products to some of our dealers, and we couldn't end the relationship because we had good pricing for everybody and some of the dealers liked the product."

The ASCII Group is now talking with several custom system builders about replacing B3 on its vendor list, Koutavas said.

CRN has not been able to determine how much debt B3PC accumulated in San Diego. A former employee, Haosin Liang, who said he was vice president and ran B3PC operations in San Diego beginning in 1996, claimed the company owed various parties money when it ceased operations in San Diego. He said B3PC was evicted by its landlord, Collins Business Park.

NEXT: Information Requested

A spokesman for Collins Business Park in San Diego said the company could not comment on former tenants or confirm whether B3PC was evicted. Another company on Liang's list of creditors, Twinhead Corp., Fremont, Calif., also would not comment on financial relationships, but did acknowledge selling notebooks to B3PC. "We'll continue to support all the dealers and resellers who purchased Twinhead systems from B3," said Charlie Cruser, logistics director for the notebook vendor. Liang, who said he was among seven employees who relocated from San Diego to Michigan, where he took a position as inventory manager, also claimed B3 owed him $30,000. He said he was fired in April 2006 for cashing his paycheck after being asked not to because of the company's cash-flow problems. Liang subsequently sent off a whistle-blowing letter to local media and the county administrator, detailing some of the company's debt and alleging various improprieties.

Because about $350,000 of money lent to B3 Computers stemmed from federal Community Development Block Grant funds, the Department of Housing and Urban Development is among the agencies interested in collecting on the debt. Another $100,000 originated from the U.S. Department of Agriculture, Powers said.

A spokesman for HUD's Inspector General's Office in Washington, D.C., the unit that investigates misuse of funds, said the agency does not confirm or deny the existence of any investigations. The regional HUD office in Michigan, however, has contacted Marquette County officials.

"They're asking us for information," Powers said. "Investigation is probably too strong a word." He said the county was cooperating with the state and federal officials. He also said local officials have been in contact with B3 officials. "We're reviewing what steps we can take to try and recover the loan proceeds," he said. The company was No. 20 on CRN's 50 Leading System Builders List, published in May 2006. Company president Fred Schlaffer reported on the survey form that B3 had $8.2 million in sales and built 10,100 units in 2005.

Paul Kinville, another whistleblower who said he worked as an Intranet developer for B3 and that he had access to B3's sales tracking system from July 2004 to April 2005, claimed the company had only about $703,000 in sales during the first quarter of 2005 and that the numbers provided CRN were inflated.

Kinville said B3 had 352 active customers and logged $3.3 million in sales in 2004. According to Kinville and Liang, B3PC did hit about $8 million in sales at its peak prior to the move to Michigan.

A former assembly worker in Michigan, who asked not to be named, said initially B3 was building quite a few units, but then business tapered off. "Nobody would sell them parts," the worker said. "They had the clientele. They were taking parts from one order and putting them in another and shipping them out the door, depending on who bitched the loudest."