Jim Edwards quickly built a long-distance-dialing empire. But he couldn't keep the distress calls on hold. Then the line went dead.

It remains unclear why the billing suddenly decreased, but the shortfall threw a major crimp in BCI's cash flow. Having squandered whatever reserves it might have accumulated, the company had to start juggling debts and fell further behind as the weeks passed.

Other accounts were in serious arrears. A major advertising campaign in the beginning of 1997 created a $750,000 obligation to the advertising agency Boswell & Partners, which paid up front for media buys. Other vendors accumulated past-due invoices. The Internal Revenue Service began inquiring about delinquent payroll taxes that would eventually climb to $1.5 million.

BCI's charitable giving program also lagged behind its mandate. In the spring Edwards instructed Steve Long to put a hold on any additional grants. Except for a handful of in-kind contributions, the 2 percent accrued in the books as a liability. Yet the company continued to tout its charitable work in promotional materials. "They were never in compliance," Long says. "I was always very concerned about that."

Meanwhile state regulators were growing increasingly uneasy with mounting consumer complaints that BCI had slammed customers. In signing up for a shot at the Mustang, many of the complaints charged, the customers were duped into changing their long-distance company. Others alleged they had never heard of BCI but had been slammed anyway.

The California Public Utilities Commission pounced first, ordering a halt to any further marketing in the state as of May 2. Texas authorities soon announced an investigation of similar complaints.

Edwards responded that the charges were unfounded. The entry forms clearly indicated in several places that signing up for the car also meant signing up with BCI. He also objected that the relatively small number of complaints (30,000 in California, out of 400,000 accounts) hardly warranted such a severe penalty, as BCI paled in comparison to other companies that routinely slammed customers without their knowledge. And BCI gladly credited anyone who squawked.

But regulators rejected those arguments, reflecting an increasing distaste for sweepstakes promotions nationwide. The moratorium in California would be the first in a series of enforcement hits BCI would take.

On May 15 BCI laid off 25 percent of its workers. For most of the employees, it was the first indication that anything was amiss. "It was shocking and upsetting to me," says Barbara Harris, who like everyone else was informed that the layoff stemmed from the California action. "When you lose a quarter of your business, you lose a quarter of your employees, was the rationale," Harris says.

That wasn't quite true, because California allowed BCI to continue servicing and billing its more than 350,000 existing customers. But the employees believed what they were told, that the setback was only a blip on the screen that would pass as BCI focused its marketing efforts elsewhere.

When the paychecks bounced a couple of months later, employees heard the same line. Edwards circulated a memo blaming the incident on a mixup between the billing company and the bank and requesting that everyone redeposit their checks, which cleared. Two weeks after that, the boss handed out a quarterly bonus. "Everybody was like, 'Whoa, the company's back,' " says Harris.

The bonus checks bounced. When replacements were issued, Harris ran to the bank and cashed her check immediately.

Others felt equally nervous about BCI's stability. After the company ran up a substantial debt to Drake Container Corporation and issued a couple of bad checks, Drake CFO Steve Winbigler went the same route as Harris. "Some of their bigger payments, I'd go straight to the bank and get a cashier's check," Winbigler says.

BCI's financial woes began to cause dissension in the ranks. Urging that the company declare Chapter 11 bankruptcy, controller Eric Doremus (Edwards's brother-in-law) resigned in May, fearing personal liability for the company's soaring deficits.

In September Jim Evans submitted his resignation. Edwards first said that the attorney just wanted to go back to private practice, but he later acknowledged that Evans, too, had brought up the subject of bankruptcy.

He resisted their advice. The new controller, Mel Cooper, crunched the numbers and concluded that a turnaround would come soon, Edwards says. (Cooper refused to comment). And he felt he owed it to his employees to keep BCI afloat as long as possible. "You counsel with everybody you can," Edwards says reflectively. "Some are going to say one thing, and some are going to say the opposite. Ultimately I was the one who had to make the decision."

By the end of 1997, BCI seemingly regained its equilibrium, at least according to official pronouncements. The numbers looked positive: Billing for the year exceeded the 1996 total, topping $47 million. Edwards even talked of taking the company public, a notion that would likely have elicited howls of laughter from Wall Street.

When vice president Bill Jones resigned in March, whatever illusions of fiscal health employees may have harbored were shattered. Jones took serious issue with BCI's management practices, but his concerns went unaddressed. "It was a total disagreement, on numerous, numerous things," he says, declining to cite specifics.

Jones says that, because facts about the finances were virtually impossible to come by, the best he could do was guess that maybe BCI ought to consider Chapter 11. "Clear-cut, solid information to say, 'This is what we should do,' was basically nonexistent," he says.

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