the "Don" is not dead; just slimey as ever--
Unhappy Surprises from San Diego's e.Digital Pile Up
Nov 16, 2002 (The San Diego Union-Tribune - Knight Ridder/Tribune Business News via COMTEX) -- Shareholders of San Diego's e.Digital are used to being surprised.
In July, the electronics company boasted on its Web site that its revenue for the third quarter would be $2.6 million, or more than it had been the entire previous year.
The quarter ended Sept. 30 of this year.
At its Nov. 5 annual meeting, chief executive Alfred H. Falk was talking enthusiastically about the company's product innovations.
Amid the product puffery, Falk then said, "We expect revenues for the quarter ended Sept. 30, 2002, to be substantially less than the projected $2.6 million."
The stock immediately plummeted more than 40 percent from 35 cents to 20.5 cents. Shortly, Jim Collier resigned as president and chief operating officer.
Alex Diaz was appointed board chairman, replacing Allen Cocumeli. Both Collier and Cocumeli remain on the board.
Late this week, e.Digital filed its 10-Q report to the Securities and Exchange Commission. It revealed that revenue for the third quarter was $290,290. The loss was $2.7 million more than the earlier projected sales number.
Hmmm. From a projected $2.6 million to $290,290 is indeed substantial.
The company says it has "applied extremely conservative accounting measures," as it took a bunch of write-offs in the quarter.
As Falk had said at the annual meeting, "Our consumer electronics sales over the summer were extremely weak."
According to the 10-Q, e.Digital will "de-emphasize marketing its own branded products" and concentrate on equipment sold to original equipment manufacturers.
Obviously, as the 10-Q so graphically reveals, the company has to do something. The cumulative deficit is now up to $63 million. The working capital deficiency is $4.2 million.
For the September quarter, that loss of $2.7 million was much worse than the loss of $1 million in the same quarter a year ago.
Although the company already has a whopping 140.7 million shares outstanding, it is issuing stock to vendors in return for goods and services.
Despite the heavy overhang of debt and shares, the company may have more debt or equity financings, although it admits its "ability to continue as a going concern is in substantial doubt" and depends on more financing.
The company may have to seek bankruptcy protection, the company warns (as it has before), but it does not think this is likely.
Yesterday, the stock dropped a penny to 19.5 cents. The company did not reply to a call for comment.
Gruttadauria On Thursday in Cleveland, former stockbroker Frank Gruttadauria was sentenced to seven years in prison. He admitted bilking clients of more than $50 million.
He overstated accounts of at least 28 clients by more than $270 million, according to the government.
The judge ordered Gruttadauria to pay back $54 million to ex-clients, but his lawyers said he is virtually penniless.
One of the clients who lost the most to Gruttadauria is Elaine Meyerhoff, 87, of Rancho Santa Fe, who lost her life savings of about $50 million, according to her San Diego attorney, Kirk B. Hulett.
Gruttadauria had worked for S.G. Cowen and Lehman Brothers. Meyerhoff and her late husband had two trusts with a predecessor of S.G. Cowen. The trusts were transferred to Gruttadauria in the mid-1990s.
While he had her money, he would make frequent trips to San Diego to visit Meyerhoff and her daughter.
Hulett tried unsuccessfully to get satisfaction from Lehman and S.G. Cowen.
Finally, last June, he sued the investment firms in U.S. District Court here.
There has been "a satisfactory settlement," says Hulett, although he is not at liberty to reveal the terms.
By Don Bauder
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(c) 2002, The San Diego Union-Tribune. Distributed by Knight Ridder/Tribune Business News.
