FF: When the company releases its 10Q for QE 6/30/05 later this month, the gross profit will be apparent and we will know if Wencor demanded better pricing. As I've already stated, I believe that margins from Wencor orders were likely cut to virtually nil and possibly negative.
When you factor out the $200,000 Eclipse settlement from the QE 3/31/05 gross revenue (for which the legal fees were not booked as offsetting cost of revenue), the margin on the product orders appears to have been negative.
My guess is that Wencor was unwilling to pay a 20% mark-up just to have e.Digital send the order to Maycom, something they could easily do themselves. Additionally, because e.Digital has no credit-worthiness, Wencor has to make advance payments (the filings say they're made in 3 installments at key progress points) that basically pass right through e.Digital's bank account to Maycom.
I believe it's likely that they wanted to cease ordering through e.Digital and that in order to keep the top line revenue and the appearance of an ongoing business relationship, e.Digital may have offered to provide the units at or even below cost.
If that turns out to be the case, it is just more evidence that that the company is nothing but a stock selling sham and might wake-up a few more people who still believe in management.
We'll know more within the next 10 days.
