“An extensive investigation of Gateway’s press releases,
internal documents and filings with the Securities and Exchange
Commission reveals that the company is sitting on a pile of
dwindling “other assets,” including investments in struggling
dot-coms, sputtering retail partners and a few companies that might
not survive the winter.”
“Among the most troubled of those investments is the
millions Gateway has sunk into eSoft (ESFT) , a move which seemed
like a good idea on April 26, when Gateway agreed to put $12.5
million into the tiny Colorado-based Linux company with just $9
million in annual revenues. Gateway bought 640,796 shares at
$19.51 apiece and inked an arrangement to buy another 640,796
shares at the same price. But almost immediately, things started to
go bad at eSoft: Sequential revenues fell by 16.5 percent in the
same quarter Gateway made its investment, and another 53 percent
fell the following quarter. By August, eSoft shares were down to
$7.50.”
“Despite its contractual obligation, Gateway refused to follow
good money with bad money and balked at paying $19.51 for another
640,796 shares. But eSoft insisted, issuing a press release with a
demand for the other $12.5 million. The two companies finally
settled the deal behind closed doors, with Gateway forking over the
$12.5 million as a loan, repayable over four years, with stock
priced between $11 and $19.50. ESoft was desperate for the money
and had to accept the terms.”