The Standard: Gateway Should Stick to Selling Computers; eSoft, Other Investments, in Trouble

“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

“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.”


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