Last summer, SureBeam Corp. switched independent auditors because it found a better deal. It was a seemingly simple business move, saving the upstart company roughly $100,000 in fees. AP photo
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Last summer, SureBeam Corp. switched independent auditors because it found a better deal. It was a seemingly simple business move, saving the upstart company roughly $100,000 in fees. AP photo |
Last summer, SureBeam Corp. switched independent auditors because it found a better deal. It was a seemingly simple business move, saving the upstart company roughly $100,000 in fees.
Yet it triggered an accounting dispute that wound up sending SureBeam into a death spiral. On Monday, the San Diego company announced it will file for bankruptcy and shut its doors for good.
While SureBeam's demise isn't surprising, the abruptness and utter completeness of its failure is, according to analysts and investors.
SureBeam, which faces several shareholder lawsuits, plans to file for Chapter 7 bankruptcy liquidation, selling off its assets to partially pay debts.
Most troubled companies with promising technology file for Chapter 11 bankruptcy reorganization, which gives them a temporary breather from creditors in hopes of saving the business.
"This goes to show that there was nothing to circle the wagons around," said Bud Leedom, a principal in LSI Equity Research in San Diego. "There was really no business to protect."
Analysts praised SureBeam's irradiation technology, which uses electron beams to kill bacteria in ground beef and other meat products. With outbreaks of E. coli in meat, scallions and other food products, the company was considered to have tons of potential.
After Sept. 11, its shares soared to more than $16, as the company touted its technology as a way to kill anthrax in mail packages.
But in the end, irradiation melted cassette tapes and caused other damage to packages. And meat packers have been slow to embrace SureBeam's irradiation system.
On top of that, the company made a series of mistakes that doomed its prospects, analysts said.
"In a disaster like this, very infrequently it is one screwup that sinks the ship," said David Corbin of Corbin Small Cap Value Fund, a Fort Worth, Texas, money manager and large holder of SureBeam stock.
SureBeam was spun out of San Diego defense contractor Titan Corp. In March 2001, SureBeam raised $67 million in an initial public offering.
Titan kept a close ties with its sibling, including extending a $50 million line of credit to the company. SureBeam used about $25 million of the debt and still owes Titan that amount. Titan also guarantees certain SureBeam facility leases.
Despite these obligations, Titan said yesterday that it expects to take a charge of no more than $10 million related to SureBeam's bankruptcy.
The defense contractor said it is a secured lender and therefore will be the first in line to receive proceeds from the sale of SureBeam's intellectual property and other assets, said Wil Williams, a Titan spokesman.
"SureBeam does have assets," Williams said. "As far as I know, we're the only secured lender."
When SureBeam left Titan's nest, it embarked on a strategy of building irradiation facilities near the meat-packing centers of Chicago and Sioux City, Iowa. It also built a facility in the shipping hub of Los Angeles.
But that strategy never paid off. "I think the company bit off more than it could chew in hopes that the market would materialize," Leedom said. "There was way too much overhead and far too little food run through those facilities."
SureBeam never made money in its 33 months as a public company. Last year, it forecast losses of 25 to 35 cents a share on revenue of $30 million to $40 million.
Its troubles began in earnest after chief executive Larry Oberkvell left the company in March to join Schwan Foods Co.
While still searching for a replacement, SureBeam's board fired KPMG as its auditor because the accounting firm's fees were considered too high. On June 9, it hired Deloitte & Touche to audit its books and sign off on financial statements.
While reviewing past financial statements, Deloitte disputed the method SureBeam used to book revenue in two past transactions with international customers. KPMG and the auditor before that, Arthur Andersen, had approved SureBeam's accounting technique.
Deloitte refused to certify the company's quarterly financial statements until the dispute was resolved. SureBeam fired Deloitte. But that led to delays in filing the company's quarterly financial statements, which got SureBeam in hot water with the Nasdaq exchange. Its shares were eventually delisted from Nasdaq.
The uncertainty about the company's financial status scared off international customers who were considering using SureBeam's irradiation system, analysts said. Never flush with cash, the lost business deepened the company's cash crunch.
In September, SureBeam named corporate turnaround specialist Terrance Bruggeman as chief executive. He was signed to a three-year contract in part because he had the support of Gene Ray, Titan's chief executive.
With its troubles mounting, SureBeam presented Titan executives with a proposal – forgive the debt and provide additional funding to save the company.
Titan balked. It's in the process of being acquired by defense giant Lockheed Martin. That deal is expected to be completed by the end of March.
Bruggeman did not return telephone calls seeking comment. Williams, the Titan spokesman, confirmed that Bruggeman approached Titan. "We gave him guidance that we wanted him to tighten up other things over there and to seek other money" outside of Titan, he said.
SureBeam did secure some additional funding, but not enough to sustain its operations.
SureBeam was the last and best-known offshoot of Titan's once-high-profile attempt to position itself as an incubator of military technology for commercial uses. Others included a business-to-business software venture called Cayenta and a wireless business.
In the end, none of the non-defense ventures worked out for Titan, which retrenched back to its core defense business.
Titan's shares ended yesterday down 2 cents at $21.78 on the New York Stock Exchange. SureBeam's shares closed at 2.6 cents, down 90 percent from the previous day's price.
source: http://www.signonsandiego.com/news/uniontrib/wed/business/news_1b14surebeam.html 14jan04
SAN DIEGO, CA. December 3, 2003 – SureBeam Corporation (Pink Sheets: SURE) today announced that its Audit Committee has appointed Peterson & Co., LLP as SureBeam's independent auditor. This appointment concludes a selection process that was conducted by the Audit Committee following the Company's dismissal of Deloitte & Touche LLP as its independent auditor on August 21, 2003.
Peterson & Co. will begin work immediately on the Company's financial statements, including a review of the financial statements for the quarters ended June 30, 2003, and September 30, 2003. While the Company's Forms 10-Q for the quarters ended June 30, 2003, and September 30, 2003 have not yet been filed with the Securities and Exchange Commission, the Company intends to file these Forms 10-Q once Peterson & Co. has completed its review.
"We are extremely pleased to be able to announce the appointment of Peterson & Co. as our new auditor," said Terrence J. Bruggeman, SureBeam's President and Chief Executive Officer. "We look forward to working with the firm as we strive to bring SureBeam back into compliance with the Securities and Exchange Commission's rules and regulations."
About Peterson & Co., LLP Peterson & Co., LLP has been a respected firm in the San Diego area since 1951. With the highly qualified and diverse experience of their professional team, Peterson & Co., LLP offers a broad range of services including tax consulting and compliance, accounting services, assurance services, and business consulting.
Peterson & Co., LLP is a member of the AICPA Division of Firms, the National Association of CPA Firms, an association with offices throughout the United States, and Morison International, an international group of professional accounting firms that provide members' clients with the broad scope of services required in today's rapidly expanding worldwide economy. The firm is also a member of RAN ONE, a worldwide affiliation of accountants who focus on management consulting and business development.
About SureBeam Headquartered in San Diego, California, SureBeam Corporation is a leading provider of electron beam food safety systems and services for the food industry. SureBeam's technology significantly improves food quality, extends product freshness, and provides disinfestation that helps to protect the environment. The SureBeam patented system is based on proven electron beam and x-ray technology that destroys harmful food-borne bacteria much like thermal pasteurization does to milk. This technology can also eliminate the need for toxic chemical fumigants used in pest control that may be harmful to the earth's ozone layer.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: The statements contained in this release which are not historical facts, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Examples of such forward-looking statements include statements that do not relate strictly to historical or current facts. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. These risks and uncertainties include the risks associated with the Company's entry into new commercial food markets that require the company to develop demand for its product, its ability to access capital markets, the risk that purchase orders placed with the Company will not result in sales, and other risks described in the Company's Securities and Exchange Commission filings.
SureBeam Investor Relations Contacts: Ann Jones & Donna Dolan: 858-795-6296
SureBeam Public Relations Contact: Linda Seaton: 858-795-6297
source: http://www.surebeam.com/press_releases_read.php?id=232 14jan04
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