Aureal close to collapse – execs out on their ears

To sell or to wind down?

Aureal has purged its entire executive management team and is considering "all necessary actions to either sell the Company or its assets or wind down the Company". The putsch for the digital audio company follows a horrible set of Q4 results, which saw the firm effectively run out of cash. It sees the departure of "President and CEO, Kip Kokinakis, its Chief Technical Officer, Scott Foster, its Chief Financial Officer, David Domeier, and its Chief Operating Officer and General Counsel, Brendan O'Flaherty, along with all senior staff members of Aureal". The board is seeking turnaround management. Word on the street was that Aureal has effectively been up for sale for several months, with Intel and Creative tipped as interested prospective buyers. Looks like any negotiations on that score has broken down. Aureal announced the departures, just one day after the company posted a very poor set of Q4 results (23 March). For the three months to 21 January sales were $8.5 million, down from $11.2 million in the third quarter and $10.8 million in the year-ago fourth quarter. Worse, losses ballooned to $9.5 million, compared to a loss of $3.5 million in the fourth quarter of 1998. The year-to-date loss for 1999 was $26.9 million, compared to a loss of $18.5 million for 1998. Kokinakis blamed the results on the "patent litigation with Creative and trial process distracted us. To fight and win a lawsuit of such magnitude was a major undertaking for a company our size, and it didn't come without significant costs. Both our people and financial resources were stretched, especially during the fourth quarter, and that impacted our efforts to further expand the reach of our products". Patent litigation expenses were $6.4 million in 1999, an increase of over $6 million from the prior year. "Unfortunately, even when you're right and you win in court, it can have a huge impact on your business," said David Domeier when he was still Senior VP Finance and CFO of Aureal. "We can't measure the impact of the trial process and attendant market disruption on our sales for the quarter or the year, but we know the customers were confused by what was going on. We lost sales and incurred substantial costs in preparing for and fighting the case in court." ®

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