blast from the past--->As Its Stock Remains Halted, Coyote Raises Question of Third-Party Lessor
By Kambiz Foroohar
Staff Reporters
12/10/98 3:34 PM ET
The Nasdaq Stock Market halted trading in Coyote Network (CYOE:Nasdaq) stock this morning in the wake of stories published yesterday in TheStreet.com and following a press release about the stories from Coyote.
In its press release, Coyote said that the TSC stories are "potentially misleading." The company, however, did not clarify questions raised about its largest customer, Crescent Communications Inc. Even though it owns 20% of Crescent, Coyote referred to a research report when describing the location of the company as Long Beach, Calif. The company also explained how its arrangement with Crescent works, citing Comdisco (CDO:NYSE) as the unnamed third party mentioned in a description of its business relationship with Crescent in a recent Securities and Exchange Commission filing.
Coyote shares dropped 6 7/16, or 45%, yesterday, finishing at 7 13/16. The stock has not traded today.
Today TSC reached Gene Curcio, the head of Crescent. TSC wrote yesterday that it was having a hard time tracking Curcio down. Exhaustive research, including a trip to the Long Beach location cited by Coyote, came up empty. Incorporation documents were found in Nevada, but messages left at a number affiliated with Crescent weren't returned. Coyote, after assuring TSC on Friday that it would most definitely get us in touch with its largest customer, declined to return calls and offered no further guidance concerning Crescent and Curcio.
In its press release today, Coyote referred to a "Kaufman Brothers Intraday Note" that said Crescent was based in Long Beach. Yesterday, Kaufman Brothers analyst Vik Grover, who rates Coyote a buy, told the Los Angeles Times that Crescent was based in Mexico. A copy of a Kaufman intraday note obtained by TSC and dated Dec. 9 says: "Let us set the record straight: Crescent Communications is indeed incorporated in Nevada but is based in Long Beach. Crescent is actually a Mexico-based switchless reseller doing business under the name 'Crescent Communications SA de CV'."
Curcio said that since his firm is private, he didn't feel a need to make it known where he works and operates. He explained certain discrepancies in corporate filings and incorporation statements in an interview, but the conversation raised still more questions than it answered. Moreover, Curcio said names listed on various filings related to Crescent referred to dismissed employees and wrong addresses in the filings were typos. (For details of the Curcio interview and for more on Crescent, please see our related story.)
Also, this morning the California Franchise Tax Board said that in 1995 it had suspended the business license of the only Crescent Communications Inc. in its database, because it did not file income tax returns. The board monitors and administers only income taxes. It is not known if this is the same Crescent Communications that Curcio heads.
The Coyote press release focused on the arrangement of the dealings between Comdisco, Coyote and Crescent.
Prior to its press release, issued this morning, Coyote said it sold roughly $11 million of product to Crescent Communications. A quarterly SEC filing said, "In September 1998, the Company [Coyote] sold approximately $13,000,000 of equipment to Crescent Communications, Inc. ("Crescent") through a third party leasing arrangement." (The company said it deferred recognition of about $2.5 million.) In its filing, Coyote had made no mention of Comdisco.
In a press release dated Sept. 24, Coyote had indicated that Comdisco had "agreed to provide lease financing for the initial portion of the equipment order." Coyote also has said it acquired a 20% stake in Crescent.
A spokeswoman for Comdisco confirmed today that her company has bought $12 million of equipment from Coyote Network and has in turn leased that equipment, made by Coyote and other companies, to Crescent Communications. "At this point that's all the information I have." She said she is trying to get additional details concerning the companies' relationship. Comdisco leases, sells and refurbishes computer equipment. The spokeswoman had told TSC yesterday and also when first contacted more than a week ago that she was not aware that her company did business with Crescent. Yesterday she also cited a company policy of not commenting on a customer without that customer's permission.
The press release does not include a quote from Comdisco or Crescent.
Finally, Coyote states that its "'insiders' and 'affiliates' can not and will not 'short sell' Coyote stock." TSC reported earlier that in SEC filings, Coyote noted that listed stockholders might decide to short their own company's stock. By selling shares short, a person aims to profit from a fall in the share price.
Comdisco might choose to sell about 193,000 Coyote shares if a registration filed Dec. 3 with the SEC becomes effective. Between March and September, Comdisco bought warrants for more than 190,000 shares in Coyote, with exercise prices ranging from $3.81 to $8.33 per share.
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