Why Digital Lava Could Erupt BY GENE G. MARCIAL ALSO SEC CHARGES FORMER SALES VICE PRESIDENT OF DIGITAL LAVA, INC. WITH INFLATING REVENUES. But some bulls aren't worried. Ray Dirks, director of research at Security Trading Capital, expects the company to turn a profit next year and earn 72 cents a share on estimated revenues of $18.7 million, vs. an estimated 1999 loss of 78 cents a share, on sales of $4.1 million.
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SEC CHARGES FORMER SALES VICE PRESIDENT OF DIGITAL LAVA, INC. WITH INFLATING REVENUES
The Commission announced today that it filed a complaint against Peter
J. Webb, age 50, of Southlake, Texas, the former Vice President of Sales
for Digital Lava, Inc., for inflating revenues for Digital Lava's fiscal
quarter ended Sept. 30, 2000, (Q3 2000). According to the Commission's
complaint, filed in federal court in Los Angeles, Webb engaged in
fraudulent sales practices to increase Digital Lava's revenue by 54%
during Q3 2000, which resulted in Digital Lava reporting false financial
information in its Form 10-Q for that quarter. On March 21, 2001,
Digital Lava restated its Q3 2000 revenues from $1.7 million to $1.1
million. Simultaneous with the filing of the complaint, Webb settled
the action. He consented, without admitting or denying the allegations
in the complaint, to the entry of a final judgment permanently enjoining
him from future violations of the charged provisions.
Digital Lava, previously headquartered in Marina Del Rey, California,
provided digital publishing services and software products that created
on-demand, interactive presentations, training, and communication
services until its dissolution on Jan. 30, 2002. Its stock previously
traded on the Nasdaq Stock Market.
The Commission's complaint alleges that during Q3 2000, Webb entered
into several transactions with Digital Lava's dealers that involved
placing contingencies, some documented in side letters, on the sale of a
new product called Firestream. Webb concealed the contingencies from
Digital Lava's management and its auditors, which caused Digital Lava to
improperly recognize revenue on these sales. As a result, Digital Lava
overstated revenue from its Firestream sales in Q3 2000 by $598,000, or
54%.
The Commission charged Webb with violating or aiding and abetting
violations of provisions of the federal securities laws, including the
antifraud provisions (Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 thereunder), reporting provisions (Section 13(a) of
the Exchange Act and Rules 12b-20 and 13a-13 thereunder), record-keeping
provisions (Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1
thereunder), internal controls provision (Sections 13(b)(5) of the
Exchange Act) and lying-to-an-accountant provision (Rule 13b2-2 under
the Exchange Act).
In a related administrative proceeding announced today, the Commission
also charged Robert C. Cloyd, former Vice President of Sales for Three
Point Digital, one of Digital Lava's dealers, with causing Webb's
violation. Cloyd, without admitting or denying the findings, consented
to the entry of an Order that he cease and desist from committing or
causing violations of certain provisions of the federal securities laws.
The Commission found that Cloyd provided a false audit confirmation to
Digital Lava's auditors for $319,000, which represented the largest
transaction Digital Lava reversed in Q3 2000. For further information,
see Administrative Proceeding File No. 3-11166 (June 25, 2003). [SEC
v. Peter J. Webb, Civil Action No. CV 03-4526 AHM, RNBx, CDCA] (LR-
18201; AAE Rel. 1806)
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INSIDE WALL STREET
Why Digital Lava Could Erupt
Not every Internet company that goes public blasts off. Digital Lava (DGV), initially offered at 7 1/2 a share on Feb. 17, headed south and now trades at 5 1/16. Blame it on lack of hype or a technology that investors may have found difficult to comprehend. But some bulls aren't worried. They think alliances and contracts for Digital's video-publishing software will fire up the stock.
''Digital is a very undervalued play on the future of video applications on computer networks,'' says Brian Hathaway of Hathaway Investment Advisers, which owns more than 230,000 shares. Digital develops software for creating videos used for training, research, and Net marketing.
With Digital's flagship product, vPrism, creators of videotape can develop programs for interactive multimedia applications for desktop computers. Digital's VideoVisor lets users edit and manipulate video linked with other types of information, allowing integration of digital video and audio content with other types of info typically stored on the Internet or intranet.
Digital's partners include Microsoft, RealNetworks, and Silicon Graphics. Digital is a vendor for NetShow, Microsoft's software for viewing streaming media over the Internet or intranet. Digital also licenses Microsoft's Internet Explorer kit. Microsoft's lead product manager, Gary Schare, says Windows' media technologies, combined with Digital's video publishing, ''provides our customers with powerful solutions suited for communication and learning-on-demand applications.''
Digital CEO Joshua Sharfman sees the company's ties with Microsoft just ''scratching the surface.'' One money manager speculates that Microsoft may incorporate Digital's video software in its suite of products.
Ray Dirks, director of research at Security Trading Capital, expects the company to turn a profit next year and earn 72 cents a share on estimated revenues of $18.7 million, vs. an estimated 1999 loss of 78 cents a share, on sales of $4.1 million.
BY GENE G. MARCIAL |
