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MindArrow to Take $18.7-Million Charge

Trading: Aliso Viejo company agrees to SEC request to prevent dilution after unauthorized issue.


In a step toward allowing trading of its shares to resume, MindArrow Systems Inc. said Friday that it will take an $18.7-million charge to account for 1.1 million shares of stock that were issued without its knowledge.

The Aliso Viejo provider of Internet advertising services said it agreed with the Securities and Exchange Commission to take the nonoperating, noncash charge against earnings in its fiscal second quarter, which ends today.

Nasdaq halted trading in the company's stock Feb. 5 when executives notified authorities that its former stock transfer agent, which kept its shareholder list, had issued and authenticated shares without authorization. A federal criminal investigation is pending.

The $18.7-million charge reflects the estimated market value of the shares at the time they were issued--and presumably the amount pocketed by whomever perpetrated the fraud.

The charge, however, will have no impact on total stockholders' equity because the company will concurrently record an $18.7-million increase in additional paid-in capital.

MindArrow said that its founders, Tom Blakely and Eric McAfee, have contributed 1.1 million of their own shares for cancellation and that an equal number of new shares were exchanged for the counterfeit shares.

As a result, the number of outstanding shares of the company's common stock is unchanged and public shareholders won't see their investments diluted, said Michael Friedl, MindArrow's chief financial officer.

The charge doesn't reduce the cash on hand at MindArrow, which continues to operate as before, he said.

MindArrow went public in April 1999, and had hoped to become profitable this year.

Its chief executive, Robert Webber, said previously that Nasdaq officials will not allow trading to resume until MindArrow issues its second-quarter financial statement, which the agreement with the SEC allows it to do.

The company's stock had lost nearly 85% of its value in the year before trading was halted. It last traded at $4.50 per share.

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