Shareholders of Stereotaxis Inc. (NSDQ:STXS) are suing the company and its management, accusing them of misleading investors about its backlog of orders, even as senior executives take voluntary pay cuts through 2013.
The lawsuit alleges that the St. Louis-based company, CEO Michael Kaminski and former CFO Daniel Johnston misled investors about its market position, claiming a large backlog of orders for its Niobe and Odyssey systems.
The case was spurred by the nosedive STXS shares took in August, after the company released dismal second-quarter numbers and suspended its 2011 guidance. Share prices sank 58 percent from an August 8 close of $2.85 to $1.19 at the end of the day August 10 (Stereotaxis shares were trading flat at $1.12 today as of about 3:30 p.m.). The poor performance prompted Johnston’s ouster; he was replaced by Samuel Duggan earlier this month.
"The backlog of orders that defendants had boasted about and the ‘robust market’ were mere illusions created by defendants, as the sales of the Niobe and Odyssey systems were fast deteriorating," according to the lawsuit. "As a result of defendants’ false statements, Stereotaxis’s stock traded at artificially inflated prices … reaching a high of $4.24 per share on April 5, 2011.
"Stereotaxis’s actual performance in executing its projected financial results, however, fell woefully short of defendants’ false statements," according to the suit. "On August 8, 2011, Stereotaxis issued a press release announcing financial results for the second quarter of fiscal year 2011 that showed that the Company was performing well below expectations, as revenue had declined 22.7 percent from $15 million for the second quarter of 2010. Stereotaxis also reported that its net loss for the second quarter of 2011 was $9.7 million, or $0.18 per share, compared to a net loss of $3.9 million, or $0.08 per share, reported for the second quarter of 2010."
In a move that may be related, Kaminski and the rest of the company’s senior management agreed to significant pay cuts, according to a regulatory filing. Here’s how the cuts break down:
- Michael Kaminski, CEO: $352,000 (-16%)
- Douglas Bruce, COO & CTO: $292,500 (10%)
- Frank Cheng, SVP, marketing & business development; GM, Odyssey business: $256,500 (10%)
- David Giffin, VP, human resources: $180,000 (10%)
- Karen Witte Duros, SVP, general counsel & secretary: $243,000 (10%)
Noticeably absent from the list is Duggan, which might indicate that the cuts are related to the second-quarter results. Stereotaxis said it wants to keep the executives on board, "in order to ensure the timely implementation of the company’s strategic plans," and thus granted shares of restricted stock to each, vesting in 2013.