RedEnvelope Getting Pink Slip?

Bad news for San Francisco based e-commerce site Red Envelope (REDE), an “upmarket online retailer with the primary goal of making gift giving easy and fun”: It’s about done. The company’s market cap is just $2.95 million even though it has cash on hand of nearly $12.3 million. The stock is trading at $0.23/share - it was as high as $8.42 in the last year.

Red Envelope was founded in 1997 and went public in 2003. But a steady stream of losses has taken its toll. CFO William Gochnauer resigned earlier this month, and board member John Pound resigned on March 30.

In a SEC filing on March 31, the company announced their credit line with Wells Fargo was terminated, the final straw. They also said they would be unable to continue operations and were talking to buyers.

On March 25, 2008, the Company received a letter from Wells Fargo Retail Finance, LLC (”Wells Fargo”) regarding the Company’s Loan and Security Agreement, dated June 26, 2006 (the “Loan Agreement”), between Wells Fargo and the Company. The letter advised the Company that for various reasons Wells Fargo would no longer provide the Company with the ability to draw on the credit line. As a result, the Company has insufficient funds to continue operations as a going concern.

The Company is currently engaged in discussions with two potential acquirers for the purchase of substantially all of the Company’s assets. However, there is no guarantee that the Company will be able to complete an acquisition in a timely manner, or at all. If the Company does not complete the transaction it may be forced to cease operations. In addition, a potential transaction may involve unexpected costs, liabilities or delays. The Company may be adversely affected by the announcement of the proposed transaction and the related process of soliciting alternative transactions, or by the uncertainty relating to the potential transaction or the possibility of another transaction involving the Company.

Everything up to this point is fact - what comes next is rumor: We’ve heard the company is basically laying off all of the staff and shutting down in the next few days. We have an email in to the company for comment.

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Comments

[Rocky]

Whatever happened to the low tech solution to giving a gift by putting money in an envelope, with an appropriate card or note? I am surprised that a company like this lasted so long. I thought flaky companies like this collapsed in the dot.com bust of 2000.

[AppliedLogisticsEXpert]

Red Envelope lasted so long because it had unique and beautiful gifts, packaged them beautifully, and filled a need by providing gift reminders for registered users. It died because prices were too high, the product quality started to suffer, and the direct mail they sent was endless and costly. Poor management, loss of direction, insufficient market corrections when needed.