Infotechnology Inc., the financially troubled controlling shareholder of Financial News Network and United Press International, said yesterday that it doesn't have enough cash to meet its daily operating expenses and has replaced its founder as chief executive.
In addition, the company recently disclosed that it is under investigation by the Securities and Exchange Commission for possible securities fraud.
The company said its difficulties may force it to sell off some or all of its subsidiaries to meet its obligations.
In a joint statement, Infotech and FNN said that Earl W. Brian, their founder, will be replaced as chief executive of both companies by two men who will serve as interim co-chief executives. Brian will continue as chairman and as a director of Infotech and FNN, a 24-hour cable network specializing in business news.
In addition to owning Washington-based UPI, Infotech also has stakes in Hadron Inc., a Fairfax-based government contractor, and Telecommunications Industries Inc. of Tysons Corner, an information company.
The announcements are the latest in a series of recent blows suffered by Infotech, a publicly traded investment company based in New York with a complex mix of holdings in the media and biotechnology businesses.
C. Steven Bolen, who was serving as chief financial officer of Infotech and FNN, was fired from both positions earlier this month after the company said he received compensation that was "not properly authorized." A spokesman wouldn't elaborate.
Infotech ended its relationship with its accountants, Deloitte & Touche, earlier this month, over a dispute involving the value of Infotech's investment in FNN and other matters. The Infotech spokesman said the accountants wanted FNN to restate recent profits as a loss, thus putting the company in possible default on a portion of its $49.5 million in bank loans. Infotech is holding discussions with lenders regarding the need for waivers on payment of $20.7 million of loans. In addition, the spokesman said, there are several outstanding disputes over accounting questions involving FNN and UPI, the Washington-based wire service.
Two weeks ago, Infotech disclosed that it is under investigation by the SEC for possible violations of securities law. Shareholders have filed three class-action suits against Infotech, FNN, Brian and other company officials alleging securities fraud.
After founding Infotech, Brian used the investment company to help launch FNN in 1981 and buy into several other companies. Infotech bought 97 percent of UPI in 1989 and holds a 47 percent stake in FNN, whose programs are now seen in 35 million households.
The company is currently attempting to sell its 51 percent stake in another cable programming service, the Learning Channel, based in Rosslyn, and has received several offers from, among others, the Discovery Channel, based in Landover, Infotech said.
Brian, 49, a neurosurgeon, served as California secretary of health and welfare in the cabinet of governor Ronald Reagan and then began his business career.
He has kept much of the inner workings of his complex holdings away from public view, once explaining his disinterest in annual shareholder meetings by telling an interviewer, "Did you ever learn anything at a shareholders meeting? I haven't." He was unavailable for comment yesterday.
FNN officials did not return telephone calls. UPI spokesman Milt Capps said that "UPI's goal remains to attain and sustain self-sufficiency."
To replace Brian, Infotech named as co-chief executives Alan J. Hirschfield, formerly chief executive officer of 20th Century Fox and Columbia Pictures and now managing director of Wertheim Schroder & Co., an investment firm in New York, and Allan R. Tessler, chairman of International Financial Group Inc.
"Our first priorities are to get a full operating and financial picture of the two companies and to work constructively with the banks and leasing companies to provide a workable financial structure for the immediate future," Hirschfield and Tessler said in a statement.
"We believe that the fundamental franchise value of the FNN service is substantial and should provide a basis for restructuring and/or disposition of businesses that will enable the companies to meet their obligations and move forward," the statement said.
Infotech and FNN said that, in addition to lacking sufficient cash to meet operating costs, the companies don't have enough money to meet payments on a total of $70 million in bank debt that the companies owe to Security Pacific Bank of Los Angeles, Toronto Dominion Bank of Canada and Midlantic Bank of New Jersey.
Brian holds about 7 percent of Infotech's stock. The company's largest single shareholder is Merrill Lynch & Co., which owns 1.06 million shares, or less than 15 percent.
Infotechnology closed in over-the-counter trading yesterday at $3.06, down $1.12. FNN was down $1.25, closing at $3.12.