Codercard Cuts Staff, Seeks Funds

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Times Staff Writer

Codercard Inc., an 18-month-old Irvine computer security systems company, cut its staff by more than half in an attempt to reduce costs and buy time in which to search for additional financing and sales that the firm needs to stay in business.

Robert W. Herman, Codercard chairman, said that 10 of company’s 18 employees were laid off last Friday because the company was running out of funds to pay them.

In a move to stabilize the company’s position, Codercard elected to its board of directors Leonard N. Mackenzie, the 47-year-old president and chief executive officer of Anaheim-based General Automation Inc., a major Codercard customer.


In a third bootstrapping move, Herman said, Codercard on Saturday dissolved its partnership with Codercard Research & Development Ltd., a Monterey-based firm that did the basic research on the Codercard security products, and in the process purchased the development firm’s royalty rights on the technology.

Verifier Device

Codercard’s products include a credit card-shaped device, equipped with a thumb-size computer, used to access information from computer terminals. Another invention of the fledgling company is a verifier device that can be attached to telephone lines to prevent the pilfering of information from mainline computers.

Herman said Codercard has spent most of the $3 million it raised in a March, 1984, public stock offering to do the preliminary work needed to go into full commercial production, which was scheduled to begin last month.

He said that large orders, which were expected to stem from 80 test installations of the Codercard security devices at government, business and industrial sites throughout the country, so far have failed to materialize.

The company needs additional operating capital, Herman said, while it steps up its sales efforts. “We have been looking for additional financing for a long time now,” he said, adding that the company has ruled out the possibility of another public stock offering because of the current unpopularity of high technology firms on Wall Street.

Investors Discouraged

As an alternative, he said, Codercard since January has sought a private stock placement. But he said private investors were discouraged by Codercard’s contract with Codercard Research & Development, which entitled the development firm to a 2% royalty interest in all domestic sales and exclusive rights to market Codercard products overseas.


Under the agreement entered Saturday, Codercard acquired all royalty and marketing rights from Codercard Research & Development for a $50,000 promissory note and 1 million shares of Codercard common stock, according to Codercard officials.

With that obstacle removed, Herman said he hopes to have more success in raising funds from investment banking and venture capital firms. He said that representatives of some eastern financial institutions are scheduled to visit Codercard this week. But he declined to say how much money the company is seeking or to identify the potential investors.

Herman said that Codercard officials find it “very reassuring” that Mackenzie has agreed to join Codercard’s board of directors. Codercard spokesman Joseph Allen said that Mackenzie is “known as a strong marketer and turn-around specialist” who has lent a helping hand to General Automation and a number of other financially floundering firms.

Mackenzie has a stake in the continued operation of Codercard, since General Automation has announced plans to incorporate the Codercard security system into its Zebra family of business computers.

Few Orders Obtained

Allen said that TRW similarly has plans to begin this fall to market its Local Area Network system, which allows computers to talk to each other, with a Codercard security device to keep out unauthorized users.

To date, however, Codercard has obtained few orders to offset its development costs. Between Codercard’s July 19, 1983, incorporation and March 31 of the current year--the last time it reported financial information--the company has sustained losses of $2.3 million on sales of $21,000.


Codercard officials say that although the company is suffering a cash-flow problem, it has no intention of filing for bankruptcy or a court reorganization because it has no long-term debt. The company said it had total assets of $1.2 million as of March 31.