CompuSave Corp. Faced With Extinction : Added Financing Imperative, Say Documents Filed With SEC
CompuSave Corp. will soon be out of business unless it finds additional financing, according to documents filed by the company with the Securities and Exchange Commission.
The documents, filed in connection with CompuSave’s latest attempt to raise about $4 million through an offering of preferred stock and warrants, provide a detailed insight into the problems that have plagued the 3-year-old, Irvine-based company over the last eight months.
The statement also offers the company’s assessment of the damage it sustained from a so-called smear campaign believed to have been conducted by a disaffected employee last summer.
If CompuSave’s latest fund-raising efforts are successful, the company said it will repay about $2.3 million in outstanding debts and use the remainder to pursue a new line of business with its novel electronic video devices.
Until December, when it suspended the bulk of its business operations, CompuSave sold its Touch-n-Save video machines to supermarkets and convenience food stores as electronic catalogue devices that allowed shoppers to order discounted merchandise for mail order shipment.
85% of Staff Laid Off
However, the company, which now employs fewer than 27 workers, said sales of both the machines and the merchandise were below original expectations. CompuSave has already laid off about 85% of its staff and closed its electronic retailing operations.
In the filing, the company said it sold 449 machines and assorted merchandise for a total of $3.4 million. However, it said it had lost a total of nearly $10.3 million since its inception in May, 1983.
It is facing lawsuits and other court claims totaling $1 million.
“The company definitely screwed up,” said Paul Weiss, a securities analyst and broker at Sutro & Co. in San Francisco. “They spent money they didn’t have . . . , and they counted on financing that didn’t materialize.” CompuSave officials have not returned repeated calls to their offices.
Although acknowledging that its business did not meet expectations, the company said in its filing that its efforts were hurt by an anonymous letter-writing campaign last summer. As a result of the campaign, which included negative and accusatory letters to securities analysts, the SEC and two newspapers, the company said it lost a potential $1-million line of credit and three other opportunities to raise additional funds.
Other Effects of Letters
Furthermore, CompuSave said the campaign caused customers to cancel orders, vendors to demand cash on delivery, and nervous investors to drive the stock price down from a high of $10.37 in mid-1985 to its current low of $1.62. Finally, the company said the SEC began investigating its operations and “certain accounting matters” in November, about two weeks after the anonymous letter writer completed a mailing to about 200 members of the investment community.
The filing also shows how seriously CompuSave’s condition deteriorated between May and November of 1985, its first six months at full operating strength. In May, 1985, the company had assets of $5.6 million and liabilities of $1.6 million. However, by the end of November, the assets had shrunk to $3.6 million and liabilities had climbed to $4.2 million.
Included in the liabilities are $2.35 million owed to trade creditors and $400,000 set aside to repay customers who have demanded to exercise their right to return the company’s Touch-n-Save machines. The company said it has also reached out-of-court settlements with some trade creditors covering about $285,000 in over-due debts.
Advertising Devices Planned
If the latest financing plan is successful, CompuSave said, it intends to market its electronic machines as in-store advertising devices for do-it-yourself store chains. Depending on the amount raised from the financing plan, the company said it would have between $750,000 and $1.75 million to launch its new operations.
The company said it expects the proceeds to sustain the company about a year, barring unforeseen circumstances. However, it acknowledged that it is “likely that additional losses will be incurred in the future.”
On Monday, the company announced that it intends to ask its shareholders for an additional $4 million to $5 million from a rights offering. The offering would allow existing shareholders to purchase a new class of preferred stock and common stock warrants.
However, in its filing, the company admitted that the offering is not for everyone. “The purchase of the units involves a high degree of risk,” the company wrote.
