Computer Automation Plans Moves to Ease Problems : Preferred Stock Sale Announced
Computer Automation Inc., the troubled Irvine electronics maker, Monday announced a series of steps to ease the persistent cash shortages and legal problems that have been hampering its operations.
The announcement comes just days before the end of the company’s 1986 fiscal year, a period executives expect to mark its fourth consecutive annual loss. Between July, 1982, and April, 1986, Computer Automation lost a total of $25.1 million, including $4.1 million in the first nine months of the current year. The company expects to report a loss for the fourth quarter as well.
Despite the losses, the company said it hopes soon to sell $3 million worth of preferred stock that can be converted to common shares at a later date. The offering initially will be restricted to current company shareholders and employees.
In addition, the company said it has reached an agreement with Kansas businessman Larry Doskocil to terminate the lawsuits the two parties had filed against each other in the wake of Doskocil’s investment of $3 million in the company.
The two moves are Computer Automation’s latest efforts to revive its ailing operations. Late last year, the company tried to attract new investors but was thwarted by the lawsuit and its persistent flow of red ink.
Earlier this year, a potential merger with another Southern California maker of automatic test equipment for electronic components fell apart when the two parties could not agree on the terms.
Credit Line Lost
If its preferred stock sale is successful, the company will receive cash it badly needs to repay investors and operate its business. The company lost its only line of bank credit at the end of last month and has not yet found a replacement. Product sales in the first nine months of fiscal 1986 reached a mere $14.5 million, less than half the $30.9 million of the previous year and less than one-third of the $47 million of fiscal 1982, the last year the company reported a profit.
According to the terms of Doskocil’s $3-million investment in the company last year, he is owed $1.5 million at the end of August. The company said having to repay the amount from operations would create a problem and hopes to use some of the proceeds from the stock sale to make the payment.
In exchange for agreeing to drop his $16-million lawsuit, Doskocil won the right to move up the repayment date on his remaining $1.5-million investment from 1990 to 1987. In his suit, Doskocil claimed Computer Automation gave him false information on the company’s financial health and future business opportunities in order to lure his investment.
David Smoak, a representative of Doskocil, said Doskocil still believes in the merits of his suit and his contention that he had been “defrauded by some pretty bad people.”
‘Time for a Change’
However, Smoak said Doskocil has reason to believe that those people, whom he declined to name, might be leaving the company and that other changes would be made in the best interests of the investors.
“If we didn’t think something had changed or was about to change, we wouldn’t have done anything with them,” Smoak said. “A lot of board members are disgusted at what’s gone on at Computer Automation for the last year and it’s time for a change,” said Smoak.
Computer Automation executives declined comment on the potential changes. However, President Douglas Cutsforth confirmed that George Pratt, the company’s chairman and chief executive since April, 1985, has repeatedly stressed his intention of leaving the company once his job of reorganizing its operations is completed.
