POSTSCRIPT : Cash Influx From Investors Bouys Com Systems
A year ago Com Systems, a Van Nuys-based long-distance phone company, was struggling to turn a profit after piling up $7 million in losses over four years while competing against long-distance giants AT&T;, MCI and U . S . Sprint. But Com Systems chairman and co - founder Rex Licklider insisted his company had turned the corner. “We’re not asking anybody to believe in us. . . . Either we can do what we say we can do, or we won’t . “
Net worth belongs among the more arcane financial terms, one that stock analysts and executives pay more attention to than the casual investor. But it can be a crucial barometer of a company’s financial health. Put simply, net worth is the difference between a company’s total assets and its total liabilities, or debts. A company with more liabilities than assets has a negative net worth, and when that happens it might as well flash a red warning light: The company is listing badly. If it continues long enough, the company may sink for good.
For several years, Com Systems was listing. It, along with about 400 other fly-speck rivals, are competing for the 5% of the $50 billion long-distance telephone market that AT&T;, MCI and U.S. Sprint don’t have.
But in recent weeks, Com Systems has cured its balance sheet problems by lining up a $5.85-million cash infusion from 13 investors, giving the company a positive net worth of $4.1 million with about $5 million in cash. “We’re not in any hurry to spend it. It took a long time to get it,” acknowledged Rex Licklider, Com Systems’ chief executive.
Stock Relisting
Equally important, the company’s improved finances will enable it to have its stock relisted this month on either the National Assn. of Securities Dealers Automatic Quotation system or to be listed for the first time on the American Stock Exchange. In either case, it should be good news for the company’s beleaguered stockholders. Com Systems first sold its stock to the public in 1981 at $5 a share; in recent weeks the stock has traded at $2.50 per share.
Because of Com Systems’ weak finances, three years ago NASDAQ stopped listing the company’s stock because Com Systems no longer met NASDAQ’s minimum financial requirements. Ever since, stock brokers have not had access to instant, computerized quotes on Com Systems stock and had to telephone a brokerage company to get the latest price. Not surprisingly, interest in the stock waned.
“In the past, Com Systems faced chasms, not bumps. Any slip and they were out of sight forever. They’ve kind of proven themselves. I think they’re viable,” said Joseph Kapka, formerly a financial analyst with Bateman Eichler, Hill Richards who followed Com Systems. Kapka, now a stock broker in Santa Clara, is touting the stock to his clients.
Indeed, Com Systems has begun to build some momentum. Last year, the company made a $2-million profit on $40 million in sales, and for the first quarter that ended March 31, it turned a $516,000 profit on sales of $12.5 million.
Licklider, 45, an ex-IBM computer salesman who founded Com Systems 13 ago, is convinced that things are looking up. “The balance sheet is now reasonably solid,” he said. Reasonably solid because the company’s net worth is only half of the $8 million it owes in long-term debt.
But the company’s basic business--long-distance telephone service--continues to grow. With 25,000 business customers in California, Nevada and Arizona, Com Systems uses a patchwork system of its own telephone-switching centers, local Bell companies, and rents time on other transmission networks to place its customers’ long-distance calls nationwide. Com Systems competes by offering lower prices and, it hopes, better, more attentive service than its bigger rivals. Licklider is fond of saying that any of his customers can get him on the phone; they can’t do that with AT&T;’s president.
Control of Business
With his latest financial maneuvers, however, Licklider essentially has taken a calculated gamble: Either Com Systems keeps growing and remains healthy, or Licklider could lose control of the business he built.
If there is a shift in power, it will swing to a Swiss investment group named Inspectorate International, which in April bought $5 million worth of Com Systems’ preferred stock. Com Systems sold another $1 million or so worth of preferred stock to others. The company must pay 12% annual interest on its preferred stock--or a total of $744,000 in interest payments a year. In addition, the company faces about $1 million more in annual interest payments on its other $8 million in debts.
For now, Licklider said, the Swiss are passive investors. But if Com Systems misses four quarterly interest payments on its preferred stock between now and 1991, the Swiss have the right to elect a majority of the board of directors and could grab control of the company.
The Swiss, Licklider acknowledges, would then probably sell Com Systems to the highest bidder. “It’s not our plan. It’s in their minds, not mine,” Licklider said.
To avoid that fate, Licklider keeps looking for added growth and has been investing in a new telephone billing subsidiary called Operator Assistance Network. Begun last year, it is still in the embryonic stage. So far he has spent $1.5 million to get it up and running, and in the first quarter this year it lost $237,000. Licklider does not expect a profit until the fourth quarter. But he talks of OAN chalking up $10 million in sales next year with higher profit margins than in the long-distance business.
Essentially, OAN provides computerized billing services for 20 small long-distance companies. To attract added business, some small phone companies have struck a deal with hotels, private pay phone companies and hospitals: Let us provide the long-distance service and we will pay you 15 to 20 cents on the dollar of operator-assisted calls, whereas AT&T; wouldn’t part with a penny.
Sorting out all those bills, however, is quite a chore, and that’s where OAN fits in.
For example: A local businessman goes to Boise, Idaho, and makes 10 long-distance calls, charging them to his Pacific Bell credit card. The Boise phone company will have a better chance of getting paid if Pacific Bell does the billing. (Pacific Bell, after all, can shut off his phone if he doesn’t pay).
Collects, Circulates
So the local phone company sends a month’s worth of computer tapes to Com Systems, which sorts them out; it in turn makes sure they are circulated to the various Bell operating companies that have issued the credit card, and the Bell companies then bill the traveling businessman.
Once the Bell companies get paid, they pay Com Systems, which in turn repays the small local phone companies. For its trouble, Com Systems charges a flat 10 cents a call. “I think it’s a legitimate business. Other companies are just starting to get on the bandwagon,” Kapka said.
Encouraged by this new business and his mainstay long-distance service, Licklider talks of Com Systems hitting the $100-million sales plateau by next year.
But despite recent events, it is easy for Licklider to stay humble. The company has only a three-member board of directors and no members are outsiders to avoid the expense of buying directors’ liability insurance. And Licklider himself writes some of the company’s press releases.
“We’re so small AT&T; doesn’t know we exist,” he said.
