Cash-Strapped HOH Water Struggling to Stay Afloat
In June, 1987, HOH Water Technology in Newbury Park went public, raising $4.6 million for its development of a new water-filtration system for homes and businesses. HOH figured that by now, its new machines would be flooding the market with clean water.
But 20 months later, HOH has yet to sell anything and instead is scrambling to fend off a cash shortage that could leave it financially high and dry.
HOH might be developing a new technology, but the company itself is apparently suffering from a classic problem for many young firms--it was undercapitalized from the start. HOH still expects to begin manufacturing its systems, perhaps by this summer, but it is struggling to find enough money to stay in business until then.
A few weeks ago, HOH was virtually out of working capital; that is, most of the money it did have was already earmarked to pay bills. But two weeks ago, HOH got a breather when an investor group that holds about 65% of HOH’s $1.4 million in debt swapped that debt for HOH stock.
The group also paid the company $298,700 to buy an additional 259,740 shares of stock for $1.15 apiece, a sizable discount from the $3 a share that the stock was recently trading for in the open market. The investors now own a combined 10% of HOH, and the group’s leader, Dr. Paul J. Ovando, is scheduled to become an HOH director.
$150,000 Loan
And a bank in Puerto Rico, where HOH is building a 46,000-square-foot production factory, provided the company with a $150,000 loan, so HOH’s working capital now approaches $500,000.
To really start manufacturing, however, HOH is counting heavily on a $2-million financing package from the Economic Development Bank of Puerto Rico. HOH is confident of getting the money, and its production schedule “is tied to the date of the funding,” HOH President David C. Kravitz said.
Once HOH has the money, it will take 90 to 180 days for the company to equip its plant with the necessary machinery and start producing water-filtration systems, he said.
HOH was organized in 1979 by Harry O’Hare, who invented Ty-D-Bol toilet bowl cleaner and helped pioneer the use of chlorinators to clean swimming pools. The company is developing a system that uses electromechanical processes to filter impurities from water and plans to sell household systems costing $4,000 or more. HOH also says its systems could be built for industrial and agricultural uses.
O’Hare, 69, remains HOH’s chairman. But two weeks ago he quit as chief executive to move to Puerto Rico and head up HOH’s research and development.
‘Pace Too Demanding’
“The business pace was too demanding, and the pull on him from the technical side, which is really his first love and expertise, also was increasing,” Kravitz said.
What about the nearly $5 million that HOH raised in its sale of stock to the public? Much of the money simply went to pay off earlier debts, Kravitz said. “We didn’t have that much working capital relative to the scope of the project,” he said.
O’Hare and HOH have also faced legal troubles that could add to HOH’s cash crunch. Earlier this year, a federal court in Los Angeles ordered HOH to pay $760,000 to a former executive, George Todt, who claimed that the company reneged on an agreement to repay money he loaned HOH. Kravitz said HOH plans to appeal the ruling, but that “we’re in settlement negotiations with Todt” as well.
HOH thought that it had found another source of cash in September when Sisson International & Associated Refineries, a real estate and energy concern with offices in the United States and Indonesia, agreed to provide HOH with a $3.25-million line of credit. Sisson also agreed to pay $1.75 million to sell HOH products overseas, HOH said.
But before HOH could collect a dime, Sisson “suffered a severe liquidity crisis” and was unable to get the money to HOH, according to Kravitz.
Back to the Start
“It threw us for a loop,” Kravitz said. “We had to start back from Square 1.”
HOH’s investors also took several steps back. HOH’s units went public for $6 apiece and had soared to $23.625 by September. (Each unit consists of three shares of common stock and three warrants, which give their holder the right to buy a certain number of additional shares at a certain price within a specified time.) The units plunged to $9.875 each in January after the Sisson/Todt problems surfaced for HOH.
Yet despite HOH’s ongoing cash crunch, the units have begun moving back up. They closed at $11.50 per unit Monday in over-the-counter trading.
