SAN DIEGO COUNTY : Battered Kaypro Reports a Profit for 2nd Quarter
Faulting “bad press” for its slumping sales, Kaypro Corp. on Wednesday managed to report a second-quarter profit thanks to the partial recovery of a debt that it previously thought was uncollectible.
The Solana Beach personal computer manufacturer’s net income for the quarter ended Feb. 28 was $731,538, contrasted with a loss of $2.2 million for the same period last year. The profit reflects the receipt of a $1-million promissory note booked as extraordinary income from Stars to Go, a value-added reseller of Kaypro computers.
Kaypro’s second-quarter sales dropped 68%, to $6.3 million from $19.5 million reported for the same quarter the previous year. At Kaypro’s annual shareholders’ meeting here Wednesday, Kaypro executives blamed the results on unfavorable publicity in recent months that he said has driven away substantial numbers of potential Kaypro customers.
“From reading the papers, people would wonder whether we were going to be around to service their machines,” Kaypro Chairman Andrew Kay told shareholders Wednesday.
Shareholders at the annual meeting Wednesday offered Kay several suggestions on how to improve Kaypro’s declining fortunes, from declaring bankruptcy and signing up celebrities to promote the company to “bundling” Kaypro products with free stock certificates as incentives to buy.
Kaypro stock closed unchanged at $.25 a share in over-the-counter trading Wednesday. At its initial public stock offering in 1983, Kaypro sold shares at $10 each.
The publicity management referred to has centered on Kaypro’s problems with lender Commonwealth Financial Corp., which last year called a $6-million loan due. As Kaypro scrambled to pay off, Commonwealth took control of Kaypro’s inventory and receivables, even “stamping Kaypro invoices with instructions to send payments” to Commonwealth, Kaypro said in filings with regulators.
Kaypro finally paid Commonwealth off in March with proceeds from a sale-leaseback transaction, involving Kaypro’s headquarters and manufacturing facility in Solana Beach. The company has also persuaded several creditors to extend terms on overdue accounts payable in recent weeks, causing significant improvement in Kaypro’s working capital.
But the Commonwealth loan problem and the debt restructuring have underscored Kaypro’s continuing cash problems. Those problems have forced Kaypro to borrow $7.2 million from Kay over the last two years to pay its bills, a sum that includes a $2-million note taken back by Kay to complete the sale-leaseback.
As Kaypro now has no banking relationship, Kay said he will continue to supply Kaypro with cash as needed.
Kaypro’s “bad press” has also focused on the company’s $37 million in accumulated losses over the last five years, which prompted the company’s auditors last year to express “substantial doubt” about Kaypro’s ability to continue as a going concern.
Mention has also been made in news accounts of Kaypro’s steadily falling stock price and the fact that Kaypro has discontinued several product lines and development programs, resulting in significant write-offs over the past two years. Moreover, Kaypro has instituted deep job cuts in recent months: Employees now total 150, down from 526 as of Oct. 30, 1987.
When Stars to Go failed to pay for $2 million worth of Kaypro computers in 1987, Kaypro wrote off the debt as uncollectible. On Wednesday, Kay said the improved financial condition of Stars to Go prompted Kaypro to take back the note, plus 1 million shares of Stars to Go stock as settlement.
Margins on sales of Kaypro’s machines have improved over the last year, Kay said, in part because the price of dynamic random access memory (DRAM) semiconductors, the “building blocks” of a computer’s built-in memory capacity, have decreased in price to about $4.50 for one megabit of data storage, from $11.50 a year ago.
For the six months ended Feb. 28, Kaypro reported a net loss of $173,389 on sales of $15.6 million, contrasted with a loss of $2.8 million on sales of $42 million for the same two quarters the previous year.
