Truvel Seeks Bankruptcy Protection : Technology: The scanner manufacturer ran out of cash and missed debt payments after losing its biggest customer.
When Truvel Corp. in Chatsworth sold its first stock to the public in early 1988, it was a noteworthy sale if only because Truvel, a fledgling maker of electronic scanning machines, successfully sold its shares three months after the worst stock market crash in history.
Truvel, despite competing in the risky high-technology field, drew the interest of well-heeled investors such as Edward J. DeBartolo Jr., a member of one of America’s richest families and owner of the San Francisco 49ers football team. He invested $125,000.
But now it’s Truvel that has crashed. After losing its major customer, running dry of cash and missing payments on its debt, Truvel on June 5 filed for reorganization under Chapter 11 of the federal bankruptcy laws.
The filing in U.S. Bankruptcy Court in Los Angeles listed Truvel’s assets at $3 million and its liabilities at $6.2 million, said James Mowry, Truvel’s senior vice president of finance. Among its biggest creditors are investors who collectively own $1.5 million of Truvel bonds, and their pressure for payment helped forced the company into reorganization, Mowry said.
“Chapter 11 was the only way we could maintain any type of continuity in the company and maintain the payroll,” Mowry said.
Truvel’s problems were mounting before the bondholders this spring began demanding payments on their bonds. Last year, Truvel ran into development and production problems with some new products, and it lost as a customer Linotype AG, a West German publishing concern that accounted for half of Truvel’s revenue in 1988, according to Truvel’s annual report filed with the Securities and Exchange Commission.
As a result, Truvel--which changed its financial reporting period from a calendar to a fiscal year that ended Sept. 30 last year--reported a $5-million loss on revenue of $3.6 million for the nine months that ended Sept. 30, 1989. In calendar 1988, it had lost $1.5 million on revenue of $6.6 million.
Strapped for cash, Truvel in December defaulted on the $1.5 million of bonds by missing interest payments on the debt. Truvel negotiated with the bondholders in an attempt to work out an alternative plan but to no avail, Mowry said.
Genevest Consulting, a Swiss investment firm that sold the bonds for Truvel and now represents the bondholders, went to Los Angeles Superior Court in May and got a temporary restraining order that limited Truvel’s payments for its payroll, taxes, insurance and other needs, he said. The bonds are secured, meaning that they are backed by Truvel’s assets.
The bondholders “were trying to force a receiver into the company to protect their interests,” Mowry said. Their actions “in effect paralyzed the company” because Truvel was unable to buy new parts and make other purchases, he said. And by April 6, Truvel had “depleted its borrowing capacity and cash on hand,” the company said in its SEC filing.
So the company sought Chapter 11, under which it will continue to operate but be protected from creditors’ lawsuits while it works out a plan to pay its bills.
Truvel’s scanners, which cost between $6,500 and $14,500, are, in effect, computerized cameras. They take an electronic picture of a document, photograph, X-ray or three-dimensional object and convert the picture to digital signals, which are stored in a computer. The image then can be changed, colored, transmitted to another location or otherwise manipulated at a future time.
Mowry said that Truvel remains a viable company and that its “product is very strong.” Truvel’s conditon was “starting to pick up” earlier this year, “but we were just out of cash,” he said.
Nonetheless, the company’s outside auditor, Ernst & Young, stated in Truvel’s annual SEC report, filed April 17, that Truvel’s various problems “raise substantial doubt about the company’s ability to continue as a going concern.”
