CompuSave Corp., the ailing Irvine video machine maker, said Monday that it intends to ask its shareholders for the additional $4 million to $5 million the company needs to pay off its debts and stay in business.
The announcement comes just two weeks after the company acknowledged that it was facing mounting debts and customer disenchantment and needed an additional $4 million to keep its doors open. At that time, the company also revealed that its total losses since May, 1984, had risen to $9.8 million--nearly equivalent to the $10 million CompuSave had raised in its two previous stock offerings.
In Monday's statement, CompuSave said it has registered with the Securities and Exchange Commission to issue rights that would give existing shareholders the opportunity to purchase a new class of preferred stock and common stock warrants. The company said it hopes to sell 660,000 units consisting of one share of preferred and one warrant to buy three shares of common stock at a price of $7.75 per unit. Company officials declined further comment.
Although the latest financing plan depends on shareholder cooperation, many CompuSave investors have been hurt by the company's recent problems and its performance in the stock market. The common stock closed Monday at $1.62, down considerably from its one-year high of $10.62.
David Wilson, a broker with A. G. Edwards & Sons' Portland office, said that although many of his clients are CompuSave shareholders, he will not recommend the latest offering. "I'm taking a cautious approach," Wilson said. "After what's happened, it's tough to get excited about the stock."
Wilson said the company hopes to use the proceeds from the latest rights sale to finance its movement into a new line of business that uses its novel, state-of-the-art computerized video devices. He said the company hopes to market the machines as in-store advertising devices to do-it-yourself and other home-improvement chains. The machines are already used in this fashion by the 60-plus Builders Emporium stores.
Until last month, when it shut down its retailing operations, CompuSave sold its video machines to supermarkets and convenience food stores throughout the nation to be used as discount shopping devices. The machines, which were linked to a central computer and warehouse at CompuSave's Irvine headquarters, allowed customers to buy household merchandise at discounted prices for mail shipment.
However, CompuSave ran into problems early last summer when it reportedly spent nearly $1 million to fill a warehouse with the items displayed in its machines, and orders never reached original projections. By September, the company had laid off dozens of employees.
In October, the company publicly complained that it had become the subject of a smear campaign that included the mailing of anonymous letters to Orange County newspapers and to stockbrokers making a market in the company's shares.
Additionally, CompuSave has acknowledged that the Securities and Exchange Commission has begun an "informal inquiry" into the company.