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O.C. High-Tech Firm Finds Time Ripe for Stock Offer : Finance: Small stocks are the rage on Wall Street, experts say, and this should help Touchstone Software.

August 22, 1995|GREG MILLER and DEBORA VRANA | TIMES STAFF WRITERS

HUNTINGTON BEACH — When it comes to timing the sale of new stock to the public, Larry Dingus says he has come to believe in the old sports axiom: sometimes it's better to be lucky than good.

His small company, Touchstone Software Corp., which makes products that help computer users manage their machines better, is expected to issue new shares of common stock to the public this week in its effort to raise $15 million for expansion.

The Huntington Beach company couldn't have tapped Wall Street at a better time, experts say.

Small stocks are the latest rage as investors snap up new issues quickly and trade heavily in shares of once sleepy companies. Collectible doll and toy maker L.L. Knickerbocker Co. in Rancho Santa Margarita saw its stock leap tenfold in six weeks.

Stocks of small high-technology companies, led by Netscape Communications Corp. in Mountain View, have soared higher. Netscape saw its stock rocket from $28 a share to nearly $75 on its first day of trading, making it one of the most impressive debuts Wall Street has ever seen.

"There is a frenzy in this market for anything that is considered to be part of the Internet or Windows," said Rad Artukovic, a trader with Crowell, Weedon & Co. in Los Angeles. "So there's no question that for a company in this communications field, this is a great time to float a new offering. It's all real hot now."

The Russell 2,000 index of small company stocks climbed 21% in the first eight months this year, powered by a 44% climb in the technology sector.

Dingus, Touchstone's chairman, doesn't expect his company to be the next darling of traders. After all, Touchstone posted a profit of only $800,000 on revenue of $7.2 million last year. But he does expect that demand will gobble up all 1.2 million shares of new stock as well as 800,000 shares of stock that he and other shareholders are selling.

He acknowledged that the anticipated proceeds from the stock sale are far more than corporate executives could have hoped for just six months ago when they were making plans for the offering. "This was really a lucky accident" of timing, Dingus said.

The sale of newly issued stock also coincides with Thursday's release of Windows 95, Microsoft Corp.'s much-hyped operating program. Last month, Touchstone released a program that helps computer users prepare their machines for Windows 95.

Touchstone shipped more than 100,000 copies of its WIN'95 Advisor in the first week after the product was released last month. Those shipments carry a total retail value of about $3 million--more than one-third of the company's revenue for all of last year.

Since releasing its new product, Touchstone saw its stock more than double to close Monday at $13 a share in Nasdaq trading.

Analysts said Touchstone's ties to Windows 95 could enable it to cash in on a tremendous publicity about the Microsoft product. "They're taking advantage of the noise level" surrounding Windows 95, said Jeffrey Kilpatrick, who runs Newport Securities Corp. in Costa Mesa.

Despite all of Touchstone's fortuitous timing, some analysts warn that the price of its shares may actually dip a little after the offering because the company is adding new shares to an existing supply of 5.12 million, thus diluting the stock. In addition, they said, a small company like Touchstone could be a risky venture for investors.

"We are a couple of years into the technology bull market, and suddenly all these little companies can raise money very cheaply and investors aren't as discriminating," said Roger McNamee, a partner with Integral Capital Partners of Menlo Park.

Touchstone said it will use the money raised through the offering to finance product development, expand international distribution and set up a sales force designed to market its products directly to companies and institutions like the University of California system. Currently, consumers pluck the bulk of the company's products off the shelves of retail outlets.

As part of the overall offering, which is being underwritten by Cruttenden Roth Inc. in Irvine, executives will sell 800,000 shares. Dingus said officers haven't sold any stock since 1987 and simply want to diversify their accounts. He hopes to sell 243,000 shares, or 28% of his holdings, and could pocket nearly $3.2 million if the stock sells at $13 a share.

Dingus, who noted that executives have invested their money as well as their time in building the company, said, "I don't believe anyone is looking at this as anything but a nice way to put a little money in the bank."

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Touching the Market

Touchstone Software expects to realize about $15 million from a stock issue. A look at the company:

* Founded: 1982

* Headquarters: Huntington Beach

* Chairman: Larry Dingus

* President/CEO: C. Shannon Jenkins

* Employees: 50

* Products: Computer maintenance and diagnostic software. Recently introduced Win'95 Advisor, a software product that will help computer users upgrade to Microsoft's Windows 95 program.

Improving Picture

The company's financial picture has improved dramatically in the past two years. Revenue and earnings in thousands of dollars:

Revenue

1994: 7,202

Earnings

1994: 800

Sources: Touchstone Software, Bloomberg Business News; Researched by JANICE L. JONES / Los Angeles Times

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