Beleaguered database supplier Informix has won a much needed injection of funds from a Manhattan-based investment firm, which specialises in bailing out companies that are strapped for cash.
Fletcher Asset Management announced on Wednesday that it took a $40 million stake in Informix, which last week reported second quarter losses of $120.5 million. A further $35 million of convertible preferred shares have been offered to the investment firm if it wishes to take a further stake.
Fletcher?s policy is to pick companies that are damaged and in urgent need of funding, but that are often ignored by larger Wall Street institutions as a bad risk. The company?s most famous investment was in 1992 when it bought seven per cent of ailing Zenith Electronics on the assumption that the firm would turn around within a year.
An Informix spokesman said that the money would be used to fund operations, adding thatis has plenty of cash in hand. According to its second quarter figures, Informix has $104 million cash in the bank, down from a figure of $120 million at the end of the first quarter.
The company?s financial predicament is not set to get any better in the short term, following the announcement last week that it intends to restate its 1996 results after uncovering irregularities in its accounting practices. Alan Hendricks, the company?s chief financial officer, resigned in April after only three months in the job. A replacement has not been announced.
Although the restatement process is still underway, it is expected that the full year results - which reported a profit of $97.8 million - will have to be downgraded by as much as $100 million, putting the company into the red for 1996.
In an interview with news network CNN earlier this week, Informix' new chief executive Bob Finnochio commented: "We?re restating because [Informix] did not follow in 1996, for some transactions, portions of our existing accounting policy....we found 40 to 50 transactions where our employees did not follow the accounting policy properly."
He added that he was working closely with the company?s auditors to determine whether these were simple errors or an attempt to deceive investors. The company and a number of current and former executives are being sued in investor class actions. "We?re working on the assumption that they are just errors," said Finnochio.
One of the main problems contributing to the company?s losses was its practice of recording licence income from products yjsy had been shipped into the reseller channel, but had not been sold on to customers. In addition, Informix entered bartering deals with hardware suppliers to kit out a chain of testing centres, which saw the number of licences go up but no income come in from them.
While this situation is being resolved, Finnochio has also made some effort to improve the confidence of customers and shareholders by posting an open letter on the company?s Web site. In it, he emphasises that "we have applied our revenue recognition policies very conservatively in the second quarter".
The letter also details what Finnochio calls "a closed loop action plan" for the third quarter. This includes axing a further 15 per cent of the global workforce - or 650 people - early next month; centralising administration, finance, technical support and operations across Europe; and selling an expensive piece of real estate in California which was to be the location of a now canned new headquarters.
There will also be significant changes to the company?s controversial Information Superstore strategy. These are a range of outlets in which potential customers can pilot Informix software on a variety of platforms and environments. The scheme was the brainchild of Ken Coulter, former head of global sales, who was axed earlier this month.
Finnochio did not disclose details of changes to the strategy, which had already been scaled back in the wake of first quarter losses, but confirmed: "The Information Superstores will be resized, repositioned and renamed." It is expected that greater emphasis will be placed on using the centres to provide consultancy services rather than as test centres.
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