Kaypro Decline

Events listed as best as possible in chronological order:

1984

The Kaypro Corporation said yesterday that it is investigating the possibility that millions of dollars in computer parts are missing from a circus tent and big trucks where Kaypro stored them.

As accountants sought to determine if the loss was a bookkeeping error, speculation mounted that many parts had been stolen.

Kaypro, based in Solana Beach, Calif., outside San Diego, is the maker of the Kaypro II - a $1,295 portable personal computer that last year was one of the nation's top-selling machines. The Kaypro II has been so successful, in fact, that Kaypro was forced to stockpile parts for it and other models in trucks, in bags strewn on its lawn and under a giant, billowing circus tent on a bluff overlooking the Pacific Ocean.

Security, Accounting Called Lax

But security and accounting for the parts has been lax, people close to Kaypro say. Now, according to an analyst who asked not to be identified, a preliminary review of inventory by Kaypro's auditors, Peat Marwick, is indicating huge shortfalls of chips, screens, disk drives, circuit boards and other components for Kaypro computers.

Although the accountants' work is not finished, reports circulating in the computer industry suggested that Kaypro's loss could approach $6 million. As of June 30, Kaypro's inventory totaled about $60 million, according to the company.

The Peat Marwick partner in charge of the case would not answer calls.

Nobody knows how much the loss is because Kaypro's accounting is so bad, said Kenneth T. Lim, an industry analyst at Dataquest, a San Jose, Calif., market researcher.

Late yesterday, Kaypro was reluctant to discuss in detail its apparent loss. In a statement, the company said it lacked sufficient information to assess damage. But responding to news reports of an impending write- down of several million dollars, the company said, Although there is the possibility that the amount of the loss, if any, when determined could prove less than this amount, it is possible that it may reach or exceed such levels.

It was not immediately clear what part of the apparent loss could be attributed to theft and what part to bookkeeping problems. Kaypro has not filed any theft reports with the local sheriff.

Previous Thefts Hinted

In particular, Andrew Kay, Kaypro's chairman and founder, has hinted to reporters in the past that people have taken parts and computers from the company's manufacturing plant without authorization. A secretary at the company said Mr. Kay was not available yesterday.

But David Kay, who is Andrew Kay's son and Kaypro's vice president for marketing, said in a telephone interview that the tent, which contained boxes of tiny electronic parts, was "not very secure; all it takes is a pocket knife to cut it." A company spokesman noted, however, that the entire Kaypro complex is surrounded by a fence and is guarded around the clock.

A good deal of Kaypro's inventory problems may be related to faulty accounting, however.

Sources close to the company said yesterday that Kaypro may have failed to note all its defective parts. The result would be that the company would include on its books components that had been discarded.

Kaypro has also suffered from a large number of problems in the hard disk memory system of its Kaypro 10 model. Dealers are supposed to return faulty memory devices to Kaypro for credit but have not always done so. Kaypro, aware of that, may have been counting as returned parts that were not returned, these sources said.

Suits Possible

Kaypro could face stockholder or Government suits, if it can be shown that the company violated generally accepted accounting principles.

The apparent losses are part of broader problems at Kaypro. Although the company's 26-pound Kaypro II continues to be popular, helping push Kaypro's sales from $5 million in 1982, to an estimated $100 million in the year ended Aug. 31, revenue growth has fallen off recently. The company has also been shaken by management turmoil.

Moreover, Kaypro, a hot new issue last year in the over-the-counter market, has since fallen from Wall Street's grace. Its stock price has dropped from an initial bid of 10, to 3 7/8 yesterday.
(New York Times, September 13, 1984)

The Kaypro Corporation said it expects to report that it about broke even in its latest fiscal year, which would mean that it lost about $10 million in its fourth quarter.

The maker of portable computers said the results reflected year-end adjustments, including significant adjustments for inventory. The company did not say whether it also had an operating loss.

Kaypro, based in Solana Beach, Calif., said in September that it was investigating reports that millions of dollars of inventory had been stolen from a tent and trucks being used to store them. The company's statement yesterday did not say whether the inventory write down had resulted from theft.

A Kaypro spokesman said the company was close to completing an audit of the inventory problems. It has asked for a two week extension from the Securities and Exchange Commission to file its results for the year, which ended Aug. 31.

Kaypro said it expects to report revenues of about $120 million for the year, indicating fourth-quarter sales of about $23 million. In the year ended Aug. 31, 1983, its earnings totaled $12.9 million on revenues of $75.2 million.
(New York Times, December 4, 1984)

Andy Kay calls me up one day, and he's like, why don't you come down to my office, you're going to meet with me. He was there with a woman who was the head of accounting, she was big, she was mean, and she didn't like anybody, so I come and I sit down in his office, and he's says, "We're missing $10 million." Your inventory is showing 10 million less than accounting is showing and I said I'll go over it with you and I went over it with him and she was very challenging she was very aggressive and I said look I'll break it down the point if you want to look at the programming. I'll break it down for you and she was like no.

They figured out someone had stolen a truck full of Kaypro 10s. On the south of the Kaypro campus was just a hillside right where they had cut into the hillside and they forming 4 semi-circular bands of trailers and that's where they stored integrated circuits, sheet metal, and finished computers. And they figured out that what happened is one night someone pulled up, hooked up the truck and drove out.
(Interview with Marshall Mosley)

1985

But the festive mood accompanying today's introduction will be slightly marred by news that the company laid off about 30 people last week. This prompted renewed conjecture about the financial health of the Solana Beach, Calif., company.

In addition to the layoffs, Kaypro is considering a cut in its advertising budget, according to one official. And some accessory products, such as a new printer, which were expected to be shown to dealers today, have been indefinitely tabled.

One laid-off employee, Winn Schwartau, who was director of market development, said he had been told that cash constraints were forcing the company to cut back on developing future marketing plans.

Research Is Said to Continue

But Kaypro officials said the layoffs reflect normal belt-tightening and a shifting of marketing and sales strategies and do not reflect a cash flow problem. Research on new products is continuing, they said.

"There is no crisis here," said John Hentrich, assistant to the company's president. He said that Kaypro had repaid its bank debt, leaving virtually no debt and that its accounts payable had dropped since the end of the fiscal year last Aug. 31, when they totaled about $9 million.

Kaypro prospered in 1983 and early 1984 by selling the Kaypro 2, a low- priced portable computer. But it can process only eight bits of information at a time, and sales have slowed.

The company took a $10 million write-down of inventory last year, resulting in a slight loss for the year. For the first quarter of the current fiscal year, the company reported net income of $73,000, compared with $2.8 million a year earlier. Revenues in the quarter, ended Nov. 30, fell to $25.2 million, from $29.2 million.

Analysts have said the company could face major troubles unless it finds a successor for the Kaypro 2, now being sold as the Kaypro 2X.

Kaypro bases its hopes on the new AT-compatible machine as well as an I.B.M.-compatible briefcase-size computer expected next summer.
(New York Times, February 25, 1985)

1988

Kaypro Corp. yesterday announced the layoff of 35 workers, or about 10 percent of its work force. In addition, a company spokesman noted that demand for its planned new generation IBM clone may be falling short of expectations.

The Solana Beach personal computer firm blamed the current layoff, which affected mostly workers in manufacturing, on slower sales caused by "seasonal factors and the recent shortage of semiconductor" parts, along with other factors.

The reductions leave the company with about 310 employees. Earlier this year, the company employed as many as 438 employees. As sales fell by about 30 percent, however, it announced a series of layoffs and recorded financial losses. In 1984, Kaypro employed as many as 700 people.

Interest may also be focused on comments from the company regarding its plans to introduce computers compatible with IBM new Personal System/2 computers. Such machines, which would include the so-called Micro Channel architecture, had been seen by some analysts as holding promise to revive the company's fortunes, because they would open a potentially large clone market with as yet few competitors.

As recently as late July, David Kay, president of the company, had insisted that Kaypro would introduce its IBM PS/2 compatible computer in September and would begin volume shipment of the machines by October.

Yesterday, John Hentrich, the company's general counsel, said that while Kaypro's design for such a machine is nearly complete, the demand for such machines has been disappointing.

"IBM Micro Channel sales have been less than expected by the industry," said Hentrich. "The introduction date of Kaypro's PS/2 Model 50 compatible will depend on the market demand for this architecture. A number of companies that have announced Micro Channel compatible computers, such as Dell Computer, have delayed their product offerings until next year."

Hentrich added that he could not provide an introduction date for the PS/2 compatibles.

For the first nine months of the current fiscal year, Kaypro reported a net loss of $4.4 million, or 12 cents per share, compared to net earnings of $1.3 million, or 4 cents per share for the comparable period last year. Revenues for the period plummeted to $58.9 million from $85.1 million for the first three quarters of last year.

(Clipping, Craig D Rose Staff Writer)

1989

May ?:

The on-again, off-again land deal at Kaypro is on again.

Andrew Kay, who earlier announced he would sell company land to raise money for the ailing Solana Beach personal computer company: he heads, and then announced he would not sell the land, said yesterday he would sell some of the company land for about $6 million, and then lease back the property for use by Kaypro.

This time, Kay said the land sale would close on March 20. The founder of Kaypro said he changed his mind about the land sale because under the current arrangement, he will sell only eight of the 11 acres both he and the company own at the Solana Beach site.

In addition, Kay said the new buyers, who he would identify only as a group based in Los Angeles, would allow him the option of repurchasing the property in just one year, instead of the five years proposed under earlier land-sale proposals.

"And very important is that this deal will close in two weeks," said Kay. "You know how important it is to get out of my current situation."

Kaypro has been under pressure from its chief lender, Commonwealth Financial Corp. of Walnut Creek. The lender, to whom Kaypro recently said it owes about $5 million, has said it wants repayment of the loan and set a series of dates for repayment.

Kay has said the pressure from the lender has hurt sales of the company's products.

"As soon as I get rid of Commonwealth, that's when my orders will come up," he said. "My whole balance sheet changes."

If Kay raised $6 million from the sale of the land, which he now owns and leases to the company, he said it would allow repayment of the Commonwealth loan and provide $500,000 to $1 million in work capital for the company.

The 8.16-acre parcel he proposes to sell includes the company's manufacturing, sales and administrative offices off Stevens Avenue in Solana Beach.

In addition, Kaypro owns a 3.4-acre undeveloped parcel adjacent to its current manufacturing facilities.

Earlier Kay had said he would sell land he owns - which is currently used by the company - in an $8.5 million deal that was slated to close on February 28. He later backed out of that deal, saying he would likely borrow against the land without selling it to raise necessary capital.

Kaypro has suffered heavy losses in recent quarters as its revenues have fallen steeply. In the first quar-ter, ended Nov. 30, Kaypro reported a net loss of $904,926 or 2 cents per share on revenue of $9.3 million.
(Clipping, Craig D. Rose, Staff Writer)

April 5:

Last week's land deal may solve some financial problems for Kaypro Corp., but the local computer maker still faces a dispute over software.

Kaypro officials sealed the long-awaited deal last Wednesday, selling about 8 acres of its Stevens Avenue manufacturing site - land and buildings - to the Signature Group of Los Angeles for $6 million.

Leasing the property back for $60,000 per month, Kaypro retains a five-year option to repurchase the site.

"That's a pretty low price, but the important part of it is that it gets us off dead center," Joseph Marcello, Kaypro senior vice president and chief financial officer, said Monday. "It's a reversible process, which we like."

The bulk of cash raised in the land sale/lease arrangement will go toward repaying the firm's $5 million outstanding loan with its major lender, Commonwealth Financial Corp. of Walnut Creek.

Another $5 million is owed - mainly to a number of computer parts suppliers - but Marcello said he has been negotiating to convert most of those debts into long-term notes.

However, one supplier apparently has backed away from the negotiations table and has moved to federal court to seek payment from Kaypro.

Microsoft Corp., a leading software manufacturer, filed suit March 20 in San Diego U.S. District Court, claiming that Kaypro failed to pay about $750,000 in software royalties under separate contracts in 1987 and 1988.
(Del Mar Citizen, April 5, 1989)

1990

March 2:

Employees of Kaypro Corp. were finally paid Wednesday — nearly a week after workers were forced to skip a payday when the company was unable to meet payroll.

In the latest indication of its deepening financial problems, Kaypro told its 65 employees last Friday that it was unable to pay them because of cash flow problems. Nancy Casey, a Kaypro spokeswoman, said the company failed to meet the payroll because certain sales had not yet come in. However, the sales have since come in, allowing the Solana Beach-based microcomputer manufacturer to pay its employees Wednesday, said Casey.

Casey said that, as far as she knew, last week was the first time in its history Kaypro had failed to meet the payroll.

She also attempted to downplay the significance of the missed payday, saying "it happens fairly regularly at other, smaller companies. It's not unusual."

"We're trying to turn around the corporation. We're trying to be as positive as possible," she added. Recently, Kaypro reported that it suffered a net loss of $19.4 million, or 52 cents per share, on sales of $21.8 million for the year ending last Aug. 31. A few weeks ago, the company was forced to lay off several senior-level engineers, according to Joseph Marcello, a high-ranking Kaypro official who recently left the company, saying he was asked to work for no compensation.

Struggling to regain its financial footing, the company last week named Roy Salisbury as its new president and chief executive officer. David Kay, who had briefly returned to Kaypro as president and CEO after an 18-month hiatus from the company, appointed Salisbury to replace himself as president.

During David Kay's absence from the company, Del Mar resident Andrew Kay, David's father, had served as CEO. Casey said that Salisbury, who previously headed the FCSGroup, a Massachusetts management consulting firm, was brought in by Kaypro because "his specialty is turning companies around." "(Salisbury) says sales are improving," added the spokeswoman. "There's been nothing major lately, but several (sales) are on the horizon."
(Del Mar Citizen, March 2, 1990)

July 5:

Innovation and unorthodoxy have long ruled at the Kaypro Corporation, reflected in the design of its personal computers and the style of its headquarters, a secluded compound near a beach, where employees munched health food from the company snack bar while they worked.

But the same relaxed, creative style that enabled Kaypro to develop one of the first successful low-priced portable computers in the early 1980's led to the downfall of the Solana Beach, Calif., company, which filed for Chapter 11 bankruptcy protection in March.

Now, the man brought in to turn around the company has been dismissed by Andrew F. Kay, Kaypro's 71-year-old chairman, who has reasserted control over the company he founded. Mr. Kay says he can restore the company's old luster. But it will be hard to return Kaypro to even a shadow of its former self.

'Not Much Left of the Company'

"They did a lot of things wrong," said Marshall Mosely, a former Kaypro employee who is now a computer industry analyst at Dataquest. "It's possible to do something there again, but there is not much left of the company."

After reacting too slowly to industry evolution in a lightning-fast market, Kaypro reported losses of $66 million in five years of plummeting sales. The company's actual financial condition might be even worse than reported. Kaypro's accounting practices are being investigated by the Securities and Exchange Commission. Kaypro documents filed in February with the S.E.C. said the company's bookkeeping was in such disarray that no accurate financial records exist.

Add to these problems an internecine struggle for control between Mr. Kay, whose family owns 70 percent of Kaypro, and Roy Y. Salisbury, a consultant hired as president and chief executive in March to turn the company around.

Serious Disagreements

Instead of cooperating on a reorganization plan, Mr. Kay and Mr. Salisbury bickered, disagreeing on strategy and exchanging charges of mismanagement and fraud. After two months, Mr. Kay went to court to win back control.

Two weeks ago, over Mr. Salisbury's objections, a bankruptcy court in San Diego granted Mr. Kay permission to add a fifth member to the company's board. The board had been evenly split, with Mr. Kay and his wife, Mary, on one side, and Mr. Salisbury and an associate on the other. Immediately after the court ruling, Mr. Kay selected the deciding member and gained control of the board. His next action was to remove Mr. Salisbury from management.

"He was running the company into the ground," Mr. Kay said. "In May, deliveries were worse than in our first month in 1982. When he came, I didn't realize he could be in a position to take complete control."

Dispute Over Manufacturing

Mr. Salisbury, who has left the company, disagreed. In one of his biggest disagreements with Mr. Kay, he had pushed for Kaypro to abandon costly manufacturing and concentrate on marketing computers made by other companies under the Kaypro name, which remains widely recognized. Mr. Kay, an engineer by training, wanted to remain a manufacturer. Mr. Salisbury said that without his business acumen and outside financing, the company would fail.

The question is whether Kaypro is not already dead. The company, once a high flyer in the industry, with about $120 million in sales and a work force of more than 700, is a shadow of its former self, with no financing, a skeletal work crew and a name that may or may not have value. Last year, Kaypro lost $19.4 million on sales of just $21.8 million, meaning the company lost nearly $1 for every $1 of merchandise it sold.

Back under Mr. Kay's control, Kaypro exudes optimism: The company says it has already begun computer production to fill a backlog of more than $500,000 in orders as well as new orders worth more than $1 million. Despite analysts' strong skepticism, Ben F. Fisher, the company's new president, says he expects Kaypro to return to profitability.

'They Want to Keep Going'

Mr. Kay says the company will follow his plan once again to establish a strong reputation as a computer manufacturer, not "relying on others," he said, "and by supplying service."

"We'll build up our independent dealer base and do it again," he said. He plans to use $250,000 in family money as a start.

"The one thing that may be left is the fact that they want to keep going," said George A. Thompson, an analyst at Datapro, a computer research company in Delran, N.J.

"Anything is possible in the computer industry if you can get venture capital and make the right decisions," he said.

Success of the Kaypro 2

Kaypro, originally an electronic equipment company, made the transition to computers in the late 1970's. The company prospered in 1983 and 1984 with its Kaypro 2, one of the first low-priced portable computers. Selling the PC through a loyal network of independent dealers, sales soared from $5 million in 1982 to $119 million two years later.

But the Kaypro 2 was quickly matched or surpassed in technical prowess by dozens of competing models, and Kaypro reacted to the challenge too slowly. Sales dwindled as the industry abandoned an early internal operating system used by Kaypro, known as CP/M, for the more advanced DOS operating system. That left Kaypro without computers compatible with those made by the International Business Machines Corporation, which was then setting the standard for personal computers.

"Kaypro once owned the PC business," said Steve Lair, a vice president and analyst at Dataquest. "Their move to DOS was thorough, but late. By the time they were on track they were running to catch up, and that proved to be overwhelming."

Organizational Problems

Internally, Kaypro had organizational problems, which analysts attribute to its being an entrepreneurial, family-run business in an industry that demands management expertise.

As early as 1984, Kaypro had developed a reputation for bookkeeping problems and carelessness. The company also suffered several product recalls. In one embarrassing episode, the company had to admit that it lost millions of dollars in computer parts, perhaps through theft. The parts had been stored at company headquarters underneath huge circus tents, because Kaypro did not have enough space in its warehouses.

In the last three years, business went downhill quickly and Mr. Kay was forced to sell the compound and invest his own money. He is owed $7.3 million, making him Kaypro's largest unsecured creditor.
(New York Times, July 5, 1990)

1992

A judge said he would convert the troubled Kaypro Corporation from bankruptcy status, which affords the personal computer maker protection from its creditors, to bankruptcy status, which calls for the company to liquidate its assets. Federal Bankruptcy Judge James Myers said last week that he would convert Kaypro from Chapter 11 bankruptcy to Chapter 7, which requires liquidation.

Howard Justus, the trustee named by the court to oversee the final operations, said little appeared to be left of the once fast-growing computer maker to liquidate, particularly when compared with claims against the company. Mr. Justus estimated that total claims reached $20 million. "All that's left is the cleanup," he said. In the two years the company has operated under bankruptcy protection, Kaypro built up $2 million more in debt, Mr. Justus said. Under the law, the $2 million plus an additional $1 million in debt accumulated during pre-bankruptcy would have had to have been repaid in full before Kaypro could be reorganized.
(New York Times, June 11, 1992)

Reflections

"Andy had a good eye for technology. One of the things was, even if that, company had been run, extremely efficiently it still wouldn't have survived. PC's Limited, which was starting in Austin, which was Michael Dell's company, were building computers in their dorm rooms. They couldn't compete with Asian manufacturing. And those were very smart people who were very efficient. They had none of the family drama, they were very focused business people, and they couldn't compete with Taiwanese and Japanese manufacturers and then later Chinese. There's no computer company in the United States that makes [entire] computers, it was never going to work."
(Interview with Marshall Mosley)