Wismer Martin Boosts Proposed Stock Offering Software Company Struggles To Satisfy Lender’s Demands

Amid growing financial pressures, Spokane-based Wismer Martin Inc., has increased its proposed stock offering from 2 million to 3 million shares.

Under orders by Seafirst Bank to raise $1 million in cash and convert $1 million in subordinated convertible debt to equity by Aug. 31, Wismer Martin officials filed a registration statement with the U.S. Securities and Exchange Commission on June 12 for an offering of 2 million shares of common stock.

Earlier this week, though, the medical software company submitted an amended registration statement to the SEC. Wismer Martin now proposes to issue 3 million shares of common stock with a sales price of $1.25 per share in an effort to raise $3.75 million. The company’s stock closed Friday at 85 cents per share.

“The principal reasons for this offering are to obtain additional equity capital to finance the company’s current liquidity needs and ongoing operations and to eliminate $2.5 million of convertible subordinated debentures,” the amended registration statement says.

“The company has a line of credit with Seafirst Bank with a borrowing limit of $500,000,” the statement continues. “The line of credit expires June 30, 1996, and the company intends to use proceeds from this offering to repay the indebtedness. The amount of the indebtedness on July 26, 1995, was approximately $500,000.”

The original registration statement shows that Wismer Martin fell out of compliance with the terms of its line of credit by falling below a minimum tangible net worth established by Seafirst.

Wismer Martin negotiated an amendment to the loan agreement that included the reduction of debt and raising of capital through the stock offering, and an agreement that the company’s minimum tangible net worth would recover to $3 million by June 30.

The company’s actual minimum tangible net worth on that date was only $1.4 million. So the bank gave Wismer Martin more time.

Under the modified agreement, Wismer Martin must now reach the $3 million threshold by June 30, 1996, and hit a series of increasing thresholds between now and then. The first is a requirement to increase minimum tangible net worth to $2.15 million by Sept. 30.

If those requirements are not met, the registration statement says, the $500,000 owed to Seafirst will be “due on demand.”

If that happens, the registration statement says, the company will try to restructure the debt one more time, repay the debt through proceeds of the stock offering or repay the debt through proceeds from the sale or refinancing of the company’s office building.

Under terms of the restructured credit agreement, the office building has been added to the collateral backing the line of credit. So one of the bank’s alternatives would be to foreclose on that property.

Whether the bank has extended the Aug. 31 deadline for Wismer Martin to reduce convertible debt by $1 million and raise an additional $1 million in capital is unclear in the amended registration statement. Company officials did not return phone calls seeking comment.

According to the amended registration statement, the bulk of the offering will go to converting $2.5 million of convertible subordinated debt to stock. The majority of that debt is held by Ronald L. Holden, Wismer Martin’s chief executive officer and principal shareholder.

Wismer Martin pays $175,000 annually to service the debt.

The convertible debt was Holden’s payment for the acquisition of another of his companies, Integrated Health Systems Inc., in early 1994. Since the acquisition of IHS, Wismer Martin has struggled financially.

As of March 31, according to the registration statement, Wismer Martin had a capital deficit of $1.9 million, negative working capital of $2.5 million and had incurred a loss of $1.5 million for the first three quarters of the fiscal year.

The company’s fiscal year ended on June 30, but Wismer Martin has not released financial results for the fourth quarter or the year.

Despite earlier statements by company officials that Wismer Martin would return to profitability during the fiscal year, though, the registration statement says company officials estimate the losses for the fiscal year at almost $2 million.

If the company is not successful in raising enough money through this offering to solve its liquidity problems, the registration statement says, alternatives would be considered.

The alternatives would “rely heavily on further expense reductions” through layoffs.

, DataTimes