Wismer Martin Operates Without Credit Line Company Claims Second-Quarter Profit, But Loses Major Customer Blue Cross In The Process

Wismer Martin Corp.’s relationship with Seafirst Bank has been terminated, and the troubled Spokane software company has been operating without a line of credit for several weeks.

The company’s unaudited financial report for the second quarter of fiscal 1996 claims a profit of $1.1 million, a dramatic turnaround from the second quarter of 1995 when Wismer Martin lost $700,000.

But the report, filed last week with the U.S. Securities and Exchange Commission, doesn’t make clear that the profit, along with the money that paid off Wismer Martin’s Seafirst debt, was the result of a cash windfall rising out of a legal dispute that cost Wismer Martin one of its most significant customers.

The financial report for the quarter ended Dec. 31 shows Wismer Martin “paid off amounts due on its revolving line of credit and note payable to Seafirst.” The amount paid is reported at $583,964.

The report does not indicate, though, that the payoff terminated the relationship between Wismer Martin and Seafirst. Mehdi Moussavi, Wismer Martin’s new chief financial officer, confirmed that Seafirst no longer provides financial backing to the company. He would not comment on whether the bank or the company chose to cut off the financial relationship.

“Everything has been paid off,” Moussavi said, “and as far as management is concerned, there is not an immediate need for a line of credit.”

He said Wismer Martin has bank accounts with Washington Trust Bank, and, “If we need (a line of credit) in the future, we are going to negotiate that with Washington Trust.”

Wismer Martin, which produces software used in the health care field, has struggled to come up with operating capital over the past year.

Last year, on the threat of foreclosure on the company’s office building, Seafirst ordered Wismer Martin to come up with $1 million to buy down debt and another $1 million in operating capital. The company responded with a stock offering of some 6 million shares. The offering was used to convert about $3 million of convertible debt to stock. Most of that convertible debt was held by Ron Holden, Wismer Martin’s board chairman and majority shareholder.

But the stock offering raised only $384,000 in cash.

The money that rescued Wismer Martin from its Seafirst obligation came in what sources say was a $1.5 million payment from Blue Cross of Washington and Alaska that terminated Blue Cross’s relationship with the company.

During the second quarter, Wismer Martin filed a lawsuit seeking to stop industry giant Electronic Data Systems Corp. from consummating a deal with Blue Cross of Washington and Alaska in which EDS would take over operation of two major health care information networks owned by Blue Cross. Wismer Martin provided the software through which the two networks operated.

Wismer Martin claimed that if the deal was made, it might be shut out of further participation in the networks and that the company would cease to be a viable entity. A U.S. District Court judge granted a temporary injunction barring EDS and Blue Cross from closing their deal until Wismer’s allegations could be considered at trial.

A few weeks later, Wismer Martin dropped its suit against EDS, and at the same time sold software licenses and source codes for the network software to Blue Cross for the $1.5 million.

While a non-disclosure agreement limits what either party can say about the deal, Blue Cross officials issued a terse statement last year that, “We do not see any continuing relationship with Wismer Martin.”

Sources close to the deal, who confirmed its $1.5 million value, said Blue Cross officials were furious with Wismer Martin officials over the lawsuit and simply wanted nothing more to do with the company. Blue Cross was one of Wismer Martin’s most significant customers over the past two years, representing hundreds of thousands of dollars worth of business.

In its second-quarter report, Wismer Martin does not break out the income from the Blue Cross deal as a special item. Rather, Moussavi said, it is included in the $3.5 million in the net sales category, up from $2.5 million for the second quarter of fiscal 1995.

In some cases, companies include an explanation of unusual revenue in the notes section of their financial reports. The note dealing with the quarter’s dramatic increase in net sales says, “The increase principally resulted from an expansion of the company’s existing contracts.”

According to the financial report, Wismer Martin earned $1,115,557, or 7 cents per share, on sales of $3,448,534 during the second quarter of fiscal 1996. That compares with a loss of $698,128, or a loss of 7 cents per share, on sales of $2,523,502 during the second quarter of fiscal 1995.

For the first six months of fiscal 1996, the company reports income of $1,002,643, or 7 cents per share, on sales of $5,386,049. That compares with a loss of $657,548, or 7 cents per share, on sales of $5,846,774 during the first half of fiscal 1995.

Wismer Martin will not have to submit an audited financial report until the conclusion of its fiscal year in June.

, DataTimes