Ailing Carver Gets Transfusion, Will Try Direct Sales

On Tuesday, May 5, beleaguered Carver announced that it had received a financial transfusion of almost $400,000 and that it would make a move into direct marketing in an attempt to bolster flagging sales. The Woodinville, Washingon-based company announced in a press release that it "had closed a sale of 3,000,000 shares of restricted Common Stock of the Company to one of its preferred shareholders, Renwick Special Situations Fund, L.P., for $375,000, or $0.125 per share."

The infusion of capital provides the Company short-term funding while "it continues to refine and commence implementation of a new business plan and seek further financing that the Company believes will allow it to return to profitability." Part of the plan includes a move into direct sales, allowing customers to purchase Carver's complete line of audio and home-theater products directly from corporate headquarters.

"Carver is the first major high-end audio manufacturer to offer a complete line of audio and home-theater electronics to the consumer through direct-sales channels," the press release stated, adding that the company will continue to support its network of dealers.

No mention was made as to pricing of products to be sold directly from the company's distribution center. If products are priced at retail, the move will provide access to Carver products for customers without local dealers. If the prices are discounted significantly below retail, Carver will be essentially competing with its own dealers for what might well be a diminishing pool of customers. Carver may be the first major specialty electronics manufacturer to venture into direct sales, but it should be noted that many small companies have gone this route, almost always losing their dealers in the process.

Carver reported 1997 sales of $11 million and a net loss of $3.2 million, or $0.84 per share, compared to 1996 revenues of $14.5 million and a net loss of $3.2 million, or $0.86 per share. The company stated that "revenues were impacted by a severe shortfall in working capital which restricted its marketing and sales efforts and its ability to supply product. Revenues for the quarter ended December 31, 1997 were $4.0 million and a net loss of $957,000, or $0.24 per share compared to sales of $2.5 million and a net loss of $1,232,000, or $0.48 per share for the corresponding period in 1996. Fourth-quarter 1997 revenues were impacted by stocking orders for the Company's two new Cinema Speaker systems."

ThatÆs accountant-ese for "business is bad." Like all companies in trouble, Carver is seeking to improve its cash flow by obtaining extended terms from its suppliers and quicker payment from its dealers. More funding will be needed for a complete turnaround, the press release stated, and mentioned that other sources of capital are being pursued.

While sounding a cheery note for its future, Carver also included a disclaimer that its "forward-looking statements are subject to a number of risks and uncertainties that might cause actual results or achievements to differ materially from those expressed or implied by such statements." Should the hoped-for turnaround fail, such disclaimers help ward off litigation from disgruntled investors.