Comparator Says It Lacks Funds to Make New Product

Comparator Systems Corp. acknowledged Friday that it does not have the funding to produce its new product, that it failed to notify investors when a funding source fell through last year and that it may have overstated the value of three-fourths of its corporate assets.

The disclosures were part of a lengthy statement the Newport Beach company issued in response to a series of questions raised by investigators from the National Assn. of Securities Dealers, which regulates the Nasdaq Stock Market.

Comparator, which has never turned a profit in its 17 years as a public company, aroused suspicion earlier this week when its stock set three Nasdaq trading records and posted a 30-fold run-up in price.

Executives at Comparator, which makes high-tech fingerprint identification systems, have said the trading surge was prompted by the imminent release of a new product at an Atlanta trade show on Monday.

The company’s statement Friday casts new doubt on its financial integrity and its commitment to keeping investors apprised of important business developments.

Nevertheless, Nasdaq officials said trading in Comparator’s stock is expected to resume Monday. Trading had been halted before the market opened Thursday at the behest of Nasdaq officials who demanded that the company publicly answer questions about its finances and disclosure practices.

The lengthy disclosure notwithstanding, executives at the 29-employee company continue to insist they have done nothing wrong.

“We just happen to have been put under a particular spotlight,” Chief Executive Robert Rogers said. “We have found nothing we weren’t already working on with our auditors. There’s been no indication of wrongdoing.”

At the center of the disclosure are questions about the value of several patents, investments and other items Comparator lists as assets on its balance sheet.

Patents related to one of the company’s fingerprint identification devices are valued at $2.4 million, for example, even though the device has never been produced for the market and is being replaced with a newer product next week.

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The company explained the situation partly by saying that it believes there is a significant market among Third World countries for the device, called the Model ID-2 Comparator.

Comparator also lists as an asset $745,000 that a former executive embezzled from the company in 1993. That sum is considered an account receivable, even though the company said in its statement that “substantial recovery may be unlikely.”

The value of these and other assets in question totals $4.4 million, or 77% of the company’s total assets at the end of fiscal 1995. The company’s fiscal year ends June 30.

If the value of these assets is reduced substantially, “it could jeopardize Comparator’s continued listing” on the Nasdaq SmallCap stock market, one regulatory source said. Nasdaq requires companies to show $2 million in book value when the price of their stock falls below $1. Comparator’s stock has traded between 3 cents and 6 cents a share for most of the last five years.

Comparator also acknowledged that it never received a promised cash infusion from a British financier last year. Even though Comparator issued a news release in May 1995 saying receipt of the cash was “imminent,” it never issued a subsequent release when the funding fell through.

Rogers said the company did not report the matter because the financier “continued to call us on a daily basis saying he was close to getting his funding together. He just couldn’t write a good check.”

But the incident resembles a number of announcements the company has made throughout its history that didn’t pan out. Asked whether this marked a pattern of inaccurate statements, Rogers bristled.

“You can keep raking us over the coals if you want to,” he shouted. “But we are introducing a product we have bled to produce, and it is the best in the field.”

In Friday’s news release, Comparator officials say they are seeking $2.5 million in funding to begin full-scale manufacturing of their new product but that that money “has not yet been attained.”

On Thursday, Comparator demonstrated its new product for NASD investigators at the company’s offices. Rogers said investigators left without comment.

Rogers said the company is continuing to cooperate with NASD investigators but that he believes the emphasis of the investigation has now shifted to the brokers, called market makers, that trade Comparator stock.

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Rogers also acknowledged Friday that the company has been contacted by investigators from the Securities and Exchange Commission.

Comparator, which posted a $1.85-million loss on $90,000 in sales for its last fiscal year, has about 610 million shares outstanding, more than Microsoft Corp. or IBM Corp.

In an unprecedented burst of market activity that began May 3, more than 449 million Comparator shares changed hands in three consecutive days, and the price of the stock shot up from 6 cents to as high as $1.87. It closed at 56 cents Wednesday before trading was halted.