Success Eludes Celerex -- Firm Struggles To Live Up To Its Early Promise

To many retailers, analysts and other observers, Celerex Corp. once seemed to be all that its NASDAQ trading symbol, CEXY, suggested: a young, sexy company with potential to become a new Seattle corporate success story.

The company sells hardware and software in systems it has dubbed ``faster than cash'' to process credit-card transactions and verify checks within seconds.

It is marketing the products to fast-food restaurants, movie theaters, discount chains, convenience stores and parking lots - businesses with high volumes of low-cost transactions that traditionally do not accept credit cards from customers.

Merchants who have used Celerex's products range from Doug Fox Services, which operates a parking lot near Seattle-Tacoma International Airport, to Fred Meyer, Skipper's restaurants and several McDonald's and Burger King franchises.

Many applaud the systems' speed and efficiency, saying Celerex is poised to meet the needs of a future ``cashless'' society.

So why, with such praise for its products, is the company struggling?

``I'm as befuddled as everyone else,'' said Bill Herron of RCL Northwest Inc. in Spokane, the investment bank that handled Celerex's initial public stock offering.

``They're a good company with a strong product,'' Herron said. ``They've made excellent inroads into the market they're trying to tap. But their situation now, well, it does seem pretty scary.''

Earlier this month, Celerex reported a second-quarter net loss of $700,722, or 3 cents a share, on sales of only $124,439. Those results compared with a loss of $490,366, or 2.2 cents a share, on sales of $419,556 for the same period a year ago.

Celerex said that it was trying to secure additional financing from investors and potential corporate partners but that it could not promise shareholders it would be able to survive beyond this year.

The company's stock, which has traded for as much as $4.50 a share, has been trading at about 28 cents in the over-the-counter market lately. In late afternoon trading today, the stock was at 25 cents.

Frank Varvaro, executive vice president of Celerex, recently downplayed the company's financial difficulties.

``Sure, we recognize our burn rate is higher than our revenues, but we don't see ourselves closing the doors,'' Varvaro said.

The company has blamed its losses on a slow acceptance of credit cards in the fast-food industry. But Varvaro said Celerex would continue to market its products to such retailers, as well as other companies with high volumes of inexpensive transactions.

The company also is planning to seek new corporate partners and develop agreements with banks, credit-card companies and other businesses in which Celerex systems could be marketed jointly.

``I personally have a lot of belief in the concept and am certainly not sending my resume out,'' said Varvaro, who left a senior-management position at VISA International to join Celerex two years ago.

In its 1989 annual report, Celerex said it used $2.9 million of its operating cash to develop new products. It was left, as a result, with only $253,707 cash and a negative working capital of $68,821.

This prompted Price Waterhouse to qualify Celerex's annual financial statements, saying, ``These factors, among others, raise substantial doubt about the company's ability to continue its existence as a going concern.''

The company also underwent a shuffle among its officers and directors over the past two years. Larry Abraham, editor of the Insider Report newsletter and a Celerex observer, said this was a sign the company could be in trouble.

Jose Porto, the company's president, director and chief operating officer, announced in July that he would be taking a medical leave.

Purchase and leasing agreements vary, but generally a basic Celerex system can be purchased for about $3,000 or leased for about $100 per month. Retailers also pay a user's fee of less than 10 cents per transaction.

Several retailers said Celerex products have increased credit-card use among customers and made their operations more efficient.

At Doug Fox Services' parking lot near Sea-Tac, Vice President Darin Lang estimates 60 percent of all customers pay for parking with credit cards.

Before Doug Fox installed the Celerex system in November, parking attendants had to wait 25 to 35 seconds for a credit card to be approved and then had to return the forms to customers for a signature, Lang said.

Now, they put the card through a machine and the payment is deducted immediately from the customer's account. No signature is required, and the entire process can be completed in two or three seconds, Lang said.

``When a 747 lands and people head for their cars - speed, moving the lines fast - is important,'' Lang said. ``That system has been super for and has really shortened our lines.''

Erin Sage, manager of the McDonald's near the Washington Ferry Terminal on Alaskan Way, agreed. The restaurant, one of four Seattle-area McDonald's franchises using the Celerex system, processes 30 to 40 credit-card and check transactions a day.

``Being on the waterfront, we get a lot of tourists who don't like to use their cash,'' Sage said.

Milton Moritz, vice president of advertising and public relations for Pacific Theatres, a Los Angeles chain that operates 300 movie theaters, said the system provides a convenience to customers. However, he said he is unsure whether the product itself actually encourages patrons to pay with plastic instead of cash.

``It's too early to really have a good feel for it,'' Moritz said, noting that Pacific Theatres has used the Celerex system for about a month in only a few of its theaters.

After testing the system for six months in two Tacoma stores, Fred Meyer decided to install it in six additional stores in the Seattle-Tacoma area. Spokesman Rob Boley said the system shortened customer lines and made checking bad checks and credit cards more discreet.

However, other retailers who tried the system said they did not receive enough credit-card transactions to justify using the system.

For instance, Gene McGovern, president of McGovern's Burgers to Go, said his drive-through restaurant in Kent processes about 3,000 to 5,000 transactions per week - only about 10 to 15 of which are credit cards and 50 of which are checks.

``There's nothing wrong with the system,'' McGovern said. ``It'll probably be the thing of the future. But for us, there just wasn't enough business in that direction to warrant our using it.''