Urethane Technologies Inc., after years of battling gruesome balance sheets, drew its last breath early this month.
Sitting idle at its Orange, Calif., base, the 12-year-old polyurethane system maker faces bankruptcy and foreclosure following many failed attempts to keep the firm afloat.
UTI in early March closed its operating division, Polymer Development Laboratories Inc. The company's unsecured creditors on March 10 filed a Chapter 7 involuntary liquidation petition against the firm.
UTI's raw material division, Brin-Mont Corp., on Feb. 28 was repossessed and foreclosed on by its lender, Sirrom Capital Corp. The chemical supplier now is continuing operations under Sirrom subsidiary SWS 3 Inc.
Soaring material costs and a highly competitive market made the company's demise inevitable, James Orefice, president and chief executive , said in a telephone interview from his California home.
``It just kept getting worse and worse,'' he said. ``We had no money for raw materials for the last two months.''
UTI's position withered when its creditor — Finova Capital Corp. — aggressively began collecting on its secured debt.
Finova sopped up whatever earnings UTI generated. The firm's debt to the lender fell to about $1 million in March from $3 million in October, Orefice said.
``It made it very difficult to keep things running,'' he said.
The company also had a difficult time selling its assets, since Finova had to approve each potential buyer, Orefice said. Several companies showed interest in purchasing UTI, but the lender locked into a ``narrow-minded stance.''
``I guess they decided they had enough secured coverage that they could be hard-nosed,'' Orefice said. ``They were going to get their money.
``It was like a chess game. We kept bringing possible suitors and the father of the bride kept sending them away,'' he said. ``Probably because we were such an ugly bride.''
UTI's final blow came when its tentative investment agreement with New York-based Endeavour Capital Corp. crumbled.
The Orange company on Feb. 14 agreed to trade 80 percent of its outstanding stock to the investment firm for $1.65 million. When the deal collapsed a week later, it was checkmate for UTI, Orefice said.
The situation was made more bleak when another corporation — which Finova approved — wanted to buy UTI. Orefice signed the Endeavour deal when the other suitor was not prepared to conclude the pact.
UTI returned to the potential buyer after Endeavour balked, but the company's interest had waned, Orefice said.
In hindsight, even Endeavour's cash infusion probably would not have saved UTI, the president said.
``It would've been tricky'' to make it work,'' he said.
Before the Endeavour disappointment, UTI desperately searched for ways to allay its worsening financial situation.
For the first nine months of 1996, UTI posted sales of $23.6 million, up 15 percent from 1995's $20.5 million for the same period. However, the firm recorded a $3.4 million loss for 1996's first nine months, compared with a loss of $281,684 for that period a year earlier.
To hike capital investments, UTI in September signed a letter of intent to acquire IPI — a unit of Sun Valley, Calif.-based PMC Inc. — to form a new company that UTI said would be double its size.
The tentative pact disintegrated after UTI's stock plummeted 50 percent practically overnight. Relentless market price attacks drove the company's common stock to 53 cents per share on the Nasdaq exchange, down from $1.06 when the PMC deal was signed.
UTI also took a financial hit when Polytech Components Inc. folded last year. Polytech, which had purchased UTI's molding division, still owed UTI $1.07 million from the sale, and UTI was forced to write it off.
In October, UTI also moved its headquarters to its Orange facility and slashed its roster by five to 50, saving about $43,000 per month.
But it wasn't enough.
UTI had problems from its inception, Orefice said.
When he entered the scene in 1993, the company had practically no sales, and UTI's focus on urethane bike tire technology was a pipe dream, he said.
``I learned early on there was no business'' in that market, Orefice said. ``I knew we had to find something else to do fast.''
Although the idea behind PU bike tires is sound, the business is shrouded by what Orefice calls a ``classical marketing problem.''
``Consumers would buy the tires, but there's just no way to bring them to market,'' he said.
Since cyclists are comfortable with pneumatic tires, the industry needs a company with enough merchandising power to push the PU products into the mainstream — a company much larger than UTI, according to Orefice.
Overseas markets are even more inaccessible than the United States, he said. In regions like China and India, PU bike tires are four times more expensive than traditional pneumatics.
``You can't argue with a peasant to spend that much on a urethane tire when he can buy a rubber tire for pennies,'' Orefice said.
In addition, about 95 percent of China's rubber tire industry is government-subsidized, leaving little room for urethanes.
It was not easy breaking the news to UTI investors that PU tires weren't practical, Orefice said.
``I'd been dealing with irate shareholders from the day I walked in the door,'' he said. ``Then, to top it off, I had to tell them urethane bike tires were a waste of time — that it wasn't going to happen. That's not what they wanted to hear.''
UTI moved away from urethane bike tires in early 1994 and refocused on PU systems used to produce roofing insulation, building panels and skate wheels.
Despite UTI's shift, the PU system market was not lucrative enough to deliver the company from its 12-year slump, Orefice said.
The PU system market ``is just a lousy business with low margins,'' he said. The only companies that have been successful are small, private businesses and enterprises like BASF Corp., which has its own raw material base, Orefice said.
UTI constantly struggled with rising raw material costs and an increasingly competitive business climate, he said.
``We were just so undercapitalized. There's no way an overloaded public company [like UTI] could compete.''
In March 1995, UTI tried to back into the market when it purchased raw material supplier Brin-Mont.
However, the purchase was too late to save UTI, which already had begun a nose dive, he said.
``I wish we would've bought [Brin-Mont] a year earlier,'' the president said. ``I really think things would be different now.''
Orefice remains optimistic about the company's future despite its bleak position.
``It's been a difficult road and it's hard to come back,'' he said. ``But, it can be done.''
With the Chapter 7 liquidation petition, the unsecured creditors at least now have a little leverage, he said.
Bankruptcy really is the best thing that could have happened to UTI, Orefice said. It may provide money for the unsecured creditors to put the company back together.
``We could be more competitive because we'd be privately held,'' Orefice said.
The bankruptcy court was to have decided by March 30 whether to reject the filing or appoint a trustee to oversee the company's finances.
The only better alternative for UTI would have been to file for protection under Chapter 11 of the U.S. Bankruptcy Code, allowing the firm to reorganize its finances, Orefice said.
``But when you don't have any finances to reorganize, what's the point?''
At least one part of UTI still operates despite the financial bludgeoning. Atlanta-based Hess Polyurethanes — headed by the former president of UTI's chemical division, Maclean Hess — toll produces urethane systems using UTI's proprietary technology.
Orefice also has spoken with several firms about purchasing UTI. At least one company is interested in buying its assets and reconstructing UTI into a private business.