Delisting Darkens Versatility's Turnaround

Delisting Darkens Versatility's Turnaround

By Bob Starzynski
Staff Writer

Versatility Inc., a Fairfax, Va., developer of call center software that has been plagued with numerous problems in the last five months, suffered another blow July 21 when its stock stopped trading on the Nasdaq National Market.

Nasdaq officials warned Versatility two months ago that the stock would be delisted if the company could not get its financial problems in order quickly. The company was given a June 30 deadline for compliance with Nasdaq requirements, which was not met.

Its request for a 45-day extension to comply was denied, according to a company notice.

Versatility's stock, which hovered around $2 a share for the two months leading up to the delisting, is now trading on the OTC Bulletin Board, a stock market primarily made up of smaller and lesser known companies.

"They need to take a serious look at their business model," said Bonnie Wachtel, chief executive of Wachtel & Co., a Washington stock-brokerage firm. "Obviously, they are doing something wrong."

Officials at Versatility declined to be interviewed. Nasdaq officials could not be reached.

The company, whose software helps make telephone call centers run more efficiently, has racked up a number of respectable clients for its products, including British Telecommunications, Mellon Bank, Chase Card Members Services and Avantel S.A.

But troubling signs began cropping up at Versatility in March, when the company announced it would have to restate its earnings for the previous 18 months due to accounting problems. That lowered last year's revenue from $27 million to $18 million, and turned a $2 million profit into an $8 million loss.

With that March announcement, three of the company's top officials - the chairman/chief executive, chief financial officer and the vice president of sales - abruptly resigned, leaving Paul Zoukis to run the company. Zoukis had joined the company only one month earlier to strengthen operations management.

Investors, who claimed they were misled by Versatility's financial figures, started filing class action lawsuits in March. The company's stock price had tanked since its December 1996 initial offering price of nearly $20 a share to less than $2. Six class action suits were filed between March and June.

Coincidentally, just days before last week's delisting, Versatility cheered investors slightly by announcing the company is settling all six suits by handing out $3.5 million in cash and 750,000 shares of company stock to disgruntled shareholders.

The money for the payout will come from liability insurance policies of the company's officers and directors. The shares will come both from the company and from the personal holdings of officers involved in the fray, according to company documents.

What is left, said Wachtel and another source familiar with the company, is for Versatility officials to quickly find a buyer.

"The longer they go unacquired, the more customers and employees they will lose," said the other source. "The value of the company will keep going down."

The problem, according to the source, is that employees are leaving the company. From the time Zoukis took over the company until the last time he spoke with Washington Technology in May, almost one-third of Versatility's 256-employee work force had been let go.

And customers are becoming leery of buying Versatility's products because they don't know if they will get customer support from a company that may not be around for much longer.

To help sort through the rubble, Zoukis retained NationsBanc Montgomery Securities shortly after the problems surfaced in March.

Zoukis said in May that NationsBanc was helping Versatility raise money through a private placement of stock, but declined to elaborate. He would not discuss the possible sale of the company at that time.

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