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Summary Statement of

Les Walker

Chief Executive Officer
DocuSource, Irvine, California

        If capitalization weren't a problem, Les Walker, Chief Executive Officer of DocuSource, would be building his sales organization and aggressively seeking sales throughout Southern California, not just in Los Angeles and Orange counties. "We would be placing sales branches in new marketplaces, signing more customers, hiring more service and field technicians, and even adding administrative support," Walker explained.

        Instead, DocuSource has trimmed its staff from more than 100 to only 70 employees, kept its focus largely on LA and Orange counties -- and is even considering the sale of the company.

        "We're in a vice where there is a tremendous market opportunity, but we're not in a position from a capital standpoint," Walker said. "Instead of increasing revenue and employment, we're reducing our workforce so we can work within the realities."

        DocuSource should be on top of the world.

        Consider: The fast-growth office equipment company has grown 700 percent over the past eight or nine years, to more than 100 employees and $21 million in sales in 2001. It was ranked 159 in 1995 on Inc magazine's annual list of 500 fastest growing companies. The LA Business Journal has counted it among the fastest growing private companies in Los Angeles for six consecutive years. Although clients are primarily from Southern California, its national accounts include the prestigious CB Richard Ellis.

        "We are a good example of an emerging-growth company that has the ability to compete and provide alternative solutions to the largest players in our industry," Walker said. "Our challenge is capitalization in order to sustain our level of growth."

        Walker indicated that the BRIDGE Act would have been helpful to his company and others like it that are profitable but cash-poor. "If we had had $250,000 in deferred income taxes that could be treated as capital from the bank's perspective, it would have cut our debt to equity ratio in half. We would suddenly have become a very bankable company. That would have had a tremendous impact on our ability to continue to grow the company and provide jobs."

        Instead, Walker said, the company's current bank increasingly is cutting back on the firm's borrowing power. "We're in a cash stranglehold with the current lender." Efforts to negotiate a line of credit from a replacement bank have been unsuccessful. "Banks have tightened up their underwriting criteria," he said.

        DocuSource has been equally unsuccessful in its efforts to raise $1 million in subordinated debt. "We offered a 20 percent annual interest rate, and at this point have only raised about 40 percent of what we need, with half of that total coming from the owners."

        Incorporated in 1990, the company ran into trouble in 1998, when it expanded its product line and its marketplace. From a one-product company in the Los Angeles County marketplace, it began to offer three product lines in a territory that included seven Southern California counties.

        The catalyst was Ricoh Corp.'s development of the first digital copier, which it sold through authorized dealers such as DocuSource. DocuSource seized the opportunity to sell the latest and best technology to a broad range of customers. The drawback: "It took a tremendous amount of investment to bring it on. We had to train the sales staff, train or hire field service technicians, and expend capital to inventory the equipment, parts and supplies.

        "There's no question. If we had additional capital, we would build our sales organization and become aggressive with the other Southern California counties; we would be placing sales branches in those marketplaces," Walker said.

        Instead, DocuSource is reluctantly considering the sale of the company, which would undoubtedly lead to layoffs. "The acquiring company probably does not need all the infrastructure that we have -- which means that the economy would be better off with us as an independent company than if we're acquired and duplicate personnel are laid off."


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Revised: April 29, 2003 TAF

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