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Allen-Babcock Computing, Inc. - Lehman Brothers Collection

Allen-Babcock Computing, Inc.

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Allen-Babcock Computing was founded in Los Angeles in 1964. The company was established by James Babcock and Michael Jane Allen Babcock to take advantage of the fast-growing market for computer time-sharing services. Time-sharing is the simultaneous use of a single computer system by a number of people at various locations. The computer, linked by public telephone lines to a teletypewriter terminal, operates so fast that it appears to be servicing all users in the same split second. Between 1964 and 1970 the company never earned a profit even though sales grew rapidly. In 1967 revenues were $570,000, growing to $1.5 million the following year and $3.6 million in 1970. In 1969 Allen-Babcock held a 3 percent share of the time-sharing services market along with other companies such as Call-A-Computer, Com-Share, Tym Share, and Adams Associates. About 60 percent of the market was held by General Electric and IBM.

Allen-Babcock began to experience financial difficulties in 1960. While revenues were rising, expenses rose even faster as the company leased more IBM computer systems to support the increased demand and as the company spent money developing new software internally, such as their products RUSH (to run time-sharing operations) and SQUARE (stock quotations under a RUSH environment). To make matters worse, the company's principal source of funding, City National Bank of Beverly Hills, chose not to continue providing financing.

In 1969 the company was able to complete a private placement of $3 million in common stock and five-year subordinated income notes. The proceeds from this offering were used to expand Allen-Babcock's operations and to finance the opening of eighteen centers around the U.S. in addition to the three offices located in Palo Alto, Los Angeles, and Union City, New Jersey.

By 1971 Allen-Babcock was continuing in its efforts to raise additional funding to support the company's rapid growth by attempting to sell 5 percent convertible subordinated income notes due in 1981 and to acquire a new IBM 370/155 computer.

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