April 17, 2014

It Takes Capital

| 12/1/1995
Failures among Florida's major technology companies have become almost pandemic in recent years. Aerospace manufacturer Lockheed Martin turned off the lights in 1994 at a Daytona Beach facility that employed 900. In nearby Titusville, McDonnell Douglas is closing its 1,200-worker missile production plant. IBM recently announced the transfer of 1,000 software development and administrative jobs from Boca Raton to Austin, Texas.

But even as defense contractors downsize and Big Blue consolidates, many smaller technology-driven companies are quietly creating new products and fattening payrolls. Breed Technologies, the Lakeland maker of automobile air bags, and Boca Raton security system manufacturer Sensormatic Electronics both added hundreds of research, development and manufacturing jobs in the past five years. Since 1989, personal computer-peripheral maker Boca Research has grown its work force from 50 to more than 300.

In some cases, big technology companies give birth to smaller ones through cutbacks. Jobless veterans of companies such as IBM sometimes invest fat severance payments in technology-oriented start-up firms.

With that in mind, Florida's economic development officials are taking a dual approach to building a base of technology companies, says Brent Gregory, vice president of Enterprise Florida Innovation Partnership, the state's public-private promoter of technology development. Their approach is to attract high-tech companies from out of state and to help home-grown firms commercialize laboratory research, solve manufacturing problems and raise capital.

For a closer look at life in the trenches, Florida Trend reports on four companies that illustrate the diversity and uncertainty of the dynamic technology sector of Florida's economy. One company, PC DOCS, already is making money; the rest haven't made a dime. What they share is determination to build - and sell, sell, sell - a better mousetrap.

Wild Ride
When Wall Street bulls cozied up to a Florida technology company named after a bear, they should have been ready for anything. And, indeed, after going public in 1994, the Panda Project's stock price climbed tenfold, topping out at $49 in late July, then just as quickly swooned to $27 by late October.

Wall Street bought a promise, then got restless for results.

The 3 1/2-year-old Boca Raton company makes computer systems - file servers and basic personal computer workstations - which it claims won't be obsolete shortly after purchase. That certainly sounds promising, but Panda has a long way to go to live up to Wall Street's expectations. For one thing, the company has yet to post revenues or earnings. It shipped its first few computer file servers only this fall, to the Bay County Schools in Panama City and Miami's Steel Hector & Davis law firm.

The company's line of products, sold under the brand name Archistrat, uses modular electronics that will allow users to plug-in future versions of processor, memory and communications cards. For example, when a new generation of semiconductor chips replaces Intel's state-of-the-art Pentium chip, the users of the Archistrat personal computer can upgrade without replacing the PC's main circuit board. What makes this possible is a revolutionary connector and semiconductor packaging designed by Panda Project Chairman, President and CEO Stanford W. Crane Jr., 45, who founded the company in 1992.

The Panda computers look different, too. Forget the bland boxes of the past. Panda's new computers are brightly colored, sculptured machines, promoted with the slogan, "Any color but beige." Crane, who teamed with a Los Angeles design firm to create the packaging, wants to grab buyers' attention and then sell them on Panda's technology.

Like so many other Florida high-tech start-ups, Panda's small staff got training at IBM. Indeed, 70% of Panda's 65-person technical staff comes from Big Blue. Perhaps Panda's most important recruit is H.L. "Sparky" Sparks, a former top sales executive at IBM and Compaq Computer who helped launch IBM's personal computer in the early 1980s. "I located in Boca because I suspected IBM would do just what they did - pull out," Crane says.

The company is looking for buyers of its Archistrat 4s Server, which it hopes will replace aging midrange computers used by Fortune 2000 companies and government agencies. Prices range from $10,490 to $90,000. Panda also is getting into the personal computer market with the Archistrat 4b Workstation due in January.

Crane, who studied electrical engineering at Virginia Military Institute, says it took about $3 million to get Panda up and running before the company's IPO in May 1994. About 85% of the start-up cash came from outside investors, including Helix Inc., a Canadian venture capital firm. Recently, Panda raised another $29 million through a private placement of stock.

Panda's reliance on equity, rather than debt, to finance research, development and production has put limits on the company. "It has slowed our growth a bit," acknowledges Crane. But he knows firsthand what can happen when a company is over-leveraged. His previous start-up, Crane Electronics Inc., in Cincinnati, Ohio, filed for Chapter 11 and forced Crane into personal bankruptcy.

"I didn't really realize how difficult it is to start a company," he recalls. "The most important thing for young companies is to raise capital."

Taking Aim
Jon Norsworthy's fascination with military strategy inspired him to develop a wireless system that uses lasers and satellite technology to pinpoint the location of targets and to relay the information to a command post.

Norsworthy, a former Army paratrooper who is only 26 years old, and his partner, Glenn Goodman, just 33, incorporated Largo-based Revealed Technologies Inc. in June 1994. The company, also known as RTI, is an offshoot of Ross Engineering Co., a maker of marine radio and navigation systems run by Norsworthy's father.

Although RTI's system is designed for the military, Norsworthy sees great potential in forestry, law enforcement, fire fighting and even post-hurricane disaster mapping by utilities. In forest fire fighting, for example, RTI's system could communicate the changing locations of fires to firefighters. A helicopter pilot spotting fires would use the system to mark the fire's location with a laser, determine its coordinates with the aid of a satellite, then automatically transmit the information to a central command center on the ground.

What sets RTI's technology apart, says Norsworthy, is that the system operator must keep the laser on the target for only a split second; he says existing competitive systems require users to fix the laser on the target for longer periods.

Despite defense cutbacks, the company's principals hope to sell their device to the U.S. Special Operations Command, headquartered at Tampa's MacDill Air Force Base. But so far, most interest in the RTI system has come from the U.S. Forest Service.

RTI used a $106,000 grant from the U.S. Department of Energy's Pinellas Plant Community Reuse Organization to develop a prototype. "We have been in the past trying to sell a concept," says Goodman. "Now this year we will sell a product." The device weighs about five pounds, looks like a portable radio and fits in a backpack. It's combined with an off-the-shelf laser device the size and appearance of a video camcorder.

Now that RTI's system is evolving from prototype to product, Norsworthy says, "we need a customer." Although Norsworthy and Goodman have made initial contacts with potential military and non-military customers, they don't have a structured marketing plan. "We hope to bring it to market for under $10,000," says Goodman.

To add experience to his sales effort, Norsworthy convinced former Chris Craft Boat Co. president and chief executive officer Charles B. Husick to serve as CEO of RTI. Husick, who also was a senior executive with Fairchild Industries and Cessna Aircraft, advises on marketing and business planning.

In late October, the company was hoping to acquire government funding to develop a hand-held version of its product, less bulky than the prototype, which would require miniaturization of components. Norsworthy and Goodman applied for financial support from the Technology Deployment Center (TDC) in Largo. The TDC, run by Lockheed Martin and the University of South Florida, received $10 million in 1995 government funding and now sponsors 14 commercial projects.

RTI's chances of getting money from the program appear good. Says TDC Program Manager William E. Swartz: "The RTI technology matches very well the program concept."

Image Makers
It's cheap, it's portable and it lets physicians diagnose vascular, breast and gallbladder problems, among other ailments. The ultrasound scanner developed by Miami's Perception Inc., though not yet approved for sale in the U.S., holds promise as a cost-cutting diagnostic tool for health-care providers.

Perception Chairman and CEO Martin E. Doyle, 41, says the diagnostic use of ultrasound scans is expanding and, when possible, substituting for more expensive alternatives such as magnetic resonance imaging (MRI) and computed axial tomography (CAT) scans.

Ultrasound, which relies on high-frequency sound waves, has been used since the 1970s to examine and measure internal body structures and detect abnormalities. Most people are familiar with ultrasound's use on pregnant women to check fetus development, but there are other diagnostic applications, including kidney stone and gallstone detection and prostate tests.

Perception claims its ultrasound system is smaller, cheaper and more flexible than ultrasound scanners on the market today. Albert Vara, 37, the company's chief software engineer, created custom imaging software that he paired with off-the-shelf technology.

"We take a fairly common PC platform, add two or three boards that are made for us, and that's it," says Doyle. Perception's scanner retails for $25,000 to $65,000, compared to the $50,000 to $300,000 price of other ultrasound imaging machines and $1 million for an MRI machine.

The privately held company, started in 1993, is waiting for U.S. Food and Drug Administration approval of its scanner, which it hopes to get by early 1996. Clinical tests of the scanner began this fall at several Dade County hospitals.

Long-term, the company's goal is to capture 3% to 4% of the U.S. market for ultrasound scanners, which it puts at $2.5 billion. But Perception must compete with almost 60 ultrasound companies, including such powerhouses as General Electric and Toshiba. So as an alternative to doing its own marketing, Perception may license the rights to sell its scanner to a larger company. "There are some fine companies with some great sales forces," says Doyle. "We have had overtures and those discussions are still going on."

Lost And Found
Computers are supposed to make offices work more efficiently. But when dozens of employees in different buildings or perhaps different cities are connected to a computer network, trying to locate essential documents quickly can be nearly impossible.

To solve that problem, Tallahassee-based PC DOCS Inc. developed document management software, DOCS Open, that allows users to find a computer file without knowing where it is stored in a corporate or institutional computer system.

Scott Kadlec, 43, president of PC DOCS, got into the software business in 1978 when he was a doctoral student in political science at Florida State University. He joined his MBA-candidate roommate and a computer science colleague in starting a company to develop and market financial management software for law firms. In 1986, they sold a 50% stake in the business to a Toronto software company called Quartex Corp.

Joining with Quartex was the best thing we ever did, says Kadlec. "You can get a bank loan to finance widgets. But you can hardly get a bank loan to finance new technology research and development."

At the request of a client in the late 1980s, Kadlec's company designed document management software that later became the centerpiece of a separate business called PC DOCS Inc., which Kadlec spun off in 1990.

PC DOCS now employs 100 in Tallahassee, 40 in Boston and 30 sales representatives. Toronto-based Quartex changed its name to PC DOCS Group International Inc. in mid-1994 to capitalize on the name recognition of its primary subsidiary. Revenues for the entire company grew to approximately $35 million for the year ended June 30, 1995, with net income of $5 million, compared with the previous year's revenues of about $19 million and a net loss of $6.5 million.

The company's software, DOCS Open, creates a "profile screen" for each document, a kind of electronic index card. The profile includes information such as the document's author, name, subject, office of origin and key words. Profiles are cataloged and saved in a secure library database.

Kadlec claims PC DOCS has an edge in the market because of its "open architecture" - that is, its ability to integrate with a wide variety of computer networks, operating systems, databases and applications. Computer magazine reviews tend to agree with Kadlec, but the reviews also indicate that each document management software has its own strengths and all need improvements.

That means PC DOCS may be forced to invest heavily in R&D to remain technologically competitive. After all, PC DOCS isn't the only document management software company. There's stiff competition from at least three challengers - Saros Document Manager, SoftSolutions and Documentum.

Nevertheless, many investors are betting that PC DOCS has one of the best cures for document management problems. On Wall Street this year, the company's stock price soared from $1.38 in early January to $15.63 in late October.

Tags: Florida Small Business, Politics & Law, Business Florida

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