Acquisition, Profit Bode Well for Monitor’s Future

Is the worst over at Monitor Labs?

After red ink in 1982 and 1983, officials at the Scripps Ranch air pollution monitoring firm believe it is.

As proof, they offer not only the company’s turnaround in earnings--net income of $214,904 for the nine months ended Sept. 30 and a fourth quarter described by management as “profitable”--but also its first acquisition, completed last week and designed to expand the company beyond the sluggish air pollution industry.

“Our strategy is to use Monitor as a stepping stone for (expansion),” said Francis J. Harding, Monitor’s executive vice president. “Our objective isn’t to run an $8-million company in Scripps Ranch. We’re trying to build a $50-million to $60-million industrial electronics company in San Diego.”

If that sounds mighty ambitious, that’s all right with Harding. He and Kenneth E. Years, the firm’s president and chief executive officer, are familiar with heady goals: Both joined Monitor after successful tenures with New York-based Loral Corp.’s California division. That six-company group--four operations in San Diego, one in Los Angeles and one in the Bay Area--generated annual revenue of more than $60 million.

Years, 44, was group vice president, while Harding, 40, was vice president of finance.

Despite their high-profile backgrounds, they have so far maintained low profiles at Monitor.

“We didn’t exactly run around town telling people what we intended to do, not with a history of two years of losses,” Harding said in an interview last week.

But at last June’s annual meeting, the Monitor executives explained their plans, pledging to shareholders not only to turn around the $447,000 in losses from 1981 and 1982, but also to expand the company through acquisitions.

But Monitor did not want to expand further into the air pollution monitoring industry, which had been stalled in the early 1980s and is now growing only at a 5% rate annually.

Rather, Harding said, officials want to put Monitor’s existing microprocessor-based instruments manufacturing capabilities to use in growing industries.

Monitor, management believes, has found one of those industries in vision inspection equipment.

Last week’s agreement to purchase Image Data Systems Inc. of Ann Arbor, Mich., will add only $1 million to $2 million to Monitor’s annual revenue. But the industry is growing at a 25% annual rate, said Harding, who predicted that yearly revenues from Image Data Systems could climb to more than $20 million in the next few years.

Monitor “can run profitability and knows how to manufacture microprocessor-based instruments, that’s why (the acquisition) makes sense,” Harding said.

Some analysts remain skeptical of such lofty goals. “The company is fine,” said one local analyst, “but its projections are unrealistic. How does a company with $7 million to $8 million per year think it can grow to $50 million in four years?”

The purchase price was not disclosed, although Harding said that figure will be released when the deal is consummated in about three weeks.

Monitor appears to be in a good fiscal position to embark on the acquisition trail.

Cash on hand totals $2.4 million, up from $900,000 a year ago. And the firm’s debt is only $50,000, said Harding.

In addition, Monitor in October secured a $4-million credit agreement with Wells Fargo Bank, to be used for product acquisition and for expansion of newly acquired businesses.

The credit line, Harding said, was not used for the Image Data purchase.

While increasing workload, the Image Data acquisition will not mean an increase in Monitor’s 82-member labor force.

Image Data, with only eight employees, now contracts its manufacturing work out to independent production firms. That work will now be conducted at Monitor.

However, Image Data will remain in Ann Arbor, with its president and chief executive, Lawrence Cohn, becoming vice president and general manager of the new Monitor subsidiary.

Many of the firms in Ann Arbor evolved from the University of Michigan’s vision equipment research facility.

“The university has done a lot of work on image analysis, and out of that work, several people have left and founded their own companies,” Cohn said in an interview last week.