Small Businesses : WILL TO LIVE : Technology Company’s Once-Ambitious Plans Have Been Dashed, but Persistent Managers, ‘Courageous’ Investors Refuse to Let Firm Die

For nearly five years, Robert R. Rogers has been on a personal mission to rescue a small technology company called Comparator Systems from the brink of bankruptcy.

The struggle has taken a heavy personal toll on the 59-year-old company chairman, as it did on others who preceded him.

Since 1983, Rogers has had to defer more than $225,000 in salary because the Costa Mesa company couldn’t afford to pay him in full. His Newport Beach condominium was repossessed last winter. His elderly mother was nearly evicted from a nursing home because he was always behind on the bills.

“We have literally lived by the hour for four years, wondering if the next day it will all collapse on us,” said Rogers, a former Litton Industries executive described by one acquaintance as having “more perseverance than anyone I’ve ever seen.”

Comparator, a maker of fingerprint-comparison machines, narrowly escaped bankruptcy last year by completing an extraordinary $2.5-million refinancing program. The company wiped out $1.7 million of debt by persuading its many creditors to forgo cash and to accept Comparator stock, which hasn’t been briskly traded in years. And it raised nearly $1 million through a private sale of stock to several investors, whom Rogers describes as “courageous.”

The refinancing program bought time for the struggling company to mount a crucial marketing effort for its Comparator ID-1 machines. As Rogers puts it, “We need some sales--immediately.”

Comparator’s story is one of a technology company whose once-ambitious plans have been dashed by a series of events. Depending on to whom one speaks, the company’s troubles stemmed from poor management in the firm’s early days, a sleepy market and years of heavy debts that crippled the company’s marketing.

Further, Comparator’s product, once at the leading edge of fingerprint technology, is said to be competing against more sophisticated, and less expensive, products of rival companies. The price of Comparator machines ranges from $7,000 to $9,000.

‘Rare Exception’

This is also a story of extraordinary commitment by several people determined to transform Comparator’s promise into profits.

“It’s really quite a remarkable story,” said Frank Wheat, an attorney at the Los Angeles law firm of Gibson, Dunn & Crutcher, which handled Comparator’s refinancing program.

“Most companies that get themselves into this kind of box usually just disappear,” said Wheat, a former Securities and Exchange Commission member who is widely regarded as one of the nation’s top securities lawyers.

“This is the rare exception of a company that just refused to die.”

Those who know Rogers describe him as a persuasive and determined individual. “The guy’s got more perseverance than anyone I’ve ever seen,” said Bradley Dennis, an analyst with R.J. Steichen & Co., a Minneapolis brokerage.

Besides Rogers, two other people who have remained committed to the company are Scott Hitt, chief operating officer, and Hitt’s wife, Kay, the vice president. Like Rogers, the Hitts have agreed to defer most of their salaries during the past few years.

Scott Hitt was paid only $10,333 of his $73,000 annual salary for the fiscal year ended June 30, 1986, according to SEC documents. Rogers received only $14,901 of his $95,000 salary.

“If it was just the money, we’d all have walked away a long time ago,” said Hitt, 42, a former Marine intelligence officer and private security consultant.

Shareholder Support

Until the recent refinancing plan eased Comparator’s financial worries, the money that trickled in through sporadic sales usually went to the creditor who complained the loudest.

“If there was anything left over, we (Rogers and the Hitts) split it in equal shares,” Rogers said. “And sometimes there wasn’t any left over.”

Kay Hitt, a former police officer and medical administrator, said: “We’ve really been through it in the last four years. But we’ve got 13,000 shareholders cheering us on.”

Said Rogers: “It’s been a gamble. We thought we had another baby Xerox or Polaroid. Honest to goodness, I think we have, but we have a lot to do to prove it to the world.”

The company was encouraged by recent sales to the California Institution for Men at Chino and the Sheriff’s Department in Norfolk, Va. Company officials say they expect to announce additional sales to state and federal prisons soon.

Despite such progress, the firm’s future remains in jeopardy.

Most observers give the company six to 12 months to generate significant sales to stay solvent. Moreover, the company is involved in a legal fight with several Orange County businessmen who have purchased the patent on Comparator’s machine and are seeking to invalidate a critical licensing agreement with Comparator. If Comparator loses the suit, it would probably be out of business.

Comparator was founded in Los Angeles in 1976 by engineer-inventor Harold Green, who co-patented the technology used in the Comparator ID-1. His other patents include an easily removable canvas covering for battlefield stretchers and a snap-on nylon webbing for repairing lawn furniture. The machine Comparator eventually built is a desk-top unit, about the size of a videocassette recorder. The device uses an optical scanner to match a fingerprint from a master file card with a freshly made fingerprint. The two prints are inserted in slots on the device. If the fingerprints match, a green light is lit within 10 seconds.

Different Market

The still-fledgling fingerprint-identification market is divided into two categories. The largest segment is for devices that verify the identity of unknown people. These devices, which require powerful computing ability, are primarily used by law enforcement agencies to match an unidentified print with a file of thousands of known prints. The California Department of Justice has one of the largest systems of this type--a $23-million system that holds several million prints.

But Comparator has targeted a different market. Its machines are mainly used to verify the identity of “known” people. Most of the 50 machines the company has sold have been to prisons or jails, which use them to identify inmates at the time of their release.

Comparator went public in July, 1979, raising $800,000 in an offering underwritten by Blinder Robinson, a controversial Denver brokerage that specializes in so-called penny stocks. The over-the-counter stock soared from its initial offering price of 10 cents per share to more than $2 in 1981, before sliding to a low of 1 cent in 1985. Recent bids have ranged between 5 and 10 cents.

The company struggled in its early years, plagued by management turnover. Those familiar with Comparator’s early days say the firm’s management was skillful at public relations but not as adept at generating sales.

“I think the managers probably just weren’t well-rounded enough to be able to grow the company,” said Rogers, who once worked as a consultant for McKinsey & Co., the New York-based management consulting firm. “They also seemed to be concentrating on the big sale in the sky. There were news releases that they were going to sell 1,000 units to Nigeria or 1 zillion units to Zambia.”

In May, 1982, for example, Comparator announced a $3-million sale of its Comparator ID-1 machines to Nigeria and several other African countries. The sales never materialized.

Founder Green blames Comparator’s problems on a persistent lack of funds to properly market the machine. He also believes that the product was “a few years ahead of its time.”

“There are many areas of usage for it,” said Green, 65, of Tarzana. “But with any product you have to create demand rather than have demand create you.”

Green served as Comparator’s chairman until 1981, when he left the firm because of health problems. In 1983, company President Roger K. Erickson quit. Rogers said Erickson quit because the firm could not pay him his full salary. A consultant hired by a group of Comparator shareholders asked Rogers, then a private management consultant, if he was interested in running the company.

Rogers said he contacted Erickson before taking the job. “His advice was ‘You’ve got to be crazy,’ ” Rogers said.

Rogers decided to visit the company’s offices anyway.

“The company was literally in a garage shop in an alley in Long Beach with a padlock on the door,” he said. “There were parts all over the tables, piles of paper and cobwebs everywhere. There were no phones, no people . . . and the stock was trading for 25 cents a share!

“The company was in debt for $700,000 and had assets of only $100,000. And everybody hated everybody.”

Nevertheless, Rogers was intrigued by the product. “Thank God,” he said, “they had designed a product that really worked.”

Sales Scarce

Comparator’s first sale came in 1984, when the Oklahoma County Sheriff’s Department bought a Comparator machine. The county jail uses a Comparator machine to verify the identities of prisoners before release. The jail bought the device after several embarrassing incidents in which prisoners assumed the identity of other inmates and were mistakenly released.

“The machine’s a good one,” said jail administrator Virgil Neuenschwander. “I wouldn’t want to run the jail without it. The inmates know it works, so they don’t try to fool it.”

But sales have been scarce ever since, partly because the company was burdened with trying to pay debts incurred in its early years.

From 1983, when Rogers took over, until the recent refinancing, the company had no money to mount a significant marketing effort. In fact, the company’s finances were so tight that Rogers used his personal credit cards to make the $50,000 annual royalty payments to Harold Green, who until recently owned the patents for the Comparator technology.

By early 1987, Comparator, which had lost $2 million during the previous three years, was in a mess. Creditors’ claims and lawsuits were piling up.

It was years behind in filing state and federal income tax statements, and had filed no Securities and Exchange Commission reports since March, 1983, as required by law. It hadn’t held a shareholders meeting since May, 1982--and still hasn’t.

The company needed to raise money fast or face bankruptcy.

Investors Found

It was about this time that Rogers decided to ask Wheat of Gibson, Dunn if the law firm would help straighten out the company’s tax and SEC paper work.

“We found the case very intriguing,” Wheat said. “Sometimes small companies are the most interesting. Those people have amazing personalities. Very few people would have had the gumption to stick it out.”

At the same time, Rogers was beating the bushes for potential investors in the company. He eventually found several.

One was Earl Erdman, a retired chemist in Wilmington, Del., who bought $100,000 worth of Comparator stock last February. “He (Rogers) seemed a very knowledgeable, conscientious individual who has really put his heart and soul in this business.

“All of the things people have told him he couldn’t do, he’s done. He’s a very determined individual.”

Leonard Gerber, a Baltimore stockbroker, said he decided to invest $235,000 in the struggling firm because he and his wife are “disturbed about the crime situation in the country (and) are interested in investing in essential products.”

“We, the investors, are paying for some of the past sins,” Gerber said. “We realized you have to clean the slate.”

Two stockbrokers who have watched Comparator’s progress speak admirably of Rogers’ and the Hitts’ efforts to keep the firm afloat.

“They brought this company minutes away from bankruptcy and put in their money, sweat and tears,” said Dennis of R. J. Steichen & Co. “He (Rogers) was down and out for the count; he was beat. Every creditor in town was telling him they were going to hang him from the highest tree. The guy’s got more perseverance than anyone I’ve ever seen.”

Ben Galante of C. L. McKinney & Co. in Los Angeles, added: “It was a tremendous feat on Rogers’ part to be able to go out and sell people on the idea.”

But observers agree that Comparator will have a difficult time finding a market for its product.

The so-called biometric market (which includes fingerprinting and other biological methods of identifying people) is still in its infancy, said Ben Miller, editor of Personal Identification News, a Washington newsletter. But already Comparator risks being outrun by its competitors’ more sophisticated products using digital technology.

“They’ve got a very low-tech machine compared to where the industry is going,” Miller added. “The prices in the market are falling very rapidly. Comparator has probably gone from being one of the least expensive devices on the market to having one of the most expensive.

“Given even the best college try, pretty soon it isn’t going to be enough for them to take off.”

But Comparator officials believe that their simple-to-operate machine is particularly well-suited to the law enforcement market, which is sizable in itself. And the company believes that its systems could find a place in other government agencies, such as the Immigration and Naturalization Service, which has tested the machines to identify holders of temporary residency cards.

“We are poised for rapid growth in a world that needs and demands security,” Rogers said at the time of the Chino prison sale.

Whatever the outcome, Rogers and the Hitts are philosophical about the company’s difficult odyssey.

Scott Hitt, who said the uniqueness of Comparator’s product and the possibility of significant financial reward originally drew him to work for the company, has since developed a more complex motivation.

“After you’ve been here awhile and you talk to the shareholders and the other people who believe in the company, you feel like you have a lot of people who are depending on you,” Hitt said. “A lot of people are depending on you, and the thought of quitting doesn’t even come up.”

Added Rogers: “We’ve all agreed among ourselves that even if we don’t make any money, it was still useful. This was worth doing just because we got this far and pulled off something that people said was impossible.

“A little company like this is really a microcosm of life in general. It really confronts you with choices.”