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Scientific Corporation is one of the few public companies developing indoor and outdoor
positioning applications that is a pure play investment
Mr. Grollman has over twenty years of management experience in the technology development and sales for firms that range in revenue from $9 million per year to over $6 billion per year. He has worked as a Regional Director with MTS of Tempe, as Chief Technology Officer and Executive Vice President with AIS of Scottsdale, as General Manager and Area Vice President with Margre, Inc. of Portland, Oregon, and as General Manager and Area Vice President with Washdata, Inc. of Seattle, Washington. He has lead 310+ employees delivering technology infrastructure products and services to an average multi-year contract base of more than $210 million. Mr. Grollman took over as CEO of NSC early in 2002.
In each of these positions Mr. Grollman handled strategy, P&L management, new business development, and oversight of numerous engineering teams across wide geographies, both inside and outside the continental United States. During the past fifteen years Mr. Grollman has designed and overseen technology projects and project teams for numerous major corporations and government entities, including resource companies such as British Petroleum, and Unocal, technology companies such as Microsoft and Tektronix, financial services firms such as American Express and Wells Fargo Bank, and government groups such as the Army Corps of Engineers and the States of Arizona and Oregon.
Mr. Grollman holds a BS in
Biochemistry from Stony Brook University and a MBA from Arizona State University.
NSC has also developed the
Atomy Digital Technology (ADT) family of patented electronic components and designs, all
intended to service portable electronic OEM customers. ADT devices are designed for
real-world applications where power and space are at the highest premium.
Gotcha - RF proximity tracker. Two-piece, battery-powered system consists of a clip-on unit that is worn by a child and a second pager-sized unit that is carried by a parent or guardian. The system emits an alarm alerting the parent when the child has wandered beyond the adjustable, predetermined safety perimeter.
Shuttlefinder - GPS/RF
tracking and location system. Effectively reports the real-time location of shuttle
buses in airport or other campus environment.
StationMaster - GPS/cellular/RF fleet management system. Unique architecture can take any number of sensor inputs and various methods of data transmission to accommodate near-time and real-time fleet management needs.
Tracker IIR - GPS/RF rugged, wearable tracking and location device. Battery powered unit can report its location using a radio transmitter even in remote areas.
UrbanTracker II - GPS/GSM cellular personal tracking, location, and surveillance device. With internal antennas and power source, this unit is designed to look like a sunglasses case.
UrbanTracker IIK - GPS/GSM cellular child tracking and location device. Device is cleverly integrated into an ordinary childs backpack.
CEOCFOinterviews: Mr. Grollman, please tell us about the change of focus for National Scientific.
Mr. Grollman: National Scientific, for the last six of seven years, has been focused on semiconductor product development. In the last year, we have taken that expertise and have begun to focus much more narrowly on different types of embedded systems in electronics that have immediate niche applications. This change has led us to get a couple of things moving. We are getting closer to meeting some exciting customer requirements and shortening sales lead times. We have had some early revenues in the last two or three quarters and we have seen that building. We expect to see that continue into the next few quarters and years. We think that the applications we are getting involved in are in some hot markets and we are going to see a lot of growth especially in the Homeland Security, National Defense, and related markets. Timing is good right now for companies trying to bring answers in those areas.
CEOCFOinterviews: Will you tell us about the various products, and who should be using them?
Grollman: We have two primary families of products. The first is what we call
indoor/outdoor proximity tracking products, which are small embedded radios that allow you
to tell within a limited distance of a hundred feet or so of where something might be. The
product that we are most excited about there is our Gotcha child safety product. It
is designed so that parents can go out into shopping malls, sporting events, and even into
the backyard, and tell whether their kids are within a safe distance. This is a new
product we are bringing to market now, through broad-based retail channels, and should be
on retail shelves this summer. We are getting some terrific excitement from our retail
channel partners on that, and the whole idea of using some low cost wireless technology to
help parents deal with child safety issues. This product is a street-priced item around
$50 a pair. We think it is practical for a wide range of customers and families to take
advantage of and we are excited about that. We also have some other technology in the
proximity tracking space. We are doing some joint development with lifeline network
positioning for industrial safety. We also have some other school-based proximity
technology that we are excited about, as well as some cutting edge WiFi and Ultra Wideband
CEOCFOinterviews: Is your Gotcha product a new concept or are there similar products on the market?
Mr. Grollman: We have seen one or two other companies attempt to bring similar products to market in this space, but with very disappointing designs and technology. For example, in one similar product we looked at, if the child disconnects the unit or simply turns it off, the unit stops tracking the child. I know as a parent that I wouldnt feel comfortable using those other devices to keep track of kids in a busy mall, with so many loopholes in their design. Thus we saw a need in that space that wasnt being fully addressed by anyone else in the marketplace. We are convinced that no other company has put the energy into such a broad-based retail campaign to get it into parents hands where they can use it and take advantage of some of the things that technologically we have been able to do for a long time.
CEOCFOinterviews: How do you get it out on the shelves?
Mr. Grollman: That is probably one of the biggest challenges in putting this product together, so we started a year ago on building up the right kind of direct and indirect channel relationships on providing the kind of information that retail channels look for in a product and providing early samples to our retail partners. We also provide specialized packaging and walk through of what it takes to build an effective channel program. We have also gotten lucky. There is a great deal of attention now on child safety, driven by developments like the Amber Alert program and what has happened in the national news over the last six to twelve months with regard to security and child safety. There is a certain amount of timeliness, which is also creating some draw in the channel for new products. This makes a difference in this space, and does it at a price point that makes sense.
CEOCFOinterviews: How do you get these manufactured, and how will you meet the demand that you anticipate?
Mr. Grollman: We did this design in partnership with a manufacturer in Europe, a company called Electroconnect Limited of Scotland. They have helped us make sure that our designs and concepts are targeted at ease-of-manufacturability as well as something that is going to be pleasing and effective for parents and kids. They have the capacity to take us easily north of fifty thousand units a month. We have a plan if the ramp up starts to get beyond fifty thousand units a month by fall, for adding some additional capacity in China, Singapore or Malaysia. We have also spent a fair amount of time over the last few years in Asia, to build those types of relationships so that we could leverage manufacturing capacity not just in the United States and Europe, but also in Asia.
CEOCFOinterviews: It sounds like you have it covered all around!
Mr. Grollman: We like to think so, but as in any technology product development and marketing effort, there are bound to be some surprises. Gotcha is not a very technologically complicated product. The challenges are more ease of use, design integrity, production quality, packaging, and marketing. That is why we put a lot of our energy into making sure those important parts of the business cycle are done right so that we can enjoy a strong summer and fall and into the holiday season. At least, we strive to keep the surprises to a minimum.
CEOCFOinterviews: How do you keep the competitors from nipping at your heels once Gotcha is in the marketplace?
Mr. Grollman: First, we put a lot of energy into the channel development side of this equation before we launched the product. We think it would take a competitor quite awhile to duplicate all of those channel relationships. Secondly, we think that the product has a fair amount of custom engineering built into it, to get costs down and to cleverly address certain types of technical problems. It will be difficult for somebody to rapidly copy that, but eventually someone will be able to duplicate our work and work around our patents and figure out how to come out with competitive products and figure out how to bring it to the retail channel. The only way that we see to remain competitive at that point, in addition to lower manufacturing costs and distribution costs, is to integrate new features into the product rapidly. We have ideas for adding new functions and features to our technology, and possibly converging some of our Gotcha type proximity products with our GPS products, to create a good-better-best offering at the retail level. We think through innovation and having a rapid cycle of engineering improvement to produce new products, we can not only create competitive advantage, but also sustain it for a considerable period of time.
CEOCFOinterviews: What are you doing for Bike & Cycle Trak USA, Inc.?
Grollman: Bike & Cycle Trak USA, Inc. is focused on the power sports
market primarily. Their interest in power sports is related to the quite a few companies
out there that make GPS type devices to attach to not just cars and trucks but
motorcycles, in order to locate lost or stolen vehicles. What we dont think
anyone has done a good job on is addressing motorcycle, snowmobile, and ATV accidents.
General Motors Corp. (GM) for example has done a good job with their OnStar® technology
in cars and trucks. When an accident has occurred their system recognizes that an
air bag has been deployed or there has been a crash and it uses the GPS system and a cell
phone to summon help to the right location. But nobody has done that yet for
CEOCFOinterviews: What is your DarkStar technology, and how does it relate to your StarPilot technology?
Mr. Grollman: StarPilot is a developer technology aimed at data rich location problems. It is a solution intended for developers who want to embed a Linux type computer into an automotive GPS application. It was one of our first efforts at building embedded systems. We have begun to go beyond that with our new DarkStar platform. Our DarkStar technology is much smaller and less expensive. We are able to use that new embedded architecture to get much lower price points and tackle bigger markets.
CEOCFOinterviews: You talked about the GPS security for busses. School boards and districts are notoriously slow to adopt change and slow to spend money. How do you break that barrier?
Mr. Grollman: We have a couple of strategies; one is that we have a strong partner in Verify Systems, which has been actively working that market and developing relationships in that market for a couple of years. Secondly, we are taking the solution and packaging it up so that it can be purchased as a service rather than as a product. If the school district wants to be able to provide ID cards for kids using their bus system, we will sell that service from, as little as ninety-nine cents a month per card per student, for example. This converts it into an operating expense rather than a capital expense for the school. And, although the districts are under the gun to keep their overall budget limited, we think that the area where we are going to have some interest, seeing those kinds of small changes if we can make the impact on the schools budget really minor by stretching out the financing, is in child safety and security. Schools are sensitive to that issue now, and realize it is a priority in the world in which we live today. We think all those things combined are going to help move schools to make decisions more quickly. We are under no illusions that all the schools will make all the decisions right away. It is a market that will take some time to evolve.
CEOCFOinterviews: Who is buying your products now?
Grollman: Our first product in location services we came to market with was a
vehicle-tracking device. We have a channel program where some Internet retailers are
buying it and customers for that tend to be people that are interested in such areas as
law enforcement, investigation, and in teen safety. We are getting buyers that want to
know where their teenagers are taking their cars. Many of these customers are also
focused on the surveillance marketplace and they are professionals in law enforcement or
private investigators that want to use this technology to help them do their jobs better
or with less cost.
CEOCFOinterviews: What is your advertising and marketing strategy?
Mr. Grollman: One of the things we have had some success with is targeting markets where there is immediate interest generated by the media coverage. In the child safety space, we have been able to get positive coverage on our technology within the last quarter or two from the Wall Street Journal, New York Times, GPS World, and various security publications. We think the Gotcha technology will garner some significant support in that space as well. A number of our retail partners have told us that they view this as a product that is exciting enough to drive floor traffic for them. We think we can get our retail partners to invest in some advertising and some special display technology to use our Gotcha retail solutions as a way to get people in the door for major retailers. Finally, we do have to invest some into helping our own advertising campaign but we are not positioned to do a major national branding effort. We try to pick a market in a product niche that is going to have a high enough level of interest that the media will help us carry some of that water. The product packaging is designed to sell itself, so we think if we can get it out there on the shelves, and get it too where parents can see it, that we are going to have a good response.
CEOCFOinterviews: What is your companys financial position?
Mr. Grollman: We just completed, in the last few weeks, a $500,000.00 round of private placements and we are very excited about wrapping that up. That has been a key piece of funding for us this year. Over the last few years, we have used an equity line of credit and we also have revenues from sales. We think going down the road looking at sales ramp, we will be looking at other types of financing as well, particularly focusing on receivables and inventory growth. We are strong believers in partnerships and having partners invest in our programs and ideas, and limiting the cost of capital to grow that way.
CEOCFOinterviews: What are your biggest challenges and how are you ready to meet them?
Mr. Grollman: One of the biggest challenges over the years has been transitioning the company from a high-tech research organization into a product and customer-focused organization. That involves some difficult decisions on the expense and resource side. I think we are past a lot of those difficult decisions and we have seen revenues begin to kick in during the last few quarters. We need to be thinking more aggressively about how to manage growth and less about how to manage product research. We are publicly held and we are one of the few public players available today in location-based services that cover the full breadth of indoor and outdoor location applications. We are still a small company and like all small companies, figuring out how to make a dollar go as far as it can go is important, and also figuring out how to add the right people at the right time so we can effectively penetrate some of these new markets and maintain that momentum. We need to figure out over the mid to long-term where this technology is going so we can make some good decisions about positioning and future markets to keep that growth rate up and make sure that our shareholders are rewarded over the mid to long-term for the support that they have given us.
In closing, what should shareholders and potential investors know that perhaps is not
apparent on the surface?
Mr. Grollman: We have over 11,000 shareholders at the moment, and they have always been a passionate group that has taken a lot of interest in what the company has done and what the company is doing. I think that we are not always as focused, as we need to be in getting our story out to those people. Our story over the last year has been a big repositioning into some exciting growth markets. The company is poised to succeed in terms of revenues and developing new markets and applications in a way that it hasnt been positioned to do before. I would encourage all of our shareholders to keep an eye out in the stores this summer for the Gotcha products. I think they will be impressed with what the company has done with this new technology design. Shareholders who are parents or grandparents and like our products should tell all their friends and family about them, because with 11,000 shareholders, if we can get each one of them to help us tell the story about what we are doing in child safety, I think we can see some incredible things happen with the product. We have a lot of obligation to our shareholder community for getting us as far as we have gotten and we are certainly not shy about asking them to look at our products and help us take things to the next level as a company. Everyone at NSC is striving to make that next level significant not just for our shareholders, but also for our customers and for the user community as a whole. We believe in the safety and security markets, and we think our products can contribute in significant ways to the health and happiness of people throughout the USA and beyond.
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