E & Y Winner: Floorgraphics

Leaving Town

Bankruptcy

Stock News

Corrections or additions?

This article by Barbara Fox was prepared for the July 2, 2003 issue of U.S. 1 Newspaper. All rights reserved.

E &Y Awards: RSS

To avoid copy cat competitors Gregory Besner kept his

Research Park-based company, Restricted Stock Systems (RSS), flying

low under the radar screen for several years. And last June when the

company expanded from 12 to 15 people and from 1,500 to 3,500 square

feet, he kept that quiet too, and was reticent about being interviewed.

So it only seems like all the good news is breaking at once: RSS got

venture capital, signed a contract with Nasdaq, won a state Ernst

& Young entrepreneur award, and — most important — has a product

that addresses a crucial regulation of the Sarbanes-Oxley act.

This act is designed to even the playing field for the ordinary investor,

and RSS software helps to do this by timely distribution of news on

insider trading. "We actually benefit from the focus on increased

scrutiny of insider and restricted transactions. Our firm has been

getting a lot of attention," says Besner. "Before we started

our company, the disclosure process was very opaque."

In a phone interview on Friday on the last business day before Monday,

June 30, the date the regulation was to take effect, Besner spoke

by telephone from near Nasdaq headquarters in Rockville, Maryland.

He was about to train field directors in how his product pertains

to Sarbanes-Oxley’s Section 403.

He didn’t expect the June 30 deadline would cause havoc: "I don’t

think all hell will break loose, because many companies have done

preparation."

With its integrated solution for managing restricted stock transactions,

RSS aims to reduce the time needed to sell restricted stock to one

day, as demanded by the Sarbanes-Oxley act. RSS accomplishes this

with a "glass pipeline" workflow and tracking system based

on advanced data architecture.

Commonly known as corporate insider trades, restricted stock can be

the private placements issued before a company goes public, or the

stock that results from a merger, or the stock that executives receive

as compensation. Keeping track of this used to be a laborious, paper-based

process that could take weeks or even months to complete.

The much less onerous former timeline allowed insiders to make SEC

filings just once a month, so the reporting of a March 1 transaction

could be as late as April 10, leaving outsiders really out in the

cold. Now the disclosure needs to be made within 48 hours and needs

to be made electronically so as to be available to a broader audience.

Another rule is that a company must electronically post the filing

of sales by certain insiders on the corporate website within 24 hours

of the filing.

By smoothing the path for these filings, RSS tools can make the relationship

between an investor relations department and the restricted stock

shareholder a happy one. RSS clients might be brokerage firms, shareholders,

transfer agents, venture capital and private equity firms, issuers

of stock, wealth management portals, application service providers

in such areas as human resources or accounting — even the Securities

and Exchange Commission.

RSS’s system is, in fact, an improvement on SEC’s own online filing

system, deemed by Besner "a clumsy process, with numerous sign-ins

and few safeguards." He points out that the SEC did encourage

technology companies to build service solutions.

RSS will not have this marketplace to itself. Other companies participated

in the SEC’s webcasts and conference calls about future products.

But RSS had a big headstart. "No one knew the exact act that would

be passed but we did know that insider transactions would be more

highly scrutinized as the general investing public became more involved

in their wealth management," says Besner. "We were in the

right business at the right time for an important area of disclosure."

Companies that have traditionally been in paper management, such as

Bowne and CCH, will be among the competitors. "Our advantage is

that we are not an 800 pound gorilla, we are a nimble software firm

that focuses 100 percent of our time and resources on this problem,"

says Besner.

He admits that small companies are at a disadvantage when it comes

to sales and marketing. "That’s why it is so wonderful that we

have formed a partnership with Nasdaq. We can take advantage of Nasdaq’s

brand recognition and distribution." Nasdaq partnered with RSS

as part of Nasdaq’s Corporate Services Network to provide listed companies

with a reliable solution for dealing with insider disclosure requirements,

and Nasdaq exclusively recommends RSS for this job.

The RSS tool works in both directions, both in filing the trade and

reporting the filing. For the report, it goes to the SEC site every

15 minutes and pulls the insider trading filings from it, updates

the RSS database, and informs the RSS clients who now need to post

the transaction on their own websites within 24 hours. "Our application

helps to alert the public company that a transaction has been filed,"

says Besner.

For the filing, it puts information from previous trades in the application

— cloning the information and applying business rules to be sure

it is compiled and prepared properly. "We are helping to mitigate

error," says Besner. "Our expert system helps the individual

prepare the information accurately and validates the forms to be sure

that all information is completed."

How they got the Nasdaq contract: "Nasdaq conducted

focus groups to evaluate what products and services made sense,"

says Besner. Several RSS advisers introduced the company to Nasdaq,

which spent almost a year of due diligence on RSS and the competitive

landscape before they determined that RSS had the best product.

In December, 2002, the company closed a $1.25 series B round of financing

that was led by New York City-based Beehive Ventures LLC.

Besner majored in finance and English at Rutgers (Class of 1987),

has an MBA from Wharton, and started out in the retail industry before

switching to Wall Street, where he managed restricted stock transactions

at Goldman Sachs’ private wealth management group. Most recently,

as vice president in the private client group at Merrill Lynch, he

and his team were managing $13 billion of restricted stock.

Besner and his wife, Leslie, have an infant daughter, and Leslie has

her own company. Under the trade name Leslie Hsu she designs handbags

that made in the United States from Italian leather and sold in Manhattan

at such stores as Henri Bendel and Verve.

Of the Ernst & Young award, he says: "The work we’re doing and

the systems we’ve been developing are resulting in a better way to

manage complex restricted stock procedures, and we’re very grateful

to be recognized for that."

Most of the other founding members of the team are Princeton alumni

(U.S. 1, May 2, 2001). Joe Studholme graduated in the Class of 1986,

earned a degree at Rutgers, and spent 10 years leading projects and

Internet development in Princeton University’s Advanced Technology

Group. He has also been a vice president at New York-based Connect

Systems, which does large scale data integration and client service

projects for financial institutions.

Ted Nadeau, chief technical architect, was a computer science major

at Princeton University, Class of 1986, and has been a consultant

for Prudential on the Applied Data Research class-action settlement,

the project manager for wealth management technology systems for J.C.

Bradford, and chief technology officer for CyberSites, a New York-based

Internet firm.

Other alumni include Nick Karp, Class of 1985; Hugh Lynch and Vadim

Polyakov, both in the Class of 1990; David Genetti and Andrew House,

in the Class of 1997, and Todd Meierhans, Class of 2000.

The board of advisors includes Richard Marin, most recently the CEO

of Deutsche Asset Management, vice chairman of BT Alex, Brown, and

general partner for B2B-Hive LLC, a New York-based venture capital

fund. He has a BA and MBA from Cornell. With him on the board are

Rick Bunker, Michael Ellis of SunGard Banking Systems, Gary Kaminsky

of Rose Glen Capital Group, Charles Stryker, the chairman and CEO

of Naviant, a supplier of precision marketing information, and Jack

Sunday, founder and president of Group Five Inc., an independent research

firm that focuses on shareholder and issuer satisfaction in the securities

industry.

RSS is a young company and a family friendly one. In the past year,

a handful of babies have been born, and the seven founders have more

than a dozen children between them.

Have these shoemakers’ children gone without shoes? Or has RSS, which

promotes insiders holding stock, managed to distribute stock to all

its employees. Yes, says Besner, everyone in the company holds some

equity.

— Barbara Fox

Restricted Stock Systems Inc., 412 Wall Street,

Princeton 08540. Greg Besner, CEO. 609-430-7400; fax, 609-430-7500.

Home page: www.rssgroup.com

Top Of Page
E & Y Winner: Floorgraphics

Using the slogan "Advertising that closes the sale,"

brothers Richard and George Rebh of FloorGraphics create and install

trademarked FLOORads — laminated vinyl decals that cover about

six square feet of tile — on the floors of retail stores. The

company leases aisle space from the retail store and sells the ads

to the consumer product companies (U.S. 1, April 28, 1999).

The company has been raking in the awards, notably the Ernst & Young

Enterpreneur of the Year award for marketing, manufacturing and distribution

category for New Jersey. More important, it had $70 million in revenues

last year, and its ads are in more than 13,000 locations and 10 countries.

With 28 employees in Princeton and 80 nationwide, it moved into bigger,

posher digs at 5 Vaughn Drive, the lavish 20,000-foot suite formerly

occupied by John Torkelsen’s Princeton Venture Research.

FloorGraphics’ success has been hard won. The company suffered when

one of the first important clients, K-Mart, went into bankruptcy and

its competitor — News America, owned by Rupert Murdoch — snagged

that contract. And it didn’t help that Murdoch’s firm filed a lawsuit

when one of its employees left and was hired by FloorGraphics.

Because of the K-Mart loss, the Rebhs’ company lost 20 percent of

its contract stores. Nevertheless, it has increased the square footage

in each store. Currently FloorGraphics is in 10,000 grocery stores.

(Some stores have two divisions, so the total count is 13,000 locations.)

The company started in 1996 when founder Fred Potok was working for

a Montclair-based fleet graphics business, which had just come across

a decal that could be protected from road hazards by a bullet-proof

laminate. This laminate — less slippery than the floor itself

— could make floor advertising viable, Potok realized.

Potok, who was formerly a resort condo salesman, turned to George

Rebh, a Williams College alumnus, Class of 1973, who was a graphic

artist but had also sold real estate. For the job of CEO they brought

in George’s brother Richard, a 1976 graduate of Princeton University’s

Woodrow Wilson School with a business and law degree from Stanford.

The Rebh brothers’ father, a graduate of West Point and a Rhodes scholar,

retired as a major general in the Corps of Engineers.

Because the partners positioned the floor ads as media, manufacturers

could pay for the floor space from their advertising budgets —

funds that might otherwise be used for print advertising or direct

mail. This represented extra income for the store. The other option,

to tap funds set aside to pay for display space, would not have represented

a new source of income for the stores.

"Chain stores have their own trade relationships with packaged

goods companies who can provide local marketing funds, often called

co-op dollars. What we brought was the ability to tap into national

funds — promotional or advertising funds — that retailers

would never have access to. By creating an advertising medium that

could be purchased, retailers could monetize the media value of their

stores," says Rebh.

Rebh secured $200,000 in angel funding and a total of $10 million

in venture capital, half from Interlaken Capital and half from Simon

& Catterton. Both firms are based in Greenwich, Connecticut. In August,

1998, these funds helped FloorGraphics buy out a division of 3M, which

made the strong vinyl film for the decals, but which had also been

a competitor. FloorGraphics has been cash flow positive since 1999

and has not paid a dividend.

With its recent expansion, the company inherited a lavish fitout —

light oak parquet floors, built-in light oak cabinets, simulated oak

ceiling beams, and a unique mirror design that lets those in the executive

office see around corners. "It creates an atmosphere where it

is very easy to connect," says Rebh, who was very pleased to inherit

this space. "In some cases, mirrors bounce off of mirrors —

as many five mirrors in line, all lined up so you can see around corners.

It also makes the space seem very large."

Rebh’s major competitor is News America, which got into

the business in 1997 when it bought ACTMedia, known for inventing

the instore marketing business — shopping cart ads, shelf signs,

and point of purchase coupons. "Nobody was doing floor ads then,"

says Rebh. "We didn’t file a patent then because it would have

had to have been filed as a business concept. The patent office is

open to that today, but it wasn’t then."

"We have never sued Murdoch and we try to stay out of legal contention,

but they sued us," says Rebh. The suit concerned Rebh’s hiring

a News America employee who was not bound by a non-compete clause.

The suit is still pending. "In retaliation News America hired

five of our people and dedicated $50 million to put us out of business,"

he says. "They didn’t count on the fact that we would work 24

hours a day to keep going."

FloorGraphics meanwhile has applied for patents for its three dimensional

and electronic floor ads. But News America dominates the drugstore

business and has the contract for K-Mart, the only mass merchandise

chain that allows third-party in-store marketing programs.

As for the biggest retail advertiser, WalMart, FloorGraphics started

the floor program there and ran it for a year. WalMart now does its

own floor ads both in the big box stores and its newer smaller grocery

stores. Though this took away some business, Rebh relishes the vote

of confidence this gives to his medium. "The world’s leading retailer

has put its confidence in floor advertising as a good spend for manufacturers,"

says Rebh. "WalMart is probably the only retailer that can reach

beyond its local trade relationships and put pressure on packaged

goods companies to deliver more money to it."

FloorGraphics is moving from a sales phase to getting involved in

the creative process. "We have strong marketing and graphics staff

to help us to become a marketing driven company," says Rebh, citing

Jane Mullen-Sampson, the vice president of marketing, who used to

be with Carlson Draddy, a well-known promotional agency that had the

U.S. Tennis Association as a client.

George Rebh, executive vice president, heads the sales department

and the graphic arts group that works with the manufacturers to create

the six-foot vinyl signs. The signs are pasted on the floor with strong

adhesive but can removed in one minute by a trained installer. Mike

Devlin heads the retail operations group and outsources the installation

tasks to Spar Marketing, a merchandising services firm in Tarrytown,

New York, which has 1,000 installers nationwide who do the FloorGraphics

work for one week out of the month. FloorGraphics has its own auditing

staff, supervised by Chip Graham, so that 20 workers across the country

check up on the installers’ work and resolve any issues in the stores.

FloorGraphics now focuses on grocery stores. Money spent on ad campaigns

to garner brand loyalty has to be reinforced at the moment of purchase,

says Rebh.

Recently Rebh has introduced a new larger product, the Floor Billboard,

which at 12 square feet is the double the size of the standard product.

"Size matters," says Rebh. "Ours is the only advertising

medium that combines the product with the campaign and the consumer

in the buying moment because we are the only large format communication

vehicle in this market allowed in retail stores. In advertising, size

equates to impact and therefore media value. "

Richard Rebh is so much of an evangelist for big ads fastened to floor

tiles that he labels his enthusiasm as a calling — to make society

better by helping to tone down ad campaigns. Today’s advertising has

to be provocative and edgy, he theorizes, because it has to be burned

into your name so you remember it for a long time. "But if your

image is associated with your product at the point of sale, you don’t

have to resort to provocativeness for it to be remembered. With our

product, the advertising campaign can be softer."

FloorGraphics Inc., 5 Vaughn Drive, Suite 311,

Princeton 08540. Richard Rebh, CEO. 609-514-0404; fax, 609-514-0204.

Home page: www.floorgraphics.com

Top Of Page
Leaving Town

Nursefinders, 25 Pompton, Suite 305, Verona 07003.

888-476-0900; fax, 888-823-7261. Home page: www.nursefinders.com

The Princeton Meadows Office Center branch of Nursefinders has closed

and been consolidated with one in Verona. The company offers contingency

and fee-based search for temporary and permanent assignments in case

management, utilization review, medical management, mental health,

and disease management. Another branch is located in Mercerville (609-631-9112).

Realization Services Inc., 116 Village Boulevard,

Forrestal Village, Suite 309, Princeton 08540. 609-243-0500. Home

page: www.realizationservices.com

This consulting firm has closed its Forrestal Village office and is

taking calls at its headquarters, Box 189, Bedford Hills, NY, 10507,

800-887-6070; fax, 914-234-6424.

To companies on the brink of liquidation or bankruptcy, RSI offers

investment banking, negotiations, bank financings, exit strategies,

and litigation skills. "RSI has a 100 percent proven track record

of full-loan repayment to the secured lender while simultaneously

preventing a potential foreclosure of the business," says the

website.

Top Of Page
Bankruptcy

Velocient Technologies Inc., Box 3407, Princeton

08543. Upinder Zutshi, president & COO. 609-919-1266; fax, www.velocient.com

Velocient Technologies, which did on site or offsite software development

in the United STates, Europe, and Asia, filed for Chapter 11 bankruptcy

(Case 03-2574-KCF) on May 27. Three years ago it had moved from Princeton

Meadows Office Center to 214 Carnegie Center, Suite 102, but last

year it moved out and has a post office box mailing address. The phone

takes messages but the website is not available.

Top Of Page
Stock News

Voxware Inc. (VOXW), 168 Franklin Corner Road,

Suite 3, Lawrenceville 08648. Bathsheba J. Malsheen PhD, president

and CEO. 609-514-4100; fax, 609-514-4101. Home page: www.voxware.com

In April Voxware Inc. announced it would receive $5.6

million in private financing, and it received the funds on Monday,

June 30. Leading investors were Lenox Drive-based Edison Venture Fund

and Cross Atlantic Capital Partners of Radnor, Pennsylvania.

"We are impressed with Voxware’s technology and increasing momentum

in the marketplace," says Joe Allegra, general partner at Edison

Venture Fund.

"Now that the financing has closed, Voxware has a strong cash

position and a debt-free balance sheet," says CFO Nick Narlis.

"The combination of our increased sales momentum and the new financing

will help Voxware to meet its growth targets."


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