The big dream of the Metropolitan Transportation Authority to dot the Valley with track-side residential/retail communities at MTA and Metrolink stations appears to have hit a few roadblocks along the way. Of four such communities initially planned for the San Fernando Valley, only one has actually been completed. Developers have been chosen for two others, but those projects are still in the design stage, and the developer who had been selected for the third project pulled out last year. The city’s Department of Transportation, MTA and Metrolink came up with a plan in the late 1990s to construct these mixed-use projects at transit stations across Southern California as a way to ease congestion. In addition to housing, the plans included station-based conveniences, such as day care centers and grocery stores as a way to “Europeanize” L.A.’s public transport system. The idea was to create somewhat self-sustaining communities that would rely on public transportation instead of clogging the freeways. But while a few success stories outside the Valley can be noted, only one project, the Village Green housing complex at the Sylmar Metrolink stop, has been completed so far. Although a developer has been recommended by the MTA to build one of MTA’s proposed “transit villages” on land next to the North Hollywood Metro station, it looks like it will be years before the first scoop of dirt for that project will ever come up. Irvine-based Legacy Partners has been recommended by the MTA to construct a 400,000-square foot, four-story housing/retail project at the NoHo station on MTA-owned land. The complex would consist of about 400 high-end apartments with roughly 15 percent set aside as low-income units, according to John J. Abraham, development director for Legacy. The $88.6 million development consists of roughly 20,000 square feet of retail space on the ground level and a two-story subterranean parking lot. It is one of two such projects on the table for Legacy that the MTA is recommending to the Los Angeles City Council for approval. The developer is also proposing a $51 million-housing/retail complex next to the metro station at Hollywood and Vine. Even if Legacy’s two projects are approved by the full council before year’s end, it will be roughly four to five years before they are built, and another few years after that before they are sold. And, according to Genevieve Giuliano, professor of policy planning and development at USC, it will likely be years before a proper reading can be taken on the measure of their success. Part of that success, she said, will hinge upon both need as well as convenience. “These kinds of projects can only really work if they are built where there is a lot of density and a lot of demand for housing,” said Giuliano. “If the accessibility of the transit service is not that significant, then it’s likely not going to have that much of an impact. I know the redevelopment in some parts of Hollywood is a very organized and deliberate attempt to make something happen, but it will actually be a long time before we can determine how successful they will be.” Developers had hoped to build an affordable housing complex around the Chatsworth Metrolink and Amtrak station on city-owned land, but they pulled out last year after failing to attract enough funding. Metrolink, with help from the MTA, did manage to complete construction of a daycare center there called Transit Tots West, which is privately run. The center’s director, Colleen Ruane, said she has 73 children enrolled with capacity for seven more, and that roughly 25 percent of the parents of those children use the train. Also next to the station are a coffee shop and a travel agency and future plans by the city call for installing a small museum spotlighting Valley history. But there have been no new proposals for completing the second phase of the project, which focuses on housing, and little indication when or if one will ever come. “We had been in exclusive negotiations with a developer a couple of years ago but we were never able to come to an agreement on the size and scope of the housing component,” said Andrea Burnside, a Metrolink project manager. “So that project was dropped and at this time MTA hasn’t pursued it. But it’s not to say we won’t in the future.” According to Francisco Oaxaca, a Metrolink project manager, there is a shortage of land around the Chatsworth station because of the presence of large parcels set aside for equestrian zoning. The MTA is also hoping to put in a similar housing/retail project at its Universal City stop, but so far there are no proposals on the table beyond completing the access road leading up to the parking lot. “We’ve had no requests for proposals for Universal City yet, and we are still working on the roadway system around the station, said Lillian Burkenheim, a project manager with the Los Angeles Community Redevelopment Agency. “We are also still in negotiations with the studios about what kind of project would best suit the area,” she said, indicating the studios will have a significant say in the final outcome of that plan. To date, the only Valley transit-oriented project that has been completed is the Montage Village Green complex at the Sylmar Metrolink station. Village Green was built by Tarzana-based Montage Development with some funding from the MTA and the cities of Los Angeles and San Fernando. Of the 109 houses in the project, 46 have been put on the market, 16 have closed escrow and are occupied, and an additional 13 are in escrow now, said Stephen C. Ross, president of Montage. Ross said he’s pleased with the pace at which the houses are selling at Village Green. He said three of his buyers are using the Metrolink. “I think we are doing well, considering,” Ross said. “We are very pleased with that number. We subscribe to common sense and I think if you talk to anyone that’s stuck in traffic here going from one end of the Valley to the other, they want a choice for where and how they live. It’s politically correct to do this right now, but if you look around there aren’t that many (transit villages) on the table and we need there to be.” Ross added that because the homes at Village Green are affordable (they start at $219,990) and sit adjacent to a public transport stop, they carry a potential for a better return for the buyer down the road. “I think there’s a premium associated with being close to some kind of mass transit,” said Ross. Although there is no retail surrounding the Sylmar station, yet, there is Transit Tots East, also owned by the same company who owns the Chatsworth center, which has 67 children enrolled out of a maximum of 77. According to the director, Sara Dias, 12 of the parents whose children are enrolled use the train. “It’s slowly coming along, but it’s going to take a while I think,” said Dias. Even Metrolink’s Oaxaca conceded that the concept of living near public rail stops in Los Angeles is about as foreign as they come. He thinks the key to generating more public support for the idea is in how his agency and developers like Montage market the projects. He said there are strong signs the folks who are looking to buy at Village Green also intend to use the train, but added that it’s too soon to quantify any increases in ridership since they went on the market. “This whole concept, where you’ve got the integration of housing around transit is kind of new in this part of the world, and I understand that,” said Oaxaca. “But I know that we are already seeing that the concept is drawing people to the homes, and we are getting anecdotal information that these dwellers are using our trains.” Metrolink is marketing new and potential Village Green residents three-month passes for the trains. “It’s too early to quantify the numbers but part of what we are doing is going through the educational process and trying to get people to think about access to public transit when they are deciding where to live and work,” said Oaxaca. Although Giuliano agreed that, with such a high shortage of affordable housing in Southern California, getting folks to buy station-side homes shouldn’t be too difficult. The real challenge, she said, is getting them built, and then, getting commuters to give up their car keys for the day. “A lot of these projects are done on pure faith and in the hopes that people will change their behavior, but that’s really a tall order for a place like Los Angeles,” said Giuliano. “And even if we get some people to use the transit system, it’s not going to have that significant of an impact. Most of L.A. was built after the automobile came along, and you can’t rebuild a city like Los Angeles based on a 19th century model.”

Thousand Oaks-based biotechnology firm StemSource Inc. has completed its initial round of funding into stem cell research, netting $2.5 million in investment capital. The funding came primarily from San Diego-based medical device-maker Macropore Inc., along with a number of other individual investors and venture capitalists, said StemSource CFO Terry Butler. “We hope to begin a second round of financing in December or January, but we’re pleased with the results so far,” Butler said, adding that another $5 million to $8 million could be raised. Macropore CEO Christopher Calhoun said he believes in the potential of the company’s stem cell technology. “We are very excited about this technology and its implications across many clinical and research-related areas,” he said. StemSource has developed a proprietary adult stem cell technology from human fat tissue which solves some of the problems of rejection that are common when other types of stem cells are used, Butler said. Stem cells are so-called “unprogrammed” cells that give rise to other cells in the body. They are considered a potential source for replacement cells and tissues to treat many disorders such as spinal cord injuries, diabetes and stroke. The company, which began operations in January, has moved into its new headquarters in a 15,000 square-foot building, with a 7,000-square-foot lab space where much of its research is being done. Although researchers have been stymied by new federal restrictions on the use of fetal tissue, company CEO Marc Hedrick said the company’s research is focused on stem cells from adults’ own fat cells. By using fat cells from adults, the company hopes to avoid much of the controversy surrounding stem cell research that uses fetal or embryonic tissue. Researchers found that fat cells share many important characteristics with nerve and brain cells, making them ideal for their research. StemSource plans to develop a number of products within a few years, such as replacement procedures for fat, bone and cartilage cells. Later, Hedrick said the company plans to develop procedures for the replacement of more complex cells for nerve, liver and spinal tissue. It will take about three to five years before any products are ready for market, said Butler.

Woodland Hills-based 21st Century Insurance Group has asked the state Insurance Commission to approve a 28 percent increase in its homeowner insurance rates. Doug Howell, the company’s CFO, said the rate hike is needed to offset increasing costs in the homeowner area. “The last time we requested a rate increase was about five years ago,” said Howell, “so it’s not as if we’re increasing rates all the time.” 21st Century joins a number of insurers who have also requested rate hikes, the result, say analysts, of rising home values. Cathy Seifert, an analyst at Standard & Poor’s Securities Inc. said losses in all segments of the insurance business, but particularly in homeowner insurance have been on the rise for much of the year. “Values of homes have been increasing and they’ve become much more expensive to repair,” she said. Insurers have also been impacted by lowered interest rates, which are reducing the cache of reserves these companies keep for paying claims, Seifert said. 21st Century said the rate hike it is requesting amounts to about $100 per year for the average homeowner. “Since most of our policies are $428, that means the 28 percent rate increase is going to be about $100,” Howell said. “While the percentage seems big, the actual dollar amount is very modest.” Insurer requests for rate hikes must be approved by the state’s Insurance Commission. Approval for the request is expected by the end of the year. Until approval is received, 21st Century has suspended sales of new homeowner policies. “While our method of delivery makes us one of the lowest-cost providers of homeowners insurance, we must have confidence that we will achieve an underwriting profit on a long-term basis,” said Bruce W. Marlowe, company president and CEO of the decision to suspend writing policies. The company’s homeowner business makes up only 3 percent of its overall sales, with automobile insurance accounting for 92 percent of its business and the remainder consisting of personal liability insurance. The company had raised its fees for auto insurance by 5 percent last April. In requesting the rate increase, 21st Century joined Fireman’s Fund Inc. and Allstate Insurance Co., which have requested increases of 17 percent and 22.3 percent, respectively. 21st Century’s third quarter performance was relatively flat against the same period last year. Late last month, the company reported it earned $2.7 million in net income on $229 million in revenue, compared to $2.6 million in net income on $226.3 million in revenue for the same period last year. The company’s stock price has been sliding in recent months from its 52-week high of $19.57 per share. Last week the stock traded in the GET PRICES ON FRIDAY range. 21st Century, which also sells insurance in Arizona, Nevada, Oregon and Washington, has built its own niche in the business by selling directly to consumers instead of using insurance agents. That way 21st Century claims it can offer more competitive prices. The company paid out more than $1 billion in claims due to the Northridge Earthquake, and discontinued writing homeowner and earthquake insurance for about a year after that. It no longer writes earthquake policies.

Fastest Growing Companies

Studio City-based Carsey-Werner-Mandabach LLC and Yahoo! Inc. inked a deal under which the highly successful television producers will provide content for the Internet company’s streaming video business. Yahoo!, which will begin offering the programming free of charge, hopes to use the content to help launch a pay streaming video service, Yahoo! Broadcast in January. But don’t expect to see “Roseanne,” “The Cosby Show,” or any of the other network sitcoms Carsey Werner is famous for on the Internet anytime soon. The first show to air under the venture will be “Townies,” a 1996 flop that was cancelled midway through the season by ABC. Only 10 of the original 15 episodes initially created ever aired. No matter, some say. Streaming video is positioned to emerge as the next thing, spiking the demand for content. And while “Townies” may not have found an audience, some of its stars, including Jenna Elfman and Molly Ringwald, certainly have. Jonathan Kramer, a Los Angeles-based media consultant, said the deal likely marks the beginning of what could be a trend toward more video-based content on the Internet, particularly as more consumers switch to high speed and wide band connection services. “You’re probably going to see more deals like that,” Kramer said. Carsey Werner principals Marcy Carsey, Tom Werner and Caryn Mandabach have formed a new division for the venture, CW eDistribution LLC, with plans to bring full-length episodes from their library of programs along with content, like bloopers and out-takes, based on their Fox Broadcasting Co. show “That 70s Show,” to the Internet. “It’s a very strong opportunity for us,” said Robert E. Raleigh, president of Carsey Werner Domestic Television, which oversees CW eDistribution. “We’re trying to cultivate the entertainment market of the Internet in its early stages,” he said, referring to the fledgling streaming video efforts on the Web. “We’ll put material from ‘That 70s Show,’ like behind the scenes table reads, bloopers, photo shoots, video interviews. These are the forms of brand extensions that you don’t see on broadcast television.” Raleigh projects what he calls “dramatic growth” in video-based programming for the Internet in the next three years. He likened the growth of the Internet to that of cable television in the 1980s. “It wasn’t that long ago that cable was in 20 million households and it couldn’t compete in terms of revenue, but look at it now and cable is everywhere,” he said. “Townies,” Raleigh said, will likely be the first network television series to air full length episodes on the Internet. The company hopes to add additional shows next year, although it would be precluded from running shows that are in conflict with reruns that currently air on local broadcast stations. Along with other Carsey Werner shows, Raleigh hopes the deal will help build a new, niche audience for the producers. “We’re going to build our business around those properties that many people already know about,” he said. Although details of the initial deal were not disclosed, Raleigh said the Yahoo! pact could bring the company up to $1 million in the next three years, far less than the going rate in the broadcast syndication market, where distributors paid $500 million for the rights to “The Cosby Show” in 1992. Meanwhile, Yahoo! Has already begun airing other content, including vintage commercials, celebrity interviews, music videos and movie clips on its streaming video Web site. Marc Montoya, Yahoo! Broadcast general manager, said the company will begin offering a pay service by January, featuring special programming like music concerts, television specials and other programs. The company is still working on deals for those shows. Yahoo, which has 210 million monthly users, has not yet determined the fees it will charge for its service. Another streaming video company, Real Networks Inc., is offering a similar pay service, dubbed Gold Pass, for $9.95 per month on the Internet. CW eDistribution was established in May to provide streaming video programs and online advertising for customers. The company is a unit of Carsey-Werner LLC, a privately-held company which reported $240 million in revenue last year.

A ROUNDUP OF SAN FERNANDO VALLEY NEWS United Online Reconsiders Deal Westlake Village-based United Online Inc., parent company of NetZero Inc. and Juno Online Inc., says its reevaluating a deal with AOL Time Warner Inc. to provide high speed access over its cable network. United Online CEO Mark Goldston said his company is in no hurry to get into the high speed access service under the deal which Juno made with AOL Time Warner before it was acquired by Netzero, allows the company to provide high speed Internet access. Goldston said he wants to be sure that the deal will translate into more paying subscribers for the company, which has switched its emphasis from a free to a subscriber-based service. Federal regulators had told AOL Time Warner that it had to offer three rival Internet service providers high-speed access over its cable lines in order to offer AOL on the system. THQ to Acquire Rainbow Studios Calabasas-based THQ Inc. has greed to acquire Rainbow Studios, video game maker based in Phoenix. As part of the deal, THQ will issue about 1 million shares of common stock to Rainbow shareholders, valued at $57.6 million. Other terms of the deal were not disclosed. THQ said the acquisition will improve its ability to create video games for the next generation of console systems such as Nintendo Co.’s GameCube, Microsoft Corp.’s Xbox and Sony Corp.’s PlayStation 2. Rainbow specializes in creating games using live action images mixed with computer generated graphics for various gaming platforms. Disney Lays Off 125 Online Staffers Walt Disney Internet Group has shutdown its MrShowbiz site and laid off 125 people as part of its effort to streamline operations, company officials said. The move marks the second time in a year the Walt Disney Co. has reduced the ranks of its Internet unit. The first was in January when 535 people were laid off at Go.com. Dole Posts Third Quarter Loss Westlake Village-based Dole Food Co., the country’s largest fruit and vegetable producer, saw its third quarter loss grow from the same period last year. Dole’s loss increased to $94.8 million from $7.4 million during the same quarter in 2000. Revenue also dropped to $1.33 billion from $1.34 billion. Rocketdyne Facility Now Historic Rocketdyne’s Santa Susana Field Laboratory, birthplace of the Saturn V rocket that helped take astronauts to the moon, has been designated a national historic site by the American Institute of Aeronautics and Astronautics. The 2,800-acre facility was built in 1950 and helped develop and test rocket engines that powered nearly every space program, including Apollo and the Space Shuttle. Disney Acquires Baby Einstein Co. Burbank-based Walt Disney Co. has acquired Colorado-based children’s video and toy maker Baby Einstein Co. The privately held company manufactures videotapes, DVDs and CDs allowing children to experience art, music, poetry and science, through its “Baby Einstein” and “Baby Mozart” videos. Universal Music Helps Set Up Fund Universal Music Group has donated $2 million to the Rhythm & Blues Foundation for the establishment of the Motown/Universal Group Fund to aid its former artists. Zach Horowitz, Universal’s president and COO, said the fund will aid needy artists who had previously been affiliated with Universal’s many labels, including Motown Records. Quintek Spins Off Subsidiary Camarillo-based biotech firm Quintek Technologies Inc. has agreed to spin off its PanaMed subsidiary into a separate and independent company. Quintek said the new company will focus on distributing a proprietary line of therapeutics for the treatment of AIDS and HIV infection in third world countries.

Like most mall operators, Glendale Galleria was expecting a holiday season much like any other when officials mapped out their strategy months ago. The shopping center planned the usual advertising, with promotions centering on holiday fashions and gift items, and the traditional seasonal entertainment in the center court areas. Then Sept. 11th happened, and it quickly became clear that holiday, 2001 would be nothing like those Christmas’s past. “We took some time. We did some soul-searching and really thought about where the consumer’s head set is going to be for holiday,” said Annette Bethers, senior marketing director for Glendale Galleria. “And our sense was that they’re very much rethinking what is important in their lives, and they’re coming to the conclusion that home and family is important.” Glendale Galleria completely changed its event schedule for the holiday season gearing all its programs to family activities and adding a charitable component. Fashion Square in Sherman Oaks revamped its plans as well, choosing homespun events like free lessons in knitting and cookie decorating, yoga and finger painting to draw shoppers on each Saturday throughout the season. “The holidays are bad enough (for stress),” said Shana Yao, Fashion Square marketing director. “This holiday, they need something to help them relieve the tension and worry they’ve been experiencing.” With unemployment rates rising and consumer confidence sinking, marketers and retailers had already begun to gird for a difficult holiday selling season as the fourth quarter approached. But the terrorist attacks and the anthrax infections and economic downturn that’s followed suggest that the differences this year won’t be just quantitative. The events of Sept 11 and their aftermath have changed shoppers’ psyches. Rather than flaunt their means, they want to reflect on their blessings. Instead of buying gifts, they want to show appreciation. They prefer indulging their families to basking in luxuries. The malls may still sparkle with tinsel. Santa will ho-ho-ho from his perch, but the glitter and dazzle is decidedly off this holiday season. “It’ll be the saddest holiday season in recorded history,” said Gerald Celente, director of the Trends Research Institute in Rhinebeck, N.Y. and the author of “Trends 2000.” Retail sales, down dramatically after Sept. 11 and showing only a meager 1 percent gain in October, are a harbinger of what is to come. Analysts expect the upcoming season, which begins officially on Nov. 23, to be flat or down from last year. Some categories, like big-ticket items, are likely to fare worse. Discounters may do somewhat better than traditional department or specialty stores, but not by much. And high-end luxury items like jewelry are expected to do worst of all. “My feeling right now is the consumer is behaving a lot like a squirrel stockpiling the acorns for the winter,” said Richard Giss, a partner in the Deloitte & Touche LLP retail services group. “They’re stockpiling their dollars and they are not spending frivolously.” Though it is too soon to tell definitively how holiday, 2001 will turn out, some patterns have begun to emerge. Some retail sales patterns that have already begun to emerge point to shoppers’ interest in simpler, more homespun activities and gifts. Michaels Stores Inc. saw same-store sales spike by 10 percent in September and TK PERCENT in October, an increase officials say is partly due to the season kids returning to school and the start of the fall holiday season typically boost sales for the arts and craft supplies chain but the store also benefited this year from an apparent rush to find activities the family can engage in together. “There’s been a change in spending habits related to discretionary income,’ said Tom Clary, a spokesman for the Irving, Texas based chain. “I don’t know if people want to spend a great deal on purchases, but they still want to spend on family activities. Rather than a movie and dinner, they might be more intersted in doing something at home together such as crafting.” At the Tarzana Michaels, sales in safety pins helped contribute to the store’s 11 percent sales increase in September. Folks would arrange the pins in the shape of a flag, laying one horizontally and hanging others from it and then stringing them with red, white and blue beads to create little flags. Like the flag-waving that took place in the immediate aftermath of the terrorist attacks, the desire to make flag pins may be short lived, but the idea behind it promises to be more long term, said Josh Craig, the manager of the store. “From what I can gather from customers, they want to do stuff at home with their kids and they want to feel comfort in doing that. Instead of going to the movies, they at home with their families.” Such thinking led KB Toys to feature games like Monopoly and Clue prominently in the center of its stores, an area that is usually reserved for stuffed animals, male action toys and other traditional best sellers. The retailer typically sees an increase in family-oriented games as the clock changes and nights get longer, but this year the difference was pronounced. “I’d say we’re looking at a 15 percent increase at this point, and I think it’s going to continue,” said Jim Chandler, sales manager for the chain. Some marketers plan no changes in their seasonal lineup. “In the spirit of trying to get things back to normal, we’re just pursuing our normal course of operations and hopefully cooler heads will prevail,” said Joey Char, marketing director for the Northridge Fashion Center. But even among those marketers who are staying the course, there’s a sense that the holiday season will be different. “Our merchandising isn’t going to be any different, but the attitudes of our sales associates will be in the approach to the customer,” said Denise Williams, owner of Lavenders’ Hallmark in Fashion Square. “Customers are asking, ‘what can I give this type of person?’ as opposed to, ‘if I buy five of these I’ve got everyone covered.’ The gift will be thought out.” With spending taking on a new sobriety, the trends for fourth quarter are expected to revolve around goods and services that fill a longing for simpler, safer times and a desire to cocoon at home with family. Several Valley mall operators are trying to tap into the sentiment. Fashion Square was planning its holiday activities with the idea of combating the stress of the holidays, but after Sept. 11 the idea really seemed to gel, said marketing director Shana Yao. “We’ll have Santa,” said Yao. “We’ll have children decorate cards and we display them as we did last year. But I think because of the events of 9/11 everyone just wants something, a little comfort. And we feel this is a community center and we should provide it.” Glendale Galleria, under the theme “Comfort and Joy, ” is hoping to strike a balance between commerce and charity. Stephen Jacob, a jazz pianist, will perform holiday classics on Nov. 23 from his cd, also titled “Comfort and Joy.” The recording will be available for sale, and profits will go to the United Way’s Sept. 11 fund. The mall’s new holiday decorations, featuring a whimsical Santa’s bake shop, will include the traditional Santa visits. But the mall will also be selling Santa’s cookie plates and cocoa mugs that can be personalized with the child’s photo. Proceeds from those sales will go to the Red Cross earmarked for the children of Afghanistan. And the profits from another holiday tradition, sales of photos of Santa with family pets will be sent to the National Disaster Search Dog Association, which helped in the World Trade Center rescue effort. “Since Sept. 11 we, like I’m sure every mall and retailer out there, have been taking the temperature of the consumer and trying to understand as best we can how they’re feeling,” said Bethers. “I hope it will bode well for sales.” But this season could turn out to be one infused with those things that holidays symbolized before commercialization took over. Trend watcher Celente, whose latest book, “What Zizi Gave Honeyboy,” due out in April, deals with a return to family values, believes that the tide is turning back to the era when families gathered around the dining table. “When you go through a depression, and we believe the probability of depression is greater than the reality of recession, these are times when the best things in life are free,” Celente said. “That’s when family becomes a tighter unit.” This year, he said, “There may even be an outside shot that the true meaning of the Christmas spirit will be celebrated.”

A sweeping drop in revenues across the tech sector left San Fernando and Conejo valley companies swimming in red ink in the third quarter, despite significant cost cutting that occurred in the period. Local companies slashed hundreds of thousands of dollars in expenses during the quarter, only to find that their sales levels had dropped so low, even their trimmed down expense structures could not keep up. With projections for a tech recovery moving back again, this time to 2003, according to a number of pundits, it’s likely that the cutbacks will continue through the fourth quarter and beyond. “The cost cutting wasn’t enough,” said Bob Pearlman, a partner in charge of the technology industry practice for Grant Thornton LLP. “In the economy that we’re in, which is clearly a recessionary economy, there’s significantly more to do than cost cutting. Companies have to find ways to increase revenue, and it’s very hard to do now.” One analyst, who called the revenue drop throughout the technology sector “unprecedented,” said the situation poses special problems for that industry. “Revenue declines, which are somewhat universal, hurt earnings because almost all technology companies were built for growth,” said Robert V. Green, technology stock analyst for Briefing.com. “So what you’re going to see over the next six months is a readjustment of the operating models to flat or sequentially declining revenues.” Among the local companies reporting net losses in the recent round of third quarter financials are a number of telecom suppliers, including Accelerated Networks Inc., in Moorpark; AML Communications Inc. in Camarillo (which reported its second quarter results at the end of October); Luminent Inc. in Chatsworth; and Power-One Inc., in Camarillo; along with Capstone Turbine Corp., a Chatsworth-based manufacturer of microturbine systems and Unova Inc., a supplier of wireless computing and networking products and manufacturing systems technologies with headquarters in Woodland Hills. The total cut from the general and administrative expense budget line for all six companies was $43 million in the period. Individually, the firms sliced anywhere from 13 percent to as much as 50 percent off their expenses, compared to the same period last year. But with revenues falling so fast and so dramatically, it proved virtually impossible for companies to adjust costs sufficiently to compensate. “They were overestimating revenues and it’s not just the telecom industry,” Pearlman said. “It’s all over the place. You are constantly seeing revised estimates on revenue estimates and earnings estimates and they’re not upward projections.” Such was the case at Power One, which anticipated reduced revenue levels based on what the company saw happening in its North American markets only to be surprised by a second sore spot, its international business. As a result, moves to cut general and administrative expenses by 13 percent over the quarter last year had little impact on the bottom line. “I think we thought of a more short-term (weakness) a quarter or so ago,” said Martin Goeller, vice president for finance and corporate controller for Power-One. “But the realization ever since the beginning of the third quarter is this isn’t going to be a V-shaped recovery. It’s going to be an L-shaped recovery with an upturn in the end of 2002 or early 2003. Power-One saw sales plummet 67 percent in the third quarter ended Sept. 30 to $97.3 million. The company ended the quarter with a net loss of $13.5 million or $.17 per diluted share, compared with net income of $16 million or $.20 a diluted share for the same period a year ago. In announcing the results, Steve Goldman, the company’s chief executive officer said, “While we have made substantial progress in adjusting our business model to reflect the rapidly changing market conditions by streamlining our business, it remains difficult to predict customer demand and industry trends.” Power-One wasn’t alone. At Accelerated Networks, sales plunged 97 percent to $404,000 versus $11.57 million for the same period a year ago. Accelerated recorded a net loss of $12.6 million or $.25 per share in the quarter, despite a 50 percent reduction in general and administrative expenses compared to the same period last year. Assessing the performance, Accelerated’s chairman and CEO Gary J. Sbona, pointed out that the company had moved aggressively to cut costs in the quarter, but conceded that Accelerated is continuing to look for ways to reduce expenses further, including divesting one or more product lines. Some analysts believe the tech sector ran aground largely by assuming that the demand for new economy products, which had continued unabated for the past several years, would continue. In fact, they point out, the industry has been subject to cyclical downturns in the past, albeit not to the same degree, and executives misread the market by believing that this time, things would be different. “Hope springs eternal,” said Chuck Hills, director of research for Thomson Financial/First Call. “They’re all so involved with the trees, they don’t step back and look at the forest and look at history. They get convinced there’s something different about this cycle.” Old economy businesses have been grappling with these problems for years, and have changed their business models accordingly. Such a strategy allowed Variflex Inc., a Moorpark-based maker of sporting goods like in-line skates and skateboards and related items, to record a profit in the quarter, despite the slowdown in consumer spending. “All businesses, whether they’re newly created like telecommunications or established, have got to have realistic expectations about what they can do in sales,” said Mark S. Siegel, chairman for the 22-year-old company. “I think the difference between the more experienced business community and the less experienced business community is the more experienced community didn’t set unrealistic goals. We stayed grounded and our expenses were consistent with that.” Variflex last month reported a net profit of $53,000 or $.01 per share on revenues of $12.8 million for its fiscal fourth quarter ended July 31, its first profitable quarter since 1996. The company’s current management took the helm in 1998. Even where new economy companies bucked the trend, their experience often underscored the underlying problems in the tech industry. Ixia, which makes testing equipment for optical networking equipment, saw its revenues decline to $16.2 million in the third quarter, from $21.3 million for the like period last year, but the company nevertheless reported net income of $1.6 million or $.03 per share. Excluding non-cash stock-based compensation charges its net earnings were $3.9 million or $.06 per share. The reason? A large portion of Ixia’s expenses are sales commissions, so its expense structure self-adjusts to its revenue levels. “Our revenues are way down this year,” said Tom Miller, CFO of Calabasas-based Ixia. “We sell test equipment to people like Cisco and they’re having an awful year. But if you look at the first quarter, second quarter, third quarter of this year, you’ll see our operating expenses dropped sequentially. We pay out a lot in commissions and when revenues dropped so did that expense.” But Miller concedes that Ixia is somewhat unusual among tech companies, which for the most part, are built on business models that anticipate a steadily increasing market. The pressure on earnings is likely to plague these companies for some time to come. “The real focus should be on revenue growth,” said Green. “The question is when will revenue growth come back to the whole sector, and I think it’s more than a year away.”

John Dorman, CEO of Calabasas-based banking software maker Digital Insight Corp., knew he needed help after sales for the company tripled in just one year, going from $17.5 million in 1999 to $54.4 million in 2000. With such fast growth, it was no wonder that the company earned the top slot in Deloitte & Touche’s list of the 50 fastest growing tech companies in Southern California last year. But the company’s fast growth also meant a larger staff and the need for a larger management staff to oversee it. Dorman spoke to Business Journal reporter Carlos Martinez about managing the growth. “When I came here two years ago, the company was still a fairly small startup company with $7 million in revenue and we had 75 employees. Right now we’re on track to do just under $100 million and now we have just under 700 employees. “In just under three years we’ve grown more than tenfold in revenues and employees. “As a CEO you have to anticipate problems and I could see that we were going to need help, so you have to put the right processes and the people in place before trouble occurs, and so I brought people in to join the team. “But a little later, we brought a second wave of management staff because we knew we needed additional talent that we didn’t have inside the company. “We used to have one person responsible for product management and product strategy and product marketing as well as product development, there used to be one department dedicated to that. That job had become more than one person could handle, so we hired two world class executives to run those respective areas. “We did the same thing when we had one person responsible for running our data network as well as running the customer service operation and we brought in two world class executives to run those operations and you could see the improvement right away. “By bringing in strong, capable managers we were able to accelerate our progress in achieving our goal and in stabilizing our company. “Last year, I was CEO, chairman of the board and president, but now I’m CEO and chairman. I had to bring in a president because I found myself with more than two full time jobs. “It’s a challenge to continually build a management team to manage this kind of growth. Fortunately we found good people with strong leadership skills and a strong technology background.”

An old girlfriend once told me about side job her father took up one Christmas season as a way to augment his meager salary as a traveling salesman. I never did find out what the guy sold, but he was always somewhere out there, on the road. Except for this one particular year when times were tough; the year he got busted standing outside a now-defunct department store somewhere in the San Gabriel Valley, sporting a long white beard and a pillow stuffed down a plush red and white suit. It seemed, quietly, behind the backs of even his own family members, the traveling salesman managed to put himself through a week of Santa school and got himself a part-time gig in order to pay for Christmas dinner. And he’d have gotten away with it, too, had his wife and daughter not visited the store during one of his shifts and picked up on his familiar incantations bellowing from beneath his fake beard. I think of this story now, nearly 25 years later, because I’m sick of worrying about the economy, and the government’s latest planned remedies, and how they will impact my ability to keep the bread and butter on the table this holiday season. And I’m betting all my free weekend cell-to-cell minutes many of you business owners out there feel the same way. And, I’ve had it up to here with fear. I’m not frightened by the thought of the big “A” snowing out of the envelope from my gas bill. What are the odds? What does scare me is what’s happening as we take our collective eyes off the ball and turn to CNN and the Internet for more fear, I mean Taliban and anthrax updates. And meanwhile, lawmakers back in Washington noodle over ways to get their paws on our social security to fund their new war on terrorism. I’m scared, too, because, despite all the hype about getting back to normal, new security measures at the Los Angeles Civic Center now require visitors to whip out their ID to get into public meetings, provided they can also figure out how to get around the concrete barricades. I’m scared that the city is poised to spend more money fighting secessionists’ plans to create a new Valley City, even though each time we get past deciphering the latest LAFCO findings the Magic 8-ball still answers: ‘all signs point to yes’ to the feasibility question. Flying doesn’t scare me either. That’s what white wine and Dramamine are for. But I am frightened by the e-mail I received on Halloween from Congressman Adam Schiff’s (D-Burbank) office in Washington, announcing his new bill that would give our police officers a way to augment their salaries as volunteer sky marshals. Not only would these new air cops be “rigorously trained and certified,” they would also carry FAA-issued ID cards and firearms “designed expressly for sky marshal use.” Not sure what kind of firearms we’re talking about here, but the idea, said Schiff in his e-mail to media outlets across the country, is to deter terrorists and encourage us all to get back in the friendly skies. Oh yeah, one more thing, the legislation would allow these deputized cops to fly free on commercial flights whenever they are on “marshal duty.” And, according to Schiff, the program will not cost a whole lot more than the sky marshal program we already have in place, such as it is. I’m no financial whiz, but I suspect that if the airline industry needs a $15 billion bailout just to keep its jets humming it isn’t going to take too kindly to the idea of giving up seats for free. I called my buddy Ed Stewart at Southwest in Dallas to find out what he thought about the idea. “Honestly, there are so many ideas floating around out there right now about how to make things safer, I couldn’t possibly answer that question and I challenge any airline to answer it for you either,” said Stewart. Stewart told me hadn’t seen or heard of the Schiff bill, but proceeded to tell me about another little piece of legislation he was aware of. Seems someone, maybe somewhere in the midwest, he said, is proposing to make all women check their purses in at the ticket counter. Now that scares the hell out of me. There’s little white wine and Dramamine can do for a girl with no lipstick. My best trips in the air have all been out of Burbank and usually on Southwest Airlines. I love the singing flight attendants and the bad jokes about the great food we’re all not going to get on our one-drink jaunts to Oakland. So I was particularly saddened to see the Southwest exhibitor’s booth at VICA’s 14th Annual Business Forecast Conference last month, completely unmanned. That’s right. Sat empty. All day long. I couldn’t help but wonder if the folks who were supposed to represent Southwest just decided they had nothing positive to forecast, or they, too, got scared. Turns out someone had the flu. I know the economy stinks. I know boarding a flight right now seems risky if not downright extravagant. But I also know that the most normal I’ve felt since Sept. 11 was the day the planes started flying again. I was driving east on the 101, thick in the middle of an evening battle with the folks coming north on the 405. On the horizon, somewhere over Van Nuys, I made out the brilliant orange and sienna skin of a Southwest plane making its decent into Burbank, and all seemed right with the world. I need to see planes in the sky to remind me that I’ve always got the option of leaving. And, like everyone else, I want to feel safe up there when I do. But I think Schiff’s measure is misguided. I just don’t see the wisdom in giving a police force already grappling with a public relations problem over excessive use of force and racial profiling more opportunity to flex its muscle. And I sure as heck know I don’t want to learn on my Friday-night flight to Vegas that my seatmate has been posing as just an average guy on his way to a bachelor party. I don’t want to learn he’s really an overzealous L.A. cop, moonlighting on his new, compressed work-week to pay for Christmas gifts for the kids back home who have no clue he’s also the guy behind fake beard. Reporter Jacqueline Fox can be reached by e-mail at [email protected].