Celltronics Gains After Bumpy Start

The founders of Celltronics Inc., a San Diego-based industrial radio products manufacturer that made its initial public offering in 1984, know how rough it can be to pump life into a new public company.

The company’s financially troubled underwriter went under just three weeks after taking Celltronics public at 25 cents a share. With no one making a market for Celltronics’ stock, shareholders began to grumble, and its stock, which had risen to 34 cents a share after the initial public offering, quickly tumbled to 15 cents.

Just weeks later, while touring manufacturing plants in the Orient, Celltronics President Joseph Banos and Vice President Patrick Kennedy discovered that a host of better-capitalized Japanese and U.S. companies already were manufacturing cellular telephones--the very product they had expected to market.

Abundance of Phones

“We saw warehouses and warehouses filled with cellular telephones and the assembly lines were rolling everywhere we went,” Kennedy said during an interview last week.

Kennedy and Banos, who already had spent $100,000 of the proceeds from Celltronics’ $2.5-million initial public offering to begin developing a cellular line, decided to abandon the cellular telephone market and repositioned Celltronics in the $5-billion mobile radio market that is dominated by Motorola.

The company’s stock responded to the repositioning by plummeting to as low as 3 cents.

Aborting the planned cellular product line and recasting the company as a manufacturer of radio systems that are used by police and fire departments and industries including construction and gas and oil production “proved to be a prudent thing to do, given the competition that later developed,” Kennedy said.

The decision appears to have paid off. After generating a string of quarterly losses after the initial public offering, Celltronics has been profitable for the past five quarters.

Celltronics reported that net profit rose by 260% to $13,000 and revenue increased by 21% to $899,000 for the first quarter ended Jan. 31. The company reported $80,000 net profit and $3.4 million in revenue for the year ended Oct. 31, 1986.

Celltronics, which has a manufacturing plant in Los Angeles, relocated its headquarters--which had been split between Las Vegas and Dallas--to San Diego at the end of 1984. The company now has 30 employees in San Diego.

Most of its products are manufactured overseas or in Los Angeles, but the company does some manufacturing and final assembly in San Diego.

The domestic market for Celltronics’ 18 products has grown partly in response to the ever-increasing cost of dedicated telephone lines. “People are trying to cut costs and telephone lines are expensive,” Kennedy said.

The company’s exports also have increased, especially to developing countries that are burdened with poor or non-existent telephone service, Kennedy said. Exports now account for 30% of sales, an increase over last year. Last Thursday, for example, Celltronics was readying shipments for buyers in Pakistan, Greece and China.

Positioned for Growth

Celltronics, with just one-tenth of 1% of the market that is dominated by Motorola’s 55% share, is positioned for steady and profitable growth, according to Steve Hammer, a Denver-based industry analyst with Prudential-Bache Securities.

“Niche player is a good way to describe Celltronics,” Hammer said. “(Celltronics) is dealing with markets that are so small that a company like Motorola just can’t afford to go after them.

“There’s literally no down side for the stock. The potential for bankruptcy is very, very slight, and while there’s not a whole lot of pizazz in their markets, they can expect slow and steady growth.”

Most of Celltronics’ products are standard radio products to which the company adds “a design tweak or some comparative advantage,” Kennedy said.

However, Celltronics’ newest product is a proprietary “mobile repeater,” a device that “will be really effective for people like firefighters who get into a gully or a valley and lose their (radio signal). They can literally tie this thing to a tree” and keep radio contact with other locations.

Celltronics expects to use its marketing savvy to bolster sales of the coaxial cable connectors manufactured by Hialeah, Fla.-based RF Industries, which the company acquired last month for $1 million in Celltronics stock.

RF Industries “is our cash heifer--it isn’t quite a cow yet,” Kennedy quipped last week. “The owner had a good product but he was marketing-poor.”

New Products Expected

Revenue generated by the new product line, which links radio systems manufactured by different companies, will fuel the development of new proprietary products, Kennedy said.

The addition of RF Industries should boost Celltronics’ revenue to about $5.5 million for 1987, Kennedy said.

At the same time Celltronics acquired RF Industries, the company engineered a 1 for 10 split that reduced its number of outstanding shares from 30 million to 3 million. The reverse stock split was a “smart move” that will help differentiate Celltronics from other small radio products manufacturers that remain penny stocks, Hammer said.

Celltronics stock closed down three-sixteenths Monday, at 2 3/4 a share.