Wild Ride

February 18, 1991|By Kim Clark

If Richard Thompson quit right now, he'd look like a financial genius.

In the 18 months the Navy pilot-turned industrial sales executive has been head of Rockville-based General Kinetics Inc., the company has leapt into profitability, boosted its sales by a third and seen its stock jump by two-thirds.

CBut those familiar with GKI say the real test is just beginning for Mr. Thompson, whose company makes $10,000 spy-proof fax machines used at the White House, aboard Air Force One and by allied military commanders in the Persian Gulf.

GKI, which has seen its fortunes soar with the success of its recently introduced photograph-quality fax machine, has a history of taking fliers on wild, and occasionally profitable, new products.

Though the future for the 241-employee company looks bright now, GKI insiders and investors say this wouldn't be the first time a great idea has inflated the company's hopes only to see them --ed later by bad luck, shortsighted management or internal squabbling.

"GKI has been on a roller coaster for 30 years," says Charles Hoffman, a former GKI salesman who is now suing the firm. "It is unbelievable the ups and downs a tiny little company can have and survive."

This time around, GKI will be led by its first outside manager -- an engineer with a Harvard MBA who wants to strike a balance between creative engineers who invented the "Cryptek" facsimile machines and financial controllers who want to keep the company in the black.

Mr. Thompson says he aims to expand sales of GKI's best products to put the company on a steadily rising track to success. "We are not looking to jump up and be a flash in the pan. We've turned down opportunities for quick [growth]. We are looking for a future of high


Although insiders and investors have praised the quick command the 44-year-old Naval Academy graduate has taken of the troubled company, they wonder whether he can resolve the controversies that still drain GKI of valuable cash and managerial energy.

Most importantly, Mr. Thompson must find some way to settle the battles for corporate control that have divided the company for years. And that may not be easy for an executive accused by some investors of attempting his own takeover as recently as last month.

If he is to steady the course of GKI, Mr. Thompson will have to overcome the company's history, which has been a wild ride from the start.

Founded by three scientists and a retired admiral in 1954, the company struggled at first, despite inventing a film-cleaning machine that won an Oscar for technological innovation.

But GKI struck it rich selling computer tape-cleaning equipment in the early 1960s, and spent the profits on dozens of ideas and companies. Some fell flat: GKI lost thousands on development of a one-of-a-kind machine that picked fly legs out of applesauce.

Others were winners: GKI still sells a device that tests crispness and readiness for Minute Rice, fresh peas and other foods. And a metal-working company that made the housings for GKI machines still is one of only two companies that make metal cabinets for electrical equipment on Navy ships.

But the wild spending spree took its toll. Cost-conscious Louis Schap, who was head of the metal-working company, started feuding with some of the founders who wanted to keep emphasizing research. GKI was nearly bankrupt by the time the original founders left the company in the early 1970s.

When Mr. Schap took over the presidency of the company in 1974, he slashed salaries, consolidated offices, renegotiated loans, abandoned development of a money-losing tomato-harvesting machine and eliminated research.

A decade of penny-pinching saved GKI, but left it with no strong business lines to buffer the downturn in defense spending in the mid-1980s, GKI executives say. Realizing the need to kick GKI out of its doldrums, in 1986 Mr. Schap asked company attorney Stephen P. Goldman to take over as board chairman.

Mr. Goldman says he immediately pushed Mr. Schap to invest the company's cash in start-up research companies, lobbying for the purchase of a tiny, cash-starved company called Cryptek Inc.

Taking a flier on Cryptek sent GKI on its wildest ride of all.

Steven Rogers, the young engineer who had founded Cryptek in his parents' garage in Herndon, Va., was developing a fax machine that would meet anti-eavesdropping standards set by the Department of Defense. While other fax producers deadened the tappable radio emissions from the works of their machines by shielding them with thick metal housings, Mr. Rogers' idea was to design computer chips that wouldn't give off any radio emissions.

The six founders of Cryptek had finished a working prototype by the summer of 1987, but had spent the $500,000 they had raised from relatives and second mortgages.

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