When thinking about Israel's great high-tech inventions, the voice mailbox developed by Comverse Technology Inc. (Nasdaq: CMVT) and the DiskOnKey, developed by Dov Moran's msystems, both developed by large teams, come to mind. However, there are also scores of small companies trying to develop products that will revolutionize their fields. One of them is RiT Technologies Ltd. (Nasdaq: RITT), which unveiled its high-speed Indoor Wireless Optical Network (IWON) last week. RiT hopes that the IWON will revolutionize Internet access and data communications at enterprises and offices.
Dr. Ofer Bengal founded RiT in 1989, it was controlled by brothers Yehuda and Zohar Zisapel until 2008, and went public in 1997. Its core business was cabling: communications infrastructure control equipment and services for enterprises and carriers. In 2008, Russian software and systems integration company Stins Coman Corporation, owned by Sergey Anisimov, acquired control of RiT and owns 82% of the company. Ansimov serves as chairman of RiT.
In February, Dr. Vadim Leiderman was appointed president and CEO of RiT. He is an aeronautics engineer, who immigrated to Israel from Russia with his family in the 1970s, and spent most of his career in the Israel Air Force and Ministry of Defense. In 2011, he was expelled from Russia, where he was serving as Israel's military attaché, after being accused of espionage. After his return to Israel, the Israel Security Agency cleared him of all suspicion, and he left the Air Force. He told "Globes", "Foreigners call military attachés spies, because their job is to collect information.
"Globes": How did you end up at RiT?
Leiderman: "I examined a number of options, including RiT. I didn’t know Anisimov, but after I returned from Moscow, he made contact with me via mutual acquaintances and offered me the job. I considered the risks and rewards, and before deciding, I and the CTO made a strategic analysis of the company's growth potential."
Leiderman says that the decision was not straightforward. "RiT Technologies has not been profitable since it was founded, except for two years. I give a lot of credit to my predecessors; they're not stupid men. If they didn’t succeed, you have to ask yourself what are the chances of breaking the vicious cycle and making change."
RiT's new strategy is based on the development and sales of several products, and the IWON product, unveiled last week, has the greatest chances of changing the company's fortunes. RiT posted a loss of $3.9 million on $13.7 million revenue in 2011.
The IWON is based on technology that RiT bought from Quartz Ltd., which is also controlled by Anisimov, in July. IWON is a bidirectional optical data communications system that could revolutionize the field. Enterprise data communications are currently carried by copper wire laid in a building's floors or ceilings to computer plugs. The IWON eliminates the need for hooking up the network to each terminal. The IWON is a saucer-shaped base station with eight directional nodes, optically linked to terminals, for data transmission at up to 1 Gbps. Each saucer can cover up to 32 terminals in a 100-square meter room, saving the need to lay fiber optics to each terminal.
Until now, enterprises, such as banks, which need to encrypt data flowing through their networks could not use Wi-Fi, which is too easy to hack. RiT's system prevents hacking data from the optical link, even though the data is in the air.
"The communications network is an enterprise's most valuable asset, because once you decide on its configuration, you lay infrastructure that will serve the enterprise for 20 years. The IWON will kill this lifespan, because it can be deployed immediately without the expense of laying cables through the ceiling," says Leiderman.
"This breaks the bottleneck in communications. I am personally very excited by the product, but I am not the story. Every time I bring an expert in the field and show him the product, the response is, 'Wow', and I say this will all modesty."
The IWON is in a pilot at a large carrier, and the beta configuration is scheduled for December, followed by commercial launch during the second quarter of 2013.
How will you sell the IWON?
"We now starting work on the sales model. Our concept is to work with strategic partners with distribution networks for commodities to distribute the IWON. We want to establish partnerships with leading US companies in the field, because setting up an independent distribution network for this product requires a completely different scale of investment. We've already decided to interest distributors, and with the launch of the beta version in the first stage, we intend to offer the system to customers to persuade them that this is a breakthrough product that brings something completely new to broadband."
Will the IWON enable RiT to break even?
"As a breakthrough technology, the IWON should completely change things and boost sales to a whole new level. We're talking about a completely new product that meets all market needs, which brings me to a completely different working point: a strategic breakthrough in the full meaning of the phase. It's very easy to reach the break-even point by cutting R&D expenses, but that would be the wrong step. With the establishment of the right distribution network for the IWON, I predict that the company will break even by the end of 2013."
Cutting the umbilical cord
Until now, RiT has financed its development costs with credit convertible into equity from Stins Coman, which has already converted part of the credit to boost its stake in RiT from 74% to 82%. Leiderman says that financing is the development bottleneck, adding, "I don’t think that a public company should promote its development on the basis of its chairman, who will increase his stake to 90%. I want to sever the umbilical cord to Stins Coman. We're seeking private investment, possibly from foreign strategic investors, in parallel to raising money on the capital market."
RiT has filed a draft prospectus on the basis of at the market offering, a mechanism for raising a limited amount of capital by allocating shares to a broker during regular trading on Nasdaq, instead of by tender. The company has picked Maxim Group LLC as the underwriter. On the basis of RiT's current share price of $4.68, giving a market cap of $24.4 million, it will raise $1.5 million, although the final amount will depend on the share price at the time of the offering. The company's share price is highly volatile, ranging between $2.70 and $13 during the past two years.
Published by Globes [online], Israel business news - www.globes-online.com - on October 14, 2012
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