Focused on the future

When Anil Jain started APA Optics in the basement of a small Minneapolis store in 1979, he made high-precision lenses by night and worked as a Honeywell scientist by day.

Jain's optical lens company was soon thriving, thanks to a steady diet of government grants, research contracts and tech firms that bet that his cutting-edge work would commercialize into products that would change the world.

Investors flocked. They liked Jain's promising UV-light detectors and his optical "power amplifier" lenses that scattered light to carry large amounts of sound and data through glass fibers much thinner than a human hair. APA's products found their way into defense lasers, the Mars Rover guidance system, flight simulators and fiber-optic cables.

"This was on the cutting edge of communications, and Dr. Jain seemed to have the system that would revolutionize the world and do things that couldn't be done before," recalled Steve Zuckerman, one of the early investors who picked up the stock at $2 a share for a venture capital firm he ran on the side of his medical practice. Zuckerman went on a diving vacation in 2000 and "hit the jackpot" when the stock soared from $30.75 to $64 a share.

But the company that once dazzled investors and raised millions through two public offerings now trades near 72 cents a share. The tech bust of 2001 conspired with thin profits to seal the coffin of Jain's high-tech dream.

On June 29, the upbeat Indian-born optics physicist resigned as chairman, president and chief executive. His technologies never quite changed the world.

Last month, the new heads of the renamed APA Enterprises closed the APA Optronics division in Blaine, laid off its workers and are seeking a buyer for its defunct Aberdeen, S.D., optics plant. The 10-year-old, $7.5 million structure built with state funds has been vacant for two years.

"They had maybe $2 million in contracts ... but it was only one or two quarters that I was there that they actually made money," Zuckerman recalled.

Co-founder Ken Olsen said, "I'll be honest with you. We really never had a great profitable year. But if you asked me another way, 'Were we ever hurting for money?' I'd say, 'No.'"

The research contracts made enough to cover most of the bills and, "when we became a public company we didn't have a problem with money. But when you are doing government contract work, like we were doing, you are not going to be profitable. It's set up that way."

This summer Jain, 61, switched gears and bought a Honeywell equipment maker in Prior Lake and APA's tiny India division, which makes commodity cable parts called pigtails and patch-cords. But his heart is still with APA.

"To me, APA is alive and well. I am still the largest shareholder and am on the board. I have not lost interest in it at all. Plus I bought APA India," Jain said. As for the rest of APA Enterprises, "I was not forced out or anything like that. On the contrary," he said. "We had been looking at this [the APA Optronics shutdown] for a long time, as to where we go and what not. I am getting to the age that I am thinking of what is the next step in my life."

No one who knows him is surprised by his relentless optimism.

"Anil is a very sweet man, and he puts his whole effort into whatever he does," Zuckerman said. "I think what ended up happening with him having to leave [APA] is that he continually was looking to hit the big one. It was a change in the world that he was looking to make. It was a long shot, and the company was never able to do it."

Determined to find a new source of revenue, Jain bought two cable component makers in 2003 with proceeds from a prior APA secondary offering. The merged operation, called APA Cables and Networks, is now APA's sole remaining operation. It is run by Jain's successor, CEO Sherri Podzimek.

The cable business, in which workers grind and finish fiber-optic cables for the rural fiber-to-the-home telecom market, saw fiscal 2007 sales grow 16 percent, but the division lost $804,472 on the business because of a "goodwill impairment charge" associated with the 2003 acquisition.

The optronics division fared worse. Sales fell 51 percent to $196,000, and the unit lost $1.3 million in fiscal 2007. It lost $2.8 million in 2006.

Jain, who grew up outside of Delhi with a passion for NASA and Russian space missions, physics and all things scientific, is determined his next ventures will fare better. He's agreed to pay $500,000 over five years for APA India, whose 30 employees will no longer focus on the U.S. market. Instead they'll try to sell to the Asian market for the first time.

"APA India was originally meant to be a manufacturing source for APA's cables and networks [division]," Podzimek said. "It was meant to be an export for us. But we found that it wasn't conducive for our business here. So, we are redirecting the business in APA India toward building a [components] market in that region."

Jain is thrilled. "I am familiar with India, and now I will have manufacturing both here as well as in India. My future goal is to manufacture and market products between the two countries."

Lean and energetic, Jain said he has no thoughts about slowing down.

"I asked him that, why not retire? But he likes the challenge. He wants to keep going," said Olsen, the former 3M optical lens maker who was the first to join Jain in the basement of APA Optics nearly three decades ago. Jain designed lenses and Olsen fabricated them. Olsen stayed on APA's board until about three years ago and now spends his days fishing and traveling.

In contrast, Jain said: "I bought a business: It's [Air-Pure Systems], the licensee for Honeywell Commercial Air Products. We make large air filtration systems. I have the exclusive rights to manufacture, market and design these products throughout the entire North America. We have a building and office and manufacturing place in Prior Lake ... and 11 employees," including his two sons who worked at APA and a daughter-in-law. He added that it's good to be back in a private company after so many years dealing with Wall Street.

Armed with about $1.7 million in loans from U.S. Bank, Jain bought the contract manufacturer, then called NBC Products, in March. Determined that some of his original APA technologies will rise again, Jain has big plans for his renamed Air-Pure Systems Co.

He intends to create a new line of UV, germ-killing air filters to market to hospitals and clinics in the United States. If he can swing Honeywell's permission, he'll sell the products in India too, using APA's existing staff there, he said. Jain also hopes to sell fee-based services to U.S. hospitals and clinics that need to verify that their UV-light filters work properly. His expertise in UV light detection is a natural fit, Jain said.

Such a service will be important for medical facilities dealing with SARS, tuberculosis, the avian flu and other deadly illnesses, Jain said.

"This is the opportunity I am banking on to make this a large business," he said. The company now generates about $2 million a year.

Former owner Tony Shanks said the vision is a big departure from what he ran for 32 years. "Honeywell was not into hospitals. It was mostly into the hospitality industry, selling to restaurants, bars and bowling alleys," Shanks said.

With Shanks in tow, Jain recently strolled through his newly acquired factory and paused next to a row of towering air-filtration machines the size of refrigerators. Lined up like soldiers reporting for duty, the gigantic filters will soon be outfitted with cages filled with gas- and odor-absorbing pebbles made of white zeolite, purple potassium permanganate and black carbon.

The next generation of these machines will be outfitted with UV lamps to kill germs as well as odors, the duo said.

The filters "will sit in the ceiling of a patient's room and make sure no germs get out," Jain said leaning against an empty hull. Before the company only used Honeywell's designs. But that is changing, said Jain adding that he expects the UV filters to do well in India, where the "business growth is exploding. ... By the end of 2008 we hope to have about $2 million in revenue there. Now sales in India are not even $500,000."

The plan has its fans.

"That was the thing I always felt confident with Anil," said his banker, Joe Brodsky, U.S. Bank vice president of the SBA loan division. "What he was buying was a nice starting place, but whatever he ended up with was not going to look a whole lot like what he purchased by the time he is done."

Dee DePass • 612-673-7725

Dee DePass • ddepass@startribune.com