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Distiller doesn’t have a bootleg to stand on

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People – August 2006

Distiller doesn’t have a bootleg to stand on
by Chris Richter

Shh, don’t tell anyone: Catdaddy Carolina Moonshine isn’t what it claims. It’s corn liquor, but not the potent popskull distilled in stealth that blockaders ran down back roads. It’s 80-proof, same as Jack Daniel’s sipping whiskey. And unlike the real stuff, it’s legal.

Its maker, Madison-based Piedmont Distillers Inc., is licensed by federal and state revenuers — unthinkable for real moonshiners. “They don’t pay their taxes. We do,” President Joe Michalek says.

Though it plays by the rules — the U.S. Alcohol and Tobacco Tax and Trade Bureau approved the labeling and formula — the company is proud of moonshine’s history. Catdaddy’s container looks more like a premium-liquor bottle than a clay jug, but each is embossed XXX, and the brand comes from the nickname shiners bestowed on their best batches. In another nod to its heritage, Piedmont is sponsoring a driver in three NASCAR races at Lowe’s Motor Speedway this year.

No ol’ boy down from the hills, this distiller is a native of Goshen, N.Y., who worked for New York ad agencies. He moved to Winston-Salem in the mid-’90s to toil for R.J. Reynolds Tobacco, winding up as vice president of marketing for the Winston brand in 2002. After sampling flavored moonshine at bluegrass and mountain-music festivals, he wondered why nobody was selling it legally. That led him to contact a German still maker and learn that some folks in Madison had bought one, incorporated, but not sold anything.

Michalek, 38, bought the company in 2004, installed filtration and bottling systems and shipped his first batch last September. He won’t say how much he paid for or has invested in Piedmont — secrecy is another trait he shares with makers of genuine white lightning. Nor will he reveal revenue or his recipe for flavoring Catdaddy, only that it’s a bit sweet with a hint of spice. The booze is made in a former train station, where Piedmont’s four full-time employees and about a dozen part-timers work.

A 750-milliliter bottle goes for $19.95, pricier than moonshine you sip from a Mason jar. It’s sold in South Carolina, Illinois, Wisconsin and more than 200 Tar Heel ABC stores. This month, it’ll hit shelves in Georgia. Though not the only ersatz shine to be found in liquor stores, Catdaddy is the nation’s only flavored kind. And there’s another advantage it has over the authentic: You don’t have to hide it. “This isn’t,” he says, “something you’ll find in your attic or backyard.”

CED seeks to sow more seed money

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Economic Outlook – August 2006

CED seeks to sow more seed money

North Carolina companies struck fewer venture-capital deals in 2005 than the year before. But the amount they received grew 61% to $507.5 million, according to the MoneyTree Report, a national study of the industry. Companies in Research Triangle Park grabbed about 80% of the state’s total, says the Council for Entrepreneurial Development, a Durham-based nonprofit that helps new businesses in the state. One concern: Seed funding declined 62% last year. Monica Doss is president of CED.

BNC: Why the increase in venture capital?

Doss:The economy has a lot to do with it. Venture capitalists were very wary in 2001, 2002 and 2003, the years following the high-tech bubble, but that didn’t stop the influx of companies. We were seeing a steady stream of new technologies and entrepreneurs coming out of universities. They just weren’t getting funded.

What industries are benefiting the most?

Life sciences were very strong. Because they take such a long time to gestate, those are companies that have been on the radar for a while, and they are ready to take on significant capital.

What about high-tech?

We’re seeing a lot of the investments made in things that are going to change industries. They are less in software but more in convergence technologies such as new chips and sensors.

Where should I go for startup money?

First, go after grants and loans from North Carolina Biotechnology Center, NC IDEA — a seed-capital fund for technology startups — or federal-government sources because you don’t give up any equity. Federal Small Business Innovation Research grants are particularly attractive because North Carolina has such a strong matching program. Second, you should talk to angel investors, individuals who invest in startups or business concepts. CED can help identify matches, but lawyers and accountants are also good referrals to angel groups or other high-net-worth individuals. If you’re in a research-based industry, you probably need to go to venture capitalists next.

What do investors look for?

Proven management, early benchmarks, a sizable market and/or evidence of secured intellectual property.

Why are most of the VC deals in RTP?

Most of the people who are starting these companies and getting the money have their roots here. They’ve worked in RTP companies or nearby research universities.

North Carolina ranked eighth in venture capital raised. What does that mean?

It means we’re not screwing up. It’s highly competitive, and we passed Georgia. They are investing a ton of activity and money throughout the state. It’s validating, but in no way is it time to sit back and relax, because someone was No. 8 in the country before.

Is the drop in number of deals a concern?

No, venture capitalists are doing larger deals in later stages. That’s a national trend. We’re concerned about the lack of investment in the early stages. Some of this is as a result of investors funding companies over a longer period of time. They release the money when benchmarks are met. That way, venture capitalists have a bit more control over their funding position in later rounds.

Why is seed investment dropping?

It’s down more than 60% from 2004, and the year before that it was down 40%. A lot of that investment was from angel funds. They’re individuals who are investing their own money, so when they get burned, generally they don’t come back. In North Carolina, you can count the available seed funds that are not angel funds on one hand. That’s an area we have to beef up through public investments. It’s an economic-development activity. If we don’t get them developed on the front end, we won’t have these later-stage deals down the road.

Seems risky, possibly controversial.

We’re talking about a relatively small amount of money — a couple hundred thousand dollars per company. Government funds can leverage a company to the point where the private sector picks it up. The data shows that these companies are good investments if you can get them out to that point where other sources will pick them up.

How else can we improve?

We should consider replicating incubators that have a high success rate — either in the public sector or private sector. Universities can follow the same strategy to support companies for a longer period of time. That provides state-of-the-art equipment and gets a company farther along on less money.

What’s CED’s role?

I’m going to get behind any credible effort to develop seed capital. We do an angel-investor retreat twice a year. We’ve started doing more on a statewide basis. It’s difficult, because angel investing is so word-of-mouth. If you’re in one area, you may not know what’s available to invest in five counties away. We’ve seen a lot of that, so the idea is to pull these people together.

To win again

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Up Front: July 2006

To win again

Consistency is one of the keys to quality, and if this year’s Alliance of Area Business Publications Editorial Excellence Awards are any indication, we have that in plenty around here. Business North Carolina won five, same as last year. In fact, four were in the same categories — three of them the very same prizes.

Ed Martin’s cover story on the Canton floods (July 2005) took the gold prize for best magazine feature, the fourth year in a row he’s won it — and the sixth time in seven years that a BNC writer has. Here’s what the judges, members of the University of Missouri journalism faculty, had to say:

“Part of what makes this story compelling is its subject matter. Citizens in a small town survive for a century because of its paper mill and the river that drives it, even though both can also bring tragedy in the form of pollution or floods. But it’s the strong, narrative quality of the writing that makes this article an award winner.”

They continued in that vein in awarding Ed the silver prize for best body of magazine work by a single writer. (He got the bronze last year, after winning the gold three years running.) “The leads are inviting and take the reader sensually to the stories through description and by establishing momentum. The stories contain interesting facts and concepts that are clearly presented and invite reader involvement by offering points of identification.”

We took top prize for best magazine or newspaper headlines for the third year in a row. “These headlines are golden because they are clever, clear and a good match for the stories they serve. Each main head links to a carefully written deck that carries through its style and tone. Together they accurately sum up the story and draw the reader into the article. These are smart headlines written for a smart audience.”

“Picture This,” the photo feature that appears most months, struck silver for best recurring magazine or newspaper feature. “From body parts to growing tobacco to crafting violins, this feature is a terrific example of storytelling, headlines, and photos working together to present a complete package that is well written and beautifully illustrated.” Last year, we won a silver prize for best profile.

Though it’s named for a base rather than precious metal, the bronze prize we won for best magazine in many ways means the most to us. “Business people in North Carolina surely consider Business North Carolina a must-read,” the judges wrote. “This magazine had some of the most interesting and well-written stories of all the business magazines. It has newsy departments and nice photo spreads. It is well aware of American Society of Magazine Editors guidelines with careful labeling [of advertising and sponsored sections] that gives this magazine credibility.”

The competition drew 680 entries from 61 of the AABP’s 74 member publications, and this was the fourth consecutive year we’ve been named the nation’s third-best regional business magazine. As honored as we are to keep winning the award, we’re a competitive bunch at BNC. I don’t think anybody would disagree when I say we wouldn’t mind trading some of that consistency for a little alchemy.

Sports guru gets back in the game

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People – July 2006

Sports guru gets back in the game
By Chris Richter

Max Muhleman and Arnold Schwarzenegger see eye to eye on one thing: There’s room for two National Football League teams in the Los Angeles market. California’s governor announced after a May meeting with NFL owners that he didn’t want to settle for one team.

It’s logical, Muhleman says. Los Angeles is the nation’s second-largest city, with nearly 4 million residents; neighboring Orange County has about 3 million. The region has not had an NFL team since 1994, when the Rams moved to St. Louis and the Raiders to Oakland, Calif.

Landing a team for Los Angeles is a top priority for Muhleman’s new sports-marketing company, which is working for the NFL. Private Sports Consulting’s specialties are franchises, venues and brands, as well as motor sports. Muhleman wants to open an office in New York and expand the Charlotte company’s presence in Los Angeles, where he has two employees.

Muhleman, 69, is a giant in sports marketing. He is best known for pioneering the permanent seat license, a financing tool that has enabled professional teams to build stadiums when municipal funds aren’t available. Purchasing a PSL gives a fan the right to buy specific seats in perpetuity. The Carolina Panthers sold PSLs to help pay for Bank of America Stadium. PSLs have raised more than $1 billion for Churchill Downs in Louisville, Ky., Busch Stadium in St. Louis and various NFL stadiums.

In 1999, Muhleman sold his business to IMG, a Cleveland-based marketing and management company that became IMG/Muhleman Marketing. He left last year and started Private Sports Consulting in January. He plans to keep the company small, with no more than a dozen employees.

Muhleman, who grew up in Greenville, S.C., started his career in newspapers, as a sportswriter at The Piedmont in his hometown and then The Charlotte News. In 1964, he moved to Los Angeles to direct public relations and promotions for the Cobra, a Ford sports car. After a stint as vice president and general manager of a motor-sports company formed by car designer Carroll Shelby and driver Dan Gurney, he opened Muhleman Marketing and Public Relations in 1972. The company’s early work focused on involving businesses in auto racing as sponsors. Later, he helped market the American Basketball Association and World Hockey Association. He moved his business to Charlotte in 1982.

Muhleman expects an NFL team to announce a move to Los Angeles or Orange County within a year. A second one could be there within five or six years. He envisions lots of work for his company on the West Coast. “Frankly, California’s NFL situation is not good up and down the state,” he says, citing aging stadiums in San Francisco and San Diego. “That’s going to be an important market for us.”

India fits into his theory of Relativity

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People – July 2006

India fits into his theory of Relativity
by Chris Richter

When Steve Maysonave replaced founder Vivek Wadhwa as CEO of Relativity Technologies Inc. three years ago, the Raleigh-based software maker was flirting with bankruptcy. Now it’s boosting employment in India — not by exporting jobs but by adding them to serve customers there, including large outsourcing companies.

Maysonave estimates that 15% of Relativity’s revenue will come from India this year, up from 5% last year. “We have such significant momentum in India that the only way we can really grow it properly is to set up our operation there and have people on-site.” The company won’t disclose revenue but says it was up 23% in 2005. For the first quarter of 2006, it was 96% higher than in the same period last year.

Its Modernization Workbench software lets users update older applications to work with newer computer systems. Maysonave, most of whose career has been in high-tech sales, changed the way the software was distributed, including a deal in which it is sold under IBM’s brand. “That was a huge win for us in establishing, from a technology standpoint, the credibility of the company.”

After earning a bachelor’s in business management in 1968 from the University of San Francisco, the California native started out as a software engineer for RCA but decided the technical side wasn’t for him. He worked in sales for companies such as Intel and Informix, now part of IBM, and started a consulting business in 1998. He discovered Relativity while investigating potential investments for Japanese trading companies.

He got to know management, and Wadhwa, who had suffered a heart attack, asked him to take over as president and CEO. “Vivek was very candid with me. He had been through multiple presidents before.” The relationship between Wadhwa, who stayed on as an adviser, and the company’s investors proved to be more contentious than Maysonave anticipated. Let go in 2004, Wadhwa sued, contending that he was wrongfully terminated. The suit was settled last year. He teaches at Duke University, writes an online column for Business Week and has no stake in the company he launched nine years ago.

The lawsuit cost the company time and money but didn’t squelch growth. Now profitable, it has 122 employees — 35 in Raleigh — and plans to add more, including 20 in India by the end of the year.

Maysonave, who will turn 60 in September, says, “People tell me I look younger than I actually am. I definitely have more gray hairs after the last few years.”

Hog industry must make haste on waste systems

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Economic Outlook – July 2006

Hog industry must make haste on waste systems

Hogs are North Carolina’s top agricultural product, bringing farmers more than $2 billion in 2004. That total might have been bigger if not for a nine-year-old moratorium on starting or expanding farms with more than 250 hogs. Waste spills helped prompt the cap and want of a better way to handle hog waste will keep it in place until at least September 2007. Mike Williams, director of the Animal and Poultry Waste Management Center at N.C. State University, studied alternatives and found five that work well enough. But they’re all too expensive.

BNC: What’s wrong with the way hog waste is handled?

Williams:There are environmental issues associated with the current system — emissions of ammonia, concentration of nutrients in an area that may have a limited amount of land on which to put the nutrients for crop uptake. And of course you hear about the odor issues. I don’t think we’re in an environmental crisis with the current system, but I think it is one that is not sustainable for the long term.

Isn’t the big problem waste spills?

I’m not sure how productive it is to get into finger-pointing, but the industry has many times pointed out that it is responsible for only a small fraction of the releases. Municipal and other waste systems are responsible for a much bigger share of the total. There was, of course, the one waste-lagoon rupture in 1995, in which there were several million gallons released in a short period of time into the New River. That, of course, captured a lot of attention. And then floods did result in some waste lagoons overflowing.

How has the moratorium affected the Tar Heel hog industry?

It has resulted in a plateau of production. Since about 1997, when that moratorium was enacted, the inventory of hogs has fluctuated a little bit, but it has remained at about 10 million. Some who raise hogs say that a moratorium has been a good thing. However, there’s no question — because I’ve had these people contact me — there are people who would like to expand. There are people, especially some people who historically have derived their main agricultural revenue from tobacco, who are interested in phasing into other forms of agriculture and would be interested in raising hogs.

Describe the most environmentally friendly waste system you’ve found.

It is a system that is similar to a small municipal waste-treatment system. It has a process where it separates the solids from the waste stream and also removes all of the phosphorus and kills the pathogens. Then the liquid waste is treated by a denitrification process, such that the ammonia is converted to nitrogen gas, which is inert and environmentally good. Odor-causing compounds are also oxidized.

What about the solids?

We identified an additional four systems that were above the bar for all of the environmental variables. And they involved processes as simple as composting the solids to processes as complex as gasifying the solids or incinerating them or treating them in an enclosed anaerobic digester, which would convert the nutrients in the solids to methane, which could then be converted into electricity and put back onto the grid.

How are the alternatives better than the current waste-handling system?

You would have less odor for the same number of animals in the same location. You would have fewer ammonia emissions, fewer pathogens and fewer heavy metals.

Better spill prevention?

Yes. Enclosed steel tanks instead of open-air earthen lagoons.

Why is it so hard to find a feasible fix?

The current system is inexpensive, and it is forgiving in terms of operator requirement and day-to-day maintenance. When you start incorporating systems that have pumps, blowers, technology-control components, you are adding cost. You are adding complexity. And to make that comparable economically to the existing systems is very challenging, especially if you do not have markets or incentives for products that can result from these systems.

What do you mean?

Some of these technologies were demonstrated to be able to produce electricity, to produce steam energy, to produce biodiesel fuel from manure, but the cost is not attractive. If we had some incentives and tax credits, I think it would be the catalyst that would drive the technology and improve on the technology and make it economically feasible.

How much more costly are the systems you tested?

Approximately four to five times more expensive than the existing system.

The moratorium was supposed to allow time for alternatives to be proven in the field. Is that possible by September 2007?

Yes. It’s possible but ambitious.

What if it doesn’t happen?

The General Assembly would have to address that. I have heard the moratorium would become permanent. But that would surprise me. I feel like it would be extended another five years or so.

Heavy industry

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Heavy industry

There’s no dearth of girth. But rather than expand, Durham’s Rice Diet and its brethren watch their wait.
by Tim Gray

Longtime Durham residents easily spot the people who’ve come to lose weight. They see them huffing along the gravel trail encircling Duke University’s East Campus, marked by their girth, their tentlike T-shirts and their new sneakers. They watch them squeezing through the aisles at Southpoint and Northgate malls. They notice them wedging into seats at Durham Bulls’ games.

These are the clients of the city’s three nationally known weight-loss clinics — Rice Diet Program LLC, Structure House Inc. and Duke University’s Diet and Fitness Center. You might assume that the number of dieters in Durham is multiplying — driven by America’s rampaging obesity — and that they’re more visible around town.

Instead, the programs are not rushing to expand their campuses, launch satellite operations, plunge into franchising or try anything that would cause an MBA’s adrenaline to spike. They’re not in a hurry to capitalize on opportunity. For the time being, they’re satisfied with what they are. Unlike their clients, they’re happy with their size.

Even at the status quo, the business of losing weight is lucrative for the programs and for Durham. None of the clinics would reveal revenue, but dieters contribute about $30 million annually to the city’s economy –- paying the lofty fees that the programs charge, renting hotel rooms for weeks or months and buying everything from baseball tickets to the occasional illicit pizza. Slimmed-down alumni have appeared in Vogue and The New York Times and on Oprah and Good Morning America.

Public interest in weight loss is soaring. As anyone who has seen the funnel-cake line at the State Fair knows, America is fattening up. We’ve become a nation devoted to life, liberty and the pursuit of the all-you-can-eat buffet. According to the Centers for Disease Control, two out of three of us are overweight. Nearly a third are obese. In 2004, the agency declared obesity the No. 1 threat to the nation’s health because of its link to diabetes, hypertension and a host of other ailments.

Those extra pounds could translate into larger profits for Durham’s programs. The city draws about 3,000 dieters a year, from around the country and the world. It could attract many more. But presented with the chance to gorge on more of the $40 billion — at least — that Americans spend annually on dieting and weight loss, Durham’s programs prefer to nibble.

The Rice Diet Program’s boss says expansion would hurt his ability to serve his patients. “Once you get past about 70 to 80 people at a time — and we’ve been up to about 110 –- it’s hard to give everybody the personal attention that you’d like,” says Robert Rosati, a cardiologist who, with his wife, Kitty, owns and runs the program.

At Structure House, psychologist-owner Gerard Musante says he’ll expand “when the conditions present themselves.” He points out that he has added programs for diabetics and for folks who’ve had stomach-stapling surgery, even if he isn’t planning new buildings or a facility elsewhere.

Duke’s Diet and Fitness Center offers weights for the weighty. Waistlines start wasting away.

The Diet and Fitness Center — DFC for short — could grow more easily. Its building has plenty of room, and it has the backing of a big parent in Duke. But university bureaucracies aren’t known for nimbly responding to financial opportunity, unless it involves sports facilities or sweat shirts.

The father of this weight-loss wonderland was Walter Kempner, a German doctor and researcher who joined Duke’s faculty in 1934. He was seeking a treatment for hypertension when he came upon his now-famous diet. His daily regimen of rice, fruit and vegetables was less than 1,000 calories. Originally, he wasn’t trying to limit calories, just cut salt and fat.

The diet drove down blood pressure — and weight. His program led to the rise of the other two and the city’s growth into a weight-loss Mecca. Kempner’s flinty charisma contributed as much as his menu. “He had a commanding presence, and a lot of people did it because he told them to do it,” Rosati says. “It wasn’t, ‘What do you mean?’ He said, ‘Do it,’ and they did it.”

Kempner didn’t have much use for psychotherapy or hand-holding. In a lawsuit filed near the end of his life — he died in 1997 at 94 — a former patient claimed that he spanked her and a few others when they strayed from his regimen. In a deposition, Kempner admitted he had — but only because they had asked him to.

He operated with an autonomy Duke today reserves only for its men’s basketball coach. Though affiliated with the university throughout his career, Kempner’s program operated from several bungalows near downtown. Clients went there for meals, going onto campus just for medical appointments and walks. “They’d have breakfast, lunch and dinner at the Rice House, and it would close in the interim,” Rosati says. “Kempner would tell them to take a walk in the morning and a nap in the afternoon.”

Durham was a perfect hideout for desperate dieters. Midway between Florida and New York, its distance from Washington, Wall Street and Hollywood let celebrities slip in without being bothered. And if Fat City was Dullsville, so much the better. The high life was what had landed these folks in Durham in the first place. Harland Sanders, the fried-chicken king, came. So did actor Lorne Greene, U.S. Supreme Court Justice Stanley Reed and Hee Haw star Roy Clark. Crooner Frank Sinatra sent his mom. Comedian Buddy Hackett was a repeat customer.

Rosati joined the Rice Diet staff in 1983. Kempner was cocksure and militant; Rosati is amiable and low-key, wearing his learning as lightly as an old cotton T-shirt. While running Duke’s cardiac-rehabilitation program, he became convinced that diet, more than anything else, even bypass surgery, lengthened heart patients’ lives. He started working with Kempner part time, visiting to check blood pressures and weights and discuss clients’ health. Within a few years, he shifted to full-time employment in anticipation of Kempner’s retirement.

Robert and Kitty Rosati rule the Rice Diet with simplicity: To lose, eat just what we say.

Kempner stopped working in 1992, shortly after the program moved to its current site on a mostly residential street in north Durham. It’s a low-slung, white clapboard structure that looks something like a barbecue joint — minus the inevitable smiling pig. Nestled in a stand of old oaks, it has a gravel parking lot and a motley cluster of newspaper racks. Next door, the medical offices occupy a small turn-of-the-20th-century schoolhouse.

“This doesn’t take bells and whistles,” Rosati says. “If you build a swimming pool, it costs money, and you’ll have to pass that on to the patients.” His prices are lower than the competition’s. For a new client, a month of the Rice Diet costs $4,800, while one at the DFC is $6,995; neither includes housing. A month at Structure House, which furnishes well-appointed rooms for its clients, can cost as much as $9,150. Of course, the two pricier programs include low-calorie menus that are more varied than the Rice Diet’s.

Its no-frills approach seems rooted in Rosati’s personality. “Kempner always used to say, ‘It’s what happens here, not how the place looks, that matters.” Rosati is opposed to making the program more like a spa. “The problem with a spa is that you go there and you’re out of the world. When you come here, you have to drive past Bojangles’, and you have to drive where you go to exercise. It’s like real life. I don’t see any reason to make it more complicated.” Over the years, he has added classes on nutrition, meditation and yoga. But he has about 20 employees, compared with about 40 at the DFC and 45 at Structure House, even though each program treats 1,000 people a year. Rosati tries to keep it simple.

In 2002, Duke approached him about severing his link to the school. Long expecting Kempner’s retirement, Duke had started the precursor to the DFC in the ’70s. The university also was running a third diet-and-exercise program, now called the Center for Living, for heart patients. “Part of Duke’s problem was that, when people called up, the idea of saying they had three programs bothered them,” Rosati says.

Outwardly, little changed after the Rosatis took ownership of the program. Robert continued monitoring patients’ ailments and vital signs. Kitty, who had arrived about a decade earlier as the Rice Diet’s first nutritionist, oversaw patients’ education, importing principles from Alcoholics Anonymous and teaching them how to hew to the diet after going home. On average, men arrive at Rice House weighing 280 pounds and lose 30 in their first month. Women, typically 210 when they come, average losing 19 in a month. Psychochatter flows as freely at Rice House as the water with a twist of lemon, about the only beverage clients are allowed. Talk with Kitty, and clients aren’t gluttons; they’re addicts.

She has published two diet books and is more eager to expand than her husband. Still, like him, she’s unwilling to license the name and says they’ve never met the right partner with whom to launch, say, a West Coast branch. But she’s open to other possibilities. “We just got an offer to open a program in Turkey,” she says. “This guy and his brother came from Turkey and did the program, and he had incredible results. He’s hot to do something, and he owns a fancy hotel there. But I haven’t been able to interest Rosati.”

If the Rice Diet resembles a 12-step program in a roadside restaurant, the Diet and Fitness Center still looks much like the YMCA it formerly was. It’s filled with badge-wearing staffers scurrying here and there and customers who come and go freely. Patients weigh in daily at Rice House, weekly at the DFC. The Rice Diet is regimented — you eat what they tell you — but the DFC is relaxed. If you want a small piece of steak, fine. Caffeinated drinks? They’re fine, too, if sugarless.

So what is required? “If you’re not going to classes and meals, they’ll ask you what’s up,” spokeswoman Becky Oskin says. “But there are no requirements per se. The main idea is to get in a lot of exercise.” Duke tries to make that easier — or as easy as it can be for those whose heart rates soar when they stroll across a parking lot. Unlike the Rice Diet, which urges clients to walk but has no gym, the DFC has a big one and a heated pool.

Musante, Structure House’s founder, helped start the DFC in the ’70s. While there, he came to believe that people’s weak wills prevented weight loss more than their tireless stomachs. Those who come to Structure House, he says, “know what to do, but they’re not doing it.” Anna Stout, the psychologist who leads his research and clinical staffs, elaborates: “The focus of this program is more understanding psychological issues that lead to the abuse of food, and we talk a lot more about understanding our clients’ relationship to food.” Each day, dieters enter their weight in the program’s computer and answer three questions: Were you structured in your eating? Did you exercise? Did you keep your eating diary?

This is the cushiest of the programs. On a quiet side road not far from a large shopping-and-office center, its 21-acre campus fronts a building that looks like a midline business hotel -– a Homewood Suites or a Marriott Courtyard. Rocking chairs line the deep porch. The manicured lawn is accented with tidy flower beds. Pillowed couches fill the lobby. The similarity to a hotel isn’t accidental. Unlike the other programs, Structure House provides lodging. The nearly 80 one- and two-bedroom apartments are equipped with recliners because some customers are so heavy they can’t sleep flat on their backs. Like much of the furniture, the recliners are specially made for large people.

Musante says the decision to build apartments arose from a combination of his background — psychologists often are experienced in residential treatment and are more comfortable with the idea than physicians, he points out — and plain prudence. “One of the problems I saw [with the DFC] was that people were spending a lot of energy trying to find a place to live. Hotel rooms were cramped and expensive, and this is a very involved program. It just made sense to put it all under one roof. I wanted it to be comfortable and homelike.”

He comes across as more of an entrepreneur than his buddy Rosati. Friendly competitors, they occasionally have lunch or dinner together. At Structure House, he leaves little to chance. Musante’s clients never have to leave campus. Everything is here — meals, lodging, gym, pool, medical appointments. And while not rushing to cash in on the surge in obesity, he doesn’t oppose expansion the way Rosati does.

“We’ve been approached throughout the years about a facility in another part of the country, and there could be one in the West. The problem is that all the folks I’ve met over years, I’ve just not found a group of people who I felt comfortable would be able to make it happen. If we could find a group, we’d be supportive.”

Structure House could see more people at its campus and would be happy to, he says. “In addition, only half of our land at this campus is developed. So we definitely have room to grow. I have always approached what we do here in a very organic way. We know how we would expand, so in that sense we have plans, you might say.”

Durham is magnetic for dieters. Structure House’s Gerard Musante counsels a client from London.

In the Structure House lobby is a flier that hints at a secret of its business success — as well as that of Rice House and the DFC — and its shortcoming as a panacea for its clients’ woes. The brochure offers discounts to those who book another visit before they leave.

Staff at all three programs concede that, though plenty of participants stay trim, people tend to gain back some of their weight. About two-thirds of those coming to Structure House are returnees. The other programs also rely on repeat business. “As hard as it is to lose weight, keeping weight off is much more difficult,” Stout says. “We try to dispel the notion that coming back here is a failure.”

That stance is psychologically realistic and economically pragmatic. Encouraging people to return makes sense for their waistlines. It also benefits the programs, turning a one-time sale into an annuity.

Bob Sapnar, an insurance salesman from Hampton, N.J., first tried Structure House four years ago. He weighed 232 pounds and had failed to slim down with Weight Watchers, Jenny Craig and Atkins. In four weeks at Structure House, he lost more than 30 pounds. But the weight keeps returning, and so does he. After a three-week visit this spring, he was down to 191. “I was absolutely committed to get to 180. So I’m planning to come back in October.”

Perhaps that’s part of the reason for the lack of urgency about growth in Durham’s diet programs. It’s reassuring to know that folks who come to lose 30 pounds this year will probably return to lose them again next year.

Goose riders in the sky

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Goose riders in the sky

To resurrect a worldwide market, a small-town startup melds a 70-year-old design with modern manufacturing.
by Irwin Speizer

and

Edward Martin

Not much is left except the smell of oil on old metal. The cockpit is stripped, its instruments useless. A wiper dangles on one side of the arched windshields, creating the appearance of a man squinting into fog. Twin control wheels with chipped black paint crown the yokes that the pilot and co-pilot pulled and pushed to take the airplane up and down. They’re disconnected. The wings are gone.

That’s for now. But emerging from the past — from a time some call the Golden Age of Flying — is an enterprise that offers a glimpse of the future of manufacturing in North Carolina. On a hillside in Gibsonville, where the only water to be seen is the dew on morning glories, V.L. Manuel is building seaplanes. His Antilles Seaplanes LLC is manufacturing an aircraft that began life in 1936, re-creating it, piece by piece, from scratch. Its Grumman G-21 Goose is no lark: Nobody else in the world is building seaplanes. “Is the market 50 airplanes a year? Yeah, sure,” says Jens Hennig, operations manager of the Washington, D.C.-based General Aviation Manufacturers Association. “Is it more? Possibly.”

Manuel hopes so. An accountant and former Internal Revenue Service agent, he and friends have invested about $7 million in the venture and are seeking a few million more to speed up the timetable. In a new 20,000-square-foot factory, its floors as clean as a nun’s conscience, a handful of workers pore over the original drawings on workbenches. Machinists and mechanics grind and rivet metal, stamping out parts to microscopic tolerances. Computer-controlled lathes hum while welders crackle.

A pair of gutted fuselages waits as cor- roded and worn parts are stripped and duplicated, the beginnings of a stockpile for when production begins, possibly next year. The two old Grumman G-21s are being rebuilt as demonstrators. But the airframes of Antilles Seaplanes’ Gooses will be new, down to the last nut and washer. More than 20 potential buyers from around the world have signed nonbinding preproduction contracts, Manuel says.

“That’s the wave of the future,” says Teresa Ratcliff, director of the North Carolina Industrial Extension Service at N.C. State University. “That is, finding a niche in the global market and then marketing yourself through electronic commerce. That’s what is going to propel the renaissance of manufacturing in North Carolina.”

On a wall in Manuel’s office hangs a world map. “Anywhere there’s blue on that map and there are no airfields, we can sell them,” he says. “The allure is that it can get you places you can go only by boat and seaplane. That’s why they were so romantic. That’s why they made movies about them.”

In 1936, Humphrey Bogart and Pat O’Brien starred in China Clipper. Bogie played the pilot of a Martin M-130 flying boat, which began overseas service only a few months before the movie was made. The lumbering four-engine giants took more than a day to span the Pacific, their passengers dining on white linen, sipping martinis in wood-paneled lounges and drowsing in sleeping berths.

That same year, a gaggle of New York millionaires, wanting to fly from their Long Island mansions to the Manhattan docks near Wall Street, commissioned Grumman Aircraft Engineering, then based in nearby Bethpage, N.Y., to build 10 smaller flying boats. Thus hatched the Goose. The G-21, with its twin 450-horsepower Pratt & Whitney air-cooled engines and 51-foot wingspan, could carry 10 people, cruise at 180 mph and fly 800 to 1,000 miles nonstop.

The Goose won legions of fans. It was perfect for reaching remote locations and island hopping. The Navy would acquire 222 for rescue and reconnaissance work. The Coast Guard and military services in Britain, Canada, France and Portugal used them in similar roles. Grumman produced 345 by October 1945, when it quit building them in favor of more-advanced planes. Manuel says about 60, scattered across the globe, are still flying.

In the fall of 2000, Manuel was talking with one of his accounting clients. Tim Henderson owns Aero Accessories Inc., a 40-employee maker of parts for older aircraft that’s also in Gibsonville, a town of about 4,500 straddling the Alamance-Guilford county line. “It’s time you got a plane,” Manuel said, offering to go in with him. As Henderson leafed through an aviation magazine, an ad for a Goose for sale in Miami caught his eye. “He just thought it was a neat plane. I didn’t know whether this was real or what, but I thought we might pursue it. With his background, we could get the plane and refurbish it. Heck, we had the rest of our lives to do it.”

The two friends, both now 56, have been airplane buffs since they were kids. Henderson grew up in Greensboro and, after getting out of the Army and graduating from aviation tech school, started a business repairing propellers and engines of small aircraft, first in Winston-Salem, then in Burlington. A pilot, he became expert in getting Federal Aviation Administration approval for the design and manufacture of parts. A Wytheville, Va., native, Manuel graduated from Elon College and spent about a year and a half as an IRS agent before joining a private accounting firm. After becoming a certified public accountant in 1983, he started a firm in Graham.

When they arrived in Miami in November 2000 to buy the plane from Franklin Aviation Enterprises, a broker of old aircraft, they discovered the company was the sole source of spare Goose parts. Owner Dean Franklin made them an offer. He was 92 and had been trying to sell his business. “I sat there for three days listening to stories he was telling about the aviation industry,” Manuel says. “This man started in his teens, when aviation was in its infancy. Howard Hughes once bought a plane from him. He took the plane and flew off and didn’t pay. A few months later, he saw Hughes, and Hughes said, ‘Did I ever pay you for that plane?’ Hughes took out his billfold and paid him in cash.” Franklin was also an acquaintance of singer Jimmy Buffett, a Goose aficionado who wrote about the plane in his novel Where is Joe Merchant?

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Franklin showed them his warehouse. Their eyes popped at what he had: tons of parts. Plus he owned the original drawings, blueprints and rights. The CPA began calculating. “We could just buy everything, have enough to fix our airplane and then sell the parts off. We’d have a free airplane.” They closed the deal for their first Goose — since then, they’ve bought three others in Alaska and Seattle — and arranged to have it disassembled and loaded on trucks.

“Thirteen tractor-trailer loads later, we were in Gibsonville with tons of airplane parts. Some of it was brand new; some was just torn apart. We started cataloguing and quit when we got to 150,000 parts.” They rented a former Cone Mills warehouse to store them. When calls poured in from Goose owners seeking parts, Manuel and Henderson dropped the idea of restoring a plane as a hobby. This was a business, and it needed a name.

Maybe it held bad memories for Maureen O’Hara. Someone had suggested that Manuel and Henderson name their com-pany Antilles Air Boats after the commuter airline started in 1964 by Charles Blair, a famous military aviator and Pan American Airlines pilot who married the movie star in 1968. She never returned their calls. She had run the company several years — the first woman CEO of a regularly scheduled U.S. airline — after he was killed in 1978 when the Goose he was piloting from St. Croix to St. Thomas crashed. They settled on Antilles Seaplanes instead.

If the name, taken from an island chain in the West Indies, is unlikely for a company in landlocked Guilford County, so is the setting. Up a graveled road on a bulldozed hillside, Antilles occupies a windowless, metal building. Eight employees, most of them with experience at other aviation companies, bend over machinist tools and drills.

Chris Jensen used to work for TIMCO Aviation Services, a 1,300-employee Greensboro company that performs aircraft maintenance. He pops rivets in a nearly formed tail section. Its complex curves and bends look like sculpture. The holes and curves align perfectly. The 70-year-old blueprints, not surprisingly, still work. “We call it magic,” he quips. Nearby sits a nearly completed wing that also serves as a fuel tank. Manuel estimates it has about 5,000 rivets.

Building an airplane from scratch is an enormous task. First must be created forms over which hydraulic presses stamp aluminum into intricate shapes for wing struts, bulkheads and other parts. Computer-controlled machines mill aluminum stock to pieces with tolerances of .0003 inch. Some parts are made with a technology called waterjet cutting, tiny streams of extremely high-pressure water carrying an abrasive such as garnet powder.

This is what is known as advanced manufacturing, reliant upon the kind of technology and experience that cannot be carted off to whichever Third World nation has the lowest wages. Some call it the last, best hope of U.S. manufacturing. Ratcliff cites Flextronics International in Youngsville and Zebulon, Acme Electric in Lumberton and Keihin Carolina in Tarboro as other companies engaged in precision metalworking.

Despite the complexity involved in building any airplane, part of the Goose’s appeal is its simplicity compared with aircraft of more recent vintage. Manuel slaps the end of a cable in one hand and points to a flap on a wing with the other. On the Goose, the pilot and co-pilot muscle the yokes and wheels to move cables connected to flight controls. There is no complex and potentially troublesome hydraulic system. Engines are sent to specialized rebuilders certified by the FAA for overhauls; instruments are rebuilt by certified avionics shops or bought new. Otherwise, Antilles can do all the work to make new planes.

Unlike conventional airplanes to which pontoons are mounted for water landings, the Goose is a true seaplane: It lands on its boatlike hull. Pontoons on the wingtips are there only to steady it. It also has retractable wheels to land on runways. But from a bus-iness standpoint, the advantage Antilles Seaplanes holds is as much in its business plan as in the airplane’s design.

On a workbench, Manuel clears parts off a blueprint. Its white lines trace how Grumman engineers designed the landing-gear strut in the early 1930s. “We started out $20 million ahead,” he says, tapping a finger on the blueprint. That’s the minimum cost of designing and getting a new plane through the lengthy, complex process of FAA certification. By using plans approved more than 70 years ago, Antilles avoids those expenses. The result? The Antilles seaplane, with rebuilt Pratt & Whitney piston engines, will be priced at about $1.3 million, substantially less than similar conventional aircraft. With an FAA-approved upgrade to 680-horsepower turbine engines, it’ll cruise at more than 240 mph for up to 1,200 miles and sell for about $2.3 million.

To expedite production, the first planes will hew to the original design, though later models might incorporate carbon fiber and other advanced materials. Buyers can customize cockpits and instruments, sticking with the original layouts or opting for such high-tech gear as global positioning systems and radar. Their choices might hold some surprises. When Jimmy Buffett visited the plant, Manuel assumed he would order one with turbines. The original engines were known for being smoky, cranky — though reliable — and loud, with an unmistakable guttural roar. “Jimmy shook his head,” Manuel says. “He said, ‘Naw, man. I want to hear that thing go grrrrrrrrrrrr.’”

With either engine, the Antilles Goose is a curious blend of the old and new. Manuel hoists a wing strut and taps the aluminum part onto a parts rack. It makes a ringing sound. “This one is two to three times as strong as the original and a pound-and-a-half lighter,” he says. He glances around. The floor is laid out to accommodate assembly lines. There will be 50 workers, maybe more. “We will turn out a plane a month. We’ll probably be able to improve on that.”

In Raleigh, Chris Brown watches the progress of companies like Antilles Seaplanes. A professor at N.C. State University, he is director of the North Carolina Space Initiative, which released a study last year that shows only about 2,300 are employed in the state by companies building airplane equipment and parts. Though North Carolina likes to brag about being first in flight, it ranks 34th in aerospace and aviation jobs — and many of the 39,000 who hold them are airline employees.

“We don’t have many large Boeing-type companies, though we do have Goodrich, which makes aerospace parts, [based] in Charlotte, and GE, which makes jet engines, in Durham and Wilmington. So our aviation industry is primarily going to be of companies like Antilles. We have a strong manufacturing tradition in the state, and they can pull from that.”

In the nearly 103 years since the Wright brothers’ first powered flight at Kill Devil Hills, North Carolina never gained more than a foothold in airplane manufacturing. During World War II, Fairchild Aircraft built a twin-engine trainer in a converted rayon mill in Burlington. During the Cold War, Western Electric made parts for surface-to-air missiles in the complex that grew up there.

“What we do have is an incredible capability in the new aerospace economy,” Brown says. “We have the manufacturing infrastructure, the expertise, the links to research at the universities. We just haven’t had the ‘aha’ moment when we realize we can become a player in the aerospace economy.” There’s nothing radical about Antilles’ approach, Ratcliff notes. Military shops at Cherry Point and Elizabeth City are re- creating helicopters with new parts.

In a glassed-in room over the factory floor, Manuel gazes down on an array of machines and thousands of airplane parts in various stages of completion. “I fell into this, but now this is my life,” he says. “I practically live here.” Though still an investor, Henderson no longer is active in the company. His general manager at Aero Accessories died last year, forcing him to focus his attention there.

As the manager of Antilles Seaplanes, Manuel has his hands full. He pulls sheaths of job applications from a drawer. The company recently began hiring airframe technicians, engineers and others with required FAA certification, planning to put them to work as production ramps up. A market study he and his investors commissioned shows demand for about 200 planes worldwide. After sales begin, Antilles will have to train and certify mechanics and pilots, both potential sources of income. He has a plan to build cockpit simulators. He already has a test pilot lined up.

Manuel is meeting with potential investors, including a group from Kuwait. With or without them, he says, Antilles will be building new planes. But with more money, it can build them faster with equipment it needs for tasks it now has to outsource, such as heat-treating metal parts. He won’t reveal exactly when the first new Goose will roll off the assembly line. That, he says, would only put more pressure on everybody involved.

But timing might be on his side. The small-plane business is on the rise after several disastrous decades. U.S. production of airplanes under 12,500 pounds — the Goose weighs about 7,000 — peaked in 1978 at about 17,000, then plummeted when crash-related lawsuits threatened to bankrupt many manufacturers. Some found themselves liable in crashes involving 40-year-old planes. In 1994, only about 500 small planes were produced. But legislation that year put an 18-year limit on liability. About 3,600 small planes will be made worldwide this year. Hennig, the General Aviation Manufacturers Association official, says Antilles could have the seaplane market to itself well into the future.

“We’ve received inquiries from Guatemala, the Transportation Ministry of Fiji, South Africa,” Manuel says. “The Greek government is interested in 20 planes to fly to the Greek islands. A man from Palm Beach, Florida, wants one with seats for just him and the pilot — but with a winch in the back to pull his Jet Skis on board. He wants to fly back and forth to his private island.” One of Antilles’ old Grummans once ferried crews to king-crab boats in remote Alaskan ports; New Orleans-based petroleum prospectors used another. Seaplanes are simpler to fly than helicopters, more reliable, less expensive and have longer range.

Those are the practical points in Antilles’ favor. Maybe the signs are right, too. On a recent steamy afternoon on that bone-dry Gibsonville hillside, as if on cue, four wild geese landed and began snipping at sparse blades of grass.

Fishermen: Pings lead to a net loss

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Tar Heel Tattler – July 2006

Fishermen: Pings lead to a net loss
By Edward Martin

Commercial fishermen have a message for the Navy: When Opie tosses that rock in the lake at the beginning of The Andy Griffith Show, it spooks the fish. So imagine what will happen if you bombard them with pings and beeps.

On the heels of a record-low catch in 2005 by the state’s struggling fishing fleet, the Navy is proposing a 660-square-mile sonar training range 60 miles off the coast of Swansboro. That worries some folks. “Will fish simply leave the area?” asks Louis Daniel, chief biologist of the state’s Division of Marine Fisheries in Wilmington.

The range would be south of Cape Lookout in a region known for grouper and snapper. The state’s commercial catch last year, valued at $64.9 million, continues a decline from its $110.6 million peak in 1995. The industry is so close to the brink that experts say the Navy shouldn’t create the range without close study. That hasn’t been done.

Spokesman Jim Brantley says the Navy assumes the network of underwater cables and microphones would have little impact. But Daniel says scientists know sonar affects whales and dolphins, so there’s no reason to suspect it doesn’t have similar effects on fish.

The declining catch is a complex problem. Daniel and Sean McKeon, president of the North Carolina Fisheries Association, say it has been caused in part by pollution, hurricanes and rising competition from imports. Regulations have hurt, too. Fishermen’s hauls of sea trout have shrunk because of limits on harvesting dogfish, which feed on them.

Another reason for the record low catch in 2005 was the collapse of menhaden fishing. Menhaden are used for fertilizer and other purposes, but Beaufort Fisheries, the state’s last menhaden fishery and factory, reduced operations drastically in 2005. Prices have declined, and the company has been fined several times for environmental violations. Fewer than 13.5 million pounds were docked, compared with 50.5 million in 2004.

For now, Brantley says, the Navy will consider fishermen’s concerns. But it continues to view the site off North Carolina’s coast as a prime candidate. Other possibilities are off Virginia and Florida. Meanwhile, the number of commercial fishermen in North Carolina dropped from about 5,000 in 2000 to fewer than 4,000 in 2005. “The industry is stressed to nearly the breaking point,” McKeon says.

Drug maker’s IPO isn’t heaven-sent

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Tar Heel Tattler – July 2006

Drug maker’s IPO isn’t heaven-sent
By Chris Richter

Raleigh-based Voyager Pharmaceutical Corp. is trying to develop Memryte, its treatment for Alzheimer’s disease. If its former chief scientific officer and co-founder had his way, it also would be working to glorify God.

That’s what Voyager claims. It’s suing Richard Bowen, who was fired in December, and Craig Atwood, research director at the Wisconsin Alzheimer’s Institute and a former Voyager consultant. It contends that Bowen, aided by Atwood, undermined an initial public offering and threatened to publish confidential research. Preliminary bids on Dec. 7 indicated that the IPO would raise $65 million, $35 million below the goal. Voyager canceled the IPO Dec. 13, the day it let Bowen go.

Bowen founded Voyager with CEO Patrick Smith and Chief Financial Officer David Corcoran in February 2001. The suit alleges that Bowen began behaving strangely after he took time off in May 2005 to evaluate his role in the company. At the annual meeting in September, the suit says, Bowen demanded that “the glorification of God” be part of Voyager’s mission statement. Those who didn’t agree, he said, should leave the company.

After Bowen returned from a medical leave, Voyager says, he withheld from management research that would have helped the IPO. On Dec. 8, the suit says, Bowen warned some shareholders that God had told him the IPO would fail. The next day, he and Atwood met secretly with representatives of San Francisco-based WR Hambrecht + Co., the investment bank underwriting the IPO. Voyager alleges that Bowen told Hambrecht there were problems with the Phase I trial results that management kept him from investigating. The suit claims that Bowen was trying to create a shareholder revolt that would help him win control of Voyager.

In an affidavit, Bowen admits questioning Voyager’s handling of research and operations. But he says he wanted to publish information about the research because it’s common practice and failing to show progress would have hurt the company. As for the other allegations: Smith and Corcoran are trying to discredit him, he says.

God is not in its mission statement, but manna — though not the heavenly kind — could be coming. Voyager has finished Phase II trials for Memryte. In January, Smith sent investors a letter announcing a plan to offer them 1.5 million shares. It also said Voyager will attempt an IPO again this year.