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Telkonet Seeks Financial Viability with New Leadership,
New Wisconsin Headquarters

By Kathleen Gallagher, Milwaukee Journal SentinelMcClatchy-Tribune Regional News

December 29, 2009 --When Richard P. Imperiale peeked under Telkonet Inc.'s hood in late 2007, he wasn't impressed.

Now the Milwaukee-area money manager is considering another look.

Telkonet's management team seemed to lack focus and didn't articulate a clear business strategy, said Imperiale, president of Forward Uniplan Advisors Inc. in Union Grove. The only bright spot he says he saw was Jason L. Tienor, who had recently joined the energy management technology company because of its $11.8 million acquisition of Wauwatosa-based EthoStream LLC, which Tienor co-founded.

"Unfortunately he is not running the company," Imperiale wrote in his notes shortly before deciding not to make an investment.

Two years later, Tienor is Telkonet's president and chief executive officer.

"In light of the recent management changes, it looks like a situation worth revisiting," Imperiale said.

Telkonet said last week that it is moving its headquarters and the remainder of its operations to Wisconsin with help from a $300,000 low-interest, state Commerce Department loan.

The company gets about 65% to 70% of its revenue from the hospitality industry and is beginning to see more customer spending, Tienor said.

Telkonet's patented, Internet-based software helps hotels and other customers save on energy costs, manage their high-speed Internet access system and generate reports about what's happening on their property, Tienor said. New York University is installing the technology in a dorm.

Customers using the energy management system typically achieve bottom-line savings of 30% or more by controlling the energy consumption in each room according to occupancy, environment, time of day, humidity and configuration, he said.

The software has the potential to provide information remotely about whether a drawer is open or a light is on and to help utilities modulate energy delivery to specific appliances and make load-sharing arrangements with big customers, said Anthony J. Paoni, Telkonet's chairman. Paoni has been a faculty member at Northwestern University's Kellogg School of Management since 1996, after 28 years in the information technology industry.

Telkonet uses an infrared sensor to tell the system when a room's occupant is sleeping so it doesn't assume there's no one there and change the temperature, said Rick Wiegand, owner of the Ambassador Hotel in Milwaukee, which is a Telkonet customer.

The Ambassador's average room temperature has dropped to 67 degrees from 72 degrees with Telkonet's technology because unoccupied rooms are now kept at lower temperatures, Wiegand said. As for competition, the best Wiegand said he could find was a company with a switch for room doors that reports when they're opened or shut.

Telkonet has found more competitors but isn't complaining.

"The worst place to be is in a nascent market with no competitors," Paoni said. "Where we are is in a hot market with more and more competitors."

The Wisconsin newcomer isn't without its challenges.

The previous management team's string of disappointing acquisitions rolled up a pile of debt and an overabundance of goodwill, according to U.S. Securities and Exchange Commission filings.

Telkonet was kicked off the American Stock Exchange in November and now trades over the counter. It has had cumulative losses of more than $100 million, never generated enough funds from operations to support its business and is so burdened by losses and cash flow deficits that its auditors have concerns about whether the company will make it and say it will need additional financing to execute its plans, the filings say.

"We have some challenges, but we've made enormous progress cleaning up the organization," Tienor said.

Telkonet reported losses of $20 million in 2007, which widened to $24 million in 2008. But for the first nine months of 2009, the company had a $4.2 million profit, boosted by a $6.9 million gain from the reduction of its ownership in Microwave Satellite Technologies Inc., filings show.

The company also on Nov. 16 raised $1 million from private investors, including Tienor and the company's chief operating officer.

Telkonet has the lead time and the knowledge to succeed in the clean tech space, and Tienor and his team are exactly the right people to guide it, Paoni said.

"Your shoulders grow very quickly once you put a lot of weight on them," Tienor said.

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Copyright (c) 2009, Milwaukee Journal Sentinel

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