For Donald D. Iverson, the military buildup of the Reagan era was something of a gold rush: His company, Iverson Technology Corp., was one of a myriad of small defense contractors then springing up. But few rode the wave so far or so fast. Tapping into fears of foreign spying, the entrepreneur built a booming business providing secure computer systems for the military and intelligence agencies. By the late 1980s, the supercharged Iverson had earned a spot on BUSINESS WEEK's Hot Growth Companies list: With sales up an average of 85% a year, Iverson built a $60 million company with more than 200 employees.

Those heady days are long gone. Today, Iverson works from cramped offices in McLean, Va., alongside 17 employees. Sales plummeted below $1 million in 1994, and losses have topped $30 million in recent years. The end of the cold war led to a swift fall in demand for the expensive computer systems he provided. And a succession of moves he has made since to diversify have run aground.

Indeed, Iverson has spent much of the past several years simply trying to stay afloat. On June 16, he reached a settlement with unpaid bondholders who had tried to force a liquidation. But Iverson is hardly conceding defeat. Legally blind from glaucoma, he is pushing his struggling company into a new arena: the sale of athletic shoes customized with college and other logos. Iverson, 62, claims sales in the little-tapped niche could hit $25 million by 1999. "Business is a game," he says. "If I couldn't play the game, I'd die."

It's certainly one Iverson has been playing a long time. A marketing major from Stetson University in Deland, Fla., Iverson did sales stints for IBM, General Electric, and Honeywell before starting his own company selling energy-efficient chimney equipment in 1978.

In 1980, Iverson spied an opportunity. As the defense buildup began, he heard about government plans to certify companies that met anti-espionage standards for computers. The secret standards, known as TEMPEST, involve, in part, covering computer systems in steel casings so that the electronic signals they throw off can't be picked up. Iverson hired a slew of TEMPEST engineers and became one of the first to provide the equipment.

His timing couldn't have been better. Demand soared, and by 1984, sales topped $6 million. Iverson took the company public at $8 a share the following year, netting $1.5 million himself by selling a 30% stake. And through 1987, when the company launched a secondary offering at nearly $22, Iverson and the trusts he had set up for his children had sold shares worth another $7.1 million. "My family is set for a few generations," he says. The same can't be said for shareholders who bought into the stock at its height in the late 1980s. When the Soviet empire collapsed in 1989, the market for TEMPEST products evaporated as quickly. By yearend, Iverson tumbled to less than $4 a share.

IRONCLAD CONTROL. Iverson scrambled to diversify. He tried to sell the expensive computer-security systems to private companies, but there were no takers. He also bid on government contracts for cheaper, less secure computer systems. At the same time, he entered the retail PC market, selling Far Eastern clones through warehouse stores and mail-order.

But with industry giants such as Dell Computer Corp. and Compaq Computer Corp. slashing prices almost as quickly as new models were coming out, Iverson never dented the market. With losses mounting, the company virtually withdrew from the PC market by the end of 1993, pushing the stock below $1.

Iverson blames the Soviet collapse for his problems, but ex-shareholder G. Bruce Douglas, chief investment officer for Douglas Capital Management, says much of the onus lies with Iverson's poorly thought-out move into retailing PCs. Douglas, whose firm once owned over 6% of Iverson, took large losses before selling out. He says Iverson also failed to warn shareholders of the impending problems with TEMPEST. "For too long, the expectations [for the company] were greater than the reality," Douglas says.

Former executives also say that Donald Iverson's hands-on management style compounded the difficulties. Iverson controlled all aspects of business at his company--as he does today. Former managers say Iverson dictated everything from the placement of furniture in the office to what they contend were uncompetitively high bids on government computer contracts. Iverson's combative style and ironclad control over the company he founded eventually "destroyed morale and diverted time from the real problems," says Dan Parker, an attorney who quit Iverson after a brief stint in 1990.

The company was also plagued by a series of legal headaches, including lawsuits by several former employees. Most damaging, however, was a criminal investigation into a $133 million computer contract with the FBI that Iverson had landed. A tip from a former Iverson employee who now works for the FBI triggered a grand jury probe in 1991 on undisclosed charges. Although the company was notified in April, 1994, that it would not face charges, the investigation took its toll. The company racked up $3 million in legal expenses--and Iverson believes the probe kept it from winning any other large government jobs.

With the investigation closed, Iverson says he'll move full steam ahead with his new shoe business. In mid-June, he struck a deal with bondholders who hold most of the $6.4 million in defaulted Iverson debt. The deal to buy back the bonds for 35 cents on the dollar will be funded by $3 million the FBI recently agreed to pay on the disputed contract.

Iverson says he now plans to raise private equity to finance growth in what he claims is the lucrative, largely untapped niche of athletic shoes customized with college, military, or other logos. A big NCAA sports buff, Iverson says he got the idea after years of hobnobbing with players and coaches at collegiate championships. After his PC business collapsed, he says, "I was looking for another good niche." He designed the shoe by hand in the workshop of his McLean home, then drew on his experience in the Far East to find suppliers.

Over the past year, Iverson has relentlessly pitched his shoes to college bookstores, military PXs, and major retailers such as J.C. Penney Co., which is testing them in six stores. Established rival Projogs International says the market is tiny--and Iverson has had no luck breaking into major sporting-goods chains such as Foot Locker and Athlete's Foot. But he insists the business will flourish. Although his annual sneaker sales are less than $500,000 today, he figures revenues could hit $25 million by 1999. Given the obstacles, that's a tall order. But no one ever accused Iverson of thinking small.


1985 Iverson Technology rides defense boom, selling anti-eavesdropping equipment for government computers.

1986-88 With sales and earnings growing roughly 85% a year, the stock peaks at 27.

1989 Sales peak at $60 million but begin crumbling when the Soviet Union falls. Iverson tries retailing PCs as the stock hits 4.

1993-94 Iverson's failure in the PC market sends the stock below 1. It tries a new niche: customized sneakers. Sales fall to $743,000 in 1994.

1995 Bondholders try to liquidate the company but settle for 35 cents on the dollar. Iverson claims shoe sales could hit $25 million by 1999.

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