Imaging slowdown ends Reality's 3-D effort

August 25, 1993

Radiologist resistance to three-dimensional image processing plaguesthe medical 3-D industry segment. That's not new. However, weakclinical demand for 3-D products combined with a general downturnin hospital purchasing of high-end imaging equipment has

Radiologist resistance to three-dimensional image processing plaguesthe medical 3-D industry segment. That's not new. However, weakclinical demand for 3-D products combined with a general downturnin hospital purchasing of high-end imaging equipment has aimeda killer punch at the 3-D business. The market's punch provedtoo much for Reality Imaging, a six-year-old firm sprung fromthe ashes of Technicare's 3-D effort (SCAN 8/17/88).

Reality will shortly close its doors, confirmed president RobertH. Wake. Prior to joining Reality at its start, Wake served asvice president of engineering at Technicare, Johnson & Johnson'smedical imaging subsidiary that closed in 1986.

Solon, OH-based Reality was formed to commercialize Technicare'sVoxel Flinger 3-D workstation. It fell victim to an underachievingmarket coupled with belt-tightening by OEMs, the primary customersfor Reality's technology, Wake said.

Reality and other companies had projected an annual marketof 500 units for 3-D-capable workstations. The market demand neverexceeded much more than 100 units, Wake said.

"If the market had reached those kinds of numbers we'dbe able to weather a momentary problem like this," he said."It's no secret that this whole niche is really struggling.No one has made money in the workstation business, particularlyin the 3-D workstation segment."

This factor combined with OEM cutbacks to drive the nail inthe coffin, Wake told SCAN.

"When scanner sales start getting tight, the OEMs startcutting back even more stringently in other areas," he said.

The Japanese market segment, which accounted for a large fractionof Reality's sales, has also remained stagnant, Wake said.

"Japan's economy is still shaky, at least psychologically,"he said.

Privately held Cemax of Fremont, CA, claims it has experiencedrapid revenue growth and profits from OEM software sales (SCAN2/10/93 and 6/30/93). Cemax switched several years ago from thesupply of proprietary 3-D workstations to sell image processingand management software that runs on standard Sun Microsystemsworkstations.

ISG Technologies has also had relative success as an independent3-D workstation supplier, although it continues to lose money.The Toronto firm has branched out into related product areas,including development of a 3-D surgical viewing wand. ISG hasbeen publicly listed on the Toronto Stock Exchange since 1986and obtained an additional listing on the U.S. NASDAQ stock exchangelast year.

ISG lost $326,000 in the third quarter (end-March) of fiscal1993, an increase from its loss of $246,000 in the third quarterof 1992. Fourth quarter and full-year results are due out thisweek. Late last year ISG extended a long-standing 3-D supply arrangementwith Philips Medical Systems for an additional five years.

While the specifics have not yet been finalized, Reality willlikely declare Chapter 7 (dissolution) under bankruptcy laws.If the company garners enough cash from sales of its technologyto pay off its creditors, however, it will not go that route,Wake said.

"You only declare bankruptcy if you can't pay all yourcreditors," he said. "We may or may not pay all of ourcreditors."

A decision on whether to declare Chapter 7 will probably bemade within a few weeks, Wake said.

Reality is selling the software for its Voxel Flinger workstationto two groups that will maintain its installed base of about 60units. One of those groups already owns a large percentage ofthe installed base, while the other will be covering the rest,Wake said.

Wake plans to remain in medical imaging, although he's notsure in what area.

"Rationally, given the state of the market, this is thewrong business to be in," Wake said. "Emotionally, though,I have so many ties to medical imaging that I know I'll stay inthe business."