Editor’s note: This is the sixth in a series of stories profiling select companies presenting at the CED’s 2006 venture capital conference.)

CORNELIUS, N.C. — The management team at Arrendale Associates Inc., a software firm located in suburban Charlotte, believes it has developed a means to enhance the medical transcription business over the Internet — and through international outsourcing.

“AAI has developed a proprietary word processor and tools for medical transcription along with custom work flow solutions that meet a particular need in the industry, allow for outsourcing while remaining HIPAA compliant,” management told WRAL Local Tech Wire in a recent Q&A, “and delivering products and services over the Internet for ease of deployment, support and use by physicians, nurses, clinicians and medical transcriptionists.”

AAI is among the companies presenting at the Council for Entrepreneurial Development’s annual venture conference today in Pinehurst, N.C. AAI has already raised $7 million, including $4 million from owners, friends and family and $3 million for license rights from CBay Systems. AAI, which generated more than $4 million in revenue in 2005, is seeking additional funding to drive growth.

The Q&A:

The momentum has picked up over the past year in many segments of venture capital. Are you finding more interest among potential investors?

Yes, (we) believe we have a strong economy and the global market is rapidly expanding as well, especially in Asia. The Internet is coming of age with real applications for real consumers allowing ASP services to be a viable option for end users.

Even in a better investment climate, VCs are more demanding than ever in terms of due diligence. Why should investors be interested in your firm?

AAI is an established software company with customers both in the US and in India. Our recent development of web-based workflow products to allow out-sourcing, especially internationally, is right on spot in today’s global marketplace. AAI has spent over $1.5 Million on workflow technology research and development the past two years perfecting the off-shore outsourced model. Our target market has few competitors and the paradigm shift in the health industry is trending to outsourcing and the acceptance of off-shore labor. Coupled with a fragmented service industry AAI will target provides a strategic advantage to AAI for quickly scaling with our ASP technology developed to support this model.

What’s your “elevator pitch”?

AAI designs, develops, markets, installs and services dictation, transcription and document management solutions to the healthcare industry.

(The software developer creates tools for off-shore and outsourcing with a 2006 run rate of $5 million.)

What is the “pain point” (or points) you address for your customers?

Medical transcription service organizations (MTSOs) and hospitals share a similar set of chronically unmet needs right
now:

  • Need to replace cumbersome, out-of-date, and failing systems. Aged, inflexible, and high cost software solutions are common today and many of these are no longer effectively supported by their original vendor.

  • Accessibility anywhere and anytime by MTs, physicians, supervisors, administrators and other medical personnel (e.g. physician viewing from hospital, office, or home).

  • Flexibility to facilitate outsourcing across organizational boundaries and across borders.

  • Productivity improvement capabilities such as job dashboard, prioritization, status tracking, and performance measurement.

  • Ability to integrate with hospital systems so that documents, wherever typed, route appropriately to follow existing procedures.

  • Simple and quick implementation.

  • Painless, no-touch upgrades and maintenance.

  • HIPAA and the Patient Bill of Rights compliance — for real.
  • What makes your company unique? Do you have a proprietary and/or a patented technology?

  • Cost effective solutions — low cost of entry

  • No channel conflicts – products that win

  • Installed base to build from

  • Track record — world class support

  • AAI has developed a proprietary word processor and tools for Medical Transcription along with custom work flow solutions that meet a particular need in the industry, allow for outsourcing while remaining HIPAA compliant, and delivering products and services over the Internet for ease of deployment, support and use by physicians, nurses, clinicians and medical transcriptionists.

    What makes your product(s) and/or services unique vs. your competition?

    Value Proposition. Arrendale’s ASP offering offers the following compelling value proposition for physicians, MTs, supervisors, administrators, and other hospital personnel:

  • Comprehensive functionality and the deepest, most time-tested and enhanced feature set available in the industry today

  • Strongest productivity and performance management dashboard and toolkit

  • Fully flexible and customizable according to user needs and working procedures

  • Accessible anytime and anywhere by any authorized personnel for maximum flexibility and productivity

  • Single uniform version with all maintenance and upgrades done remotely over the web

  • Simple and quick implementation

  • Perfect HIPAA security and privacy compliance

  • Low cost of entry — little or nothing up-front for MTSOs who are charged a per line fee for work that moves across the platform.

    Does your company already generate revenue?

    $4.12 Million in 2005 EBITDA $175,000

    What is your target market?

  • $2 Billion Addressable Market for AAI

  • Marketing Focuses on Two Targets Verticals

  • 1500 Medical Transcription Service Organizations (MTSOs)

  • 12,000 hospitals and clinics
  • We are targeting 10 percent of the MTSO Market over the next two and a half years

    What will you do with the invested funds? What is the timeline for product delivery? If you have existing products and services, how will additional funding help you expand your company, if that is the intention, or will you develop new products?

    Product is ready for delivery today. We will use new funds for growth and expansion of sales and operations, more specifically: recruit senior vice president for sales and marketing; build a national sales team; expand channel opportunities; mine current client base; grow in India.

    What do you want from an investor other than money?

    Experience working with small companies.

    Why will investors be impressed with your management team?

    Arrendale has assembled a team of 23 information technology and healthcare professionals to support the expansion of their business.

    Leadership includes:

  • Del Arrendale, chairman and president, has been an innovator of
    technology for healthcare for more than 15 years. In 1978 Del formed Arrendale as a consulting firm providing data processing and data services to the healthcare industry. In 1989 Del and IBM developed technology which enabled dictation and transcription of medical records to be automated utilizing new IBM products. The new technology enabled IBM PCs to communicate and extract data from their mainframes. Subsequently Del continued to lead a team of developers to many industry “firsts” and decided in the late 1990s to migrate the Company from software “platforms” toward the new technologies of the Internet. Del originally gained his technical training as a computer instructor in the US Navy from 1971-1975. He served eight years as a submarine computer specialist, maintaining computers used for navigation and guided missile control systems. Del gained his formal education from George Washington University, where he earned a degree in Business in 1974.

  • Ed Cannon, Director of Technology, joined Arrendale in 1996. Ed had been Director of Information Systems at Blount Memorial Hospital, Maryville, Tennessee.

  • David Campbell, Director of Development, heads a strong development
    team that has over thirty five years cumulative experience at Arrendale developing leading edge information technology products.

  • Duane Page, Director of Infrastructure and ASP Operations. Duane earned his BS degree from MIT in 1982 and joined Arrendale after gaining technical expertise at Digital Equipment Corporation, Hudson, MA.; C.S. Draper Laboratory, Cambridge, MA; Sloan Automotive Lab, MIT, Cambridge, MA; Philip Morris (where he was their Technology Analyst for 10 years) and as a DBA at Red Prairie, Charlotte, NC.

  • Judy Arrendale, VP Marketing joined Arrendale in 1993 after 15 years
    as an Assistant Buyer and marketing executive at Sears headquarters in Chicago, IL . Judy earned her BA degree from Wake Forest University in 1978.
  • What is the exit strategy for the investor from your company? Are there potential strategic alliances with larger companies? Do you wish to take the company public? Or do you wish to grow the company and either sell it or acquire other companies?

    Sell within four years; acquisition is most likely exit.
    ______________________________________________________________________________________

    FACT BOX: Arrendale Associates, Inc.

    MISSION STATEMENT:

    Arrendale Associates Inc. will provide the healthcare industry with technology based, integrated system and service solutions for the efficient and effective creation, management, and storage of electronic documents. We will conduct our business relationships with clients in an ethical manner with high integrity and character. We will create value for our shareholders by providing above average returns on their investments.

    TYPE OF COMPANY: Software sales and services

    ADDRESS: 20484 G Chartwell Centre Drive, Cornelius, NC

    PHONE NUMBER: 704.895.8025

    WEB SITE: www.aaita.com

    BOARD MEMBERS:

    Del Arrendale — Chairman and President
    Chris Foley — President CBay Systems – 3rd largest Medical Transcription Services Company inIndian based BPO
    Frank West — Minority Shareholder Representative – Acting CFO
    Judy Arrendale — VP, Director and Secretary – Actively part of the management team

    INVESTORS: Personally bootstrapping by owners with friends and family accounted for initial $4 million. Strategic investor, CBay Systems, $3 million for license rights. These funds were used for R&D development which is now substantially completed. Additional funds will be used for growth.

    REVENUES: $4.125 Million in 2005

    YEAR ESTABLISHED: 1999 began this business model. Company formed as different entity in 1991

    NUMBER OF EMPLOYEES: 28