The Charleston County School District is suing two local technology startups and the entrepreneur behind both companies, saying they failed to split proceeds on software they developed for area teachers with the help of county employees.

The lawsuit, filed Jan. 8 in Charleston County Court of Common Pleas, named eSchoolware Inc., Beacon TSP Inc. and Elaina Ezelle, the founder of both companies.County attorneys said in a filing that Ezelle blocked the school district's access to its teacher training software and incorporated eSchoolware as a "corporate veil" to circumvent royalty agreements with the school district. The lawsuit threatens to undermine the already shaky foundation of one of the area's most promising high-tech firms.

eSchoolware now has three employees and has not won any major contracts in almost one year, according to Ezelle, founder and part-owner. "We're actually trying to talk with the district to come up with some reasonable arrangement for everyone involved," she said Monday. "Otherwise, I'm not sure we can afford a two-year lawsuit."

In 2002, the school district signed a contract to pay Beacon TSP Inc. $110 an hour to develop software to help train the district's teachers. Two years later it signed an agreement allowing Beacon to sell the software platform, in return for 10 percent of the net proceeds and $200,000. The lawsuit alleges that the software company has never shared or disclosed its income. It also said Ezelle, Beacon's founder and owner, incorporated eSchoolware to circumvent its profit sharing arrangement. The lawsuit also said that eSchoolware locked the school district out of the software system last spring after the county refused to sign a release on the rights to the technology.

Ezelle said Friday that Beacon went out of business without turning a profit. eSchoolware, which is owned by a number of interests, sells a different software platform and I not liable to the school district, she said. She noted that eSchoolware has yet to post a profit either.

The firm got off to a strong start. In January 2006, the same month that eSchoolware incorporated, it won a $350,000 contract to provide its teacher training software to the state Department of Education. It was immediately lauded as one of the most promising companies in the State. The South Carolina Research Authority, a public nonprofit organization focused on economic development, promptly bought a $200,000.00 stake in the company. The Digital Corridor Foundation, a private arm of the city of Charleston's economic development office, also invested $25,000.00 in eSchoolware.

But, Ezelle said Monday that growth has been slow and her firm has shrunk from eight workers to three. If the company goes out of business, the state's $350,000 purchase might become obsolete. About 15,000 public school teachers now use eSchoolware software, according to Ezelle. Officials at the Research Authority did not return phone calls Monday. Ernest Andrade, head of the Digital Corridor Foundation, said his group has recovered most of its investment. Partly because of the lawsuit, the foundation has pledged to invest in companies that have an advisory board.

"Would we do things differently? Probably not," Andrade said. "Our investment was made on the strength of the management team at the time. When you are putting in a relatively small amount of capital, you can only do so much due diligence."