Rutter Technologies Inc. (RUT)
Interview with:
Donald I. Clarke, Chairman and CEO
Business News, Financial News, Stocks, Money & Investment Ideas, CEO Interview
and Information on their
Voyage Data Recorders (VDRs) designed to meet the extensive requirements of the marine industry.

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Rutter Technologies is a leader in the design and manufacture of Voyage Data Recorders and adds management tools to enhance the value

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Technology
VDR/Marine
(RUT - TSX Venture)

Rutter Technologies Inc.

70 Brookfield Rd. – Box 427
St. John’s NL, Canada A1C 5K4
Phone: 709-368-4213


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Donald I. Clarke
Chairman and
Chief Executive Officer

Interview conducted by:
Lynn Fosse
Editor

CEOCFOinterviews.com
April 2003

BIO:
Donald I. Clarke – B. Comm., CA – Chairman and Chief Executive Officer of Rutter Technologies Inc.

Mr. Clarke is also the Chief Financial Officer of ConPro Group Limited (“ConPro”), an affiliate of Rutter, and President of Gunite Investments Inc., a holding company for various operating companies involved in offshore oil services, electronics, engineering and medical products in Atlantic Canada. He was a key player on the team that formed the strategic partnership known as Newfoundland Offshore Development Corporation Ltd. (NODECO). This company was the successful constructor for the $2.3 billion concrete gravity based production structure for $5.3 billion Hibernia platform and oilfield development.

He has contributed to the establishment and management of several joint ventures providing products and services to the Atlantic Canadian offshore oil and gas industry. He has been directly involved in the successful start-up of businesses in the electronic and medical product industry. Mr. Clarke holds a B. Comm. Business Administration (1974) from Concordia University, and a Certificate of Accountancy (1977) from McGill University. He is a member of the Ontario Institute of Chartered Accountants.

Company Profile:

Rutter Technologies Inc. (TSX Venture – RUT) was created in 1998 and has quickly become an industry leader, specializing in Voyage Data Recorders (VDRs) designed to meet the extensive requirements of the marine industry. Rutter’s expertise in the design and implementation of modular hardware and software enables customers to address their current navigational needs, and as circumstances dictate, adapt to evolving marine industry requirements. Rutter has built an extensive global distribution network with a large international team dedicated exclusively to VDR services and is committed to providing the most responsive customer service in the industry.

Rutter’s VDR-100 is designed to meet the extensive and varied recording requirements of the International Maritime Organization (IMO). The components of the VDR-100 include the DMU – Data Management Unit, Radar Interface, Bridge Audio, Radio Communications Audio, allows recording of 16 data inputs and records for a minimum of 12 hours. It also includes a UPS – uninterruptible power supply, soft downloading system, playback software, VDR alarm display and FRM – Final Recording Medium in a hardened storage unit. There are also multiple options available with the VDR-100.

Rutter Technologies is the only VDR manufacturer to offer a full line of CE certified and IEC 60945 compliant interfaces to complement the VDR. These devices increase the flexibility of the VDR allowing it to be configured for any future vessel or retrofitted to virtually any existing vessel and include: DataAnalog, DataDiscrete, DataGyro, DataMux, DataProtocol, DataSplitter and DataSynchro.

Another product offered by Rutter is the SeaScan. SeaScan represents the next generation of digital radar processing and high resolution display systems.  The SeaScan processor offers unsurpassed target detection performance and is ideally suited for use in demanding applications such as obstacle avoidance, Search and Rescue, iceberg detection, electronic chart overlay and coastal surveillance.

CEOCFOinterviews: Mr. Clarke, please give us an overview of Rutter.

Mr. Clarke: “Back in 1998, we saw that there were new regulations being initiated by the International Maritime Organization to regulate voyage data recorders and mandate that all ships carry this voyage data recorder. This voyage data recorder is the equivalent of an aircraft black box, but is much more complex because there are many more instruments and parameters on which to collect vessel data. Rutter was created to help take advantage of these new regulations. We have designed and built a voyage data recorder and commercialized product that has regulatory approvals and is now selling worldwide.”

CEOCFOinterviews: What has prompted the regulations now?

Mr. Clarke: “There was an accident a number of years ago, on a passenger vessel called the Estonia, which was the primary driving force behind the changes in the regulations. They were a long time coming, because prior to having the voyage data recorder, data was collected through interviews and discussions with people and it was never as accurate as having the actual data. The principle behind these regulations is to improve marine travel and safety. We have seen the affects of the black box in the aircraft industry and how it has helped improve the safety of aircraft by providing a better understanding of what is going on. We anticipate that the black box is going to have the same impact in the marine industry.”

CEOCFOinterviews: Will you tell us what the product does?

Mr. Clarke: “What the voyage data recorder (VDR) does is record all of the key information that is happening on the ship that can be retrieved if there is an incident. For example, the direction of the ship and the information on the radar screen at the time of the incident would be recorded. It also would record what was going on in communications booths on the bridge and through the various communication channels. It would record what the engine, rudder, and fire doors were doing at the time. All of these parameters are recorded by this voyage data recorder so that when there is an incident, you can come back to this data and find out what actually happened. The radar imaging is extremely important, especially if there is a collision because you can see what the other ship was doing, if you ran aground, or what happened prior to the incident. It is very useful information to be able to reconstruct the incident. Unlike the aircraft industry, where in 90% of the incidents the result is the loss of the aircraft, in the marine industry 90% of incidents do not result in the loss of a vessel. You need to find out what happened so you can take corrective action and change procedures or introduce new legislation that would improve maritime safety and travel.”

CEOCFOinterviews: What is it that you are actually selling?

Mr. Clarke: “There is a basic requirement to provide certain data and from that you can provide additional data or record additional information. For example, a ship may have two radars but the regulations require that you record only one radar. Our particular product can record up to four radars if the customer would like for all of them to be recorded. By recording four radars, much more information can be retrieved than if you were only recording the data of one radar. We get a lot of requests for this and one of the features of our product is that it is modular in nature. So we can add additional features that the customer may want, over and above the basic IMO (International Maritime Organization) requirement. We are using the voyage data recorder to provide management tools such as graphics analysis of various operating parameters on the vessel, which is over and above the basic requirement to record information. Our position is: this data is available, so why not use it as a management tool as opposed to just sitting there doing nothing for 90% of the time. We have taken it to the next level and decided that one can have the basic voyage data recorder, which is IMO compliant, or these additional features that allow for improvement in management. A lot of our customers are looking for this, because the competition is becoming greater in the industry. We have to find ways to become better operators, and we feel we provide that opportunity as well.”

CEOCFOinterviews: I see from your literature that you have the most reliable VDR today. What is it that sets your product apart?

Mr. Clarke: “We designed the unit from the ground up, knowing what sorts of problems would arise from trying to install the voyage data recorder. We have made our product extremely robust and it is easily adaptable to any vessel configuration. Regardless of what sort of radar, navigation system or engine room, we can tap into it effectively and record the data and not run into problems. We have the ability to install one of our units and have it up and running very easily and very quickly. On the other hand, if our competitors were working on a ship next to ours, we would be in and out in a week, while a month later they would still be trying to ‘iron out the bugs.’ The reason for that is this we have designed our unit to be very versatile and flexible.”

CEOCFOinterviews: You mentioned the most responsive customer service. Is this ongoing once the equipment is installed?

Mr. Clarke: “We have set up a worldwide service network. Even though our equipment is robust and should not require any servicing, IMO regulations require it to be certified annually. We offer the ability to re-certify anywhere in the world. You do not know where your vessel will be at any particular time and that is one of the conveniences that we offer. If there has been a change of equipment on a ship, it requires that the voyage data recorder be re-examined and re-calibrated in order to accept that new equipment. You may have this done anywhere in the world and our worldwide business service network will be able to help you re-calibrate the voyage data recorder.”

CEOCFOinterviews: What is the market opportunity for the industry?

Mr. Clarke: “The market opportunity is broken down into two segments. The IMO regulations were specifically targeted to new ships over 3000 tons that were going to be built after July of 2002. It also requires all passenger ships and ferries that fall under IMO regulations to be retrofitted with a voyage data recorder. They gave them eighteen months to be retrofitted. This is the first option, and we see the market at 500 million dollars over the next three years. The second wave, which IMO is in the process of deciding on, and in which the European Union has accelerated the implementation, is that all cargo ships, tankers and liquid gas vessels be retrofitted with a voyage data recorder. This EU deadline has been set at 2007. What you are going to find is that this retrofit market is going to demand VDR installations quickly. It is about another 1.5 billion dollar market for this type of retrofit because there are many more vessels that would fall under this category.”

CEOCFOinterviews: Is there much competition for this area?

Mr. Clarke: “I would like to think that there is no competition; there are other people selling other products but we do not believe they are as good as ours. But yes, there are other voyage data recorders out there; about ten players in the market. We have set our target for 30% of the worldwide market.”

CEOCFOinterviews: How do you reach your customers?

Mr. Clarke: “We have set up an extensive distribution network. We want to work with a distributor or agent in a country that knows a customer. A customer can be anywhere from Spain, the United States, Mexico, or South America. Rather than set up offices everywhere in the world, what we did is choose strategic regional areas. We have sales offices in Europe and have chosen distributors and agents that have strong relationships with various owners to work with us to sell and install our product into the customer’s vessel. We feel that in working with a local distributor, we can train the distributor to be able to do the servicing of the vessel. This creates the right relationship between the vessel owner, the distributor and ourselves, the manufacturer of the product.”

CEOCFOinterviews: Are there R&D items that can enhance the technology?

Mr. Clarke: “We are actually working with Research & Development today. What we are looking to do with Rutter is drive it to a 500 million dollar global marine technology company, offering reliable and affordable 21st century technology that improves maritime operation safety and travel. We are going to achieve this through research and development providing new products to the marketplace. As a result of the voyage data recorder, people are going to find that they need 21st century technology in order to improve maritime operations safety and travel. Some of the technology that is out there right now on the ships may be outdated. Ships are getting faster and oceans are getting more crowded. You need better information to be able to run the ships and improve safety; insurance companies are going to demand this type of improved technology. We are in the forefront, we know what is going on and we have access to all these things. We have anticipated what new technology will be required and that is what we are developing right now. We already have some enhanced radar imaging technology that we have developed that will improve the quality of radar and create better management tools for the captain.”

CEOCFOinterviews: Are they looking for these enhancements?

Mr. Clarke: “When we go and sell our voyage data recorder, their first position is that they only want what meets the IMO requirement. They do not want anything else - just the basic equipment. Then we have a discussion of the other features that they can have and the minute we get into that discussion, they start to see other opportunities. Their first position is that this is imposed on them and they just want the basics and they do not want to hear about anything else, and then they come around. This is also what we have found with other products that we have introduced. A lot of the cruise lines want to be in the leading edge of approved technology simply because they are extremely concerned about the safety of their passengers. These are the first vessels that would purchase our enhanced products and they would be interested in our enhanced radar imaging. We believe that as a result of the data generated from the VDR, they are going to find that these enhancements will be regulated and they do require improved technology to improve marine safety. Another market is the oil and gas industry. There is a push to improve marine safety so we can avoid a situation like the Exxon Valdez. When there is an incident with a tanker, it can be quite devastating to the environment.”

CEOCFOinterviews: Do you see acquisitions or joint ventures as part of your strategy going forward?

Mr. Clarke: “We are planning to grow through internal growth and the acquisition of a strategic technology that we believe we can funnel into our distribution network. We believe there is a lot of good technology out there but the companies with the technology are small and cannot develop the distribution network that we developed. Going into these relationships with these companies, we will be able to bring commercialization of the product through our distribution network. As a result we achieve a win-win situation for ourselves and for the companies that we acquire or joint venture with. We will not be able to drive our goal of creating a 500 million dollar company over the next five years by only internal research and development.”

CEOCFOinterviews: Will you tell us a little about the financial condition of the company?

Mr. Clarke: “We recently did an IPO on the TSX Venture Exchange and we closed that IPO at the end of November. We were over subscribed and raised 2.6 million dollars in that IPO. That was the first stage for us. We wanted to be public in order to drive our global strategy and we plan to continue to go back to the market and raise additional equity to fuel our growth that we are executing presently.”

CEOCFOinterviews: What should shareholders and potential investors know that may not be apparent on the surface?

Mr. Clarke: “I think potential investors should know that our tactical knowledge and our ability to develop this company will make it a global marine technology company that will generate 500 million in sales. It is a task that we have mapped out and developed the strategy. We are executing it and being successful in that execution. There is a time lag between telling people what you are going to do and then actually executing it. Based on what we have done to date, we have been successful at taking the product from an R&D stage, through commercialization to worldwide distribution. In our year ending August, we did 2.9 million dollars in sales. We exceeded that in the end of the first quarter and will do over five million dollars in the second quarter ending in February. Our budget is in excess of 15 million in sales for this coming year. This is significant growth; we have gone from 2.9 million to over 16 million in one year. It is our intention to continue to drive that growth through sound business practices.”

CEOCFOinterviews: What are the biggest challenges you face?

Mr. Clarke: “The biggest challenges are finding the right opportunities and ensuring that the dollars spent on internal research and development will generate significant dollars in sales for the company. We have to be prudent with the money that the investors have given you to manage. We always have to be concerned about competition and keep our eye on that, keep our finger on the pulse and look in our rear-view mirror to make sure no one is coming up behind us. We believe that we are doing a good job of managing this situation. Cost control is always a challenging area. We want to be low cost manufacturing. Although we do not sell our product based on price, we want to make sure that if price becomes an issue that we can be competitive there. We prefer to sell our product based on the additional features that we offer but we are also living in the real world and these features sometimes come as a subsequent sale. These are the ongoing business challenges that anyone would face. The underlying point is that we have a good management team that is experienced and we are not going to spend money foolishly.

I think that over the next three months there will be a lot of activity within Rutter Technologies Inc. that will be exciting and we will actually drive the company in the direction that we laid out for it - so stay tuned.”

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