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CEOCFO CEOCFO Monthly Analyst |
"To print this page go to file and left click on print" Next-Generation Products
Technology Robert J. Brilon Interview conducted by: CEOCFOinterviews.com Biography
of President, CEO and CFO
Bob
Brilon is the president, chief executive officer and chief financial officer for
Duraswitch. He has been with the company
since its inception and leads the management team in determining and executing on its
direction and goals. Brilon began his
corporate career at Go-Video in July 1986, at the time of its initial public offering
until April 1993. During his tenure four
public offerings and several private offerings were successfully completed to finance the
development stage and rapid growth. Following, Brilon took the position
of chief financial officer and vice president of operations and administration at Data
Hand Systems, Inc., until April 1995. For the
next two years, he served as the corporate controller for Rental Service Corp. During his tenure RSC completed an initial stock
offering in September 1996 for $100 million and grew RSC through mergers and acquisition
to over $100 million in revenues and over $200 million in total assets. In 1997, Brilon joined Gary Gietz
Master Builder, a luxury custom homebuilder in Scottsdale, Arizona, as head of business
operations and chief financial officer. Here
he incorporated systems to handle the rapid revenue growth of the company, achieving
substantial returns for the shareholders of the closely held company. Brilon graduated with a bachelor of
science in business administration from the University of Iowa and is a certified public
accountant. Company Profile:Duraswitch
is engineering, marketing and licensing a unique electronic switch technology that
provides a durable, cost effective solution for next-generation products. Duraswitch’s licensing business
model has allowed it to successfully partner with industry giants in the worldwide switch
market. Early on, these companies caught the
Duraswitch vision, and are now embracing the benefits these patented technologies bring to
their designs. The company’s plan is to
ensure the proliferation of its technologies through extensive patent protection and
selective licensing to a wide range of switch markets around the world. Duraswitch has strategically aligned the company
with leading manufacturers that have quality manufacturing capabilities and proven sales
records. As leaders in the realm of
value-added engineering, Duraswitch provides licensees with all of the sales and
engineering training, as well as technical and marketing support, they need to
successfully manufacture and sell its technologies. Duraswitch’s
proactive Business development team even provides leads and opportunities to promote and
expand its partners’ reach into the worldwide switch marketplace. Ceocfointerviews: Duraswitch Industries, please explain this
company to my readers. Mr. Brilon: Duraswitch
Industries is that it a company that has intellectual property on switch technologies, so,
that is what is unique about it. The name
‘Duraswitch Industries’ would lead you to believe that we actually produce
switches. We did that early on in 1998 and 1999, but it became very obvious that we had a
great switch and we wanted to get out to the market in a wide spread manner. Rather than competing with all of the switch
companies out there, we implemented a licensing strategy. We have now licensed 24
manufacturers to date that are manufacturing switches using Duraswitch technologies. That is the crux of our business. Those
manufacturers become our marketing arm, our distributing arm, and our manufacturing arm,
which allows us to do what we do well - develop switch solutions for different industries. Ceocfointerviews: So you don’t do any of the manufacturing
yourselves anymore? Mr. Brilon:
We do not and that is what is so nice about this model. We don’t need the
capital equipment and the capital infrastructure to produce switches. This leads to a very
high gross margin for the company, leaving an infrastructure in place just to develop
additional switch solutions. We are keyed in on the switch market for OEM industries like
the appliance industry, the medical industry and looking at what they would like to have,
versus what they had. For example, some of
them might want more durability; others would like a switch that is thinner or electronic
vs. electrical and that is what Duraswitch was founded on - a very thin, very durable
switch. For example in rotary style switches, all of the other technology available before
was very thick and behind the panel there was about an inch to an inch and a half of
switch. Our thiNcoder rotary switch is actually surface mounted, so it takes up about a
tenth of an inch and gives you the same output and the output is now electronic instead of
electrical. A couple of industries that are
interested in this thin, electronic option are elevators and gaming. In the elevator industry, the pushbutton switch
they have had for 30 years that was electrical, and inch and a half thick, can now be half
that size using Duraswitch technology, and can be surface mounted on the elevator wall so
you don’t have to cut a hole in the cab. So,
there are a lot ways they are saving money. In
the gaming industry, if you look at the slot machine they have the same thing, a very deep
switch. With Duraswitch technology, we can get rid of all of the wires and make it
electronic, make it thin and surface mount it on the bar top, replacing the electrical
switches. This concept can go out industry to
industry. As time goes on, our manufacturers
become distributors, they are going to the customers and saying here is the Duraswitch
technology and here is what it can do with your product.
We, of course, are here as the support function for all of licensees that come up
with a new launch that is a little different from our technology then we help them adapt
our technology for their customer. Ceocfointerviews: Do you oversee their actual production? Mr. Brilon:
Yes we do. In fact, one of the
things in our licensing agreement is that every project is sent through our company for
our engineering design review. We certify it that it is being produced correctly, the
quality is correct and it will do what they want it to do.
They say, we need the life on this to be 300 million cycles and we need it to be
withstanding environmental heat up to 80 degrees centigrade, well we say hey we can do
that. They construct it in a way that it can
pass all of those requirements. We do keep
quality standards there because it is important for us.
We want Duraswitch to have that quality out there and we don’t want to
manufacture it and have it go out there and not work. Ceocfointerviews: So this has been big change for you from
switching products to the licensing. How long
are your patents? Mr. Brilon:
Patents are early on as 1996 and at that point and time we had 17 years.
Subsequently we have patents that actually surrounded that original patent and have added
different technologies as even as far as this year. Any
patent issued now has a 20-year life from the application date. Ceocfointerviews: That is important, because it is the patents that
you rely on. Obviously you are growing this
company through your licensees, but what other means would you like to use? Mr. Brilon:
We have one exclusive licensing agreement that is for the automotive industry.
We signed up Delphi Automotive Systems about a year and half ago. One thing we saw in the
automotive industry is that is very clicky, if you will, so it made sense to team up with
one of the main players and one of the biggest. Delphi
came in and went through our patents with a fine tooth comb and decided they wanted an
exclusive license for which they paid $4 million dollars up front and also gave us a
guarantee that over the next five years we will receive a minimum $12 million dollars in
royalties. They really wanted to take on the
automotive industry themselves and that was really great for us as well. Over the longest term learning curve or design
cycle it takes about three or four years to get into the high-volume production in
automotive, so they have been tasked in doing that for us.
That is one advantage we have. The
appliance industry is a key switch industry and the largest segment for us. We have gone straight to the OEM’s - the big
names you can think of - and are working with them directly to show them the attributes
and how our technology can help their products. What
is nice about that is we are walking in as a consultant, showing them how we can be
advantageous for them. What we then do is say you have currently some of our licenses that
are your suppliers, you can use anyone of these manufacturers to produce these switches
for you or we will license another manufacturer that you work with. It makes for a good selling arrangement. We are
not trying to sell something to them; we are just showing them an advantage they would
have by using our technology. Ceocfointerviews: Are you doing this globally?
Mr.
Brilon: We are. We started licensing in 2000. We started in the
U.S. and in 2001, we went over to Europe and now have three German licensees, one in the
UK and one in Italy. The German licensees
that have signed up are very high quality manufacturers and they are very engineering
oriented. These guys really look at quality
and skipped an evolution in switches in that they didn’t use the flat panel membrane
dome technology that we use primarily here in the U.S. They stayed more with the
mechanical design. Our technology is a
combination of the flat panel and the mechanical design to come up with a very good
switch. This is what they saw in Duraswitch. Last quarter, last year we signed an agreement
with the largest manufacturer in South Korea, Daesung, their largest customer is Samsung. They also work with several Korean auto
manufacturers. What is nice about that is we are able to set up a sub license with them
and through Delphi. It looks like a
win-win-win situation for everyone at this point. Ceocfointerviews: I know this may sound like a funny question, but
to someone looking at this company, do you have the cash and or credit to go forward? Mr.
Brilon: Right now we look at this as a very focused effort where
we have to build our base by getting more licensees on board who will be taking our
technology out there, and keep developing and trying to keep ahead of the curve. At the
same time the big thing for us is the more applications that are using Duraswitch
technology the more royalties Duraswitch receives. That
is how we charge for our technology, it is not on a percentage basis, but how many push
buttons does that gas pump have in it, or how many knobs are on that radio, or on a
medical device, that it how we make our money. So, it means how many designs can be put
into. It becomes an annuity where our technology is in that product for several years and
then we have subsequent products from that customer, and that is how we build a
progressive annuity. Ceocfointerviews: Technology is constantly changing. How much are you spending in R&D? Mr.
Brilon: Our R&D budget is about half of our total budget. We have about a $6 million dollar burn without any
income. Half of that is spent on R&D, keeping things ahead of the curve and addressing
high-volume applications. If we get a project from the appliance industry or medical or
automotive industry asking how they can utilize our technologies. We then provide that research and development. It
makes a lot of sense for us. Ceocfointerviews: To a potential investor looking at this company
what would you say to them? Mr.
Brilon: The biggest thing in looking at a company like ours is
what is the potential for growth? What are
the chances for home run hits? The switch
industry is a $30 to $40 billion dollar industry per year and we’ve just scraped the
surface. Duraswitch, as an investment, is pretty
much undiscovered. We are under followed because we are small and haven’t yet hit
that run rate where we are profitable. We
also haven’t given guidance. We
don’t have enough history where these revenues are going to flow. We are right now in the beginning of it and in one
or two large projects out here can make a significant difference in our top and bottom
line. So, we expect to do that in the future,
but right now it is time to just grow our business for getting more applications out
there. The other side of it is, what is the
risk of this company? Is it real? I will then look at Delphi and what they did for
us. They gave us a lot of creditability by
signing that initial licensing agreement and I’ll tell you it makes it a lot easier
to deal with other licensees because Delphi did so much due diligence. The flip side of that is when Delphi decided they
were going to do a licensing agreement, they said, we know what this company is doing, and
we know where this company is going and we would like to buy up to 19% of it right now.
And at that point, they did. That is how we
got the capital we have really in our banks now. They
paid $7 a share at that time and that brought another $12 million dollars into the
company. Right now we have a great
relationship with them and we really thank them for putting us on the map and making it
less a struggle than it could have been. Ceocfointerviews: Your Company has huge potential it just needs
more recognition. Mr.
Brilon: Our whole thing is about awareness on both sides. One is
the technology. As awareness grows, there will be more adapters to the technology which
means more money for us. On the other side
are the investors. The same thing, we tell the story of where we are and where we are
headed and more and more and they get involved. Just
over a year ago we had 15% ownership by institutional investors and today that number is
over 30% and again, because we get to go out and talk to different institutional investors
and we are building that following. Ceocfointerviews: Your website, how extensive is it for your
customers? Mr.
Brilon: We do use our Web site in several different ways. One is
to attract customers and customers in this sense are OEM’s looking for a new
technology, the most innovative technology out there. We do get leads from our Web site
and then qualify the leads and find out what makes sense.
What licensee should talk to this company or is it someone we should talk with
little bit first to get them sold on how this technology can benefit them and then turn
them over to the best licensee. The other way
our licensees use our website is to train their sales people keeping them up to date on
new products and new technologies and just new selling techniques because we have a
specific place in the website just for training. Multi
media is incredible and it’s nice to have that now where someone had to print all of
these hard copies and send them to different sales reps and now you send an email with
link and they go straight to it and get what they need.
Another thing we offer is an investor section. Any investor who may want to go in
there and see the latest filings and anything they want. Ceocfointerviews: I was looking at your website and
saw some of the awards you had gotten and that’s exciting. It should have brought you more recognition right
there. Mr. Brilon:
It sure did. The Design News Magazine awards were very flattering to
our engineers because that is their peers that really look at the technology and recognize
it for what it is. The pushbutton technology
won ‘Best New Product of the Year’ in 1998. This is an industry that has been
stagnant, where you had mechanical for the first 75 years of the last century and the last
25 years, membrane switches were introduced. We came on in 2000 and said, here is a
combination of these two and with the advantages of both. It was really recognized for
that, so, it is nice to have those accolades. Ceocfointerviews: Do you have any closing statements or comments
you would like to leave for my readers? Mr. Brilon:
Just that I really appreciate the opportunity to talk to you. We believe
whole-heartedly that Duraswitch is a tremendous company. I have a great team around me
here. I guess the one thing to think about is, how big can this be? You look at different industries like appliance or
industrial controls, you don’t realize that every time you touch something during the
day it probably has a switch on it. You have a phone in front of you or your cell phone or
garage door opener, everything has a switch on it and it’s going to be a great big
business for us.
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