FTR Ltd. (FTR: AX)
Interview with: Steve Townsend, President and CEO
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and Information on their courtroom digital audio recording systems.

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FTR Ltd. develops and sells digital recording and content management systems specifically related to the court, hearing room and legislative markets

Technology
Digital Audio Recording Systems
(FTR: AX – Australian Exchange)

FTR Ltd.

2432 West Peoria Avenue
Building 14, Suite 1245
Phone: 602- 650-0958

Steve Townsend
President and
Chief Executive Officer

Interview conducted by:
Lynn Fosse
Senior Editor

CEOCFOinterviews.com
September 2003

BIO:
Steve Townsend is Managing Director and CEO of FTR Pty Ltd, the world’s leading provider of digital recording solutions for the courtroom and hearing room market.  He joined FTR in 1995 as President of the Company’s U.S. subsidiary, FTR, Ltd.  In 2002, he was also appointed Managing Director of the parent company, FTR Holdings Limited.  FTR Holdings is a publicly traded company listed on the Australian Stock Exchange (ASX:FTR).

In 1997, when Townsend was appointed CEO of FTR Pty Ltd, he initiated a new product development and marketing strategy designed to increase market penetration for the Company’s line of digital court recording products.  He instituted stringent cash control mechanisms, and led the Company through its most significant period of growth.

To date, FTR has installed more than 7,000 recording systems throughout North America, Europe, Asia and Africa.

In 1993, Townsend co-founded the American Association of Electronic Reporters and Transcribers (AAERT).  He served as AAERT’s Vice-President during its first two years, and chaired the Association’s Legislative Committee.

Townsend’s academic background includes studies in both engineering and business administration.  He received his bachelor’s degree in management from Arizona State University.

Townsend remains active in community affairs and professional associations.  He is a member of the Arizona Technology Council and serves on its legislative committee.  He also maintains active memberships in court-related associations including the National Association for Court Managers (NACM), and the American Association of Electronic Reporters and Transcribers (AAERT).

Company Profile:

FTR Pty Ltd (FTR: AX – Australian Exchange) is the world's leading supplier of courtroom digital audio recording systems. FTR Pty Ltd and its U.S. subsidiary FTR Ltd. are owned by FTR Holdings, a public company listed on the Australian Stock Exchange. The U.S. office in Phoenix, Arizona provides administration, sales, marketing, product management, and technical support, and R&D and production are handled in the company’s Perth, Western Australia headquarters.

In December of 1998, FTR introduced its latest product offering, FTR Gold™, a truly open, computer-based digital recording solution. FTR Gold captures, stores, and manages digital audio and associated text. As court and hearing rooms switch from tapes to CDs, court administrators, judges, lawyers and transcribers all benefit from faster, more accurate and less costly access to court records.

FTR Gold consists of three core components: FTR Reporter™, FTR Player Plus™, and FTR Log Notes™.  FTR Reporter provides digital audio recording, archiving, playback and duplication. FTR Player Plus is available free and is downloadable from the Company’s website.  FTR Player Plus provides full-featured playback of audio, immediate access to testimony, fast reproduction, and transcription capability.  FTR Log Notes is an electronic note-taking software application that makes it easy to annotate digital audio files for dynamic referencing. Various optional components are available so customers can design a system that meets their specific needs.

FTR ReporterDeck^TM is a hardware-based solution that provides a turnkey digital audio recording and can be used in place of FTR Reporter if a customer prefers a simple "plug-n-play" system.  Both FTR Reporter and FTR ReporterDeck include CD and network archive capabilities.

CEOCFOinterviews: Mr. Townsend, please tell us about FTR Ltd. and the services you provide.

Mr. Townsend: “The company was founded in Perth, Western Australia and has been a publicly traded company on the Australian Stock Exchange since late 1995. I have been CEO since late 1997, and in August 2003, FTR celebrates its 10th year in business. The primary business for the company is the development and sale of recording and content management systems, specifically related to the court, hearing room and legislative markets, both in North America and other parts of the world. Of the 7,500 systems we currently have installed, about 80 to 85% are in North America. Most of our systems installed outside North America are in Australia and Asia, with the remainder in Europe (The U.K. and Italy)."

CEOCFOinterviews: What has changed since you became CEO?

Mr. Townsend: “FTR was a classic high tech start-up company founded by a group of developers who were very experienced in digital recording systems, having been involved in the broadcast industry in Asia and Australia. They partnered with a large recording and transcription company in Australia to build a court recording system. The solution they built was rather large and complex and required a staff of IT people to run it. However, we faced a common challenge for technology companies, which was having a product that was over-engineered and too complex to actually have broad acceptance in the marketplace. Therefore, my biggest challenge when taking over as CEO was to reform the product and scale it back to something which was much simpler to install and easier to use while trying to maintain as much of the core function as possible and I think that we did a great job of that. Between 1993, when the company was founded until late 1998, when we first came out with the latest version of the product, we had installed about 350 to 400 systems worldwide. Since the introduction of FTR Gold in January of 1999, we have sold about 7,500 systems.  I would have to say that that was the big transition for us, really focusing on simplifying the product and bringing the price down.”

CEOCFOinterviews: What exactly are you selling?

Mr. Townsend: “The core of the product is the digital recording system, which comes as either a software applications that runs on a PC, using the PC sound system to perform the recording, or we have FTR ReporterDeck, which is a self contained recorder that captures audio from proceedings in the court room. The audio is digitized and stored on a hard drive on the PC or the ReporterDeck, and is simultaneously archived to a CD or to a network location. Hence, the customer immediately has two copies of the audio for security purposes. If anything happen to the recording device or the hard drive on the PC, the audio is actually secured at a second location. In addition, we have our Log Note application, which allows participants in the meeting or the hearing to take personal notes. Those notes can then be stored either locally on their PC or on a server, and there is actually a link between those notes and the audio. For example, a judge sitting on the bench or an attorney in the court room can take electronic notes on a PC and when they go back and click on one of those notes, it will retrieve the audio so they can listen.  It is also a great system for retrieving previously recorded audio. If you have had three weeks of trial, you can search for the testimony in your notes and click on the note where a specific individual was called and it will retrieve the audio from the server or local drive and immediately play it back. That is the core of our technology.  In fact, we really do not think of ourselves as a digital recording company, we think of ourselves more as a personal content management solution. ”

CEOCFOinterviews: What differentiates you from the competition?

Mr. Townsend: “FTR is the only solution that is flexible enough to let all courtroom participants take advantage of the complete digital record. For example, lawyers can purchase a copy of FTR Log Notes for around US$300.00. A lawyer, paralegal or judge can take notes using the Log Notes application. At the end of the day he or she can simply request a copy of the audio on CD, or through our online service called ForTheRecord.com. All notes can be associated with the corresponding audio and synchronized with it in a two step process. Once that is done, the notes are fully searchable and will instantly navigate to the audio that is requested.”

CEOCFOinterviews: Tell us where you are in the marketplace today.

Mr. Townsend: “It is an interesting market right now for the following reason. You may be familiar with a traditional court reporter sitting at the funny looking machine taking notes. That is a stenographic device, which has been used for many years. Before that was available, stenographers took hand notes. In the court system, specifically in the United States, stenographic court reporters are a very strong lobby. The problem with court reporters is that they are very expensive. As a result, there has been a move by court administrations during the last thirty years to use audio recording systems wherever possible. There are approximately 50,000 court rooms in North America and probably a comparable number outside. Of those, we estimate that about 30,000 of them currently use some form of audio recording. Most commonly that would be a 4-channel tape recorder.  Four channels of audio are necessary so that during playback in a multi-speaker environment the transcriber can turn channels on and off in order to isolate specific voices.

We are currently selling at an increasing rate. A year and a half ago we were selling 60 to 70 systems per month and we are now selling 130 to 150 systems per month. We attribute the growth to two factors, one being the obsolescence of tape recorders and secondly the move away from court reporters towards more modern record capturing as state budgets are being crunched. Courts that currently use tape recorders are no longer willing to invest in what they perceive to be an old technology and they would like to make the transition to recording onto CD. Hence, the transfer from analog to digital is a logical move and the cost differential is no longer a barrier to purchase. Furthermore, the majority of court rooms in the United States are controlled at the state level, and most states’ budgets are in dire condition. This is working in our favor because it is accelerating the pace that the courts are willing to lay off court reporters and install more modern methods of capturing the court record."

CEOCFOinterviews: How do you reach the people that you need to reach?

Mr. Townsend: “We sell through a network of resellers and systems integrators because it gives us complete coverage of the court, legislative and hearings market. We have approximately 45 resellers and 20 or 25 fairly large systems integrators in North America and about 15 to 18 resellers and systems integrators in other parts of the world. Our resellers typically sell dictation equipment and audio products to hospitals and courts. They also might sell office products, but they typically have sales people that are on the street on a daily basis, knocking on doors and making presentations. Our systems integrators are much more technically oriented and usually work with customers to install large-scale systems.”

CEOCFOinterviews: Does the end customer care that it is an FTR product that they are using?

Mr. Townsend: “Since changing our focus to a simpler product in 1998, one of the things we have done very well is convey to customers that this is a transition from cassette tape recorders to CD. That is all this is about-- nothing fancy, not a revolution but simply an evolution, which is a good message for the pragmatic person; and courts tend to be very traditional and very pragmatic. FTR is the market leader. We spend an extraordinary amount of time talking to our niche market, we are at every trade show and we have been in every publication for the past five or six years now. Therefore, I think you would be hard pressed to find a court system in North America that was not aware of us.” If there is a criticism to that strategy from the financial market it is that we are potentially talking to a small niche, but we talk very well to them and they know who we are. We also believe that the court environment is a very credible, high demand recording environment and the court market references very well to other markets that we are pursuing. ”

CEOCFOinterviews: What about your new e-commerce website?

Mr. Townsend: “We created the e-commerce website to give customers an easier way to order accessories and components. Our resellers were pretty frustrated that they would get five calls a day for foot pedals, because no one makes money on foot pedals. It was taking the reseller more time than it was worth to find the foot pedal for the customer and get it to them. So, now we are simply allowing customers go to the website and order these types of accessories. We are hoping that this will make things much easier for the both our resellers and our customers.”

CEOCFOinterviews: So what is the next year about for FTR?

Mr. Townsend: “The next year and beyond is really about two things for FTR. First, we will move into our adjacent markets-- markets that have similar demands and will reference our core market where we already have a leadership position. Examples would be police and other law enforcement applications, such as interview rooms and recording in police cruisers. City councils and school boards have been fairly good “adjacent” markets for us already; we estimate that there are a hundred thousand or more recording venues for school board meetings and city council meetings alone. Therefore, we will make an aggressive move towards that market within the next six months. In the education market, we may be 18 months off, but it is a very attractive market when you look at the potential of online learning, and the concept of recording class room events so students can participate in the process using electronic notes and audio, or even audio and video. We intend to geographically as well. For example, in Europe we see a lot of potential right now.

The second part of the strategy, and most significant, is that FTR will begin to promote our underlying linking technology.  We recently added a developer’s section on our website that allows customers and third party developers to have complete access to our application programming interface (API). With this, they can embed FTR’s linking technology in other applications. For example, the link you create when you use our Log Notes application can be placed in Microsoft Word. So if you prefer to take your notes in Microsoft Word, FTR can be used to allow the user to insert small time stamps, each of which acts as a hyperlink to the audio and associated content. So you’re no longer using FTR Log Notes to manage your content, but Word instead.

We are also working with a company called Smart Technologies, Inc., which is another example of non-text moving into FTR technologies. Smart produces White Board applications-- large boards that will record everything that is written on them so you can replay the White Board activity at a later date. It is a very nice technology and Smart, a Canadian company, is the leader in this market. We are working with them now so that the White Board events will actually synchronize with the audio and the text. You will be able to actually see the White Board activity and listen to the audio that is being produced. In addition, FTR is introducing a video component later this year. You will then be able to use your notes to navigate through the White Board activity, audio and video. For example, if you consider the education market where students want to review material for a class that happened a few months ago, they could simply click on their notes and not only retrieve the audio of what the professor was saying, but actually see what the professor was writing on the white board. This is all possible because the FTR linking technology will let users access all types of content from just about any application. So we see that as a very exciting outgrowth for us and an extension of the technology. ”

CEOCFOinterviews: Do you have any direct competition?

Mr. Townsend: “If we’re talking about direct competition, I would say Sony is our traditional primary competitor, because they were the market leaders in placing 4-channel tape recorders in courtrooms. However, at this point we are well on the way to displacing Sony’s analog technology in the courtroom. I do not really see the court stenographers as competition, although they can inhibit the introduction of our technology. We do have two digital recording competitors that we encounter on a pretty consistent basis when we respond to bids. As a comparison, where we have about 7,500 systems installed, the larger of our two competitors would have about 1,500 systems installed, and the other would have about 500. We have a significant size and technology advantage over both of these companies. They are much more IT infrastructure oriented which enables them to compete in larger environments where a customer is willing to install a complex IT infrastructure. However, they do not compete very well against us when a customer just wants to install systems in five rooms and record onto a hard drive and CD. They do not have a solution that matches that and since that is what the majority of the market is, we continue to hold a pretty good advantage over both of them.”

CEOCFOinterviews: In closing, why should investors be interested in FTR?

Mr. Townsend: “The public company is a holding company called FTR Holdings, which owns 100% of our digital recording business and several other interests in other technology companies. Besides the digital recording business, the most successful is a 49% stake in WebCentral, the largest web hosting company in Australia. If you look at a number of other holding companies in this sector, you will see that they were hurt very badly because they did not have the combination of the two profitable businesses that we continue to hold. I think the difference for us is that we have actually spent time building a very solid balance sheet; we are sitting with a good amount of cash at about 5.5 million dollars (Australian). Both of the core companies are very profitable, and continue to show revenue growth. The digital recording business showed revenue growth again in US Dollar terms, over the prior year. I think that the best message that we can send is that we have not spent a lot of time trying to hype anything or buck the trend because we knew the technology sector was going to remain depressed for some time. We believe the appropriate and responsible action to take is to shore up the balance sheet to make sure we come out of this very healthy. Therefore, we are a good bargain right now which is the advantage to investors that are looking at us. I also think that from a management standpoint, we have been very responsible and will continue to foresee good growth.”

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