Q3 2003 Duraswitch Industries Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good afternoon. My name is Jamika, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Duraswitch Third Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you.

Heather, you may begin your conference.

HEATHER BESHEARS, VP, CORPORATE COMMUNICATIONS, DURASWITCH INDUSTRIES: Thank you. Good afternoon, and thanks for joining us today. Before we begin, I'd like to remind you of our Safe Harbor statement.

Today's call does contain forward-looking statements that are expectations for the future, including statements regarding potential production and revenue, which is based on increasing design wins through licensees; our licensees' ability to successfully market and manufacture products using our technology; our ability to drive high-volume applications, which results in top-line growth, and the future impact of our cost-cutting measures.

These expectations involve risks and uncertainties that could cause our results to differ materially. We can't guarantee the accuracy of any forecasts or estimate, and we do not plan to update any forward-looking statements during the quarter.

For more detailed information, please see our documents filed with the SEC, including our Annual Report on Form_10-K_for the year ended December 31, 2002.

The audio replay of this call is available through November_1. There is also a webcast, and that archive will be available on our website through December 31. Bob Brilon, our President and CEO, is leading our call today. He'll provide an overview of our third quarter results, and then we'll open it up for Q-and-A.

I'd like to turn it over to Bob.

ROBERT BRILON, PRESIDENT, CEO, CFO, DURASWITCH INDUSTRIES: Thank you, Heather.

This is Bob Brilon, President and CEO of Duraswitch. Before I review the quarter results, which were issued this afternoon, I'd like to go through a few highlights for the quarter.

This quarter did not follow history in that the third quarter has typically been a slower one for us, and particularly because the European companies that we deal with take vacation in August. Instead, we saw a record number of design reviews through our licensees. The licensee designs included several in new industries for our technologies, as well as new designs using our [rotor and mouse] technologies.

We signed on three new licensee partners during the quarter, and our cost-cutting measures implemented over this last 12 months have resulted in significant reductions in our operating loss and cash use. So as we reported this afternoon, our net loss for the quarter was $476,000, which is five cents a share, and it shows a 55-percent improvement over the same quarter loss in 2002, which was $1.1m.

Revenue for the third quarter was $193,000, up from $150,000 in the third quarter of last year and also up sequentially over the second quarter revenues of $161,000 last quarter.

Non-exclusive licensing revenue increased this quarter due to an increase in quantities of royalty-bearing pushbuttons and rotor switches, as well as from design review fees due to increasing numbers of design reviews. About half of the increase in the unit sales was from one of our new licensees, and the other half was from existing licensees. Revenue recognition related to our exclusive agreement with Delphi continues to represent about $100,000 a quarter.

Our gross margin for the quarter was 84 percent.

In the first half of this year, we continued the reduction of our research and development efforts aimed at developing new technologies, and we focused our efforts on specific commercialization of our core technologies. That effort was completed by June 30 of this year, and the results are evident in our expenses for this quarter.

Operating expenses have been reduced by 47 percent. That's $648,000 this quarter versus $1.2m last year. I want to also point out that this is a fairly substantial decrease from our operating expenses averaging $910,000 in the first two quarters of this -- the first half of this year.

So these reductions have put profitability in a much closer reach.

We ended the quarter with $4.7m in cash and no debt.

One of the questions we frequently get is, "Are you cutting off your future by scaling back R&D?" The answer to that is no. When we started Duraswitch, we identified key applications and markets and developed our technologies to meet those needs. Today, our licensee partners, as well as our many strategic partners, help us identify the OEM's needs and develop the technologies to meet those requirements.

We have a portfolio of technologies available to our licensees. These are enabling technologies that can be adapted to meet end-use customers. To date, most of the applications using our technologies have used our pushbutton PushGate switch.

This year, we have seen an increase in interest in the other technologies, also. In the first half of this year, we talked about new applications using other constructions of the PushGateR, such as large key for treadmills, high-impact switches for gas pumps, and this quarter we have several new design reviews for …