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Transcript of November 3rd Conference call. eom

ISCO INTERNATIONAL

November 3, 2005
4:00 p.m. EST



Coordinator Good afternoon. My name is Malaika and I will be your conference facilitator. At this time I would like to welcome everyone to the John Thode, President and CEO, ISCO International 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 session. Mr. Thode, you may begin your conference.

J. Thode Thank you, Malaika, and good afternoon, everyone. First of all, let me turn it over to Frank to read the usual Safe Harbor statement, and then I’ll have some opening comments and we’ll go right into Q&A. Frank?

F. Cesario Thanks, John. We’d like to advise you that the discussions we’ll have today will include forward-looking statements as that term is defined under the Private Securities Litigation Reform Act of 1995. What we and the Act mean by forward-looking statements are all statements we make other than those dealing specifically with historical matters; that is, any statements we make about the conduct of our business, operations and finances up to this moment. All other statements we make are forward-looking statements. Our forward-looking statements include any information we provide on future business operations and other guidance regarding the future financial performance of the company.

All forward-looking statements mentioned are subject to risks and uncertainties that could cause actual results to differ, possibly materially, from those projected in the forward-looking statements. Some but not all of these risks and uncertainties are discussed from time to time in the press releases and securities filings of the company with the SEC, particularly in our Form 10-K as amended. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. John?

J. Thode Thanks, Frank. Once again, good afternoon, everyone, and welcome. Let me start by saying we continue to make progress in the third quarter, recognizing there’s always more to do. The third quarter was our third-best in the company’s 15-year history, and revenue for the first nine months was triple the full year of 2004. Our revenue for the third quarter of 2005 tripled to $2 million from $700,000 that we achieved during the third quarter of 2004; and our revenue for the nine months of 2005 quadrupled to $7.8 million from the $2 million of the first nine months of 2004.

Our net loss for the quarter improved by 65%, to $600,000, from the
$1.7 million loss in the third quarter of 2004, and the net loss of the first nine months improved by 62% to $1.9 million from the $5 million loss in the first nine months of 2004. Of particular note, our gross margin showed substantial improvement. For the quarter, we had gross margins of 62%, up from 34% during the 2004 quarter; and our gross margin for the first nine months was 50%, up from 38% during the first nine months of 2004.

Finally, from a cash perspective, both quarter and the first nine months were close to breaking even at approximately $260,000 to the negative. While we are all clearly in this business to make money, by any historical measure this continues to be a very positive accomplishment, so we’re pleased with these results overall, but certainly not satisfied.

Earlier today we updated our progress for Q4. Revenue and orders in hand at the end of October stands at approximately $600,000, roughly the same as for all of Q4 2004. As I indicated in the press release, while we didn’t get off to as quick a start in Q4 as we would have liked to, we are ahead of our Q3 pace and are actively engaged with a number of near-term opportunities which we are well equipped to deliver very quickly given the speed of our fulfillment capabilities.

Let me move beyond financial results for just a moment to highlight some of the opportunities that we have been developing over the last several quarters that can expand our customer and product base, as well as provide significant growth for the company. Two are with U.S. operators who we have completed extensive commercial trials over the last two quarters that by any measure were extremely successful. These initiatives have had corporate-level sponsorship and visibility in both cases. We feel we are well positioned with both, and hope to be making additional announcements over the next several months, with initial shipments potentially beginning by the end of the year.

In addition, we are in an RFP process for customized filter solution with a significant multiyear demand beginning next year. The requirements for the solution are extremely complex, but using some novel technology, we have completed a full working prototype and are currently optimizing it for manufacture. We’ve been working this opportunity in partnership with the carrier for some time and we’re hopefully optimistic about becoming a finalist and ultimately a supplier of the solution. We’ve just started evaluating how we might leverage this technology, but we feel there are several other similar applications that it can be applied to.

Finally, I would be a bit remiss if I didn’t mention progress we’ve started to make outside of the United States. While still very early, we have been getting some pretty good traction in Latin America and China, and with any luck, we will embark upon our first commercial field trial outside of the U.S. before the end of the year.

Rather than taking too much more time, I’ll forego updates on some of our other internal R&D initiatives that we’ve discussed on the last call and provide more of an update in the next quarter. Since I’m sure there will be a lot of follow-up questions, let me wrap up my comments.

Just to summarize, we feel we continued to make significant progress in Q3 on a number of fronts, but we also recognize that we have and will do more. Thanks for taking part in the conference call, and now let me turn it over for some questions. Thanks.

Coordinator Thank you. One moment, please, while we compile the Q&A roster. Your first question comes from Mark Matarnowski, private investor.

M. Matarnowski Just a couple of quick ones here. One, I was surprised of the delay between the conference call and the release of the results. I surmised that you were sitting here waiting for a closed deal to be ready to be announced, and you were simply waiting for it. Was that the case that we are that close and that you were hoping to have some better news to share for us? Otherwise, I guess what I, even though those are great numbers, that’s pretty much what you told us and released a week and a half ago, and I’m trying to understand the reason for the delay in the conference call.

J. Thode I think scheduling was more of an issue with the conference call than anything, and I’m not – kind of being new to this, I’m not sure if there was much of a delay or not. But obviously, Mark, at every opportunity, we’re hoping to share information and I think the third quarter has had some good results, and we look forward to improvements, if possible, in the fourth quarter.

M. Matarnowski Okay. You talk about having, for new business, the potential for orders of magnitude, difference in – I’m assuming in quantity of product placed and revenue. Could you better define and put a size on that order of magnitude that you’re using? Are we talking ten times more than what we’ve done in a quarter before? Are we talking potentially 100 times more?

J. Thode I would not say 100 times more, but certainly more than historically has been the case for this company, Mark. It would be premature, and as I said before when we’ve had discussions on guidance, it’s a little premature for me to kind of best-guess where this is at, given how many vendors that an operator may choose for a particular opportunity; but it will be substantial relative to our historical performance, and certainly substantial relative to the expectation we have for this year.

M. Matarnowski I guess, John, I’m not trying to pin you into a specific number, but what I am trying to do is get a better definition. You guys use a lot of terms which sound good but are really pretty nebulous, and for an investor, you just don’t give us a whole lot of meat for us to sink our teeth into here. Well, I’ll leave it at that, I guess. I’m glad that you can certainly increase the sales, but there’s an awful lot of float out there, and the more specific you can be, the better, I guess.

Let me move on to some of those other future business opportunities. You said that you were in trials with a couple, you had great trials, and you’re basically just waiting to hear if you’re going to be picked as their supplier. Does it sound like the situation whereby they are only going to pick one supplier, put all their eggs in one basket? Or would they typically go with a couple suppliers, just in case there’s a problem or a production issue? Not that you guys have that, but by the nature of this big order, I guess I was of the understanding that the carriers typically spread some of it around, assuming they could get like product from different vendors.

J. Thode Again, I don’t want to speak for a particular customer. In most cases they’re not going to give us that kind of detail. But I think in some cases it depends on a particular carrier, and it depends on what the solution is and on how many vendors are available. I think in most cases, a carrier would definitely like multiple sources; but I think in other cases, in terms of managing their own supply chains and inventory and roto-pool and everything else, if they’re comfortable enough with a single-source solution, and with the caveats that go along with escrowing and all the other kind of things that they would have to manage their risk, I think that in some cases they will go with a single source. So I think it’s opportunity-specific and I think we’ll see all of those variants with a number of the opportunities we’re talking about here.

M. Matarnowski Regarding the all-U.S. lines that are possibly opening up here, I guess I recall a contract with, I think it was Farfan over in Ireland or England somewhere, and you had someplace in Asia, and you had an office in Japan a while ago and none of those really panned out too great. Can you tell us what you’re doing different now that is getting you excited to think that we’re actually going to be having sales going through these partnered entities that you’re hooking up with? What’s different now than what we did, say, four years ago?

J. Thode I wasn’t here four years ago, so I’m not sure that I’m the best guy to answer the question. But what I can say is –

M. Matarnowski Maybe Frank can help out, too.

J. Thode So let me go ahead and then ask Frank to add to it. What I would say is, it’s a different product family than it was four years ago, that’s the first thing. Second of all – and I’ve said this before and I’ll emphasize it again – we have absolutely – four years ago we had to do everything ourselves and everything was “not invented here.” Today it’s a much different business model and a much different philosophy and culture in the company.

What I want to emphasize again that I’ve said before is we will not spend a great deal of money doing this. In fact, most of the arrangements that we have set in place, they’re only rewards and compensation for success. There is very little if any cost on our behalf to be able to go support it, and that’s ultimately the kind of deals we like and ultimately puts the right kind of incentives in place to be successful. So it’s a very different product, a very different model and a very different approach that we’re using now than I’m sure was used four years ago.

M. Matarnowski Okay, and that’s a great answer, and I thank you for that. Does that mean that – I forget the exact number, was it 62% or something like that, that you had on your mix of margin? Do you think you’ll be able to maintain that, going through these external non-U.S. vendors, or will the margin possibly drop down a little bit, only because you have to supply them with incentives to sell the product?

J. Thode I think it’s too early to tell. Ultimately the margin will drop down a little bit, but the bottom line is the bottom line; and that is, if we have no cost of sales in SG&A and marketing, then a lower margin still drops through to the same bottom-line contribution, and that’s really the most important thing.

M. Matarnowski Sure. Then finally, gosh, you’ve come on, you’ve made a lot of big strides forward here and I appreciate that. One of the things that you stated when you came on, though, is one of the goals that you’re really pushing for is sequential growth going forward, and you actually stated that I think in first quarter. Although we’ve had great numbers compared to past quarters and past years, I’m a little concerned that the actual quarterly revenues have been decreasing sequentially each quarter. And again, I realize we’re in a flux with everything, but is that something you see as – is that something that concerns you at all, and do you see that changing?

J. Thode Sure, it concerns me. Just from being somebody who’s used to winning and a competitor, I never like going backwards at all, so sure, it concerns me, and we put a lot of energy and attention into making sure that we do all we can to not support that kind of reverse movement. But to be honest with you, without sounding too optimistic, I think the company is probably in the best shape it has been for a long time, with the opportunities that are out there; and we’ve just got to go execute upon them and win our fair share, and I think you’ll be very happy.

M. Matarnowski I’m thinking I will, too. And I guess just to support – I’m not as concerned that perhaps you had a decline in your quarters. You could have just had some great quarters that are tough to beat, and therefore, gosh, we did 100% more than what we thought we would do, and so the next one only came into 98% -- well, that’s fine, too. It’s just based on the guidance that you did give, which has been minimal, the only thing I really have to sink my teeth into is your stated goal of sequential growth, and that’s where I’m coming from.

J. Thode I understand that, and I appreciate the comment.

M. Matarnowski Okay. I’ll wait and maybe get some questions in later. Thank you very much. Get out there and sell some product, guys.

Coordinator Your next question comes from Steven Spence with Sentry Invest.

S. Spence Congratulations on your announcement today. The three opportunities that you described sound absolutely terrific; and actually, that’s one of the things that I wanted to ask you about. I wondered, for these three, is there a financial or other resource limitation that you have that would prevent participation in all three of these opportunities if you get all three contracts?

J. Thode No, I don’t think so. Again, given our sourcing model and our manufacturing model, we’re a very scalable business, extremely scalable, flexible and fast – and I emphasize the “fast” part. So I don’t have any particular concerns with any of them. So to answer your question, no, I’m not concerned at all, and it would be great if we got all of them.

S. Spence I hope so. I think it was in your recent S-3 from this week, you described your cash needs, and I think there was a statement that said, given the existing business or the existing business model that your cash should last through 2006. I wondered if any one of these new business opportunities would be such a deviation from your existing business model that it would require additional financing.

F. Cesario This is Frank. I’ll kick in for that one. To the extent we derived significantly more revenue than our current pace – and we have this language in the S-3 – then, yes, that could require us to go get working capital solely for producing inventory for the time between when we pay our vendors and we get paid by our customers. Experience says that that’s a good conversation to be having. A lot of people are willing to fund growth with customer orders in hand. So, yes, we may have to go get capital, but that is the happiest conversation that we can be having.

S. Spence Terrific. Let me back up and go back to your third quarter and the gross margin improvement. A portion of this was due to operations in China; is that right?

J. Thode A portion of it was due to our sourcing strategy for our components. We diversified our supply chain, including some critical suppliers in China, yes.

S. Spence Can you tell me about what proportion of those costs are in China?

J. Thode What proportion of those costs?

S. Spence Of your cost of goods sold.

F. Cesario At this point you’re talking about less than 15%. We really don’t track it on those terms. It depends on a lot of different things, particular products that are coming out, timing. All we’re saying is that we have expanded the supply chain; we will continue to expand the supply chain to look for the best deals.

J. Thode The other thing I would add is that by having multiple suppliers, it also allows you to leverage your supply chain across the board. And so we’ve seen benefits in that area as well.

S. Spence Great. As you move towards additional international suppliers, perhaps, how do you – or even the ones you currently have in China – how do you pay them? Do you pay them in dollars, or is there potentially at some point going to be a currency exchange issue?

F. Cesario Most of the world operates in dollars, so it’s very, very rare that we do not operate in dollars, and I think that’s true of most entities that do business globally. It’s still the international currency, at least when you’re not in Continental Europe.

S. Spence So you do everything in dollars.

F. Cesario Yes.

S. Spence That makes it easier, doesn’t it? Okay, that’s all my questions. Thank you very much.

Coordinator Your next question comes from Thomas Geiger with ISCO [sic] International.

T. Geiger Hello, guys, how are you?

F. Cesario Hello, and welcome to the company.

T. Geiger Thank you very much. My second time participating. Just following up on some of these last conference call issues. You made reference to bringing on some new PR people or organization; has anything like that happened?

J. Thode Yes. On a case-by-case basis, we continue to look at when we need to bring on PR help for particular point solutions. What I would say is, with the blessing of the board, we’ve embarked upon a more broad analysis of our whole IR strategy, and we’re kind of in the middle of that right now, all the way from the elements starting with our Web page, which I frankly don’t want to diss too much, but I think is a piece of junk.

T. Geiger You answered my second question in reference to that; thank you.

J. Thode Yes. So first things first, which is to get the business in place, get customers in place, get opportunities in place, get the team in place, get a strategy in place, get money in place; and I think we’ve done a great job doing all of that over the first nine months. Now we’ve just got to get a better picture in place and a better way to communicate it. So with all due respect, I think we’ve done a much better job as we’ve gone throughout the year, but acknowledge that we need to do more there, and we will do more.

T. Geiger Oh, absolutely, and I concur with you wholeheartedly – or I should say we do; I represent about 20 investors that do invest with ISO. Getting back to some of the other questions I had last time, you still couldn’t elaborate on those as far as some of the potential – for instance, I raised or one of the members raised the Cingular prospects, and that was something you were actively pursuing or were obviously aware of. So we still can’t – or can you? – elaborate on any potential contracts, with who the vendors or the retailers are, or can you just not do that? Or can you elaborate on any of the new products yet?

J. Thode Let me just start with opportunities. We’ve gotten as specific as we can potentially get at this point in time, but I can assure you that as those customers make their decisions on some of their key projects, there will be more specific announcements at that point in time.

T. Geiger Okay. That also would cover particular product line that’s being developed and rolled out, etc.?

J. Thode Yes, to a great extent that will cover the product for that particular customer. In terms of our new product direction that we’ve spoken about on our last call, and I made mention to in my opening comments, let me just say we are actively engaged with tightening up our story there. So let me just spend a moment on that.

As I said, we’ve been a little bit reluctant to get into too much detail, for competitive reasons. But at the end of the day, we think we’ve developed a compelling multiyear strategy for ISCO, and I think that’s augmented by opportunities we see in the near-term that are, frankly, more substantial than I thought they would be. So over the last quarter, we have spent a considerable amount of additional management time flushing this out, and we’re getting pretty close to developing a detailed product market strategy and roadmap. I personally have been spending a lot of time on identifying gaps in our core competencies and developing strategies on how to fill them, both through hiring and other means.

That’s really all I can say for now, but hopefully next quarter we’ll be in a position to roll that out more completely. But as I said, while we’re trying to give investors and all our constituencies as much information as we can, I don’t think I want to give my competitors anything that they don’t need before the time they need it.

T. Geiger Oh, absolutely not. Thank you very much, and I have one other comment from one of the members. They made reference to the Wall Street interview that you did in September. The person who was interviewing you asked you a question why ISCO’s stock price seemed so depressed or suppressed, given all the positive news and all the great things that have been happening. ISO’s been scratching back for years, and we have some rather astute investors in the group; that’s all they do. They made reference to that question, and the note is that it doesn’t appear to be ISO’s fault or their employees’ fault, but apparently the stock is being diluted by the big boys, or whoever the big players are in the game. There may be something to that, I don’t know; but I just thought I would throw that out there, that in our group they’re very optimistic and they didn’t think that was any fault of ISO’s as far as the share price is concerned, which should be substantially higher.

J. Thode Thank you. I don’t exactly remember what I said, but I think we’re definitely making progress, and any objective view of our stock price I think would say that it probably hasn’t reflected all of that progress, so I think that’s a fair statement.

T. Geiger Very good. Thank you very much for your time. Everything looks great and we’re with you all the way. Thank you.

J. Thode Great. Thanks a lot.

Coordinator Your next question comes from William Mysheed with Phase Line Publishing.

W. Mysheed One of the rumors – and rumors always fly around – that one of the people that you’ve been working with and testing some of your solutions with was Sprint, and Katrina blew out New Orleans and Sprint had a major switching center there. Did Katrina and the problems that Sprint and other carriers had from that, did that set back your deployment schedule?

J. Thode I can’t speak for them, but I don’t think so.

W. Mysheed So the hurricanes and the destruction in the Gulf area were not an issue in being able to close on any of these orders and move on deployment, then?

J. Thode No. Maybe indirectly. I’m not speaking from direct knowledge here, but I think that’s a bit of a red herring.

W. Mysheed Okay, that’s good. You talked about that you were working with somebody on a custom solution and you were hoping that they would go with you to supply it, but that you thought that you would be able to use the technology elsewhere for other situations. My question is, it seems that when you are working with a company to supply them with a solution, you are maintaining intellectual property rights to what you’re doing; is that correct?

J. Thode Oh, absolutely.

W. Mysheed Then the next question is, since you were talking about the vendor possibly choosing you or someone else, it sounds like what they’re doing is they’re putting out a specification for bid and you’re putting forth your technology to meet that specification; and that doesn’t mean that every vendor is going to use the exact same technology solution, but they all meet the specification. Am I correct in that assumption?

J. Thode Yes, that’s correct. What I would only say is, as a small company, one of the benefits we have, again being fast and nimble, is we’re able to focus on individual opportunities and as often as we possibly can, also try and influence the direction of a specification so that it’s advantageous to our technology and our differentiation. So, yes, we try and go even beyond your characterization of it.

W. Mysheed I understand. Now that you’re talking about moving into South America and Asia, are you talking about – and you talked about a trial somewhere; I think it was South America. Is that correct?

J. Thode China.

W. Mysheed China. Is that using an existing technology solution, or is this another one of these where they came to you with a problem and you tried to build a technology to met the solution?

J. Thode A little bit of both. The trial specifically has to do with a variation of the RF2 product line, attached to a different infrastructure. But it’s a variation of the current product line. But in that engagement, we’ve also had discussions about problems that the customers had that we might be able to help them alleviate. So this is part of changing the culture of our company, rather than trying to go in and bash and be engineering-focused and just sell exactly what we have; we kind of turn the tables and ask the customer what they need and try to bring some of our technology to bear on that. This really has served us well over the last year or so.

W. Mysheed So even in these situations, you’re looking at maintaining the integrity of your intellectual property and your manufacturing process, and you are just going to supply them with finished product; you’re not engineering a solution and then getting a royalty while they build it for themselves?

J. Thode No, no, that’s certainly not the direction we’re headed in.

W. Mysheed Okay, just wanted to clarify that and make sure. I might have something later, but I’ll give other people a chance to ask some questions. Thank you.

Coordinator Your next question comes from Donald Weiss with Levitz Furniture.

D. Weiss John, China. I’m really interested in what you guys have going in the future, let’s say the next 18 months, in China. What do you see happening over there with your new products?

J. Thode That’s a pretty broad question, with our new products or with China? Let me just back up with China for a moment because I don’t want to expand too far in that direction. We see strategic opportunity in China, given our relationships there, really in two ways. One is, we have an existing portfolio of products that is applicable and easily adaptable to the broad CDMA and wideband CDMA market that’s emerging in China. We want to make sure that we get an opportunity to participate there. That’s with the existing product portfolio. It’s the kind of thing that if we have a properly incented partner, we think we can make up some ground fairly quickly.

On the flipside of the coin, we also see some opportunity from the supply chain in China, both for supplying parts in subsystems, but potentially supplying other products where we might partner in such a way that we could become a distributor for those products in a value-added way outside of China. So we’re approaching it in a couple of different ways.

D. Weiss Sounds good, but what percentage of your business do you think you can get out of having China as a major purchaser?

J. Thode It’s so difficult to say. We’re on a growth path right now, and it’s the kind of thing that could be, with a well-developed opportunity, a substantial portion of our business. But I think it’s way too early to kind of give too much guidance on that, but –

D. Weiss Well, I just said I wanted to know about 18 months out. That’s a year and a half from now.

J. Thode If I knew what was going to happen 18 months out, I’d be giving a lot more guidance than I’m giving today.

D. Weiss All right, thanks. Appreciate it.

Coordinator You have a follow-up question comes from Mark Matarnowski, private investor.

M. Matarnowski I just saw recently – I think it’s Cingular – is rolling out their large – the acronym is HSDPA network. I’m not quite sure how that fits in with CDMA, which I know you’ve got RF-2 filters for, and how PCS, which you’ve got, it sounds like trials with somebody who’s run it through and said yes, it’s real great. Is HSDPA just something on the 1900-megahertz band, or is that a whole other avenue of an opportunity for us?

J. Thode Both. Let me just emphasize again that our products are primarily RF products, so they’re adaptable to almost any technology; it really is more spectrum-dependent. So HSDPA is a 3G technology that does run in the 1900-megahertz band, and all of our product lines have some applicability to it. We are, as we’ve said before, actively discussing opportunity with every major U.S. operator, including Cingular, and obviously some of the discussions are focused on where they have most of their energy, which is deploying their 3G services relatively quickly.

M. Matarnowski A lot of the press I see, I guess, with these cards they’re deploying for laptops and PC’s is you can get video on demand, you can get all this kind of stuff which years ago we said would be the kind of application that would really fill the air waves with data, and then that would I guess accelerate the need for interference management. Do you still see that happening, such that even with these different spectrums, there’s only so much bandwidth available, and that the quicker they accelerate to use that, the sooner they’re going to run into a pinch where they need filtering?

J. Thode The short answer is yes.

M. Matarnowski Okay, that’s good enough for now. I’ll try to keep following on that as I can.

F. Cesario Mark, it’s Frank, if I can interrupt. There’s one longer answer, though, that’s a little different from a historical view that someone who’s been around the company for a long time might not see immediately. We’ve talked about interference for many, many years, but the fact is, a great deal of our present and near-future business opportunities deal with the integration of a base station, the integration of multiple spectrums, multiple types of architectures, multiple technologies in the same place. It’s a tremendous opportunity for us, and really one of the ways that this business has grown over the last year. So I would think of each of those as a real opportunity for us beyond interference, in just integrating the activity in two or sometimes three frequencies in the same base station.

M. Matarnowski And with the recent closure of some of these deals that had been pending for quite a while, do you see that as a roadblock that now gives you the direction to go ahead and pursue that, or had the companies in those deals pretty much been working with you all along anyhow? Or somebody?

J. Thode Yes.

M. Matarnowski Along the integration line, I guess.

J. Thode Yes.

M. Matarnowski Okay, and just a couple housekeeping things here: Regarding the proxy statement that recently came out, we’re to vote for board members on there. This is something I asked last year: I’d love to have a great board working for a great company. It’s hard as a shareholder to know exactly who to vote for if I don’t know what their contribution is. We’ve heard in the past that some of these people know different industry heads and all these other kinds of things, but it would really help if you could somehow publish or share with the shareholders what the contribution for these various board members is. Then we can try to decide is it a good fit for them or are they – whatever. So that would help.

I’m also concerned about the potential 17 million additional option shares you were asking for, for I guess compensation awards here coming out in the future. While I won’t go into all the details of what’s fair compensation and what isn’t here with you, I would like to – again, going back to what you stated, John, and that’s again all we have go to on – you stated that you see no reason ISCO can’t be a $100 million company here, or that’s your goal, to get us there; and I would simply state that if that’s really the case, then with some of the options that are granted out there already, you guys will do quite well if you hold onto them and wait for that fruition to come also.

The place I work, we have an opportunity, everyone can buy into the company; but we buy our own shares, we get a 15% discount on them. There’s some IRS plan – I forget the number for it – that allows you to do that. I guess I’d much rather see at least the majority of the options being handed out, being handed out with some skin involved, too. Now, to the extent that some of that is just part of your compensation, and when you get to your level – I’ll go along with that; but I guess just try to keep in mind that this stuff isn’t candy to be passed out, and every option you give out, at least at this point, is something a shareholder is paying for, and we’ve been paying for a long time, so – off my high horse. Thank you.

J. Thode By the way, I appreciate that, and with a much longer discussion I could demonstrate to you that I think we’re being really good stewards. And I don’t disagree with your comment about ultimately getting to be a very successful company will have its own rewards. But as I said, I think we’re being very good stewards, without trying to sound too high on the horse here. But equally so, it’s been a long time since we’ve refreshed that pool, and if we’re really going to get to be a $100 million company, we’re going to have to add some new talent and some new skill sets. And people aren’t going to come here just on kind of a promise for something to come in the future. I mean, there is going to have to be some risk/reward benefit for them, and that’s the primary purpose of refreshing the pool to a great extent.

M. Matarnowski Sure, and I also want to make clear to everyone that you’re not saying, give us 17 million, we’re going to go #### them away. You’re saying give us 17 million and we may use them as we see fit, where necessary; and there’s a big distinction in that.

J. Thode Absolutely, and I think historically if you looked at when the last time was that we refreshed the pool and what our burn rate has been relative to our peers in the industry, I think you’ll find we’re very, very good stewards and plan to continue to be so.

M. Matarnowski Okay. Lastly, the other forum that came out today about Amr’s termination, again just a clarification: You’re renegotiating a deal with him, probably something longer than one year; is that correct?

J. Thode Let me first clear up something: He hasn’t been terminated. He’s still the CTO and EVP of Engineering and Operations. What we’ve done is we’ve terminated his previous employment agreement; actually we’ve given him notice of termination. His current agreement is still in force through the end of the year, but a provision in the agreement made it automatically renew if we did not give him notice 60 days before its end. I’m fully confident that we’ll come up with a new agreement that’s both beneficial for him and the company, and acceptable to both before the end of the year.

M. Matarnowski That just goes back to a comment I made a few conferences ago, where I asked, is Amr happy? As long as he’s happy, I think where he goes, so go the shareholders here as far as the future potential of this company here, given his talent. So thank you for taking care of him.

J. Thode You’re welcome.

Coordinator At this time there are no further questions. Are there any closing remarks?

J. Thode Once again I appreciate the investment in time all our shareholders make, and the great questions and comments, and more importantly the interest in the company. Thanks again for taking time, and we look to talk to you again in the near future. We’ll keep you updated along the way, so thanks again for the support of the company. Take care and have a good afternoon.

Coordinator This concludes today’s conference call. You may now disconnect.