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Executives

Robert Schatz - Managing Director of Wolfe Axelrod, IR

Ben Benjamin - CEO

Bill Marshall - CFO

Analysts

Bradley Donner - J.p. Turner

Dan Cromie - Private Investor

Mark Friferty - Private Investor

Authentidate Holding (ADAT) F2Q13 Earnings Call February 14, 2013 4:30 PM ET

Operator

Greetings and welcome to the Authentidate Holding Corp. Fiscal 2013 Second Quarter Financial Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions).

It is now my pleasure to introduce your host, Mr. Robert Schatz, Managing Director of Wolfe Axelrod, Investor Relations. Thank you Mr. Schatz, you may begin.

Robert Schatz

Good afternoon, thank you all for joining us for today’s conference call to discuss Authentidate’s financial results for the second fourth quarter and six months ended December 31st 2012. By now, all of you should have had the opportunity to review the press release discussing the results, but if you have not, please call my office, Wolfe Axelrod Weinberger Associates at 212-370-4500, and we will immediately send it to you either by fax or email.

On the call with me today are Mr. Ben Benjamin, Chief Executive Officer of Authentidate Holding Corp. and Mr. Bill Marshall, Chief Financial Officer.

Before I ask our host, to discuss the particulars of today’s call, let me take a moment to read the forward-looking statements.

This conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. When used during this release, the words believe, anticipate, think, intend, plan, will be, expect and similar expressions identify such forward-looking statements.

Such statements regarding future events and/or the future financial performance of the Company are subject to certain risks and uncertainties, which could cause actual events or the actual future results of the Company to differ materially from any forward-looking statements. Such risks and uncertainties include among other things the availability of any needed financing, the Company’s ability to implement its business plan for various applications of its technologies, the impact of competition, the management of growth and the other risks and uncertainties that may be detailed from time-to-time in the Company's reports filed with the Securities and Exchange Commission.

In light of the significant risks and uncertainties inherent in the forward-looking statements included herein, the inclusion of such statements should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

With that, out of the way, let me turn the discussion over to Mr. Ben Benjamin, CEO of Authentidate Holding Corp. Ben, please proceed.

Ben Benjamin

Thank you, Rob. Good afternoon, everyone and thank you for joining us for today’s call. During the call, I will provide an update on Authentidate’s business, and will then turn the call over to Bill to review the financial results for the second quarter and six months ended December 31, 2012. Afterwards I’ll make some closing remarks and we’ll open the call for questions.

Since our last conference call, we have continued our efforts to position the company for significant growth and profitability. We have increased our revenues for the period ended December 31, 2012 and we have developed innovative new products and services to meet the special need in our target markets.

As the regulatory reform in industry trends we have discussed on previous calls take effect, we've seen an increase in interest in our products and services as healthcare providers look for ways to reduce cost. on these records and processes, we use hospital readmissions, shorten hospital stay and shift patients to wellness and preventative care program.

We believe that our business will continue to benefit from these reforms and industry trends and that the pace of our revenue growth will accelerate based on our accomplishments during the first half of our fiscal year.

We are also encouraged by the recent regulatory initiatives such as the proposed (inaudible) Motion Act standing before congress. This act is focused on significantly expand the use of the telemedicine medicine and the increasing Medicare and Medicaid reimbursements for these types of services.

Additionally, the need to reduce healthcare cost, further extend access to healthcare services and maintain the quality of the services provided to patients was a prominent theme of the President speech of the union address the other night. The message is pretty clear that the government focus on revamping healthcare will continue. These are very positive developments for our business. As we have products and services designed to address the needs and it helps our business to help our customers use technology to reduce cost and improve efficiency and enhance patient outcomes.

Although we continue to operate in a challenging economic environment, we reported strong revenue growth for the quarter and year-to-date period as we focused primarily on increasing revenues from our existing customers including the VA. However, we didn’t achieve the revenue objective we set for the VA as we experienced some delays, related to changes that we had to make to the (inaudible) protocol to reduce the amount of time it takes the patient to complete the session.

We recently completed the revised (inaudible) and they have been approved for use by the (inaudible). We also implemented from additional cost saving initiatives in January 2013 to reduce our operating expenses and cash flow, including some additional employee and directive compensative to equity based compensation.

On reduce on second (inaudible) we made it expensive. While we are not satisfied with the pace of our revenue growth, we believe we have moved in the right direction. And our growth provides evidence that our efforts have started to pay off. We are excited and optimistic about our opportunities for growth and we believe we can increase the pace of our revenue growth for the remainder of fiscal 2013 and beyond as we execute on our growth payment.

Moving to our core products and services, we have made significant progress in the telehealth period since our last call which should facilitate our future growth in this market. We have continued to focus primarily on our VA telehealth project and have announced a number of important milestones that positions us for continued to growth from this customer. These milestones include the approval of the national rollout of the interactive voice reflect solutions. And more recently, the approval of the interest rate of our EAC or electronic healthcare and our IVR solution to the VA VistA electronics health record system. And the approval of a number of additional disease management protocols for both our EHC and IVR solutions.

The new interface to the VistA system makes it easier for focusing the use of products and services and the additional VMp make our solutions available to a much larger group of patients at the VA. Although this has been a long process, we finally have approval for all of the major VMp used by the VA for both of our solution and we believe along with the interface, this will help us to accelerate the adoption of our EHC and IVR solutions throughout the VA.

We expect to continue to work diligently to serve this very important customer and to help support the effort to deliver the best healthcare for veterans. We also identify the sector telehealth customers as these opportunities arise and we are continuing to monitor several requests for information on requests for proposals from private sector organization. We also announced our plans to introduce a mobile telehealth tablet and a telehealth software application before the end of February 2013. These new products complement our current offerings and are designed to address the emerging markets for mobile telehealth solution to offer a broader range of price point installation to prospected customers and to expand our addressable markets for our telehealth products and services. The company estimates that the market for remote patient monitoring solution will grow to approximately $7 billion this year. Due to the impact of new program designs to reduce patient care cost and a high hospital readmission rates of patients with chronic illnesses.

Shift in to our Inscrybe Hospital Discharge solutions. Activity in this area is increasing as the new rules regarding readmissions create new exposures for hospitals. We have seen an increased interest from this segment in our standalone solution, as well as the combined in two or more of our solutions to help coordinate cost effective patient care.

We are continuing to focus on expanding our partner relationships in this market, and we are working on a number of new opportunities in this space. We believe the hospital discharge market provides a significant opportunity for future growth and that our combined product offering including our new telehealth offering, provide a unique solution to help hospitals manage costs and penalties related to patient readmission.

Moving to our Inscrybe Referral Management Solution as we have discussed on previous call, the regulatory reforms focused on reducing administrative cost and convergent physician groups and the other healthcare providers, to electronic medical record is making our service more valuable and we're seeing increased interest in this solution as providers look for ways to automate records and process it.

We also see an increasing interest from this segment in our telehealth solution as home medical equipment, on home health agency augmentation look for new revenue sources. All (inaudible) focus primarily on increasing the utilization of our services by our existing customers. We continue to add new customers for our best solutions which has also contributed to our revenue growth. While we may continue to be impacted by market consolidation in this space, we believe we will continue to grow our revenues as we increase transaction volumes with our existing customers and market trends help us to add new customers. I'd now like to turn the call over to Bill Marshall to briefly review our financial results for the period ended December 31, 2012, Bill please proceed.

Bill Marshall

Thanks Ben and good afternoon everyone. I’ll start with the review of our consolidated results and offer additional comments as needed. As Ben mentioned, we reported solid revenue growth for the periods and have continued to manage our operating expenses and cash use as we grow our business. Although our revenues could fluctuate from quarter to quarter based on the timing of product shipments and related matters we are moving in the right direction and believe we are well positioned for continued growth.

Moving to the numbers, revenues for the quarter ended December 31, 2012 increased approximately 59% to $1,051,000 compared to $661,000 for the prior year period. Revenues for the six months ended December 31, 2012, were up approximately 40% to a $1,972,000 compared to a $1,412,000 for the prior year period. These results reflect an increase in revenues from both our telehealth products and services as we ship additional products and increase service revenues, and from our hosted software services due primarily to new customers and a higher transaction volumes.

Compared to the first quarter of fiscal 2013, revenues for the second quarter increased approximately 14% reflecting higher revenues for our telehealth products and services as well as our hosted software services. Cost of revenues was $817,000 for the quarter compared to $502,000 for the prior year period, due primarily to the higher telehealth revenues. For the six month period, cost of revenues was $1,517,000 compared to $1,050,000 for the prior year due primarily to higher telehealth revenues and data center maintenance expenses.

Selling, general and administrative expenses increased to $1,626,000 for the quarter compared to $1,385,000 for the prior year period. The increase is due primarily to higher selling expenses special shareholder meeting costs, legal, investor relations and stock option expenses. Prior year quarter also reflects the state payroll tax credit of approximately $115,000 which lowered the expenses for the period.

SG&A expenses for the six month period was $3,362,000 compared to $3,078,000 for the prior year period reflecting the same trends as the quarter.

Product development expenses were $313,000 for the quarter compared to $209,000 for the prior year period and $561,000 for the six month period compared to $417,000 for the prior year. These increases are due primarily to higher personnel expenses. We did not capitalize any software development expenses for the periods and don’t intend to do that going forward.

Depreciation and amortization expense were $204,000 for the quarter compared to $231,000 for the prior year period and $408,000 for the six month period compared to $448,000 for the prior year. These decreases are due primarily to lower spending for fixed assets and a decrease in amortization of capitalized software, offset in part by the amortization of the acquired telehealth license.

Other expense was $824,000 for the quarter compared to other income of $2,000 for the prior year, and $1,372,000 for the six months period compared to other income of $2,000 for the prior year period. Other expense for the period consists primarily of the non-cash amortization of the debt discount related to the warrants issued in lieu of cash interest on the Company’s senior secured notes payable.

Net loss for the quarter was $2,733,000 or $0.11 per share compared to $1,664,000 or $0.07 per share for the prior year period. For the six month period, net loss was $5,248,000 or $0.22 per share compared to $3,579,000 or $0.15 per share for the prior year period. The increases in net loss for the periods are due primarily for the non-cash amortization of debt discount and the acquired telehealth license as well as the prior year payroll tax credits that I discussed earlier. After adjusting for these items, the net loss for the current periods will be in line with the prior year period.

Moving to the balance sheet, as of December 31, 2012, cash, cash equivalents and marketable securities amounted to approximately $2.1 million and the company had working capital of approximately $266,000, reflecting the shift of the senior secured notes, net of unamortized discount of approximately $4.6 million to current liabilities.

For the six months ended December 31, 2012, we used approximately $3.4 million to fund operations, changes in working capital in wellness center, inventory and other investments. This amount includes inventory and manufacturing investments of approximately $225,000, data center and related infrastructure investments of approximately $79,000, acquisition related investments of approximately $250,000 and unamortized pre-payments for insurance and maintenance of approximately $190,000.

For the six month period, the average cash used for operations was approximately $450,000 and this amount is now looks like the additional cost cuts than mentioned earlier and that will be lower moving forward as a result of these cuts. We also expect our cash used trend downward as we grow our revenues.

That concludes my remarks. Let me turn the call over to Ben for some closing comments before we take your questions. Ben?

Ben Benjamin

Thanks, Bill. We have continued to make solid progress, to position of our company for growth and profitability. Regulatory reforms and industry trends continue to encourage healthcare providers to use information technology to help control cost and improve patient outcomes which are positive for our business and our future growth.

For a number of reasons including our progress today, we believe our company is significantly undervalued and we remain confident and optimistic about our future. We will continue our focus on delivering growth and increasing shareholder values in fiscal 2013 and beyond.

That concludes our remarks and now Bill and I will be happy to take any questions you may have. Operator, please open the call for questions.

Question-and-Answer Session

Operator

(Operator instructions). Our first question is from Bradley Donner of J.p. Turner & Company. Please go ahead.

Bradley Donner - J.p. Turner

Ben, you received a letter, it was noted in yesterday's release from the Lazarus Investment Partners. Is that whether it’s the nature in any way shape or performance, (inaudible) or what's the nature of that letter? can you comment on that at this time?

Ben Benjamin

Sure Brad as you already know, Lazarus has been a very supportive fund as far we are concerned, it's sophisticated in the past in a number of sales that we have done. And they remain very closely aligned with what we are doing here. We keep them informed, they given us their support whenever asked for. We expect that that will continue, however as you know that this type of support always come with some help Lazarus they seek in constructive ways that they can help us to see the process of moving the company forward. So, the communication that we received from them, we should respond in the next couple of weeks. We view it as being very positive and we think it will help in the way we want to move the company forward and we will be putting on something as I said in a couple of weeks that will affirm that and make the communication between Lazarus and Authentidate more clear and easier to understand.

Bradley Donner - J.p. Turner

Okay well obviously the holders of that series that Steve preferred as well I am guessing that the nature that letter also includes information pertaining to that.

Ben Benjamin

Well there is congregation in letter around the CI. I don’t want to get into it right now but we would consider what Lazarus proposed as being helpful to the company.

Bradley Donner - J.p. Turner

Given some of the delays that you have experienced with the VA ramp up and certainly what your expectations were, how much of that has impacted your internal revenue model and how far back does it push your breakeven point that you had planned. And then lastly, are any of these opportunities that we had with the VA, are they gone and lost forever or is it just a delay that we could recapture some point in the future?

Ben Benjamin

Let me start on the first part of your question, we did experience some delays that I spoke about before. We in fact feel that the VA has worked with us diligently. They have put a lot of resources into the efforts to bring the system up to the level that they would like to see it operate at. And when I say that, I am largely speaking about the disease management protocols that we use on the IVR Interactive Voice Response System. This is very important to us, it's very important to the VA. Because the VA has revamped their projections and in fact expect the overall telehealth program to grow by about 70% this year. We expect a significant amount of that growth to be in the area of IVR patients and in that regards, we have won a few customers or vendors that are qualified to service the VA as a customer. Just a small feel of vendors, we think that the VA being very methodical, this is a relatively new service they are introducing. And so they are taking their time moving forward and qualifying the DMP. That has taken a little longer than we would like but as we said in the prepared text, we have now pledged our hurdles. We are beginning to see our orders increased and we expect that to happen as fast on cost in the very next future.

The cost to the business in terms of revenues, I would say we have done about 20% of what we would have expected to do with the VA at this point in time. But I would expect we'll catch up very quickly and my anticipation is that we would be back a slow projection somewhere in the May-June timeframe. So that's my anticipation, but we are over the hurdles that have caused the delay and we look forward to moving the business along the path that we expected.

Bradley Donner - J.p. Turner

Okay and when is that coming to point whether your breakeven point? Is that along those lines as well or…?

Bill Marshall

Not a lot of effect Brad, we within our internal forecast we're still saying within the next 12 months and obviously the units that we didn’t sell, we didn’t have to bill. So that was a cash savings for us.

Ben Benjamin

And I will go out on a limb and see this question seems to come up every call. We're not going to have this question for much longer.

Bradley Donner - J.p. Turner

One last question and then I'll get back in queue if I have any others to come up with. Your business model has always been centered around that software as a service platform. My understanding is that, that's supposed to be a simple solution that can be added with the basically the flip of a switch. What dynamic prevented you from simple plugging that into the VA's model and into their system?

Ben Benjamin

Well, you are correct, we generally offer our services, we deliver our services using the SAP model, which means we operate our own data center and we then customize for our customers, however in the case of the VA as I have mentioned on these calls a few times before, they actually would not allow their patient information to be moved outside of their firewall. So we are working in there in a model where actually require us to replicate our datacenter behind their firewall. With that comes some inconvenience and it slows things down a bit because there is very, very higher security and as a result you don't just go on to the VA system and update your system or make changes to the product as you feel. It's regularly scheduled where they can supervise you, the software has to be reviewed because they are concerned about trojans and other kinds of environmental things that could impact the integrity of their service, and more importantly, all of our employees who interact over that system has to have security clearance. So it limits the number of employees that can interfere with the software and go back and forth.

So that slows things down a bit and doesn't fit or exactly replicate the model that we use when we offer our services through that. (Inaudible) but we understand the reasons behind it, is the high level of security to which the base of this service…

Bradley Donner - J.p. Turner

Okay fair enough. One last thing for Bill, Bill you mentioned that the run rate that we had, run rate was about $450,000 a month I believe for the last quarter.

Bill Marshall

Right.

Bradley Donner - J.p. Turner

You expect that to be lower because of the cost cutting measures that we took moving into January, obviously we cannot predict revenue flow that would affect that number going forward, hopefully that obviously is reduced as a result of the increased revenue going forward. everything else being equal where would that run rate be going forward if indeed our revenue were to remain flat? Do you have that number off the top of your head?

Bill Marshall

It will be down by about 25%.

Bradley Donner - J.p. Turner

25%, so we're guesstimating that we can be close to between $300,000, $350,000, remarks on the burn rate assuming everything else being equal.

Bradley Donner - J.p. Turner

I’ll let you do the math.

Operator

The next question is from Dan Chromey a private investor, please go ahead.

Dan Chromey - Private Investor

Just to expand on some of the questions that Brad just asked, the DMPs, now how many DMPs are there in production, can you answer that question?

Ben Benjamin

Yes, we can answer the questions. The Avaya actually has 12 DMPs in production, seven of which are core, and we actually have the core DMPs upon our system.

Dan Chromey - Private Investor

Okay, so seven basically have been approved, you are saying.

Ben Benjamin

Yes.

Dan Chromey - Private Investor

And in terms of the competition, do they have to go through the same approval process that Authentidate went?

Ben Benjamin

They did that, they do have or have some advantages with respect to that. The situation is, they, as your remember we’re incumbent. So they had DMPs that will hold for them. We actually came in and had to put new DMPs up. So we had to have everything approved. What is very important in the way, the Avaya conduct the support of vendors, is they are very, it is very careful that adds to the requirement of the contract. They don’t want it seen, to spend more time helping one vendor than the other. And so the disadvantage being a new vendor, we have to really require a lot of their time but they try to distribute the time amongst lot of vendors equally. And so the incumbent vendors are able to sell product with the old DMPs while they work to put the new DMPs on. We don’t have that log there, and so we find ourselves disadvantaged in that payment doctor requires that they give equal time to everybody but if they don’t get the job done for us, that’s as far as have proven to DMPs, we don’t have anything to sell whereas the incumbents do have something to sell. So we complain from time to time but that doesn't work because they work according to the later in a law and so you have to regret and carry on.

Dan Chromey - Private Investor

Now at one point, I'll just expand on your answer there, one point I think I had read, the VA had a budget line item of about $330 million for fiscal 2013 which would have started October 1, of 2012. Do you have any sense of how much they have spent or doled out to these vendors, or whether it be Authentidate or the competition to date, we're almost halfway through this…

Ben Benjamin

We do not know what their spend rate is. They don’t disclose that. But we know they have the spending but we don’t know exactly what their spend rate is.

Dan Chromey - Private Investor

Also the contract with VA was awarded to Authentidate in April 2011. At any point in time here has the VA compensated Authentidate for any of the products set up, the testing, the trials, the approval process, going down and setting up the data center behind their firewall. Has there being any revenues generated from the prep side or is it just an order, that’s the only time you’re taking revenue from the VA?

Ben Benjamin

It’s primarily products and services Dan, we do have a very small line item in there for DMPs, that ultimately we will generate some revenue from developing DMP’s but its de minimums and that’s not where the money is going to be made.

Dan Chromey - Private Investor

You are getting orders now. Are they coming in drips and drabs or at some point you expect the ticket to open wide up or what kind of track record do you think going forward here?

Ben Benjamin

What we see Dan, it’s coming in faster every day and like Bill pointed out, earlier in the month we got the last and perhaps the most important DMP approve is a DMP referred to the core mortgage DMP. What we are seeing is the idea is taking. What I mean by that is you are likely to have a large number of patients that are serviced by the idea that you are going to have by the device and so what we’re seeing that is beginning to grow more rapidly, it’s good for us and it reduces the cost of inventory for us because that’s largely a service business, you don’t have the device, you don’t have the piece of equipment that has to be manufactured.

So you can get up more quickly. The logistical difficult with all of this is the VA finds themselves having to hire additional clinicians to supervise the data or monitor the data that is presented by the system on the backend side that they will look at.

So you find that you go across the piece and then you slow down as they begin to catch up with the higher end of the (inaudible) curve. So, to answer simply we are beginning to see around, that’s occurring more rapidly every day and as I said a question that was asked earlier, my expectation is we’ll catch up to where we have projected we would be, sometime around the May time frame.

Dan Chromey - Private Investor

Okay and one last question before I let somebody else take over; this is probably more in Bill’s court. From the last quarter, could you give a broad stroke guestimate as to the percentage of the revenues currently from the Telehealth products side, Inscrybe and lastly the patient discharge?

Bill Marshall

Well Dan, you can figure that out on the financials, the Telehealth revenues are all grouped in and Telehealth products and services and while we have revenues coming in from the commercial sectors as you would expect, the lion’s share of that is still the VA. The hospital discharge on the Inscrybe revenues are grouped as hosted software services and we don't break those out and where do we want to do that but I can say that as you would expect the lion’s share of that revenue is coming from our Inscrybe referral and order management service at this point anyway.

Operator

(Operator Instructions). The next question is from Mark Friferty, a Private Investor. Please go ahead.

Mark Friferty - Private Investor

You mentioned earlier that the VA was going to increase the growth of Telehealth prices here by 70%. So that would be from what level the year before? How many dollars did they spent last year?

Ben Benjamin

Actually, the way we look at it, the expense approximately totals $140 million, thereabouts. They spent about a $140 million last year so I think they are going to go to $200 million this year.

Mark Friferty - Private Investor

And you are saying now that most of the growth is coming in the IVR and if I remember correctly, there is only two companies that are competing for the IVR businesses? Is that correct?

Ben Benjamin

That is correct Mark. That actually besides the feel of vendors being smaller used to do in the case of Avaya. What you may not understand is the effect of these products is that the back end that the clinician uses to manage and supervised the patient is where you create most of the follow up on gain efficiency's that are realized and some of the (inaudible). So what we feel and how we market the product is that if you leave with Avaya and you’re training the clinicians on your backend because of the complexity of the use, then you are likely have more of the device patients also because they don't want to be trained on multiple back end.

So one of the things we’ve been pushing with them is that actually IVR patients and in fact the cost is low to care for an IVR patient, so we see the inclination is to use more and more IVR services for patients. So this is a positive for us, not only from the fact that the seal of vendors is more on us but also the fact that it leads naturally to not having the clinicians betraying on other peoples equipment and so resulting in them buying also the device from the same vendor.

Mark Friferty - Private Investor

So of the $200 million what percentage do you they’ll spend on IVR in this next year?

Ben Benjamin

I have not broken out the exact amount, but what we understand and another way to look at it is that what the VA predicts is that 8% of covered life of generally chronically ill people and they are well suited to be cared for by a device. They think if the social population is around 30%, so therefore if you extrapolate from that 22% will be IVR patients of the total 30% of the general population that will be addressed by a Telehealth instrument. So our arithmetic target is somewhere in the neighborhood or 3:1. There will be three IVR patients for every one device patient.

Mark Friferty - Private Investor

So assuming that IVR patients are about half the revenues, would it be fair to say they're going to potentially spend $100 million on IVR this year?

Ben Benjamin

It's fair to say that.

Mark Friferty - Private Investor

And how quickly are they adding units with our competitor?

Ben Benjamin

Well our competitor has a weak hold on income, but they have been involved in a VA contract for quite a bit longer than us. So they have a number of patients that they have logged overtime but frankly the IVR is a relatively new service that they only began about a year or two months ago. They started November 2011…

Bill Marshall

That's when they started selling.

Ben Benjamin

That's when they started selling it into the VA. They have logged a considerable number of IVR patients.

Mark Friferty - Private Investor

What considerable 10,000 or 100,000.

Ben Benjamin

It's somewhere in between there.

Ben Benjamin

Somewhere around, in excess of 25,000 to 30,000, yes.

Mark Friferty - Private Investor

Well it took them a year to get that many on.

Ben Benjamin

But realize they had to work to get the system up and the DMPs and VA is very thorough in looking to get those DMPs approved. I would say the preponderance of those patients will put on in the last four months.

Mark Friferty - Private Investor

Okay so you mentioned 12 DMPs earlier and that we were approved for 7, are they approved on all 12?

Ben Benjamin

Yes they are.

Mark Friferty - Private Investor

And when would we expect to be approved on the last five.

Ben Benjamin

Well we're working, we have approximately two right now came for VA approval, so the VA looked in to approve two of the DMPs right now, and the other three were to have in the next couple of months or so. Now what happened is the patient population for those additional (inaudible) gets more, the two that we're working next, PPSD and I believe, it’s one of the behavioral health DMPs that we have the discretionary, but anyway it’s a (inaudible) around the health DMP. The kind of DMPs that you have that would comprise the other three, I think like spinal cord problems and I think dementia, the other one we’re putting off is dementia, Those are the next two highest run PPSD and dementia.

So you get as you go down towards the 12, it gets to the smaller patient population but overall it’s been, we want to capture all 12 that the VA requires. Now I’ll also tell you, they have alerted us that they are working on project seven. So sometime later in the year we expect that the total population will be around 19 diseases. The reason that you're seeing this kind of growth is because of the attractiveness that comes from the patients (ph) that can be realized.

Bill Marshall

And Mark, to follow up on what Ben said, as he pointed out, the other incumbent vendors are using their old DMPs. So the new DMPs, they're going through the same thing we are in terms of developing the new DMPs, but they can continue to use their old DMPs to enroll patients. So they have 12 but all 12 of them are not the new DMPs.

Mark Friferty - Private Investor

So I'm trying to concentrate on what you're saying and doing the math, but I'm taking a 100 million, I'm dividing it by 12, and then dividing it by about $30 to try and figure out how many units of IVR they're talking about putting on this year. Would that be unreasonable to do?

Ben Benjamin

No, remember there are logistical issues that it's not unreasonable to do. I don't think your math is structured correctly, but I'll let you work that at home.

Mark Friferty - Private Investor

So what I am saying is that you're anticipating that in 12 months now, they could be $10 million a month on IVR?

Ben Benjamin

Well, I don’t want to go out on a limp and say what and say what (inaudible) is going to spend, but what I would tell you is what they said the total budgets are with respect to the growth that they expect this year and what the percentages are with respect to 22%, they are about being IVR and 8% being decisive. You can work the math, however it works up and figure that out but always overlay the fact their logistics like getting data centers operational, getting enough clinicians to monitor the patients. There are things like that, that impact how fast we go. It’s not going to be a uniform run as you calculate.

Mark Friferty - Private Investor

Right, but in terms of the training and things like that, do you expect that to be a significant hurdle or is that something that happens very quickly in general?

Ben Benjamin

It’s always more significant than you think. These logistics are difficult because the VA 23 business that they call 23 regions, spread all the way from Puerto Rico and the Virgin Island to Guam, and so they go wide extent to, for example we have a presence in about 12 or 14 of those region where they use our products.

We have targeted 20 of them and we have visited or interacted with 20 of them. There are three that we have not targeted, the regions both distant and, you basically look at it as a cost benefit and you sort of use your resources in the most beneficial way. So there are whole bunch of logistics like that Mark that makes the calculation difficult.

Mark Friferty - Private Investor

All right, so one logistic moving forward, that looks like it may not be such a big issue anymore as being able to produce enough units to meet demand when you shift towards IVR. Are we comfortable with our inventory at this point? And can we meet their orders?

Ben Benjamin

Yes.

Mark Friferty - Private Investor

And then getting to probably, the only true concern that I have and that is that it looks to me that we have six months of cash on hand, and I commend you guys for a working had to bring down the expenses and certainly see that you guys are making some progress there, particularly taking into consideration projections that you gave earlier on the call. Do we think that we’re going to be able to get through the year without additional cash?

Ben Benjamin

I mean again, that’s hypothetical and there are scenarios that you could construct that would allow us to do that and there are scenarios that would allow us not to do that. So it’s hard to speculate how that’s going to play out.

Bill Marshall

I think we’re going to look at the what develops the need to the business and we may do right thing for the business. You got to look at what the cost effect is, you got to look at the benefit it brings to the business and we’re going to make the right decision. I think if we, we are in a very good space, attractive space we have a very good customer and it will be shame not to finance the business properly but what we will do is we balance all the inputs, we look at the cost of money, we look at what we can do with that money in those areas that are in benefit to the company. We make those decisions based on those things.

Operator

The next question is from Dan Chromey, a Private Investor. Please go ahead.

Dan Chromey - Private Investor

Just to cycle back here, I'm just going back to the press release on January 23rd and that was the announcement of the tablets and in that release there was a statement that states existing standard interfaces and tablets and smartphone should make them more readily available to international markets and I was just wondering if you could speak to that in broad stroke here. Do you have a target audience already for these international markets and are they more on the private side or is that government as well.

Ben Benjamin

Dan we have had a number of enquiries from overseas and that’s one of the great benefits, being a vendor to the VA; people who normally do some kind of the due diligence in order to understand who the vendors that they should work with, actually may cost the VA and the VA has been trying to refer us a number of times. We are doing is as we look at some public health opportunities in Europe and you have to very careful with respect to these social health systems because you want to get paid and so there are opportunities there. They should recognize the cost improvement that you can bring in caring for patients effectively long-term health and they have a fairly large population themselves. So we are working very closely with the public health system in Western Europe. We hope to have something there in the coming months.

Dan Chromey - Private Investor

Okay. The last one is still in the technology field here. I am very encouraged by what I hear in terms of the technology progress that you guys have made. Is there any chance or opportunity that this product sets can be picked up by trade regs or industry articles touting its benefits and cost savings?

Ben Benjamin

There are some industry groups, the HDA for example that we participate in where they write articles of this and it is the American Telehealth Association. So, you can see a number of evaluations invest, you got to understand though, everybody that's hoped to succeed in the Telehealth becomes a member of those groups.

So, they generally do think that pre-mature fragments for one over the other. So, if you are thinking you would have some assessments of what any of these technology relative or another ATA member's technology done by on (inaudible) that's not likely to happen in the industry association.

Operator

Our next question is from Paul (inaudible), a Private Investor. Please go ahead.

Unidentified Analyst

You mentioned that the VA has always been a proponent of Telehealth products and what are the obstacles up for private health hospitals in adopting Telehealth products and including yours?

Ben Benjamin

There are no obstacles frankly Paul. What has gone on is that the VA would finance and they actually publish their first documents that showed the efficiency created by managing and caring for patients this weak about five years ago, and when that publication that would publish your thought in medical journal, when I hit the street, many people doubted it. It has been tested a couple of three or four times in the last two years. The most notable might be Mass General (ph). They conducted tests up there and found that the same as the statement that would publicize the VA were exactly the same as they found for the general public and that has been replicated two or three other places. So it’s well established that you can realize this time to say in clarifications this week. What has happened is the insurance company has been slow in our timing complete reimbursement to these devices. So when you have closed health plans, like you have the managed care organization, they have deployed these willingly in the private sector. But the pull from SBA more broadly used is really the, private insurance will pay it, have not developed and including the government pays Medicare and Medicaid, have not developed blanket reimbursement. Now there is a bill of course in Congress that will force that on them and we expect that to happen soon. So the record mentioned that it's a huge cost payment, is universal included in the private sector or public sector. But what has happened is the insurance companies have been slow to change the reimbursement policy.

Operator

Our next question is from Mark Friferty, a Private Investor. Please go ahead.

Mark Friferty - Private Investor

Ben at this point, would you say that we are on parity with the incumbents so we're still playing catch up and if we're still playing catch up, what's involved in being basically equivalent to the incumbents.

Ben Benjamin

I think my measure of whether we are on parity or we are ahead is really the number of units we're selling. And we're not there as yet. So when you measure parity there could be different ways that you're doing your measurement, but my sense of measurement of all company and how we perform is that actually in our third number and the answer to that is we are not there yet.

Mark Friferty - Private Investor

Okay at this point now are there any differentiating factors going forward that will prevent us or slow us from getting there in the near future?

Ben Benjamin

No there isn’t anything that is a negative and all of you, you of course have backed that up by having (inaudible) on marketing programs But what we think are key and we are addressing those is having stratified a set of offerings that allow you to cover the full range of affordability. So what we've been doing is tracking what the insurance programs are willing to pay and let me explain what I mean by that.

One the low end you will find the payment that are almost aggressive with respect to cost would be in the Medicaid program. So you look at what you need to do, to get into Medicaid and it's not the same device for example that we’ll sell for the VA. You then look at what you need to sell as a midpoint and the midpoint will be something around this tablet solution and then you have a high end product and you may go into segments in between. So that's what we're doing to cover what we think the full range of affordability would be for reimbursement that will be approved by the insurance company. We think we have the technology and we're now releasing the product that will give us that breadth of product to cover the full range of need that will be out there in the marketplace.

Mark Friferty - Private Investor

So going back to the VA, would the incumbents have an edge because the physicians or physician assistants are already familiar with their backend and how to use it or is that not really an issue for us.

Ben Benjamin

No, it's not an issue for us, like I said the biggest edge they have right now is that they bring up the new DMPs, they have allowed the incumbents to continue to sell their product. We looking to challenge that we think that VA had an expectation that the new DMPs would have been in place sometime late last year. That hasn’t happened, they’ve moved it out and we want to insist upon it. So we're going to continue to work with the VA that they make everybody come up to speed. Now that's a major handicap that we suffer, that they can continue to sell the older DMPs.

Operator

Thank you. We have no further questions in the queue at this time. I'd like to turn the floor back over to management for any additional remarks.

Ben Benjamin

Thank you, operator. I would like to thank you all for participating in today's conference call. As always if you have any additional questions please feel free to call (inaudible) so it will pass to Ron Wyneberger or myself will also take your call. We thank you for your interest and support and look forward to speaking with all of you again in the near future. Have a great Valentine's Day.

Operator

Thank you, ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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