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Interphase Corporation (NASDAQ:INPH)

Q1 2013 Earnings Call

April 25, 2013 5:30 PM ET

Executives

Gregory Kalush - Chairman of the Board, Chief Executive Officer and President

Thomas Tipton - Chief Financial Officer and Vice President of Finance and Treasurer

Yoram Solomon - Vice President, Corporate Strategy and Business Development

Analysts

Orin Hirschman - AIGH Partners

Don McKiernan - Landolt Securities

Chris McCampbell - Southwest Securities

Operator

Welcome to the Interphase first quarter 2013 earnings release conference call. (Operator Instructions) I would now like to turn the conference over to Greg Kalush, CEO and President of Interphase.

Gregory Kalush

Good afternoon, everyone, this is Greg Kalush. I'd like to welcome you to our first quarter earnings call. With me is Tom Tipton, our Chief Financial Officer, and he will begin with a discussion of financial overview and performance for the quarter. Then I'll provide some additional business updates. Following me is Dr. Yoram Solomon, who will give an update on penveu. We will then conclude with a brief period of question-and-answers. Tom?

Thomas Tipton

Thanks, Greg. I'd like to thank everybody for participating today and for your interest in Interphase. Before we begin, I'd like to remind you that we do not make financial projections for the public. However, this call may contain forward-looking statements about the business, financial condition and prospects of the company. These statements are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

The actual results of the company could differ materially from those indicated by the forward-looking statements, because of various risks and uncertainties including, without limitation, effects of the ongoing issues in global credit and financial markets, our reliance on a limited number of customers, the lack of spending improvements in the telecommunications and computer networking industries, significant changes in product demand, the development and introduction of new products and services, changes in competition, various inventory risks due to changes in market conditions and other risks and uncertainties indicated in Item 1A of the company's annual report on Form 10-K and in the company's other filings and reports with the Securities and Exchange Commission.

All of the foregoing risks and uncertainties are beyond the ability of the company to control, and in many cases, the company cannot predict the risks and uncertainties that could cause its actual results to differ materially from those indicated by the forward-looking statements. So when used in this call, the words believes, plans, expects, will, intends, and anticipates and other similar expressions as they relate to the company or its management are intended to identify forward-looking statements.

I'll now provide a brief overview of our financial results for the first quarter of 2013. Revenues for the first quarter of 2013 were $3.3 million, down from $4 million for the first quarter of 2012. Our telecommunications and enterprise product revenues were the main driver of this decrease, with first quarter 2013 revenues of $2.5 million, down from $3.2 million for the first quarter of 2012.

Services revenues were $722,000 for the first quarter of 2013, down from $781,000 for the first quarter of 2012. These revenue were limited by an unanticipated supply chain issue related to a single source part that impacted our ability to produce and ship a large order for contract manufacturing company.

However, we are very pleased to say that we will be able to fulfill this order in the second quarter of 2013, and we have received the second order from this customer that we expect to fulfill during the second and third quarters of 2013. This second order is double the size of the first order. We continue to see strong interest in our engineering design and manufacturing services, and we expect to enjoy significant revenue growth in 2013 in this area of our business.

On a sequential basis, revenues were up approximately $75,000 from $3.2 million in the fourth quarter of 2012. Gross margin percentage was 39% for the first quarter of 2013 compared to 46% in the first quarter of 2012. The decrease in gross margin percentage was primarily due to a revenue mix shift toward lower margin products and services, and decreased utilization of our manufacturing facility.

Total operating expenses were $2.3 million in the first quarter of 2013 compared to $2.8 million in the first quarter of 2012. The details of our operating expense trends are as follow: research and development expenses decreased to $830,000 for the first quarter of 2013 from $932,000 for the first quarter of 2012. This decrease was primarily due to a decrease in personal related expenses as a result of the 2012 restructuring plan.

Sales and marketing expenses decreased to $676,000 for the first quarter of 2013 from $914,000 for the first quarter of 2012. The majority of this decrease in sales and marketing expense was due to a decrease in personal related expenses. The remaining portion of the decrease was primarily driven by a decrease in marketing and tradeshow related expenses.

General and administrative expenses decreased to $888,000 for the first quarter of 2013 from $940,000 for the first quarter of 2012. The decrease in G&A expense was primarily due to a decrease in depreciation and amortization expense, primarily driven by our ERP system being fully depreciated. During the first quarter of 2013, we reduced our restructuring charge by $67,000 related to our reduced future cash expenditures related to severance and benefits.

The company recorded a charge of approximately $340,000 during the first quarter of 2013, classified as other loss in response to a labor court decision in France regarding a lawsuit brought against the company by former employees of Interphase SAS, which is a subsidiary of Interphase Corporation. Without going into too much detail here on the call, I'll try to summarize the status of this lawsuit.

25 former employees of our French subsidiary, which ceased operations in 2010, have brought suit in France back in late 2010 or early 2011 against the company. Alleging various causes of actions and rights to damages, relating to claims of wrongful dismissal of employment, specific French employment indemnities, general economic losses, and contractual claims related specifically to their employment relationship and the contracts entered into between the individual and the company. The aggregate claim is for approximately $4 million.

On March 22, 2013, the labor court in France ruled in favor of the company on all matters related to 22 of the 25 plaintiffs except for claims from four plaintiffs related to non-competition indemnities. It was this ruling in favor of the claim of the four plaintiffs that drove the $340,000 charge. Both parties have a right to appeal this decision. However, no appeals have been filed at this point so far as we are aware.

Our net loss was $1.4 million or $0.20 per share in the first quarter of 2013 compared to a net loss of $929,000 or $0.13 per share in the first quarter of 2012. Turning to our balance sheet, our working capital position decreased approximately $1.2 million during the quarter to $10.5 million.

Our cash and securities position decreased approximately $480,000 during the quarter to $8.3 million at March 31, 2013. Our current ratio sits at 4 to 1 at the end of March. As always, we will continue to carefully manage our working capital and cash and securities position, as our balance sheet strength is a key enabler for us to take full advantage of future growth and investment opportunities for our business.

One last thing, as we announced a few weeks back in an 8-K filing on April 11, the company received notification from the listing qualifications department of the NASDAQ stock market. Is that the company's application to list its common stock on the NASDAQ capital market has been approved and that the company securities were transferred from the NASDAQ global market to the NASDAQ capital market at the opening of business on April 15, 2013.

The NASDAQ capital market is one of three markets for the NASDAQ listed stock and operates in the same manner as the NASDAQ global market. Companies listed on the NASDAQ capital market must meet certain finance requirements and adhere to NASDAQ's corporate governance standards. The company's common stock will continue to trade under the symbol INPH.

I'll now turn it back over to Greg, who will add some perspective to the significant events and accomplishments within our business. Greg?

Gregory Kalush

Thank you, Tom. And again welcome everyone. Our first quarter 2013 results were reflective of a continued slowdown in telecommunication spending worldwide. However, there were a few bright spots both in the packet processing and interworking product lines in the first quarter.

Our packet processor product revenues, primarily the 55MC8, grew 266% over the first quarter of 2012, as we saw a major user of these products begin rolling out their media gateway instruction for their controllers. And we expect to continue to produce solid revenue performance for this product line this year.

Also, our interworking product revenues driven by our 3632 in the first quarter grew 248% over the first quarter of 2012, as one of our major European customers began ramping their media gateway product in January of this year. Our interworking products are also being designed into another media gateway opportunity at a different European telecomm equipment customer in this project, which generated services revenue over the past year as expected to generate product revenues a little bit later this year.

Not withstanding the expected improvement of packet processor and interworking product revenues for this year, it remains clear that declining revenues of legacy embedded IO business will continue our combined telecom business, and it will continue to keep it flat for the year. Its because of this trend, we've been working to build new product and service revenue steams that are less dependent upon a single market or a group of customers for our success.

Our services revenue, which Tom mentioned earlier, had declined in the first quarter of 2013 by a little less than 8% as compared with the first quarter of 2012. It's important to know however that during the first quarter of 2012 and throughout most of last year, we are working on a significant engineering design services project to produce a very compact location tracking device, which our customers believes will revolutionize their industry. They bargain with Interphase to design this exciting new device, because of our depth of design experience and also our depth in communication and networking experience.

In the first quarter of 2012, we finalized the design and our EDS revenues from this project declined. However, we began working on supply chain activities in order to bring productization efforts into full manufacture and production. As Tom mentioned, in the first quarter, we received our first order for 10,000 units of this product, with a promise of many more orders of this size throughout the year.

At the very end of the first quarter, we were able to overcome a global shortage of a particular component, but that is impossible to deliver in the first quarter, but did make it possible and begin delivering upon this order earlier in the second quarter.

Despite the fact that we were not able to supply against this large order in the first quarter, our electronic manufacturing services business continued to expand. In fact, we grew this business by 215% over the first quarter of 2012 and by 11% sequentially over the fourth quarter of 2012 and this progress is accelerating.

The projected revenues for electronic contract manufacturing for the second quarter for 2013 alone are expected to exceed our revenues in this area for all of 2012. This represents a major success story for our productization services offering, and we're hoping this, the first of many to ratify this value proposition.

These prospects represent a strategic place to win customers with more complex, higher volume products in a risk fair value, the full side of services offerings that we provide. In the last quarter conference call, we updated you about the developments around penveu and and since that call we've made solid progress in this program.

I'd now like to introduce Dr. Yoram Solomon, to update you on the status of the penveu program. Yoram?

Yoram Solomon

Thank you, Greg, and good afternoon, everyone. As always I am very excited to give you an update on the penveu program. As we have made a lot of progress into our discussion last quarter.

You might recall that I told you that our initial preproduction run of penveu products will soon be in the first of three stages of our beta testing plan. I am pleased to say that we have entered this first stage in the first quarter, and we're able to flush out issues that would have slowed us down later on. So from that vantage point it was a successful beta step.

From this initial beta testing, we were able to identify all non-positioning issues and make modifications to strengthen the product before it enters the field. For example, some of the things we found related to the hardware and mechanical aspects of the device or in the user interface, and made it cleaner from a user perspective. From this first stage of beta testing, we also found some modifications needed to be implemented.

A few examples included following. We found that at certain heights and angles, if the penveu is dropped, damage might occurred to penveu, especially the pen tip. We made mechanical modifications to resolve the problem, and tested the modified units and verified that the problem was fixed. In the classroom environment it is expected that this product will experience some number of drops, and we wanted it to be able to survive the most likely drop scenarios.

Please understand there is a lot of technology packed into a very small space in this product. And I am proud to say that it is now surviving drops up to three feet with minimal damage, if at all. In either case, there was never any damage to the electronics in the product.

Also end-user feedback indicated that some of the buttons took more force to activate than other buttons, and we made modifications to clean that up and create a sense of symmetry to the inputs from penveu. Some of the users recommended modifications to the user interphase menu system to make it more user-friendly, and those are being implemented now.

As we enter the second stage of beta testing, our goal is to get continuous performance measurements in order to tune the product, and in particular the positioning system. We are now getting continuous performance data and from this performance data, we are fine tuning the positioning subsystem to rely only upon the one providing the most robust and accurate results within the various test environments we have created. We are learning that these tests are taking a little more than the few weeks I originally anticipated, so let me share with you a little more about what is taking so long.

As a reminder, the many-value propositions that differentiate penveu from all other alternatives are: one, the accuracy; two, no need for calibration; three, quick installation with nothing mounted on the wall; four, the flexibility to move around the classroom from touching the board to plunging at it from 40 feet away; and finally five, the ability to work with the huge installed base of projectors and displays rather than forcing the user to buy and install an expensive new projector or display to achieve interactivity.

Now, to make all this happen, penveu uses the unique combination of an invisible targeting detection and positioning determination system, visual motion sensing and initial positioning subsystems. Making sure the positioning is accurate, while writing at the wall requires extensive testing in different combinations of the following factors: display size, display type, writing conditions, writing speed, screen resolution, and a few more.

Right now we're getting satisfactory performance in some environments, but we need to make sure that we get satisfactory results in all environments, before we release the product to the market. Setting up the positioning parameters to certain values, provide great results in some subsystem of conditions and yet produce not so great results in others.

The penveu system is continuously and dynamically calibrating itself to multiple environments, but we need to spend more time in testing in each of those environments to assure that the result are great in all of them and not only in some of them. This is why the internal beta testing and product tuning are taking a bit longer than I originally anticipated, but also why the beta testing is so important. Given the ability to attach a penveu system to already existing projectors and displays, forces us to continue to test to the point of readiness.

Our channel partners are helping us with equipment that is being installed at schools, so we can assure that penveu works great with all of those. I can assure you that we're getting closure everyday. In fact, during our shareholder meeting next week, if you happen to be there, I plan on demonstrating penveu on a standard projector to HNB's of that meeting.

I want to repeat something that I said last quarter. I'm very proud of the engineering team at Interphase. They are coming up with some very innovative solutions to problems, and they are completing a product that does what has never been done before and certainly not in a product of this size and price point. It is also important for you to understand that we created a product that will be extremely hard to imitate and that is why the development is taking so long.

I really want to acknowledge the hard work that went into the product. The team has given this product their heart and soul to get to where we are now, and I could never appreciate them enough. There is also no doubt that our channel partners are very anxious to see the products and fulfill orders that they are receiving.

Finally, we will be presenting penveu at the largest education technology conference ISTE 2013 in late June, which will happen to take place this year in San Antonio, Texas. We will have three pens on demonstrations there. I know that this has been a long process, which is not over yet, but I thank you for your patience as we work through the complexities of this program.

I remain very excited about the financial prospects of this product, and for a good reason as we simply have not seen a competitive alternative to penveu or anything that promises the same value proposition that penveu offers.

With that, I'll hand it over back to Greg.

Gregory Kalush

Thank you again, Yoram. We're very excited about the future of the company and all the many opportunities that we're looking at. And we look forward to continue to expand our horizons into markets and we'll embrace the many value propositions we offer.

We have now a few minutes for your questions, and I'd like to turn the call back over to operator.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Orin Hirschman with AIGH Partners.

Orin Hirschman - AIGH Partners

You mentioned that hopefully in the second quarter that you would exceed all of last year on the EMS. What was that number again for last year, I recall something being like 1 million, but I don't want to do it off the clock?

Gregory Kalush

All of last year was just under $1 million.

Orin Hirschman - AIGH Partners

So that's coming without that new double order. That shift coming from that initial order finally being fulfilled?

Gregory Kalush

Yes. We may fulfill part of the second order that Tom mentioned. But the forecast that supported that statement was including only the first 10,000 units.

Orin Hirschman - AIGH Partners

And did they already have deposits in the fields to be able to know how we're doing, how we're selling?

Gregory Kalush

Actually, we're delivering their first units as we speak. They've had prototype units that they've gone to shows and specific customers and demonstrated with prototypes. To my knowledge they have not populated the distribution channel yet.

Orin Hirschman - AIGH Partners

So does that mean that subsequent orders you're going to depend on that sell-through?

Gregory Kalush

Well, I'm absolutely certain that some of them will. I mean, we already have the orders and the financing lined up for the first 10,000 and also for a substantial portion of the next order, which is twice that size.

Orin Hirschman - AIGH Partners

And could there be a six months delay from getting another order just to kind of go through a six month sell-through period.

Gregory Kalush

Yes. It's hard for me to determine what that ramp is going to look like until we see their initial success. I mean, you're on the right point.

Orin Hirschman - AIGH Partners

And my question, Yoram, is do you have any idea how long it takes to see that initial success based on sell-through times based on what type of product it is and what they've indicated to you?

Gregory Kalush

Because we're under confidentiality, it's not fair for me to speak about their business plan. But let me just say a couple of things. One, this is not depending on individual consumers directly. They've got contracts with large distribution houses and large service providers for a significant portion of this initial order. And obviously those distribution houses and those service providers have to sell-through and that's the point you're making. But it's not as others sitting around waiting for onesie twosie order, so they've got a significant amount of demand for it already.

Orin Hirschman - AIGH Partners

And just going through the expenses for a minute, what are the non-GAAP operating expenses now down on a quarterly basis, (inaudible) at this point, so are they on a go forward basis?

Thomas Tipton

Our operating expenses that I mentioned before of about $2.3 million are pretty well solid from a go forward perspective with the exception of a little bit of additional sales and marketing expense in the second quarter, as Yoram mentioned we'll be going to the ISTE show, the expenses that are below the line that I mentioned as non-operating other loss that should not be reoccurring. And so that's about $340,000 that flow through to the bottomline that shouldn't be problem going forward.

Orin Hirschman - AIGH Partners

And so just in this in terms of breakeven model, it's another 4.5 to 5, 5 to 5.5 in a quarter?

Gregory Kalush

Well, I'll tell you you're right. It was hard to call that two years ago when you had the same question and it's even harder to call it today because of the margin swings between services and product. So suffice it to say that the legacy products are obviously quite a bit more profitable than services are. And the new products are coming in between those two numbers. So it really depends on what kind of revenue to answer the breakeven question. And I can't even speculate the answer, because it can swing as much $3 million to $4 million.

Orin Hirschman - AIGH Partners

And just in terms of what is the profit gross margin range for the EMS business, not for the services, but for the EMS, pure EMS part?

Gregory Kalush

Well, we're doing EMS and I want to go through segment on that at the shareholder reading. We're doing EMS, because it has a double whammy. I'm not as concerned about the absolute gross margin of those deals, they are positive. But they're also low. So the impact that doing EMS business has on interfaces financials is related to the absorption of unabsorbed overhead, which benefits all products. So it doesn't benefit the products that are going through our outsource customer it also impacts interfaces profitability on all of its native products as well.

And so when you back into it you can't really measure your question that the way I'll answer to your question from a value point of view the way you're asking it, because the value to us is addition of gross profit dollars that could be $300,000 million to $400,000 million to $500,000 across the spectrum of our products as we observe unabsorbed overhead.

Orin Hirschman - AIGH Partners

Not including the unabsorbed overhead, what would it be like?

Gregory Kalush

The same as any other EMS high-single, low-double digits.

Orin Hirschman - AIGH Partners

And last question on penveu, what a lot other people ask, are there any things that have come up or any issues that are still I would call showstopper issues.

Yoram Solomon

Number There is many things that we are working on is that making sure that it works as good as it does in some scenarios, in all scenarios, because we are not in control of the scenario and environment in which it's going to be installed. So there is no show-stopper, the everything functional, remote programming, all of user interface, everything is works well, saving, capturing interface with all computers, they all work fair very well.

There is no showstopper there. We're actually at the point where every little thing that comes from our beta testing, we're asking ourselves do we delay the product for that and if there is nothing other than, lets make sure that it is as accurate as it is in some environments, that it has the same accuracy in other environments. No showstopper.

Orin Hirschman - AIGH Partners

Is it impossible to get the same type of great accuracy in all these different environments, you're asking for a lot.

Gregory Kalush

No. actually, it's not a lot. It's really like tweaking parameters and this device dynamically sees we do have a camera in it. It sees dynamically, what is the environment? What kind of projector? What kind of resolution and everything, especially since the VGA cables goes through the one of the boxes. So it assesses it and it tweaks parameters and it operates. So the only thing is just make sure that you operate, that we have the right set of parameters for all the different environments.

Yoram Solomon

But having said that, Orin, I would tell you that it is tuning a multitude of algorithms for each of these potential environments in each subsystem is no trivial task. So while I agree with you on that it is not undoable. Obviously, if it were simple, it would have been done a long time ago. These guys are working their rear ends off to try and get it done right.

Orin Hirschman - AIGH Partners

And actually, just one additional question, just on penveu, it's not just a technical questions, just based on the idea using a target, which is really the part of the base of the product at a miserably embedded target. Why couldn't someone make a product which is basically just reduce, that's truly a camera, a sensor camera and take a look at what it actually is looking at so to speak and actually just call that what's going on the actual computer screen and not meet target or anything like that, why wouldn't that work theoretically?

Yoram Solomon

How long do we have for the answer? Orin, I'll give you a very, very high level answer to that. If you had a background, if you had an image that would very, very, every pixel was different, that's one thing, but imagine that you really have just a white back ground and as you get close and you touch the board, it all looks the same.

So there is nothing unique to that specific area. So there is, there is a really a system like that would not work unless every pixel you would touch would give you a completely different view and you don't this widened angle of an optical system you would have, you would all still look the same if you just have a simple white or black or single color background.

Operator

Our next question comes from the line of Don McKiernan with Landolt Securities.

Don McKiernan - Landolt Securities

So I want to clarify the timing of when you will go to external beta testing, did you say this quarter?

Yoram Solomon

I did not say.

Don McKiernan - Landolt Securities

Okay, did not say. Well, what is your expectation on that?

Gregory Kalush

I think it's rather than tell you when I think its going to happen in terms of an absolute date. It's after we're done with the internal one. And we feel comfortable giving it to the hands of external people that we do have zero control of what environment they are going to test it in. It needs to work in enough different environments internally before we give it to someone with absolutely no control on how they are testing it.

Don McKiernan - Landolt Securities

And then when you do go to external data, how is that defined? Will it be schools or businesses to try it out or what is all that about?

Gregory Kalush

Yes. It will be schools or businesses. There is a set of people that we know and have identified that are willing, it takes time to do the beta testing and it takes efforts and what we need is, we need people that would be doing those tests really thoroughly, feed us the results back and keep confidentiality of what they are finding and when they are finding it. So we have identified that set of people and it is in different environments. So it is in school. We're trying to diversify the environment in which they're testing them as much as possible.

Don McKiernan - Landolt Securities

So at the shareholder meeting will shareholders be able to take the product and try it themselves or you're just going to be demonstrating that yourself.

Gregory Kalush

I will be demonstrating it myself.

Don McKiernan - Landolt Securities

And how about at ISTE?

Gregory Kalush

At ISTE, our planning is to do hands on demonstration, so half people actually hold it.

Don McKiernan - Landolt Securities

And that's in June, you said.

Gregory Kalush

That's in June.

Don McKiernan - Landolt Securities

Any other trade shows that you've got targeted or just that for right now?

Gregory Kalush

Well, the thing is that we have, the potential customers already know about the product, the channel has been established. The channels are aware they are going to buy products and they already know to recommend this product over any other competing technology. So in terms of creating awareness, ISTE is probably the best place and it just happens to be in Texas this year. So right beyond that our channel partners are exhibiting in a very wide variety of trade shows, not even only in the U.S. even outside of the U.S. and they are going to demonstrate it in their booths. So we just may not need to present ourselves, but the product will be demonstrated in other trade shows.

Don McKiernan - Landolt Securities

So you've already given them the green light to go ahead and take it to trade shows in the future? I mean you've got that already agreed upon?

Gregory Kalush

I didn't give them a date or anything, but pretty soon as we complete the products, I expect us to start giving them units or starting to build them.

Operator

Our next question comes from the line of Chris McCampbell with Southwest Securities.

Chris McCampbell - Southwest Securities

Well, I just had few question. I almost went the entire time without asking one, but I figured that. How much are we spending on the development of penveu, let's just say this last quarter?

Thomas Tipton

Just in development, it's about between $200,000 and $250,000 a quarter.

Chris McCampbell - Southwest Securities

And what does that entail, Tom? I mean is that just paying salary of the engineers or I guess I am trying to figure out, I mean would we have more success in terms of bringing this to market, if we were spending more or maybe a little color on that line of thinking?

Gregory Kalush

Please let me jump into that, it's mostly the engineers and the analogy. I am asked that question all the time you can imagine that. And the analogy that I like to take is an operation. Imagine you're on the operating table and there is the cut to size of your kidney, there is so many hands that can fit into that cut. So it's the same way. There are so many hands you can put into the product, whatever we can.

We outsource and by outsource I mean to other people outside of the penveu team here in the company. Everybody here in the company would jump as soon as we ask them to participate to take any part. And sometimes, we have the possibility to identify, isolate a little part in help somebody outside do that, but this is such a highly integrated system that it's really hard to add more hands into the core of the development, so we're currently intimated by that.

Chris McCampbell - Southwest Securities

Well, I guess in terms of not so much the hands, the number of hands, but is it possible to for lack of better term, hire a smarter engineer that might cost more. I mean obviously, you guys are frustrated with this process and obviously we are too. And this continues to go longer. I don't remember there being three stages of beta testing for instance. But I am just wondering if prior to us disclosing penveu a year and half ago, a year-ago, there was no discussion as to what it was because it was potentially so disruptive.

And now we're at a situation where we've gone 15 months or 14 or whatever with this out in plain side, and it's a very deliberate, somewhat public process of fine tuning this. And I am wondering what the sense of urgency is now. I mean we've gone from not wanting anyone know about it, because it would be so disruptive to now every quarter, it seems like we're about two more quarters away. Is there a drop dead date on this product or are we going to continually need to find new ways to fine tune it to the market?

Gregory Kalush

So you asked many questions, let me try and answer them. First of all, I wouldn't replace a single one of the engineers that I have there. I have the right people doing the right things. Two, it has been actually 12 months and seven days but who is counting. The biggest issue that we should not have announced the product before the time we did was because there are so many changes to technology there was going into it. And coming out and all of sudden finding that we need to make a major change and throughout that major change all of a sudden the product is out there in the market or out there people know what it is that would have been a major problem for us.

But by the time we announced that the technology that goes into the product was pretty settled in how it is, what the blog diagram is? What's in there? And we have protected it with patents like nobodies business. So I am not as worried in terms of drop dead date, in terms of a closing of a window of opportunity.

As I mentioned a few minutes ago, we still have no competition to the value proposition that penveu offers. And you know what with the patents we have on how we've implemented it, nobody else will be able to do it. And it is far, far from trivial. So would the window of opportunity close? No. Could I have waited with announcing it? I take the responsibility and everybody knows that. If I would have known that it would take as long as the data, probably would not have announced it last April, 12 months and 7 days ago. But it is what it is. We have announced it. We do not have a competition. I don't see the window of opportunity closing. And we have the right people in the right place developing it. I wouldn't replace them.

Chris McCampbell - Southwest Securities

And you've talked about going from essentially a beta test situation to in next week you're going to be demoing it at the shareholder meeting, and then in June you would be giving it to others to actually hold on to and ask them demonstrate for themselves. Is there a assumption there than that for all intents and purposes, you should be ending the beta testing in June, otherwise you wouldn't be giving it to people to use at ISTE. Would that be a fair conclusion to draw?

Yoram Solomon

Not necessarily. And I am not saying that the answer is no, but the two things are unrelated. At ISTE, we will be demonstrating it, even if I give it to people to hold in scenarios that I am aware of. Declaring the final beta test complete is something that we will do once we have determined that it's working in all environment. So in ISTE, we have projectors, we have screens, we know what they are, we know the product works well with them. And I have no problem letting people hold it and work with it.

As you can tell this, through the entire time we've been working on this product ever since we announced it. I am very sensitive to the performance and I don't want people to be disappointed. And that's why we're testing and refining, and testing and refining.

But in June, if at that time, the results of the beta side are that we're done and it's working in all different environment, then we're not just going to have demonstrations, we're going to start shipping the thing. If at that point we're still not 100% comfortable that it's working in all environments, we will be demonstrating it and let people hold it, and touch it and use it, but not ship it yet. So those are two different things.

Chris McCampbell - Southwest Securities

Would we be putting out a press release, when you'll are ready to ship or would the only communication about that come through these corporate conference call, quarter calls?

Yoram Solomon

It's not only us that we'll announce. I mean, you'll see our channel partners announce it. They are going to be announcing availability of the product.

Chris McCampbell - Southwest Securities

So between now and the time you ship, the way that it will be disclosed that you're taking orders as essentially there'll be a press release saying come and get it.

Gregory Kalush

Probably, yes. That's what we're thinking.

Operator

We have no further questions from the phones.

Gregory Kalush

Thank you everyone for your interest, and have a pleasant evening. Good night.

Operator

Ladies and gentlemen that does conclude your conference call for today. We thank you for your participation. And you may now disconnect your lines.

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