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MathStar, Inc. (NYSEARCA:MATH)

Q4 2007 Earnings Call

February 19, 2007 4:30 pm ET

Executives

Alexis Pascal - Investor Relations, Stapleton Communications

Douglas M. Pihl - Chairman, Chief Executive Officer and President

Jim Cruckshank - CFO

Analysts

Clint Morrison - Feltl & Co.

Joel Achramowicz - MDB Capital Group

Don Steinkamp - Feltl & Co.

Larry Mckolov

Gary Lebenstein

Operator

Ladies and gentlemen, thank you very much for standing by and welcome to the MathStar, Inc. quarterly earnings conference call for the fourth quarter and fiscal year ended December 31, 2007. (Operator Instructions) With that, I would like to turn the call over to Alexis Pascal of Stapleton Communications. Please go ahead, ma’am.

Alexis Pascal

Thank you. As a reminder, today’s presentation contains forward-looking statements and information that are based on management’s beliefs and assumptions. Forward-looking statements are not guarantees of future performance or results and are subject to certain risks, uncertainties and assumptions which could cause the company’s future results and shareholder value to differ materially from historical results or from those expressed in the forward-looking statements made by or on behalf of the company. Please review the risk factors contained in our most recently filed annual report on Form 10-K and our quarterly reports on Form 10-Q. All numbers today are GAAP unless otherwise noted.

With that, I would like to turn the call over to Doug Pihl, MathStar’s Chairman and Chief Executive Officer.

Douglas M. Pihl

Thank you, Alexis. Good afternoon, and welcome to the MathStar fourth quarter 2007 conference call. With me today is Jim Cruckshank, our CFO; Dan Sweeney, our President and Chief Operating Officer, is traveling today visiting with customers.

We are pleased to be able to report our most successful quarter both in terms of revenue and accomplishments. During the fourth quarter, we completed the design and delivery of the MPEG-4 to MPEG-2 transcoder system for our first large customer, LG Electronics. This high-performance FPOA-based transcoder solution has broad market appeal and can be retargeted to other customers with a range of video application needs. I will report on the status of the LG Electronics project in a moment.

Turning to the revenue, we are reporting fourth quarter revenues of $313,000 within the fourth- quarter guidance of $300,000 to $350,000. The revenue consisted primarily of the NRE or non-recurring engineering revenue for the MathStar engineering time required for the completion of the LG application. We will recognize another $130,000 of NRE revenue on the first 4,000 FPOAs that are sold to LG. LG production chip revenue will be recognized in the first quarter as we have already shipped the first order production chips to Aerokorea.

For this call, our formal discussion will focus on building our customer base, the superiority of our product and our expertise, how we are improving, the growth of our target markets and our market acceptance and visibility.

During the fourth quarter, we were able to demonstrate the performance of the FPOA in critical, high performance video applications and showcase its many competitive advantages. We have also executed well in all our key operating areas. We have a much better understanding of what we are doing right and where we need to improve.

As we’ve discussed on past calls, we have experienced challenges introducing our new technology to the market but we feel now we have greatly improved our application expertise and our ability to demonstrate the power of our technology. We also developed a much keener understanding of how our Field Programmable Object Array, or FPOA, can be best applied in the key, high growth segments of the programmable logic market and we are optimistic about our growth prospects.

As we continue to look at the total market opportunity for our chip, we continue to believe it exceeds $1 billion and we are making good progress in building awareness of our capabilities and also in the emerging product category we have helped to create.

As expected, the successful relationship with LG Electronics is providing both market visibility and technology confirmation with other potential customers. We are building on the success of the LG application. With LG’s permission, we are using the alpha version of the LG board to effectively demonstrate our technology to a variety of new video customers. This is the preproduction version of the board that does not contain LG’s proprietary satellite encryption technology.

The LG system has already enabled us to engage with several other potentially high value customers for similar applications, including two new customers that have asked us to work with them to develop systems similar in purpose to that of the LG application, namely the transcoding of MPEG-4 to MPEG-2 video.

Several customers and market researchers have stated that the transcoding application is expected to become more important as we progress from standard definition MPEG-2 devices to MPEG-4 and H.264 high definition devices. We anticipate closing several new customers for professional video applications as a direct result of the work we have done for LG. Because the MPEG-2 Encoder IP is available today, these opportunities should result in production FPOA opportunities and revenue opportunities in 2008.

Two of the customers we are engaged with are planning to demonstrate FPOA-based applications similar to the LG application at the National Association of Broadcasters Annual Convention in Las Vegas on April 14th to 17th of this year. MathStar will be hosting its own booth at the show, where we will present the strong competitive advantages of the FPOA and give wide demonstrations of our technology.

We are building on audience with our successful demonstrations of complex, high performance applications. MathStar has received excellent reviews by knowledgeable video experts for the speed and quality of our video images. This is key; in video encoding and decoding applications the customer’s primary decision is how much bandwidth they can allocate to the transmission of the images and how much they have to compress the images to fit in the available bandwidth. Hence the quality of the encoding system is of paramount importance to them.

H.264 is the next video standard planned for deployment in high definition video markets. It provides the higher compression ratios that enable network providers to send higher quality HD video through existing distribution channels without large increases in network costs. It is a highly complex algorithm, much more complex than previous compression standards, and we believe the next generation of the FPOA will be a strong competitor in the H.264 market space.

Because MathStar has a programmable solution, we are able to offer our customers a range of products to more precisely fit their exact requirements. Let me take a moment to highlight progress with one of the potential large volume customers in the video decoder market.

We are working with one of our certified design centers on the design of an FPOA-based video decoder for the multi-unit dwelling market using IPTV. We continue to believe that we will have the best solution in terms of both performance and cost. The project is longer term and if we win it, there will be extensive field trials. However, we believe this application could become an important growth driver beginning in 2009.

We are also developing FPOA-based solutions for a number of customers in the video server market where we are working with the top industry participants. Our FPOA offers an ideal video server solution due to its ability to support real-time, high definition encoding and decoding across multiple standards.

In terms of application and design support, we continue to grow our library of IP for the professional video market, and we now have three certified design centers with expertise in video system design. As a reminder, our three CDCs are Adaptive Micro-Ware, Nuvation and Wind River.

We are also happy with our progress on the next generation product development initiatives. The next FPOA is a 90 nanometer chip that we will produce in two versions: one targeting video applications and the second targeting applications such as high-performance filtering for the medical imaging and test and measurement industries. Our 90 nanometer chip is expected to tape out this quarter and we anticipate sampling to customers in the second quarter of 2008.

As importantly, we are making progress building our next generation of tools which will give our customers and our applications’ team the choice of programming our chips in either our current graphical design entry method or by using the industry standard Verilog hardware description language.

We are demonstrating a new tool suite with the Mentor Graphics design entry and simulator and targeting the new 90 nanometer FPOAs. We plan to make the new tool suite available to customers through the remainder of 2008. The goal of the new and improved tool suite is to make our development tools easier to use and more productive for our customers, our independent certified design center partners and our internal applications development team.

Looking forward, we are guiding to Q1 revenue in the $300,000 range, essentially flat to the fourth quarter. However, it is significant to note that the majority of this revenue will be derived from the production chip shipments for the first production LG units already delivered to Aerokorea.

The FPOA continues to be the fastest programmable chip on the market today. As measured by clock speed, our 1 gigahertz part is four times faster than the speeds typically achieved in FPGA applications. The increased processing capability of the FPOA means that users require fewer chips for their application. This reduces their system space requirements and improves system power efficiency, both of which save our customers money. We have worked very hard to be able to prove the superiority of our technology, and we are at the beginning of what we expect to be a significant revenue ramp.

Normally, I would now turn the call over to Jim. However, to provide more time for your questions, we decided to forego the detailed financial review. I will make a couple of quick comments.

First, our cash position at the end of the year was about $29.2 million and our quarterly cash burn has been held fairly constant at about $4.5 million to $5 million per quarter. But feel free to ask any more detailed questions or call Jim directly after the call.

I would like to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Clint Morrison - Feltl & Co.

Clint Morrison - Feltl & Co.

I will start-off with a detailed financial question. The big thing that jumps out obviously was there was a significant increase in R&D expense over the last quarter, as well as the very high R&D costs. Can you just talk a little bit about that? I am assuming the R&D has to do with stuff you threw at the LG application and didn’t get paid for, but what should we be looking at in terms of R&D moving forward? Was some of the tape out expense built into this quarter?

Jim Cruckshank

We would expect to tape out the next version of the chip in March and tape out costs should be about $2 million. Part of the blip, or the big chunk of the blip, was about $700,000 we paid for applications, including work on H.264 encoder and decoder in the fourth quarter.

Clint Morrison - Feltl & Co.

The question is how much is recurring? Is this a baseline that we ought to be going forward at $4 million a quarter and consequently assume a much higher burn rate than we thought before? Where is R&D going to be over the next couple quarters?

Jim Cruckshank

It should be about third quarter – third quarter levels we do not expect a bump, except for the tape out. We are basically planning on a flat R&D budget for 2008.

Operator

Your next question comes from Joel Achramowicz - MDB Capital Group.

Joel Achramowicz - MDB Capital Group

It sounds like you’ve already shipped some of these production units to your distributor in Asia. Is there any potential for upside to that $300,000 guidance number in the first quarter?

Douglas M. Pihl

We don’t really think so. There is some chance, but when we look at the schedule so far, their build schedule, the next order of production chips most likely will fall probably early second quarter and not be reportable in the first quarter.

Joel Achramowicz - MDB Capital Group

But do you have enough visibility to see that -- you did mention maybe a ramping. Are you beginning to see that maybe in the second quarter and then from there?

Douglas M. Pihl

We are starting to see it although we don’t have any hard numbers on it yet. LodgeNet is really in the early stages of their marketing the product to their customer base and haven’t really shared a longer term forecast with us yet. But we would also comment that we are also starting to get the feeling that this is going to be a longer term project in terms of production than we had originally thought.

For example, we learned that they’re actually still shipping MPEG-2 based television sets. So one of the issues that we’ve always thought about is that as hotels install televisions, they clearly have a fairly lengthy write-off/depreciation time for that equipment so we are starting to get the feeling this is going to be a longer term than we had originally anticipated.

Joel Achramowicz - MDB Capital Group

Is that good in terms of longer term or bad in terms of?

Douglas M. Pihl

I am sorry, I should really clarify that. Just in terms of how long they’ll keep taking our equipment, it’s very good in the long term because we had originally thought this would be a relatively short term, maybe two year kind of project with them and it’s really looking like it’s going to be significantly longer than that.

Joel Achramowicz - MDB Capital Group

I know at times you were concerned or uncertain about the proclivity of the hotel chains to move directly to MPEG-4 sets versus MPEG-2 but it sounds like the value of this decoder and encoder technology is that they recognize they can use those MPEG-2 sets for a longer period of time?

Douglas M. Pihl

That’s correct.

Joel Achramowicz - MDB Capital Group

That’s good. Any progress in the set-top box area that you can articulate at all?

Douglas M. Pihl

Not at this point. We continue to be engaged, but we should clarify it’s not in a set-top box per se, bit it’s with a company that works through the whole video distribution channel. We are really more in the head end of the distribution channel. That project continues moving forward although it’s always time-consuming with large companies.

Joel Achramowicz - MDB Capital Group

No, but obviously you are going to stream video to subscribers?

Douglas M. Pihl

That is right.

Joel Achramowicz - MDB Capital Group

Hopefully we will get more. Last quarter you had expressed a significant belief that you had received additional traction and you were relatively positive about your funnel. Could you reiterate that again, your thoughts? Do you feel you’ve made progress in your marketing and your traction efforts over the last quarter?

Douglas M. Pihl

Yes, absolutely. As I mentioned in my comments, being able to demonstrate the LG application with a single board has been very helpful to see the quality of the image through our encoder and it’s really been very, very helpful. Several customers have basically looked at and said well that’s what I want, can you provide that to me?

If you go back, the only way we could really demonstrate our chip was through our own development system, which is PC-based and a bunch of boards plugged in; very cumbersome to carry around to customers and demonstrate. Now we have a single board that we can carry in and show them. So it shows them immediately how they could use it in a similar application so that’s been very, very helpful and has really helped with the traction.

Joel Achramowicz - MDB Capital Group

They obviously recognize the value of the libraries you developed. Not only to you have a platform now, but you can demonstrate the platform with these libraries which have extraordinary value to people that want to get to market quickly?

Douglas M. Pihl

That’s absolutely right. Again, as I said, they have been very highly praising the quality of the video encoding.

Joel Achramowicz - MDB Capital Group

Hopefully it would seem that obviously you won’t give us any new names and you had mentioned in the last quarter that you have to be careful because of competitive reasons and secret sauce issues, but I would think that NAB in April being a very big show for the video broadcasting industry that if you’ve got anything new to say hopefully you’ll say it at that time and we will get a little bit more color on some of the work you are doing with some of these individual entities. I guess we’ll wait for that in April.

Douglas M. Pihl

We are very excited about NAB this year. It’s going to be a great show for us.

Joel Achramowicz - MDB Capital Group

Well, we will be there. I’ll get back in the queue. I do want to recommend though if you can do the transcript again, it’s valuable to us out here on Wall Street. Thank you very much.

Operator

Your next question comes from the line of Don Steinkamp - Feltl & Co.

Don Steinkamp - Feltl & Co.

You’re making progress at least, Doug -- that’s good. I have two questions. One, do you have hopes that it doesn’t sound like the second quarter is going to be a whole lot better than the first, maybe a little better. How about the third and fourth quarter? Do you have hopes that revenue will ramp up or is it too early to say?

Douglas M. Pihl

It’s really too early to say. Obviously we have hopes for it, but we are not giving any guidance out beyond the first quarter at this time.

Don Steinkamp - Feltl & Co.

I have gotten to know pretty well -- and my son-in-law Devin Taylor who is a management consultant, has talked to them -- a company at Salt Lake City called Broadcast, symbol BCST on NASDAQ and they have a chip and firmware patent which IBM is pushing on their servers which compresses the TV signal maybe by 80%, 90% and makes your transmission much more efficient.

IBM is building prototypes for some of the broadcasters like NFL, Comcast, Google and for others. I wondered if you had heard of their technique for bandwidth compression using their patented algorithm and the IBM server? IBM has licensed the algorithm and chip and firmware from Broadcast and I am told that the other three manufacturers of servers are interested in sub-licenses. Have you heard of that technique?

Douglas M. Pihl

I have to admit I haven’t, Don. We will have to look into that and see what they’re doing. I’d be suspicious about saying that a patented proprietary technology would really make much progress in the broadcast industry where people really rely on standards-based solutions.

Operator

Your next question comes from Larry Mckolov.

Larry Mckolov

Hello, Doug and Jim. Just a little more on the LG and the LodgeNet. If I understand it, DirecTV will be going to MPEG-4 for all their transmissions over the next few years. Does that mean that the transcoder will have to basically be used for not only the HD channels but all channels?

Douglas M. Pihl

They are definitely going to MPEG-4, as we understand it, for pretty much all of their channels. The issue that we’ve always dealt with and the issue of long-term timing is that at some point the TV sets themselves will handle MPEG-4.

That’s been the issue for LodgeNet that their customers’ hotels are full of TVs that can’t handle MPEG-4 so the issue they had was how to convert and I think that problem is just going to get worse for them over the next few years until ultimately at some point the hotels will replace the TVs.

But as I mentioned earlier, they are still shipping MPEG-2 TVs so they are still installing a number of TVs that are going to have relatively long lives where they don’t want to replace them. So definitely this transcoder solution is showing up as a more and more critical application in actually many areas. We’re starting to talk to, as I mentioned, other customers that see that as a real need, the conversion from MPEG-4 to MPEG-2, so that we don’t have to have a wholesale scrapping of obsolete TVs. We really see it as a longer term opportunity for us.

Larry Mckolov

Well that sounds good. Since April is not that far off, can you mention the customers that are going to be showcasing your product at the NAB?

Douglas M. Pihl

Not at this point, no.

Larry Mckolov

When do you recognize the revenue on these orders for LG? So you send chips to Aero, which sends them to South Korea. Is that when it’s recognized, when Aero distributes it to LG’s manufacturer in Korea?

Jim Cruckshank

The chips have been shipped to Aerokorea and they have shipped them to LG’s contract manufacturers so we have already recognized the revenue on that first order.

Larry Mckolov

So that’s when it gets recognized is when it gets shipped from Aero to the manufacturer?

Jim Cruckshank

That’s correct. We have Q1 chip revenue.

Larry Mckolov

My final question is I noticed in one of your last 8-Ks you mentioned some bonuses that are going to be paid out which is great; I’m all for that. Can you tell me the revenue figure that is going to be needed to reach for those bonuses to be kicked in? So maybe it will give us a little idea on what you guys might be shooting for, for this year?

Douglas M. Pihl

The bonuses that were paid out were not based on revenue for ‘07.

Larry Mckolov

I’m talking about for ‘08?

Douglas M. Pihl

No, we can’t comment on that, Larry.

Operator

(Operator Instructions) Your next question comes from Clint Morrison – Feltl & Co.

Clint Morrison - Feltl & Co.

Jim, you just indicated you would recognize some chip revenue. I assume that was in the quarter that just came out. Did you breakout how much of Q4 was NRE versus –

Jim Cruckshank

Q4 was almost all NRE and application chip revenues in Q1. In the first 40 days or 50 days of Q1, we have shipped to Aerokorea and they have shipped to LG's contract manufacturing. We have recognized chip revenue in Q1.

Clint Morrison - Feltl & Co.

Based on your guidance of another $130,000 of NRE you are suggesting you are going to do $170,000 of chips thereabouts in Q1, or that’s the guidance we’ve got at point?

Douglas M. Pihl

The arrangement is the additional $130,000 of NRE LodgeNet has agreed to amortize those over the first 4,000 chips.

Clint Morrison - Feltl & Co.

So it is all part of that?

Douglas M. Pihl

Yes, that will get recognized as we ship those chips. So again, the timing of when we will complete the first 4,000 chips is uncertain.

Clint Morrison - Feltl & Co.

In Q1, should we be looking at cost of goods being truly just the cost of goods of the chips or is there extra stuff that’s going to show up there again?

Jim Cruckshank

On chips, Q1 margins should be in excess of our 65% model and based on what we believe the composition of Q1 you should see gross margins in excess of 65% in Q1 overall.

Clint Morrison - Feltl & Co.

So we’re back where we want it to be?

Jim Cruckshank

Right.

Clint Morrison - Feltl & Co.

Without getting into numbers on design wins and so forth, can you give us any color as to how many real projects are ongoing at the moment, where you’ve got customers that have chosen your chip and are actually developing products that we have got some hope of getting some revenue out of in the next couple of years?

Past this LG, how many other projects do we think or hope we might get some commercial revenue out of this year, in the next three quarters?

Douglas M. Pihl

I think we’ve got at least three that are what we believe could turn into 2008 revenue and then there are additional ones that are longer-term projects that will start kicking in in 2009.

Clint Morrison - Feltl & Co.

One quick final question. You indicated some legs or opportunities for the LG product. Can they just go out and sell that product to other people that want to do this encoding application or would it really entailed them building a new board for somebody else?

Douglas M. Pihl

LG could just sell the board to anyone else although because of their encryption technology in there, in its exact form today it’s pretty well confined to DirecTV customers. But what some of these other customers we’re dealing with that have looked at it have said is they see in their markets a need for something very similar. So what we are anticipating is doing probably new board designs, but relatively straightforward engineering modifications to the board. Obviously for another customer we have got to strip out the proprietary LG encryption technology, but the rest of the board is really pretty much what several customers have said they wanted.

Clint Morrison - Feltl & Co.

Excluding the encryption, you have rights to basically everything that’s on the board?

Douglas M. Pihl

Yes.

Operator

Your next question comes from Gary [Lebenstein].

Gary Lebenstein

Doug, I wonder if you could expand upon the high volume multi-dwelling opportunity you talked about? I know it’s longer term in field trials and there is a long way to go there, but what is that market? What is the size, what’s the potential?

Douglas M. Pihl

We think, not without talking specifically about what we think our potential for chip revenue is, we see that and there have actually been several reports written -- publicly available reports -- talking about that a number of the telcos want to get into that market and the requirement again is for something conceptually similar to the LG or LodgeNet application where they bring multiple channels of video into an entry point into a building and then have to distribute it through an existing infrastructure within the building.

So that’s basically what we’re talking about and the status is that we are working with our customer, our design center Adaptive Micro-Ware to really design a system that we would then bring in and propose to the telco. That part of it, the original conceptual design has been delayed a little bit because Adaptive Micro-Ware was working so diligently with us on completing the LG application. We’re moving ahead with that again and we are just about ready to make a proposal to the telco.

Gary Lebenstein

So that’s pretty near term then?

Douglas M. Pihl

Well in terms of us making a proposal on it, yes.

Gary Lebenstein

Can you talk more about, Clint had asked one of my questions but I’d like to expand upon that as well which was how many active people you are working with. You had mentioned three. A couple of years back you guys were getting design wins when you first went public and then stopped that process and I don’t remember what the number was, but I thought you got up to what you guys were defining as design wins, 18 or something like that, which weren’t really product design wins, but they were more of testing and boards. I don’t know exactly what so I guess all of them were in different stages or you could describe it differently.

But you said now that you are working maybe with three people that could become revenue producing and coupling that with the idea that a couple of quarters ago you used to talk how about how many leads you had -- 1,500 or something like that, I don’t remember the exact numbers, I don’t have them in front of me.

I’m just trying to get a sense of all of the companies that you were working with two years ago or so, two-and-a-half years ago when we were coming out of the gate here, and where those are at. Many of those projects I know that we talked to a lot people before the offering as a private company; I know in the military and space area that we were chomping at the bit to get your chips into their products which it doesn’t sound like has happened yet.

I’m wondering how many of those people you’re still working with and what stages you are at with some of these guys in getting products sold because what it is sounding like is the LG I know is a big deal and it is important and a lot of new business is coming from that. As you mentioned, other companies are looking at what you are doing with them, but I’m a little concerned because Adaptive Micro-Ware hasn’t been able to just put the time in, as you said, working with this telco project because they’re working on the LG deal and trying to get that through.

Trying to get to the end of this thing here, but how many companies are you working with? How many from way back when? How many new ones? You would have thought over the last couple of years a lot of new people would be slotting in. If you could just cover that, that would be great.

Douglas M. Pihl

Look, let me just first say as we’ve talked in the last several conference calls, we really made a conscious decision to quit pursuing a large number of design wins, and there are several reasons for it but primarily because we realized it takes a lot of effort to bring a customer up, a lot more than we had originally intended, to really teach them the technology and really teach them the tools, To be honest, the immaturity of our tool set contributed to that very large upfront support cost for bringing some of these customers up.

When you look at it, a lot of those customers were, as you mentioned, in the military and aerospace world where they might order a few hundred chips. What we realized was we could not possibly afford to either directly through our own people, or through people like Adaptive, afford to really support them the way that they needed to be supported to really bring up a product.

So that certainly has made a number of the smaller ones go away. Out of that group, a number of them are companies that we are still continuing to work with. But we’ve really decided and it’s really working very well is to really focus on the ones that can turn into significant production chip revenue within a relatively near timeframe.

Now as we move forward, we will be able to support a larger range of customers just because we’ll continue to improve our tools and make it easier for them to develop their own applications. But right now, we are focusing on the customers that we can work very closely with like LG and really help them bring their applications up and get them into production.

Gary Lebenstein

So these two guys at NAB that are going to be showing their products with your chips, obviously those are products that are on the market that are ready to hit the ground running now, right?

Douglas M. Pihl

No.

Gary Lebenstein

Really?

Douglas M. Pihl

They are still working on the products. They will be announcing the product there. So hopefully shortly after that they will be in a position to deliver and there are still details to be worked out with both those customers.

Gary Lebenstein

But those are potential large opportunities?

Douglas M. Pihl

Yes.

Operator

Your next question comes from Joel Achramowicz – MDB Capital Group.

Joel Achramowicz - MDB Capital Group

LG is a huge company, electronics concern, have you seen any additional opportunities within that corporate structure?

Douglas M. Pihl

We think there are but we really, frankly, haven’t had time to really explore that. We really wanted to get this application out first. But definitely we think there can be some additional opportunities there. Also they’ve started to point us to other customers of theirs that they believe could use similar kinds of application. So I think on many fronts it’s really turning out to be a very valuable relationship.

Joel Achramowicz - MDB Capital Group

As far as being a productive reference dynamic?

Douglas M. Pihl

Absolutely.

Joel Achramowicz - MDB Capital Group

You had mentioned a couple of reports of top video experts, or knowledgeable experts, that have been impressed with some of your work in fitting the FPOA into that sector. Is any of that data available at all?

Douglas M. Pihl

What I was really referring to is more the people within LG and LodgeNet that have reviewed it. I mean obviously they were part of the acceptance process so it is really not published information. But the reviews that came back said this is very, very high quality video encoding and decoding.

Joel Achramowicz - MDB Capital Group

Are your engineering people doing any papers or attending any seminars at NAB at all?

Douglas M. Pihl

No. We’ll just be demonstrating the product and have our sales team there.

Operator

The next question is a follow-up question from Clint Morrison – Feltl & Co.

Clint Morrison - Feltl & Co.

LodgeNet a while ago announced a new effort for broadband and HDTV and consulting and so forth; does that have anything to do with this or does it change the opportunity for you or broader applications, or a non-event?

Douglas M. Pihl

I think it’s pretty much a non-event. As we understand it they just put together a consulting organization to just help their customers with not so much the in-room standard product line, but doing more one-off convention and meeting kinds of broadcast systems. We don’t think it really significantly changes the situation with them with regard to us.

Clint Morrison - Feltl & Co.

Just in general, obviously this whole LodgeNet/LG opportunity is taking a little longer I think to ramp up and get going and it’s just starting now. Has the ramp and the opportunity, in your opinion, really changed it all from where it was six months ago, given that it’s taken a little longer or is it just the curve is the same, it’s just been delayed?

Douglas M. Pihl

I think that’s the case. Although as I mentioned earlier, we are starting to feel that it’s going to last longer than we had originally anticipated.

Operator

At this time, there are no further questions. I like to turn it back to management. Please go ahead.

Douglas M. Pihl

Well thank you all for joining us. We appreciate your time. I’ll just say in summary, as we said before, we believe we are making good progress in all the key areas that we’ve outlined. We have engagements with large commercial volume customers; we are becoming application experts in the high growth professional video market and we are expanding our library of full applications and really getting to the point where we can prove our claims that we have made about our chip and the superior performance and lower cost.

We are also continuing to improve our tools and introducing next-generation products. We have a highly talented team of individuals here. We are all committed to MathStar’s ultimate success and we are very confident we are going to achieve the expectations.

I will also comment that Jim Cruckshank and Alexis Pascal are going to be visiting investors in Boston and New York next week so if anyone is interested in a meeting please call Alexis Pascal at Stapleton Communications.

With that, I will just say thanks again and thank you all for your time today.

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Source: MathStar, Inc. Q4 2007 Earnings Call Transcript
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