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MathStar, Inc. (NYSEARCA:MATH)

Q1 2008 Earnings Call

May 8, 2008 4:30 pm ET

Executives

Alexis Pascal - Stapleton Communications

Douglas Pihl - Chairman and Chief Executive Officer

Dan Sweeney - President and Chief Operating Officer

John Jennings - Chief Accounting Officer

Analysts

Joel Achramowicz - MDB Capital Group

Clint Morrison - Feltl & Co.

Gary Levenstein – Jess Morgan

Ron Eckstam – LPL Financial

[Barry inaudible] - Feltl & Co.

Operator

Welcome to the MathStar, Inc. quarterly earnings conference call for the first quarter of 2008. (Operator Instructions) I will turn the call over to Alexis Pascal of Stapleton Communications.

Alexis Pascal

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. Now, I will turn the call over to Doug Pihl, MathStar’s Chairman and Chief Executive Officer.

Douglas Pihl

Welcome to MathStar’s first quarter 2008 conference call. With me today are Dan Sweeney, our President and Chief Operating Officer; and John Jennings, our Chief Accounting Officer.

We are pleased to report Q1 was MathStar’s first quarter of production FPOA revenues. The majority of our Q1 billings were driven by the production bill of LG’s MPEG4 to MPEG2 transcoders at our contract manufacturer in Korea. The product margins for the initial production revenue were well above MathStar’s stated target of 65%.

LodgeNet, LG’s largest customer for the transcoder system also announced it has completed certification of the system for use in its hospitality infrastructure and has begun hotel trials. During the quarter, we also announced MathStar was selected by VisionGate to help develop a potentially groundbreaking medical imaging solution for cellular characterization employing 3D computer tomographic scanning on intact cells from patients at risk of cancer.

Also MathStar had a strong presence at the National Association of Broadcasters’ Conference in April, the premier professional video event of the year in North America. We demonstrated the LG Electronics’ high-definition MPEG4 to MPEG2 transcoder using a live direct TV feed. In addition to this, we had two other demonstrations, high-definition video over IP and high-definition MPEG-2 decoding solutions.

There were also two new customers demonstrating video encoders in their booth based on the MathStar FPOA technology to judge potential customer response to the quality and price points that could be delivered. The response was overwhelmingly positive, and both customers have made the decision to move forward with productizing encoder solutions based on MathStar’s FPOA. Both opportunities are based on the Arrix FPOA and MPEG2 encoder IP which are both available today from MathStar. As a result, we expect these customers will drive additional forward silicon and IP revenue for MathStar in 2008.

Turning to Q1 revenue, we are reporting first quarter revenues of $226,000, slightly lower than our previous guidance of $300,000. The video IP revenue we expected to realize in Q1 was delayed until Q2. We expect to bill this revenue in Q2 based on the positive response our customers had from demoing the video encoder solution at the NAB conference in April. We will address the delays in MathStar’s expected revenue ramp and planned actions later in the call.

We are projecting a large range in forecasted revenue for the second quarter of 2008. LodgeNet has been delayed in completed the trials of the LG transcoder, and we are no longer expecting another production FPOA order in the second quarter from LG’s Korean contract manufacturer. Second quarter revenue will consist of sample quantity FPOA, development systems, tools, and initial samples of custom-board solutions. We expect revenue to range from $100,000 to $200,000 depending on timing of completion of contract deliverables.

During the first quarter of 2008, we had some management changes. Our CFO, Jim Cruckshank, and our Vice President of Engineering, Tim Techman, both left to pursue other opportunities. John Jennings has been promoted to Chief Accounting Officer, and together we have absorbed the CFO function between John and myself. Steve Caselle has assumed responsibility for hardware engineering.

Now, I’ll hand it over to Dan Sweeney for a review and update of our operational plan.

Dan Sweeney

For this quarterly conference call, I will summarize the recent Semico report on the high-performance programmable logic market, review changes in our strategy as a result of our experience during the last year of customer engagements, status progress in completing design of our next generation 90-nm FPOA and FPOA design tools, and discuss plans to reduce cash burn.

Semico recently released an analyst report on the future of programmable logic. It highlighted the trend of increasing cost of custom-integrated circuits with development cost of 65-nm designs growing to over $40 million and design cycles stretching to 18 to 24 months. The report confirmed that FPGA architectures are reaching a peak in terms of speed and performance.

Semico noted that there are many applications in which alternatives to FPGAs which offer increased performance at lower cost would be welcomed by the market. Semico concluded that the creation of a new class of devices which it coined as field programmable computing arrays offer the combination of programmability, reconfigurability, cost, performance, and power that many system designers are seeking. Semico estimates that the market for LPGA alternatives to be nearly $900 million in 2008 growing to almost $2.7 billion in 2012.

MathStar believes that the Semico report on field programmable computing arrays validates our assessment of the market potential. As one of the sponsors of the report, we have arranged to make the report available for download for the next 30 days on the investor page of our web page.

Semico report validates the market opportunity for the next generation of programmable logic. We believe that there are several issues that have impacted MathStar’s ability to take advantage of this growing opportunity. First and foremost, the established lead-based programmable logic companies, like Altera and Xilinx, have had nearly 20 years to mature the software tools used by the customers to program their FPGA. MathStar has quality programming tools, but we haven’t yet developed the level of abstraction and automation that FPGA tools have attained. This is by far the biggest issue affecting MathStar’s ability to scale the business.

Customers have struggled to become productive with the FPOA design tools, although our internal teams of application engineers and certified design engineers have become proficient with developing even the most complex video encoder designs using FPOAs.

In the short term, we have responded by developing complete solutions for our customers in target imaging markets, eliminating the need for customers to learn the FPOA architecture and tools. This has begun to yield positive results. Examples include the previously announced system solution for LG Electronics as well as more recent video encoder board level design wins from NAB.

Although we have several chip level design wins with development in progress at customers, we expect board and system level offerings to represent the primary source of revenue. In many opportunities, we will continue to supply at the board or system level for the life of the product. This has the additional benefit of enabling faster time to market at a much higher average selling price with higher margin dollars.

In the medium term, MathStar is actively working to improve the maturity of our tools to provide a similar level of automation that FPGA tools enjoy today. The new tools available with the upcoming 90-nm silicon will provide this first step with automated place and route for blocks of objects within the design. We will continue to improve place and route capabilities which will allow customers to automatically route entire design.

We are also actively developing synthesis capabilities for our tools eliminating the need for FPOA designers to be intimately familiar with the FPOA architecture in order to effective developing FPOA designs. We expect these capabilities to be available for MathStar designers later this year and release to external customers in 2009.

The second issue impacting our ability to close new FPOA designs is the increasing competitiveness of the latest generation of FPGAs. Our current MOA-2400 was originally designed in 2003, and FPGA technology has advanced significantly in terms of both performance and power. Our next generation 90-nm FPOAs will have 50% higher array processing performance, significantly lower power per object, and a high performance PCI express system interface.

It also contains a dedicated block that will significantly accelerate motion estimation for video compression in high-end video applications, called SAD or sum of absolute differences. We also continue to plan to take up take versions of the chip – one that is ALU heavy for video application and another higher in the concentration of MAC objects for high-performance filtering applications. With the improved capabilities of these new chips, we believe that we’ll further extend the FPOA over FPGAs and make it easier for customers to select MathStar over an established FPGA supplier.

As we have begun to share with video system manufacturers the capability of our new FPOA, we have had technical engagements with market leaders in head-end encoding. Head-end encoders compress video as much as possible to maximize the number of channels available to consumers over broadcast, satellite, or cable without introducing objectionable visual video artifacts. High-definition video requires six times the bandwidth as compared to standard definition which has increased the interest in the ability of MathStar’s new FPOA to help alleviate the video bandwidth bottleneck to consumer.

As we better understood the SAD performance required by head-end encoders, we determined through simulation methods for significantly improving SAD performance. MathStar has made the difficult decision to delay taping of the new FPOA until we can modify the SAD block design so we can better meet the needs of this important segment of the video equipment market.

We now expect to tape out in early Q3 with sample customers in early Q4. We expect production silicon will be available in the first half of next year. We expect customers will begin designs with the first silicon sample, so availability of production silicon will not impact the revenue ramp.

Aligned with the introduction of this new silicon, MathStar will introduce a new version of the FPOA design tools. These new tools will give our customers and our applications team the choice of programming our chips either at the current graphical design entry method or by using industry standard Verilog hardware description language.

The new tool will provide our first level of automation in object assignment and inter-object routing, which will significantly improve productivity for application engineers, certified design center partners, and customers. We will also transition to Mentor Graphics ModelSim simulation tool with this new release. ModelSim is the industry leader in programmable logic simulation. MathStar’s internal applications have already begun working with these new tools for several of the early designs targeted at the 90-nm silicon. We will release the tools for customers of the FPOA in early Q3, ahead of the new silicon.

The delayed MathStar revenue ramp and continued investments in new silicon tools and applications has caused our burn rate to continue at an unsustainable rate. We have begun reducing expenses, and these efforts will continue until completing tape-out qualification of the new qualification of the new 90-nm silicon and release of supporting development tools. We plan to significantly reduce our cash burn with a goal of making existing cash last through the end of 2009 with no additional funding.

Now, I’ll hand it over to John Jennings for a review of the financials.

John Jennings

For the three months ended March 31, 2008, we generated $226,000 compared to $92,000 for the same period last year. Revenue for the three months ended March 31, 2008, was from the sale of production FPOA chips, whereas revenue for the three months ended March 31, 2007, was from the sale of sample FPOA chips, development systems, licensed software, and NRE fees.

Cost of goods sold for the three months ended March 31, 2008, was $291,000 and $69,000 for the period ended March 31, 2007, respectively. Cost of good sold for the first quarter of 2008 included external chip costs and a non-cash charge of $243,000 for excess and obsolete inventory, primarily for tools licensed that will most likely not be sold before the resale agreement with Mentor Graphics expires. Cost of goods sold for the first quarter of 2007 included external chips and evaluation system manufacturing costs and the cost of third party software licenses.

Gross margin for the three months ended March 31, 2008, was -29%, compared to 25% for the three months ended March 31, 2007. The $243,000 non-cash charge for excess and obsolete inventory had a 108 point negative impact on the gross margin percentage for the three months ended March 31, 2008.

For the three months ended March 31, 2008, research and development expense increased $427,000, or 14%, to $3,552,000 from $3,125,000 for the three months ended March 31, 2007. The increase is the result of employee-related expenses driven by head count, consulting and contractors’ expense, development tool expense, and charges for application and IP. The increase was offset by lower engineering material, building grant, and other related charges.

Research and development expenses and the mix of those expenses are heavily dependent on where we are in the development cycle of new technology. The three months ended March 31, 2008, was the period when the final design was being completed just prior to tape-out and was very labor and design tool intensive. In contrast, the three months ended March 31, 2007, was a period following tape-out of the current production chip and required more engineering material to validate the chip.

For the three months ended March 31, 2008, selling, general, and administrative expenses decreased $369,000, or 15%, to $2,093,000 compared to $2,462,000 for the three months ended March 31, 2007. The decrease was primarily the result of reduced consulting and contractors’ fees, employee-related expenses net of commissions, franchise tax recurrent fees, and other infrastructure charges. Our selling, general, and administrative infrastructure is in place and increases will be driven by the cost associated with marketing and selling products.

For the three months ended March 31, 2008, other income increased $200,000, or 176%, to $317,000 compared to $117,000 for the three months ended March 31, 2007. The increase was the result of additional interest income and higher investment balances and a gain resulting from the sale of investments held.

With our administrative silicon engineering infrastructure substantially placed, going forward our results of operations will depend on how long it takes us and how successful we are in achieving our market acceptable of our FPOA technology and the costs incurred to develop future generations of FPOA chips. The future capital requirements will depend on many factors, including sales growth, market acceptable of our new strategy, and the amount and timing of our research and development expenditures and working capital needs.

Our long-terms financing requirements continue to be driven by our ability to penetrate the market with our FPOA chip technology and generate significant revenue to cut our operating and future production development. To ensure reaching our long-term objectives, we have undertaken a cash-burn reduction program.

For the three months ended March 31, 2008, cash used in operating activities was $5,449,000, compared to $6,321,000 for the three months ended March 31, 2007. We anticipate cash used in operating activities for the three months ended June 30, 2008, to be approximately $4.5 million.

Operator, let’s open the call for questions.

Question-And-Answer Session

Operator

(Operator Instructions) Your first question is from Joel Achramowicz - MDB Capital. Please go ahead.

Joel Achramowicz - MDB Capital Group

Doug, in addition to obviously the slight decrement in expected operating expenses for the second quarter, could you give us maybe an additional template on how you expect to stretch your current cash until the end of 2009? Is that mainly through reduced marketing significantly?

Douglas Pihl

We can’t probably go into detail right now, Joel. We are actually exploring a number of different plans, but a big part of it is really related to the fact that the silicon engineering will be significantly reduced, the cost there, since we are taping out the 90-nm part. So we are really going through a lot of plans now, variations of plans, so we do think contractor head count for silicon design will reduce.

Along with that, we are reducing a lot of the software design tools, the EDA tools we used for the chip design which are short-term licensing arrangements, so we can reduce there, but we are looking at all the options, and we plan to before too long schedule another conference call to give everybody an update on more features of our cash-burn reduction program.

Joel Achramowicz - MDB Capital Group

It sounds like you are really taking an inordinate amount of important time to really perfect the SAD block and the new design. Is that true? Is that is what is mainly this, because it is a critical component to the future, your H.264 encoder-decoder solution?

Dan Sweeney

As I mentioned in the call, the head-end encoder is a big part of that opportunity for the new chip, especially the ALU heavy design, and by taking the time to optimize that design, it allows us to be able to compete and win a big part of that market, and without this change, we don’t believe that we could have optimized it for these various customers’ requirements in this specialized application.

Douglas Pihl

I would also comment, Joel, that this is really the result of, as Dan mentioned in his comments, some very deep technical discussions with some of the leaders in head-end encoding that really gave us the opportunity to really understand how they would use a chip like that and really perfect the design, so we feel much more confident that it will really satisfy the needs of these head-end encoding customers.

Joel Achramowicz - MDB Capital Group

So it sounds like, then, the dynamic as I see it is, and correct me if I’m wrong, that these prospects that have ceratin requirements that could result in demand pull for your technology basically consulting with you and your coming halfway with them and determining how best to amend or to perfect this particular block in order to correspond to their needs, and the ultimate objective here would be that they would embrace the platform down the line.

Dan Sweeney

Yes, and the big issue is on these head-end encoders, their whole differentiation for their product is based on their ability to give this high level of compression of the high-definition video, so until we had an offering that they were interested in, they were unwilling to open up some of the details of their technology to us, and so it’s actually a good sign. It was just unfortunate that we’ve had to incur the delay.

Joel Achramowicz - MDB Capital Group

Yes, and obviously it sounds like hopefully you’re going to get the tools out in advance of the platform.

Dan Sweeney

Yes. We are currently, as I mentioned, our internal application design engineers are using those tools. It really gives us some early beta feedback before we release them outside to the customers.

Joel Achramowicz - MDB Capital Group

Dan are you working with more than one head-end encoder streaming company?

Dan Sweeney

Yes, we are.

Operator

Your next question is from Clint Morrison - Feltl & Co.

Clint Morrison - Feltl & Co.

Revenue for the quarter, was it all chips or was there any NRE, evaluation ports, whatever else

Douglas Pihl

A very small amount, it was virtually all chips.

Clint Morrison - Feltl & Co.

Then, you said for the coming quarter, the $100,000 to $200,000 was essentially going to be the opposite, no real chips, but all kinds of everything else

John Jennings

Yes, we believe everything else, but we also believe portion of the Q2 revenue, we mentioned that we were starting to supply some board level solutions to customers who can’t or don’t want to take the time to learn our tools. With that revenue, there will be some of amount of those early custom-design boards, basically FPOAs but soldered on the boards

Clint Morrison - Feltl & Co.

Can you just give a little bit of insight into LodgeNet? Obviously, they started installing, but the expectation was once this approved and started installing, it would just start ramping up, and all of sudden, it sounds like they are taking a break for a while. Is there a problem with the product, or did we misinterpret what the demand was going to be, or why has it started so slowly.

Dan Sweeney

We supplied the chips to the LG contract manufacturer in Korea in Q1, and LodgeNet we had supplied earlier systems in early Q1 for them to begin their trial. In the process of implementing the trials, they came back and requested us to modify the software in the system so they could improve how many streams they could implement into their infrastructure, saving cost and how many stream they can modulate with a single modulator, and we were able to do that.

It wasn’t any problem with our unit as we were asked to design it, but it was really an improvement we could make to adjust the software of the FPOA and the FPGAs in the system, and now they are happy with that, as the press release showed earlier this quarter. They qualified it in their labs, and they begun their trials and started their deployment, but it took longer to get through the trials based on their request to make that modification.

Clint Morrison - Feltl & Co.

Should we anticipate a strong ramp-up in the third and fourth quarter there?

Dan Sweeney

I believe we should continue to see new production silicon demand from that opportunity in the next quarter.

Operator

You have follow-up question from Joel Achramowicz – MDB Capital Group.

Joel Achramowicz - MDB Capital Group

Dan, you mean basically ramp-up in the third quarter, right?

Dan Sweeney

Yes. I should have been specific. We shared that we did not expect any more production revenue in this quarter, the second quarter, but we would expect additional volumes to start again in the third.

Joel Achramowicz - MDB Capital Group

You’d mentioned that during NAB that there were some positive developments, Doug, in the medical imaging area. Do you see that culminating in any opportunity or any revenue this year?

Douglas Pihl

We really don’t know that we can forecast any real revenue. We do have some very interesting opportunities in medical imaging – the contract that we have or agreement we have with VisionGate we think is very exciting, doing cellular level imaging, and we believe that will ultimately turn out to be a very significant opportunity for us.

And then the other area that I can just comment on in general with regard to medical imaging is that we’re seeing opportunities develop in ultrasound, in particular we’re seeing the possibility of using the same SAD block that we’ve designed for video motion estimation applications. It looks like in talking to consultants we have had on ultrasound; it looks like it could be very applicable to some very advanced techniques in ultrasound, so we’re excited about that opportunity as well.

Joel Achramowicz - MDB Capital Group

So it sounds like the general plan now strategically is basically conserve cash, and you’re working on some of these critical areas in the head-end area and also in the streaming video area as well as potential medical imaging and ultrasound tech applications along with perhaps some of these additional video processing companies you talked about in the past. The objective is hopefully see some significant traction once new 90-nm spins are out and sampling, and hopefully that will lead to some significant commitment on the part of your prospects. Is that correct?

Douglas Pihl

That’s correct. I’ll make a couple of amplification on it. One is it’s not only the 90-nm part – as we call it the 3600. We also have significant engagements with the older part, the 2400 – so that’s far from a dead product. We have some very significant customers that are looking at using that as well. The other thing I would comment on just to get to amplify some of Dan’s comments.

We’re moving very strongly into supplying board level solutions. We really see it as the answer to the problem of getting customers to really dig in, understand the chip, and really adopt it for their own internal designs. By doing the designs ourselves and in conjunction with our partners like Adaptive Micro-Ware, we can really provide the customers with the benefits of the FPOA without really having to reeducate their engineering force, and, as Dan mentioned, our internal team is starting to use the new tools. We can speed up the development that way, as well as the fact that our application team is now very expert at developing applications on it, so by providing board and system level solutions, we also believe we can accelerate the revenue ramp.

Joel Achramowicz - MDB Capital Group

And you’re certainly coming up to the curve in terms of understanding video extraordinarily well, it sounds like.

Douglas Pihl

I absolutely believe that we have a very talented group of people that are experts in video applications, yes.

Joel Achramowicz - MDB Capital Group

John, do you have your stock-based compensation and any other non-cash charges we should be aware of?

John Jennings

The only other non-cash charge that we had in Q1 is we held approximately $2.6 million worth of auction rate securities that we classified as available for sale, and we took a mark-to-market adjustment of $93,000 as of Q1 ending, and you will see that in the equity section of the balance sheet and not through the income statement.

We very much believe it’s a temporary charge. As such, it will reverse when it is available for sale. In fact, just yesterday, over a third of it was repurchased by the insurer. It was all AAA rated corporate securities, and through this whole process, none of it has been downgraded.

Joel Achramowicz - MDB Capital Group

Pretty good and stock-based compensation?

John Jennings

We still have to book a couple of hundred thousand dollars a quarter in stock-based compensation.

Operator

Your next question is from Gary Levenstein - Jess Morgan.

Gary Levenstein - Jess Morgan

You mentioned $4.5 million or 4 point something million for expense level next quarter, taking it down, it sounds like, about 20% from the current quarter. What ultimately is your expense run rate that you’re trying to achieve in this burn reduction plan?

Douglas Pihl

We’d prefer not to comment on that at this time, Gary. As I mentioned, in response to one of Joel’s question, we’re really exploring a lot of alternatives. Obviously our goal is to reduce the expenses as much as we possibly can without hurting our revenue growth prospects, so we’re going through a lot of different scenarios right now. As I mentioned, as soon as we’re able to really finalize decisions on specifics, we will schedule another conference call and walk through more of the details with people, so that they can better project our cash needs going forward, but I’d also reiterate that we are committed to maintaining operations with the current cash through the end of 2009 at a minimum.

Dan Sweeney

Part of the $4.5 million in cash this quarter, we have some of the partial payment for taping out the two 90-nm chips. Next quarter, besides our normal run rate which we believe will be substantially reduced, there will be a significant increase of about $1.8 to $2 million for paying for the math sets and the prototype runs of these 90-nm chips. So even through our run rate cash burn will be down the next quarter, it will go up. It will be masked by the tape-up cost. It’s in Q4 where you’ll see the first substantial reduction from the expense reduction plan that we’ve started.

Operator

Your next question comes from Ron Eckstam - LPL Financial.

Ron Eckstam – LPL Financial

Can you say who the key head-end players are some of whom you may be working with, some of who you may not be working with?

Dan Sweeney

With that caveat, I think we can. Some of the bigger head-end encoders are also the ones that do the set-top boxes, so Motorola is a leader in head-end encoding. Scientific Atlanta is another leader in head-end encoding, so those are just a couple that are industry leaders in that area. Tandberg is another one that is a leader in that area.

Ron Eckstam – LPL Financial

How big is that market? Once again, not being an electronics guy, is it $100 million market, $1 billion market, what’s the size of it?

Dan Sweeney

The area of professional high-end encoders, we believe that market is about $60 to $80 million market.

Ron Eckstam – LPL Financial

And what impact does it have on the down line if that’s the proper terminology – if the head-end guys use MathStar chips, does that force it down the line on the other side of it?

Dan Sweeney

I don’t think so, because there are a few head-end encoders and many consumer decoders which are typically put in set-top boxes or TVs. In the downsteam side, the consumer side, normally those volumes are in hundreds of thousand every year, and so those type of applications will typically have a custom chip or an ASSP done which have lower performance needs. They are lower end in cost and lower in power.

What’s more important is because these high-end video equipment manufacturers have brought sets of equipment, as we penetrate design wins in one piece of equipment, it gives us opportunities to sell our solutions in many other lines of video equipment gear.

Ron Eckstam – LPL Financial

So, once you get in the door, there is an opportunity to go beyond the door.

Dan Sweeney

Absolutely.

Ron Eckstam – LPL Financial

Do you have an approximately size, bigger or smaller, of the two new customers that are using similar strategies to the LG technology? Are they the same size as LodgeNet or are they bigger or smaller?

Douglas Pihl

The companies are smaller, but much more concentrated, so we can’t give any revenue projections on these customers at this time, but they’re more, I’d say, smaller companies that are more focused on particular product areas.

Ron Eckstam – LPL Financial

Does that mean they’ll be faster to market?

Douglas Pihl

Well, we believe so and also the fact that we’re essentially providing a board level product that’s modification of the existing product, we believe, will speed up the process as well.

Looking at various markets, as we mentioned in our comments, the Semico report, we will make it available on our Web site for people to read, and that actually talks about a lot of different market segments for this technology.

Dan Sweeney

It’s really targeted toward our investors rather than other people that look at our Web site, so the link is only available on the investor portion of the MathStar.com web site.

Operator

You have a followup question from Clint Morrison- Feltl & Co.

Clint Morrison - Feltl & Co.

At $60 to $80 million, the head-end market size you just quoted, what are you referring to? Is that $60 to $80 million of your products using chips potentially?

Dan Sweeney

That’s our estimate on the total available market for high-performance programmable logic in that type of equipment. So that’s a TM that would be available if we were successful in penetrating that market.

Operator

Your last question comes from Barry [inaudible] with Feltl & Co.

[Barry inaudible] - Feltl & Co.

In regard to the reverse split according to my numbers, it looks to me like you’d probably be the capital requirements there on NASDAQ or the global markets, and why would you reverse split the stock now if that is pretty inevitable in the future?

Douglas Pihl

Well, that’s an issue we’re continuing to look at, Barry. Obviously, we haven’t made a final decision. We don’t know what the outcome of the vote will be, but we are concerned also about the capital requirements issue, yes.

[Barry inaudible] - Feltl & Co.

So, are you saying that you may not reverse split the stock?

Douglas Pihl

Well, right now we’re waiting to see what the outcome of the shareholder vote is.

[Barry inaudible] - Feltl & Co.

If that comes out positive, would you reverse split the stock?

Douglas Pihl

We have to make a final decision on that at the time.

Operator

There are no further questions at this time.

Douglas Pihl

I’ll just summarize what we said. We had our first production volume revenue in the first quarter of 2008. We are making good progress releasing our next generation 90-nm FPOA and the design tools to support that, after obviously making a difficult to decision to delay the tape-out to help ensure the success in these important video markets as we mentioned, and recognizing the limitations of our design tools, we have adjusted our selling strategy to mitigate the impact to our revenue ramp, while we are working to improve the design automation capabilities of our tools.

We will continue to reduce our burn rate with a goal of using existing cash to fund MathStar through the end of 2009, and MathStar, as I said, will share more information on our strategy as these plans are finalized.

Finally, we look forward to seeing many of you at our shareholder meeting in Minneapolis on May 22, 2008, so I would just say thank you to all of you for your time today.

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