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Date
of Report (Date of Earliest
Event Reported):
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October
25, 2007
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|
ISCO
INTERNATIONAL, INC.
(Exact
Name of Registrant as Specified in
Charter)
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DELAWARE
(State
or Other Jurisdiction of Incorporation or Organization)
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001-22302
(Commission
File Number)
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36-3688459
(I.R.S.
Employer Identification Number)
|
|
1001
Cambridge Drive, Elk Grove Village, ILLINOIS
(Address
of Principal Executive Offices)
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60007
(Zip
Code)
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847-391-9400
(Registrant’s
Telephone Number, Including Area
Code)
|
|
Not
Applicable
|
|
(Former
Name or Former Address, if changed since last
report)
|
|
Check
the appropriate box below if the Form 8-K is intended to simultaneously
satisfy the filing obligation of the registrant under any of the
following
provisions:
|
|
|
[ ]
|
Written
communications pursuant to Rule 425 under the Securities
Act
|
|
[X]
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act
|
|
[ ]
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange
Act
|
|
[ ]
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange
Act
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|
(d)
Exhibit No.
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Description
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|
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99.1
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Transcript
of Quarterly Investor Call October 25,
2007.
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ISCO
INTERNATIONAL,
INC.
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Date: October
26, 2007
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By: /s/ Frank
Cesario
Frank
Cesario
Chief
Financial
Officer
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Exhibit
No.
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Description
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99.1*
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Transcript
of Quarterly Investor Call October 25,
2007.
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Coordinator
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Good
afternoon. My name is Julie Ann and I will be your conference
operator today. At this time, I would like to welcome everyone
to the ISCO International third quarter 2007 investor conference
call. All lines have been placed on mute to prevent any
background noise. After the speaker’s remarks, there will be a
question and answer session. Thank you. I would now
like to turn the conference over to Mr. Ralph Pini, Chairman of ISCO
International. Mr. Pini, you may
begin.
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R.
Pini
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Thank
you, and good afternoon, and thank you to all for joining the
call. Today I’m also joined by John Thode, CEO, and by Frank
Cesario, our CFO, who will now read the Safe Harbor
Statement.
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F.
Cesario
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Thank
you, Ralph. We would like to advise you that the discussions
we’ll have today will include forward-looking statements as that term
is
defined under the Private Securities Litigation Reform Act of
1995. What we in the Act mean by forward-looking statements are
all statements we make other than those dealing specifically with
historical matters. That is any statements we make about the
conduct of our business operations and finances up to this
moment.
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All
other statements we make are forward-looking statements. Our
forward-looking statements include any information we provide on
future
business operations and other guidance regarding the future financial
performance of the company. All forward-looking statements
mentioned are subject to risks and uncertainties that could cause
the
actual results to differ, possibly materially, from those projected
in the
forward-looking statements.
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Some,
but not all of these risks and uncertainties are discussed from time
to
time in the press releases and securities filings of the company
with the
SEC, particularly in our Form 10-K. We undertake no obligation
to publicly update or revise any forward-looking statement whether
as a
result of new information, future events or
otherwise.
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We
reported revenue of approximately $2 million for the third quarter,
generally consistent with the average quarterly revenue of the first
half
of the year. We also reported quarter and year-to-date gross
margin figures of 37% and 42% respectively. Our gross margin
for the full year last year is 40%, so even at a lower total revenue
run
rate, we’ve managed to drive improvements in our efficiency
metrics.
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On
a cash flow basis, we showed net losses of approximately $1 million
for
the quarter and $3 million for the year-to-date, again, fairly consistent
during the year. That result was a loss of a penny per share
for the quarter. These results include increased spending on
product development for the Q4 launch activities. Cash and cash
equivalents on hand are approximately the same as we enter Q4 as
they were
entering Q3, as we’ve continued to efficiently manage our inventory and
strategic suppliers.
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Due
to the successful deployment of a new product, we entered the fourth
quarter with roughly $1 million in order backlog that we expect to
fulfill
during the quarter. While we certainly worked for results more
in line with our record third quarter of Q3 last year, spending and
structural changes in the U.S. markets we serve continue to be
challenging, as you’ve seen from announcements from almost all OEM and
aftermarket infrastructure suppliers. This continues to support
our ongoing strategy to differentiate and diversify our
portfolio.
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With
that, I would like to turn it over to our Chairman, Ralph
Pini.
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R.
Pini
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Thank
you, Frank. Today’s commentary might be a little longer than
usual, but I have to tell you I’m pleased to join you today to provide,
among other things, some insight on the proposed merger with Clarity
Communication Systems that we announced earlier in the
month. This proposed merger is very consistent with our
strategy to continue to evolve our business to support incremental
and
sustainable long-term growth, and to accelerate the development of
our
strategic products.
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For
those who aren’t aware, Clarity is a private company based near Chicago
with 35 people. Primarily, real-time software engineers with
extensive telecommunication experience will develop and sell value-add
applications for mobile networks and devices such as push-to-talk,
location based services, also known as Whereabouts, and some exciting
combinations of the two platforms branded as
Where2Talk. Clarity has commercialized some of these services
through a host of service targeted at second and third tier operators
and
trying others, including applications target at interoperability
between
commercial and public safety
networks.
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For
those who have been following the 700 megahertz spectrum auction,
interoperability where public safety continues to be a challenge
and it is
an area where there would be substantial investment in the next several
years.
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If
we look at the wireless telecommunication market segment, along with
recent announcements from some of our largest entities, we have seen
the
capital spending tends to be somewhat unpredictable, and, at times,
it is
related to consumer adoption of new services. To reduce
volatility in our results, our strategic intent has been to expand
our
addressable market, and diversify our portfolio to mitigate this
risk. Our customers and competitors have been focused on
consolidation for growth and competitive advantage for the last several
years. There is a significant benefit to size and scale in
today’s business, and any reasonably priced synergistic opportunity that
will allow us to achieve these benefits is important to act
upon. Perhaps, more importantly, from a strategic view, the
sustaining value of any partnership is the combined competencies
and the
skills and technical assets of the combined
teams.
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As
a result of this proposed merger, we believe Clarity’s software skills
will support and complement our hardware talent, and will add significant
value to our company and our
shareholders.
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Going
forward, as we’ve indicated previously, our strategic intent continues to
be to expand the addressable market for our adaptive interference
management platform beyond an aftermarket standalone cellular
product. This will include fully software based solutions
installed directly into the infrastructure and mobile device OEM
channels. As well, it has optimized solutions targeted at the
higher growth segments of the market, including Wi-Fi, WiMAX, ISCO
cells,
distributed antenna systems, and remote radio heads. We see the
proposed merger with Clarity as an opportunity to accelerate our
ability
to address these significant emerging markets in a timely manner
with a
necessary complementary technical and channel expertise to do
so.
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In
addition to the strategic perspective, we see significant near term
synergies between ISCO and Clarity. Our customers and channels
are complementary and offer an opportunity to grow sales of both
portfolios significantly. As you all know, ISCO has been
selling to the largest wireless operators in the U.S., while Clarity
has
been selling to OEMs, tier two and three operators, and system integrators
addressing the public safety
markets.
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The
bottom line is from both, a strategic and technical perspective,
we
believe the proposed merger with Clarity affords us a distinctive
competitive advantage to support sequential near-term growth, and
address
significantly broader high growth
segments.
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During
the upcoming weeks, we will continue to provide you with updates
on this
merger, which we hope will culminate in a shareholders vote by the
end of
the year.
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Before
I finish, I would also like to share some good news regarding our
DIF
product. I’m pleased to confirm that the fully digital platform
targeted at the aftermarket, code name DIF, will indeed be completed
during the current quarter and delivered commercially. This is
an extremely important step in our adaptive interference management
portfolio, and we are very excited at its imminent
commercialization. The initial deployments may well be in Latin
America and Europe, though we fully expect to target the U.S. market
as
well.
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Lastly,
as I know John and Frank have mentioned on previous calls, we continue
to
receive significant interest in derivatives of this platform for
other
differentiator applications. As an example, one of these
derivatives we call TSF, or tunable site filter, allows for a Web-based,
remotely tuned multi-band selectable front-end filter. This
product derivative has received considerable customer interest, and
is
currently in trial with a tier one U.S. operator. This is one
example of a number of product variants we expect to commercialize
from
this platform.
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As
you also read, John Thode will be leaving us shortly, so I would
like to
thank John for his outstanding service to ISCO during the past three
years. He has been instrumental in shaping the strategy we are
executing on today, and we will continue to execute on after he
leaves. I want to wish John and his family the best, since he
is also embarking on a new and very challenging
job.
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J.
Thode
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Thank
you, Ralph, and good afternoon, everyone. While nothing is easy
in this business, and we’re not alone in terms of infrastructure providers
who expected a higher rate of revenue during Q3, I’m pleased by how we
have continued to implement the big picture of the company, in some
ways,
accelerating some of our long-term
goals.
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R.
Pini
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Thank
you, John, and, once again, good luck in the future. As a final
note, on some of the most important opportunities we are currently
addressing, we are doing some work with a large multi-national Latin
America telecom operator. We are beginning a trial in Latin
America for the DIF platform; something we believe has significant
near-term revenue opportunities. We are also finalizing
evaluations with two large operators in Europe, ISCO’s first real
penetration into Europe. Both of these are
need-to-have applications involving the legitimate coexistence of
interference.
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Finally,
we continue to make steady progress in Asia and also in
India. In the next several weeks, we expect to be able to make
some detailed announcements concerning many of these
opportunities.
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I
think it goes without saying that I have spent a great deal of time
with
the team reviewing the business over the last several weeks. My
expectation is that, even though we are likely to continue to see
some
short-term market challenges due to the slower rollout of broadband
type
services and reduced capital investment by the carrier channels,
we can
expect significant incremental growth with our new offering, together
with
our proposed merger with Clarity. This is why I joined the
board back in 2004, and why the team we have in place is very
excited. We hope that the Clarity merger is finalized quickly,
and that you support the measure.
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We
have also started the process, and are actively reviewing the
qualifications of a number of candidates who have shown great interest
in
the permanent CEO position here at ISCO. We expect to make this
announcement before the end of the
year.
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With
that, we are ready to take your questions and open up the
lines.
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Coordinator
|
Thank
you. Your first question is from the line of Edward Zabitsky
with ACI Research.
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E.
Zabitsky
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Good
afternoon. To John, thank you, first of all. It’s
pretty clear that the company has changed substantially; at least
from the
outside, the company appears to have changed substantially positively,
of
course, over your years working for the company. The concern
though is that some of that discipline is lost when you leave, and
it’s
not, of course, anything to do with the people, but the glue that
binds
those people. So I’m hoping you could share some of the
processes that you’ve implemented that will help guide the company going
forward.
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J.
Thode
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Sure,
Edward. First of all, it always starts with great people and
we’ve added a couple of very talented senior individuals to the team,
and,
obviously, over the last several years, we’ve also spent a good deal of
time enhancing the team in terms of the other areas of
specialty. So, it starts with great people and the company has
great people.
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In
terms of things we’ve put into place, obviously, it starts with a strategy
and it starts with alignment on the board and the entire senior management
team around that strategy. I think ultimately, you’re seeing
that framework being fulfilled here before your eyes with a number
of
things we’re doing, including the Clarity
merger.
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Fundamentally,
at the end of the day, we’re a different company in terms of our urgency,
and we’re a different company in terms of the basic framework of the
business processes we’ve put in place to manage and hold ourselves
accountable. And that’s not going to change. That’s
something that collectively, we, together as a team, and under the
guidance and direction of the board, don’t intend to change, and something
that I can assure you that the team will continue to improve upon
and
excel at upon my departure. So I have very little concern in
that area from my own perspective. As you know, and as a number
of the shareholders know, I’m a pretty large shareholder myself, and I
intend to continue to be one for some period of time. I intend
to participate in the upside when it comes along with all of you
as
well.
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I’m
pretty confident that we’re not going to change track here. In
fact, we’re only going to accelerate our progress here, particularly with
the merger and with a talented potential CEO coming on board here
in the
next couple of months.
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F.
Cesario
|
This
is Frank, Ed. Let me add to that just a little bit that we have
a process that everyone has bought into. Three years ago, we
had a vision of incremental improvement on what we had done - how
to be a
really great aftermarket hardware player. Since then, we’ve all
figured out together, and John has driven this process, that we can
be a
lot more than an aftermarket hardware player. So the fact that
the people have bought into that is going to keep it going. I
can assure you that the management team isn’t going to let things drop,
because we all see what we’re doing, and Ralph coming in as interim CEO as
well, is going to keep the momentum going forward. That’s our
commit to you.
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E.
Zabitsky
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Okay. Lots
of luck, John, in your next job.
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J.
Thode
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I
really appreciate it. Thank
you.
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E.
Zabitsky
|
Actually,
one more question. I’m not sure if Ralph or Frank should take
it, but I’ll ask it either way. In developing the digital ANF,
obviously there is a dramatic cost reduction to be
achieved. There’s no doubt about it, this is a tried and true
story in the wireless business. The question is what does that
do to the addressable market? How do you know that we move
beyond a niche? Do you know what I mean? Is it worth
the investment? What are the carriers saying about something
that’s a fifth the cost, or a tenth the cost, or I don’t know how
much?
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J.
Thode
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First
of all, that’s one aspect, and obviously, carriers already have bought
into the value proposition at one point on the demand curve, given
the
current cost of the current DANF product. I think a more
specific attribute, and something that’s much more valuable is because it
is a fully digital platform, we’re able to address other technologies and
broader market segments beyond just the cost factor
advantage. As Ralph pointed out just a moment ago, as an
example, we’ve created a spin-off of the platform already beyond just
adaptive in-band interference and turned it inside out and it became
an
adaptable tunable site filter. It’s not just the cost basis of
the platform, but the flexibility of the platform that will allow
us to
significantly address broader market
segments.
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F.
Cesario
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The
cost element, obviously is very important. As costs in telecom
come down, a lot of things happen. But you can see, for
example, in base stations that they tend to over-invest in certain
elements of infrastructure, like lightning protection. Why do
they do that? Because it is worth the incremental cost and not
worth the experience of an outage, so they’re willing to pay to have
something that is adaptable to future environments. That’s
precisely what we’re proposing today, future proofing networks with smart,
adaptive, protective mechanisms.
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Not
only do we have a huge benefit on the cost side, because now we’re getting
into that field of where you would spend a little bit of money for
protection, period, end of story, as opposed to protect resolving
your
worst performing site. But also, as John got into, now we’re
able to expand this dramatically and to so many more applications
and its
dynamics, so we can do it quickly and very adeptly. It’s just
better on every level, and we think that will be strong in the
marketplace.
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E.
Zabitsky
|
Okay. My
interest is tweaked and I guess I’ll just have to follow-up as time goes
on and your market experience with it
improves.
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J.
Thode
|
Thank
you, Edward.
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E.
Zabitsky
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Thank
you.
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Coordinator
|
Your
next question is from the line of Tom Bock with Bock
Evans.
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J.
Thode
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Hello,
Tom.
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T.
Bock
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Hello,
gentlemen. It’s nice to talk with you again. John,
I’m sorry to see you leave. I appreciate all the hard work
you’ve done to bring this magic box to us. I would just like to
ask some questions about the DIF filter, somewhat touching on what
the
fellow before Edward just asked, but I would like to hone in on a
specific
thing. The DIF filter, can an operator just buy one of those
and put it in a cell side, or is this something that you contemplate
will
be sold across a large number of sites or a big system? When
you make a cost comparison between a DIF filter and a DANF filter,
are we
comparing apples to apples, one filter, one filter, or are we comparing
one DIF filter out of a whole bunch of DIF filters with a DANF
filter?
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J.
Thode
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It’s
a very simple answer to the question. On a like-for-like basis,
it’s a considerable cost reduction. For competitive reasons, I
probably shouldn’t give you a number, but let’s say it’s considerably more
than a factor of two on a like-for-like
basis.
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There
is other thing, just to reemphasize it. In our business, cost
is a significant factor, but I don’t think it’s wise to just hone in on
that particular aspect of it. Let me emphasize again, beyond
cost is the flexibility of the platform that allows us to address
much
broader market spaces, particularly high growth market spaces that
Ralph
just mentioned, where there are more need-to-have versus nice-to-have
applications.
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Let
me give you a very specific example. Wi-Fi is deployed in
unregulated spectrum where there are planned, in fact, licensed
interference sources, things like microwaves, cordless phones,
walkie-talkie two-way radios. That’s a space where it’s not
just an insurance policy where perhaps a cellular operator is buying
it
for a particular application on a border situation, or for a particular
insurance policy that might arise as a result of intermodulation
or some
RF perturbation. But it’s a situation where it’s a planned
interference scenario that must be
addressed.
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Ralph
spoke just a moment ago about a couple of opportunities that we’re looking
at in Europe and Latin America. These are both situations we’ve
talked about in previous calls where spectrum re-mining is occurring,
where an operator himself is the interference source. So when
you’re displacing a 2G technology like GSM, with the 3G technology like
UMTS, the operator is causing himself interference. To be able
to reduce that affect, to simplify the engineering of those networks,
creates a significant benefit to those operators, and frankly, is
where
we’re getting the most traction at this point in time in terms of interest
in the product. And why, most likely, we will roll out the
product internationally first, as opposed to in the U.S. markets
where the
application is not as straightforward as spectrum
re-mining. So, cost is important, but let’s not lose focus on
its ability to address greater market breadth and scope on need-to-have
versus nice-to-have applications that make the value proposition
much more
attractive overall, independent of what the cost or price
is.
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T.
Bock
|
Say
on Alcatel, and I’ve seen this thing, I’ve tested it, and in Paris, I have
a problem, can I just buy one of
them?
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J.
Thode
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Yes.
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T.
Bock
|
Then
we would be talking apples. In other words, I would say, “Gee,
I’d rather have this than a DANF. This is doing so much more
and it costs less.”
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J.
Thode
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Remember,
both DANF and DIF are designed to be one box per cell site, so whether
you
buy one DANF box per cell site, or whether you buy one DIF box per
cell
site, you’re still buying one box. I’m not sure if that answers
your question.
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T.
Bock
|
That
does. At this time, do you have any sales contracts in hand for
DIF? Now as we speak.
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J.
Thode
|
No,
not something we’re prepared to announce at this point. Let’s
just say we have significant operator interest, and we’re doing some very
specific trials in the next couple of weeks. You’ll be sure to
hear of specifics about some of these as we wrap some of them
up. As you know, Tom, operators are a bit reluctant until they
make a hard purchase decision; they’re very reluctant to put their names
on any kind of public information.
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T.
Bock
|
So,
when you do these trials, are you operating under non-disclosure
agreements in all of these trials?
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J.
Thode
|
Always.
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T.
Bock
|
Always?
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F.
Cesario
|
Always.
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J.
Bock
|
I
see. Okay. Then I have a couple of other things, if
you don’t mind. I’m very fascinated by this whole
space. This merger, I’ve paid a lot of attention to the 700
megahertz auction and Verizon’s intent to block it and all of
that. How does this position us for an operator that might want
to build out the public service element and the whole 700 mhz, somebody
that would want to build a new network in the United
States? Does this give us a window of scarcity or a pole
position thing to offer that?
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F.
Cesario
|
Tom,
John and Ralph may get more detailed, but since you used the word
merger,
or proposed merger with Clarity, we are pretty extensively restrictive
on
what we can say about that, because we are currently in technically
a
presolicitation phase. So, please appreciate that we are very
limited in anything we can say specifically to a new combination
or the
other party. I have no issues talking about 700 megahertz in
general. All I would ask is that we not go into any more detail
with the proposed merger than we have in our prepared
comments. That’s just something that the lawyers have counseled
us to do now that we’re in the presolicitation
phase.
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R.
Pini
|
There
is something that we can say. There is an effort to integrate
new broadband technologies into the existing public safety two-way
radio
system, and I think, with the intent of rolling out a major network
in the
700 megahertz band. That should open up opportunities for the
market in general, and with our new direction, we fully expect to
be one
of the key players to benefit from the
rollout.
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|
J.
Thode
|
Tom,
there’s a lot of good things about 700 megahertz. By the way,
just the latest, Verizon dropped their lawsuit recently. We
talked about this in the last phone call. Not just from the
aspect of interoperability with public safety, which I think we have
a
plan, but also from the aspect of the 700 megahertz band being an
extremely messy band right now with a lot of incumbents in
it. Also, from the perspective that there will be open access
in this country, one way or another, and it will most likely be with
a
non-traditional operator. Someone who, in that case, will more
likely have more capital and be more interested in getting the network
up
on the air in a nice timely fashion to focus on offering value added
services, and all of that plays into our
hands.
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|
T.
Bock
|
I
see. Not to ask you specifically about the merger, but in
context of direction of the combined ISCO, or what this merger portends
to
the direction of ISCO in the future. Are we looking at this as
a specific, one-time thing that’s being driven by some things, or are we
now in the process of going out and buying up software
companies? Are we going to be like the WorldCom of wireless or
something?
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|
J.
Thode
|
Please
don’t use WorldCom. Pick a different
example.
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|
T.
Bock
|
It’s
kind of unusual. That’s just why I asked. Is this
the beginning of a bunch of these
things?
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|
J.
Thode
|
I
think we’re opportunistic, and Ralph read in his opening comments that you
have to be opportunistic. What we said for a number of years
here is we have a very specific strategy. We saw an opportunity
with Clarity to accelerate some of our strategic
intent. Equally so, any time you contemplate a merger, you
contemplate it from two aspects. Number one, is it worth what
you’re getting, particularly from a shareholder
perspective? Two, is there potential for incremental near-term
revenue, or diversity in your business model as a result of
it? When we looked at Clarity, we said yes. It adds
great talent in an area that we have a strategic intent on. It
adds additional potential revenue streams, and it was something that
we
felt was well worth the money we were investing in it. From all
of those aspects, we felt it was the right company at the right
time.
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|
Will
all of those stars line up again in the future at some point in
time? I don’t know. You can’t say yes, you can’t say
no. I can say, at least from my perspective, soon to be as a
board member as opposed to the CEO, I don’t see a need at this point in
time, but if opportunity knocks, so be
it.
|
|
T.
Bock
|
Was
it part of an objective review of a whole bunch of companies, like
on the
Fast 50 wireless list, or something like that, or did you go through
that
sort of a review as a board?
|
|
J.
Thode
|
Without
going through a lot of details, this is one of the issues that I
teed up
my first couple of months here, teed it up as a strategic intent
that we
look more broadly. Even before we had a deliberate strategy,
Tom, it had to do with the fact that our industry is
consolidating. We’ve talked about that before, so you’re either
feed, or you’re getting swallowed. From that perspective, the
board put in the framework to start looking at opportunities and
start
thinking about what kind of opportunities were the right
match. Once we developed the strategy and got a alignment
around the company and the board on the strategy, then it became
clear
what kind of opportunity we were looking for. It was not too
long ago that, from a specific Clarity perspective that we began
serious
discussions and a potential merger came to
fruition.
|
|
T.
Bock
|
I
just have one more question, and then I would like to ask a couple
for
Frank if I could. John, you PR’d a fellow named John Owings
that joined the board, and you said he brings tremendous value right
out
of the gate. Can you tell me what tremendous value you’re
seeing here? What are you eluding to
there?
|
|
J.
Thode
|
I
think from a couple of perspectives. First of all, he’s a
financial expert, which obviously is an area that we continue to
look for
as part of our fiduciary responsibility. We continue to look
for lots of different financial options on. He has significant
experience in telecom in general, so he brings a lot of contacts
to the
plate, and fundamentally, he works for Nortel. So it’s never a
bad thing, although, as you understand, there has to be an arms length
relationship there. It’s never a bad thing having somebody who
works for an OEM participating on your board, especially a fairly
senior
level individual. It just adds a lot of credibility to your
company. So I think from all of those perspectives, he adds
great value. It’s positive from all of those
aspects.
|
|
T.
Bock
|
Sure,
but you don’t have a non-disclosure agreement and you’re not discussing
any kind of a sale to Nortel at this
time.
|
|
F.
Cesario
|
Inherently,
the goofy thing is if you had an NDA, you couldn’t talk about it in the
first place, but nonetheless, it’s our intention to grow this company as
we’ve described.
|
|
T.
Bock
|
Frank,
as long as you’re there, I would just like to ask you something
here. When you go forward with DIF on your deferred revenues, I
noticed they did not grow from the second through the third
quarter. They’re the same. Is this now as it stands
without the merger going into the fourth quarter? Do we
contemplate some kind of a step-up in deferred revenues for the fourth
quarter?
|
|
F.
Cesario
|
Actually,
I separate it entirely. The proposed merger, I’m not even going
to talk about how that would change and expand what part of the
financials. I can’t. Disclosure would be coming
forth in a normal course.
|
|
|
Let
me talk about the ISCO business specifically on a standalone
basis. We rolled out in Q4 of 2006, really our first software
maintenance revenue stream. We never had one
before. We grew it a bit as we went on, and now we’ve seen this
revenue that we’ve been recognizing has been relatively flat versus what
we’ve been adding to the party. Frankly, that’s the taste,
that’s getting it started. The intent as we go to more and more
software content, which we’re doing the fully digital platform, that
there’s going to be relatively higher elements of revenue associated with
software, and that’s obviously part of a recurring revenue stream that we
did not enjoy just selling aftermarket hardware. So the simple
answer is, ISCO on a standalone basis, is looking to grow its software
revenue stream, and inherently, therefore, deferred revenue, as it
rolls
out fully digital products.
|
|
T.
Bock
|
Frank,
you said before that when DIF was completed you would be getting
to the
end of R&D capital spending. Do you still see that for the
fourth quarter?
|
|
F.
Cesario
|
I
think the big surge is finishing, as far as the individual platform
out,
so that’s what we’ve been dealing with for the last year. So I
would say yes, as it rolls out, we don’t have that same
surge. To the extent that we have something very hot in a
derivative, then, of course, we’ll focus our capital R&D efforts
there, but we certainly have an excellent base to work from, especially
now that the digital platform itself, which is what we’ve been largely
focused on, is finishing.
|
|
T.
Bock
|
You
said earlier in your introductory remarks that your cash and cash
equivalent position today is roughly the same as it was at the end
of the
second quarter. Is that
accurate?
|
|
F.
Cesario
|
Yes. Cash
on the balance sheet is $2.8 million at the end of Q3, and just to
pull
out the exact number, its $2.3 million at the end of Q2, so we’ve been in
the two to three range really all
year.
|
|
T.
Bock
|
If
there were no merger and we were just going forward without clarity,
you
would not contemplate a working capital private placement at this
time, or
would you?
|
|
F.
Cesario
|
We
really haven’t had one, if you think about it, for a year and a
half. For those who aren’t up to the details, we did
refinancing in the middle of the year of debt that was maturing in
August
of 2007. All we did is, A, extend the debt, and B, convert an
amount of accrued interest into equity. That was no new cash to
the entity, though the process cost us some money,
obviously. But we haven’t had a new cash
raise. Frankly, the entity itself has been good about managing
its cash, so we’ve been doing a lot of work to get our products the way
they are, so we’ve been proud of
that.
|
|
F.
Cesario
|
Tom,
you’re asking good questions. I’m sure a lot of people have
similar ones, so whatever you have, fire
away.
|
|
T.
Bock
|
Maybe
I’ll come back and I might have something else, but I wish you well,
John. It’s nice talking with you and I wish you all the best in
the future.
|
|
J.
Thode
|
Thank
you, Tom. I really appreciate
it.
|
|
Coordinator
|
Your
next question is from the line of Mark Matarnowski, a private
investor.
|
|
F.
Cesario
|
Hello,
Mark.
|
|
M.
Matarnowski
|
Hello,
guys.
|
|
J.
Thode
|
Hello,
Mark.
|
|
M.
Matarnowski
|
I’ll
try to make it short and sweet here. John, first off, good luck
at wherever you’re going here. You talked approximately two
years ago or one and a half years ago about ISCO becoming a $200
million
company in 18 to 24 months. You’ve reiterated that numerous
times over the past few quarters that we’re actually on progress for
that. What kind of concrete evidence can you leave us with, now
that you’re leaving, that we’re actually on track to becoming that versus
leaving us thinking it’s just a pipedream and it’s smoke blown our way now
that you’re gone?
|
|
J.
Thode
|
I
think you’re putting far too much credit in me, Mark. First of
all, let me say, as you know, we believe that in the best interest
of the
shareholders, we do not forecast with a lot of specificity. We
just don’t believe it’s in the best interest of the shareholder,
particularly as the market continues to evolve, and particularly
as we
continue to significantly evolve our business case in line with our
long-term strategy.
|
|
|
Anecdotally,
I can give you a couple of pieces of data here. Anecdotally
one, I can tell you that the shareholders should look at this Clarity
acquisition and what we’re doing in this space. I think, as you
will learn more about it as we go through the registration and the
proxy
period, and even a lot of information that you can gather on your
own
today, just by looking at their Web site. I think you’ll
conclude that this is a major step in the right direction in terms
of
accelerating, not just our ability to deliver in the aftermarket
space,
but also in our ability to head toward the OEM space. That’s
where the hockey stick opportunity is at, because now you’re dealing with,
even with a small share, you’re talking about big numbers quickly,
particularly in the handset space. So, one piece of
anecdotal data.
|
|
|
The
second piece of anecdotal data is I can tell you that my intention,
as
long as the board will have me, is to remain a director on the
board. One, because, selfishly, I want to participate in the
success story, even if it’s at more at arms length than I am
today. But also, because I would like to see through what we
started here, and I think clearly, from that perspective, I’m putting my
credibility on the line, and certainly have more to lose in the game
by
continuing to be a director. So, a second piece of anecdotal
data.
|
|
|
A
third piece is I am probably the third or fourth largest shareholder
in
the company, and, as a director, you guys will have straight line
of sight
visibility on what I’m doing with my shares. So take me at my
word that I intend to continue to hold that share position and demonstrate
my confidence, and you’ll have visibility into being able to see that that
happens. I’ll just give you a couple of anecdotal pieces of
data there.
|
|
M.
Matarnowski
|
Let
me take a different direction on this, and I appreciate your input
there,
but for you to go off, and again, almost two years ago, make a statement
that, and especially in light of your statement that you’re hesitant about
giving projections and things. I have to believe, or I have
believed for two years that you didn’t pull the $200 million number out of
your rear end. That you actually had a vision, you had a plan,
you saw a way to get us from a company under $10 million to that
number. Now you mention Clarity. Unless Clarity was
that solution that you saw two years ago that was going to get us
there,
certainly they may be a great acquisition now, but I’m hoping that there
was something beyond them that was going to get us there. I
guess I’m not hearing what that is. What I’m hearing is that,
for the CDME800 market that we pretty much kissed that off in the
U.S. The 1900 megahertz market, we’ve pretty much given up on
that. We’re now focusing on re-mining in Europe and Latin
America and places like that.
|
|
J.
Thode
|
I
think most of our opening comments were about that. In fact,
maybe you need a job as our marketing guy, because you probably did
a
pretty good job at echoing it back
again.
|
|
|
We
consistently say on every phone call what we’re doing and where we are
with that platform, and how we’re extending that platform on variants that
are addressing different market needs that we haven’t been able to address
and with customers we haven’t been able to penetrate before. So
maybe we’re not being clear enough
there.
|
|
M.
Matarnowski
|
Are
you offering me a job?
|
|
F.
Cesario
|
Come
on down.
|
|
J.
Thode
|
Come
on down. We’ll talk to
anybody.
|
|
M.
Matarnowski
|
I
can write some PRs for you. I’m sorry, and on the way,
congratulations on your $9.1 million
quarter.
|
|
F.
Cesario
|
Our
$9.1 million quarter?
|
|
M.
Matarnowski
|
I
assumed the guy who transposed the digits on the conference call
PR wrote
that other one also.
|
|
F.
Cesario
|
We
got rid of him.
|
|
J.
Thode
|
Maybe
you do need a job. Why don’t you come on down and talk to
us?
|
|
M.
Matarnowski
|
I’m
giving you a hard time there.
|
|
F.
Cesario
|
Mark,
there’s one other element and I just want to be super
quick. We’re absolutely not giving up on 800 and 1900 in the
U.S. That couldn’t be farther from the truth. What
we’re saying is that we now have something to apply to other markets
and
that is a real accelerator for what we think we can do and how we
can grow
the revenue line. So just understand, in case anybody is
listening to this call doesn’t get that directly, absolutely no way do we
intend on leaving 800 and 1900.
|
|
J.
Thode
|
No,
in fact there are some very specific applications, and again, I don’t want
to get into too much detail, because we’re putting together a strategy and
a little bit more detailed rollout of some of our plans as part of
the
integration and merger, and as we go into the next year with a new
CEO.
|
|
M.
Matarnowski
|
Okay,
one final comment. You’ve often talked about how you feel the
share price is undervalued for what you’re doing. I would like
to see it higher than it is too. Certainly, this period of the
last six months, where you communicate very little, doesn’t generate a lot
of demand for purchasing shares, and, as such, it’s very easy to
manipulate it down. It would sure be nice from a shareholder
perspective, to see you guys support the share price in the last
two
weeks. Since the Clarity announcement, I think we’re down
30%. It wouldn’t have taken a whole lot to come out and say
something positive to help support that. Ralph, I guess if
you’re in charge going forward here, I think I would sure appreciate
it if
you would pay more attention to that on the day-to-day, quarter-to-quarter
basis. If you don’t have anything to say, then say you’re
thinking about forming a partnership in China. I hear it worked
great for some other companies
lately.
|
|
R.
Pini
|
We
hear you loud and clear, and, at the board level, we’re very anxious to
give positive market indications. Sometimes we’re prevented
from doing so. I think that the first opportunity we get, you
will see some action, even at the board
level.
|
|
M.
Matarnowski
|
I
would love to see it. Thank you. Good luck,
John.
|
|
J.
Thode
|
Thanks
a lot, Mark.
|
|
F.
Cesario
|
Thank
you, Mark.
|
|
Coordinator
|
There
are no further questions at this time. Mr. Pini, do you have
any closing remarks?
|
|
R.
Pini
|
Yes. Once
again, we appreciate everyone taking the time to join us on this
call
today, and for being an investor and shareholder of ISCO. Once
again, we thank you, and good afternoon to
everyone.
|
|
Coordinator
|
This
concludes today’s conference call. You may now
disconnect.
|