This is the July 2nd teleconference...preserved here for future scrutiny as other sources of information on claims of revenues, etc. are starting to disappear from the web-site @www.seivideo.com
July 2, 1996
- OTC COMMUNICATIONS -
SYSTEMS OF EXCELLENCE CONFERENCE CALL
Conference Center Operator (NICOLE): Good afternoon, ladies and gentlemen.
Welcome to the SYSTEMS of Excellence conference call. At this time, all participants
are in a listen-only mode. Later we will conduct a question and answer session. At that
time, if you have a question, you will need to press the 1 on your touch-tone phone, and
you will hear a tone acknowledging your request. If anyone should require assistance,
please press star and zero on your touch-tone telephone. I would now like to introduce
you to Ms. Cynthia Gramer, Managing Editor of OTC Communications. Please go
ahead, ma'am.
GRAMER: Thank you, Nicole. My name is Cynthia Gramer, welcome to the SYSTEMS
of Excellence conference call. Today we have five of SYSTEMS' principal characters
on the line. We have Charles Huttoe, Chairman and CEO, Jerry Thornthwaite,
Executive Vice President of Scientific Affairs, Dick Yoder, Chief Operating Officer, Ken
Walther, President of SYSTEMS, and then we have Geoffrey Eiton, who is the
President of OTC Communications. Good afternoon, gentlemen. I know that we want to
limit this and that we have a lot of ground to cover. We just did a couple of acquisitions,
and today there was an announcement that we applied for NASDAQ small cap, and
there have been many questions from brokers and people in the community to OTC
Communications. What I'd like to do is just throw out some of those main questions and
see if you can answer them and that way, we will save time and might answer the
people's questions who are listening. The first question is, and I think we're going to
direct this to Jerry Thornthwaite. What exactly happened with World Communications
Group, and what, if anything, is SYSTEMS doing with World Communications Group
now and what do you intend in the future?
THORNTHWAITE: Well, right now we have a letter of intent -- World Communications
Group, and Dr. Peter Wang, who is the head of that company, the President, Dick
Yoder and I met with him a week ago Saturday, right Dick?
YODER: Right.
THORNTHWAITE: Yes, and he is in China right now looking at the communications --
and you correct me, Dick, if I'm mistaken here -- he is looking at what kind of
communications links they want to set up. Also, he is looking at some of the markets
that they've already got a pretty good feel for, but once he's seen our capabilities, he's
now back in China looking at the video teleconferencing capabilities markets and also
the telemedicine markets, which, I think it's pretty common knowledge in China that
people understand that telemedicine is one of the major focus aspects of the Chinese
government. Now, Peter, I think I just talked to them today. He's coming back tomorrow,
I believe tomorrow, Dick?.
YODER: RIGHT.
THORNTHWAITE: And he will have that information for us. We will have a system for
him in two weeks to take back to China, and I believe, if I'm correct, Dick, is that we're
probably going to set the first system up maybe in a hotel environment?
YODER: RIGHT, he's got two things on that, Jerry. So one is the wireless
communication piece and the other is the local -- tying a couple of rooms together in
hotels.
THORNTHWAITE: Right, and that's to set up the video teleconferencing centers
throughout China -- that's that aspect of it. And then we'll also address the telemedicine
needs in China, as we proceed.
GRAMER: Jerry?
THORNTHWAITE: Yes.
GRAMER: One of the main questions is -- as you know, we came out with a press
release from OTC announcing that we actually had a sales agreement with World
Communications Group, and then we came out a few days later based upon
conversations that we had back and forth with World Communications Group saying
that it was a letter of intent and not a sale, and I think that that threw a lot of people off,
and that's mainly what I think people are curious about. What exactly happened? Was
there a miscommunication?
THORNTHWAITE: I think basically there was a miscommunication on that subject. Let
me give you some background. World Communications Group was looking, from our
understanding, for a thousand video conferencing systems. And we came in the picture
and asked Dr. Wang to come to McLean, Virginia, and see our system. So we knew
that there was a need for a large number of videoconferencing systems, and that was
discussed with him, but basically it was just a miscommunication, I believe, on exactly
what the spirit of the letter of intent and what was in the news release. So, when that
was discussed, it was decided that we should put out another news release that
showed that this is a letter of intent and not a purchase order per se, and that we were
going to pursue. We worked together well. Peter Wang, if you talk with him, we have the
best system that he's looked at. He's very interested in working with us, and we're
proceeding along with that, because as I pointed out, Dick and talked with him a week
ago Saturday, he went to China, he's come back. pursuing that as fast as possible to
come up with the needs for China through World Communications Group.
GRAMER: Dick, do they still, to your knowledge, need a thousand videoconferencing
systems?
YODER: Based upon the way that Peter's going about this, they are looking at a
number of different programs. The one that they were focused with a thousand units
was mostly for their clients up and down the coast or in the hotel and business section,
and they've kind of changed their focus into, as Jerry pointed out, into the clinic -- the
medical area, where they can expand more on their core business, which is wireless
communications. So the answer is it's probably grown from the original, but they were
going to do it in a little different fashion.
GRAMER: Jerry, since you are the person that knows probably the most about the
DNAnalyzer, could you talk about that?
THORNTHWAITE: Sure. Well, I can give you some background. Back in -- late '79,
1980, I was doing some experiments looking at DNA content in tumors. And with a
colleague of mine, we were just looking at totally something different, and it just so
happened I started looking at the patient data and found that particular DNA types --
those patients survive very well regardless of their staging, or their histologic make-up
or pathology. And I'm not saying that I was probably the first person to really observe
that, but other groups also started to observe it in Europe, but I proceeded on a
research vein to look at breast cancer, specifically. Now, the DNAnalyzer is not to be
confused with O.J. Simpson, first of all. It's a device that allows you to look at single
nuclei from tumors. I developed a reagent technology that allows you to extract the
nuclei within seconds from fresh tissue or frozen tissue and stain them with a dye that
binds specifically to DNA, and then each of those nuclei are passed single file across a
UV light source, and that UV light source excites the dye and we measure the
fluorescence at rates of one hundred or three hundred cells a second. And we can get
population distributions from the tumor. And you could equate it to a chromosome
counter. The instrumentation, like counting chromosomes or pieces of chromosomes,
and if a patient has any cells that have abnormal number of chromosomes, that's not
normal. And what I've been able to show over the years that we can define the DNA
content of a tumor very, very precisely, much better than any other technique available,
and we can make diagnosis for a patient. Now, that diagnosis is not to replace
pathology, and I'll say that up front. It's to complement the pathologists and what they're
trying to look at a tumor section and make sure that it's cancer or not cancer. But the
DNAnalyzer goes two steps further. We can measure the cell kinetics of the tumor, that
is the growth rate of the tumor at the time we measure it, by looking at cells called S
phase, and all of this comes from the DNA histogram pattern analysis, the
mathematical analysis of the pattern. The third thing that we can measure is a
prognostic indicator. If a patient has multiple populations of abnormal DNA content,
they have a very poor prognosis, or if they have less than normal number of
chromosomes, therefore less than normal number of DNA content, that's a very bad
prognosis. So we can pick the patients out that are very, very bad in their prognosis
from the patients that have an excellent prognosis, and their DNA patterns look just like
normal tissue. If you took a normal breast tissue, you could overlay the pattern with the
tumor you're measuring. So, I hope I didn't get too technical --
GRAMER: Well, Jerry, you did. You gave us a pretty comprehensive explanation. What
we're going to try to do here at OTC is, in some kind of form, whether it be a two page
fact sheet or whatever, explain in summary form the DNAnalyzer.
THORNTHWAITE: I think the best way to show that is in pictures, and I'll help you with
that.
YODER: Cynthia, I think we should get into how we're going to use this equipment in
conjunction with the video conferencing equipment and talk about how they plan on
implementing the systems together for telemedicine.
THORNTHWAITE: Let me see if I can answer that, but allow me to speak, and
Charles, I hope this is okay -- in a broad term here in this company. SYSTEMS of
Excellence, in entering the telemedicine arena is really entering a medical arena. It is
progressing in parallel, taking the best advantage of its video telecommunications
capability and using it for a medical purpose. In that medical arena, one of the items
here is the DNAnalyzer. Now, the DNAnalyzer has with it its own computer system, and
that computer system can be adapted for video teleconferencing. Now, the question is
why do you want a DNA analyzer with video teleconferencing? We want to get a foot
hold in the pathology laboratories with our video teleconferencing system, and one way
of doing this, and actually they go hand in hand -- is the pathologists need video
teleconferencing to send images for second opinions and third opinions. So this
enables our company to have in house -- when we install a DNAnalyzer - a video
teleconferencing capability on the same instrument. So that is one way it ties in with
televideoconferencing. Plus, you know, people like to send reports right from the
computer -- the DNA histogram. We can couple to that computer a way of taking
images from a microscope with a camera, and we can also send the image with DNA
histogram.
GRAMER: So, in the press release that we put out, it was described that a surgeon
having a DNAnalyzer in the surgery room could then send --
THORNTHWAITE: That's the surgical application, and let me go into that. One of the
problems in surgery, cancer surgery, or shouldn't we call it tumor surgery -- one of the
problems in surgery for cancer is trying to decide the boundary, the edges of where the
tumor spreads from point to point. And with the DNAnalyzer system, and I use the word
system because it includes reagent and instrument, we can actually take samples
around suspected areas to see if cancer is present. Now, of course, the DNA pattern of
the primary has to be abnormal to make that measurement, but we can sample around
those areas. And in the preparation method we have, we can prepare a sample in less
than three minutes. Frozen section can take you a half hour to get it prepared and get it
read, and it does lose something in resolution when it's done. So we see that, as we
develop this in the clinical arena, that this could become the standard of care of the
surgeon -- would take small samples around the tumor, and remember only need a
piece -- one millimeter or two millimeters in size, and we can actually map around the
tumor to see if there's any spread of the cancer. Then the surgeon can take wider
margins if necessary. Now, along with that, the surgeon would have a screen in the
surgical suite. He would be passing samples through to the frozen section room, where
we could have a DNAnalyzer, and then those can be analyzed, sent back to the
surgeon, and actually the areas be marked by video teleconferencing. And also the
data from the frozen section can go down and come back up by videoteleconferencing.
GRAMER: WELL, that's --
THORNTHWAITE: That's the application.
GRAMER: That's great, Jerry. We have about 300 people on this call most of them
who are either shareholders or brokers who are interested in the stock, and I want to be
able to let them ask questions. So before we do that, though, I would like to offer the
floor to Charles. Charles, are you there?
HUTTOE: I'm here, right here, Cynthia.
GRAMER: Another question that we have been asked often is where are the year-end
numbers, and I thought I would throw that out to you.
HUTTOE: Our policy, of course, is that we don't, especially right now, comment on
quarterlies or year-ends, so we are currently in our audit procedures right now and they
are working feverishly on the numbers. Needless to say, they had to go back and audit
the two acquired companies, and that's, of course, taking a little bit longer, but that
makes the auditors happy, of course, as far as hours are concerned. As soon as we
finish the audit, of course, that's a public document and anyone is most welcome to
receive it.
GRAMER: Okay. Can we turn it over to Ken just to give us a background on Laser
Tech?
HUTTOE: Please, go ahead, Cynthia, and ask your question.
GRAMER: Ken, the acquisition of Laser Tech, which SYSTEMS did about a month
ago or three weeks ago -- how is that going to fit in with SYSTEMS' plan for the future
and its video teleconferencing?
WALTHER: Okay, I'd like to give a little background on Laser Tech as well. This was a
technology that was developed during the cold war during the star wars era, when the
Russians and both the Americans had intents of blowing things up with lasers. Well,
now that the cold war is over and we're all friends, there's a lot of dual use technologies
being put to different uses. The original laser technology was used to focus a laser at a
predetermined point in space volted with high energy, and it would radically disturb
whatever it was focused on, whether it was an airplane or a building or whatever. We've
taken that application and we can focus a laser at predetermined distances and
locations within transparent material, with a certain amount of energy, and make a
small disturbance in glass or any transparent material and do this in a
computer-controlled fashion and it will make a very interesting and aesthetically
beautiful piece of art. Now, this doesn't really relate directly to telecommunications, but
if you think about what lasers and what photonics can do in the future, you'll see that the
research arm that we're doing. We have several Ph.D.'s working on researching these
lasers and the holographic media storage systems that we hope to use most effectively
within SYSTEMS of Excellence.
GRAMER: Okay. And your company is profitable, yes?
WALTHER: Yes. It has a positive cash flow. It's the only company that's able to
produce and do this type of technology in the northern hemisphere, and we have taken
this research to a couple of steps beyond what it was when I first saw it in its original
form. But a lot of the large telecommunications players from the big names and also
including the photographic people like IBM, Polaroid, 3M, and so on, are doing
research as well into holographic media storage systems. If you can get retrievals of
these things at the speed of light, of course that's a major breakthrough over the
present method of storing and retrieving media. So that's what we hope to do with our
research arm is integrate that into the telecommunications systems while at the same
time maintaining positive cash flow with one of the most unique artifacts that have ever
come out.
GRAMER: Yes, they are beautiful.
WALTHER: Yes, they're quite unique.
GRAMER: Charles, and gentlemen, do you want to turn this over to questions now?
HUTTOE: I'd like to comment, if I may first, Cynthia -- let our COO, Dick Yoder,
comment on questions, just a few that we get on what orders we have in the pipeline,
and what do we have in the very short term, because people ask where's the green
going to come from. And so I'd like to turn it over to Dick Yoder if you could, and he'll
review our order situation at this time.
YODER: Thank you, Charles. What we have right now is about four million dollars in
booked orders from the Federal Government. In the total aggregate we have about 6.4
million from government, quasi-government, medical, medical universities, commercial,
and international. That represents about fifteen different areas of interests, okay. In
other words, as we put these out there and went about our sales cycle, we did a
number of things. One was to give what we call flagship accounts, and the other was to
set up teaming agreements, such as the one we're putting together with Sprint. Our
program, as it turns out, is working very well. Our first step was to educate the
marketplace. Our second step was to recruit the resellers, the integrators, and the
stocking distributors, and the next step was to put together a service arm. All of those
things are in some state of accomplishment as we've announced over the last couple or
three weeks.
GRAMER: Now, Dick, you made reference to an agreement with Sprint. Could you
elaborate on that?
YODER: What we're doing right now is working with them and teaming with them for a
particular program and project that they are extremely excited about in the corrections
area, which is one of the areas that we're focused on, because it integrates distance
learning, telemedicine, and standard business videoconferencing all together, and we
will be in a show with them in August down in Nashville, Tennessee.
GRAMER: Okay.
YODER: And they've basically said that -- what they're saying to the rest of the world is
that they've had an opportunity to work with a lot of different people, and they have their
own Sprint meeting channel, but this is a superior approach for this particular type of
application -- is what they're saying. There's a recognition that we are, without a doubt,
the best when it comes to the distribution of video in that kind of an environment.
GRAMER: Now correct me if I'm wrong, but the corrections department does this once
a year. They get together and people from all over the world come to this to find out
what the latest technological developments are in the corrections in industry.
YODER: That's exactly right. And Sprint has always been a big player there. That's why
we're partnering with them.
GRAMER: Well, that's good news. Charles, did Dick say what you wanted him to say?
HUTTOE: A little more than I wanted him to say. We'll leave it at that and we'll turn it
over for questions.
GRAMER: Okay. Nicole?
NICOLE: Thank you. Ladies and gentlemen, we will now begin the question and
answer session. Once again, if you have a question, you will need to press the 1 on
your touch-tone phone, and you will hear a tone acknowledging your request. Your
questions will be taken in the order they are received. If your question already has been
answered, you may remove yourself by pressing the pound key. As a reminder, if you
are using a speaker phone, please pick up your handset before pressing the button.
One moment please for the first question. Mr. Mike Hagen, please state your company
name followed by your question. Mr. Hagen, do you have a question, sir?
HAGEN: Yes. My question is how many shares are actually outstanding? How many
shares are issued and how much is actually publicly traded?
HUTTOE: I'll answer that, Mike. There is approximately, after these two acquisitions,
forty million shares outstanding, twenty-two million are restricted for another year and
nine months.
NICOLE: Does that answer your question, sir?
HAGEN: Yes, that's fine.
NICOLE: Thank you. Mr. Jim Wilkerson, please state your company name followed by
your question.
WILKERSON: I'm a private investor. Just wondered what the most important thing Mr.
Huttoe would like to say to us shareholders, if anything?
HUTTOE: Well, that's a good question, Jim. I'd like to thank everyone for being with us.
And I think we're mostly profit for all our shareholders. The stock has come back from a
little down turn after, needless to say, it ran up so quickly from $.70 and to $4.50 and
then it hit, as the technicians say, a support level and has bounced back where we
consider very nicely. We're very happy the way the stock is going, but orders and
revenue are what drive the stock in the long term, and that's what Dick was alluding to,
so I think you'll be able to see in the very near future the kind of revenues that will keep
you happy owning the stock, and of course, keep that appreciation going. So you're
going to see a good product that's constantly being upgraded by Dick and his crew of
techies and a good team working on that product, and that of course is what brings in
the revenue. So I think we'll reward you in the very near future then.
WILKERSON: Okay, thank you. Just a little follow up. I just wondered what percentage
of ownership is inside with your company peers?
HUTTOE: The insider ownership is around 28%, most of that restricted.
WILKERSON: Thank you.
NICOLE: Mr. Jerry Figari, please state your company name followed by your question.
FIGARI: Okay. I'm with Prudential Securities. I have Pat Quigley, the shareholder here,
who has a question for you.
QUIGLEY: Where do we stand comparatively in the U.S. competitive market when you
speak about the market development in China, and so forth, and even Canada. Where
was the comparativeness to the U.S. competitive market, and secondly, what are the
projections for SEXI for 1996 and '97 as far as the balance sheet or P&L's go?
HUTTOE: I'll take your second question first, Pat. It's in our business plan, and I won't
go into the technical side of how the lawyers and accountants made sure that marketing
didn't go crazy with the numbers, but we projected for '96 -- the year '96, which is March
to March -- 41 million in revenues, which would bring approximately 10.8 to the bottom
line if that was achieved. I could tell you that -- and this is going to answer the first part
of that question -- Dick will tell you he's comfortable reaching those numbers. But let
Dick answer your first question.
YODER: From a competitive point of view, are you talking about the type of
competition or what does the market look like?
QUIGLEY: Oh, well I was thinking more in the competitive market, but that's an
interesting point you bring up -- well, what does the market look like for the product?
YODER: The marketplace is developing slowly, the original experts that went out to
look at the foreign marketplaces said that they would contribute about one to two million
dollars by 1997, and it's lagging by about 40%-50%. The competition in those
marketplaces is mostly in the wide area solutions, and as you're probably familiar, we
are equally good on the local solution. So we are able to reach a lot more desktops
with our units than some of our competitors such as the Picture Tels of the world.
QUIGLEY: Is Video Lan one of those competitors?
YODER: Video Lan offers a couple of things. In fact, we like very much some of their
products in the wide area. They have a bridge product that is extremely good, and
they're looking at a number of routed products to fill certain voids, and so we like them.
They are a competitor, and I can tell you this -- that just recently they have been
de-installed in one of the locations where we have been installed. And we're in a
competitive situation for evaluation purposes, so I no longer consider them a
competitor.
FIGARI: This is Jerry Figari, and one of the questions I had was recently the stock went
over four dollars a share and pushed close to five. On the Internet they said that Van
Camp and Merit small cap fund was purchasing your shares. Is that true, and do you
know of any other mutual funds that have been acquiring the shares?
YODER: Jerry, we have no idea if they haven't -- you know, gone over x number of
shares to make the filing, who owns the stock. But we have not been told by anyone that
any mutual fund owns our shares, so we have no knowledge of that.
FIGARI: Okay. Thank you very much.
NICOLE: Mr. Garrett Lieber, please state your company name followed by your
question.
LIEBER: Yes, I'm with the Lieber Financial Group, and my question is also somewhat
geared to competition. I know you speak about World Communications Group. I need
to know -- do you have an exclusive with them? Because I've been told they also have
contracts with competitors such as video telephone VTJB.
YODER: Jerry, are you on the line?
THORNTHWAITE: Yes. Is that the same as C phone? Or is that a different one, Dick?
YODER: That's a different one.
THORNTHWAITE: Okay. I wasn't aware of that. I seriously -- I don't believe it, but I
certainly will follow that up with Dr. Wang, but we've got such a close working
arrangement there. I think he would say something if they had another arrangement, but
it may be possible, but I do know that when he saw our system and the way it worked
with the local video network and the way all the aspects and attributes for our system,
that he immediately went away from C phone. This other company I'm not familiar with
the advantages of their system. Dick, do you have any --
YODER: Yes, that was what I was going to point out is that they had been doing some
evaluation according to what some of Peter's people were telling us on various and
different places, and that might be where the confusion is. As of right now, we're the
only ones that they're working with for videoconferencing in the typical sense. Now,
they've been doing some research in the cellular world, okay, but they have signed no
agreements.
FIGARI: Okay, because I was told that the agreement might have not only been with
this video telephone, but it might have been with their parent company, which is
Intermediary Net or Intermedia Net, and I believe the symbol on that is BNET.
THORNTHWAITE: I'll investigate that, but I have no idea what that is.
FIGARI: If it wasn't an exclusive contract, is there something that you could do about
that? Because I think you'd have some type of problem if World Communications
Group was also providing your competitor.
YODER: Well, let me address that. First of all, the market is awfully big and World
Communications Group is dedicated to two major things. They want to get into the high
band width reseller business. That's where they make their money. I mean, that's what
they're in business for. They're coming up with all kinds of techniques in that rugged
Chinese terrain to make sure that they're able to deliver every kind of possible goods to
that market place, okay? They started off in the cellular world. They've done a lot of
different things there, and they're now expanding into what we call the standard C1 E1
protocols, and our system fits that perfectly. In fact, when it comes to exclusivity, we've
been approached by a number of people to do various and different things, because
there's a lot of different applications for general purpose videoconferencing as well as
specialized areas such as video on demand and distant learning from those areas. So
all we can tell you right now is we're working very closely with the World
Communications Group people like Peter Wang, and his local folks here. And we have
no reason to believe that we're in any kind of second seat at all.
FIGARI: Okay. Thank you very much.
NICOLE: Mr. Anthony Denaro, please state your company name followed by your
question.
DENARO: Hello. I'm an individual investor. I'd like to know about if there's any
connection between you guys and ADGI, Advanced Diagnostic General Insurance?
THORNTHWAITE: Charles, I can answer that. There's no connection between
SYSTEMS of Excellence and ADGI.
DENARO: No connection at all.
THORNTHWAITE: There's been some discussion about some possibilities of
working together, but as far as I know, there is no connection between the two.
DENARO: There is no connection.
THORNTHWAITE: Yes, no connection. Thank you. |
