Conference call ?? part 2
Mr. Dudley: Very good question, and to those lawyers on the phone you will appreciate that is a standard typical risk statement that is found in all type of public disclosures, but very specifically, at the time of this writing, because KME/Panasonic is just now starting manufacturing, and will be in the future starting to publish or to sell, we can't advise anyone or make any representations that A.) Their going to finish their manufacturing on time or B.) That anybody will buy what they have to sell when it comes out. So, that's kind of worst case statement, and from a risk statement, SEC standards, that's why that kind of language is in there. Now that's not what we think. That's not what the direction is with this relationship with Panasonic, but to make an informed decision, and we sincerely hope that Fonix shareholders have not invested in Fonix based on anything that's been said, in hopes that there's going to be a payoff to buy their groceries next week, or pay their mortgage payment next month, or buy their college, their kids college tuition. There clearly still even with all of our opportunies, please invest in Fonix having full disclosure of the risks and the challenges that are ahead of us, and that's what this languagespeaks to.
Carma1: Thank you. . How much of the 66 million shares being registered for sale via the recent S-2 filing are still in the hands of the convertible lenders and how much has already been sold into the market? Can you answer that question?
Mr. Dudley: Yes, be glad to and it's a very very good question, and I'm glad we can talk about this. What has been registered in this S-2 is 66 million shares. Under the agreement for the equity line, we have to nearly triple the number of shares for registration to provide those shares as a hedge against market fluctuation. In all reality if the whole 20 million, had been sold today at the current share price of $1.10, well it would be just a little short of 20 million shares would be used, not the 66. Now, we do have a floor price in this documentation, it's tied to the formula of when we give them a put, they give us money, we give them shares based on a formula with the floor price during the initial stage of this transaction. So please understand that we register 66, it is an overkill. We don't expect to release all 66 million but we know until we stop drawing on the equity line and we will not draw any more how many shares will actually be released, but at least at this point there's a cap of 66 million shares. As to the second part of the question, there is currently, in this registration there is approximately 3.2 million dollars tied to prior financing that were not covered under a registration that are included in this registration. So if you put kind of a bow around this whole thing, you got 20 million dollars that will be drawn down over time plus 3.2 million dollars that has been funded to the company that will be part of this registration for a total of just over 23 million dollars included in the registration.
Carma1: Ok. The next questions are by Noles21. Given the lackluster reaction of the stock price to recent, seemingly important announcements, is Fonix now forced to rethink their plans on being in a position for re-listing by the end of the year?
Mr. Dudley: I don't want to give any credit to really that question in terms of lackluster reactions to the stock price. We've had announcements. There's a lot of movtivation, there's a lot of different trading patterns. Probably everyone that's on this phone call has a different trading pattern, is gonna trade up or down, and that has more of an influence on what the company says in press releases. I think the key to Fonix in the short term is volume. Our volume remains extremely active, and very high. Yes when we put announcements out we hope it would grab, and we get into some momentum, and we can build on that, but clearly we don't control what shareholders do in their trading habitsm but that does not change our opinion that with what we think will be coming forward by way of announcements by way of solid business, we'll move this stock to a point where it will trade at the requirements, so we can make an application to NASDAQ.
Carma1: That would be by first
Mr. Dudley: Some would like to think it's going to be before year end, but there's certainly a lot of other factors that will dictate that, but we're moving forward, and in terms of the stability of the stock price, I've said it many many times, predictable revenue and predictable earnings will flatten out a lot of the fluctuations. When we get there we hope that will be true with us.
Carma1: Very good, and that answers actually question number 3 by Noles, you just answered it. Lets go to the next question by microreality. When do you see yourself becoming profitable? No, we just talked about that. How about this? How much cash do you have on hand and do you see yourself issuing more shares for funding your operations?
Mr. Dudley: I hope that the discussion about the 20 million dollar equity line discusses that. We do not keep a lot of cash on hand because if we draw down cash we just have to issue more stock, so we are continually trying to perfect the "Just in time" financing concept. With our financing relationships we can draw down the cash we need to keep the operations, but we do that second after we see what revenues have come in. Cash on hand will vary from at any point in the month, from 50-100 thousand dollars to maybe 700-800 thousand dollars, but we're not in the business of keeping cash in our bank account for the reason of trying to minimize the dilution out of the equity line.
Carma1: Ok, and What is your current burn rate? Has it gone up much since the last call?
Mr. Dudley: No, about the same. We're running, and our quarterly statements have shown this, somewhere between 950 and a million fifty a month, and so we're trying to stay within that million dollar budget.
Carma1: Ok. How much in percentage does management own in total stocks outstanding, total shares outstanding.
Mr. Dudley: Management and employees together would control nearly 15% of the stock.
Carma1: Ok. The next question by sharki: Are you aware of any company, or outside individual in possession of 5 percent or more of Fonix shares?
Mr. Dudley: That's a tough question because Bloomberg reports several institutions that own enough stock, or in name, in Street name that would represent more than 5%. Given that as a defination that , that is listed in Street name by Merrill Lynch, or Goldman Sachs, or a DMI, an investment fund in Europe, maybe in Street name, there are entities that own more than 5%. I am not aware of any specifice single individual or institution that owns more than 5%.
Carma1: Ok, I think this next question here by Vocalize is covered, but let's put it out there. How will Speechworks and Conversa technology impact Fonix Corporation's position in the marketplace? In other words, how does their embedded tech compare with ours? Are we after the same contracts?
Mr. Dudley: With Conversa, clearly we don't see them and when we're dealing with our potential customers, we don't see them out there at all. Speechworks is like a Nuance, they provide a speech solution primarily for IVR's, telephony, large server based speech telephony systems. They have ASR for servers. We're not aware that either Speechworks or Nuance has speech recognition ASR for the embedded market, and in fact as we have announced, Nuance does use, or as we are partnered with Nuance for our TTS, and have similar discussions going with Speechworks.
Carma1: Ok. Exeepnos wants you to expand on the statement that significant sales of products utilizing our technology under signed license agreements have not yet begun, therefore, we are unable to recognize revenue related to these agreements, even though in some cases license fees and royalties in excess of $600,000 have been collected in advance. I'm not sure there's really a question there.
Mr. Dudley: Well just let me, in our last statement, quarterly statement and in our press release, we identify how the deferred income has increased to 600,000. It increased substantially in the second quarter due to a payment from Panasonic, and a payment from Nuvomedia, and the accounting rules, even though we received the cash, the accounting rules does not allow us to book that as income or aas revenue. It is held on our balance sheet as deferred income, and as for example, with Panasonic as a release product out to the market, and it's actually being sold, then we can go back and account for that up front payment towards our revenue line.
Carma1: Ok. Question from sbd2. Does the Fonix technology run on Psion's EPOC operating system? Is Fonix working on this?
Mr. Dudley: The answer to the first part, absolutely yes, and we hope to have more to say about that in the future.
Carma1: We have read that Conversa speech recognition technology is embedded at manufacture on Winbond's ISD chip and designed for cell phones, handheld devices, etc., and is speaker independent. Would this company be considered a competitor, and I believe you just compared Fonix to Conversa, so we don't need to go into that one. Ok, by 1stRecon has a question. When are consumer products, which utilize Fonix technology due to hit the shelves?
Mr. Dudley: Well, currently we have our text-to-speech products, we have our embedded 1.0. They are currently out in the market place, and in terms of an OEM product with Panasonic, as we say our expectations based on what what we're hearing from KME/Panasonic is that will be on the shelves for Christmas
Carma1: When these products are marketed to consumers, will the name "Fonix" appear anywhere in the product packaging or content?
Mr. Dudley: In most cases yes. It becomes a negotiation item. In some cases we try to win it as many of those we possibly can but clearly branding Fonix brand name and packaging in the distribution through OEM's is something we strive for in all cases.
Carma1: In case I didn't mention, those two questions were by 1stRecon. Next questions are by La_Vie. How does the order process work for a company ordering a voice capable DSP/IC for an embedded portable product from a company such as Intel, Motorola, Infineon, Hitachi or Texas Instruments?
Mr. Dudley: A very interesting question, and I can maybe use Panasonic as an example. Panasonic accepted the (inaudible) that ASR, speech recognition, and text-to-speech is ready for prime time. That decision was made sometime last late summer/fall, and to move the process forward they went through an extensive evaluation of our technology, and competitors technology, about a 3 almost 4 month period of extensive evaluation, and review, and at the end of that review, they selected Fonix as the technology to be used in this first product. Then we went through a 2 ½ almost 3 month negotiation on contract, on licence. That contract was signed in April. We announced that contract in April, that basically set forth the integration of our technology into this specific product. Then they went to work to design in our technology into this product. We gave them a lot of feedback. They went to, they had to select a chip manufacturer. They ended up choosing an Epson solution which was good for us because obviously that is one we already port to. They had to work in all their other design features, their flash, their memory, all of the elements of the box, and then bring it to the point to sign off on the design and go to manufacturing.
Carma1: Ok.
Mr. Dudley: As I mentioned, it is our understanding that they are just now beginning manufacturing, and should have more to say in mid fall about product releases.
Carma1: So then were about a...
Mr. Dudley: That process, and I think that was the question, What is the process, you can see that process it is going to be 12-14 months start to finish from the time there was even a recognition and yes, speech is ready for prime time. Let's fit it in to a product cycle to getting it out the door.
Carma1: Ok, we're about 15 minutes from the close of the call, so I'm going to be jumping around here. Some of the questions that your going to be answering that have been posed have already been touched on, so we're going to be skipping some of the questions and go to some of the one's that have some meat on them.
Mr. Dudley: Good and I'll try to shorten some of my answers.
Carma1: From pcdub: Per the recent quarterly report, exactly how much royalty and other deferred income is not allowed, per accounting rules, to be reported as income?
Mr. Dudley: I think yea, that's one we did answer.
Carma1: Yep.
Mr. Dudley: Go to the deferred income statement, and we're now at a total of about 600,000 dollars through June 30.
Carma1: Ok. Will ASR, TTS, etc. ever become commercially viable, and if so, when do you believe that will be done?
Mr. Dudley: It is commercially viable. It is ready for prime time now, and we believe that we're showing it in the embedded area, specifically for ASR and TTS, and as we work with the particular internet voice portals, our TTS is being used, and it's commercially viable today.
Carma1: Ok. By DESmith99 To the best of your knowledge, is the company providing your equity line selling shares in the open market? We already covered that. tapetrader Mr. Dudley, a very popular information technique used by Companies to keep shareholders and analysts properly informed as to a company's upcoming earnings, is for companies to give guidance as to their next quarters earnings. Because you apparently have so many non-disclosures, we shareholders are constantly in the dark and this earnings guidance would go a long way in helping shareholders determine stock value. I know projections on last quarter earnings were all over the board and when they were finally reported many people were disappointed and frustrated. Had some guidance been provided by shareholders as well, as the stock value would have been more stable. Do you want to address that?
Mr. Dudley: I do, and I'll try not to be too windy on that one, but clearly this is a very good question, and something that Fonix desires to be in a position to have analysts follow us, but the real answer for today's current environment is Fonix is now just beginning to establish firm contracts that will generate predictable revenues, and predictable earnings. The reason why analysts can't base projections, is based on what the company has historically performed. In my honest opinion, and it's clearly my opinion, I believe that analysts will start following Fonix when we have a broader group of contracts that have produced recurring revenues for a sustained period of time generating earnings. What that means is over the next 12-18 months, I would hope and expect Fonix to be in that position. Therefore, we do not announce earnings projections. It would be foolish for us to do it. Anything that you read on the internet in the chat rooms about revenue projections are fabricated. They do not come from the company nor do they come from any analysts because there's no analysts out there. It is one of the risk elements of Fonix, investing in a company like Fonix at this point in time. We hope to grown into that position, but it will be based on good firm contracts that are developing, predicatable revenues, and predictable means for sustained and recurring period.
Carma1: Nortie would like to know is the hiring of a PR FIRM a possibility?. A good PR firm can get you written about in the Wall Street Journal etc., get the word out to investment firms, brokers in the Street. Is this something that will be coming up?
Mr. Dudley: Well, it's a very good question again, and yes it's something we'd like to do, but quite frankly this is one of the areas, and we can be criticized for our judgement, but it is an area that we would rather conserve resources, dollar resources, because PR firms can be extremely high. One of the reasons we were able to reduce our expenditures, the prior CEO and board had up to five different PR firms going into 1999, working for Fonix. That was outrageous. Tom Murdock and I have cut way back on that, and yes we recognize it's time for the pendulum to swing the other way, and start to do more in that area. We will do more in that area, bringing on a PR firm getting more work out but here I want to say the work that Kurt Herrmann has done in-house has been phenomenal in the last 90 days. He has something that we are all very excited about that will be readily available for PR come the 1st of October, and we hope to make more announcements about that particular initiative at our shareholders meeting, but it's more strategic. It's very specific in getting our name out in the markets and in arena's that will be beneficial to shareholders without costing us an arm and a leg.
Carma1: Thank you Roger. This next question by diplopia I think has already been asked and anwered. Lets do it real quick. Explain exactly what Fonix receives in compensation for the licensing of their TTS? Is it a one time fee, or is it recurring income like their business model suggests, and I believe your earlier answer was a combination of both.
Mr. Dudley: Combination of both and the way the TTS is sold and I'm not going to tell you how much we price it at, but we sell it based on users, on channels, and number of users per channel. For example, Vocalis for example, will buy X number of channels from us, and they will use X number of users per channel, and so it gets right down to how many users they utilize on a per channel basis of TTS, and this is one of the great, great competitive advantages of Fonix. We have a capacity of four times the number of users per channel than our nearest competitor. That means to an IVR solution provider, they can spend less money on the hardware, on the actual server, because our technology is more scalible to handle more users. Now, we need to be smart and figure out a way to make sure we're getting our fair share of the pot, and on the revenue side on this capacity, and I think we'll have more to say about that in the near term about our pricing model.
Carma1: I think you've just answered the next question by badgangster. What is it about Fonix that distinguishes Fonix Technology from Nuance, (5 minute warning beep) Lernout & Hauspie, and Speechworks? That's the five minute buzz right there. In other words will Fonix be the real leader in this field because of their technology and expect in the future more revenue and profits than the above mentioned companies?
Mr. Dudley: We certainly have an uphill battle (warning beep). There a company we partner with for our text-to-speech. Speechworks in in an evaluation, and we hope that will develop out nicely. Lernout Hauspie is Lernout Hauspie, and we have tremendous respect, and lets maybe go to something we haven't talked about during the conference call.
Carma1: Ok. Nexend asks: What companies are using Fonix ASR commercially?
Mr. Dudley: We, commercially, the first product implementation will be Panasonic.
Carma1: Ok.
Mr. Dudley: To keep it in lines of what has been publice disclosed, that is all I'm gonna say.
Carma1: dwh2: In order to reduce expenses, has Fonix considered (warning beep) paying the officers a commission based on sales rather than a salary?
Mr. Dudley: Very good question, and if anybody would like to come in and sit in our chair's and work out a compensation plan, we'll listen to any proposal.
Carma1: Craigster7 asks, Is there any truth to the rumor of the next generation hand writing recognition project code name "Moriah"?
Mr. Dudley: No truth at all. That's a good one. Never heard that one before.
Carma1: Is Fonix in the Microsoft "Stinger" Smart phone?
Mr. Dudley: We've not publicly discussed anything, and I don't think I should say anything at this point.
Carma1: Very good. Let's just scroll on down here, and see what else we have. Ok. What is the true relationship between Fonix and IBM?
Mr. Dudley: There is no contractural relationship between IBM and Fonix at this point in time.
Carma1: Vocalize wants to know: In the past we would see news posted by Comtex here on Raging Bull. No news has been posted about the Fonix/Nuance deal. Why?
(Warning Beep)
Mr. Dudley: I think this is a question about the service that is posting news. Clearly a Nuance announcement was out in June. We go through PR Newswire or Business Newswire as the distributor of news to all channels. Some services (Warning Beep) pick it up.
Carma1: NBK wants to know: What are the critical success factors that have been identified by Fonix to be successful in generating revenue, and I think you've covered that on the call here very well already if im not mistaken.
Mr. Dudley: I hope so, but if we need to go into more detail we will do it offline.
Carma1: Ok. Lets see here. It's getting down towards the end of the time. There's rumors in Europe that Fonix shall do a reverse split.
Mr. Dudley: No. Nope. No, just cancel that rumor out. We're not even talking about that.
Carma1: Ok, very good. There are rumors, contracts are signed with Infineon, Motorola, Compaq, Panasonic, and Intel.
Mr. Dudley: We do have contracts with Infineon. There is an evaluation contract that we did sign with Motorola. (Warning Beep) We've not disclosed that publicly other than through a 10Q reference. Panasonic has been disclosed. Intel has been disclosed. Others (Warning Beep)
Carma1: Wonderful, and we've come within the last couple of minutes. Number one, I would like to extend to you, Mr. Dudley, our sincere gratitude to take the time to do these calls on a regular basis. They are very informative. It really helps us out as shareholders a great deal. Thank you very much once again for being a guest and coming on the phone and answering some questions.
Mr. Dudley: Thank you for arranging it, and I hope it was helpful and again we do appreciate and hope that we're responsive to questions as they come in to our IR box.
Carma1: I think you've done an excellent job along those lines. As well, I would like to thank all of the posters on the Fonix board that took the time to ask these very insightful questions. I know that we weren't able to get around to ask everybody's questions, but I think the call here today did cover an awful lot of territory. (Warning Beep) I want to thank everybody that's been involved with this, and we will see everybody next time. Thanks everybody, and thanks again Mr. Dudley. Appreciate it very much.
Mr. Dudley: Have a nice day.
Carma1: Bye now. |
