Bsquare Corp (BSQR) 2005 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the BSquare 2005 second quarter conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. [OPERATOR INSTRUCTIONS].

I would now like to turn to conference over to Scott Mahan, Chief Financial Officer. Please go ahead, sir.

Good afternoon and welcome to our conference call. With me today is Brian Crowley, our CEO.

Before we begin, let me remind you that this call is being recorded and broadcast live over the Internet and that a recording of this call, as well as the text of our prepared remarks, will be archived in the investor relations section of our website at www.bsquare.com.

Let me also remind you that except historical statements and information contained herein, the matters discussed in this call, including any revenue and operating results, expectations, and comments regarding our product and other growth initiatives are forward-looking statements that involve risks and uncertainties.

Factors that could cause actual results to differ materially include but are not limited to: a decline in the market for Windows-based or other Smart devices or the failure of such market to develop as anticipated; adverse changes in macroeconomic conditions; a decline in the market for our products, technology, licenses and services; our ability to successfully implement, execute and make adjustments in our business strategy, business model, or product offerings; lack of customer acceptance of new products or initiatives; risks associated with the effects of our restructurings; our ability to successfully support our operations; competition; and intellectual property risks.

A more detailed description of certain factors that could affect actual results include but are not limited to those discussed in BSquare's annual report on form 10K for the year ended December 31, 2004 in the section entitled Business Factors That Could Affect Future Results and in our subsequent quarterly reports on form 10Q.

Licenser are cautioned not place undue reliance on these forward-looking statements, which speak only as of the date of this conference call. BSquare undertakes no obligation to update publicly any forward-looking statements to reflect new information, events or circumstances after the date of this call or to reflect the occurrence of unanticipated events.

With that said, I'll now turn to a discussion of our results. I will focus most of my discussion today on this quarter's result as compared to the first quarter of 2005, with selected discussion of our results for the six months ended June 30, 2005.

During the discussion today references to "this quarter" mean the second quarter of 2005. References to the first quarter mean the first quarter of 2005, while reference to the third quarter mean the third quarter of 2005. Let me start with the overview of our top line results. Total revenue this quarter was 10.3 million compared to 8.8 million in the second quarter of 2004 and 9.8 million in the first quarter, increases of 17% and 5% respectively. Total revenue for the six months ended June 30, 2005 was 20.1 million compared to 19.4 million in the prior year.

The prior year six month period included 3.6 million in Cardinal healthcare revenue compared to 790,000 in the first six months of 2005. Sales to customers other than Cardinal for the 6 months ended June 30, 2005 increased 23% over the prior year.

Software revenue for the quarter was 7.8 million, representing 76% of total revenue compared to 6.0 million in the second quarter of 2004 and 7.5 million in the first quarter.

Software revenue consists of two components. The majority comes from the sale of what we refer to as third-party software, primarily Microsoft embedded operating systems. The remainder is comprised of sales our our own proprietary software.

Third-party software revenue was 6.9 million this quarter or 88% of total software revenue, compared to 5.3 million in the second quarter of 2004 and 6.9 million in the first quarter. Total third-party software revenue was flat sequentially; however the first quarter included 710,000 in Cardinal revenue, whereas this quarter included only 83,000. Consequently, quarterly sales of third-party software to customers other than Cardinal were up 10% sequentially and 60% year over year.

The sequential growth was driven by new account wins, two accounts in particular. New accounts contributed 1.3 million in third-party software revenue this quarter compared to 340,000 in the first quarter. As we mentioned in the press release, these two new accounts are fairly significant customers and are low margin. We do expect future business from these customers and have seen follow-on orders from both accounts in the third quarter.

While we are pleased with our third-party software results again this quarter and expect order volumes to continue at healthy rates, we believe that third-party software revenue will dip somewhat in the third quarter for two primary reasons: first, we are expecting a drop in order volume from one of our most significant Microsoft licensing customers. Second, as we mentioned in the press release, we received payment this quarter from an OEM for some previously unreported royalties. The total revenue recognized from the OEM this quarter due to previously unreported royalties, was 538,000, of which 238,000 represented third-party software revenue.

Total third-party software revenue recognized from this OEM during the quarter was 347,000. We don't expect a non-recurring transaction of this magnitude to impact third-party software revenue in the third quarter.

We had another strong quarter in the sales of BSquare proprietary software. While smaller at the top line than our other revenue sources, proprietary software revenue is important, given its high margins and the resulting impact on the bottom line. Proprietary software revenue was 970,000 this quarter compared to 701,000 in the second quarter of 2004 and 587,000 in the first quarter. This represented a sequential increase of 65%.

Sales of the Company's SDIO Now! software product continued to show strength, contributing 503,000 to proprietary software revenue this quarter as compared to 584,000 in the second quarter of 2004 and 491,000 in the first quarter. The primary reason for this sequential increase in proprietary software revenue this quarter was 300,000 received from the previously mentioned OEM for previously unreported royalties on BSquare proprietary software. Total proprietary software revenue recognized this quarter from the OEM 383,000.

We do expect ongoing royalty revenue from this OEM in the future, but not of the magnitude seen this quarter, given that some of the royalties received were catchup from prior quarters.

During the quarter we signed six new SDIO Now! licensees as compared to four in the first quarter. Our total SDIO licensee count now stands at 94. Of the SDIO Now! revenue this quarter, 93,000 represented new license and support revenue while the rest represented one-time royalty revenue from customers already shipping SDIO Now! enabled devices.

As we have mentioned in the past, we do not expect any significant near-term growth in SDIO Now! revenue, and may in fact see some softening in the third quarter as customers and potential customers assess the differences between our SDIO product and similar functionality included within Microsoft-embedded and Windows mobile operating systems. While we belive the features and functionalities of our SDIO Now! product are superior to Microsoft's, a customer evaluation process may result in a short-term decrease in SDIO Now! revenue. Brian will speak to the future of SDIO and other product efforts in a minute.

We expect the proprietary software products acquired from Vibren to contribute between 75,000 to 100,000 in revenue per quarter, with that pickup really beginning if the fourth quarter, after the products have been fully integrated into our larger sales activities.

The other significant component of revenue is service revenue. Service revenue was 2.5 million this quarter, compared to 2.8 million in the second quarter of 2004 and 2.4 million in the first quarter. The sequential increase was driven by a $342,000 increase in North American service revenue, resulting from higher activity levels. Billable hours on North American service projects increased 23% sequentially.

As we mentioned in the press release, this quarter we began to see some early results of the sales optimization efforts begun last quarter. In fact, this quarter represents the first sequential increase in service revenue in five quarters. Our realized rate per hour in North America went up slightly compared with the first quarter.

Improved performance in North American service revenue was partially offset by under-performance in Asia-based service revenue. Service revenue from Asia-based customer was 25,000 this quarter as compared to 235,000 in the first quarter. The decrease was caused by a drop in sales activity, a delay in contract signings until the end of the quarter, and a customer-driven delay on a major project. We expect Asia-based service revenue to increase in the third quarter as these contracts move into the delivery phase.

North American service revenue could have been a higher had we not experienced a customer dispute during the quarter. We are in dispute with a customer regarding payment of amounts due under a services contract, and we stopped work on the project during the quarter.

During the three and six month ended June 30, 2005 we recognized service revenue from this customer of 293,000 and 615,000 respectively. We currently have an account receivable outstanding with this customer of 475,000 as of quarter end.

The parties are currently proceeding into mediation to resolve the dispute, and while the outcome of that process is difficult to predict, we believe that the BSquare has fulfilled all its contractual obligations and we will seek to collect all amounts owed under the contract.

We expect both Asia-based and North American service revenue to increase in the third quarter, based on the strength of our current backlog and pipeline actively.

Now I'll turn to a discussion of gross profit margin. Overall gross profit this quarter was 2.5 million or 24% of total revenue, compared to 2.2 million or 25% in the second quarter of 2004 and 1.9 million or 19% in the first quarter. The quarter represented a sequential increase of 616,000 or 32% at the gross profit line.

Software gross profit margin was 25% for the quarter, compared to 25% in the second quarter of 2004 and 21% in the first quarter. The higher software margin this quarter as compared to the first quarter was driven by high margin proprietary software products comprising a larger percentage of overall software revenue.

Third-party software margin was approximately 14% this quarter, virtually identical to the first quarter. In absolute dollars, software revenue contributed 1.9 million in gross profit to cover operating expenses this quarter, compared to 1.6 million in the first quarter.

As we have said in prior quarters, sales of Microsoft-embedded operating systems are extremely competitive and it is unlikely we will see percentage margin improvement in third-party software during 2005 without the addition of non-Microsoft third-party products to our product mix.

Service growth profit margin was 23% this quarter compared to 24% in the second quarter of 2004 and 15% in the first quarter. In absolute dollars, service revenue contributed 580,000 in gross profit as compared to 690,000 in the second quarter of 2004 and 350,000 in the first quarter of this year. The sequential increase in service gross margin was driven by higher revenue volume on a slightly lower service cost to sales base. As we mentioned in the press release, this quarter we were able to leverage the excess capacity we have had for several quarters as we grew service revenue with no resulting increase in cost.

Service cost to sales was 1.9 million this quarter compared to 2.2 million in the second quarter of 2004 and 2.0 million in the first quarter. We did reach a position at the end of this quarter where we exceeded our service delivery capacity and have been adding engineering headcount in the third quarter to deliver on increased demand.

Moving down the P&L, let me discuss operating expenses. During the quarter operating expenses were 2.6 million compared to 2.9 million in the second quarter of 2004 and 2.5 million in the first quarter. All of the sequential increase of 67,000 was related to increased R & D expense, primarily payroll and travel, to support the Company's product efforts, an increase we have expected and talked to for several quarters.

As we mentioned in the earnings release, we expect operating expenses to increase in the second half of 2005 as compared to this quarter's run rate. First, we expect continued incremental investment in R&D to support our products initiatives. Second, we expect operating expenses to increase based on our recent acquisition.

Third, we expect to incur some incremental Sarbanes-Oxley costs, although less than originally anticipated, given the extension granted [ph] by the SEC in March. There were not significant SarbOx compliance activities this quarter. Fourth, based on positive momentum in the marketplace, we are weighing potential increased investments in sale to marketing, particularly internationally. Lastly, we will be recognizing non-cash amortization expense on the intangible assets recorded as a result of Vibren asset acquisition, on a go-forward basis.

One of the items discussed on recent conference calls has been the potential effect of financial accounting standard 123R. As 123R requires stock options to be recognized as expense in our financial statements, based on their fair value, which contrasts to our current method, wherein there is generally no expense recognition. The implementation of this standard has been deferred until the first quarter of 2006 for BSquare. We don't expect to adopt the standard before that time and have not decided on an adoption methodology, but we do expect the adoption to have material, non-cash effect on our operating results. We are currently evaluating changes to our equity compensation strategies in light of this announcement.

Let me now speak to the bottom line. The Company reported a net loss for the quarter of 37,000 or $0.01 per diluted share, including income tax expense of 66,000. That compares to a net loss of 5.1 million, $0.14 per diluted share, in the second quarter of 2004 and a net loss of 545,000, $0.01 per share, in the first quarter.

For the six months ended June 30, 2005 the Company reported a net loss of 582,000, $0.02 per share, compared to a net loss of 7.3 million, $0.19 per share, in the first six months of 2004. Results for the three and six months ended June 30, 2005 included losses from the now discontinued power hand-held hardware business unit of 4.5 million and 6.5 million, respectively. There was not activity for the hardware business unit in 2005 and we don't expect any for the remainder of the year.

As just mentioned, we reported income tax expense of 66,000 during the quarter, related to our Taiwan subsidiary. The Taiwan subsidiary has been increasingly profitable, and as a result, has fully utilized the net operating losses it generated in previous years.

Also in the second quarter of 2005, we were informed that certain amounts remitted from our Taiwan subsidiary to the U.S. parent related to SDIO Now! software sales might be subject to withholding tax at 20% of the amount remitted. We are currently applying to the government of Taiwan for withholding exemptions on all significant contracts, which would eliminate any significant withholding on amounts remitted, including amounts already remitted. Such exemptions are applied for with respect to each individual customer contract and require that we submit certain documentation to the Taiwan authorities.

In reviewing the Taiwan tax regulation and in consultation with our tax advisors, we believe that we will be granted such exemptions. However, there is no assurance that any exemptions will be granted or that exemptions will be granted covering all customer contracts for which we will be seeking exemptions. If we were not to receive any exemptions at all, we could be obligated to pay an aggregate of 247,000 in withholding taxes plus any related interest and penalties for amounts previously remitted from the Taiwan subsidiary to the U.S. parent, and could also be obligated to pay 85,000 in withholding tax on amounts billed and/or collected from customers but not yet remitted to the U.S. parent.

We are currently evaluating alternative tax planning strategies to minimize corporate income and withholding tax resulting from the activities of our Taiwan subsidiary and activities in Taiwan in general.

Now let me turn to the balance sheet. Our cash and cash equivalents and short term investments were 11.8 million at June 30, 2005, compared to 12.8 million at the end of the first quarter, 1.2 million of which was restricted under the terms of our headquarters lease. This quarter's decrease was driven by the 500,000 paid to acquire certain assets of Vibren and the final payment of 160,000 to Microsoft under the previously announced audit settlement. The remainder a the decrease was caused by a reduction in royalty payables during the quarter.

Going forward, we expect our cash flow to closely approximate our bottom line, with two exceptions: first, our cash position can be significantly impacted, both positively and negatively, by changes in royalties payable to Microsoft as we have experienced in recent quarters. Second, as investors saw in the case of the Vibren asset acquisition, we may use cash for M&A and partnership activities. We don't expect significant cap-backs or other non-operational cash uses in 2005 other than potential M&A or partnership activities and we have no outstanding debt.

Now I would like to turn the call over to the Brian Crowley, our CEO.

Thanks Scott.

Today I will discuss a number of topics, including our recent acquisition of the embedded assets of Vibren Technologies and update on our efforts to improve sales effectiveness and an update on our product development initiatives. I'll wrap up by talking to our NASDAQ listing status and guidance.

We announced on June 30th that we had acquired the embedded assets of Vibren Technologies for 500,000 in cash. In return we received three products: Schema, a tool for rapidly creating and deploying board support packages, which is the software that glues embedded operating systems to hardware; ATOMS, a tool for rapidly developing user interfaces from mobile devices; and DevKit IDP, a reference design based upon the Intel PXA255 processor. In addition, we acquired a number of in-process service contracts, Vibren's embedded customer list, and we hired eight new employees based in Akron Ohio, including six experienced engineers and a sales executive with many years experience selling into the embedded industry.

This acquisition makes sense to us for a number of reasons. First, any time we call on a potential customer, we expose that customer to the wide range of products and services that BSquare offers. There are many examples where we call on customer with the intent to sell them a product and then end up selling them services or vice versa. With the addition of the newly acquired products from Vibren, our sales force now has additional offerings which will lead to more opportunities to call on customers and, we believe, ultimately result in additional product and service revenue opportunities.

The products we acquired fit into our existing product development road map. DevKit IDP is the first of what we expect to be many reference designs that BSquare will offer to its customers. In fact, DevKit IDP was selected by Intel as the standard PXA255 reference design and customers looking for a PXA255 reference design on Intel's website are now linked directly to BSquare's website. DevKit IDP is sold as a development kit for $3,995, with additional revenue typically coming from services, training, and support.

We have a current pipeline of other 25 companies interested in DevKit IDP. In its lifetime, there have been two versions of DevKit IDP: an older version based on the SA1110 processor, and the current PXA255-based version. Together, these two versions of DevKit IDP have been sold to almost 500 customers. We consider this installed base of DevKit IDP customers to be prospects for the new reference designs that I will talk about later.

ATOMS is a product that solves the tricky problem of how to rapidly create customized user interfaces for Smart devices. Traditionally, creating custom user interfaces has required deep engineering knowledge of the device display hardware and the operating system interfaces. This is typically a specialized engineering skill that can be difficult to find. Using ATOMS, customers are able to create user interfaces using off-the-shelf HTML, XML, and Macromedia flash development tools. ATOMS is a new product that had never fully been launched by Vibren, due to the timing of the sale of Vibren's embedded assets. Despite the soft launch of the product, ATOMS has already been purchased by several customers and we are continuing to pursue a pipeline of over a dozen new customers while we work on integration of ATOMS into our reference design strategy. ATOMS is sold as an up-front development kit for $24,500 with royalties due as customers ship their products that incorporate ATOMS technology.

Schema is a product that allows the rapid creation of board support packages. Schema has been purchased by over 35 customers and we intend to continue to sell the product to new customers while we work on the integration of the technology into our reference design strategy. Schema is also sold as an up-front development kit, ranging from 14,500 to $24,500, with royalties paid as customers ship products based on the technology.

In addition to these products, BSquare obtained a number of new customer relationships that we believe will help us grow our business in the future. The relationship with Intel is one that we believe to be particularly valuable, as Intel is a major supplier of application processors to OEMs and ODMs who make smart devices.

And finally, Vibren's embedded business unit generated over 2 million in product and service revenue in the last twelve months of existance. The bulk of this revenue came from services. We believe that after integration is complete, we can meet or exceed this revenue run rate, given the greater resources and sales reach of BSquare.

As we mentioned in the last earnings call, we are continuing to look for other acquisitions that we feel make sense and will help us to grow our business. We intend to be prudent with our acquisitions and are particularly sensitive to the desires of our shareholders that any acquisitions we complete are not overly diluted or do not involve large amounts of the Company's cash.

Next I want to update you on our progress towards improving the productivity and effectiveness of our sales force. As we mentioned on the last call, we hired Larry Stapleton to head our North American sales team. Under Larry's leadership, we have accomplished a reorganization of our strategic account coverage and we have hired new account executives who bring software sales experience and existing relationships with smart device OEMs. We also have a renewed focus on partnering with silicon vendors such as Intel, Texas Instruments, and AMD.

Our results this quarter are an indication of the progress we expected to see when we began our sales improvement efforts. As Scott mentioned earlier, we are expecting further improvements in service revenue in Q3 based on our current backlog and level of sales activity.

Now I'd like to update you on our product development efforts. We continue to make investments in new product development and are looking for our new products to provide competitive differentiation and incremental revenue as we move through 2005 and 2006. As we have discussed previously, our product development efforts fall into two main areas: first, reference designs that our customers adopt as the foundation of their device development efforts, and device software, such as SDIO Now! that enables specific functionality for our customers. We will sell our device software on a stand-alone basis and will also be bundling this software with our reference designs.

We continue to make good progress on our reference design initiative. We currently have one reference design in the market and three under development. DevKit IDP is a current generation, Intel PXA255-based general embedded reference design. DevKit IDP is offered as a general purpose reference design, suitable for any number of embedded applications such as hand-held devices, kiosks, or point-of-sale terminals. Generally, any device that does not have specific wireless requirements is a candidate for this reference design.

BSquare is in the process of creating a next generation Intel PXA270-based general reference design, which will be aimed at the same market as DevKit IDP, but we use Intel's next generation application processor technology. We expect to fully announce this design by the end of the year.

During the quarter, BSquare signed an agreement with a Taiwan-based customer for an Intel PXA270-based reference design, with wireless communications capabilities. This design will enable BSquare to serve customers creating products that require wireless communications, such as hand-held devices or home networking devices. We also fully expect to announce this design by the end of the year.

During the quarter we began working on developing a reference design aimed at the portable media player or PMP marketplace. Our Asia sales representative has been fielding multiple customer requests from OEMs, looking for a PMP reference design using Microsoft's embedded operating system. Based on this demand, we began working on a PMP reference design during the quarter and have preliminary commitments from two Asia customers to use our PMP reference design as the basis for their PMP players.

We expect to see first revenues from our reference design initiatives in the second half of 2005. However, we believe that the revenue ramp for our reference design initiatives will happen in 2006, as our customers are able to adopt our designs and put their resulting products into production, resulting in revenue to BSquare.

In 2006 we believe that we can generation 3 to 5 million in incremental revenue from our reference design initiatives, with additional revenues possible as we move into new verticles.

In addition to our reference design work, we continue to advance our SDIO technology and have made good progress towards building a sustainable SDIO road map. As we have previously mentioned, we are currently focused on moving customers from our SDIO Version 1 technology to SDIO Version two. Our customers have an option to continue to use our SDIO technology, or to adopt the basic SDIO functionality included in Microsoft's latest embedded operations system.

We have had good successes and have commitments from some of our largest customers to continue to use our SDIO technology. This will be an ongoing effort in 2005.

In addition to our SDIO Version 2 efforts, we have been working on and expect to be announcing soon extensions to our SDIO technology to support non-Microsoft operating systems.

We are also pursuing extending our SDIO technology further in the security arena. We have discussed in the past that our SDIO Version 2 technology supports SD security and allows users to protect information and files stored on SD memory cards.

Given the continual increase in the storage capacity of SD memory cards and the availability of music and video content that users want to store on those cards, we have begun to expand our security technology efforts to support digital rights management on content stored in SD cards. We expect to make further announcements in this area in early 2006.

We believe that with our SDIO Version 2 technology, we can continue to stay in our SDIO revenues at their current levels into 2006. With the addition of SDIO and non-Microsoft operating systems and further security enhancement for SDIO technology, we believe that we have the potential to double our SDIO revenues in the future.

Now I would like to give a brief update on current NASDAQ listing status. As we mentioned on our Q1 call, on April 5th, 2005, we received notification from NASDAQ stating that we had been out of compliance with the $1 minimum bid price listing requirement for 30 trading days. Our stock has continued to trade under $1 since that notification. BSquare has until October 3, 2005 to regain compliance with the $1 minimum bid price requirement. The Company must also maintain compliance with all other continued national market listing requirements. To regain compliance with the minimum bid price requirement, our closing price must be at or above $1 for 10 consecutive trading days.

If the markets continue to value our stock below $1 and potential de-listing concerns continue, we are prepared to exercise the options available to us, including seeking a NASDAQ small cap listing, subject to NASDAQ approval and compliance with the initial small cap market listing requirements, or affecting a reverse split. A move to the NASDAQ small cap market would provide us an additional six-month grace period to address any minimum bid price compliance issues. However, our hope is that our continued progress towards our strategic goals will have a positive impact on our stock price and eliminate our bid price compliance issue.

I would like to end the listing status discussion by reinforcing that the potential de-listing concern is a serious issue for us. We feel that our public company status provides strategic advantages in our marketplace, such as acquisition currency, and we will take appropriate steps to preserve that status.

Now I'll wrap up the call by discussing BSquare's guidance policy. Starting with our Q2, 2004 earnings call, we began providing forward-looking guidance and have modified our approach recently such that on our last call we provided forward-looking guidance one quarter out. It was our belief that providing guidance would give investors confidence in our graft and ability to manage our business.

Beginning with this quarter, we have decided to stop providing guidance in the near term for the following reasons: First, we believe we have demonstrated our ability to manage the business; and second, we believe there is not significant benefit to our shareholders, given that one quarter's of guidance provides no meaningful indication of our longer-term operating outlook.

It is our intention to continue to carefully manage our current business while investing in our new initiatives that we believe will provide future growth. We expect that our investments will be prudent and will not significantly change the operating posture of our business in the near term, but will be positive for our business in the long-term.

That ends the prepared portion of the call today. These prepared remarks will be posted to the Investor Relations section of our website at www.bsquare.com. I would like to thank everyone for their time today and continued interest in BSquare. We will now open the call up for questions.

Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. [OPERATOR INSTRUCTIONS] First question comes from Hank Bannister with Baxon [ph] Research. Please go ahead.

Brian, I was wondering if you could -- reasonably good quarter, but I'm sort of a little flummoxed by your reason for not giving guidance going forward. It seems to me a little contradictory with the idea of having people have confidence in the future and getting the stock over that minimum bid. Could you explain it to me again? Because one quarter isn't two quarters, you don't want to give it?

No that's not really it Hank. There's a couple of reasons that we talked about. As you know, you've followed us now for a while and you understand that, for example, our Microsoft licensing business, you know, we can have some swings in the top line revenue that don't necessarily impact the bottom line. And those short-term swings can cause us to potentially miss some guidance, but not really impact the Company. And so there's downsides there but it doesn't really reflect sort of our longer term position and outlook, in our opinion. So, we just feel like there's not really a lot of upside for our shareholders in continuing to give guidance.

Well, it's just kind of like taking -- I understand that from the long-term, I mean, yes, I've followed you long enough and I understand and I'm not particularly concerned about short-term issues, but I'm not sure that the general market is quite so benevolent. You can have other people ask questions I'm just a little surprised.

Yes, from a -- from a investor who doesn't follow us the way you do, Hank, I guess in our view they see that we miss guidance and don't really understand what's happening underneath the covers. And so we just feel like there's really a lot of risk in no reward in it for us.

Okay. I'll save other questions for later.

Okay.

Thank you sir. Our next question comes from Khalid Bevin [ph] with -- please state your company affiliation followed by your question.

I still want to ask the question, even though the guidance changed once again, to me -- I don't know even know how to describe it. It just seems like you would be trying to make sure you don't go over the dollar that the NASDAQ is requesting that you do, by doing that. It seems like it would probably upset every single person listening to this call or interested in your company.

My question is, do you have -- I know you mentioned that -- that you think that you'd be able to make 2 million with the Vibren assets, once it's integrated. Do you have guidance for Vibren assets for the next 12 months or anything close to it?

Well, what we said, the guidance is really what we said. That we believe we can do over 12 million -- 2 million, I'm sorry. And as far as -- we don't expect that this acquisition is going to take a long time to integrate. I mean, it's a fairly small acquisition and we really expect that by the end of this quarter we will have this thing integrated and you'll start to see positive results from it.

Another sure question, I know you used to mention name brands or names of customers that you acquired during the quarter or recently. Are you able to give any names of any customers that you have been working with or the partner in Taiwan or anything like that so we can gain a little more information on what's really happening?

Sure. One of the issues we have in our business and we've talked about this in the past, is that we tend to get involved very early with our customers and their projects and obviously our customers have confidentiality concerns from a competitive perspective, and therefore our agreements with the customers don't allow us to name names in many cases. Wherever we are able to we always like to name names because we think it's good for us and our shareholders.

The particular customer in Taiwan that we're working with on our wireless reference design, we do have a confidentiality agreement with, and so unfortunately I'm not able to tell you the name of that customer just yet.

So we're to understand that the 52 customers that you work with during the quarter, you're unable to give one name?

Oh, I mean, some of the customers we worked with in the quarter, for example, Motorola is a continuing customer that we worked with this quarter and we've worked with for a long time. Microsoft is another customer, Texas Instruments is a customer we worked with during the quarter. And these are customers that we have ongoing relationships with.

Thank you very much.

Thank you. [OPERATOR INSTRUCTIONS] Gentleman, at this time we have no questions.

Okay. Well, thank you very much for your time today and we'll look forward to talking to you again next quarter.

Ladies and gentlemen, this concludes the BSquare 2005 second quarter conference call. If you would like to listen to a replay of today's conference, please dial 1-800-405-2236 or 303-590-3000 and enter access number 11033698. Once again, if you would like to listen to a replay of today's conference please dial 1-800-405-2236 or 303-590-3000 and enter access number 11033698.

You may now disconnected. Thank you.