IDT Corp (IDT) 2008 Q2 法說會逐字稿

Ladies and gentlemen, this is the conference call operator for the I.D.T. Corporation second quarter earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. I will now turn the call over to the company. Please begin.

Good afternoon. I am the James Courter, CEO of I.D.T. Corporation. I am here with Marc Oppenheimer, our COO and Steve Brown, our CFO. We are here, obviously, to discuss I.D.T.'s earnings during our second fiscal quarter ending January 31. I want to thank you for joining us. Steve and I will begin by making some general observations on the quarter's results, and then the three of us will be here to take your questions. Before we begin, I must obviously caution all those listeners today regarding any forward-looking statements you may hear during the course of the conference call during both our prepared remarks and the Q&A period that follows the prepared remarks. We may make forward-looking statements, either general or as you know, specific in nature. These are subject to risks and uncertainties that may cause actual results to differ materially from those which we anticipate. These risks and uncertainties include, but obviously are not limited to, specific risks and uncertainties discussed in reports that we file with the SEC. We assume no obligation to update any forward-looking statement that we have made or may make, or to update you on the factors that may cause actual results to differ materially from those that we forecast. Now let's get started.

Our second quarter was a difficult one, and we are disappointed to be reporting a loss -- particularly a loss of $60 million. Several things contributed to the loss. Some of them indicate problems in the underlying businesses. We are working hard to correct them. And others represent prudent, good, thoughtful investments that will herald more positive results in the future. I will briefly discuss the results from I.D.T. Telecom and I.D.T. Carmel, our litigation expenses, and then I will move on to the promise for the future, represented by AMSO, our new American Oil Shale subsidiary, the I.D.T. Internet Mobile Group, of which I have spoken to before, and our Buy American initiative, which is our newest initiative.

Our largest business, I.D.T. Telecom is a good news/bad news story right now. You are familiar with the bad news part of the story. The markets are extremely challenging and revenues continue to decline. Fraud in the industry still exists, trading a competitive disadvantage. The good news is that costs continue to decline in comparison to the year ago period cost decline faster, reducing Telecom's operating loss considerably. Telecom management continues to work hard to right size the network and modernize by fully integrating VoP voice technology. Gross costs per minute were down 13.7% in the second quarter compared with a year ago, while revenues per minute fell only 8.5%, a spread of over 5%. We are also pleased that our wholesale business continues to meet expectations and to generate strong cash flow. I.D.T. Carmel, our receivables, management and collection business also faces a difficult business environment, as you know.

The value of many debts incident have been decimated since last summer. In a tough economy, where people cannot pay even their mortgages, debt collection poses extraordinary challenges. As we disclose, we took a $16 million write down in the value of debt portfolios we own, equivalent to a 15% reduction in the carrying value of those assets. I.D.T. Caramel, of course, monitors the performance of its portfolios every month, but month to month fluctuations are very normal. It takes several months of a portfolio falling off the performance curve, so to speak, before it is clear that a recovery is not imminently likely. We hit that point in Q2, and we believe that the charges (inaudible) are carrying values back into line with what we will collect. Our future results will reflect the corrected value of those portfolios. We believe that this experience, although difficult, together with new senior management at I.D.T. Caramel will result in a smaller, more efficient business unit. We do still expect I.D.T. Caramel to add shareholder value in the years to come. Before discussing our new initiatives, I want to point out that litigation expense has also really added significantly to our losses this quarter. Previously, we initiated several active cases that added roughly $15 million to our expenses during the quarter. We have never been shy about vigorously asserting our rights, and our legal team has often delivered value at the end of the day. (inaudible) is just one example and standby for more.

As we have said in the past, we believe in the value of our intellectual property and spend money protecting those rights in our business units that use them. These litigation costs represent a prudent investment and we are confident that they will be manifested in the foreseeable future. Now, I would like to discuss several of our new initiatives and some of our up and coming businesses. Everyone on this call knows that the price of oil recently surged above $100 a barrel. I think just yesterday I read that it hit $107 a barrel. It is critical that America become less dependent on foreign oil. We think that I.D.T. will be at the forefront of this effort with our oil shale undertaking.

During the quarter, I.D.T. purchased a 75% stake in E.G.L. Oil Shale with an initial investment of $3.5 million. Subsequently, we created a new division, the American Shale Oil Company, and announced the strong professional management team with a history of developing breakthrough technologies. E.G.L. Oil Shale holds one of only five research development and demonstration leases issued by the Federal Bureau of Land Management to develop a technology for in-ground extraction, known as in-situ retorting of shale oil on public lands. The other four lease holders, each pursuing distinct technological approaches include Shell and Chevron. Our R&D lease hold consists of 160 acres of U.S. government land on Colorado's western slopes, in the heart of the world's most concentrated shale oil reserve. If we successfully demonstrate an environmentally acceptable and commercially viable technology, we will be granted access to commercialize our operations on an additional adjacent almost five thousand acre tract. Reserves and portions of both tracts are estimated to exceed two million barrels of shale oil per acre. I want to stress that this investment is extremely speculative. Big oil has invested substantially in oil shale during the period of years that passed, but has not yet overcome key technological environmental hurdles. Moreover, the development lease is for 10 years, with an available five year extension. We don't expect to generate significant returns until commercialization begins, and in the meantime, could spend upwards of $50 million on our oil shale initiative. Nevertheless, we are deeply committed to oil shale commercialization both for our shareholders and our country.

We are also convinced that unlocking the nation's oil shale reserves is essential to America's future. Regardless of your views on peak oil, there is widespread agreement that the supply constraints and growing oil demands will continue to put upward pressure on oil prices for the foreseeable future. As prices rise, America will pay an increasingly steep price for our security perspective. Our country must soon take appropriate steps to curb our appetite for foreign oil. Conservation, remark and renewable resources will play an important role in this effort, and we will be developing our tremendous unconventional fuel resources, including oil shale. I.D.T. is proud to be part of this effort, and we expect real success in the future. Now for more of the cutting edge venture.

I.D.T. Internet Mobile Group, many of the invasions which have transformed modern communications such as peer to peer filing originated in Norway, and so did Zedge originate in Norway. I.D.T.'s mobile internet communities: in December 2006, we acquired 90% interest in zedge.net. Zedge is a worldwide distribution platform and destination for free user generated content for mobile devices.The Zedge site is one of the largest mobile content communities on the web. In January, Zedge reached a milestone of 7.35 million registered users. It is distributing 26 million pieces of mobile content such as ring tones, wallpapers and themes each and every month. The site is truly international with members from 220 countries. Although this means that it will take longer to reach critical mass for monetization, Zedge plays on an international market providing a tremendous upside potential. This is the wave of the mobile future and Zedge is leading that wave.

Zedge and our new age publishing business, I.W.D. Publishing, comprises our rapidly growing internet mobile group. I.D.W. publishes and creates and licenses original I.P. including graphic novels. For example, 300 Days of Nights started as an I.D.T. -- I.D.W., excuse me, and I.D.W. graphic novel. and the movie version topped the box office when it premiered in October past. I.D.W. has also created popular graphic novels based on materials from the movie studios. Spurred by revenue from 30 Days of Nights to movies, the I.D.P. internet mobile group's revenue climbed to $2.5 million from $300,000 in Q2 '07.

Now, I will speak to another venture announced this quarter. Our Made in the U.S.A. online retail initiative. A large majority of Americans say that they would prefer to buy goods made in the United States of America, and in fact, are willing to pay a premium over comparable imported goods. But in fact, they usually have no choice whatsoever. Big box retailers, we know all their names, focus singally, and single mindedly, on price alone. They stock their shelves with the lowest priced goods available, and focus point of sale advertising on price, not on country of origin. It is often not clear to consumers which products, if any in the store, are manufactured in the United States. We believe that retail sites devoted to selling only goods made in the United States will find a significant following. American manufacturers usually have compelling stories to tell. After all, they have to compete against and beat competitors with significantly lower labor costs than we find in the United States. If we can tell their story well, and we believe we will, we will help them to reach a new customer base in the United States, eager to spend American dollars for American products. We expect to launch the Made in the U.S.A. initiative in the first -- in the fourth quarter of this fiscal year, and to focus initially on American-made apparel.

To wrap up, I.D.T. is a company in transition. For those of you who are long time investors, it has been a frustrating time, and I know that. I can't tell you that we turned the corner, or that next quarter we will have turned the tide. However, one thing is certain. A year from now, we will look much different than we look today and that look, in my mind, will be a very good one. We have some very exciting young businesses with great promise and we don't make progress. Restoring our prepaid phone business for profitability. Now, I would like to turn the call over to Steve Brown.

Thank you, Jim. And glad to be back on the call.

As Jim touched on, as a result of the ongoing changes in the telecommunications industry, I.D.T. is in the metamorphosis stage, re-emphasizing some of our historical operations and investing in new businesses that is successful to greatly enhance long term shareholder value. As a result, as I discuss our second quarter financial performance, I will try to highlight and distinguish between the businesses which we are seeking to harvest remaining value, low growth businesses, and our potential high growth businesses. First and foremost, our core telecommunications business. U.S. prepaid calling card business continues to be adversely affected by the unfair practices of many of our competitors, which has led resulting damage to the industry as we have discussed in the past several quarters. That said, revenues did increase slightly quarter-to-quarter, mostly due to the inclusion of the Christmas holiday season this quarter. We continued our fight to clean up the industry, spending over $2 million this quarter on legal, lobbying and related costs, with the hopes that our pursuit will allow us to regain market share. But unfortunately, the performance to date has not been overly encouraging.

Our wholesale telecommunications business continues to show positive indication with our gross profits from third parties exceeding our expectations, and our performance has been somewhat negatively impacted by the decline of our U.S. calling card business. Our telecom gross margins and free cash flow continue to benefit from our network cost reduction program, which has resulted in significantly lower connectivity costs, underlying facility costs and CapEx spending. Our consumer phone service division, which we have been harvesting for almost two years now, continues to generate good cash flow despite the continued attrition of our customer base. Net, net overall, the I.D.T. Telecom's sequential performance remains relatively unchanged. But there is optimism in the halls of 520 Broad Street, which is stemming from our maturation of (inaudible) renewal businesses and entry into new, exciting fields, which I will group into three categories. (inaudible), receivables portfolio (inaudible) collection businesses, which is I.D.P. Carmel, and our internet businesses and initiatives. Most specifically, our Internet Mobile Group. I.D.T. Energy, our (inaudible) business continues to generate nice profit even though its quarter-to-quarter customer and (inaudible) growth rate has slowed down significantly. We are now considering further growth by expanding to other states to replicate what we have achieved in New York. We have identified some regions where we may be able to execute on our minimum risk model, but it is still too preliminary to discuss any specific opportunities at this time.

Discussion of our debt recovery business, I.D.T. Carmel, is much more complicated. First and foremost, I must say, the more we work this business and the more learn about the industry, the more we are convinced that our investment in Carmel is building the foundation of a great business. That said, we have learned many painful lessons during the year. The cost of these lessons has been greatly exacerbated as a slowdown of the U.S. economy. As a result, we have revised downward our anticipated collections from existing portfolios, which under GAAP requires us to impair our portfolio inventory asset. To explain how the impairment works, under the effective yield method, the carrying downs of our portfolio equals the present value of the remaining cash flow be returned, or IRR, calculated to the deal where the portfolio was purchased. If at a subsequent point in time, future collections are expected to be lower than originally anticipated, the new expected collections are discounted back using the original IRR and the result becomes the new carrying balance. The difference between the existing (inaudible) balance and if the new carrying balance is recorded as an impairment of the portfolio and charged as an expense to bad debt. Accordingly, I.D.T. Carmel took an impairment of $16 million this quarter which was applied against their portfolio inventory, and recorded as bad debt expense.

Going forward, we anticipate achieving our stated IRR or reduced assets, and will continue to record revenues and profits on these assets in future quarters. In the interim, we have significantly slowed down our purchasing of new portfolios as we work through the issues affecting this business. In addition, we have shored up our outsourcing departments and we have strengthened our Carmel management team with seasoned industry experts. Despite the disappointing results this quarter, as I mentioned previously, we are encouraged by what we have learned about this industry, and we are -- we have committed ourselves to develop our collections infrastructure and platform to create a business model that will bring significant long term shareholder value.

Another exciting development area is our portfolio of internet business. Among internet businesses that we are developing are media opportunities, e-commerce businesses, IP TV, gaming software, but most excitingly and most (inaudible) right now, we are greatly encouraged by the results of Zedge are full way into creating an internet community based on providing platforms for free content for mobile devices. Our zedge.net site has had its subscriber base growing in excess of 120,000 registrars per week and is currently distributing at a rate of excess of 26 million pieces of mobile content per month.

Granted, right now this business is costing I.D.T. approximately $2 million per quarter in net loss and has no revenue, yet understanding the market dynamics of a vital growth internet business, these metrics have beaten our internal expectations every quarter, we are extremely excited by the potential market value this business can generate over the next few years. To break down the financial results of our Capital division, the largest contributor to the (inaudible) loss this quarter were, in no particular order, CTN Local Media which was hurt by the Broadway shutdown this quarter and lost $1.8 million, the Internet Mobile Group which includes Zedge, and our publishing company, I.D.W., which lost $1.6 million this quarter, our call center businesses lost $2.7 million this quarter, partly attributable to the shut down cross on our Puerto Rico site and our net to phone ventures division which includes the (inaudible) business, the (inaudible) website, lost approximately $6 million, but has been aggressively protecting intellectual property rights.

I would not be surprised as some of you who own I.D.T think of it as -- think of I.D.T. as a telecom stock. If so, I hope you take a second look. The growth of the enterprise value of our internet initiatives are very exciting. In addition, there are hidden gems, such as our publishing company, I.D.W., which is already profitable, and starting to enter the promising business of licensing its intellectual property to third parties. Add to this our AMSO business, as well as new energy initiative to convert oil shale reserves into usable energy that Jim talked about in detail earlier, one could start understanding the potential upside in I.D.T. Of course, add to that our networking capital, our real estate holdings which we believe are valued in excess of $50 million above their underlying mortgages, the lawsuits which we are spending where we are the plaintiff, the Spectrum owned under I.D.T. Spectrum, the other intellectual property that we own, one should come to understand, there are many valuable assets here in I.D.T.. At this point, I would like to turn the call over for Q&A.

Ladies and gentlemen, at this time we will be conducting a question-and-answer session. (OPERATOR INSTRUCTIONS) The first question comes from Donna Jaegers with Janco Partners.

Hi, I have got a long list of questions, so I'll just go ahead on them. Thanks for taking my questions by the way. On the -- you had $7.6 million of expenses and other expenses. Can you talk a little about what that is?

That is basically the net amount between how much our investments made in the market and how much either we sold at a loss or market-to-market on investments.

And can you talk -- I know you guys have invested in hedge funds in the past , so can you talk a little about your composition of investments, and what's in the marketable securities?

I would say it's about $100,000 -- $100 million left in investments, as you see on the balance sheet, that are tied into the markets. It is relative, it was in the ballpark it was last quarter. The shifting for the most part, there was -- it was a strong effort to move to make sure our investments were in things that were less exposure to the weakness of the market. For the most part, the $100 million that roughly -- roughly $100 million we have in long term investments have not been -- have not been effected -- slightly been impacted by the market for the last few months.

And the marketable securities, what is in there?

Again, the marketable securities is --

About $130 million or so.

Correct. It is things that are easily liquidated. Again, with very little exposure to market risk.

In this market, that is rare. So can you give us a little more detail as far as what sort marketable securities you are holding.

Hi Donna. We have a short portfolio of treasuries. We also have C.D.s with Money Center Banks. The program that Steve talked about was an effort to remove ourselves and we have done this now over the last two quarters to remove ourselves from the exposure to the market and to make sure that we maintain liquidity. We don't have C.D.L.s , we don't have mortgage backs. We don't have any of the exposure to the funky structures or the auction rate swaps. So, we are looking at plain vanilla, which as we go forward, you will also see in a decreasing interest rate environment, less interest income, but at least you have safety of principle.

Right, no, I appreciate that. On the assumptions that you made on I.D.T. Caramel, for the bad debt -- to take the bad debt right off, can you talk about what your, what sort of internal rate of return you are assuming on that portfolio now? And how does the $16 million compare to -- what is the base of that -- what's the portfolio worth right now, sort of just to put that in perspective?

The portfolio on the balance sheet is at $90 million, that's after the write down. The IRR is blended IRR because obviously there is a lot of portfolios. A substantial part of that asset came from the forward flow that we invested in. The -- at the point where we already had enough experience in working on (inaudible) before we went to effective yields and cost recovery, so the -- while the general goal of Caramel, certainly going forward, is to get an IRR in the low 20s, the blended IRR for the existing portfolio is in the low teens.

Okay. And then on the lawsuits, I know you have legal spending popped up a lot this quarter. Tyco is coming up, I think that lawsuit is scheduled for April 8 -- or April of '08. Can you talk a little -- is there anything you can say to update us on that?

In litigation, you rarely talk about litigation for the reason that you never know what the outcome is going to be. That often depends on the trier of of fact and trier of law. But generally speaking, I can say that, and I have spent some time with our litigation team, I spent some time with our outside counsel on Tyco and the other non-intellectual property pieces of litigation where we are the plaintiffs, we are very -- I can say we are enthusiastic, very robustly enthusiastic that in this calendar year, there is going be material windfall, cash windfall for I.DT. But going on into any more specifics I think would be inappropriate.

Okay.

Just -- let me just amend that. I was startled a couple of times this week when I was getting briefed as to where we stand on a couple of pieces of this litigation. They are interminable some times, as you know. You want to try a level, there is an appeal, there can be an appeal to the appeal and it can dealt to a higher quarter, and there can be motions that are granted and appeals to motions. We are familiar with all that. But on all three of the non-intellectual property pieces of litigation where I.D.T. is the plaintiff with no real significant counter claims, it is looking quite good at the present time. (overlapping speakers) That's a forward looking statement, no doubt about it, but I wanted to get that off my chest.

Okay, Jim, just, besides Tyco, what are the other two lawsuits you are spending on?

Non-intellectual property, one would be Morgan and the other would be Blackstone.

Okay. And then on (inaudible) is that under other prepaid? And if so, it dropped pretty significantly. So can you comment a little about what's going on there?

Steve, you want to? I've got some thoughts, but go ahead. I have some thoughts.

Basically, we are disappointed with the results of (inaudible). So, it is a business that is being monitored very closely right now, and I think part of what Jim wanted to address.

Yes, very specifically, we know about the fraud in the calling card industry, the prepaid calling card industry. We talked about the fact that that's one of the driving reasons why our margins are narrow, the profitability is not there. The revenue is going down. It is just that there is a lot of these operations that are springing up, that are misleading -- grossly misleading consumers and consumers see a sign saying one million minutes for $2.00 to the Dominican Republic, they will buy that card. We are faced with that, and we are doing all sorts things to clean it up. I don't want to go into that right now. Because, they're going into it in the past. In (inaudible), we are saying basically fraud. And what is -- and that is really a big issue that we're trying to work around. What is happening that the disown -- the phones are great phones, they work well. The rates are very good. We obviously, to be competitive, are discounting the phones. That means we pay, let's say $70 for a phone, and we resell for $30 at Sam's Club or another outlet, and embedded in the phone is a chip that has maybe 100 or 300 minutes of free calls as a further incentive for people to make a $33.00 purchase.

The fraud is the fact that there is a large consortium of people that buy the phones, they aggregate the phones, they disassemble the phones, they reprogram the phones, they transship the phones to another country and they are sold at $60 and the chips are sold for a discount on the street. So fraudulent people are making money by stripping down the phones and we are working around that problem. And it is so significant, that at times, we have found that in some outlets, it is between 50% and 80% of the phones are being shipped and fraudulently sold internationally.

Donna, just from the P&L point of view, there is two portions of revenue. One is on the sale of the phone, which is an -- which we obviously sell at a discount, and then the profitable part, which is the reuse -- the rechargeable minutes that they buy. Because of what Jim mentioned, and because we're trying to deal with that problem, we have not been as aggressive selling the phones right now, and that's obviously a big portion of the reason why you see a dip in the revenue until they -- we work the model to figure out how to prevent this happening in the future.

Understood, and one last question, and then I'll turn the floor over to somebody else. On the Wholesale business, there has been some speculation that you guys might be looking at maybe trying to monetize that. Can you comment at all on what your plans are for the Wholesale Telecom business?

I will comment on that only for Wholesale, but (inaudible) and its history. We love building businesses. That said, if we think we can get a good price for our business, especially if it is a business that doesn't look like it is a high growth business any more, and the cash flows from selling that business would be better than harvesting that business, it has always been I.D.T.'s business philosophy to monetize. So, if you're asking, does that apply to Wholesale, I mean, it could, because Wholesale fits that not high growth business. That said, we do believe in the long term business, so we're not -- we would not look sell it unless we think that there is a phenomenal price on the table.

And just adding to that Donna,The wholesale continues to perform really well. It is on budget. It continues to -- you will see with the Q and the detail in it the metrics. And we are actually really pleased about it.

Okay. Great. I will turn over the floor to somebody else. Thanks for taking my questions.

Thanks, Donna.

Thank you. Our next question comes from Clayton Moran with Stanford Group. Mr. Moran, you may state your question.

Thanks. I have a few questions, also. Did you mention on the oil business that you are looking to invest $50 million? Did I hear that right?

Let me jump into that. We have spent, when we purchased our 75% interest at E.G.L., which is a group -- it is not just one company -- Well, it's one company, but various investors that have had probably together 120 years of experience in the oil and gas business from Texas. On top of the 2.5, we put in another $1 million for investments in operations, etc. We anticipate spending over the next few years an additional $45 million, $47 million.

So we're looking at $50 million. The real question is, will that get us to prove to the Governor of Colorado and the President of the United States, whomever he or she is going to be a few years from now that we have developed the technology to extract the oil and some gas in a commercially economical way that has the least environmental impact. I think Amer -- we belive, we're thinking of this thing from a big strategic standpoint, we believe that Americans will come to the realization very quickly that $107 a barrel is soon going to manifest themselves in filling up the car for over $100, and they are going to start looking realistically at the fact that we are exporting almost $1 billion dollars a day to buy foreign oil when we in oil shale, have three times as much oil as the oil of Saudi Arabia, so let's buy American. Let's produce oil here in this country. It can be done more cheaply. It can be done -- it will help our strategic economic situation. It will reduce our balance of paying the deficit by 50%. We will spend far less on military operations in the Middle East.

Because the increasing price of oil, I think America will turn to the realization that we have trillions of barrels of oil in a different form right here in America and it is time to exploit our own natural resources in an environmentally friendly way. So we think this is a long term play, but we think it is well worth it for I.D.T., our shareholders, and the United States of America.

Well put, Jim. Just so I want to make sure that it's clear, the $50 million is a budge committment, it's not a hard committment, so If anything happens over this few year period that determines it is not worth it to put that much money into this, we have that flex -- we don't have any commitments. That said, if things pan out, as Jim has said, as we hope they will, we think they will, it would be a very wise investment.

That is over a say, a two to three year period? The $50 million.

No Clay, actually the $50 million is over a 10 year horizon over the next two to three years we are looking at a commitment of approximately $10 million, assuming that the programs continue.

Okay. Okay. And on the Made in the U.S.A. initiative, do you have a URL secured for that at this point, and do you have any sense of how you will market it and how much you will spend on that marketing?

It is way too preliminary to talk about it. We are not talking about a significant cash investment. We have some great, from our internet businesses, we have some great marketing geniuses who understand internet marketing. We're going to leverage on that. It's prob -- most likely to be a low cost initiative, but some of the research, and that's why, how we got very excited about and Jim, some of the early research done by our internet gurus pointed that there is a good market for this. Again, it's too preliminary to talk about right now.

Okay, any sense of when you'll have more specifics there, or when that will be launched?

I'd say by the end of our fiscal year.

Since there was an earlier question on selling the Wholesale business, in your consideration of possibly doing that, or if you ever were to consider it, would you sell it without the prepaid business tagging along with it? And if you were, would that have a significant impact on the prepaid margins?

Clay, that totally depends on, at the time, what the Telecom configuration looks like, who the third party is. Because it is going to be a hand in glove. Certain parties will want certain assets to be included with that and others won't. So that one is really a future event. You can't really, you can't really nail that down right now.

But do you think -- you say it is hand in glove. The two really do go together though, don't they?

They can go together, it depends on the need. (inaudible) Exactly.

Okay. How about from your standpoint, though? I mean, doesn't -- does the Wholesale business really help out your prepaid business as you operate it today?

Again, any -- we would do a deal to sell the Wholesale business and the retail business carved out. We have to look at the effect in the retail business as part of the cost of doing the sale. There is just so many variables to talk about and so many ways to go. But obviously, we look at the whole picture.

But they are not joined at the hip. It depends on the prospective purchasers, what their strengths and weaknesses are. And these two transactions could, in fact, be bifurcated depending on the detail.

Okay. One more question. You have several new initiatives on top of what, just a couple years ago were new initiatives, such as the energy and the collections and such. Do you fear at all that you are stretching yourselves too thin?

Let me start and I will have my colleagues amend my statements. That is something we talk about all the time, and basically we look at depth of management and the time that we can spend on things and also the limited amount of resource, although we are relatively in good shape from a balance sheet standpoint, we are always looking at what type of cash investments we can prudently make. We're -- I think you'll see us being very careful. We are not going start something new for the heck of it, because it fits my fancy or Howard's fancy. We are going to spend some time researching the opportunity.

We will do due diligence on the company, we may start something new, but I think over time you will also be finding, as Steve says, when the time comes and the time is right, something is always worth more to somebody else than it is to us. Over time, we will be a company that we can control and manage, it is not going to be out of control. And if we find three or four new businesses in the next three to five years, probably, I am just guessing, it is another forward-looking statement, we will have sold three or four or five businesses at the same -- during that same period of time.

And just to add to what Jim has said, management is very focused in the four business lines that we discussed on this call. Which, whatever -- everything is going to be an offshoot of the existing Telecom business, of the energy businesses, of the debt collection business or the internet initiative. I think we have excellent management team at the portfolio level at all those four units. And there is infrastructure in all those four units to evaluate what is in those units. We don't have management to start a new unit right now. It is an amazing opportunity (inaudible) came, we are always entrepreneurial, but right now the focus is within those four units.

The other thing Clay, is you also have to remember the issue of staging. Some of the businesses are business that are about go into cash flowing mode. Others are businesses that won't go into that for a few years, and there are other businesses yet, that in the portfolio, that are never "going to be cash flowing businesses". Those will be monetization assets. And, it is like an air traffic controller. You are going to have planes all at different stages. Some on the ground, some on approach, some in the air and some taking off.

Okay, and I don't know if you can answer this, but the monetization asset that peaks my interest,, can you tell us which ones you would identify as not really cash flow opportunities, but more opportunities to sell as assets down the road?

You have got as an example in the Internet Mobile Group. You have been businesses that historically have been monetized based on a number of eyeballs. You can look at, as an example, it is not that Zedge is on the block, it's not. We're happy with it. But you can use that as an example that the rapid growth that that had in adding subscribers, and you look at the metrics, it has been quite astounding. If you look at November of '06 the users were about 3 million.

I'm not sure if that's what Clay was asking.

Yes, but I'm saying that as it grows --

I see what you're saying. High growth initiatives that you think would fit better somewhere else and be more valuable to somebody else.

That is correct.

Okay. Thank you.

Thank you. Our next question comes from Mr. [John Noel] with Barrington. Mr. Noel, you may state your question.

Yes, hi guys. I was wondering if you could talk a little about the $363 million in income taxes payable, what that was in regards to, and could any of your deferred income tax assets be used to offset that? Thank you.

Again, we always get questions. Understanding income tax disclosure is very difficult, but it is very detailed. So the first thing, as always, we will refer you to read all the 10-Q and all the language as required on the FIN48. That said, if you want to make life simple, just take your liability and subtract your assets from it and call that a net tax liability. I don't think that would be a bad way to go.

Okay. And what the -- what was the -- was the liability a result of operations or was that the result of the monetization of a business, or -- ?

It is based on past profits of the company.

Okay. Alright. Thank you.

Thank you. Our next question comes from Mr. Manny Soprano with the Manny Soprano Web Group.

Hello. Thank you very much for making yourselves available. I have a couple of questions. My questions are regarding original content for distribution content with an added entertainment value. I.D.T. has stated publicly that the new Internet Mobile Group Division will be responsible for the acquisition, development and incubation of internet and mobile content. You have had success I.D.W. Publishing being able to monetize off the sum of intellectual properties such as the 30 Days movies starring Josh Hartnett. My first question is, outside of Zedge, users have been immaterial. What other steps is I.D.T. taking in the U.S.A. to produce additional types of original content. Not just comic books, but specifically, content for an online audience, a lot of such has music, artist ring tones and original TV programming.

One of the great things about creating an online community is that we don't develop the content. We create a -- we create the market, the opportunity so that community members would go on and alter their content. I think this is the model that has been very successful, with YouTube and MySpace, and obviously, it helps reduce cost and actually creates viral excitement. So, if you have specific idea from the business side, our -- we can always contact the executives of Zedge or go on to zedge.net and offer your ideas. That is all part of the creating the mobile internet community.

Have you studied other models that do, in fact, develop original programming and doing so, create online ad revenue models. Like Bright Cove, which has been very successful?

Yes, we have studied. It does require a tremendous amount of cash investment that at the present time -- there are two things. Number one, we don't want to lose focus of what we are succeeding at. And as the community grows, we will look at other opportunities as to what to do with the registrants. But yes, we have studied, and at the present time, we want to work within the existing budget.

Follow up questions with the Zedge group, you mentioned the numbers, I think it was $2 million per quarter loss. There was very little ad revenue? Is that correct?

That is correct.

And you mention $1.6 million loss from the Internet Mobile Group? Can you explain that?

The 1.6 inc -- the $2 million of Zedge is a stand alone business. The 1.6 is after the, some of the other components such as the publishing, I.D.W. Publishing Company, which is profitable.

Considering there is very little ad revenue coming in from Zedge, is there room in the budget to test new business models, which might yield greater online revenue, more than what is coming in now?

100%. And again, I would -- that is probably -- my background is in accounting. I am not sure I am the best person to talk about ideas. If you want to call, to talk to (inaudible) investor relations, they will hook you up to the business people there, I am sure they would love to talk to you.

Let me -- my next question is, in a previous conference call, I think Q1 of 2008, it was mentioned that I.D.T. would be making strategic investments, migrating from a commodity servicing model to more of a "enabler" of technology. How attractive are other (inaudible) models such as (inaudible) strategic investments. And is the example of -- is that an example of what you mean by enabler of technology? Because it seems to go hand in hand with the Internet Mobile Group.

It is not just the concept of the Internet Mobile Group, Mr. Soprano, it is also the concept of the margins. If you look at having proprietary IP versus, as an example, selling a pencil, unless it is a very special pencil, your margin is going to be very narrow, whereas if you created something, if you hold a patent, if you proprietary technology or ideas, or you are the gate keeper that enables people to either communicate, deal with each other, any variety of median, you can charge a greater amount there than just by selling a commodity widget.

My next question actually has to do with the (inaudible) which you kind of just touched on, which is the value of the pencil, and whether it is something that people really want. You mentioned -- looking at (inaudible) more, you mentioned earlier on the phone call that looking at I.D.T. as more than a telecom company due to energy of the emerging businesses. Do you think that I.D.T. will be the first telecom company ever to house a wholly owned music production or music publishing licensing company under its umbrella before say, a Sprint Records, or Verizon Music Group to aggressively produce content for mobile/wireless platforms?

You talking about a specific business or as an example.

Let me --

I don't know where they are. I don't know where some of these telecom companies are going. What we're doing, and we think we are on the cutting edge. We have done some interesting things in telecommunications companies. Steve Brown was the the chairman of the board of I.D.T. Entertainment which we sold for a very nice profit to Liberty Media, so --

187, 185 --

Entertainment is a perfect example, if I could just jump in. That is an example of business that we invested $200 million, we sold close to evaluation of $500 million, and not because we wanted to sell it, we wanted to build it out to $1 billion. But somebody was giving us an attractive price at the time and we looked at the amount of cash investment. So if you look at the history of I.D.T., yes, we are a telecom company, but we have a great management team in place and we can build something and great enterprise value. We are going exploit that team and that business model.

I think that is a really great attitude, because, I've spoken to, I approached Helio and other companies about that concept, about producing original content directly to the mobile wireless platform, and they said nobody has really done that. The record labels license their content directly to the telecom providers, and the telecom providers distribute it. But there is really no telecom provider at this moment that is producing content directly for the mobile platform and owning the licensing and the content, and then as well, the artistic value of that pencil.

Okay, I'll just reiterate, I am sure our team would love to talk to you. I don't know that it is appropriate to really discuss that on this call.

Okay. Let me -- I have a couple of other questions. Have you -- are these considered the same demographic that produced the cash flow for the prepaid products in the same growing sectors that download content in Spanish. And if so, what steps is I.D.T. taking to deliver new Spanish content (inaudible).

The prepaid -- I am not fully sure what you asked. But, the prepaid calling card business, which we do have a great distribution base that we can sell our product into hundreds of thousands -- hundreds of thousands of bodegas across the United States, we look to cross market unsuccessfully over the years. And basically, our -- I'm not saying that we can't do it in the future, it even goes back to the entertainment days, and we look for products to sell there. The reason the prepaid calling card works is because it takes up very little shelf space. So, I don't think there is any synergies right now. That said, I do know that the number of the people who work in the distribution company have been sharing certain ideas with the people at Zedge, but again, way too preliminary.

Do you have high profile celebrities with their own prepaid content cards that are boosting revenue?

We have tried that a long time in the past and right now, we are not using it because it's -- the product basically speaks for itself. People are -- the consumers are very educated consumer.

We have tried -- as Steve tried, quite frankly, we tried from Sammy Sosa to the Pope. It seems like people just buy this stuff as they buy (inaudible) product because it is cheap and it works. They don't -- they sell tickets to ball games or spiritual involvement, but they don't seem to sell calling cards.

At this time we have run out of time. This concludes the question-and-answer session and today's conference call as well. Thank you for your participation. You may now disconnect.