Oblong Inc (OBLG) 2003 Q3 法說會逐字稿

Good afternoon, everyone.

Welcome to the Glowpoint, Incorporated, 2003 third quarterresults conference call.

Before we begin, I want to remind listeners that this call is being web cast live over the Internet.

And that a web cast replay will also be available on the company's website, www.glowpoint.com, following the call.

I would now like to introduce Glowpoint's CFO, Chris Zigmont who will review the Safe Harbor information with you now.

Thank you.

The statements contained herein, other than historical information, are or may be deemed to be forward-looking statements and involve factors, risks and uncertainties that may cause actual results in future periods to differ materially from such statements.

These factors, risks and uncertainties include market acceptance and availability of new video communications services, the nonexclusive and terminable nature of sales agent agreements, rapid technological change affecting demand for the company's services, competition from other video communications service providers, and the availability of sufficient financial resources to enable the company to expand its operations as well as other risks detailed from time to time in the company's filings with the Securities & Exchange Commission.

Today's call and web cast may include non GAAP financial measures within the meaning of SEC regulation G. When required a reconcilation of all non GAAP financial measures to the most directly comparable financial measure calculated in accordance with GAAP can be found in today's press release.

Thank you, Chris.

We have a lot to discuss today.

Welcome, everyone.

I'm David Trachtenberg, Chief Executive Officer and President of Glowpoint.

This is the first time I've had a chance to speak with you since I joined the company, literally, four weeks ago as of today.

And I appreciate your patience over these last few weeks.

I know that many of you have been eager to speak with me about Glowpoint, but I've been spending my time getting up to speed on the technology, the operations and getting under the hood, so to speak, to make certain we have the understanding of what will make this company run efficiently and effectively as a standalone business since the Wire One transition.

It's been a busy, exciting and productive time here at Glowpoint this past month.

I know that the purpose of the call is to share details on our third quarter results.

However, it's also critical to take the opportunity to discuss with you my observations about Glowpoint's potential as well as to lay out clearly the challenges we are addressing to ensure that we realize that potential.

I want to begin my remarks by telling you about what attracted me to Glowpoint.

I'll then update you on what we've accomplished during these first few weeks, where I believe we need to go, and how we intend to get there.

Chris will follow with a recap of the quarterly numbers and Michael Brandofino, our CTO, will summarize with a few comments about our ongoing operations.

For those of you unfamiliar with my background, I come from the telecommunications and Internet industry, having spent the first building, marketing and managing technologyrich subscription base services.

The two qualities that most attracted me to Glowpoint were its technology and its business model.

The simplicity of both was important in my decision to join and has been reinforced by my first month on the job.

First, the technology works.

This is not about the promise of a video conferencing solution to combat the ills and frustrations which [inaudible] service.

Since Glowpoint began tracking its network staff in Q1, 2001 through Q3, 2003, over 12.5 million minutes of video conferencing have flowed through the network and we reached a milestone this past quarter, hitting 100,000 IP calls placed on the Glowpoint network.

We are state of the art, and ready for and already operating in prime time.

Second, the business model is sound.

It is about building a base of satisfied subscribers, creating a strong, ongoing cash flow that is predictable and bankable.

It is about scaling this billable base to leverage our infrastructure investment.

It is about customer marketing and up selling into our stable and loyal base of customers to add ancillary products and services for additional revenue and margin.

This should not be new news, but it's coming from an organization born anew, one with a new corporate identity, operating team and capital structure.

Although the service has been up and running for nearly three years and I'm one of the few newcomers of late, all of us truly feel as though we're a new team pursuing a unique opportunity to build a company from the ground up.

While Chris, Michael and others join me in moving Glowpoint forward, they do so now with a new focus and energy that was simply not possible before.

Glowpoint went from a skunk works operation within Wire One to become our core business.

We are now Glowpoint in name, in Product, and in focus.

That said, let me share with you some thoughts for my first weeks at the company.

My first conclusion is that after numerous discussions with customers, prospects, sales agents, employees and strategic partners, and a vigorous analysis of company operations, Glowpoint has a much stronger competitive position than what has been visible from the outside.

Our product offering is strong and unique for our distribution partners.

And our customers rely on Glowpoint to a much greater degree than the average video conferencing service.

As one example, we have one law firm with 11 billable subscriber sites that generated a total of over 575 Glowpoint hours over last quarter or, on average, over 17 hours per billable location per month on outbound calls alone.

Our services is also a strong fit fit for other key vertical markets, like technology related companies, financial institutions, education and local state and federal government contracts.

Looking at our current customers technology related companies represent 19%.

Financial institutions, 16%.

Educational institutions and law firms, each represent 9%.

And medical institutions,8%.

Even with minimal focus, Glowpoint has been able to find a few sweet spots in verticals that recognize the benefit of our solution.

Just imagine the possibilities with a focused and directed sales and marketing program to own and further penetrate these strategic verticals.

My second conclusion is that having been conceived, delivered and reared in the shadow of a much larger parent, Glowpoint must quickly refocus on the fundamentals of being a standalone operating unit.

The key focus message is two fold.

First, back to basics.

This is now the mantra within Glowpoint.

We must focus on our core business, building and supporting a large and stable subscriber base for our IP video conferencingsolution.

This means creating sustainable and scaleable business with all the operational processies and efficiencies that will ensure a world class customer experience for our sales agents and our subscribers.

This focus must be coupled with the right tracking reporting to manage the business, using the right metrics to understand the key levers for getting to a cash flow positive operation.

Chris will talk in more detail about this in a few minutes.

The second strategic focus for Glowpoint is diversified distribution.

To build our subscription base, Glowpoint must partner with sales agents who can drive our business quickly and efficiently.

While Glowpoint today has over 30 contracted resellers outside of Wire One, approximately 50% have ever sold Glowpoint.

After a complete review of the agent list, only a handful is considered high potential for sales growth.

The fact is, a good agent is not made from a press release.

It is aboutselecting the right partners and having the right tools in place to certify, train and grow the relationships.

Our launch of ISO Glowpoint.com and the announcement yesterday of CMS coming on board as our newest reseller with 400 feet on the street are the first steps in turning our sales agent relationships into an active sales pipeline.

We are going to focus our human capital and resources on those partners who have and who can deliver for Glowpoint and we'll use less expensive and more efficient web based tools to manage the smaller resellers who want Glowpoint in the product portfolio.

To be clear, Wire One remains a critical partner for Glowpoint and we'll continue to improvethe tools they use to partner with the company but we must balance our continued strong support of this channel with the need to diversify and expand our reach in the marketplace.

In many respects, these last several weeks have been the first time the team has had the luxury of focusing exclusively on Glowpoint, getting back to the basics of understanding Glowpoint as standalone business.

One key element of this is to understand our starting point at the end of the third quarter.

Chris will walk you through the details, but a few key highlights include the following.

Glowpoint's core subscription business continues to grow.

For example, total subscription and other related revenue rose 19% from the second quarter to $1.9m.

However, as Chris will also explain, growth has slowed due to distractions from the Wire One transition, resulting in a less focused sales engine, as well as a less productive new sales agent pipeline as I just described.

New end points under contract dropped from 271 in the second quarter of 2003 to 179 in the third quarter, down 34%.

Finally, net new end points installed in the network were also down due to recognizing end point churn for the first time.

This is worth more detail.

Glowpoint lost 94 end points in the third quarter.

A combination of proactive and reactive losses.

Let me explain.

Approximately 60% of these end points or 58, had already been installed on the network.

While these disconnects were revenue impacting, they do not necessarily reflect vulnerability due to dissatisfaction with the service.

Two-thirds of these cancellationswere by customers who continue to use Glowpoint.

In some cases with more than several circuits still active and experiencing heavy use.

The other one third of end points or 36 were actually canceled prior to coming on to the network so while they're not immediately revenue impacting, they'll decrease the install flow for future subscription revenue.

Overall these numbers translate in to a monthly churn of only 1.5%, much lower than typically experienced in the other sectors of the telecom world.

While we would prefer to not see any churn, we don’t think the figures we are presenting today necessarilyrepresent vulnerability.

We will however be implementing early warning systems to make certain that Glowpoint is on top of potential customer loss.

As I know from prior experience, it's much easier and less expensive to save a customer than to win one back.

Based on this disconnect activity in the third quarter, one of our key actions over the fourth quarter is an extensive review of our accounts to identify a clear picture of any potential issues.

For example, we are proactively identifying orders under contract and not yet on the network that for a variety of reasons have a low likelihood of ever being installed.

We need to clean these out of the System so we have a real view of the install backlog.

We are also looking carefully at all of our circuits on the network to make certain we're managing costs effectively.

For example a demo circuit no longer in use should no longer be generating charges from our providers.

Regardless, as we continue to drive analyses to help us make the right decisions for the business, it has become increasingly clear to me that the end point versus circuit dialogue that has been a consistent topic on these calls and in the hallways of Glowpoint has quite frankly caused confusion.

The bottom line is that Glowpoint for the marketplace must have a clear understanding of the operating metrics that drive our economics.

We must track and report against [inaudible] that mean something.

End points under contract and on the network are not the metrics we use to explain our business going forward.

We are a subscription based business and we need to report metrics that reflect the number of subscribers generating revenue for the company.

Therefore, the key driver of our business is billable subscriber locations, not end points, and not circuits.

And not end points or circuits that may or may not ever get into our billing system.

As you know, a billable subscriber location can have multiple end points and circuits.

For example, a bonded T1.

While the end point will drive usage, the billable subscriber location to which it is literally and figuratively connected drives a subscription plan.

One subscription plan per billable subscriber location that what drives the subscription revenue.

That's what the Glowpoint monthly bill summarizes.

That’s what we should be looking at.

The term under contract is also a misnomer.

It's a combination of orders that have been installed and generating revenue on the network as well as orders yet to be installed.

The issue is there's not a one to one correlation with orders on que to be installed and those that become billable as we saw in the third quarter and are proactively cleaning up in the fourth quarter.

The subscriber location back log is important to look at to understand the install flow as well as expectations are set until they come on to the network they're a potential subscriber location and shouldn't be assumed as anything else.

So going forward for Q4 and beyond, Glowpoint will be sharing new metrics that will help the company and investors quickly and efficiently track our progress.

As you saw in the press release from this afternoon, the first metrics of this new approach are billable subscriber locations which I just described, number of total customers, a key metric in understanding market penetration, billable subscriber locations per customer to understand the size of the customers and the penetration of Glowpoint within their organizations, and subscriber location back log.

Those under contract but not yet installed.

Again, an important metric with the obvious caveats that we already discussed.

Chris and I will communicate other key metrics as they're identified and verified as key levers for the business.

The point of highlighting our challenges and new metrics for the business is not to lay blame at anyone's door step.

The Glowpoint team has done an admirable job with the resources available to them during these first three years.

The point is to provide you, our shareholders, with a credible assessment of our starting point as a standalone business.

Let me emphasize that I strongly believe in near term operational and sales challenges Glowpoint faces are eminently surmountable.

We have a product that works, customers that use it and important sales channels who want to sell.

It's now about execution.

We've been focusing on execution since I joined on October 15 and are focusing our near-term activities to drive momentum as we move into 2004.

We have been and will continue to first identify ways to realize greater network savings in terms of [inaudible] partners reducing unnecessary redundancy as we continue to augment the network.

As I discussed earlier, ensuring costs are in line with our revenue.

Two, create a help desk for agents and customers that had been managed by Wire One, including implementing a remedy trouble ticketing solution for tracking and reporting across the organization.

Three, documented improve [inaudible] controls for order management, billing and accounts receivable.

Four, improve and automate order processing and provisioning to reduce installation times and further improve the customer experience.

Five, clean up the current distribution channel by ending agreements with agents that were not a great fit with our program or who have failed to meet our expectations.

More importantly, redirect our resources to those agents who can be productive and long-term partners for Glowpoint.

Six, create a new and more effective tiered sales agent program with laser focused on not only closing agreements but also creating tools and partneships to make our agents productive Glowpoint resellers.

And Seven, reevaluate our product strategy to align more closely our revenue stream with our underlying economics.

What this means for investors is that the company is focused on the fundamental to grow the business efficiently and we must drive the operational efficiencies in parallel with expending distribution channels because agent recruitment and subsequent sales and install cycles take time, we must set the proper expectations on when we can reap the benefits of a core group of focused resellers.

Chris will provide more color in terms of current information and when Glowpoint anticipates profitability.

As I said before, we view our opportunities as great and our challenges as manageable, probably because we're no longer distracted by non operating events, partly because we have a better handle on our operating challenges are, and partly because we're better focused to overcome them than ever before.

With that, I'll turn the call over to Chris Zigmont who will provide a review of the financial results.

Chris?

Thanks, David.

Please note that in addition to the quarterly numbers, I will be providing commentary to help you better understand our business model.

I'd like to begin with our revenue results.

As David mentioned, total revenue rose over 69% to $2.6m in Q3, 2003, from $1.5m in the year ago quarter and fell 4% sequentially in Q3 from $2.7m in Q2, 2003.

As usual, summary level figures like this do not tell the full story.

Glowpoint's core subscription and related revenue component actually grew 174% to $1.9m in Q3, 2003, from $700,000 in the year-ago quarter.

And grew 19% sequentially in Q3 from $1.6m in Q2, 2003.

Average billable subscriber locations grew 205% to 932 in Q3 2003, from 306 in the year ago quarter and grew 22% sequentially in Q3 from 763 in Q2, 2003.

Average monthly subscription and related revenue per subscriber location fell 10% to $668 in Q3, from $742 in the year ago quarter.

And fell 3% sequentially in Q3 from $688 in Q2, 2003.

These movements in average monthly subscription and related revenue per subscriber location have been driven by the growth and the number of billable subscriber locations using the $199 per month pay as you go plan.

As a side note, we are reassessing our current product strategy and expect to move into 2004 with a product line that more closely matches our underlying business economics.

It was bridging [inaudible] and other one time fees category that was a drag on results as this category of revenue fell 16% to $700,000, from approximately $850,000 in the year-ago quarter.

And fell 35% sequentially in Q3, 2003, from $1.1m in Q2, 2003.

Event driven revenue was down approximately $200,000 year over year and quarter over quarter.

Bridging revenue was down approximately $200,000 from Q2, 2003, due to the seasonality impact of the summer.

Cost of revenue rose 73% to $2.5m in Q3.

From $1.4m in the year ago quarter.

And fell 4% sequentially from $2.6m in Q2, 2003.

Cost of revenue is comprised of two major categories of costs.

Infrastructure or backbone related costs of the network, and access or costs of connecting subscriber locations to the network.

Infrastructure costs are fixed in nature over the short-term, and follow a step function over the longer term.

They rose from approximately $600,000 in Q3, 2002, to $800,000 in Q3, 2003.

And were flat with Q2, 2003 costs of $800,000.

Though currently built out to handle the video traffic of approximately 4,000 billable subscriber locations, in each of the past two quarters, respectively, the company has incurred approximately $100,000 of costs to relocate the company's points of presence in Dallas, Chicago, Boston, Japan, and the U.K. to gain long-term cost efficienciesor as a result of backbone provider issues.

Access costs are variable in nature.

They rose from approximately $600,000 in Q3, 2002, to $1m in Q3, 2003 and were down from the Q2, 2003 costs of $1.1m.

The year over year increase is driven by the increase in billable subscriber locations.

The quarter over quarter decline results from the absence of access costs related to the events staged in Q2, 2003, and to customer trials that were concluded in Q2, 2003.

Monthly access costs per average billable subscriber location have also been impacted by the growth in the number of billable subscriber locations using the $199 per month pay as you go plan.

And by the increasing use of DSL as the means of accessing the network.

The good news is that average monthly access costs per average billable subscriber location fell 46% to $371 in Q3.

From $689 in the year ago quarter and fell 24% sequentially from $486 in Q2, '03.

Other costs of revenue, in addition to infrastructure and access cost include the personnel costs related to providing the Glowpoint service, along with the ISDN network costs of providing H.320 bridging services.

Approximately two-thirds of these costs are fixed in nature over the short-term and follow a step function over the longer term.Other costs of revenue rose from approximately $400,000 in Q3, 2002 to $600,000 in Q3, 2003, and were down from the Q2, 2003 costs of $700,000.

The remaining item to note related to cost of revenue is that in Q3, 2002, we recorded credits of approximately $250,000 related to refunds of previously paid infrastructure and access fees.

The result of revenue and cost of revenue movements was that our gross margin was flat in Q3, 2003, at approximately $100,000.

With the levels achieved in Q3, 2002 and Q2, 2003.

The nature of our current cost structure described above tells us, however, that each new dollar of revenue brings approximately $0.50 of margin with it.

We believe that we will improve this even further to a marginal gross margin of over 60% over the coming months and quarters.

As we reevaluate our product offering from the perspectives of profitability, competitiveness and meeting customer needs and make changes to standardize this offering with the focus on the most profitable pricing plans.

We will also be focusing on minimizing our costs per subscriber location in order to deliver the Glowpoint service in the most efficient manner possible.

Operating expenses rose 72% to $4.5m in Q3, 2003.

From $2.6m in the year-ago quarter and rose 47% sequentially from $3.1m in Q2, 2003.

The primary reason for these increases was the impairment losses on long lived assets in Q3, 2003, totaling $1.4m.

These network assets are no longer relevant to providing Glowpoint service as the network's ecology has evolved since the service was originally launched.

When this item is factored out of the operating expense totals, the year over year increase in operating expenses actually 19%, and the quarter over quarter increase is 2%.

Research and development costs, which is the new category of costs that we're now breaking out on the income statement, rose 20% in Q3, 2003, versus the year ago quarter and rose 7% sequentially from Q2, 2003 levels.

These costs are fixed in nature in the short-term, and follow a step function over the longer term.

Selling expenses rose 10% to $1.3m in Q3, 2003, from $1.2m in the year ago quarter and were flat with Q2, 2003 levels.

The year over year increase resulted from higher commission and bonuses associated with the higher revenue levels.

Approximately 80% of these costs though, are fixed in nature in the short-term and follow a step function over the longer term.

General and administrative expenses rose 30% to $1.4m in Q3, 2003, from $1.1m in the year ago quarter and rose 2% sequentially from approximately $1.4m in Q2, 2003.

Year over year and quarter over quarter increases were driven by increased professional fees incurred, conducting the search for a new CEO and filing the proxy and holding the annual meeting in August.

The normalized quarterly run rate for this category of expense is approximately $1.2m and is fixed in nature in the short-term.

At September 30, 2003, the balance sheet consisted of current assets totaling $12.8m and current liabilities totaling $3.3m and working capital of $9.5m.

This compared to $13.6m of working capital that existed at June 30, 2003.

After netting out the bank loan payable that had been classified as long-term on the June 30 balance sheet.

Current assets consist of $8.3m of cash, $2.1m of account receivable, and $2.4m of other current assets, including approximately $1.2m due from Gore's technology group.

The $8.3m of cash results from the following.

Starting with the June 30 cash balance of approximately $900,000, $16.2m of net cash related to the sale of VSB, the video sloutions business, is added.

The following items are deducted.

The $4.5m pay down on the bank line of credit.

The $3.1m in cash burn related to Glowpoint and $1.2m of VSB expenses paid by Glowpoint in Q3, 2003, recoverable from Gore's technology group.

For the next quarter or two, the company expects total cash burn, operating expenses plus cap ex, to be approximately $3m per quarter and expects this rate to improve in the subsequent quarters.

The cap ex component of the quarterly cash burn is projectedto be a approximately $500,000 to $600,000.

This has a discretionary component of 20% to 25% of the projected spend.

The company continues to have a $15m line of credit in place with JPMorgan chase bank.

Between it's working capital of $9.5m, its line of credit and flexibility in the need to spend cap ex, the company believes it has sufficient liquidity to support current operating levels for at least the next 12 months.

Lastly, based on the most current information available and with the expectation that we will be further reviewing and refining this estimate as the senior team continues its extensive operational review, the company believes that it can achieve operating profitability at a $2.2m monthly revenue run rate level expected to be achieved by the end of 2004.

With that, let me turn the call over to Mike.

Thanks, Chris.

Since David and Chris have provided quite a bit of information, I will keep my remarks brief.

First, it's difficult for investors to appreciate the positive change that has occurred over the last four weeks since David has come on board and the close of the sales of the video solutions business.

For the first time since the Glowpoint idea was born, the entire company and all its resources, including sales, finance and marketing, are solely focused on Glowpoint.

With David's fresh perspective and experience, there is a high energy level and clear message on what needs to be accomplished.

I'll stay focused on the third quarter which saw additional accomplishments and more firsts on Glowpoint.

During the past quarter, we experienced our highest single day call volume of 490 calls.

We had the highest quarterly total for IP video calls placed on Glowpoint to date of 22,213.

We completed an agreement with network I that enables Glowpoint to deliver [inaudible] solution at a low fixed price in the U.K.

We have successfully transitioned large portions of the network off of MCI which is intended to diversify our network and ultimately lower the operating expenses for the network.

We have moved the U.K. and Japan pops to more cost effective locations and have begun the process of eliminating high priced British telecom and cable wireless costs..

We're piloting the web cast with Beta customers.

My team's focus in the fourth quarter will be to partner with David to continuing to deliver an [SLA] driven world class customer experience on the Glowpoint network.

Focusing efforts to lower overall network Costs, especially less mile cost in the U.S., and we have been working on a promising technology which includes broadband access over power lines that can lower our costs to less mile in the U.S.

Remaining a technology leader in the video conferencing space, including developments of full featured support of sip, including Microsoft and apple multimedia applications and continuing to improve the user experience through enhanced features and services like network managed band width control, improved call status messaging and seamless dialing plans.

Continuing to support and modify the beta rollout of webcasting services and finally to articulate a clear and cost effective international strategy that relates back to our core business of building billable subscriber locations.

Before I go back to David, I want to say how excited I am to be part of this company and look forward to working with David to deliver on our potential.

David?

Thanks Mike.

I hope today's call has provided a clear view of areas of focus in terms of both strategy and execution.

Our focus on the basic business fundamentals and the expansion of the distribution channels, we're excited about our future and prospects for 2004.

We look forward to reporting back in the next call with our progress.

Chuck would you please open the lines up for questions now?

Thank you.

Ladies and gentlemen, if you wish to ask a question, please press star, then one on your touch tone phone.

You'll hear a tone indicating you've been placed in queue.

You may remove yourself from queue at any time by pressing the pound key.

If you're using a speaker phone, please pick up the hand set before pressing the numbers.

Once again if you have a question, please press star one at this time.

One moment, please, for the first question.

Our first question comes from Joseph Helperin with Helperin capital.

Please go head.

It's actually Baruch Helperin (ph) with Helperin capital.

Can you expand on your web casting services?

Is that going to include collaboration tools and so on?

Mike, why don't you take it from the big picture and I can give an update on where we are.

The initial phase of our web casting service provides the ability for our customers to use a video end points to create content.

In the past, people would have to hire a production crew to come in, create content, digitize it and then put it on a content delivery server.

What the Glowpoint service does is allow customers to do that all in one process, automated web interface, making, placing a call, whether it be ISDN or IP.

We bring customers on using web casting on ISDN, we believe we can change those customers to Glowpoint by showing the quality benefits.

At some point, data collaboration becomes a factor.

But that is something on a road map for later in the year.

Does that answer your question?

Yes, thank you.

Our next question comes from Jim stone with TSK advisers.

Please go ahead.

Good afternoon, gentlemen.

I'm not quite sure I fully understand why, with the increase of billable revenue and all, that there was a sequential decline in revenue.

Could you possibly give me some further explanation on that?

Sure, Jim.

Chris will take that one.

The key aspect of the decline in revenue was it was in the category of bridging, event and other one-time fees.

And in the second quarter, we staged the NFL and NBA drafts with ESPN, which was a significant contributor in that quarter.

And in the third quarter, we experienced the summer seasonality in terms of a comparison to Q2.

The combination of those two factors total approximately $400,000.

The core subscription business, though, grew quite nicely.

That's what's driven by the average billable subscriber locations.

And that's why we're really looking at our business now, focusing on the core, which is our subscription revenue and that is what is really from our perspective, really what we can look at to understand the health of the business.

That grew 19%.

When you take a look at the overall revenue, which is what Chris was talking to, the other components, which are not subscription based for one time events, netting out, that's where the drop of 4% came from, versus last quarter.

Right.

A metric that might be helpful, so we can understand a bit about the size of the customers that are coming on, is the number of end points for billable locations.

And that's what I was talking about in my remarks, Jim, is that what we're going to be looking at is billable subscriber locations by customer If people are still used to talking about end points, that's not something we're going to talk about in our public statements.

If you wanted to get some kind of translation and some kind of feel from the company in that, you can talk offline with Mike, but the real -- you know, the real metric that is driving our business, is the number of subscription plans we have out there and that's driven by the subscriber, billable locations.

Those are locations on the network driving revenue.

I understand, but what I'm looking for in terms of the average number of end points per location, some metric there so we get some indication of our -- we signing -- are we signing up ma and pa stores?

Are we signing up major locations?

Absolutely.

And in the press release that we sent out, one of the key metrics we'll be reporting against are the billable subscriber locations per customer.

You can see in Q3, 2003, that was 4.0, up from 3.4 in Q3, 2002 and up slightly from Q2, 2003.

You can see that the average number of billable locations per customer is four so these aren't the mom and pops.

These are, you know, law firms like the ones with the 11 billable locations on down.

That is a metric we're going to be tracking because you're absolutely right.

It's important to understand the size of the customer that we're bringing on to see what kind of -- how much they're going to be driving from subscription revenue initially and what is the likelihood of them being able to add additional billable locations so we can grow within the customer accounts.

In the uninstalled locations, can you give us a little better description of what that means?

Does that mean that basically, the end point – the communication line hasn't been drawn in, or they may have had ten end points and two haven't been installed yet?

What actually does it mean?

Let me make sure I understand your question.

You're talking about the backlog?

The backlog of uninstalled locations.

I'm trying to understand the definition of an uninstalled location.

That can be in a couple of different categories.

What it means is that we have a contract for a billable location to be installed, but it is at some point within the provisioning process.

It could be that we literally have received the contract, but we haven't ordered the circuit yet.

It could be that we've ordered the circuit, but have not received an install date for circuit.

It Could mean that we have the install date, but we don't have it installed yet.

There's a number of different points within the provisioning process in which that can fall.

The bottom line is that it is in the queue to be installed, but not yet on the network driving revenue.

Did that answer your question?

Yeah.

Well, I guess it does.

I'm saying, for instance there may have been ten end points ordered for the location of which eight have been installed, but still two end points to be installed?

Is that correct?

That would still be in the backlock?

No, again, we're focusing on locations.

Regardless of the number of end points, once a location is up, it's up.

But what it could be is that the -- there's cable plant that has to be installed or that the circuit's installed and we haven't got ton test it yet.

We will not hold up billing if not all the end points at a location are installed.

We focus on the location and make sure the circuit is up and we've completed the test call to that location.

So you've touched on the point that I want -- one of the point I was trying to understand that it could be in the back log but still revenue could be coming in from it?

No.

I think, again, it's going to be a period before we're comfortable with the new metrics we’re looking at.

Once that billable location is up and running, and that the circuit's been installed and it is actually generating cost for us from the last mile provider, we are going to be generating revenue off of the subscription pan that they've been signed up, regardless of whether the end points are on board or not.

We need to get rid of the end point.

The end point isn't driving the revenue.

We have a subscription plan associated with that billable location.

Once that billable location is up and running on the network, that subscription plan is being billed to that user.

Follow you.

Got you.

Then last question, what's happening with the average bill?

Not the average bill, but actual pricing, whether it's a price per hour or however you're pricing it now?

What's the competitive claimant in that and are the prices coming down?

Are they stable?

The prices have been stable.

The only change was the relatively recent introduction of a lower price point.

From Glowpoint's perspective, $199 pay as you go.

As Chris mentioned in his part of the remarks, we're going to be relooking at our product and pricing the strategy to make certain that we're actually -- one, we've got products out there that are much more aligned with our underlying cost structure.

I don't want to get into too much detail.

It's something we'll be launching in 2004.

I'll be able to give more color on that on the next call.

But we do not see any competitive pressures from a pricing perspective.

In fact, the story of being more efficient and less costly, both on domestic as well as international Gateway usage, using the IP video conferencing solution of Glowpoint, is still a message that our customers are hearing loud and clear and understand.

Do you have any metrics you can share of what that typically or across the network works out as price per minute or price per hour that customers are paying?

Because we offer our pricing in package mode, the typical package is a ten-hour plan.

That's the majority of the install packages.

For the 199 package, for example we charge eight cents for 64 kill bits.

Normally people are doing calls at 34 so that would be six times eight per minute.

Just to be clear In the press release, we have an average monthly subscription revenue per location.

That will give you the revenue that's being generated by each one of those billable subscriber locations.

And the beauty of being a subscription business that when somebody signs up for a ten-hour plan and is paying $499 per month, regardless of how much they use, they're paying us $499 per month.

Right, Understand.

So we can talk about it and again, part of this is we're going through transition here.

We're going to be identifying the core metrics that we need to be tracking the business.

Usage per customer may be one of those.

I'm getting my hand around the business.

We'll be back to you as we understand better what are the key levers we need to be looking at on a daily, weekly, monthly, quarterly basis and will share with you.

What we have in the press release and in our remarks are those we're comfortable with that we understand and are able to track against.

I admire what you have shared and really appreciate getting this level detail.

Thank you.

Thanks a lot.

We have a question from Greg McCarthy with Viewpoint.

Please Go ahead.

Good afternoon.

I've got three questions.

And to start off with, Dave, you're lucky you got two sharp guys so you can do a little learning, you know what I mean?

Much appreciated and I concur.

I got a question for Chris.

And you and let go with this.

Chris, can you back up and walk through the burn rate again?

I picked up three million per month but I don't think that's correct.

No.

Well, our --

And next one, I want to ask -- I'll ask them right now.

Okay.

Chris, the burn rate.

Mike, just to make it clear to everybody, who is Glowpoint's competitor?

I don't see any out there.

The only thing I can think of is Sprint.

Am I wrong?

The third question for Dave, can you be more specific on your game plan, marketing, PR, ramping up direct sales, indirect sales, et cetera, et cetera.

I'll let you guys go.

Sounds good.

Let's do the burn rate first and move over to the competition and then I'll take on the last piece.

Great.

Right now, we're at an approximate $3 million per quarter total burn rate.

So that includes both operating expenses and capital expenditures.

And we're averaging about a half million to $600,000 per quarter in capital expenditures.

So approximately $2.5 million of the burn relates to operating expenses.

And that's a quarterly rate, not a monthly rate.

So the monthly rate's approximately a million dollars.

And the nature of our business now is such that we tend to burn in a relative prorata fashion over the course of the quarter, because the business is so structured and standardized.

Does that help?

Yeah that helps.

I think it gives the impression if you do the numbers that you're going to run out of money.

That's -- if you do those kind of numbers.

Right now, or at the end of September, we had approximately $9.5 million of working capital.

We have access to a line of credit, we're anticipating improving financial results over the course of the coming quarters.

Okay.

Great.

I think when you pull -- [inaudible] I think we're okay.

Okay, great.

On the competition, we break the competition into three categories.

Evey body knows ISDN is one of them The other one is Me 2 players.

These are smaller resellers that had to do something to compete against Glowpoint or smaller network providers that wanted to do something to fill up the network they built.

In that category, we know of one that is about to go under.

The other ones have not made any major inroads.

As David Trachtenberg mentioned before, we've actually attracted some agents that were looking at some of those and were very disappointed that they didn't actually have a service.

The other competitors are the larger players.

The two we'd keep our eyes on in the U.S. would be AT&T and Sprint.

Sprint has announced three different services since we started Glowpoint.

You cannot get pricing on it if you try and call Sprint.

No one really knows what to do with that.

AT&T offers a VPN type service, extremely expensive.

If you put all the numbers together, it's also a very closed network and you have to schedule every call off of that particular VPN.

As of right now in the U.S., there's no one that's close on an apples to apples comparison of service.

We always keep our eyes open.

Great.

Thanks, Mike.

On the last point, in terms of more specifics on the game plan, I could talk to you big picture and really getting back to what I had mentioned before in the remarks, there are really two core areas that I am driving from a focused perspective for the organization.

I hate to sound simplistic.

It’s truly is.

It's getting back to basics, focusing on operations and making certain we have everything we need under our belt to be a stand alone company.

What that means making certain that our customer experience – when I say customer, I mean both sales agents and end users have an easy time of working with Glowpoint.

The second thing is really expanding our distribution channels.

And making certain that we're selecting those partners that are going to be able to deliver.

Now, part of it is we have to deliver for our partners at the same time.

We need to be providing the sales and marketing tools to get them up and running quickly and to be able to replicate the knowledge that we have internally out to the feet on the street.

We will not scale our business from a one to one perspective to have a direct sales force going on and trying to close deals.

Our strategy is an indirect sales strategy where we basically replicate our knowledge through both direct contact with the larger resellers and indirect contact through online tools that gives people who want to sell Glowpoint access and knowledge to be able to do it effectively and quickly.

So from a marketing perspective, you're not going to see us on national television.

You probably not going to see us on print ads in the "Wall Street Journal" or "New York Times."

You are going to see creating sales and marketing materials to give to our resellers to be productive out in the marketplace.

You're going to see guerilla marketing tactics, really, I think, focused around one public relations activity to get the name of Glowpoint out there to provide air cover to our resellers and you will see us doing some activity under certain verticals.

For example, being able to target wins and successes and applications in the legal community or in the medical community.

Much less expensive doing that kind of targeting, which should have a higher payoff for us, because we know those are the types of companies that have been attracted to Glowpoint without a heck of a lot of marketing on our side.

The bottom line, to have Glowpoint not be the best kept secret in video conferencing.

It's to be top of mind and to make certain that people understand what the solution is and what the benefits are for being both a Glowpoint reseller as well as a Glowpoint user.

I think that's great.

Back to Mike, seems to me, if I can make it short, you have a unique product in the market.

I think you have distinguish it.

I think it's a fantastic concept and product.

You got great potential, but you've got to get visibility.

Make the determination you've got something unique as Mike described.

Having been in sales for 30 years, you got to have something to say this is unique and this is why.

You are preaching to the quire.

We hear you and we absolutely agree.

That's why I was brought on board, for a number of reasons in terms of fitting the profile of the type of person they were look for.

Most importantly, sales and marketing background with experience and managing indirect sales channels.

Right.

The last question I have, I think you guys will do it, and I think you got a great product and I wish you big success.

Dave, you said you had one of your companies, you had a subscriber in the northernmost part of the world.

Is that right?

Yeah, we actually went from the bottom of the Grand Canyon to above the arctic circle.

Where was that?

Point Barrow?

I could find out exactly the location.

Did you make a visit up there?

I unfortunately was never able to get up there.

I was there.

Did you see the installation?

No.

No.

It was in the Navy many years ago.

I'll let you guys go.

Thanks a lot.

We have a question from Bill Mullerman (ph) with Lone Star Asset Management.

Go ahead.

Hi guys.

I want to welcome David.

David.

I look forward to guiding the company through the next phase of (inaudible) evolution.

Looking forward to that.

Much appreciated.

Thank you.

I'm sorry we haven't talked before the conference call.

I had a few questions and wanted to follow up on something somebody brought up earlier.

When you say you're going to move from end point to location, I understand that, but in general, one location with 20 end points most likely bill more than a location with one?

The potential is there, but as we did this quarter in seperatinog out the bridging and other revenue, that is more subject to seasonality, and things happening at the individual companies than the subscription rate is.

So there will be a set subscription revenue and we do charge for additional end points at each location.

That so that will add to the subscription base, but we separate that revenue out.

It stands to reason more end points will use more services.

And I really want to be clear we will be looking at a number of different metrics internally in terms of how are we going to be managing the business and understanding what the different opportunities are.

In terms of actually tracking and reporting publicly to shareholders, et cetera, to give them very quick and efficient means of understanding how we're doing, it is clear that the key metric is the billable location.

Now, there are other things we'll be looking at.

For example, to understand how accounts are progressing over time, whether that's average usage per usage customer, whether it's zero usage as an early warning system to be able to manage by exception if you will, to understand what are the core accounts that we need to be focusing in on to make certain that our revenue is secure over the long-term.

So these aren't the only things that the company is going to be look at.

In terms of being able to report out and track against in an ongoing basis, we want to pick those key levers that are going to give you the most information about how the company is doing.

You're absolutely right.

There are other metrics that we are going to be looking at internally.

I guess from our standpoint, though, if you're selling a lot more locations with a higher concentration of end points than lower one, the ARPU will go up over time.

Assuming that more end points generate more revenue the ARPU, you look at the locations in the ARPU and if it's going up, most likely the locations have more end points.

Is that a fair assumption?

It's potential, one of the things we're looking at is driving up the revenue per location.

The web casting service is a service that can be used in addition and may be used at an additional location and additional revenue.

We still think the basic metric of the subscriber fee is the best one to follow at this point and we'll be following all the other metrics.

Just categorizing them differently so that you guys can clearly see the growth in subscription, which should trail along all the other services.

Got you.

Second it is kind of a group of questions When I was looking at Polycom's financials, they sold 12,000 units.

I'm looking at end points and apologize for using end points here, but in the press release preannouncing the quarter, you said you had 179 end points per quarter.

I wondered where the other roughly 11,000 end points ended up.

I guess I'll break it into two.

But what -- are they going on ISDN or some other IP service?

Doesn't sound like there's another IP service for them to choose.

I'm curious where the people are going.

A couple things to keep in mind.

One is that still 80% to 85% of the systems are being put on ISDN.

The other thing is there are people running video in their own networks and that's not contrary to what we'd like to see.

We'd like to see more people doing that.

So there are some people playing more with IP.

The other thing is that just because Polycom sold them doesn't mean that they went into production or are actually being used yet.

Got you.

So you don't know where these are.

But I want to -- you bring up an interesting point, though, the way that the company, because of its relationship with Wire One, the way it was structured before, it was difficult to flay with other potential distribution partners.

And one of the key strategic reasons for the separation between the hardware and the services side was to give us the flexibility and the freedom to actually being able to look for strategic partnerships with companies like Polycom, [Tandburg] and Sony.

So in terms of looking at how we go to market, it's not just going after the resellers in terms of -- although extremely important, like Wire One and like our most recent one that we announced yesterday, but also looking at strategic relationships for -- with the hardware manufacturers to be able to piggy back on the efforts of what they're doing in terms of selling into the marketplace.

So we have the flexibility of doing that now, it's now about execution and creating a partnership programs that drive benefits for both parties.

Got you.

Okay.

Kind of as a follow-up, in the preannouncement, it talked about how the number of -- used end points in the press release, which is why I'm using it.

But locations went down, the reason because of the transition of the Wire One sales force.

I have concerns that, you know, now that Wire One sales force is basically Gore's technology and they're not Wire One, between now and when CMS comes online in the first quarter of 2004, during this transition period, are we going to continue to see a decrease in sales?

Is Wire One going to be able to come back up to speed?

If you could talk about the transition period and what you see happening?

I guess the fact that you brought up the Wire One transition as being a reason for the decrease in sales is what has me a little concerned.

Yeah, I understand your concern.

Since the transition, we continue to see orders being placed between Wire One and with Glowpoint.

There are there are a handful of other agents that I alluded to in my remarks that are driving sales for the company.

There is still a back log of sales that we're continuing to add on to the network that are going to be adding subscriber revenue in this quarter.

The real focus for the company is to build up that back log to make sure there's a continual back log of sites to be installed.

That's where CMS comes in and other announcements that will be made over the week and months to come in terms of other distribution partners.

But as I also mentioned we are still focused Wire One is still a very important partner for us.

There is a core group of Wire One sales agents who I have talked to personally who have daily conversations with the -- with Glowpoint employees who are focused in generating sales out through the indirect distribution channel.

I am optimistic that there are -- will continue to be sales through the Wire One channel because I see them coming across my desk on a daily and weekly basis since I have been here.

But I'm not going to pull punches.

We need to diversify our distribution channels.

That is one of my core focuses for the fourth quarter and well beyond, and I, you know, we have already been making progress and I think the announcement with CMS and others that will be upcoming should show you there are big players out who want to sell Glowpoint and want a piece of the action.

I appreciate that.

I guess like with CMS, it's going to take them a quarter, quarter and a half to get up to speed.

Is that going to be the case with most of the other ones?

It's going to vary on the type of partner we're talking about.

If this heth he they have experience in the domain if you will, it's going to be a faster process.

As Glowpoint develops more online and automated tools, it's going to be a faster process.

I agree with you, and it's something I talked about, is that it will take time to get agents up and running and efficient selling the service.

That's why we also have people within Glowpoint who can help partner with some of the agents to help close the sales for some of the big deals that are out there.

I am -- you know, I hear your concern.

It's a major focus of ours.

And it's important for us to set the expectations of once we bring a reseller like CMS on board, and they have 400 feet on the street, this is not something that's going to be generating installs in the next week.

It's -- they need to be trained.

They need to be given the tools to be able to go out there.

They need to find the deals, close the deals and then comes the provisions process which you know also takes time.

I think your quarter to quarter and a half is probably in the right ballpark in terms of going from we announce the deal and when we can start seeing backlog coming on to -- coming into the systems from a contract perspective which will then be scheduled for install and driving revenue.

I've got a multi-fold strategy.

One is to find a distribution partner and get them trained and running as quickly as possible.

Two is to continue to work with wine one and incent them to go out, give them the tools and, you know, giving them the programs to be able to go and out and sell effectively and efficiently and focusing in on those sales agents who have sold Glowpoint in the past who have embraced the product and want to continue to sell.

That's where we're going to focus our energy.

And third, so accelerate the moving back log into revenue generating subscriber locations.

That's the name of the game, getting them on the network, getting billing and driving our subscription revenue up.

It's a multifold effort that is going to take time to build up the upper distribution channels.

And this question will be easy, but when I was reading the CMS news announcement, I guess I've never seen the terms before.

A telecom master agency and 400 premiere agents, is that basically, they have like resellers underneath them and they're not actually 400 salespeople in their organization, but they funnel product and package it out to other people.

Absolutely.

They do sort of the master negotiation, if you will, provide sales and marketing tools, and provide a lot of other online resources for their sub agents who then sell either a complete portfolio or a sub segment of the portfolio of things they have to sell through the relationships with Sprint, with [Rain Dance], and now with, Glowpoint.

It's a recurring revenue strategy for them, in terms of what they're getting from their different relationships and they pass a piece of that revenue share if you will, down to their sales agent.

So they're not employees of CMS, but they are tight at the hip in terms of their operations as well as at the end of the day, it's about driving sales and commissions.

Got you.

Then I just have a couple of quick questions for Chris.

Kind of financial questions.

On the $4.9 million debenture, when does that mature?

It matures the later of February 2, 2004, or 30 -- three months after our line of credit, which JPMorgan matures, and that matures, May of 2005.

I target it at August of 2005.

Okay.

Because I was just, you know, worried about what the stock price being below the conversion price, them wanting to get their money back.

So I'm glad they're it's August 5.

On the cashew receive, a little over $16 million versus the $19 million in the press release, that's commission paid to the broker, the person who put the deal together?

It's a combination of things.

There are closing costs related to the sale.

That's true.

What I also netted in the number we did have a loss from discontinued BSB operations in the income statement in the quarter.

There were costs that we ended up bearing.

And so that's the other big chunk of costs.

So that's a net number after taking into account those two factors.

Okay.

And then on the break-even level I wasn't 100% clear on that.

Did you say it's 2.2 million on monthly-- oh, monthly revenue?

Monthly revenue.

Yes

It's got to be about 6.6 million

6.5, 6.6, ye.

Based on what we understand today as I get my arms around the business, only been here four weeks, continue to be focusing on understanding what the key levers are, will be providing better guidance as we have a more credible view of what that's going to look like.

Can you comment a little bit on why the break-even date slipped from Q2 of '04?

That was mentioned on last conference call.

I believe that's all my questions.

Thanks.

I think, Bill, the reality of what did transpire in Q3 in terms of the end points we quoted in the prerelease, it ends up having a rippling effect over the coming quarters.

What we've tried to do in terms of this latest set of projections is factor in this transition that we're going through that David attempted to describe a little earlier.

And give rise to that in the projections.

I think when we did it ends up pushing the date out that couple of quarters and strikes us as being more realistic.

And I think we just have a much more realistic view of our jumping out point, I think, as Chris as alluding to than when those numbers were given.

There's been a lot of analysis and focus on the business now as a standalone business, which is very different than what it looked like just a quarter ago.

Understanding where we are now will definitely give us better insight as to where we're headed.

Gotcha.

Sorry a quick follow-up on that.

Chris, you mentioned that you have enough cash to get through the next 12 months.

Since break-even would be 15 months away, do you think you have enough cash to get to break-even?

I guess for the call here, I'm just going to limit my comments to that, you know, the coming 12 months.

Okay.

I think there's so many factors, bill, that are going to play out over the coming 12 months, that it's always hard to pinpoint things that -- down that far, you know, the road, especially with such new and exciting resellers being signed up, what the relative volumes are, when they're going to start coming on.

So it's hard to go past that, but I'm comfortable with the outlook for the next 12 months.

Okay.

Thanks a lot for taking all of my questions.

Appreciate it and look forward to the next call.

Thanks a lot.

We have a question from Frank Kups (ph) with Wachovia Securities.

Please go ahead.

Hi how are you guys doing today?

I have a question on the end points on ISDN.

Mike , this might be targeted towards you.

Have we started to see any conversion over to ISDN in the Glowpoint network?

Also, the percentage of customers that are out there that run on their own private network, how do we benefit from a company that has their own private network out there?

What can we do for them?

First , about 65 to 70% of our customers on Glowpoint right now were converted over from ISDN.

We know that because they've bought from Wire One before so we tracked that they had systems up and running on ISDN before.

We know about 65%.

The other are either new to Wire One or Glowpoint.

I don't have the data, but it stands to reason that a good percentage came from ISDN so we're converting people off of ISDN.

As far as people putting video on their own networks, if you look at the phone analogy, when people started buying PBXs and theoretically had free voice office to office, all that did was put phones in every office.

It didn't decrease the need or for uses of services by carriers.

We believe if we help customers get video on their own network to start doing video internally, number one, no Company has the infrastructure for video over IP because it would be too cost prohibitive.

Two, they need to talk to other folks, other vendors, other partners.

The way to do that, the options would be the Internet, go back to ISDN or use a quality service like Glowpoint.

In addition, some of the other features that we offer and our ability to reach international locations at a very cost effective rate makes it attractive for customers to partner with us and connect to their networks to us.

And we have a number of those already in place.

That have a large number of systems on their own network but still connect to Glowpoint to get access to the bridging and Gateway services and operators.

Or simply to help -- have us help manage their traffic so that they know that they can depend on getting outside of the network with the premier IP service.

We really see that more deployment of video on customer IP networks is an advantage to us over the long haul.

Do we still see more end points -- I hate to use the end point term, as most people do as we transition to a circuit.

We'll let you get away with it this time.

David, thank you.

Do we still see more and more customers that have end points installed adding more end points to their network?

Is each end point, I guess I'm so used to the end point term and billing on end points.

If you have a location , got ten end points on a location, each end point that's currently being billed for each end point plus the network access for the location, correct?

We charge -- there are -- for the different packages that we have, with a T1 package, which is $799, we include three end point addresses.

Three IP addresses with that.

So they can attach three video systems.

Every additional system, we charge $25 extra so we add that on to the monthly subscription fee.

Any usage that is generated by those three systems will add to their minutes and theoretically chew at their ten-hour package .

And, of course if they use bridging or Gateway, it's by end point.

The bridging and Gateway charges boor by end point?

But to be clear, the subscription plan is associated with the billable location, not the end point.

It's not a separate subscription plan for the five or six end points affiliated with the subscriber location.

It's one billable subscriber location.

That's the customer's looking at it an and how we need to look at it.

There's going to be a transition here, but trust me, we've already gotten through it internally here and we'll get through it.

The H .323 bridging is more associated with Glowpoint than the legacy 323 bridging?

It is directly.

We're the only bridging provider on Glowpoint and all the IP bridging is by Glowpoint customers.

The 320 bridging was by ISDN?

Correct.

We still offer that service.

The reason we're seeing the revenue numbers decrease there, I'm assuming , is that with as we sign more customers up to Glowpoint and more people put circuits in, the time that they share with each other, they don't need to go to the 320 bridge anymore , correct?

Correct.

The whole H .320 bridging industry has seen a decline in usage for a couple of reasons.

One is people see is it as a penalty for using more minutes because of the charge structor, and two the quality isn't good.

We're seeing on Glowpoint the exact reverse.

Our pricing model is somewhat different so there's not a penalty for using more bridging, as you would imagine there is on being charged long distance charge on ISDN end port fees.

In addition, the quality is good and they don't mind doing more bridge calls.

The next question has to do with the resellers verse when we had the direct sales force.

The cost of the direct sales force versus reseller, how does that transpire down the cost of goods sold category?

Is the reseller cheaper for us than when we had the direct sales force?

Frank, it's Chris.

I think they're pretty comparable when all's said and done.

We've attempted to make the commission structure relatively equal, because we were trying to do this when we did have a direct sales force so we couldn't be too far out of line.

I think generally, it's a little less expensive with the resellers.

And there's other ancillary costs associated with having a direct sales force?

Absolutely.

Insurance and things like that.

Absolutely .

Trying to think what other questions I have.

I still have concern over this $4.8 million on the convertible bond.

It seems as though , David, this may be a good question for you or for Chris.

I read through the form 8 K put out in December, and I'm not quite sure.

There's a lot of provisions and language.

I'm not a lawyer.

I don't understand it.

Seems like there's a lot of readjustments and a lot of figures that can change due to certain triggering events.

I've been involved in the company for three and a half years.

And we've seen a lot of investment banking activities.

We've seen a lot of dilution to the stock.

I'm concerned about the bond, the stock price has declined dramatically since you joined the board, David.

None of which I believe is your fault.

I welcome you aboard and am excited about having you as the new CEO, but I've got concerns over the bond and over what other type of investment banking activities might affect the stock.

We've seen it in 1991.

We've seen it in 1992.

It seems to be a continual trend to the company.

Frank, we've actually had our attorneys look at the agreement and evaluate the different triggers and such , and as we sit here today, none of them, you know, have occurred that would give rise to an adjustment to the conversion price of the notes.

And that's what we can say.

That's where we stand today.

When the note becomes due , is this a cash payment on the note if the stock is below the exercise price , or is it still a stock payment?

First off, the maturity date is out in August of 2005.

So were clear on that.

Doesn't that depend on the credit line or no?

It does, but I'm making the presumption, the credit line is in place until May of 2005 at the very least.

And off the top of my head, I don't recall all the triggers, you know in terms of -- I think it's going to come down to the investors, the holders, you know predisposition to whether, you know, to convert or be paid out in cash.

And we can't anticipate that now.

That's something we captain figure out right now?

What their intention is?

Um, I think that sums it up for my questions.

David, welcome aboard.

Thank you very much.

Let's take one more question, if there is and then wrap up , ins since it's getting close to: 30 here.

We have a question from Jim Woolkie (ph) with WIN.

Go ahead.

Jim, how are you?

Good , thanks.

Since this is typically when companies give their midquarter updates, can you give us a sense on how the first 45 days of the quarter are tracking and secondly , hopefully this is an aberration as to when we're going to get out earnings going forward?

Yeah , I think that's fair to say.

It was -- you know , again, this is literally my fourth week to the day.

There is a lot I needed to get my arms around.

I'm not making excuses.

I don't think you'd have wanted me to do anything other than what I was focused in on , which was understanding the operations and making certain that what we're coming out to you with was something that was supportable and made sense.

I think you can see that there's a lot more shared by definition than has been shared in the past on the company and I think a very different view of how to move this company forward to be successful.

So our objective is to be out in a much more normal time frame post the close of a quarter.

Obviously, at the close of a year, we're going to be taking a little bit more time to make certain we've got everything together to give you , for example, the 2003 year ending results after we closed the books in December.

That is clearly our intention.

But we thought it was important for me to at least have four weeks under my belt to have this type of information, this type of analysis done so we could get out of here and not just give you numbers, but to give you good numbers to give you numbers with explanation and a view of where we look at the business going forward.

Jim, this is Chris.

I think we'd still want watchers of the company to know that there's still that pattern of how business takes place in this industry during the course of a fiscal quarter, which is in the first month or two of the quarter, you're generally dealing with a small percentage of the end point sales, let's say, by the hardware resellers.

And we end up being impacted by that pattern.

So we're going to continue to have a lot of our activity in the third month of the fiscal quarter.

At this point in time, it's hard to make a statement without potentially, you know, getting it wrong.

Do you have any success stories you can share with us over the last 45 days?

What was the question?

Do you have any success stories that you can share with us?

I think one of the key success stories is what we announced a couple of them.

One, we announced yesterday, bringing a very large reseller with 400 feet on the street where we're going to be focusing our resources on making certain they're up and running in a timely manner to be impacting our subscription revenue as quickly as possible in the first quarter of 2004.

A real focus on automating our tools, for example , the launch of ISO Glowpoint.com is which is a phase one in terms of getting the tools and marketing tools that are -- our agents will need to get up and running as they manage accounts and business.

Really , I tell you, the wind over the last four weeks as been getting the organization focused to being a standalope company with the right operational elements, the right metrics to be tracking and the right direction in terms of what is important -- what we need to do that's going to improve the business , drive subscription revenue and get to the break even point we're all looking forward to that we talked about earlier.

I mean, the real wind is that we understand what we need to do, we've got the plans in place to do it and now we need to focus and execute.

Okay.

You know, looking at the stock price, David , it appears that we're under constant pressure, you know.

It's almost like manipulation.

I think Frank noted our investment banking activities in the past have been, to put it mildly, a disaster.

You know, the players involved.

They've constantly been toxic deals.

And that completely detrimental to the shareholder.

And , you know, I have concerns looking at that cash level that we're going to be going down the same road and looking at further dilution, and, you know , it's very scary as large shareholder in this company.

I mean, I see the people that are involved, the Rameus' of the world and it's sickening.

It's very concerning , and I just you know, I just hope that this company can generate sufficient cash so we don't have to go back to the markets for future deals because they've been a disaster.

Can you give us some sense on that front?

I appreciate your comment.

Obviously , I'm not happy with where the stock price is right now, but I'm focused on the longer term.

I can't look at it every day and figure what can I do today to make it go up.

I've got to look at what do I need to do over the long haul to create value for the shareholders.

We're going to continue to evaluate as we were talking about earlier, what our cash needs are as a business progresses, and , you know, we're going to look at the option that make sense for the company and our shareholders.

The best I can do is to let you know that we are -- as we should be and as we are as committed to creating shareholder value and focusing on the business is going to get us there.

I can't say much more than that.

Okay.

Thanks.

Good luck, David.

Thank you very much.

Thanks for your comments.

I think we're going to wrap up the call now.

Chuck, can you take care of that.

Thank you.

Ladies and gentlemen, that does conclude our conference for today.

Thank you for your participation and for using AT&T executive teleconference.

You may now disconnect.