Oblong Inc (OBLG) 2006 Q4 法說會逐字稿

Good afternoon, everyone.

Welcome to the Glowpoint 2006 year-end results conference call.

Before we begin, I want to remind listeners that this call is being webcast live over the Internet and that a webcast replay will also be available on the Company's website, www.glowpoint.com following the call.

This call is being hosted by Glowpoint's President and CEO, Michael Brandofino.

There will be a brief question-and-answer period during the Company's prepared remarks, during which you may enter the queue by pressing star 1.

I would now like to introduce Glowpoint's CFO, Ed Heinen, who will review the Safe Harbor information.

Thank you very much.

Good afternoon, everybody.

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

These factors, risks, and uncertainties include market acceptance and the availability of new video communication services, the non-exclusive and terminable at-will nature of sales agents agreements, rapid technological change affecting demand for our services, competition from other video communication service providers, and the availability of sufficient financial resources to enable us to expand our operations, as well as other risks detailed from time to time in our filings with the Securities and Exchange Commission.

Today's call and webcast may include non-GAAP financial measures within the meaning of SEC Regulation G.

Hello, everyone.

I am Mike Brandofino, President and CEO for Glowpoint.

Thank you for joining us.

With me today on the call are Ed Heinen, CFO; and Joe Laezza, our COO, who will be available during the question-and-answer period.

A little over a year ago, we were asked by the board to take the helm of Glowpoint and navigate the Company through some extremely difficult challenges.

These included the seemingly insurmountable task of completing the restatements, cutting costs while maintaining customers, repairing Glowpoint's reputation in the industry, growing revenue, strengthening our board of directors, and the threat of further dilution from the Series-B penney warrant covenant from the March/April 2006 debt raise.

I'm extremely happy to report that we were able to accomplish these objectives and others.

As a result, Glowpoint is on a solid path to full health.

I guess for most investors the key indicator of whether we were successful in our endeavor to turn the Company around is whether or not we would have to issue the Series-B penney warrants because their issuance was tied to the ability of the Company to achieve certain operating criteria in the fourth quarter.

I'm sure you're all aware by now we did, in fact, accomplish our goal and avoided over 6 million shares of further dilution.

I want to start this call by discussing how we were able to create such a dramatic turnaround in our business in such a short time, and, most importantly, what does this mean for Glowpoint today.

Our restructuring plan targeted three key areas, cutting costs, maintaining existing revenue, and acquiring new revenue.

Since April of 2006, we have reduced annualized expenses by about $9.5 million.

About $3 million of this was tied to cost of goods.

Approximately $2.5 million came from salaries and related expenses, and about $4 million from SG&A.

While we primarily focused on making these dramatic cuts in costs, it is particularly satisfying that we were not only able to maintain revenue but actually grew it by 10% in 2006.

We did this by focusing our limited financial resources on what we believed were our key markets, particularly legal and broadcast.

And we are extremely satisfied with the results in these targeted markets.

For example, Glowpoint's revenue from the legal sector grew 25% in 2006 over 2005 levels.

In fact, we now count 22 of the largest 100 law firms in the country as customers.

The broadcast sector, in the broadcast sector we realized a 67% growth in 2006 revenue over 2005.

Through this effort we added high-profile subscription-based customers like Comcast Sports and Fox Sports Net which use Glowpoint to obtain content from college sports programs around the country and pay a monthly fee for all the locations connected to our service.

This growth in the broadcast sector has continued into 2007 with the signing of three multi-year contracts in April valued at approximately $2 million in new revenue, including a deal with NASCAR Images.

While we are pleased with the Company's growth in some strategic segments, we are keenly aware of the need to promote sustained growth across many segments, and the way to do this is through improved business through our distribution channels.

When we took over last year, we were not getting much from these channels.

In fact, prior to 2006, less than 10% of our closed deals came through our channel partner program.

In May 2006, we completely overhauled our channel program and used an industry trade show called INFOCOM to reintroduce Glowpoint to our partners.

We took the approach of taking the time to understand our partners' goals and challenges, then tailored our programs to support them more effectively, and the results exceeded our expectations.

From June through December 2006, about 40% of our closed deals were introduced through channel partners.

Currently, about 60% of our sales pipeline includes deals we are working on with those partners.

Another component of our growth plan has been to establish additional sources of revenue and new customers by leveraging our managed multi-point conferencing services.

This is a service where we connect multiple customer locations into one video meeting much like our audio conference today connects all of us on this call.

Our efforts have paid off.

Up until May of 2006, revenue from these services averaged around $209,000 per month.

From June through December, this total increased to $229,000 per month and has grown to an average of $279,000 per month through the first three months of 2007.

This effort has the effect of adding revenue, as well as introducing new customers to the Glowpoint suite of services.

Our focus on multi-point conferencing has yielded an average of 10 new logos, that's new customers to Glowpoint, each of the last six months.

Even without an extensive sales and marketing staff we have been able to move forward on all fronts by generating interest at targeted trade shows, focusing on our channel results, and expanding business within existing customers.

In any objective sense each of these improvements is a huge accomplishment.

While we should all be pleased with the results we know we can do better.

Sales and marketing were affected the most by our cost cutting measures especially in the fourth quarter.

Our ability to expand and manage our sales and marketing efforts within the constraints of our tight budgets is the single biggest factor in our ability to ramp up sales and generate profits as we move into the second half of 2007.

As much as possible we will expand our investment in this area and hire additional sales personnel.

Before I get into what we see happening in 2007, I think it's important to define just what Glowpoint is and how our business fits into the industry in general.

We have received numerous calls over the past year that suggest that not all our investors fully understand the Company's role.

So we completely rewrote our corporate overview in the 10-K and invite all investors to read this for a very thorough explanation of Glowpoint business.

In addition, let's take a few minutes on this call to all get on the same page.

First, we do not make or sell video equipment.

We leave that to Polycom, Tandberg, Cisco, H-P, the integrators and resellers.

Instead, we are a managed video service provider basically in the business of helping companies get the best use out of their video equipment and showing them how they can leverage the use of video communications in their business.

Our managed video services involve two major components, the Glowpoint Video Application Services and the Glowpoint Network Services.

This Glowpoint Video Application Services are network agnostic.

This means we can deliver Glowpoint Video Application Services across any network not just Glowpoint's.

Video applications refer to services like multi-point conferencing, video help desk, operator services and gateway services, which is the ability for all video systems to call ISDN.

The Glowpoint Network Services leverage our award winning video network built specifically for two-way video communications.

We can provide customers with an end-to-end video network solution using Glowpoint's quality of service network with access points around the world.

A majority of our revenue comes from combining these two components into a bundled service offering for one monthly subscription fee.

The remainder of our revenue comes from selling various services on a pay-as-you-use-it basis.

We also combine various components of our services to address key verticals that differentiate us from companies that just sell network or sell other video services.

The broadcast sector is a great example of this, and it is important for you to understand the significance and breadth of the opportunity that exists in what we call the broadcast sector.

While it is nice to have the Glowpoint logo on the screen during the NFL and NBA drafts these events do not represent ongoing recurring revenue.

However, the majority of our revenue from this sector is recurring.

Glowpoint has gained a reputation for providing industry changing alternative for content acquisition that goes well beyond on-air interviews.

Let's take the NASCAR opportunity.

NASCAR is the owner of content.

That content being the access to the drivers and their teams.

NASCAR wants to monetize that content.

In order to do so, they signed a contract with ESPN, a broadcaster, to provide access to the drivers and teams so ESPN can have them appear on their TV show.

ESPN wants the content to draw viewers and sell commercial time.

But it doesn't stop there.

Sponsors and owners also want to monetize their investment in racing teams to promote their products and services.

So [WinGin], a major real estate holding company and current customer of Glowpoint on the corporate side recently bought a racing team it immediately installed Glowpoint at the driver's home in order to facilitate video calls.

So Glowpoint is in a great position, right in the middle of the entire business chain.

We provide the services that connect the content owner, NASCAR, with the broadcaster and teams.

We also connect the teams with their sponsors and owners.

This would be difficult to pull off without Glowpoint.

The cost would be staggering to use traditional satellite services.

Add in Glowpoint's ability to provide HD solutions and new and broader opportunities open up for us, from installing Glowpoint into TV analysts homes for ESPN to providing broadcast capabilities to large evangelical church organizations.

As a result, we believe we will see similar growth from the broadcast space in '07 as we saw in 2006.

Recent changes in the video industry offer another opportunity for Glowpoint to bundle services to address a specific market need.

Towards the end of last year, the video industry had a major shift with the introduction of something called telepresence.

Telepresence in reality is a term that represents what Glowpoint has been providing nearly since its launch in 2000, high quality, easy to use video communications.

The most popular representation of the telepresence concept is a specially designed room configured to support a true to life meeting environment, everything from multiple monitors, special furniture, strategic camera placement, and sound panels are deployed to create an immersive experience so participants feel as though they are sitting in the same physical room, even though they are continents apart.

In bringing new life and interest to the video communication industry through telepresence Hewlett-Packard, Cisco, Polycom and Tandberg have actually validated our business model and created new opportunities for the deployment of Glowpoint.

As manufacturers and resellers attempt to garner a share of the telepresence market they are quickly facing the realization that the high definition equipment used in telepresence rooms has an extremely high demand for bandwidth.

Therefore, in many cases they require a dedicated network and also white-glove managed video services.

Regardless of the equipment used or bandwidth required, we believe that Glowpoint can be an excellent partner with anyone selling telepresence rooms.

With our flexibility to support any telepresence solution Glowpoint has already been invited to bid on a number of telepresence opportunities in 2007.

Technological innovation continues to be a differentiating factor for Glowpoint and helps to drive growth.

We were awarded our first patent in April 2007 for our operator call center service.

With our initial patent and the remaining eight still in process, we believe our intellectual property gives us a unique competitive advantage.

We are already monetizing our first patent by integrating the high quality performance of HD video with our unique video applications.

One of the best examples of this lies in the growing demand for businesses seeking to provide experts over video in order to answer questions, support sales services to existing and new customers on an immediate 24/7 basis.

We provide the video services to our customer who in turn leveraged the video capability to enhance services to the consumer.

We refer to this sector as business-to-business-to-consumer, or B2B2C.

In fact, Glowpoint is currently leveraging its patent pending video automated call center technology in a successful pilot of a video banking solution for one of the world's leading financial institutions.

This bank has realized over 1,000 new sales during the pilot period alone and in one branch experienced over a 90% close rate.

We anticipate with many industries from airlines to retail moving towards centralized remote customer services demand for the remote video expert solution will rise considerably as they look for ways to enhance their services.

To address this opportunity we have packaged the solution as Customer Connect and will launch it next week at a major industry trade show called INFOCOM.

In summary, as we look forward to 2007 and beyond our focus will be on growth and we feel that Glowpoint has a number of areas in which growth can be achieved.

With an estimated 500,000 or more video systems still on ISDN there remains plenty of opportunity for revenue growth by converting these systems to Glowpoint's services.

If you consider that Glowpoint currently generates over $20 million in revenue from approximately 3,500 video systems incremental growth can be attained even if we succeed in only converting a small fraction of those remaining on ISDN.

Another area of potential growth is by getting Glowpoint involved at the point of sale of video equipment.

Between Polycom and Tandberg alone approximately 30,000 new video systems are sold quarterly.

Since we don't sell video equipment, the best way for us to be involved at the point of sale is through our channel partners.

We will continue to focus on our relationships with our channel partners and look to grow revenue as a result.

Vertical markets like broadcast, banking and retail represent the largest potential area for growth.

Mostly untapped these areas have the potential to grow faster than traditional videoconferencing because video communications is directly tied to a critical mission service.

If our service helps drive more sales, as in the banking example I mentioned earlier, expansion to many branches or remote locations is certainly a possibility.

Finally, telepresence represents a tremendous opportunity because there's a need for high quality network and video support services.

The video industry has hit an inflection point.

Driven by the entrance into the market of major players and the introduction of HD technology, companies like Cisco and H-P have given a new name and new focus to video conferencing.

They are pouring millions of dollars into the advertising and promotion of telepresence.

They expect the telepresence equipment business to be a billion dollars for them in the next three years, yet in an article in the Wall Street Journal Cisco is quoted as saying only 10% to 15% of their customers can support telepresence on their own networks, and until they can upgrade they will need to look for a service provider who can support telepresence.

Glowpoint has already packaged our video managed service into a telepresence offering called VNOC, or Video Network Operations Services, and anticipate being involved in opportunities throughout 2007.

That's what excites us about 2007 and beyond.

Glowpoint is right in the thick of things.

We believe we offer the most comprehensive suite of video services with patented technology as well as a proven record for supporting millions of IP video calls.

We can be the go-to service provider for telepresence or any video application and we believe that what we accomplished in 2006 sets the stage for Glowpoint to remain an important fixture in valued service provider for years to come.

I would like to hand the call over to Ed to provide some more details on what was accomplished in 2006, and I will come back with a few closing comments, then we will open it up for some questions.

Ed?

Thanks, Mike.

As everyone is aware, 2006 had many challenges.

Not the least of which was completing the restatements, changing auditors, the sales tax and regulatory fee issues and getting the 2006 year-end results filed.

I would like to cover a few key points about 2006 financials and bring your attention to some of the detail of our performance last year and some items affecting 2007.

In March 2006, we implemented the corporate restructuring plan designed to reduce certain operating, sales, marketing, and general and administrative costs.

As part of the restructuring initiative, we implemented management changes, including the departure of 21 employees in April of 2006, and we implemented additional restructuring efforts in the second half of 2006, as well.

The final severance payments were paid in April 2007.

As Mike indicated, our cost reduction efforts had a tremendous impact on our business and in particular, the fourth quarter of 2006.

A majority of the cost reductions were permanent, while for some, such as reductions in sales and marketing programs and the hiring of needed staff we decided to wait until 2007 to incur these costs.

As we enter 2007, our investing in sales and marketing programs, expenses associated with the audits and restatements, and our returning to a more normal level of overhead expenses will have the effect of increasing our operating costs for the first half of the year.

The benefits from our investing in sales and marketing programs and staff increases will result in added revenue growth in the second half of this year.

In addition, we are still working on various projects to control and cut costs in all the areas of our business.

One project to date to be completed by late summer will reduce backbone costs included in the cost of revenue by an estimated $180,000 per year.

We are constantly seeking to improve our gross margins and in 2007 we will continue to reap the benefits of our cost cutting efforts and will continue to show improvements in gross margins in 2007.

In 2006, approximately $2.8 million of our revenue came from our ISDN network business, formerly called NuVision.

A contract we had in place since the purchase of NuVision in 2004 stipulated the prices we could charge, limiting the gross margin on a customer providing 45% of this revenue to 10%, and it resulted in overall gross margin of only 25%.

Now that that contract has expired, we are beginning to transition out of this low-margin business.

Therefore, you should expect revenue from this business to decline over 2007 and beyond, and while this will have the effect of impacting revenue, we believe it will be a drag on overall gross margin percentage as most other sources of revenue track at about 50% to 55% gross margin.

During 2006, the Company undertook exhaustive research on how sales and use taxes and regulatory fees should be handled by Glowpoint, and what, if any, Glowpoint services are, in fact, taxable.

As a result of our findings, the Company modified its billing practices in the fourth quarter 2006 and established GP Communications, a wholly owned consolidated subsidiary.

Upon the creation of GP Communications, we began charging and collecting sales taxes and regulatory fees from our customers and remitting them to the taxing authorities.

In addition, the Company began working with various states to identify what, if any, past liability existed.

While we have accounted for this as a liability in the 2006 year-end financials, we are working diligently to minimize any past amounts owed.

All our tax positions are subject to audit and a number of taxing authorities have already scheduled audits to commence in 2007.

While we believe all of our estimates and assumptions are reasonable and will be sustained upon audit, actual liabilities may differ significantly.

If so, it may materially impact our financial condition negatively if we underestimated our liability or positively if we overestimated our liability.

The exposure for prior sales taxes and regulatory fees is included in general and administrative expenses through September 2006 and thereafter as a part of cost of goods sold.

Since these are a direct pass-through the effect on margin is significant.

Another item that historically appears in the margin calculation is depreciation for the equipment used to support our managed conferencing services.

If depreciation was removed from the margin calculation the overall gross margin would be 38.2% in 2006 versus 25.3% in 2005.

In March and April 2006 financing we issued $6,180,000 of our 10% senior convertible notes which are convertible at the option of the holder into our common stock at $0.50 per share and mature on September 30, 2007.

There are complex accounting rules that address the measurement and classification of this transaction, and I strongly recommend that stockholders read the footnotes in our financial statements which more fully explain the transaction.

The Company does not have the right to repay the 10% notes until maturity.

The Company does not know whether the 10% note holders will convert the 10% notes or demand that they will be repaid.

Therefore, the Company is actively pursuing multiple strategies regarding their repayment.

One option is to renegotiate the term and other matters with the current 10% note holders, and another is to seek alternative sources of financing to repay the 10% notes.

Company management, along with the board of directors who have experience in these matters, are evaluating all options.

Also in connection with the 10% notes we initially recorded a liability for derivative financial instruments of $4,723,000.

Throughout the year, we have to mark-to-market these derivative financial instruments.

We estimated the fair value of these instruments to be $3,065,000 as of December 31, 2006.

The $1,658,000 decrease in the liability was caused by a reduction in our stock price during the year so we recognized income of that amount.

As our stock price increases, the value of these derivative financial instruments will increase and we will recognize an equal expense.

If our stock price falls, we will recognize income.

Though the derivative financial instruments are shown as liability on the balance sheet, this does not necessarily mean that we will have to use cash for the settlement.

If the 10% notes are repaid or converted into common stock the liability for the related derivative financial instruments will be transferred into additional paid in capital.

If we're in default with the 10% notes and the holders require the Company to repay them then a portion of the derivative liability represented amount that is owed to the 10% note holders.

Our cash and cash equivalents as of December 31, 2006 were $2,153,000.

Our cash usage will continue to be negatively affected by our ongoing tax payments related to prior operations, severance payments related to the March 2006 restructuring, accounting costs of the restatement and capital improvements, which offset the Company's success in achieving near break-even in other operating activities.

Finally, now that we have completed 2006, we feel we can start getting into a more regular audit cycle.

We hope to complete Q1 2007 by early July, and from that point forward we anticipate being fully compliant with our filings, and will issue Q2 2007 by August 14.

Back to you, Mike.

Thanks, Ed.

In April 2006, I stated my belief that Glowpoint had all the attributes of a successful company.

Unmatched technology, a brilliant and dedicated staff, and a vast potential revenue base.

It has taken tremendous effort but we indeed have reached a point where we can finally begin to leverage these attributes and move Glowpoint further along the rapid growth to growing profitability.

We are thrilled to accomplished so much in 2006, and even more excited about the increased focus on video communications and our prospects for 2007 and beyond.

To be sure, we still face challenges, but I want to give you my personal assurance that management will do all within its ability to make sure the Company faces these challenges and satisfies its full potential.

Thank you, everybody.

Moderator, I would like to open the call for questions.

Certainly, sir.

(operator instructions) And your first question is from the line of [Jim Wilkie] of Bear Stearns.

Hey, Jim.

Hi, Mike.

Good job so far in your (inaudible).

First question, you mentioned cash flow and sounds like you're still burning cash.

Can you tell us what your burn rate currently is?

We haven't disclosed that.

Obviously, we're going to be filing Q1 '07.

But as we stated, the burn is associated with paying some of these taxes and the extra expenses related to the audit.

So we -- when we release Q1 '07 you will see exactly where we are.

So you're not in position right now to discuss that?

Correct.

Correct.

Okay.

Next question, are you giving any forecast guidance what you're looking for over the course of '07, sort of a worst case, best case?

No, we haven't given forecasts in the past and I won't do so now.

Maybe once we get current and feel more comfortable, that whole process is in play, we might be able to give a little bit more guidance, but right now we're just sticking with working through the financials and trying to get current.

Okay.

You mentioned different states that you're in negotiations with.

Have you come to completion with any specific states?

No, we haven't come to any resolution yet.

What happens is we file various requests with the states, explaining what we think our tax position is.

They accept it for paying some type of an initial fee, and then they usually schedule an audit at that point to come in and see if the facts are as presented to them.

We have not had any of the audits yet.

They are going forward.

In fact, we're starting one audit today.

But, no, we haven't come to a resolution with any state yet.

Okay.

Any thoughts on when and if we do qualify for getting (inaudible) last financials behind us?

To determine that, clearly, we need to be current.

Three years of audited financials are not it.

We still need to get Q1 '07 out.

As soon as Q1 '07 is out we will begin that process to try and get off the pink sheets.

We haven't made a determination of what that means yet, but that's the point at which we will try and get off the pink sheets.

So upon completion of reporting Q1 or --

Yes, upon completion of reporting Q1 '07.

Okay.

And just really more of a comment, as a long-term investor and shareholder and witnessing the stock price activity, it's painfully obvious, if you will, that whenever we mention the terms of the potential to negotiate with prior investors, and we all know who I'm referring to, I would highly encourage you to do whatever possible to establish a relationship with a reputable bank and for once and for all eliminate the hedge fund activity which has wreaked havoc with our share price.

And that's really just a statement.

You don't need to comment.

That's it.

Keep up the good work.

Thanks, Jim.

Your next question is from the line of [Joseph Paterso.]

Yes, Mike.

How are you?

Joe Paterso, here.

Hey, Joe.

How you doing?

How you doing, Mike?

On the surface it sounds like you accomplished a lot.

But let's face it.

A lot of the expenses that you brought down, we were probably overspending to begin with.

Okay, so now we got ourselves to just about even, where we don't have to pay the penney warrants, but we're looking at '07 with a lot of burden, it sounds like is going to be continuing to come out and affecting '07, any ramp that the Company might have.

The other thing that I'm concerned about is when you're talking about this Cisco upgrade, okay, and how that might affect the business model that we have, okay, and another question I have is, what percentage was that business that's going away, and how is that going to affect the Company?

And lastly, because I want to pile it on, VNOC, is that a generic term, or is that a term that's applicable to Glowpoint, the video -- what was it, Video Network Operating Center?

And if it is our terminology and not just a generic term, cable and wireless use that particular term in a June 5 publication.

Would they be alluding to us?

Oh, let me try and hit them all.

So --

Frank, regarding a lot of burden with the costs, it's not a lot of burden.

There are some costs that I mentioned that will be carrying forward, starting to incur in 2007, but it is definitely not a lot.

It is just something, when we issue Q1, we will be able to explain what they are.

Just to let you know, there are some costs that might go up.

They're not significant.

Secondly, the part we're losing, the customer for NuVision that had the 10% margin, that makes up approximately 6% of our revenue in 2006.

We're still getting the full revenue through approximately May and June of 2007.

So even if we were losing, we're only talking a couple percentage points.

But it's 10% revenue --

But what about conversion potential there?

So let me just first explain losing versus we're trying to lose it.

We are transitioning out of that revenue.

It's bad revenue for us.

It's low margin.

So we're transitioning out of it.

One of the reasons we bought NuVision in the first place was with the idea of trying to convert those customers.

However, as we began getting understanding, getting our arms around this we're seeing that many of these users are very, very low profile, low-use customers.

They have very old equipment, not willing to invest in new technology, which is why they are still using ISDN, so we have been able to convert some of them.

We are going to continue to do so as much as possible but the low-margin customers we're going to try and transition.

To go into your other comments, number one, I'll just say it sounds really easy what you said, just to cut costs that weren't there to begin with, but believe me, it is a tremendous effort by this management team to cut costs and not affect services to customers.

So I wouldn't necessarily say that all those costs shouldn't have been there to begin with.

It's just we're more efficient in what we've done and did without a lot.

As far as the Cisco upgrade, I guess you're talking about telepresence.

It's not an upgrade.

Cisco has entered the video space and has an offering that is targeted towards this telepresence suite environment.

Absolutely, it represents new opportunity for us.

I mentioned in my comments that we are involved and have been asked to bid on a number of opportunities that include telepresence.

In fact, one of them is to support a telepresence room.

Now, that wasn't brought to us by Cisco but the customer realized they can't support that room and invited to us provide a bid for supporting that.

So, yes, the Cisco entry into the space is good for us and good for the industry.

VNOC is not a Glowpoint term.

It's a generic term, that stands for Video Network Operations Center.

We're not branding it as a product.

It's a bundled offering.

So we offer VNOC services.

So I don't know who else is using it.

That's fine.

It really just has to do with how we've bundled our services to support telepresence.

Okay?

Next call, please.

Your next question is from the line of Bill Mauerman of Lone Star Asset Management.

Hey, guys.

First, I just want to say congratulations on getting the Company to the point it is.

I know it's been a lot of hard work.

Just one quick follow-up.

Looking through the 10-K, I didn't see this addressed.

I noticed where you talked about renegotiating the 10% notes, but I'm assuming, just looking at the balance sheet, you will need additional financing to cover 2007 and beyond, and I'm just curious if that is the case, if you can give us a ballpark amount of what you would need and if you're going to try and do that with the renegotiating of the 10% notes or how you're going to address that?

It is interesting.

As Ed said, we are each month bordering on break-even, and we've been trying to manage through even these tax payments with the cash that we have.

Clearly, if you do the math, that doesn't leave us a heck of a lot of wiggle room.

But what we'd like to do is really address that in two different components if possible.

We have to negotiate with the note holders or replace it, so if we're going to go through the hassle of replacing and finding someone else to take up that note, it would stand to reason that we might want to get some additional capital to get us some breathing room, but we haven't determined what that is or if, in fact, it's needed, because we're currently operating with the cash that we have.

So just to follow up on that, you're saying that right now you could get by without raising additional money if you had to?

We anticipate that the taxes, the back taxes, as those settlements come in, will definitely put a strain on our cash flow and we would need to probably get something to compensate for that.

So like under $10 million to cover it?

Yes.

Okay, great, thanks.

You have a follow-up from the line of Jim Wilkie.

Hey, Mike.

You mentioned the upcoming INFOCOM show.

Are you guys going to have your own booth or are we going to be in a booth with partners or customers, or could you shed a little light in terms of that INFOCOM conference?

The answer is, yes, on all counts.

We will have our own booth.

We are actually going to be showcasing most of the leading technology in our booth, including some codecs that are being used in many of the telepresence suites.

We have -- we are going to be powering the Tandberg telepresence suite for demos.

We are also are going to have Glowpoint in the Sony booth showcasing HD in broadcast.

So we're going to be all around the show actually, but we will have our own booth, and we expect to be able to get quite a bit of activity from this, because we're not only going to be showing kind of this telepresence stuff, but we're going to be showcasing our new Customer Connect solution which is what the bank is using that I mentioned.

A little follow-up on the bank.

How far are we into the pilot in your opinion?

It's essentially moving into production now.

We're just finishing up the paperwork of being an approved vendor.

They've been adding locations almost on a weekly basis, so we would say that the pilot is a success in moving into production, and we would hope to be able to talk about that customer, specifically, once we get through all that.

Do you think there could be an announcement as early as the show or not that early?

No, probably not.

It's just -- it's a big company.

And we have to work through their particular timing.

You participated in a couple of things in the recent past.

One was, you were a keynote speaker at the telepresence conference last week.

The other was the broadcasting show, I guess, what was it, in Vegas?

Yes.

Could you give any light on success stories or what not coming out of those two?

Sure.

You heard me mention on the -- you heard me mention in my talk that we're going to be doing -- we already are doing analyst location at ESPN.

That stemmed directly from the show and having Sal Paolantonio talk to our booth from Hillside, and showing the flexibility of our solution.

If you look back at our history, we did NAB for the first time two years ago.

We landed NFL as a result of that show last year.

We did NAB and we landed NASCAR, Comcast, and Fox Sports.

So I would anticipate we should be able to get some good activity out of this year's show, being that we have our own booth and quite a bit of activity we do have a number of deals in the pipeline as a result of that show.

So that was a well worth it investment and has been in the past.

As far as me speaking at telepresence, it's one of those things where being considered a major player in the space, in the video space, and being asked to speak really bodes well for Glowpoint in general.

And it gave us the opportunity to meet with all of the telepresence players and see what they have and see what they're missing from a services perspective.

So that was more of an industry pow-wow, if you will.

There weren't a lot of customers there.

But it definitely puts Glowpoint square in the middle of opportunities as it relates to telepresence.

Okay.

I saw a piece, Mike, recently that sort of broke down the whole telepresence space, or video space, if you will, and there was like eight or nine companies, Cisco, H-P, just broke down what all of them are doing, Polycom, then it broke down two service providers.

When they talked about each one of those companies, they talked about how they're providing the service.

It seemed like all of them had their own service offering.

Can you go into maybe a little more detail on how our service offering is perhaps superior to what they're doing as a total wrap-around product?

Okay.

All right.

Then we'll try and get someone else on, too.

So the telepresence service providers, if you will, services associated with it, they're really, you know -- Telrus offers a service with their offering, H-P definitely offers a service with their offering.

The challenge is that each one of these players is offering pieces of what we do and not all.

The other thing is that a number of these services, or a number of the telepresence solutions are proprietary in nature so all you can do is talk to another room, like theirs.

I guess the benefit of Glowpoint is, number one, we have the network offering as well as the managed service offering.

We're the only, as far as we know, one of the only folks that has HD multi-point bridging already built into our services, and we have the ability to tailor solutions to be able to get what we call proprietary systems to possibly communicate with non-proprietary systems through our HD bridging technology.

Our ability and knowledge of the space and interaction with the different providers of video communications really gives us a little bit of an edge as it relates to someone who just sells equipment with their own equipment and having their ability to provide these services.

We're seeing -- I will tell that you we're seeing customers not having the greatest customer satisfaction with some of these -- what I would call thrown together services, and so Glowpoint has years of experience.

We've been providing managed services since our launch.

We provide it on a global basis to customers.

We have the access, or the ability to connect to multiple network providers, not just Glowpoint.

As we've mentioned in the past, we deliver Glowpoint services over Savvis, over [Master Gee], over AT&T.

So we're one of the most flexible service providers out there, so we not only support your telepresence room, but we support your other rooms with the investment you've made in your Polycom and Tandberg gear.

So we provide the most comprehensive solution and most flexible.

Do we have another question?

Thanks, Mike.

Yes, you have another question from the line of [Jack Gilbert.]

Mike, this is Jack Gilbert.

Hi, Jack.

Can you please explain -- I watch television a lot while I watch the market, and it seems like in the financial community, Bloomberg and CNBC, they just pair on video links with certain customers all the time.

I guess it's through a thing called VideoLink out of Boston.

Sure.

Can you explain why we can't get into some of that business?

From what I hear it's expensive and it's only one way.

Yes.

It's so funny, and I know I owe you a call, actually.

Yes.

I've been out of town.

But, no, VideoLink is actually an -- a great opportunity for us.

In fact, we have a recorded message that we'll probably have on our website shortly from Sal Paolantonio when he was talking at our show at NAB, and we asked him what he thought this would do for him, and he went off on this whole great diatribe about how he would be able to do this from his home and he wouldn't have to go to the VideoLink facility and ESPN would save all kinds of money.

It was a great thing.

Basically, it addressed the whole idea.

You're talking about with a VideoLink type situation, it's a studio, they provide all the features of service but it's a very high bandwidth solution, very expensive, and or it's satellite, which is essential one-way video, then the audio is done over a regular phone line occasionally.

So our ability really allows people to do two-way interactive interviews at a very low bandwidth, now in HD quality, at a fraction of the cost.

So, for example, if you look at the NFL who has Glowpoint at every team location, they would never be able to afford to do in that the type of service that a VideoLink provides.

It really allows them to expand it.

As I said, we're actually putting this into people's homes, so it's affordable enough for the studios for the broadcasters to actually put this in homes and pay the monthly fee to keep it there on the chance that they want to get to these people on a 24/7 basis.

The reality is that a VideoLink is actually an opportunity for us to partner and also to add new services and features at the lower bandwidth.

Okay.

It seems to me that they're -- they have about 50 to 100 people that they talk to on a regular basis, and I know all of them at their place of work.

They have the same location with the backdrop of the same city, the same mountains, and they talk to the same people, and I don't understand, they can't talk to each other, right?

It seems to me it would be a great opportunity for us.

Sure, and it is.

It's something we are working on.

All right.

Thank you very much.

Any more questions?

Your next question is from the line of Stanley Weinstein.

Mike, hi.

Hi, how you doing?

I'm doing fine.

Two questions.

The first, if I understood correctly, Q1 '07 will be out on 7/1?

Well, it will be out in early July, we're hoping.

What is taking so long at this point?

These are unaudited quarterly reports.

Sure.

Well, what took so long is, we brought new auditors in, in February, at the end of February, after completing the restatement.

So they had to get completely up to speed on our business, our business processes, and we did the entire year at once, and if you're not familiar with the audit process, once the audit is done, there still is a little bit of cleanup that has to do with their notes and getting things together.

Then we need, our team who was 100% engaged in getting everything together for '06, now needs to shift gears and get everything prepared and ready for the auditors to take a look at the Q1 '07.

So it really is just the timing in getting the data prepared, and completing everything that we need to do.

In the middle of all this, we're going through all the tax audits and trying to work through those issues, as well.

So it's really about resources and timing between the auditors and our staff.

I can understand maybe the additional burden of the state tax problems, but frankly, I've managed a 70-man public local accounting firm for 40-some-odd years.

Companies smaller, but mostly much, much, much larger than Glowpoint, and I don't know if they're jacking us around, but it's sort of unconscionable that it should take 90 days after the quarter to get a quarterly unaudited report out.

That's number one.

Number two, if I understood correctly, we do have a cash problem, and what are the chances that we will be seeing more dilution?

The first, to address the audit process, again, Glowpoint has been operating with a fairly limited staff, and we're trying to address not only getting the audits out from a historical perspective.

We also needed to verify, through our prior auditors, they had to go through the process and review it as well, which takes time, and we're at the same time dealing with audits and at the same time trying to run a business and do billing runs on a monthly basis to keep the business moving forward.

So I appreciate the frustration, but our team is working as fast as we can within the auditing process that we have to go through.

As far as the cash is concerned, and further dilution, we are going to have to deal with the negotiation of the note one way or the other.

We're going to have to either negotiate that note out further or get additional financing from someone else.

Clearly, if we get additional financing from someone else, yes, that will mean further dilution.

We will try and minimize that as much as possible.

That's why it's so important that we worked hard to avoid the 6 million further dilution from the penney warrants.

So the management team is doing everything in its power to avoid major further dilution, and I think our efforts in avoiding the 6 million should be something that you guys look to as our commitment to that.

Thank you very much.

Any more questions?

You have no further questions from the phones.

Great.

Well, thank you, everybody, for attending the conference, and we look forward to talking to you when we do release Q1 '07.

Bye.

Ladies and gentlemen, that concludes the presentation.

Thank you for your participation in today's conference, and have a great day.