Peraso Inc (PRSO) 2010 Q3 法說會逐字稿

Good afternoon and welcome to the MoSys third quarter 2010 financial results conference call. At this time, all participants are in a listen-only mode. At the conclusion of today's conference call, instructions will be given for the question-and-answer session. (Operator Instructions). As a reminder, this conference call is being recorded today, Thursday, October 28, 2010.

I would now like to turn the call over to Beverly Twing of Shelton Group, the investor relations agency for MoSys. Beverly, please go ahead.

Thank you, Jennifer. Joining me today on today's call are Len Perham, MoSys' President and Chief Executive Officer, and Jim Sullivan, Chief Financial Officer. The third quarter 2010 financial results press release was distributed earlier at the close of market today and is available on the MoSys website at www.mosys.com.

Before we begin today's discussion, I would like to remind everyone that this conference call will contain forward-looking statements based on certain assumptions and expectations of future events that are subject to risks and uncertainties. Such statements are made in reliance upon the Safe Harbor provisions of Section 21A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which include, but are not limited to, benefits and performance expected from use of the Company's embedded memory and interface technologies and ICs, expectations concerning the Company's execution and results, expected benefits of the bandwidth engine ICs, product development, and timing of shipments of bandwidth engine IC, predictions concerning the growth of Company's business and future markets and business prospects, strategies, objectives, expectations or beliefs.

Forward-looking statements made during this call are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Additional information concerning factors that could cause actual results to differ materially from any forward-looking statements made during this call are contained in the Company's most recent annual report on form 10-K and quarterly report on form 10-Q filed with the Securities and Exchange Commission, in particular in the section titled Risk Factors, and in other reports that the Company files from time to time with the Securities and Exchange Commission.

MoSys undertakes no obligation to publicly update any forward-looking statement for any reason except as required by law, even if new information becomes available or other events occur in the future.

Thank you for your attention. I will now turn the call over to Len Perham, Chief Executive Officer of MoSys. Go ahead please, Len.

Thank you very much, Bev. Good afternoon, everyone. Thank you for joining us today. I'm going to start the call with an overview of our business highlights and then pass it to Jim Sullivan, our Company's CFO, for a discussion of our financial results. After that, we'll open up the call for questions and I'll close with perhaps a few summary remarks.

So starting with an update on the bandwidth engine. In our last call, we announced that the tape out of the bandwidth engine chip was a significant achievement that had been accomplished in just the 13 months after the merging of MoSys and Prism Circuits. And you know, I got off my lines here. Let me start again here. We had just announced the tape out of the bandwidth engine chip, which was a significant achievement that we pulled off in just 13 months after the merger of our 1T-SRAM and our high-speed I/O groups. Most recently, we reached our next milestone, receipt of first silicone including packaged units and that initiated the start of product bring up efforts.

During this bring up process, we're putting the chip through a significant number of tests in our lab to ensure it is functionally correct and meets its defined specifications. The goal of the Company is to adequately test both the logic functions and the performance parameters to a point where we can provide first samples to customers and partners in late fourth quarter 2010.

Currently, I think we are on schedule to achieve this goal. Since the bandwidth engine silicone hit our dock, applications and design engineering teams have worked nonstop on the testing process. Typical of best of breed high-tech companies, the MoSys team's dedication and effort, and the hours being put in right now are relatively unbelievable. To date, the initial testing has been yielding very positive results. The characterization and functional verification of any new chip, especially one as complex as this bandwidth engine is lengthy. But I can safely say that we are either on or ahead of schedule at this point.

During the last quarter, we intensified our design win activity and think we're positioned to win several design opportunities in the coming months. There's a continuous stream of meetings of prospective customers aimed at educating them regarding bandwidth engine's ability to meet the increasing bandwidth requirements of their next generation networking systems.

A week or so ago, Gus Lignos joined us as Vice President of Integrated Circuit Sales. Needless to say, this is a key position for MoSys as we move back to being a fabless semiconductor supplier. Gus was a key member of the sales team at IDT during my years there as CEO and has since spent several years at NEC. Most recently, he was a member of the team at I guess a key accounts group at NVIDIA. His extensive experience selling into the networking industry will no doubt accelerate the acceptance of our bandwidth engine due to his knowledge of this space and the relationships that he has established.

The bandwidth engine system derived architecture generates significant excitement among the potential users and we have no doubt that significant opportunity for this product lies ahead. Late this quarter, we anticipate providing prospective customers and partners a sample bandwidth engine unit or complete reference boards, the boards they require to start their individual and unique designing processes.

Beyond that, in 2011 we will complete full system qualification and product certification. In short, from our last meeting, we are on plan and feeling reasonably good about the progress we're making with the bandwidth engine package units.

MoSys intends to enable serial chip-to-chip communication at the board level and future advanced high performance networking systems. That has been our stated objective now for quite some time. A key challenge to this goal is a lightweight, low power, easily adopted chip-to-chip interface and MoSys has developed the GigaChip interface, GCI if you will, to solve this problem. This board level, open CEI-11 compatible interface will enable a deficient serial chip-to-chip communications in next generation high performance networking, computing, and storage applications.

To facilitate the adoption and the future development of the interface we announced the formation of the GigaChip Alliance, IEGCA, in the third quarter. In addition to our founding partners, Altera and NetLogic Microsystems, both of whom we are working very closely with, there are several other leading companies collaborating with us to develop the industry wide, open interoperability standards and tools required to accelerate this advanced serial chip-to-chip interface.

The GigaChip Interface and the GigaChip Alliance continue to generate substantial interest and we would expect additional companies to join these consortiums in the coming months and quarters. In addition to building this ecosystem of semiconductor partners for GCI, we're finding that many of our perspective customers and partners for the bandwidth engine plan to adopt GCI for use across other chips they're designing. To just expand on that a bit, this GCI very efficient serial chip-to-chip interface is applicable if a [VIGO] ASIC wants to communicate with an Altera FPGA or a [Xonix] FPGA or if somebody's knowledge base processor would like to be talking directly to an FPGA or to some other form SOIC.

So in all cases, this interface would not be on one -- you would not always find on one side or the other a bandwidth engine. I use the analogy now that if you go down to the KOA Campgrounds and there's 75 people in there camping, the trailer hitch to all 75, both the male and female, are identical. And that's the whole story here that we want to enable serial chip-to-chip communications and all the advantages that it holds for the system designer and we expect that the people resident on the board would use this highly efficient small area of lower power interface in as many places as possible.

Let's talk a bit about IP business. This remains a key component in our overall growth strategy. Our differentiated memory and interface IP is the underlying foundation for our bandwidth engine family of ICs and our IP business is very complimentary and synergistic to this IC product family. We remain fully committed to our IP business and it will be our primary revenue driver in 2011.

While we might bring the bandwidth engine to market in 2011, the target customers have rigorous system qualification requirements a long time before they release these big networking systems to the market. So we do not expect significant revenue contribution from a bandwidth engine in 2011, though we would expect to win quite a few design wins. And we believe that the bandwidth engine will be a tremendous proof point for both our 1T-SRAM and SerDes technology, and the capabilities of our respective engineering teams.

We will continue to generate ongoing revenue by leveraging our memory and I/O experience in serial chip-to-chip communications in specific customer applications. As an aside, I would mention that on the bandwidth engine units that we've been evaluating to date, we are particularly gratified by the magnificent manufacturing capability of our partner, TSMC, and the relationship between the two companies has become very, very close and we find that the results of their first efforts with our product are gratifying. Superb. Just superb.

The macroeconomic situation, including the slow down in semiconductor demand, made the third quarter a bit challenging for us. Though I don't believe we lost any business, a significant number of opportunities moved out one or two quarters. We continue to enjoy a strong pipeline of quartering activity, or request for quote activity, or interest in what our products are and so forth, and we hope to close some or all of these deals in the fourth or the first quarter. It doesn't appear that any have gone away. It's just that people are being a little bit more cautious.

We are continuing to make a significant push on our multi-protocol, 10 Gig SerDes at the 28-nanometer node and we see a very strong demand for this solution. In the meantime, I'm pleased to say that current licensees of our 1T-SRAM memory and high-speed interface IP continue to utilize our technology with considerable and perhaps even improving success.

Let's talk a moment about 1T-Flash. The third quarter saw us continue to make progress toward a robust and reliable 1T-Flash and cell. The conversations we've had the past year or two on flash has been primarily about making the cell and the device more robust. In other words, delving into the physics. Additional material required to further verify the quality and reliability has generally lived up to its expectations.

Beyond the device and cell advancements we've achieved, we can see a design enhancement that would further improve the robustness of this solution. We are now ready to investigate the possibility of moving 1T-Flash to more advanced nodes and possibly even to new foundries. For those of you who have followed MoSys through a number of these meetings, I would tell you this is gratifying progress, truly gratifying.

In summary, if you take a look at our business out over the next 12 to 18 months, we're going to be focusing ever harder on three primary and important initiatives. One, effectively and efficiently prosecuting our IP business. Two, striving to achieve the earliest possible adoption of our new bandwidth engine family of system derived integrated circuits. Three, effectively managing our cost structure with the intent to reduce losses and start to generate profits.

I probably said on this call before, companies don't really make sense until they make money and we've spent a long time getting ourselves into a position to have a very large total available market before us and now we need to start thinking about getting to the right side of the line and driving a lot more value for our shareholders.

I'm very pleased with the progress that we have made in bringing the bandwidth engine IC family to its current state. Integrated circuit products will be a significant contributor to our long-term growth and while that business ramps up, we will remain intensely focused on expanding the market opportunities for our 1T-SRAM IP and our outstanding high-speed SerDes I/O design expertise. There is always more work to be done in both of these areas, but I'm confident that this expanded business model will enable us to execute on a long-term significant growth strategy and bring substantially greater value to our shareholders.

With that said, I would like to turn this call over to Jim for review of our third quarter financials and then after that we will have a question and answer session. I may have a couple of closing remarks and I want to thank you very, very much for taking the time to dial in and listen to our story about our Company today. Jim, carry on.

Thank you, Len, and good afternoon everyone. During the course of my comments, I will make several references to non-GAAP numbers. Unless otherwise indicated, each reference will be to an amount that excludes stock-based compensation expense, intangible asset amortization, and restructuring and acquisition related charges. These non-GAAP financial measures and a reconciliation of the differences between them and comparable GAAP measures are presented in our press release and related current report on form 8-K, which was filed with the Securities and Exchange Commission today, and can be found at the Investor Relations section of our website.

With regard to the results for the third quarter of 2010, total revenue was $3.8 million, compared with $4.3 million for the second quarter of 2010 and $3.4 million for the third quarter of 2009. Licensing revenue for the third quarter was $1.5 million, compared with $2 million for the previous quarter and $1.3 million for the third quarter a year ago. Third quarter license revenue is primarily derived from ongoing 1T-SRAM and serial interface IP projects, including initial revenue from a new customer for our DDR3 solution. License revenue for the third quarter of 2010 includes revenue from 13 licensees, consistent with the previous quarter.

Royalty revenue for the third quarter of 2010 was $2.3 million compared with $2.3 million in the previous quarter and $2 million for the third quarter of 2009. Third quarter royalty revenue was primarily comprised of royalties associated with a consumer gaming product that contains our 1T-SRAM embedded memory and from a foundry licensee. Third quarter 2010 royalty revenue was recognized from 15 licensees, consistent with the second quarter of 2010.

GAAP gross margin for the second quarter of 2001 -- excuse me, 2010, was 81%, compared with 87% in the previous quarter and 80% in the third quarter of 2009. The sequential decrease in gross margin was primarily related to additional customization costs incurred on certain licensing projects. Additionally, in the previous quarter our gross margin benefited from the recognition of revenue that had no associated costs from follow-on license business from ROHM, a key IDM customer.

In terms of our operating expenses for the third quarter, research and development expenses were $6.8 million compared with $6.4 million in the second quarter of 2010 and $5.2 million in year ago quarter. This sequential increase in research and development expenses was primarily due to additional costs related to the development of the bandwidth engine integrated circuit, including $1.2 million of tape out costs that were expensed in the third quarter but paid in the current fourth quarter. These additional tape out costs were partially offset by lower consulting and related costs, which were higher in the second quarter due to the bandwidth engine tape out efforts. In addition, we experienced lower acquisition related costs related to the Prism Circuit turn out as those requirements were fully achieved in the second quarter of 2010.

Selling, General, and Administrative expenses were $2.4 million, consistent with the previous quarter and compared with $2.1 million in the year ago quarter. The year-over-year increase in Selling, General, and Administrative expense was primarily due to an increase in professional services fees and sales related headcount.

Total GAAP operating expenses for the third quarter of 2010 were $9.2 million, consistent with the previous quarter and compared with $7.8 million in the third quarter of 2009. Total operating expenses in the third quarter included $0.7 million for amortization of intangible assets and $0.8 million in stock-based compensation expense.

On a non-GAAP basis, total operating expenses for the third quarter of 2010 were $7.8 million compared with $7.2 million for the second quarter of 2010 and $5.9 million for the third quarter of 2009. Our operating expenses remain on track against our planned investments for developments of our bandwidth engine and 1T-Flash technology. Non-operating income was substantially comprised of interest income. The sequential and year-over-year declines were primarily due to lower interest income on lower cash balances and lower interest rates earned.

On a GAAP basis, the net loss for the third quarter was $6.2 million or $0.19 per share compared with a net loss of $5.4 million or $0.17 per share in the prior quarter and a net loss of $5 million or $0.16 per share for the third quarter of 2009. On a non-GAAP basis, the net loss for the third quarter of 2010 was $4.7 million or $0.15 per share, which excluded acquisition-related and stock-based compensation expenses totaling $1.5 million. This compares with the non-GAAP net loss of $3.4 million or $0.11 per share in the previous quarter, and a non-GAAP loss of $3 million, or $0.10 per share in the year ago period. Net loss per share on both a GAAP and non-GAAP basis for the third quarter was computed using approximately 31.9 million weighted average shares outstanding.

Now turning to the balance sheet, as of September 30, 2010, our cash and investments balance was $22.3 million, compared with $31.2 million at June 30, 2010. The $8.9 million increase in cash expenditures in the quarter included a $6.5 million payment for an earn out related to our acquisition of Prism Circuits in June 2009.

Accounts receivable at the end of the third quarter totaled $0.8 million, compared with $2 million as of June 30, 2010. The decrease in accounts receivable was primarily due to the timing of invoicing for follow-on business received during the second quarter. Unbilled contracts receivable at September 30th approximated $200,000 and continued to decline as the Company completes billings under contracts assumed upon the 2009 acquisition of Prism Circuits.

At September 30, 2010, liabilities totaled $7.6 million, a decrease from the $12.9 million recorded at the end of the previous quarter. The decrease in total liabilities was primarily due to the payment of a $6.5 million earn out from the Prism Circuits acquisition combined with recognition of deferred revenue, partially offset by the timing of payments.

As of September 30, 2010, our total headcount was 164 employees, which compared with 166 employees as of June 30, 2010. As of September 30, more than 80% of our employees were in engineering and research and development and we had 55 employees in India. In an additional development, earlier this week the Company's Board of Directors authorized the implementation of a stockholder rights plan that will contain rights substantially similar to those in our previous plan, which expired this month. We will publicly file the relevant documents after we have finalized them and implemented the plan.

This concludes my prepared remarks. At this time, we would like to open the call for a question and answer session. Please clearly state your name and company affiliation prior to asking your question. Operator?

(Operator Instructions) Our first question comes from the line of Gary Mobley with Benchmark. Please proceed, sir.

Hi, guys. Judging from your commentary and as well the dip in deferred revenue, it looks like the licensing pipeline and licensing backlog has dipped quite a bit. So I'm wondering if perhaps we might see a repeat of the third quarter in the fourth quarter as it relates to total revenue. Or how should we think about that?

Yes, Gary. This is Jim. Thank you for your question and thanks for being on the call. As Len mentioned, we did see orders push out in the third quarter. We were unable to close them and sign them up in the third quarter. And also as Len mentioned, we didn't see the orders go away. They're still there. We're still working them but had just pushed out and we are certainly looking at, at least one or two of those orders at a more advanced process note.

I think we are in good position to book those orders in the fourth quarter. It will be challenging under our revenue recognition model, the percentage of completion accounting we apply to have significant revenues in the quarter based on the timing of when they book and how much work we can do, and then subject to any acceptance clauses that we see in those arrangements. But our backlog remains very strong and we are looking forward to bringing these deals in and increasing it as we go out of the year.

Is it likely that we might see a near term dip in revenue as you try to close on some of these deals in the fourth quarter?

I think with the backlog of business that we're coming out of the third quarter with and the status of the projects we're in, I didn't specifically mention it in the script but in one of our outstanding orders that had been delayed in the first half of the year due to a change by the customer in their spec and some other issues in their design, we hit a couple of milestones at the end of the year but were unable to complete acceptance of those. Subsequent, that has now happened in October. So a bit of a long winded answer but I don't expect a dip in revenue in the fourth quarter. I think we can be flat to up from a revenue line perspective.

Okay. And as it relates to the sluggishness in bookings for your IP business, do you think that was more a function of perhaps MoSys losing focus in light of efforts for bandwidth engine, or have you seen any hesitation on the part of customers giving the renewed focus and hence why you're emphasizing your commitment to the IP business in your press release today?

Actually, I don't think we've seen any hesitation on the part of the customers or reluctance to approach us for IP based on our efforts to become a fabless semiconductor company. I would say there, Gary, we're probably zero. I don't think -- there's no question that the level of effort to create the bandwidth engine caused some multiplexing around here between IP and the IC activity. I don't think we dramatically missed any of our milestones as a result of that. I think customers in some cases it's becoming increasingly apparent now that high-speed IO is going to be critically important to anybody that wants to be a fabless semiconductor company.

So more and more perhaps you're seeing people spend a lot of time trying to figure out whether they ought to build or buy and that may slow them down. I think an impact on us is there were a couple of very significant contracts in place at Prism when we acquired the company and there's been a general consolidation now. It's an interesting phenomena going on that when Prism started their company, the Japanese IDMs were very active. UMC was very active. SMIC in China was heavily funded. TSMC was doing what TSMC does. Global Foundries hadn't been formed.

But if you take a look at the foundry business today, the foundry business is undergoing a substantial consolidation and that consolidation is the Japanese IDMS are all basically done at probably 40 nanometers. They're either going toward TSMC or going toward Global Foundries. Samsung has decided it's going to be a foundry. So really I see that other than UMC who is not too strong in really advanced technology or probably not as strong as these other players, I don't want to be too hard on them, you now are suffering. If you invested in putting your IP up in a Japanese IDM and probably they're not going to go to the next node. And to some cases that has caused us to have some very, very excellent. The macros we could resell but we need to convert them over now.

So it's probably a more complex set of events and I left out the fact that the world economy and the semiconductor economy or industry waffled a bit here in, through maybe month seven through month 10 or 11 and that probably caused a little shock of fear as well. So that's a long winded answer to what I think might be going on.

Okay. You mentioned that bandwidth engine could be in a potential customer's hands maybe by the end of this year. How many customer evaluations do you think you can achieve and perhaps do you think the ability to support them may be a limiting factor as well?

Actually, we're looking very hard at what I'm going to call a zero sum game in terms of the size of the company and how we allocate between new design and supporting the bring up of a complex integrated circuit. I think we'll probably move a few guys across into the what I call transferring a product out of technology development into full-scale manufacturing. We may move a small cadre of guys over there to make it smoother and then at the right time bring them back.

I would think that we'll have the -- now, I need to define something for a moment. There's two kinds of people that we're going to be talking to. First off, there's a line card and a network interface card and those are manufactured by people such as maybe in order, Cisco, Juniper, maybe Huawei, [ETE], Alcatel, and then a half a dozen others. Those guys in many, many cases are looking for us to give them reference boards now so that they can see how this is going to play in their system and they can incorporate it into their next generation architecture, if you will.

Then there's another group of guys that we're all resident on the board. When you look at an individual network interface card or line card, then you might see Altera, Xilinx. You might see an SOC by a VIGO or LSI, or IBM, or maybe NEC, or maybe one or two other players. And then you might see NetLogic on there or a handful of other people. And in some instances there, those guys are requesting reference boards from us as well so that they can very, very efficiently interface their chip to our chip because it might be a significant advantage to them at one of the system houses, if you will.

So we have two kinds of guys who are after us for reference boards. One is the person who is going to coexist with us on the board, who happens to see that his solution is greatly enhanced by kitting it with ours, and we've got several of those activities going on right now. And then the other is the guy that actually builds the system, a Cisco, Juniper, Huawei, and several of those guys are clamoring all over us. So I'm thinking that I think we could have reference boards out before Christmas time to maybe as many as seven to 10, 12 customers, something like that. And we're planning for that and we could support that.

So it's a reasonably active time for us.

Okay. I'll hop in the queue. Thanks, guys.

(Operator Instructions) And our next question comes from the line of Krishna Shankar with ThinkEquity. Please proceed.

Yes. Len, can you highlight the process of how the customer's might evaluate the bandwidth engine and what kind of sort of milestones and things that we should be observing as that is sampled by your next few months/

Yes, I would. I'd be pleased to answer that. So I called it a reference board but in fact, it may not be a reference board. It might be reference boards. What we have running in our laboratory right now, you might see a board in there that's stuffed full of Altera FPGAs or maybe another board that's stuffed full of Xilinx FPGAs. And that board is maybe running at 250 megahertz up to a gig or maybe even up to, I think we find that we can run maybe even up to close to maybe 3.125 gigs. And in that set of FPGAs is behaving like a switch or a router.

And at the current time, because we're characterizing it and debugging it, it's talking to a -- it's handshaking with a board that's exactly the same as that one and we're having these two things behave. One is behaving -- one is programmed up to be a bandwidth engine and one is programmed up to be a switch, or a router, or sending signals to a line card if you will. The minute we've satisfied ourselves with the characterizing and the verification of our bandwidth engine units, we will just pull the FPGAs out of one board and shove the bandwidth units in there. And then we'll take this two-card solution and we'll give it to the customer. And the customer can, he can now see this thing behaving like it would behave in his system and he has the ability to program it and put his own special instruction sets in there. So he can start running things thing at some frequency and verifying that it's capable of whatever his proprietary signals are or he can run it in a pretty standard mode.

So we would give each customer, whether he be a system level customer or a person who wants to handshake on the board with our part, an operating pair of boards that behave like the actual application. We'll back it up with a lot of support fro applications engineering and we'll get the guy trained up so he can just have it in his lab and start running it. And the way it works, he'll just start providing feedback to us about what he sees that he likes and what he sees he doesn't understand. And we're in very good shape to launch this process. The Company is quite far ahead. There's been an enormous amount of work in this area. So that's how I envision it going forward.

And assuming that the customer's like this and it's sort of meets some of their requirements and all that, what do you think is kind of the size of the market that you're addressing with this bandwidth engine?

First off, what would happen is they're going to play around with these reference boards and we've already got people both at the system side and on the board with us, if you will, and especially the system, there's three or four companies clamoring for parts right now, reference boards. So they're going to spend a little while debugging it. One or two of these customers have already assigned a project name to their next switch or router. So we actually know what system we're going into.

And I would think that they'll go out, oh, let's say some time in the first quarter into the beginning of the second quarter. Then they're going to tell us that they satisfied themselves and they're going to want to place a preproduction order. And then through the course of 2011, maybe into 2012, they'll be designing, and architecting, and executing on their system. And then we should start seeing some real revenue from this maybe sometime, I used to think late 2011, but I think in the current economy unfortunately the inflection point is probably going to be second, third quarter, maybe even 2012. And then we'll see this business take off reasonably steeply.

Now, the answer to your question about how big is the market, we're attacking a market that's currently being served with roughly $1.5 billion a year of either RLD RAMs or QDR memories and we're bringing a solution that's four times as fast and roughly 50% or less the cost and 50% or less the power. So this isn't something where there's a lot of argument about how good it is. This thing is really quite revolutionary.

Now, when I say and will say again in my closing remarks that we want to accelerate the acceptance. We're looking at coming out with mezzanine cards that -- and some customers are very interested in a mezzanine card that might have some bandwidth engines on it and a little bit of other circuitry that they could in some way retrofit back into some existing system so that they would get a substantial kick in performance. So if we have some success with that, we pull the whole curve in six or nine months from what I had laid out.

So for us, the end market is very, very huge and one of the three challenges is to provide the support and visibility as to the performance and capability of the part that will justify adopting a mezzanine card into existing systems and that we have a few customers working with that, investigating that with us at the present as well.

Okay. Thank you.

Other questions.

We do not have any more questions in the queue at this time. I will now turn the call back to Len Perham for closing remarks.

So I only have a couple of things. I won't keep this very long today. First off, we announced here when we started down the road on the bandwidth engine that we were going to enable serial chip-to-chip communications board level. In order to do that, we would have to address a number of issues. One was a very efficient interface, this GCI interface is that. As we went serial, we recognized that we would have to make some substantial advancements in latency and we've been working on that with a considerable amount of success. And in our next generation or our next maybe I'd call it bandwidth engine release 1.2, we'll see some of that.

We're looking hard at power. We have a number of macro functions on the bandwidth engine that greatly increase its performance and we've got a very, very powerful built in self-test engine that's highly programmable. And those are the five areas that we felt we had to address in order for us to achieve our goal of enabling a serial chip-to-chip communication.

The Company probably started the year or maybe around maybe when I got here we probably had 100 or 105 file -- granted US patents. So far this year, we've filed 20 new patents and we've been granted five. Our intellectual property ownership of this area is very strong. So that's good for our shareholders as well. I would think probably at the current time, all the patent work is probably six to one in favor of bandwidth engine or maybe five to one over Flash, but we've made some substantial investments in Flash as well. So that's a little update from one perspective.

And then the last comment I'll make is we see as our priorities, working hard to maximize our success in the IP business area because it's critical to our revenue stream in '11. We see that the second priority of the Company is accelerating the adoption of our bandwidth engine via mezzanine cards, or maybe joining together with somebody else resident on a NIC to form a kit that could be, or kind of a mezzanine card that might have FPGAs, or KVPs, or some array, a few parts on there that allow the customer to get a real advantage and maybe a midlife kicker to an existing system.

And finally, we're committed to watching our cash and driving ourselves to making sense of the Company as soon as possible. And we look forward to getting these three objectives achieved and building some real value for you guys, our shareholders. We appreciate that you came and listened to us today and we look forward to seeing you again in the near future. Thank you very, very much. Goodbye now.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.