Star Equity Holdings Inc (STRR) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Thank you for standing by, and welcome to the Digirad Corporation 2008 third-quarter conference call. At this time, all participants' lines have been placed in a listen-only mode. (Operator Instructions). As a reminder, today's conferences being recorded, October 23, 2008.

Before beginning today's presentation, I would like to turn the conference over to Dan Matsui of Allen & Caron. Please go ahead, sir.

Good morning, and thank you for joining us today. If you didn't receive a copy of today's press release and would like one, please contact Nathan Abler in our California office at 949-474-4300, and he will send you a copy.

Also, this call is being broadcast live over the Internet, and may be accessed at Digirad's website at www.Digirad.com. Shortly after the call, a replay will be available on their website.

I would like to remind everyone that certain statements made during this call, including the question-and-answer period, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws.

These forward-looking statements include statements about the Company's revenues, costs and expenses, margins, operations, global imaging services, centers of influence, product division, finance results, and other topics related to Digirad's business strategy and outlook.

These forward-looking statements are based upon current assumptions and expectations, and involve risks and uncertainties that could cause actual events and financial performance to differ materially.

Risks and uncertainties include, but are not limited to, business and economic conditions, technological change, industry trends, changes in the Company's markets and competition. More information about risks and uncertainties is available in the Company's filings with the US Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and this morning's press release.

The information discussed during this conference call should be used in conjunction with the Consolidated Financial Statements, and notes included in those reports, and speak only as of the date of this call. The Company undertakes no obligation to update these forward-looking statements.

On the call for Digirad are King Nelson, Chairman of the Board of Directors, and Todd Clyde, President and CEO. King will make some opening remarks, and Todd will discuss the Company's direction and strategy, review the quarter's financial results, and comment on management's outlook. A question-and-answer period will follow.

I will now turn the call over to Digirad Chairman, King Nelson.

Good morning to everyone. I wanted to take just a few minutes. And I am pleased with Todd's appointment and promotion to President and CEO. And we also welcome him as a Director as well. We have worked with Todd over the years, especially since he took over responsibility for the Product Sales Division in December of last year. And I think the results of his efforts, profitability for the first time in Company history speak for itself.

I and the Board of Directors fully support Todd and his vision for Digirad's future, which include a new focus on attaining profitability and generating positive cash flow. We look forward to all of us supporting Todd and his plan for realizing the real potential of the Company, and enhancing shareholder value, frankly, as we go forward.

I now to turn over to the President and CEO, Todd Clyde.

Good morning, everyone. I would first like to thank King and the Board for their confidence and support and giving me an opportunity to lead Digirad. I would also like to thank all those who have offered their good wishes, and especially the management team employed at Digirad, whose hard work during the past several years have contributed to the emerging success we are now beginning to see, and whose continuing efforts will play an important role in the future success of the Company. And thank you all for being on today's call.

Digirad is in an interesting point in its evolution, where much of the basics are in place and beginning to gain traction, as evidenced by this last quarter's results. I see this as an exciting opportunity to not only continue to support the trends in our core businesses, but perhaps more importantly, also strengthen the Company's efficiency and ability to compete, factors that would substantially enhance Digirad's prospects in both the short term and long run.

As reported earlier this week, we will focus our efforts on attaining profitability and generating positive cash flow. We will be working as a team during the next few months to reassess our current plans, and lay out a clear path to accomplish these two goals during 2009.

By investing in our product technology platform, we can further improve the competitiveness of our cameras, and therefore strengthen Digirad's presence in the cardiac nuclear market. A market that after slowing during the past few years is showing signs of a rebound, which in part appears to be driven by technological advances that we believe will fuel a migration to new camera technologies over the next few years.

We anticipate these future products to offer new efficiencies and possibly provide new clinical protocols. Digirad will maintain a technology focus to be among the leaders in taking advantage of these positive trends.

With regard to our mobile imaging services business, the centers of influence strategy is beginning to take hold. Year to date we have experienced a 15% revenue growth in the centers of influence locations over prior year, significantly outpacing non-COI locations. It is still too early to comment on other desired outcomes of the COI strategy, such as improved customer retention, but we believe this and other benefits will come with time.

I thought it would be helpful to provide this overview of the Company's direction and strategy. And I will most likely give further insight into our plan in the near future. But for now, I would like to move on and discuss third quarter results.

I think you can see that we have some core strengths to work from as a starting point, and that our plan going forward is going to address some key issues, and thereby lead to positive cash flow and sustainable profitability.

Progress this quarter was in a number of areas, including record revenues of more than $20 million, with a strong contribution from our centers of influence locations.

COI revenue growth was primarily the result of continuing ramp-up in revenues from our existing centers. The Product Division also made a strong contribution, with the highest quarterly sales since 2001. Moreover, for the first time in Company history, we achieved profitability for this business segment. Strong bookings, lower cost production, and new imaging technology helped drive improvement, especially bottom line improvement.

Speaking of the bottom line, as mentioned earlier, profitability and positive cash flow will be our primary objectives going forward. We will clearly be taking a close look at our gross margins and operating expense lines, and make assessments in coming periods.

Gross margin has stabilized, but it is still below our plan and our expectations. DIS revenue accounts for approximately 70% of total revenues, so margin improvement in this business segment will have a significant impact on overall margin. More significantly, we will be assessing all our hubs to determine their potential for margin improvement.

Looking at fourth quarter, we project consolidated revenues for full year 2008 at $77 million to $78.5 million, consisting of DIS revenues of $55 million to $56 million, and product-related revenue of $22 million to $22.5 million. We further expect 2008 consolidated net losses of $3.5 million to $4.5 million, including estimated stock-based compensation expense of $750,000.

While it is too early strategically and financially to provide guidance for 2009, I would like to say that it is evident we have a strong base on which to implement our plan to attain profitability and generate positive cash flow. We are also beginning this next phase with a strong balance sheet and liquidity that, in these difficult times, are a definite advantage in terms of capability and flexibility.

With that, operator, I would like to open up the call for questions.

(Operator Instructions). Stephen Silk, C. Silk & Sons.

Hello, Todd. Congratulations on your move up to the top spot.

Thank you, Stephen. I appreciate you being on the call today.

So the cash is down about $1.4 million quarter-to-quarter. Accounts receivables seem to be up about $1 million order-to-quarter, and the net loss is about $850,000. So the burn really wasn't that bad as the receivables play their way through, and I am assuming that was just the timing on product sales and that will work its way through?

Just a few comments. One, on the cash side we ended up taking a $200,000 realized loss in the other income line. So that pushed that down a little bit more than you would have normally seen. I would say that from the operation and free cash flow perspective, the cash burn was about $1.1 million.

We thought it would be in a $1.2 million to $1.4 million range, so we were pleased that we came in a little bit better than anticipated. And we are -- and like you said, we started to do a few more sales with dealers. They have thirty-day terms which are a little bit longer than when somebody actually leases a camera. But all in all we are pretty pleased with that cash. As I stated in my prepared remarks, driving part of the cash flow will be a big objective for us going forward.

The DIS revenue quarter-to-quarter was down slightly. I guess in this market that is not bad, but there has been such a focus on growing that area with the centers of influence and what have you, so a couple of questions on that. Is the lease amount on a daily basis comparable year-to-year?

It is. It is. In fact, we have recently done an analysis and it looks like the kind of average lease day prize is pretty close, less than 1 point down from where it would have been a year to 1.5 year ago.

What you see in the third quarter there is always some seasonality based on vacation patterns. Certainly there was some hurricanes that had a modest impact in Houston in our Houston location. Those things happen to us every year. We certainly plan that. And sometimes that third quarter revenue is slightly up. And if you look back over three or four years you will see there are many quarters where it is slightly down.

We would like to see more traction out of the base business. I'm very pleased with what we saw out of the centers of influence. I indicated earlier that we actually saw 15% growth year-over-year when you look at the nine-month period. And we actually saw growth in those areas even looking at Q2 to Q3.

I think we have seen the first sights there in the financial statements of progress of the center of influence strategy. It will continue to be a focus for us, and we are pleased with that progress so far.

It kind of leads to my next question about -- a little bit more about what is happening at the centers of influence. Percentage growth quarter-to-quarter at this point is from a very small base. So the growth can be a little bit misleading when you look at absolute numbers. But I am interested in the process that you are learning about the centers, and how from the time you sign them up to the time -- how much it can vary from the year that they generate revenue and then move that maybe low hanging fruit type of revenue into a more pronounced full-blown revenue, something meaningful?

It is probably a little bit hard for me to comment on the trends of how long it may takes to ramp up a COI, because we have seven in total. One of those is Emory that we've had for a long time. We continue to see growth in Emory. In fact, in the 15% number I included all of those numbers. So it is a more sizable base number than you might think otherwise.

But ultimately what I would tell you is when pointing to some key indicators, when we go out with that partnership, we are much more successful in getting the time of day with the physician, with the office manager, and whoever that decision-making group might be within the practice, because we're not just utilizing the Digirad name, we are going out and talking about Digirad and Johns Hopkins. We're talking about Digirad and Methodist, Digirad and Emory, for example.

That has made a huge difference. It also brings a peace of mind and a quality component to play for the underlying physician because they have this support of the strong cardiology group within the center, and they really help with that quality. They help them with even, what are these symptoms and indications that would lead to these types of tests being performed?

It is really a neat program that provides ultimately better health care in those communities in which we operate, I would suggest. So what we have to continue to manage and track is to be able to answer your questions better. It is just very early on. And the population size is a little bit small.

I can tell you one of them, it took a year to really kind of get that going, but now it is really, really starting to take off for us. Another one took off a lot quicker. We found some things that we could do a little bit better to make that happen. But I appreciate you are dealing with hospital institutions, they all have their own personalities and that will play into it.

Are you focusing on incorporating new centers or at this point let's work towards maturity and revenue from the group of seven or eight that you have and concentrate on getting those successful and then looking to expand?

I'm inclined to lean toward the latter thought, because it is a lot of work. It takes a lot of work from the sales team. We have to have the right sales people who are trained and knowledgeable in order to make it work successfully. The operations team is also heavily involved in that.

That doesn't mean that we won't go out and possibly add a few. I'm not committing to that, but we may continue to do that. But I think what is most important is that we really drive and continue to get the traction out of those seven, prove the model, and then in a more measured way advance into other centers.

At that point then you will have a lot of confidence to say, all right, back up the truck. Let's really invest heavily in these centers because we can absolutely see that with strong confidence. Whereas I think up to this date, it would still be a little early to back that cash truck up.

You could always have that as a selling point to a center.

Absolutely.

The sales and marketing expenses have gone up in the last couple of quarters. Is that really on the ground centers of influence trying to reach out to physicians?

It is kind of all across the board. We certainly have to continue to have sales presence in our existing business that may or may not be in a center of influence location.

And I think it is one of our challenge is trying to find that right mix where we can have good sales efficiency. The two or three times that we really tried to generate and increase the revenue growth model very rapidly, we end up with a lot of expense and without similar translations on the topline. So we will be paying close attention to that.

I do see value in the center. There too I had a great conversation with one of our sales managers about 1.5 week ago. And we talked about some of the processes that seem to be working. I think we have got to work more on the training aspects. Sometimes we throw those guys out there and they just don't have enough training and experience. And that can make a big difference. But those are all fundamental blocking and tackling items that any company has to deal with.

Is King still there?

Yes, he is.

This is probably directed more at you, King. Whenever you see an announcement of a change in management the reasons given are personal, family or for other reason. It is not necessarily actually what happened. I don't need to get into assuming or trying to guess anything. But what I would like to know, what the directives that the Board has put upon Todd emphatically to see perhaps a different direction or more focus on for the Company?

I think that the Board has -- most of the members have been here for a bit of time. John Sayward is one of our newer members in the past year. But I think as we look forward is that the focus has got to be on, we have to find a way to be a profitable company. We have to find a way to generate cash and not be using cash, especially in this kind of economic time that we're in.

And so we may compromise some revenue growth shorter term here at the expense of obtaining those goals. We want to continue to invest on the customer interfacing side of the business and on the product technology side of the business. So we want to do those things, but I think that we have really got to scrutinize the other factors that have kept us from making money here in the past.

Okay. I want to jump over to the share price and stockholder value. I did an analysis of the ownership of shares based on the last proxy statement by the Board and the insiders, as it were. At that time it was about 16% ownership of the shares.

Since then, the largest shareholder, Dr. Reed, has dispersed his shares through the Vector Fund, so we don't even know if they own any shares anymore. The second largest holder, Tim Wollaeger, has left. So if you take a look at what is owned by the Board and the officers it is a very small amount. If you take out the option-related shares that are included in the share ownership, the ownership is almost zero.

So, my concern is that the Directors don't necessarily are aligned with the shareholders as far as shareholder value or maybe what might be best for the shareholders in the sense of perhaps using $3 million or $4 million to buy stock back when you are selling at one-third discount to cash.

I just cannot fathom that if you believe in what is happening at the Company and the prospects and the potential that retiring X amount of shares is not a clear message to other shareholders willing to hold on that you find that a percentage of your money is best used, rather than getting interest in the bank, to be put into retiring shares for the long-term benefit of those that are willing to wait.

A couple of questions there, Stephen. I can't really disagree with you at all. Doug Reed and Tim Wollaeger were both representing they're venture groups. And they did make the decision to exit their shares, as many of the early investors do in companies. And so that was a reasonably large portion of it.

So secondarily, I agree with you. The Directors, we need to have a stake in the Company at a higher level than we do. And we are addressing that.

Secondarily, your point around utilization -- or utilizing the Company's cash position to buy our own stock, we continue to evaluate that, and what is the best use of that cash. So I would tell you it is on an ongoing basis. And as Todd lays out his strategy going forward, we will continue to evaluate that in the coming months here.

As of the last quarter, 6/30, two of your largest institutional shareholders have been selling a small portion sometimes when they start, that is not the end of their selling. Have you reached out to those two shareholders that has sold and reintroduced yourself, Todd? Or maybe if they're liquidating, this has been a slow painful decline. And you just [kick] out of the positions that they own without this continuing on top of the current market condition. So have you reached out to those shareholders?

We have attempted to reach out to them and had limited discussions with them. As you know, some groups are willing to discuss what they're doing with positions and others are not. So I can't really give you much of an update on what they're trying to do.

I assumed that. I just have two more. And thank you for the time you have already given me.

From the Boston conference when you showed the distortion correction, which you seem pretty excited about. Any feedback from what was shown, or how is that proceeding? Are you in with the second group to analyze it? Can you talk about the prospects of that?

That device is known as an attenuation correction device. And in a simplistic way it helps with image quality if some person that has -- a pretty robust individual there is lot of tissue that these gamma rays are trying to get through. They can scatter out and make it look like you have a defect in your heart when you actually don't. So this kind of takes a mapping of the body, and helps orient that and offset that view, and improves the image quality.

Our approach is one that is being very well received by the technical community, which ASNC is. And that is really what that conference was back in Boston. They continue to see that we are on the right track. And we have started to acquire images on our alpha unit. And we are receiving clinical feedback and we will move forward with that. We expect to have a filing with the FDA with our 510-K over the next few months, and move forward so that the product can be released in the middle of 2009.

In the nSPEED that is now available, is that out in the field, and what kind of feedback are you getting from that?

We're getting great feedback from that. That is something that would allow a physician to either scan at half the time or half the dose, or somewhere in the middle. Under either scenario, it certainly seems to project an improved image quality. And really great feedback from the physicians. We're starting to see that go out with a higher percentage of our cameras that are sold each quarter. And I would expect that to continue.

Finally, can you just talk to your shareholders about what you have developed with the Company? Can you talk about the cameras you have, the software that you have. How it stacks up against your competitors?

Are you able to sell when you go head-to-head? Are you able to sell because the small footprint that you present? Is that the greatest opportunity? What does Digirad have that really somebody should be grabbing their hands around to say, this is a company that we should own?

I think what I would tell you is two things. One, mobility, we are by far the best mobile camera in the market. So anytime a physician wants to move the camera between a couple of locations, or some type of a mobile operator wants to utilize the camera, we are absolutely, bar none, the number one choice in that situation.

The small footprint is clearly an advantage. But what you're also now seeing is we are really part of the top four or five camera producers in nuclear cardiology. And over the last kind of two or three quarters we're starting to displace competitive cameras. Which is a real testament to our technology and what we're doing.

I think overall we are viewed as one of the top innovators in that market. And people are excited to move along to the next level of outcomes -- clinical outcomes, and those are the events that really create migration.

You have seen those things over the history from, if you look back at the early '90s or early '80s until now. But it has been almost ten years before anything came into the scene that really made a difference as far as clinical protocol is concerned.

And we and a couple of other groups are working on some different protocols that really could be pretty exciting. This is down the road a bit, Stephen. But I think all of those things are important. And absolutely Digirad would be considered the top choice for nuclear cardiology.

Marc Silk, C. Silk & Sons.

Hi Todd. Congratulations on the promotion. Let me see, you don't have to be that specific, if you don't want to be, but your old role was CFO, and you are looking at the numbers and trying to save money, etc. Were there disagreement between you and Mark, or maybe Mark on the CEO side? This is nothing against Mark, but I would just say any CEO, he sees things a little differently, where you're saying, well, if I was in charge, I would be doing this.

So are the things you're seeing at your level of CFO that you could probably implement rather quickly as far as getting to profitability, or do you think you guys can cover a lot of stones together?

I think whenever you are working with someone you agree in a lot of areas, and then there is certainly areas where you have differing opinions. We have been working on a plan, and we will continue to fine-tune that.

What we're really going to focus on over the next few weeks here is bringing in the team from the field and getting a lot of input from them. It certainly isn't something you do from a corporate office when you're running a services business. You have to gain the insight from your team. And you have got to be out listening to your customers and employees.

And that will be a real strong focus for me over the next six months as well, to really look at ways that we can do some things differently. I think that is the key. Irrespective of agreements or disagreements, what is important is how do we look at this business and try to find some things we can do to make it a lot better tomorrow than it has been?

And we have been improving it. We really appreciate that, and we complement Mark for the progress that we made under his leadership. And that were clearly some scenarios of great progress. We want to build on those, but we want to uncover some new ones as well.

It is interesting, because since we have owned stock for about two years now, we have lost about two-thirds of our value. I tell my clients that I think you are a stronger company now than you were two years ago. Which gives me to my point that it is not that you start trading at $4 and you have $1.35 in cash and you are talking about buying the stock back.

But I will jump on Stephen's bandwagon, whereas you are trading -- even if you spend about $1 million next quarter, you're still going to have $1.30 in cash. And to be able to buyback some of your stock right here below cash, and then maybe if it goes above cash, you have a disciplined approach that we don't need to buy any. But any time it goes below cash, we have a buyback in plan.

I think that is going to help, A., support your stock, but increase shareholder value. Because if your implementation turns true and you're getting profitable then there is less shares out there as far as that is concerned.

And the other thing is the two funds that have been selling the stock is probably the reason for the downward slide where the stock shouldn't be. More importantly, there can be other funds we don't know about that are selling.

If you have a buyback plan then you can work with Wall Street and say, okay, contact these funds. And then we can do a cross trade and get the selling out of the way.

I think it is a difference when, again, your stock is high and doing a stock buyback, we don't really care for that. But we haven't really been asking that much for a stock buyback. But now, with the price here, I think it make sense for the Board to be proactive. Because I think this is going to be a short-term thing. I think your stock is going to be over $1 in a short period of time.

But it is going to benefit us if you guys retire some shares at $0.30, $0.40 below cash. So I just figured I would throw my head in the ring on that.

I appreciate that, Marc. I understand the view. And I think the Board and management will continue to assess that. I think there are two considerations that also have to be weighed into the decision. One is that the Company has been burning cash. The Company has not been generating positive cash.

And although the burn has been light, we need to really get the Company to where it is generating a lot of cash, so it's easier for management and Directors to make that position and say, okay, we have got some good stability. We have got a nice platform here that we are building from. So that is one thing.

The other thing to just be frank is that the economy is very volatile right now. And although we have not seen impacts on our business, I think we have to be somewhat prudent in stepping forward and not doing something that would put us into a much lower cash position.

I don't disagree with that, and that is won't be ridiculous to buyback even just saying that you put $2 million, which I think still puts you in a good cash position, because I'm assuming with the things we have put in place, you're probably going to get to cash flow positive at some point next year. And you did use a lot of money to upgrade the fleet, so there is a lot of capital expenditures that you have already utilized. So understand that.

If you were in the beginning of upgrading your fleet that would be one thing. So I (inaudible) take every piece of information and figure out the right thing. I don't disagree with the economy it's good to have cash, but you would help that. Even if you use $1 million or so you're still going to have a nice buffer zone. So anyways, good luck going forward.

Thank you for the feedback.

(Operator Instructions). [Alan Gafuni], [Nettle Cap Growth Fund].

In the past, I think you guys alluded to having some issues with employee turnover. I am wondering if you have made any progress in improving that?

Absolutely we have. We have seen our employee turnover or retention -- let's say retention rate increase quite a bit this year compared to the tail end of 2007.

There have been a number of programs that we put into place. But the bottom line is in a service business our employees are what we sell every single day. And we have a lot of excellent, excellent technologists that are out there every day. They care a great deal about our Company. They care a great deal about our physician customers. And most importantly, they care a lot about the patients that they help those physicians actually serve.

We applaud that. And Mark Shapiro, our VP of Human Resources, and his team have done a lot to try to reach out and improve in those areas. We will continue to do that. We have not talked about it as much because those rates have come down, and we are satisfied with some of that progress. But it will continue to be part of we are and what we try to achieve in our culture.

And the credit crunch, have you seen that affect customers' ability to purchase equipment from you?

Not yet. But I think it is certainly one of the risks as we look forward. Cardiologists generally are pretty easy to finance. And I had discussions with two different leasing companies. They continue to thing that is the case.

Where that may become a little bit more challenging are for mobile operators or groups that are pulling home credit lines down to kind of finance their equipment purchases. That is where you might see a little bit of that push. But we haven't seen it yet, but certainly it is a risk we have to consider looking forward.

Silk: Lastly, I'm trying to get my hands around the biggest change in the Company from last quarter to this quarter is, instead of running full steam ahead with the centers of influence and trying to open, I guess, three or four a quarter or per year, you're now going to stick with your seven or eight in your base and develop that before expanding?

We are still trying to look at that. I'm not telling you that we are not going to expand into some new centers. We are in discussions with some centers right now. Don't be shocked if we come back and announce two or three new centers over the next three to six months.

All I am suggesting is, let's make sure that we can get the ones that we currently have work and work well, and that we understand the formula to make future centers successful.

Is there is a certain cost to the Company in opening expenses?

Sure. We have to put a team on the ground. We have to get assets and the clinical folks as well. Usually we will put them out there a little ahead of time based on the need to respond. And there's some other investment. You're not talking about millions of dollars per center, but there is some modest investment.

Let's see, two more things. First, when you come out with an announcement two days before earnings that your CEO leaves, I think that scared the crap out of a lot of people. Especially the way the press release was -- I don't know how it came out, it just made it seem like something was always awfully wrong. And so all the bids in the stock got pulled immediately, including my own.

And then on the buyback, I think you should act like the government if you to do a buyback, and only be in there as the buyer of last resort. And [call in] -- make it known that if an institution is looking to come away with a block of 1 million shares or so, if the Company is willing to buy it at a 10% or 15% discount to the market. Because if they look to sell it in the open market now it will drop 50%. So I think that is how I would execute a buyback at this stage.

I appreciate the feedback.

Tim Allen, Wentworth Houser.

This is from one of those large institutional holders everybody keeps mentioning. I thought I would maybe chime in. A couple of comments, not so much as questions.

I really agree with the share buyback thing. If I'm looking at this Company and I say, okay, this Company -- say you had $20 million in cash instead of $25 million in cash. I don't think that would change the calculus in terms of somebody looking at the Company and saying, what is the survivability in a difficult environment, given the nature of your business, given the nature of your custom base, etc., etc.

If somebody said what are the odds of this Company going bust, presuming some draconian economic scenario, I don't think that number is materially different if the cash balance is $20 million as opposed to $25 million, to tell you the truth.

So I think that argues for a more aggressive posture right now. Quite frankly for the reasons that everybody else pointed out, which is you discount the cash, a substantial discount to tangible book value. Quite frankly this is a -- I have been in this business for 30 some years, this is a once in a lifetime opportunity in terms of how the markets are behaving and how people are frightened. Especially the kind of investors that are going own your stock, which can be primarily retail investors. There is going to the tax loss selling going on.

So this is really is a once in a lifetime opportunity. And quite frankly, if you guys don't, in a couple of years you're going to be saying, why didn't we do this? Why didn't we take $5 million and buyback whatever -- maybe you can't buyback that many shares, but if you buyback a couple of million shares, in a couple of years you're going to look back and say, boy, I'm glad that we had the equanimity to take a hard look at the market and the opportunity and the risk and make that decision. So that's all I have got to say.

(Operator Instructions) Stephen Silk.

Can you talk about where the sales have been coming from for the product? Because I know a while back we looked at maybe in a smaller footprint for a hospital, maybe centers as opposed to necessarily the smaller cardiologist. Has there been a change in that?

I would say that the general customer continues to be the same. Our bread and butter group are the smaller cardiology practices. Sometimes a person who is splintering off from a large group, and wants to buy their own camera. Maybe it is somebody that just came out of a fellowship and they're starting a practice. That piece continues to be a large chunk.

We saw an increase in our mobile sales side, the dual-headed mobile camera has been well-received. Some enlarged practices if they move it between a couple of locations. And different ways that those cameras are used.

And then probably be one piece that is new is that we are starting to sell into larger practices. That has not been a segment of the market that we have done great at penetrating historically. Whereas today we're now starting to get some inroads there. And a lot of our -- if you looked at our product roadmap, the development items are geared towards getting us into those locations. The attenuation correction device, for example, becomes very important.

And I won't get involved in the technical reasons, but I'd say it is probably more important for an upright imaged camera where you sit in a chair like ours, rather than if you laid down flat to have that attenuation correction device. So those things are all driving in the correct direction. And we are pleased with that.

The last thing I would comment is we also have layered in a dealer network that we believe has been successful. We are pleased with those results. We have a pretty limited number of salespeople that sell the cameras, and we need to help increase visibility and to get into more deals. So Randy Weatherhead, our SVP of Sales and Marketing on the product side has done a tremendous job of finding new ways to increase that visibility. Certainly that is having a positive impact.

My understanding is just what you would sell is that the attenuation correction really brings you new opportunities in new markets where you can get into. It is that something that can be sold as an upgrade, so that you can start looking for initial sales into that with the upgrade available? Or really the people that would be looking for that would have to wait for the attenuation correction to be available?

When it is initially launched it will be launched on the triple-headed camera only. And so there will be some form of an upgrade path, but we are still not quite to that level.

Just to beat a dead horse. You're hearing from the shareholders that put up their money who think that it is an unbelievable opportunity, based on the environment, to buy stock back.

And the other thing is, if you buy 2 million shares at $0.80, and you're successful, you will be able to sell 1 million share $5.00 and get that money back, if it works. You can always go back to a secondary later. Thanks again.

Management, at this time we have no additional questions in the queue. I will turn the conference back to you at this time for any closing remarks.

Thank you everyone. And I definitely appreciate the strong interest and the great dialogue that we had this morning. Looking forward we will have some important core strengths to build on. And with our commitment to a stronger bottom line, we have identified some of the main areas for us to focus on and improve. As a result, I believe we are on the right track to accomplish this goal.

With the support of our Company's Board of Directors and employees, I feel we're in an excellent position to move forward with our plan to achieve positive cash flow and sustainable profitability and higher shareholder value.

I look forward to updating you on our progress on our next call. I think you all for joining us today.

Thank you management. At ladies and gentlemen this will conclude today's teleconference presentation we thank you for your participation on today's program. At this time, you may disconnect and please have a pleasant afternoon.