At June 30, 2007 the Company had outstanding unfilled purchase orders and was committed to a contract manufacturers and component suppliers for approximately $1.9 million of future deliveries. Purchase commitments for product and components are generally subject to modifications as to timing, quantities and scheduling and in certain instances may be cancelable without penalty.

On page 15 the following paragraph is shown:

As of June 30, 2007 we had an order backlog of approximately $2.7 million for eVU units and accessories. We believe the majority of the backlog will ship to customers in the second quarter ending September 30, 2007. Backlog orders are subject to modification, cancellation or rescheduling by our customers. Future shipments may also be delayed due to production delays, component shortages and other production and delivery related issues.

Question………… 

Could you please explain the difference between "unfilled purchase orders" and "order backlog". The general text seems to indicate the same definition, but an explanation is not provided in the 10-Q as to the principal difference.

Answer…………..

“Unfilled purchase orders” represent our orders for equipment out sourced to the manufacturing entities. We also can utilize more than a single company who has the capability of manufacturing our products. This provides an improved capability of supplying products to our customers on a timely basis.

“Order backlog” represents actual orders received from customers and are at various stages of manufacturing, none of which has been completed and shipped.  

On page 13 of the 10-Q the following paragraph is shown:

The Company operates in one major line of business, the development, manufacture and marketing of electronic products. Sales to three customer comprised 69%, 17% and 12% of revenue for the three months ended June 30, 2007. Sales to one customer comprised 100% of revenue for the three months ended June 30, 2006.

Question…………. 

Please clarify that the term customers includes both "direct sales" and sales through "distributors".

Answer……………

The three customers referenced in the 10-Q represent both direct, which may include specific added services from direct sales, and sales to distributors (Mezzo).

Answer…………………

That amount represents customer deposits against the “order backlog” as shown. Each customer agreement may require a deposit while others may not. Deposits can be compared to order backlog, but not a direct ratio because of different agreement structures.

Comment………

I calculated a gross margin of approximately 14% for product sales and a margin of about 19% using total cost applied to total revenue, including service revenue and associated cost.

I believe this is a result of the split of business between direct sales and distributor sales and that the margin will vary in the future because of this split as well as any added services you will provide on direct sales resulting in service  revenues.

Answer…………………

Your observations are correct and as we have stated, we anticipate the gross margins in the future will equal or exceed 30% resulting from greater efficiency and volume. The revenue split will continue to impact the margins, however we expect improvements overall.

Question……………..

The information released by the company mentioned (as previously stated) that an update concerning patent enforcement actions will commence this quarter while the 10-Q noted a similar statement referencing this fiscal year.

Answer………………..

We expect both will happen, but any and all release of information regarding the eventual lawsuits/settlements will be evaluated and approved by Duane Morris. As soon as they give us the go ahead we will provide the appropriate details to our shareholders.

Additional comments,

I asked about sales of eVUs in addition to the confirmed backlog and Robert indicated a high probability of new orders with delivery dates this fiscal year. He added that sales into other market segments will take more time as the company resources are limited in trying to cover sales calls and identifying and supporting the needs of different markets.

He reiterated earlier comments with regard to the potential success of the patent process.

Timing as mentioned will be in the hands of DM and was very positive that the initial actions would involve settlements.

There are other areas of some importance within the 10-Q, these I will follow up with added discussions if necessary and summarize if appropriate.

Hope this information gives you a better understanding of some of the vague definitions as contained in the 10-Q and bring about more focus concerning the comments we have seen posted on the Agora board.

Richard