Acacia Research Corp (ACTG) 2004 Q1 法說會逐字稿

Good afternoon and welcome ladies and gentlemen to the Acacia Research First Quarter Earnings Release Conference Call.

At this time, I'd like to inform you this conference is being recorded and that all participants are in a listen-only mode.

At the request of the Company, we'll open the conference up for questions and answers after the presentation.

I'll now turn the conference over to Mr. Paul Ryan.

Please go ahead sir.

Thank you operator.

Good afternoon and thank you for being with us today.

Today's call may involve what the SEC considers to be forward-looking statements.

Please refer to our 8-K, which was filed with the SEC earlier today for our forward-looking statements disclaimer.

Earlier today, we reported first quarter consolidated financial results as well as results for Acacia Technologies Group and the CombiMatrix Group.

Today we will start with a review of operating activities for CombiMatrix Group and the Q&A session led by Dr. Amit Kumar, CEO of CombiMatrix.

This will be followed by a presentation and a Q&A session for the Acacia Technologies Group led by Chip Harris and myself.

Before turning the call over to Dr. Kumar today, I want to congratulate him, his management team, and all the employees of CombiMatrix for their accomplishment during the first quarter, numerous accomplishment, which included the launch of the first product, the completion of all the R&D milestones in Roche alliance, the awarding of the Department of Defense contract for CombiMatrix's biowarfare detection technology and the initiation of a wide range of new collaborations in the areas of drug discovery, diagnostics, and nanotechnology.

Congratulations, I mean, on a great quarter and I'll turn it over to you.

Thank you Paul for the very generous introduction.

Once again CombiMatrix had an extremely productive quarter achieving numerous milestones, which included as indicated by Paul, the official launch of our first product and the awarding of nearly $6 million Department of Defense contract.

During my remarks, I will comment on our financial condition, highlight the key activities and achievements of the quarter, discuss our recent financing, and I will also provide an update on four -- all four of our business initiatives, which as many of you know are DNA Microarrays for research and diagnostic application, our funded development program for the Department of Defense, our siRNA development program to discover and develop anti-viral drug, and our strategic relationships in the nanotechnology area.

Following these remarks I will take questions.

As stated earlier during the quarter, we completed all of our R&D activities under our strategic alliance with Roche.

As of the end of the quarter, they are no additional obligation and it is now up to Roche to inform the market of its launch schedule and plan for the Matrix Array product line.

Subsequent to completion of our activities for Roche this quarter, we’ve recognized according to generally accepted accounting principals roughly $17.3 million worth of revenue.

We also had additional revenue for the quarter of roughly $300,000, which is comprised of revenue under our Department of Defense contract, sales of our microarray products, and services related to our microarray product line.

We finished the quarter with nearly $18.5 million of cash on our balance sheet and no debt.

In addition, with the recently completed financing we are much better capitalized with the cash balance of roughly $32 million and no debt.

There were three primary reasons to execute this financing.

Number one, we plan to invest in building our commercialization infrastructure now that we have launched our CustomArray DNA Microarray product.

We also plan to invest in our siRNA drug development program as we are seeing encouraging results and lastly in discussions and negotiations with potential partners, a stronger balance sheet is extremely helpful.

I will provide more detail regarding each of these points in context as I discuss our operations and activities.

In the first of our four business initiative, DNA Microarray Q1 was an event for quarter that culminated in the on-time launch of our low-density, DNA Array product known as CustomArray.

This launch included the availability through the CustomArray website, a proprietary tool enabling customers to fully design and customize their arrays.

We are now engaged in building the commercialization infrastructure to market and sell this product.

This includes expanding our headcount in sales and marketing.

Our philosophy has always been to not staff up in these areas until our product was ready, thus keeping expenses low during development.

Rather, we have launched, we planned to increase headcount in sales and marketing.

In addition to staffing increases, we will also be engaging in substantial marketing activities, which include advertising in trade journals, trade show participation, direct mail campaigns, direct sales calls, and strategic distribution agreement.

As I stated earlier these sales and marketing efforts were one of the reasons for our financing.

We at CombiMatrix are excited about the launch of our first product and are looking forward to additional launches as we move forward into the year.

Before I discuss our additional business initiatives I want to make a few comments on some specific programs we initiated this quarter in Alzheimer's disease and bird flu.

The goals of these programs are similar to comparable programs we announced last year.

They include identification of generic markers, which can be used in diagnostic applications.

To-date, we have three such alliances, in Alzheimer's disease, influenza, and lymphoma.

Our second area of business focus is the development of a portable detector system for biological and chemical weapons detection.

This program utilizes our semiconductor chip with an electrochemical detection modality as opposed to conventional optical detection.

The electrochemical approach enables compact inexpensive instrumentation, with superior performance characteristics.

During the second week of March, we announced that the Department of Defense had awarded a contract administered through DTRA, which stands for the Defense Threat Reduction Agency.

This project includes a cooperative research and development agreement with the United States Army Medical Research Institute for Infectious Diseases, also know as USAMRIID.

The goal of this multi-million dollar program is to develop a handheld inexpensive system, that can detect a number of agents including anthrax, plague, and others, which could potentially be used against U.S. and ally troops in warfare or against civilian populations through terrorist activity.

I want to note that the work we are doing in this area, their focus on bio and chemical threat is directly applicable to the more traditional life science applications in R&D and diagnostics.

This is truly dual use technology.

Therefore, the defense-related work, which is fully funded by our DOD contract, is leveraged to enable the development of novel life science products, which utilize electrochemical detection.

I also, want to note that we continue our discussions with large defense contractors regarding strategic alliances and we are seeking additional funding from government agencies to expand our efforts in bio and chemical defense.

In addition, we are engaged with Toppan, a diversified company with $12 billion in annual sales, to aide in the development of next generations of electrochemical detection chips.

As many of you already know, we have received nearly $2 million -- $2.5 million from Toppan to-date.

A third area of focus is our work in the nanotechnology area.

During the quarter we established relationships with Cyrano Sciences, which has since been acquired by Smith Detection and with a research group at Washington University in St. Louis on an NSF, National Science Foundation funded program.

These two relationships are in addition to the relationship with Nanomaterials Discovery Corporation, which we signed last year.

I won’t discuss the details of each alliance, but I will note the key strategic point of each of these relationships.

With each of the current alliances and future alliances, we are enabling our partners to perform R&D activities using our chip.

These programs are potentially high-value drivers for our Company, but they require minimal investment on our part.

These relationships are structured to leverage our previous investment in our core technology and the current development capabilities of our partners.

I also want to take a moment to make some general comments about nanotechnology because it has become the subject of significant attention recently.

Nanotechnology is not so much an industry as it is a field of science and technology where the understanding and use of small things enables new and novel product.

The nanotechnology companies can operate in biotech technology and other industries.

There are two modalities for nanotech known in the industry as the top-down approach and the bottom-up approach.

The top-down approach refers to using traditional technologies like semiconductor fabrication capability and systemically making feature smaller and smaller.

Examples of companies that do this are the semiconductor chip manufacturers like Intel that continuously increase the density of electronic components on their chips.

The bottom-up approach refers to the assembly of largest structures through the consoled or designed assembly of small features like atoms, molecules or particles.

There are fewer companies operating in this mode, but this approach promises to enable very novel products.

CombiMatrix technology utilizes both of these approaches.

The use of traditional semiconductor fabrication approach to successively increase the density of features on our chip products.

We also use the capabilities of our chips and make relatively large features such as DNA molecules, potential drug molecules and materials by assembling them one small component molecule at a time.

With that as a context, CombiMatrix is technology of platform, by definition is nanotech in nature with applications in both the biological and non-biological areas.

Because the focus of our company is primarily in life sciences and biotechnology, we use the term nanotechnology to refer to a non-biological application.

In addition to the strategic partnerships in this area, this quarter we are pleased to announce that Mark Modzelewski has joined our Advisory Board.

Mark is the founder of the nanotech business alliance, is the leader in nanotech field, and was one of the drivers of the national nanotech initiative, which was recently signed by President Bush.

We anticipate that this area will continue to get more attention and the funding from the national nanotech initiative will impact this area in the same way that sequencing of the human genome impacted the genomics field.

Also as evidenced of the recognition of our technology and our company by this community, last week we were added to the 22 company Merrill Lynch Nanotechnology Index which is the first index developed to track this sector.

Last and perhaps most exciting area I would like to discuss is our siRNA drug development program.

As many of you know, we began this effort with programs in SARS and HIV.

We have just recently expanded the program can include Hepatitis C. Over the last few months, we have seen promising results in HIV, and we plan to continue our investment in this area, which will be hasten by our financing.

In addition, we also added to our Scientific Advisory Board, Dr. Mark Kay of Stanford University Medical School.

Dr. Kay is a luminary in a number of areas including the development and delivery of siRNA drug.

Notably, he and his research group were the first to demonstrate the efficacy of the siRNA in a live mammal.

Most of the research today have focused on cell cultures.

Obviously, we are very excited about this program and additional details and developments will be forthcoming throughout the year.

With that, I would like to hand the call back to the operator to take questions.

Thank you, sir.

The question-and-answer session will begin to the CombiMatrix Group.

If you are using a speakerphone, please pick up the handset before pressing any numbers.

Should you have a question, please press "*" "1" on your pushbutton telephone.

If you wish to withdraw a question, please press "*" "2".

The question will be taken in the order as received.

Please stand by for your first question.

Our first question comes from Virginia Daley (ph.) from Maxim Group.

Please state your question.

Good afternoon, gentlemen.

My question was on can you talk a little bit about the backlog on your launch.

I know, you only had a few days of 30 days, March 1, you launched on it, but the sale-through is in.

If you do have a backlog, how you see ramping or scaling for the [1000 site] chip?

Okay, yeah.

Absolutely, we’ve had -- since we launched, we had dozens of customers come to the site and begin using our tools to begin designing arrays for their particular projects.

We've already had customers that have come to the site, have designed arrays, have them shipped to them, run those arrays and have iterated and re-designed those arrays based on the results of those initial experiments.

We anticipate as we go forward and we increase our marketing efforts, sales and marketing efforts for the quarter that we will start to see additional numbers as far as the sales of 1K array products are concerned.

And with the launch of 10K array at the end of this quarter, the second quarter, we anticipate that we will obsolete the 1K array as most customers will begin using the 10K array in the third quarter.

Do you have any further guidance, with when the launch of that 10,000 site chip will be?

Yeah as we stated before it will be at the end of the second quarter.

Thank you .

Next question comes from Bennett Jermaine (ph.), private investor.

Please state your question.

Yes hi.

Hi, Dr. Kumar.

Yeah in the nanotech non-biological area can you give us a feel of what you are doing in the fuel cell in the energy areas and your expectations for those fuels?

Absolutely, in fact the fuel cell in energy areas are one of the most exciting areas in this field.

Our chips are going to be utilized by our partner, Nanomaterials Discovery Corporation to perform research in discovery of new materials that could be used in applications like fuel cells and batteries and other electrochemical devices.

The plan is for then to use the chips to attempt to discover, for example new catalyst, which would then either be used in a fuel cell or licensed to a company that is making a fuel cell with us receiving the royalty.

The key is that this development this discovery effort will be performed by Nanomaterials Discovery Corporation using their capital and their resources while we would benefit it a new catalyst is discovered.

Obviously, as many of you know the fuel cell area is receiving quite a bit of attention or has received quite a bit attention over the year and certainly this year because of energy issues and issues related to the Middle East and we anticipate that that will only grow as we go forward.

Do you happen to have a feel for how soon we might be able to derive some income from that area?

That’s something that I am not prepared to talk about at this point.

We anticipate having some prototype workstations ready within the next several months but as far as projections on income that’s something we can't talk about.

Okay thank you.

Thank you.

Our next question comes from Michael Norman (ph.), Private Investor.

Please state your question.

Good afternoon.

Thanks for a nice report.

Mine really duplicates to previous question I was wondering if you could possibly give us a guesstimate when you'll see a positive cash flow.

How many years it might take to even see a couple of cents on the bottom-line?

Well we -- obviously we -- our business is composed -- our cash flow for our business is composed of a number of different sources, which include sales of our products, our contracts with the government as well as payments from strategic partners, and we anticipate that each of those components will be meaningful as we go forward.

In general, we don’t provide projections on cash flow, I would like to note that for 2003, the full year of 2003, we were pretty close to cash flow breakeven.

We have burned a net of a little over $3 million in cash, which compared to most other companies in our sector was tremendous.

Most of those companies in our sector are burning anywhere from $20-40 million in cash, and we were able to achieve our result of $3 million in change while still operating in four very large commercial opportunities.

Well thank you, that’s a very positive answer without going over board on your part.

Thank you.

You're welcome.

Thank you.

Our next question comes from David Reese, Private Investor.

Please state your questions.

Please state your question.

Yes Amit.

Good afternoon.

Hello.

Amit?

Yes I am here.

With regards to the 5.9 million from the Department of Defense, you will get that over a period of time, I'm assuming in the first quarter you got $217,000, but not, you haven’t got any where near the whole $5.9 million.

That is correct.

It is not a contract where we received the whole, the bulk of the money.

We billed to it based on time and material and with an allocated amount for profit and over head.

So what you received was $217,000 during the quarter.

That’s correct.

We only -- we began working on that mid March, that was roughly about two weeks of work.

I see.

Two and a half weeks of work.

Thank you.

Thank you.

Our next question comes from Patrick Berman (ph.) from First Allied Securities.

Please state your question.

Hi I was kind of caught a little bit by surprise on the quick switch, I guess what I could detect it from progress in things like SARS, HIV, Hepatitis C to the fuel cell.

Could you give me a little futuristic look on in to which of those two areas seems to offer the most promise to you.

Well I think most of those areas offer promise, I am not sure what you mean by quick switch, but our company is operating in four different areas, one of which is we all know is microarrays and diagnostics.

We are also developing drug based on siRNA technology using our chips and that work is being done by us and with our collaborators, whereas all of the work in the fuel cell area, in the materials area, in the nanotech area is being done by collaborators almost exclusively we are providing capabilities to them and some support and our chips that they are doing product development.

So, from a risk and capital investment standpoint that effort is costing us very little, practically nothing yet it can provide tremendous value for the company and for our shareholders as those products get closer and closer to commercialization.

So, we are very excited about both, obviously siRNA drug development has become one of the hottest area of molecular biology research, and it turns out that our chip technology has tremendous competitive advantages in doing -- performing that type of research as well as in the area of materials and fuel cell catalyst and so forth.

My interest is actually headed bought to my attention by healthcare workers and Hepatitis C in particular, as they feel or know that Hepatitis C is one of their greatest risks, could you give me just a little more input on how that is going to Hepatitis C?

Absolutely Hepatitis C is -- that is correct.

It is a communicable disease.

It is a big risk.

In fact, there are more Hepatitis C cases in the United States then there are HIV cases annually, and we’ve just started the process of working with our collaborator in Spain, who has expertise not only in hepatitis virology but also in siRNA development against Hepatitis and our goal is to design new [inaudible] that we will synthesizes on our chips that can be tested to determine if they are able to inhibit the infectivity of Hepatitis virus.

And so we've just began that project.

We’ve announce just recently that we’ve extended our HIV project to include Hepatitis and so we planned to provide more guidance and more information on our siRNA program as a whole as we go forward throughout the year.

We are starting to see some results that are very promising.

On the practical side of it, how would the healthcare worker be warned of the presence?

Well there are two issues, Hepatitis C, there is a case of -- there is an issue of diagnostics and there are existing diagnostics primarily immunoassays and other genetic based tests that can be used to determine if someone is infected.

That being said, our focus is on the development of a therapeutic against Hepatitis and so diagnostics for Hepatitis already exist.

They require blood test or other types of tissue test.

Thank you.

Thank you.

Our next question comes from Jonathan Aschoff from Brean Murray.

Please state your question.

Thanks a lot.

Hey a question for Amit.

Are you aware of any comments made earlier today by Roche as they relate to Matrix Array.

I have not -- Roche did have that earnings conference call this morning and I have not had a chance to listen to that but other people will have listen to it have indicated to me that Roche did made some comments indicating that they are in intense discussions with CombiMatrix, which I would characterize as an accurate description and they are evaluating various issues related to the Matrix Array launch, which I would also characterize as an accurate description.

Okay.

That’s on [road all day], and hasn’t turn -- had the first time to come to those comments here.

Then clearly any mean, or chip revenues have to wait for the 10K chip, would that be a fair assessment?

I think, we will have some meaningful Chip revenues in the next quarter, but the 10K is the sweet spot of this market.

Okay.

Thanks a lot Amit.

Thank you.

Thank you.

Our next question comes from Allan Debrulta (ph.) from AG Edwards.

Please state your question.

Good afternoon Dr. Kumar.

A quick question, the fact that we did a secondary just recently, would that preclude off from doing some financing with a partner if they might be interested someone like Roche at some point?

No.

Not at all.

The -- you know, we have had a number of discussions with Roche as well as other potential partners, regarding equity investments and for various reasons we have not done those.

But the financing does not preclude us from doing that.

And one more real quick question.

The fact that we recognize the revenue last quarter from Roche, was there a specific advantage that allowed us to do that, or was it just a completion of a milestone?

It was primarily completion of the milestones and associated accounting treatment by our auditors.

Okay.

Thank you.

Thank you.

Our next question comes from Alka Vanizan (ph.) from SS Capital (ph.).

Please state your question.

Hello.

Yes, Mrs. Vanizan (ph.), your line is live.

I think, we have lost him.

Now I would turn the conference back over to Mr. Ryan.

Please go ahead, sir.

Thank you operator and thanks Amit.

We’ll now proceed with the Acacia Technologies portion of the call.

During the first quarter, the Acacia Technologies Group continued to roll out its licensing program for our digital media transmission technology.

Operator?

Are we still on?

I assume we're on

We have now entered into 120 new licensing agreements for our DMT technology including licenses with companies representing a variety of sectors in the digital media market.

First quarter licensing revenues increased to 599,000 from 480,000 in the previous quarter and do not include first quarter license fees due from a number of licensees, which will be recognized as revenue when received in the second quarter of 2004.

Importantly, all of our material license agreements provide for recurring payments, which we will recognize on a quarterly basis.

We completed our first licensing agreement for the use of our technology for video on demand on corporate websites and have now entered into licenses with a number of companies representing different industry sectors.

The wide range of media and communications companies, which have licensed our technology is a demonstration of the breadth of coverage of our patented digital media transmission technology spanning different industry segments.

We are continuing discussions with a large number of online learning companies, news, sports, and entertainment internet sites and corporate websites using video on demand.

We are also continuing discussions with cable TV companies, which represent the most important industry segment for potential licensing revenues.

Cable TV companies are continuing to accelerate their roll-out of video on demand and for the new digital add insertion initiatives.

There are 72 million U.S. cable houses [inaudible] represents an enormous licensing opportunity for us.

We are very pleased with the progress of our discussions with a wide range of potential licensees as well as the rapid growth in the use of our technology by media and communication companies.

I will now turn the call over to our President, Chip Harris, who will provide you with some of the specifics of our licensing activities in each of the industry segments.

Chip.

Thank you, Paul.

As you are probably aware, we recently announced licensing agreements with the Disney, Playboy, and T. Rowe Price and our licensing program continues to build momentum.

To recap, we now have a 120 license agreement and all of our material license agreements provide for recurring license fee payments.

As Paul noted earlier, the cable TV industry represents one of our most important licensing opportunities.

We believe our time is good because most of these companies are beginning to derive new revenues using our technology for video-on-demand and digital add insertion, which Wall Street analysts predict will generate several billion dollars per year in new revenues.

Digital add insertions, which utilizes our technology, is now enabling cable TV companies to compete with broadcast networks for spot advertising dollars.

Recent reports predict that cable TV companies will gain approximately $4 billion in incremental annual revenues with 65% of that going directly to the bottom-line.

The aggressive rollout of video-on-demand by cable TV has accelerated from earlier projections.

It is now predicted to reach 85% of all U.S. cable households within 2 years, generating an additional several billion dollar in revenue.

We are also in discussions with companies in the rapidly growing e-learning sector.

Many of these companies are beginning to use our DMT technology as part of their online course offerings.

We're in the process of negotiating industry license agreements, which should accommodate the various business models within this industry.

Analysts are projecting a rapid growth for this industry and our potential licensing revenues to grow over the next few years from the organic growth in the industry and the increasing utilization of video on demand as a core element of online classes.

We are also moving forward with discussions with a wide variety of companies that are beginning to build significant traffic from online sports, news and entertainment sites, and are in the process of negotiated license rates which will accommodate those various business models.

All of the major sport categories such as majorly baseball, the NFL, the NBA and even NASCAR have developed online websites.

Major media companies are now aggressively developing online news and entertainment sports site and we expect that trend to continue as the number of high speed internet homes reaches critical mass of 14 million U.S. households in 2005.

We are also in discussion with the companies that are now using our video on demand technology in significant ways on their corporate websites as evidenced by our recent licensing agreement with the T. Rowe Price Company and are working with them to enter into appropriate licensing arrangements.

As you can see, we have now actively rolled out our licensing program to a wide variety of companies in the number of industry sectors.

We anticipate that the momentum we are gaining will continue over the next few quarters.

On the litigation side, the judge in our case against certain online [inaudible] entertainment companies has begun to hear testimony on the meaning of certain patent claim terms.

Additional court dates for this purpose have been scheduled in May and we don’t expect any ruling to this area before the summer at the earliest.

Of the original 39 companies remains our litigation, only 9 remained.

So, we added additional 8 companies due to litigation.

With respect to the litigation that are V-chip against four unlicensed television manufacturers, briefs for our V-chip appeal have been filed with the Court of Appeals and dates for [inaudible] have not yet been set.

We also continue to evaluate a number of new opportunities to acquire and or master license IPs that have come to us in the recent few months.

As you may be aware, we have already negotiated business terms regarding two additional portfolios we have in our option and anticipating -- anticipate closing these transactions in the near future.

These portfolios do potentially represent significant additional licensing opportunities for the Company.

We are also in discussions with the number of new companies regarding their IP portfolios and anticipate closing additional transactions over the course of this year.

To augment this, we recently expanded our license our -- our patent licensing team by naming Edward Treska as Vice President of Licensing, Mr. Treska was most recently General Counsel and Director of Patents and Licensing for SRS Labs where he personally drafted and negotiated over 300 license agreements with leading consumer products and semiconductor manufacturers since 1996.

Ed is very experienced [inaudible] turning a great addition to our team.

I will now turn the call back over to Paul for some final comments, before we start the Q&A session.

Thanks, Chip. the goal of Acacia Technologies Group is to become the leading technology licensing company.

Our digital media technology licensing program represents a very large opportunity that will drive revenues in the near term and we plan to add a number of new patent portfolios this year that will potentially increase and diversify our revenue stream.

Many companies are now realizing they may have valuable IP but do not have the internal resources or want to invest in building an entire in-house team to monetize their IP.

This provides Acacia Technologies with the opportunities to generate new revenues with potentially high profit margins from a diversified portfolio of intellectual property.

This can be accomplished in many cases with limited upfront investment, modest R&D expense to expand patent claims, and literally no cost of goods sold.

The economics of the business are exceptional and we are enthusiastic about the new opportunities we are evaluating as well as the potential revenue growth in the licensing of our DMT technology.

And with that I would like to have the operator open up the call for questions.

Thank you sir the question and answer session will begin for Acacia Technologies Group.

If you are using a speakerphone please do pick up the handset before pressing any numbers.

If you have a question please press "*" "1" on your pushbutton telephone.

If you wish to withdraw your question please press "*" "2".

Your question will be taken in the order that it is received.

Please standby for your first question.

Our first question comes from Virginia Davies (ph.) from Maxim (ph.).

Please state your question.

Good afternoon gentlemen.

My question to you was, you had originally -- there was some discussion regarding increasing your rates at the end of March to accelerate some other people that were waiting on the sidelines, did you do that and can you comment on that?

Well there is simply one category of the adult entertainment category where we have already had over a 100 licensees and there we have established some deadlines for rate increases and we have put into effect those rate increases.

In the other major categories, we have basically set a rate, which we are getting the early deals done, for instance, in the corporate area for video-on-demand on corporate websites, and we are in discussions, kind of, on an industry basis in a number of key industries where we are setting streaming rates for those business models where there may not be a specific revenue attached to the use of our technology, there we are going to be licensing it on a streaming rate.

So we have pretty much set in place the rates for most of the industries, the only particular area we have had a rate increase is in the adult entertainment side from the original introductory rates that we offered.

And I know you offered favored nations status for the first people that license i.e. the Disney licensee, correct?

Well we cant comment on specific terms of any particular license, but generally it depends on -- leaders of the industry certainly often times will want rate protection or what's known in the industry as the most favored nations clause and obviously we take that in to consideration and negotiations.

Okay, so my question is, the Disney licensee came under a media content and is not -- that would be separate with regards to your cable or your online negotiations.

Each one of those are compartmentalized and looked at differently; is that correct?

Again I can't comment specifically on a particular deal, but in general you are right.

We'd license the distributor of the content.

So if the distributor has internet sites then they would pay for those, if a company also has content that's delivered via cable, we would really be collecting those royalties from the cable distributors.

So you are right, it's certainly impossible for a content company that delivers content, and eventually it will go over wireless, it will go over satellite.

We consistently always have the royalty payment made from the actual distributor.

So the content owner may have their content distributed through a wide variety of distributors and the distributors are responsible for the royalty.

And then one final question, have you expanded your licensing program in to your as of yet or is that --?

On a very limited basis, we have now just notified the satellite providers both in Europe and the US, and we are in early stages on some of the larger companies in Europe and will be rolling that out over the balance of the year.

Thank you very much.

Thank you.

Our next question comes from Zack Armstrong, a private investor.

Please state your question.

Yeah, my question relates to additional patent portfolios.

I think on the last conference call you said you had a 90-day option on these portfolios and we are kind of past 90 days I would think -- correct me if I am wrong, but how close are we to may be signing these patents and can you speak about maybe is there a floor or a limit on the amount of revenue that a patent will generate before you will take it on board.

Yeah the answer to your second question, certainly we are only looking at patent portfolio’s that generally have the ability to generate $10 million plus in royalties per year.

It's the same amount work, it’s a larger amount of effort to put in place the licensing program and complete the due diligence.

So, certainly we are screening opportunities kind of with that monetary cut off.

The two that you have mentioned -- we are basically -- it's not a hold up on the other side, it is us really completing some very definitive due diligence, which -- just to give you a little background, on the digital media we literally did due diligence for almost 18 months because when we go out with a licensing program we want to ensure that we have the creditability that the people that we are going to, infringe the technology and that that the patents are extremely well prosecuted.

So, we spend all the due diligence upfront so that when we go out -- because as we plan to partner with a number of companies, that creditability is very important to us.

So, we are taking a little bit of extra time in finishing our due diligence, but there is, you know, no other hold up in the deals and they will probably be getting done in the very near future.

Alright, could you speak to any new cap portfolio that you are looking over and kind of what you are targeting and how you are going about acquiring these opportunities?

Well, we are in discussion with a number of companies and some very large companies -- Fortune 100 companies as well.

Companies across the board are really taking a serious look at their IP portfolios and many of large companies are now engaging in screening activities -- let's see what they should do and we are proactively -- have introduced ourselves to some of those companies and have had multiple discussions with them, and I think probably a significant portion the future portfolios indeed may come from some fairly large companies rather than single-end vendors.

Because generally they will have a very dominant position in a field of use with multiple patent portfolios and generally with well prosecuted patents.

So I would say our focus increasingly is on partnering and/or acquiring or some combination of that economic relationship with fairly large companies.

And again $10 million is the minimum?

Yes that’s our screening minimum.

Okay, one more question.

If negotiations with the cable company are like a baseball game -- what inning are we in?

I don’t want to joke about that.

It immediately came to mind but we’re in discussions with a lot of companies, we’re in the middle innings, and it’s a process, it takes time for us, sometimes its frustrating, but it’s a big decision for these companies and they are -- once they sign a deal they are obliged to pay us recurring royalties every quarter until 2011 and 2012.

So it’s a very well-considered decision on their part, and also the format of the transaction is fairly complex who have a lot of issues that both we and they would want to have addressed because of the duration of these agreements, and the interpretations -- for them you have to be very careful.

I characterize that basically we are in the middle innings, we’re in discussions and very meaningful and productive discussions with a fairly large variety of companies in the cable field.

And hopefully we will break out some deals in that area soon.

Okay.

That’s it.

Okay.

Thank you.

Thanks.

Thank you.

Our next question comes from Orin Hirschman from OH Investments.

Please state your question.

Hi, congratulations on the progress.

You indicated a little bit on -- you alluded to the big cream in the industry for you, which is the digital video broadcast and cable.

You have mentioned in the past that you are in talks.

Do those folks continue and, do you -- I don’t know if you want to speculate on this, but is it something where you think you are going to have to go to the court systems to be involved, or is it something where you think you couldn’t make amicable solutions with the industry players?

Sure.

I think, it's realistic that we will have a combination of both.

You know, different companies take different viewpoint on intellectual property.

In each category what we are finding are there are some companies that are fairly sensitive even on a voluntary basis to IP that are willing to sit down and negotiate deals.

Other ones are a little more difficult, and I am sure there will be some in each category more than likely that we all have to litigate where I mean, litigation will be part of our business model and also quite frankly its part of the negotiating process.

Many companies will not focus on the licensing until they need to focus on it and have to respond to it through litigation.

So, often times most of the deals get negotiated during the early stages of litigation, so I don’t, though I am not trying to give an evasive answer, but I think it will be a combination of both.

I think, we will get some companies to license, but I think there will be some that will hold out.

We will probably have to engage in some litigation, and we will probably settle the majority of those before that litigation ever gets to fruition and kind of the way it generally goes.

Okay and in terms of the additionally -- actually one other question on the distinct license fees, can you just review once again, I apologize, in terms of Disney and/or some of others that you said did not make it in this quarter.

Are those the recurring revenue streams that haven't even started in this quarter, are those upfront licenses paid against part of the recurring revenue, what’s compelling that?

Well I apologize.

No the reason as in each quarter our agreements from an accounting standpoint until we have a history with their company or exact number, most of our agreements call for the license fees to pay up 30 days after the end of the quarter.

So basically, what we are referring to there is there is usually a one-quarter lag particularly in all of the new licenses that we have, because we don’t recognize those revenues.

So, most of the revenue recognition is on a cash basis right now until we have a history, until we have very definitive information and publicly reported numbers we can rely on.

So that's the issue.

We simply recognize generally one quarter after the fact [inaudible] to do and based on a cash collection basis.

Okay and the last question.

On some of the -- well actually one of the questions, I don’t know if you will disclose -- if you give a better feel for the quarterly run rate would be?

I mean if even at that this point in time, yet.

Well, again we have not offered any forward-looking statements.

We are just going to report each quarter with a revenue recognition policies we have in place rather than trying to have the market speculate on new deals and what they mean with this rate it until each quarter on a reported basis.

Okay, I don't mind me trying to ask.

Hello, I didn’t --

Part of our issue, Orin, is that a lot of our deals are based on the business operations of our licensee and it's very hard for us to estimate a license amount that is really contingent upon the success of the company that it is a license fee.

I know what other people ask.

Thank you.

Okay.

Thank you.

Our next question comes from David Reese, Private Investor.

Please state your question.

Will it be possible to ask another question to Dr. Kumar, I’ve tried to get one in and I tried to ask another question but --

Let me see if he is still on the line.

Are you still on the line?

Yeah, sure again.

Yeah, with 32 million in cash and a number of new projects going on is it reasonable to assume that your cash burn rate will increase significantly?

Our cash burn rate will increase, but it will not be significant.

We are planning to increase, as I stated earlier headcount in the sales and marketing area as well as increase in -- increase our investment in our drug discovery and development programs, but those, that -- the details of that information will be forthcoming over the next couple of quarters.

Now, with this cash position that you are in now, last year was most likely another year anyway?

Oh, definitely, much more than that.

I see.

Well thank you.

Thanks.

Your next question comes from Chuck Golba (ph.) from Instantius Capital (ph.).

Please state your question.

Hi, this is Chuck Goldman (ph.) from [inaudible].

How are you?

Good.

Hey, sort of following up on, Allan's (ph.) question without going into, you know, sort of speculation about fields and use by clients clearly you have some revenues which accrued last quarter, but you are going to recognize this quarter as cash comes in.

Can you give guidance towards that i.e. business you have already lined up and already booked through those speculations involved?

No, we are not going to provide those numbers.

We are going to provide the numbers of actual recognized revenue each quarter and again it's because it's starting to get very, very complex as we get new deals coming in and as Chip indicated and some of them we don’t know what the numbers are, some may be more definitive to estimate if they are on a per subscriber basis, but certainly everything that's on a revenue basis or on a streaming basis is going to be impossible for us to predict what our various license fees are going to have in particular quarters.

Alright.

Have you discussed what type of patents you are looking at now, the ones you have served [wedding].

So what area they are in?

In new areas?

That’s correct.

A very broad spectrum and just generally in technology, we are certainly not focused in digital media technology exclusively.

We are in a very broad scope of technology.

I am referring to the ones you are [wedding] right now.

Yeah, those are also -- I mean they are certainly not related to -- the question is there not directly related to the specific area of digital media technology certainly.

Okay, so would you state that the companies will be assuming that you work with these patterns.

Will you be dealing with your completely different group of license -- of potential license fees?

Absolutely, yes.

Yeah, each of the two portfolios in specific would be totally different license fees of each other and of our DMT licensing program.

Okay.

You mentioned for the e-Learning group had industry license agreement that you are working on?

Well, we are working with several participants within the industry because there is a variety of business models and a variety of applications of our technology depending on the degree of use to video-on-demand within an online course offering as well as the incidental use of our technology whether is not direct revenues attached.

So, we are in discussions with a variety of companies and basically trying to come to a consensus agreement, which were pretty far advanced down the road and what would be the constituent portions of that royalty obligation for the incidental use.

The direct use and how we would apply it to the video on demand portion of online classes so we are trying to get a consensus in the industry before we finalize licensing agreements with a large number of companies.

It sounds like you are later innings on that one than you are with cable guys

Later innings, yeah yes we are.

Well collectively with cable guys, there is some -- yeah the cable guys, obviously, there is a large variety of those as well, and we are in early innings and late innings and then I think--.

All sorts of innings.

Okay.

Just one last -- just another short follow-up on what was going on cable and litigation, do you have any sort of feeling on your preference on looking to, it seems you got a litigation with some of the cable guys on making sure you have some sort of license deal already in place with somebody before going into that.

Or you have got no preference that way.

Might you have already knocked down one cable company before going in to litigation with the rest.

No I don’t think that will be the issue and again I think you know, our direct experience was certainly on the V chip we are in that case and particularly we didn’t have any deals done, we did the litigation and then all of a sudden when we got the initial rulings, we licensed 75% of the industry in a period of about six or seven months and we still got four holdouts that we are in litigation with, that kind of seems to be the pattern in most technology licensing program.

Okay.

Last question for you.

If that is in fact the case, why aren’t you guys in litigation now?

Why because there may be some deals that could be concluded that might alter the psychology of any litigation significantly.

I guess is the broad answer.

Okay.

Great thanks guys.

Okay.

I am sorry, but we have run out of time.

I'll now turn the conference back to Mr. Paul Ryan.

Please go ahead sir.

Okay I thank you and I thank you all for being with us and look forward to speaking with you next quarter.

In the meantime if you have any specific questions we have not addressed, you can either give Chip or I a call regarding Acacia Technologies or Amit or Brad on CombiMatrix.

Thank you again.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 1-800-428-6051 or 973-709-2089 with an ID number of 350337.

This concludes our conference for today.

Thank you all for participating and have a nice day.

All parties may now disconnect.