Acacia Research Corp (ACTG) 2006 Q3 法說會逐字稿

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

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

At the request of the company, we will open the conference up for questions-and-answers after each presentation.

I will now turn the conference over to Mr. Paul Ryan; please go ahead sir.

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 is filed with the SEC today for our forward-looking statement disclaimer.

With me today are Chip Harris, President of Acacia Technologies Group;

Clayton Haynes our Chief Financial Officer and Rob Berman, our Chief Operating Officer and General Counsel.

Today I will give you an overview of the progress we are making in building the business.

Clayton Haynes will provide you with an analysis of our financial results and Rob Berman will provide a brief update on the litigations that we have initiated.

We will then open the call for questions.

As we just reported, Acacia Technologies' revenues for the third quarter increased to $8,424,000 compared to $6,783,000 in the year ago period.

Acacia reported GAAP net loss of $1,049,000 or $0.04 a share including non cash patent amortization and non-cash stock compensation charges totaling $2,307,000.

Cash and short-term investments increased by $5,256,000 from the previous quarter to $45.9 million.

We continue to expect significant growth in 2006 annual revenues compared to 2005.

As always, we want to remind shareholders that revenues may be lumpy on a quarterly basis.

And we measure our performance on trailing 12 months revenues which have been growing steadily over the past year and reached $35.7 million at the end of this quarter, compared to $12.1 million at the end of the third quarter a year ago.

New licensing agreements in the third quarter included licenses to General Electric, 3M, Allstate, Emdeon, Texas Instruments, Datalex, Sanyo, and Hewlett-Packard.

During the third quarter, we added four new patent portfolios, and now control 52 patented technologies.

Over the past year we've been averaging a new portfolio approximately every three weeks.

Acacia is building the country's leading patent licensing company.

We are at a very early stage in the growth of our business; our licensing success in 2006 is creating new business opportunities for us.

And given the current pipeline of patented technologies we are evaluating, we expect to significantly expand our business.

Acacia is also at an early stage in generating revenues from our current patent portfolios.

We have only begun generating revenues from 18 of our 52 patented technologies, and have realized only a small percentage of the potential revenues from many of these 18 licensing programs.

The technology licensing business in the United States is growing rapidly, and is expected to increase to $500 billion in annual revenues within the next few years.

Acacia is very well positioned to take advantage of this growth.

We have established the leadership position in technology licensing, and see a major business opportunity for our company in serving this market.

I'd now like to turn the call over to Clayton Haynes, our Chief Financial Officer.

Thank you Paul, and thank you to everyone joining us today for our third quarter earnings conference call.

As indicated in today's earnings press release, third quarter 2006 license fee revenues totaled $8.4 million as compared to $6.8 million in the third quarter of 2005, reflecting a 24% increase in revenues over the prior year quarter.

During the quarter -- during the third quarter of 2006, the Acacia Technologies Group generated revenues from seven of our technology licensing programs including our Digital Media Transmission, Audio/Video Enhancement and Synchronization, Image Resolution Enhancement, Interstitial Internet Advertising, Laptop Connectivity, Multi Dimensional Barcode and Resource Scheduling technologies.

To-date the Acacia Technologies Group has generated revenues from 18 of its technology licensing programs.

As discussed in prior quarters, the Acacia Technologies Group's license fee revenues fluctuate from period to period primarily based on the mix of specific terms and conditions of license agreements executed each period.

Revenues also fluctuate as a result of fluctuations in the number of license agreements executed each period, fluctuations in the royalty per unit activities of our licensees, the timing of the receipt of periodic license fee payments and/or periodic reports from licensees and other factors.

Acacia management measures and assesses the performance and the growth of our business based on total license fee revenues recognized across all of our current and future licensing programs on a trailing 12 month basis.

Trailing 12 month revenues as of September 30, 2006 were $35.8 million compared to $34.1 million as of June 30, 2006, $19.6 million as of December 31, 2005 and $12.1 million as of September 30, 2005.

Our average margin defined as gross license fees, less inventor royalties expense, contingent legal fees and patent related legal expenses for the portfolios generating revenues during the period, was approximately 59% in the third quarter of 2006 as compared to 31% for the third quarter of 2005.

Quarterly average margins fluctuate period to period based on the mix of patent portfolios that generate revenues each period and the related economics associated with the underlying inventor agreements and contingent legal fee arrangements, if any, and the amount of hourly legal fees and out of pocket legal expenses incurred each period, if any, related to the revenue generating portfolios.

For the third quarter of 2006, the Acacia Technologies Group reported a GAAP net loss of $1,049,000 versus a net loss of $1,558,000 in the third quarter of 2005, as illustrated in the Acacia Technologies Group comparative income statements provided in today's press release and related 8-K filed with the SEC.

Excluding the impact of non-cash patent amortization charges of $1,322,000 and non-cash stock compensation charges of $985,000, the Acacia Technologies Group's third quarter 2006 net income from operations was $1,258,000, versus breakeven in the third quarter of 2005.

As a reminder, the new accounting standard that requires all companies to expense stock options and other stock-based awards in the income statement was adopted effective January 1, 2006 resulting in the increase in non-cash stock compensation charges.

Third quarter 2006 operating expenses totaled $9.9 million as compared to $8.7 million in the third quarter of 2005.

The primary drivers of the quarter-to-quarter change in operating expenses include a $1.3 million decrease in inventor royalties and contingent legal fees expense, despite the increase in license fee revenues, which is directly related to the increase in the average margin as previously discussed, based on the licensing of certain patent portfolios in the quarter with significantly less inventor royalties expense and less contingent legal fee expenses associated with them.

Secondly, an $862,000 increase in non-cash stock compensation charges resulting from the adoption of the new stock-option expensing standard in the current year, an increase in MG&A related to the addition of licensing, engineering, and business development personnel since the end of the prior year quarter, which is reflective of the continued growth of our business. an increase in patent-related research and consulting cost related to ongoing licensing programs and business development related to diligence efforts -- and business development-related diligence efforts, and finally, an increase in facilities costs and other corporate, general and admin cost related to ongoing operations.

In addition third quarter 2006 patent-related legal expenses increased to $2.4 million versus $1.1 million in the prior year quarter.

Patent-related legal expenses include prosecution and enforcement cost incurred by outside patent attorneys engaged on an hourly basis and the out of pocket expenses incurred by law firms engaged on a continued fee basis.

Specifically, patented-related legal expenses include case-related costs billed by outside counsel for economic analyses and damages assessments, expert witnesses and other consultants, case-related audio/video presentations for the court, and other litigation support and administrative costs.

The increase in patent-related legal expenses in the third quarter of 2006 versus the third quarter of 2005 is primarily due to an increase in hourly legal fees paid for certain of our patent portfolio enforcement programs during the quarter, as well as significant third-party expert expenses including cost incurred related to the preparation of damages reports incurred in connection with enforcement programs for certain of our other patent portfolios during the quarter.

We expect that patent-related legal expenses will continue to fluctuate from period to period based on patent enforcement and prosecution activity associated with ongoing licensing and enforcement programs and with the commencement of new licensing and enforcement programs each period.

Estimated fixed cost for the Acacia Technologies Group for fiscal 2006 are expected to be in the range of $8.9 million to $9.4 million.

Fixed costs include employee salaries and benefits, facilities costs, certain consulting costs, corporate, legal accounting and other general and admin costs, and are included in the marketing, general and admin expense line in our income statement.

Estimated variable cost for 2006 excluding inventor royalties and contingent legal fees are expected to be in the range of $4.3 million to $4.8 million for the year.

Variable cost include, patent-related legal expenses, patent-related research consulting and maintenance expenses and other patent-related development and commercialization expenses.

These costs fluctuate quarter-to-quarter based on business development, enforcement and research and prosecution activities each year.

All variable costs excluding patent related legal costs are included in the marketing, general and admin expense line in our income statement.

Variable cost included in MG&A for the third quarter of 2006 totaled approximately $230,000 as compared to approximately $186,000 in the prior year quarter.

As of September 30, 2006 cash and short term investment balances totaled approximately $46 million, versus $40.7 million as of June 30, 2006, and $39 million as of December 31, 2005.

Acacia Technologies recorded third quarter of 2006 positive net cash inflows from operations of $5.2 million versus net cash inflows of $2 million in the comparable 2005 quarter.

Receivables from licensees totaled $1.5 million at quarter end, inventor royalties payable and contingent legal fees payable at September 30, 2006 totaled $22.3 million and are scheduled to be paid in the fourth quarter of 2006.

In conclusion, the Acacia Technologies Group's licensing, business development, and engineers produced another strong quarter of performance adding to our strong 12 month trailing revenue results.

I will now turn the call over to Rob Berman, Chief Operating Officer, and General Counsel of Acacia for his remarks.

Thanks Clayton.

Since the last report to stockholders on July 20th 2006, companies that are part of the Acacia Technologies Group, dismissed lawsuits against three companies in connection with our user activated Internet advertising, and Multi-Dimensional Bar Code technologies.

In addition, we became involved in lawsuits with 17 new companies in connection with our Audio/Video Enhancement and Synchronization, High Resolution Optics, User Activated Internet Advertising, Micromesh, Multi-Dimensional Bar Code, Product Activation, Peer to Peer Communications, and Credit Card Fraud technologies.

We currently have 33 ongoing lawsuits involving 107 companies.

For additional information on any of these lawsuits, you're welcome to contact the Pacer online system.

Paul.

Thanks Rob.

With that operator, we can open up the call for questions.

Thank you Mr. Ryan.

The question-and-answer session will now begin for the Acacia Technologies Group. [OPERATOR INSTRUCTIONS].

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

And please standby for our first question.

We'll go first to John Schneller with Knott Partners, please go ahead.

Hi thanks for taking my call and great quarter.

I just wanted to get a sense as to two things really; one, are you becoming more efficient with respect to executing these enforcement actions?

And the reason that -- where I am really getting at here is that the cash flow -- free cash flow yield was incredible in the quarter, up between 60% and 65% and I am just wondering if you are getting better at executing and so we can expect to see substantially improving operating leverage relative to what we saw in the past?

And I say that completely understanding that the contingent fees move around quite a bit depending on whether you get early settlements or whether you have to go all the way to trial, but, that's the first question.

Sure in response to that, yes, we are.

Well selectively we are looking at certain enforcement programs and making the decision in some cases not to do them on a contingency basis and that helped improve the margins in the third quarter, and we will continue to do that on a selective basis.

It depends on the nature of the enforcement quite frankly and our understanding of how some of the parties may respond to enforcement.

So, certainly we are becoming more flexible.

And as our cash balance continues to grow, its very accretive for our shareholders, so obviously selectively we can use our cash to pay for certain litigations and reduce our contingency obligations.

Okay and then the -- if we take our cash flow -- or rather stock comp, you had operating cost of roughly $2.6 million, is that correct?

You are referring to which of the operating costs?

The quarterly just aggregate operating cost were at I think $3.6 million; so if we net out stock comps --.

About 2.6.

Exactly.

Yeah, about 2.6, exactly.

Okay.

And do you still, if I am not mistaken have a significant consulting contract that you are cycling through?

We do.

That will continue through the first month of '07.

So, we have got the fourth quarter and one-third of the first quarter.

That's $1 million a year or $250,000 quarterly obligation that will expire January of '07.

Okay.

So, if we think of in terms of 2.3 million, if we net that out, the 2.3 million is -- can we think in terms of $10 million next year for operating cost or do you have to add substantial resources as you continue to ramp your portfolio acquisition programs?

We will be adding resources, given the pipeline and opportunities that we have to continue to grow this business.

Accordingly, we probably will be adding people through '07.

The good news is, you are right that obligation will go away.

So, even if we bring on total management compensation of an additional $1 million, we are basically maintain about the same cost structure that we have currently.

So, we are you going to see operating cost say go to, $20 million or maybe $15 --.

No, we don't expect it.

We can -- the leverage of the people that we have is exceptional in this business model.

But we will gradually, we are at 30 people right now.

My guess is we may add five or six people over the next year.

But certainly not a dramatic increase in headcount can enable us to grow the business by an order of magnitude.

Okay.

Great, thank you.

Thank you.

We will take our next question from Harris Hall with Singular Research.

Congratulations guys on the quarter.

Thank you Harris.

Can you give a little bit more color on the patent legal expenses, there was a pretty big jump there, I thought, you had said in the past that, that was really just related to DMT, the rest are all in the contingent legal volume?

Yeah, what -- the previous question, the responses are certain cases now, its turned out to be very accretive to our shareholders.

There were a couple of enforcement actions that we made the decision to do on a pay-per basis rather than contingency, which resulted in those higher margins in the third quarter, instead of paying significant contingent legal fees for a fairly modest amount of paid cost to attorneys, we were able to get settlements with significant revenues attached to them.

Also as we approach some of the trials, and trial dates that are pending, we will be expensing expert witnesses, particularly as they relate to damage awards, which is we think a good investment for our company, although it is an expensed item in the quarter.

So, as we continue to grow the business, we will selectively use some of our cash to pay for litigation on an hourly basis, obviously in cases where we think its highly accretive to our shareholders and improves margins.

And we will have some cost related to some of these larger litigations.

And the issue there is, those obviously have much larger potential revenue opportunities than anything we've generated to-date.

So, this wasn't just DMT, it has really been the other patent portfolio?

Exactly, it had the -- we always -- we have paid for all DMT on a pay-per basis and in the third quarter that reflects a couple of situations where we paid for enforcement and litigation action on other portfolios and as it turned out, those generated some very significant revenues for us in the quarter.

That's why our margins increased.

Okay and in the past you guys have guided to 40% gross margins.

So, basically what you are saying here is, you are willing to trade some out of pocket legal expenses for kind a higher on-going gross margins when you don't have that contingence with the law firm?

Absolutely, it depends on the nature of the case, the amount of dependence there would be, what our understanding -- we are going to make a judgment call.

And again in the cases where we have done it in the third quarter it turned out to be very good economics for shareholders because we were able to get some significant revenues in the quarter without paying out contingency fees.

So, I mean going forward obviously every quarter this year you have been well above the 40% gross margin guidance.

I mean is that kind of a thing of the past now with this new litigation strategy?

Well, we are hoping, quite frankly that some of our large cases, such as DMT, that have very large potential revenues attached to them, we think over time that require us going into litigation for an extended period.

When we generate revenues from some of those portfolios, the margins will be less because we will be paying the contingency fee, but hopefully again those revenues will be much larger than the revenues we have generated to-date.

So, I think in the near term, yes, we will probably be a little bit above the 40% range.

But over the very long term, if we are successful in enforcing some of these patent portfolios that have very large revenue opportunities, it will come down back closer to the 40% level.

Okay, you mentioned a bunch of numbers.

I didn't catch all of them.

One of them, did you say $5.2 million in cash flow from operations for the quarter?

Yes, on a GAAP basis yes.

And you said $22.3 million, something, what was that?

No, it was $2.3 million in inventor royalties and contingent legal fees payable as of 9/30/06.

It was $2.3 million, which are scheduled to be paid out in the fourth quarter; so, $2.3 million in inventor royalties and contingent legal fees payable.

Okay.

And, you said 17 new lawsuits, or 17 new defendants?

We initiated lawsuits against 17 new companies.

So, it's not necessarily 17 new lawsuits.

So, its 17 new defendants, actually?

That's correct.

Okay.

I will let someone else get a chance here, but thank you for answering my questions.

Thank you.

Thank you, and we'll take our next question from [Norman Lipton], Private Investor.

Good afternoon.

I was wondering if you could give me a time loan from when you partner up with an entity until a program starts, until you would see money from the program?

Then I guess -- you know, people who don't pay you will start a lawsuit against them, the ultimate conclusion of that lawsuit?

I know you have a lot of different inventions that you're spending, but a but of a general rule?

Yeah, let me answer that.

We do a significant amount of due diligence on these portfolios before we go out for licensing, and certainly before we ever go out on enforcement.

And, I think, the general guidance that we have given people is that the reasonable expectation, it takes at least a year, and more likely 18 months, from the time we bring a portfolio in until you can realistically start generating significant revenues.

That's the timeline for negotiations, bringing the other side up to speed and going through the negotiating process.

So, it's generally a 12 to 18 month period from when we bring it in to when we could start generating revenues.

It also depends if you are going to bring litigations on how quickly the particular district moves where you bring the litigation.

Snd so from the start of litigation to the finish of litigation, it can be anywhere from a year to three, four or five years depending on how busy the district is.

And of course you don't know at what point the defendant in the case may or may not elect to settle.

So, it's a little bit difficult to come up with just one formula for every situation.

Okay and also was there a size range of portfolios that you look at or do you have an invention and it will -- $20 billion -- $20 million rather, you expect to generate for the company?

Yes, there is certainly a minimum threshold that we would expect that's in the several million.

And hopefully most of the portfolios we are able now with the deal flow that we are seeing, and as we have proven our track record we are getting more and more companies coming to us to partner which is enabling us to in effect be selective and choosing portfolios that have significant revenue opportunities.

But certainly we would not be interested in any portfolio that had less than several million dollars of licensing opportunity.

Great, thanks a lot for taking my question.

I appreciate it.

Sure.

[OPERATOR INSTRUCTIONS].

And we will take a follow up from John Schneller with Knott Partners.

Hi, just a couple of more quick questions.

I just want to be clear on the $2.3 million payable.

If I am correct, you recognize revenue essentially when the check has been deposited into the bank that you are fairly conservative in that regard, is that correct?

Not necessarily.

Under GAAP and related financial accounting rules, you are able to recognize revenues as long as the amount, if they are recorded as accounts receivables, as long as they are determined to be reasonably collectable.

So, on certain of our license agreements executed during the quarter, we do have amounts sitting in account receivable which are scheduled to be received by the company within anywhere from 10 to 30 days after the balance sheet date.

Okay.

So, on the payable, has that been in -- and I am not so much concerned about the $2.3 million, but so I can understand on a go forward basis.

Is the $2.3 million, has that been expensed already and it is just sitting on the balance sheet as a payable?

Yes.

It has.

Yes, it has.

It's merely just the accrual of amounts due to inventors and contingent law firms that we have expensed during the quarter but that are going to be paid at some point in time in the fourth quarter.

Okay.

And then, Paul I was wondering if you might be able to comment on the status of the IRS opinion and the cutting of the umbilical cord if you will, between Combi and Acacia Technologies?

Yeah.

The company has received a private letter ruling from the IRS and in turn we have had outside tax counsel render an opinion to the company's Board, and we are in progress.

The next investment would occur relative to the split off would be the filing of an S1 by CombiMatrix.

Okay.

And we are now in the position from the tax opinions for that to move forward.

Okay.

And I don't suppose you would care to opine as to the timing of that?

Well, my guess is they -- Combi will have to file an S1 and I would say realistically, it's going to get SEC review and clearance prior to the split-off.

So, I would think it would be a first quarter event.

Okay.

And then one last question, if you could talk about potential funding that you are working towards for to go out and secure some larger opportunities so you don't impact your own balance sheet as much.

Well, I can't comment on specific activities because, SEC regulations prohibit the public discussion of any private financing.

But certainly as you are aware, we are very actively looking and have had discussions with financial partners to enable us to scale this platform without dilution to shareholders in terms of sales of stock.

So, we are very active in that area, but I can't comment specifically.

Okay and when you discuss the pipeline are you talking about pipeline for Acacia Technologies specially or potential targets if you were to secure some sort of balance sheet financing, or both?

It would be Acacia Technologies, and we would be a -- participation.

It would just simply be a way to in some cases have financial partners take the role of either the contingency legal expense and/or some of the inventor royalty expense.

It would give us flexibility on some of the larger portfolios, to either pay more upfront to inventors to reduce the back-end payments and to be able in some cases to pay for the litigation rather than the contingency.

So, it would be just an extension of our basic business but adding financial partners to enable us to be more flexible.

Right, you talked about the pipeline and your strength of pipeline and that kind of thing.

Did that pipeline include some of the larger opportunities that you are considering with respect to this funding?

Sure, all the process that we go through and the due diligence of opportunities, we have to go through the exact same process here at the company and we have indeed identified some significant portfolios that would require significant amounts of capital.

Okay, great thanks.

Okay.

Thank you.

And we will take our next question from [Bruce Raddle] with A.G. Edwards.

Good afternoon.

Can I just get an update on the timeline or potential timeline for DMT as well as the Microsoft cases?

Sure, Rob do you want to address that?

Yeah we were in court again this quarter continuing to do claims construction in the DMT case for the third time, and the judge is going to render -- he did not give us any indication of when he would render his claim construction opinion.

We assume that that might happen sometime in the fourth quarter or early first quarter, but that's just a guess and there was no indication by the judge at all as to when that might occur.

With respect to the Microsoft cases, we have our two cases that are pending in the eastern district of Texas.

On one case we are waiting for a claims construction decision from the court, and we are moving forward with discovery in that case.

With respect to our other case in Texas, we are still fairly early on and are moving through the discovery phases with that as well, but claims construction has not occurred yet.

And with respect to a third Microsoft case, we received an adverse summary judgment ruling from the court on a case is pending in the Central District of California and we are in the process of appealing that decision to the Court of Appeals.

Would that impact the other cases at all?

Well each of our cases, I assume you mean --.

Microsoft cases.

One Microsoft case impact another Microsoft case, the answer generally is no.

We have independent obligations to our inventors, and we treat each case, basically separately on its own merits.

And so, the answer to your question is generally not, no.

Okay, and with respect to DMT, I guess it all, I mean are things just waiting then on the judge to provide this ruling to determine whether or not, the court date will be set or something to that effect?

That's right.

The judge has not begun discovery it.

We don't expect that anything that the judge will rule on in claims construction will be cased as positive, meaning that the case will at that point go away.

Our expectation is that following claims construction, the judge will set forth a discovery schedule, and what is called a scheduling order in the case when he will actually schedule a trial date.

In different jurisdictions they have different what's called local rules, and in certain jurisdictions, for example in Texas, when you -- shortly after filing a case in the Eastern District of Texas, you know when your trial date is.

So, for example in the two Microsoft cases that I alluded to earlier in the Eastern District, we have one scheduled I think around the middle of the year, and then we have another one scheduled later at the end of the year.

November.

In November of 2007.

With the DMT case, the case started out in the Central District of California, and it was moved to the Northern District, and so the usual Northern District rules were not followed.

So, its not as if there was a scheduling order entered early in the case which would set forth all of those dates.

Therefore we have to wait for the judge to set those dates as we go along.

Okay.

So after the judge rules, then your best guess as to when something might take place, are you looking potentially another year in terms of --?

You know what it's -- I just really -- I really can't guess because it's a -- the judge knows his or her own schedule and docket, and frankly as Chip just pointed out, I will be wrong.

So, it's very difficult to predict.

I would anticipate after the claims construction ruling comes down, certain parties will move for summary judgment on certain motions, and there will probably be oral argument on those summary judgment motions.

The judge did say in court that it is possible that he wants to hear some additional expert testimony with respect to claims construction.

So, we really just don't know and we will have to see as the judge rules.

Okay thanks.

Thank you.

We will go next to Jerry Weintraub with Weintraub Capital.

Thank you.

My questions were already asked earlier, but I did want to say another good quarter and progress in building the platform to be able to execute on the vision that Chip and Paul and Rob and the rest of team are continuing to work forward on.

Thanks Jerry.

Thanks Jerry.

Thank you.

And next, looks like we have a follow-up from Harris Hall with Singular Research.

Yes.

You mentioned 12 to 18 months before you are generating revenue from the portfolios.

I am just trying to get a sense of how many portfolios are in that kind of aged range, I know you said you had --.

Well we have, as you'll recall about a year ago we had 27 portfolios after we did the acquisition of Global, and we have 18 of those basically out of 27 roughly that are in licensing now and we are certainly -- the ones that we have acquired, the 21 that we have added over the past year, are at various stages now of completing the due diligence and the early stages of licensing programs.

And indeed a number of them are fairly advanced in the licensing, but we are yet to complete the first deal.

So, I think you can look at the cycle, we have got 21 portfolios that over the next year will be coming into the licensing cycle and probably most of those will be getting into that cycle in the fourth quarter and first quarter of next year (multiple speakers) -- [probably at year end] and the first quarter of next year.

So under the next six months, virtually all of those new portfolios will be into the licensing phase.

So, the 18 that to-date have generated licensing, all came from the global patent field?

Well, plus our Digital Media Transmission technology.

Plus some that was acquired afterwards actually.

Yeah.

That is going to come -- the bulk of the licensing has come from the ones that we owned a year ago.

But there are a couple of portfolios that we have added.

For instance the Laptop Connectivity which we have done several major licensing deals.

Recently, I think we brought that in -- what, about -- it was after -- I think was like June of '05.

So, I mean how we should we look at the global patent portfolios that have not generated revenue?

Are you having trouble getting those going?

Is it potentially we may see those written off?

Are they in extended litigation?

I mean how should I look at those?

Now, we would ask for impairment every quarter and there were none that we are anticipating at this time writing off.

They are all at various stages; many of them are ones that are kind of pure litigation, where there were a small number of infringers and its requiring lengthy litigations.

We wrote one off last quarter, but actually we've had already done -- the only license -- the only company that we thought infringed, we licensed.

And so after we completed that license we wrote down the asset, because we are at this time did not see other -- did not see other infringers.

But many of them, the ones that we haven't begun generating money, I would say the most common reason is there are a fairly limited number of defendants or infringers and they are requiring litigation, so we haven't gotten the first deals done yet.

Or there could be activity pending with respect to those portfolios in the Patent Office, such as either re-exams or waiting for new claims.

Okay.

That was all my other questions.

Okay.

Thanks.

[OPERATOR INSTRUCTIONS].

And we have another follow-up from Harris Hall with Singular Research.

I am sorry, I remembered one more thing.

You talked about financial partners for flexibility for larger portfolios.

That was kind of new to me.

Can you just elaborate a little bit on exactly what you are talking about there?

Sure, we've been exploring the possibility of partnering with financial partners on certain patent portfolios that may require very significant upfront investments.

Our basic core model, as you know, in most instances is a fairly limited amount of cash that we put upfront, and indeed most of our core deals have been 50-50 splits with no money upfront.

As we've licensed many large companies, we have been offered portfolios that would require significant upfront payments, and these are portfolios with -- in some cases 50 to 100 to 200 patents from very major companies.

And those for us to acquire control on them would require some fairly substantial upfront capital.

And we think it's better for our shareholders to do that in partnership with a financial partner and split some of the economics with them, rather than dilute our stock and sell stock at these price levels.

Harris most of these potential patent portfolios are owned by large organizations that are not interested in back-end splits and just interested in upfront payments for those portfolios.

Okay, so these would be IBMs or Texas Instruments or something like that, maybe large public companies?

Yes, they could well be large companies.

And one of the reasons why many of these companies are interested in doing this, is they are all getting financial pressure from their shareholders to monetize assets.

And also the accounting regulations that require them as well as smaller companies to test for impairment.

If it's a non core asset that they can demonstrate value to their auditors, they are facing the issue of potential write-down.

So, they are looking to our patent portfolios that are in the marketplace from some very large companies that are available to be acquired.

That's really interesting.

It is very exciting for you guys.

It is.

It would enable us to significantly expand our platform here.

Great, okay thanks.

Thank you.

This will conclude the question-and-answer session for the Acacia Technologies Group.

Okay, thank you all for being with us today.