Acacia Research Corp (ACTG) 2008 Q4 法說會逐字稿

Good afternoon, and welcome, ladies and gentlemen to the Acacia Research fourth quarter earnings release conference 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'll open the conference up for questions and answers after the presentation.

I will now turn the conference over to Mr.

Paul Ryan.

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

With us today is Chip Harris, President of Acacia, Dooyong Lee, Executive Vice President and Clayton Haynes, our Chief Financial Officer.

Today, I will give you an overview of the progress we're making in building the business and Clayton Haynes will provide you with an analysis of our financial results.

We will then open the call for questions.

Acacia Research fourth quarter 2008 revenues were $18.3 million compared to $12 million in the year ago period.

This was our second highest revenue quarter to date.

During the fourth quarter, Acacia generated revenues from 20 new licensing agreements covering 15 different technologies including initial revenues from five new licensing agreements.

Cash and investments increased during the quarter by $6.1 million to $51.5 million at the end of the year.

Acacia's second half 2008 revenues of $32.1 million set a new record for revenues in a six-month period.

During the second half, we began generating revenues from 13 new licensing programs which was also a record for a six-month period and represents starting a new licensing program on average every two weeks.

Full year revenues were $48.2 million in 2008 compared to $52.6 million in 2007.

During 2008, Acacia acquired control of 20 new patent portfolios for future licensing and ended the year with over 100 active patent portfolios, up from 88 at the end of the prior year.

Acacia started generating revenues from 20 new licensing programs in 2008 and had begun generating revenues from 48 licensing programs by the end of the year, up 71% compared to 28 licensing programs at the end of the prior year.

We entered 2009 with the largest number of licensing opportunities in our history.

We expect continued growth in new licensing programs and the acquisition of new patent portfolios for future licensing as we continue to build our leadership position in technology licensing.

We plan to grow the Company while controlling our cost structure.

During the past year, we have brought down our cost structure slightly and have reduced our cash break-even to approximately $48 million per year or $12 million per quarter, assuming our historical 43% gross margins.

Acacia is also fortunate to be in a business which is not only uncorrelated to the current problems in the economy but that can actually benefit from some of these economic pressures.

On the business development side, we're seeing a heightened level of interest from technology companies wanting to monetize their patents and on the licensing side, we're seeing an increased level of interest by some companies to engage in licensing discussions at an earlier stage to save unnecessary legal expenses.

These circumstances give us the opportunity to partner with more tech companies to expand our asset base and to shorten the time required to generate revenues from those portfolios.

Acacia is at an early stage in growing its business and our success to date in completing over 620 licensing agreements covering 48 different technologies is generating interest from technology companies, universities and research centers, wanting us to partner with them and take over the licensing of their patented technologies.

Our success is the result of the efforts of our business development, engineering and licensing executives who are doing an exceptional job in creating value for both our shareholders and our business partners.

This success is enhancing our position in the marketplace and increasing opportunities for strategic initiatives.

With that, I would like to turn the call over to our Chief Financial Officer, Clayton Haynes.

Thank you, Paul.

Thank you to everyone joining us for today's earnings call.

As indicated in today's earnings press release, fourth quarter 2008 license fee revenues totaled $18.3 million as compared to $12 million in the fourth quarter of 2007.

Fourth quarter 2008 revenues included license fees from 20 new licensing agreements covering 15 of our technology licensing programs including initial license fee revenues for our Medical Image Stabilization technology, Storage technology, eCommerce Pricing technology, Location-based Services technology and File Locking in Shared Storage Networks technology.

Fourth quarter 2008 license fee revenues also included fees from the licensing of our DMT technology, Telematics technology, Portable Storage Devices with Links technology, Audio Video Enhancement and Synchronization technology, Pop-up Internet Advertising technology, Audio Communications and Fraud Detection technology, Picture Archiving and Communications Systems technology, Remote Management of Imaging Devices technology, Projector technology and High Quality Image Processing technology.

To date, on a consolidated basis, our operating subsidiaries have generated revenues from 48 of our technology licensing programs.

License fee revenues continue to fluctuate from period to period based primarily on fluctuations in -- one, the dollar amount of agreements executed each period which is primarily driven by the nature and characteristics of the technology being licensed and the magnitude of infringement or use associated with a specific licensee.

Two, the specific terms and conditions of license agreements executed each period and the periods of infringement contemplated by the respective license fee payments.

And three, fluctuations in the total number of agreements executed each period which can be influenced by a number of factors including the timing and results of patent filings, ongoing negotiations and enforcement proceedings related to our intellectual property rights.

Consolidated trailing 12 month revenues which is one of the measures used by management to assess performance totaled $48.2 million as of December 31, 2008 as compared to $42 million at September 30, 2008, $37.7 million as of June 30, 2008, $36.5 million as of March 31, 2008, and $52.6 million as of December 31, 2007.

Our average margin for the fourth quarter of 2008 defined as gross license fees less inventor royalties expense and contingent legal fees for the portfolios generating revenues during the period was approximately 43% as compared to 49% for the fourth quarter of 2007.

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.

The fourth quarter 2008 versus fourth quarter 2007 gross margin variance was due primarily to lower average inventor royalty percentages associated with certain of the portfolios generating revenues in the fourth quarter of 2007 as compared to the fourth quarter of 2008.

For the fourth quarter of 2008, Acacia reported a GAAP net loss from continuing operations of $1.8 million or $0.06 a share versus $3.5 million or $0.12 a share in the fourth quarter of 2007 as illustrated in our comparative income statements provided in today's press release and related 8-K filed with the SEC.

Excluding the impact of noncash patent amortization charges of $2.3 million, noncash stock compensation charges of $1.6 million and noncash impairment charges of $236,000, we reported fourth quarter 2008 net income of $2.4 million as compared to being nearly break-even excluding noncash charges of $3.6 million for the fourth quarter of 2007.

Operating expenses for the fourth quarter of 2008 and 2007 included inventor royalty expenses of $6.4 million and $2.3 million respectively and contingent legal fees expenses of $3.9 million and $3.7 million respectively.

As indicated earlier, inventor royalties and contingent legal fees expenses fluctuate period to period based on the amount of revenues recognized each period and the mix of specific patent portfolios with varying economic terms generating revenues each period.

Certain portfolios generating revenues in the fourth quarter of 2008 had contingent legal arrangements with lower applicable contingent fee rates which are typically based on the stage of the related litigation at the time that the license agreement is executed as compared to those patent portfolios generating revenues in the fourth quarter of 2007, resulting in the 5% increase in contingent legal fees expenses in the fourth quarter of 2008 versus the fourth quarter of 2007 as compared to the 52% increase in license fee revenues during the same period.

Additionally, certain patent portfolios generating revenues in the fourth quarter of 2007 had inventor agreements with lower than average inventor royalty rates as compared to those patent portfolios generating revenues in the fourth quarter of 2008 resulting in the 180% increase in inventor royalties expense in the fourth quarter of 2008 versus the fourth quarter of 2007 as compared to the 52% increase in license fee revenues during the same periods.

In addition, the lower contingent legal fee rates for certain patent portfolios generating revenue in the fourth quarter of 2008 also contributed to the quarter to quarter increase in inventor royalties expenses as a percentage of fees recognized.

Fourth quarter 2008 and 2007 marketing general and administrative expenses excluding noncash stock compensation charges as discussed earlier, remained relatively flat quarter over quarter at $3.9 million.

Patent-related legal expenses decreased to $1.7 million in the fourth quarter of 2008 from $2.6 million in the fourth quarter of 2007.

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

In the fourth quarter of 2007, we incurred increased litigation support related out-of-pocket expenses, third party technical consulting expenses and professional expert expenses in connection with certain of our patent portfolios that were further along in the prosecution of the related litigation and certain of our enforcement actions that proceeded to trial and concluded resulting in increased patent-related legal expenses in the fourth quarter of 2007 as compared to 2008.

In the fourth quarter of 2008, none of our ongoing enforcement actions went to trial despite an increase in the overall number of outstanding enforcement actions in the period.

We continue to expect patent-related legal expenses to fluctuate quarter to quarter based on the facts we summarized earlier in connection with current and future patent commercialization and enforcement programs.

Next, I will provide a brief summary of results for the full fiscal year ended December 31, 2008.

As Paul indicated, fiscal 2008 license fee revenues were $48.2 million as compared to $52.6 million in 2007.

During 2008, we generated revenues from 30 of our technology licensing programs.

Our average margin for 2008 was approximately 43% as compared to 44% for 2007.

We reported a fiscal 2008 GAAP net loss from continuing operations of $13.7 million or $0.47 a share versus $7.4 million or $0.26 a share in 2007, again as illustrated in our comparative income statements provided in today's press release and related 8-K filed with the SEC.

Excluding the impact of noncash patent amortization charges of $6 million, noncash stock compensation charges of $7.4 million and noncash impairment charges of $486,000, results from continuing operations for 2008 were slightly above break-even as compared to net income of $4.1 million for 2007.

Operating expenses for 2008 and 2007 included inventor royalties expenses of $15 million and $12.1 million respectively and contingent legal fees expenses of $12.4 million and $17.2 million respectively.

Marketing in general and administrative expenses for 2008 excluding noncash stock compensation charges increased to $16.7 million from $14.1 million in the comparable 2007 period.

The net increase was due primarily to the addition of licensing, business development and engineering personnel, an increase in patent-related research and consulting expenses for new and ongoing licensing programs and an increase in corporate general and administrative costs related to the continued growth and expansion of our operations.

Fiscal 2008 patent-related legal expenses decreased to $4.9 million from $7 million in 2007 again reflecting higher expenses in 2007 due to increased patent-related legal expenses incurred in connection with certain of our portfolios that went to trial and concluded, despite an increase in the overall number of outstanding enforcement actions during 2008.

Looking forward, for fiscal 2009, estimated fixed costs are expected to be in the range of $13 million to $13.5 million.

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

Estimated variable costs for fiscal 2009 excluding inventor royalties and contingent legal fees are expected to be in the range of $7.5 million to $8 million.

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

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

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

Variable costs included in MG&A for the fourth quarter of 2008 totaled approximately $748,000 versus $650,000 in the fourth quarter of 2007.

Variable costs included in MG&A for fiscal 2008 totaled approximately $2.8 million versus $1.9 million in fiscal 2007.

Moving on to a brief summary of our financial position as of the end of the year, total assets as of December 31, 2008, totaled $73.1 million compared to $71.1 million as of December 31, 2007.

As of December 31, 2008, cash and investment balances totaled $51.5 million versus $51.4 million as of December 31, 2007.

Positive net cash inflows from operations for 2008 totaled approximately $2.6 million versus net cash inflows from operations of $5.2 million for 2007.

Accounts receivable from licensees totaled $7.4 million at December 31, 2008 compared to $1.4 million as of December 31, 2007.

The majority of the 12-31-08 A/R balances have been collected or are scheduled to be collected in the first or second quarter of 2009.

Net cash outflows related to patent portfolio acquisitions for fiscal 2008 totaled $2.1 million versus $3.8 million in 2007.

I will now turn the call back over to Paul Ryan to begin the Q&A portion of today's conference call.

Thanks, Clayton.

Operator, can you open the call for questions, please?

Thank you, sir.

The question-and-answer session will now begin.

(Operator Instructions).

Our first question comes from Bennett Notman from Davenport.

Please go ahead with your question.

Good afternoon, guys.

Congratulations on a nice quarter.

Thank you, Bennett.

Can you just talk a little bit about the legal expense at $1.7 million, that looks a little high.

I'm not aware of any particular action that would have been driving that.

I'm wondering if that's because there is a bunch of stuff moving through the system or what the primary driver was?

Well, the legal expenses cover more than -- they cover patent prosecution, they cover all expert witnesses, arrangements that we have with law firms.

So that's a pretty standard number.

I don't know what number you had but it is certainly not out-of-line with our expectations.

I think it was $2.5 million in '07 and primarily the difference was in '07, there was an incremental amount because we did go to a trial during '07 so I think probably you can expect that kind of level of total legal expense over the course of a year.

Yes, it is more than 50% up over the last three quarters so I was just thinking there might have been something driving that.

Each of the last three quarters was 100 -- 1.1ish, something like that.

But okay, fair enough.

Could you just talk a little bit about -- you talked about how it is getting -- you're getting more interest from companies that have IP and want to partner with you.

You added four portfolios in the quarter.

You've had other quarters where you've added more in the past.

It is a longer lead time to sort of get these deals done because of the types of companies you're dealing with now?

Or should we be expecting an acceleration in the rate of portfolios coming in as a result of what's going on?

Well, our target is 20 to 25 portfolios a year and the number we have is a net number.

The over 100 portfolios are the active portfolios.

There is a handful that we acquired from global that we've actually concluded the licensing of.

No, I don't think it is taking any longer and certainly, there are more opportunities.

Obviously, tech companies, particularly ones that we often partner with that are either private or small public companies don't have access to the equity markets or debt markets right now.

I think more of them are looking at this as kind of a sale lease-back where they can generate cash from an intangible asset on their balance sheet.

We can grant them a license back and split the licensing revenues.

So, certainly, the economic and financial pressures on many of these smaller tech companies lead them to -- more so than in the past -- and obviously our business development teams who have been in conversations with those people hopefully will accrue the benefit of that over the next year or so from some of the dialogues that we've had going for some time.

All right.

And then you've obviously started out the year with a nice, steady flow of new deals that we haven't seen this early in a quarter from you guys for several quarters, if ever before.

Is there something that's changed that's gotten deals to be happening a little faster or earlier in the quarter or is there any comment you have on that pattern?

I think it is simply a result -- last year, in the first half, we were kind of getting a lot of these programs up and running and getting ready to go and that's when we kind of -- the growth curve flattened out for a period of time.

And I think clearly in the third quarter and into the fourth quarter and continuing now, we're getting a reacceleration of the growth simply based on the number of portfolios that we have in active licensing right now.

I think it is just simply a matter that we have many more portfolios in active licensing programs now than ever before.

Then finally, one housekeeping item.

What is the actual total active portfolio count?

I don't really know.

I think it is 102 or 103.

We're not going -- we'll probably upgrade it at increments of 25 maybe when we get to 125 portfolios.

I don't think it's -- for us now, it's just not become with the sheer numbers that we have, not as meaningful a measure on a portfolio by portfolio basis.

Really, the key thing are the active portfolios that have started -- begun generating money.

And that's a metric, obviously that, we will continue to focus on and hopefully, as you can see from the last six months, it has been the fastest -- we've brought on 13 new programs in the last six months which is a record amount and hopefully with the amount of new portfolios that are now ready for licensing, that trend will continue.

Great.

Thanks again.

Okay, thank you.

(Operator Instructions).

We have our next question coming from [Paul Berger] a [Hammock Investor].

Please go ahead.

Good afternoon, Paul.

I'm sorry, I got on a little late.

You may have covered it.

This morning, you filed a 10-K with RPX.

It sounds like it is wording a little different.

Can you give a little color on what portfolio it was and exactly what you're doing?

I can't comment beyond the -- we filed an 8-K this morning and we entered into a transaction with RPX which was a license and purchase option agreement regarding a portfolio that we have.

The portfolio, I think we generally describe it on our website as a security system relating to the Blu-Ray players -- is how we describe it on our web site -- the little one or two sentence description of the portfolio.

That's the connection between the name of the subsidiary and the technology.

But we really can't comment beyond what we did -- obviously we did a transaction a few weeks ago with RPX on another portfolio.

What I can comment on is I think that there's no question that it is becoming clearer and clearer what we indicated to investors over the last year or so that patents are clearly an emerging asset class and I think you're beginning to see the tangible manifestation of that in the emergence of a variety of these new buying clubs.

Intellectual Ventures started about the same time we did.

And it has been reported by the "Wall Street Journal" that they have raised a few billion dollars with strategic partners.

And there was a great article actually if you want to look back, I think it is September in the "Wall Street Journal." It was predominantly about Intellectual Ventures, but it also discussed the emergence of these new buying groups like Allied Security Trust that has several tech companies in it.

Trying to recall, I think in that article, I think they talked about Google, Motorola and Ericsson becoming members of that buying club and then RPX has made some announcements stating they have Cisco and IBM as kind of chartered members of their group.

So, clearly, there is an emergence and an understanding and a recognition by the tech sector that there is a tremendous amount of dissegregated R&D in the economy represented by patents that have been developed by small private and public companies that need to get licensed to the large companies that are using these patented technologies and I think the market is seeking out a rational way for that licensing to occur and we think we're going to play a pivotal part of that.

Part of the market will be those companies through collective buying groups trying to, in effect, attain licenses by buying the patents directly from the owners.

But I think a very large portion of the market will want to partner with us and let us go license.

But as you can see from the deals with RPX, we're certainly -- if it makes sense for our shareholders and makes sense for our IP partners -- we will engage in transactions with various of these buying clubs.

I think hopefully overall, it will reduce some of the excess litigation.

Obviously if we can get engaged in negotiations earlier with companies and enter into licenses, it diminishes the amount of litigation required to reach a resolution on these issues.

So, hopefully, the emergence of this asset class and the formation of these new companies will actually hopefully shorten the time to money for us and eliminate some of the legal excess expenses for both parties.

But I think in context, I can make that comment but certainly I can't comment more specifically on that individual transaction.

Okay.

Can we assume that any deal you do with them would be bigger than if you would do it with an individual company?

Because --

No, you can't -- we shouldn't make any assumptions.

It is a transaction and we don't comment on -- for confidentiality purposes, sizes of transactions.

Okay, but should we assume that if you're doing a deal with them, it should be somewhere around what you would think you should be able to monetize if you were going after the companies themselves?

Well, certainly we wouldn't do financial transactions that were to our disadvantage.

Obviously any transaction that we do would have to be on an equitable basis to what we could do through a direct transaction.

Okay, thanks.

Thanks for the question.

We have our next phone question coming in from Marilyn Peterson, a private investor.

Please go ahead.

Hi.

This is Marilyn.

I did have questions in regards to what you just answered.

But I also was wondering in the deal with Johnson & Johnson, it mentioned a 1993 patent date.

And I don't ever recall in past news releases that you've mentioned a date.

Is that date significant?

I do not know.

I would guess it is probably in the negotiations on the approved press release that either we, our licensing people, our IP partner or Johnson and Johnson thought that was a relevant factor but I really don't know what that would have been in --

I didn't know if you were getting fees going back a long time, if that was the intent of stating the date.

Probably one of the three interested parties, either our licensing group, our IP partner or J & J, the licensee for some reason thought it was relevant to have it in it but I really don't know why.

Sure, sure.

I was wondering also, you had mentioned some employees terminate -- employees being terminated.

Are these non-essential employees?

Well, none of our employees are non-essential or they wouldn't be here.

Right, right --

To answer your question, just the normal course of business.

We've had a certain amount of attrition.

We don't comment on how that occurred but we have cut back our cost structure slightly.

We geared up a year and a half ago for success and obviously we brought a lot of very talented people on in the industry and some fit the model better than others so it is nothing more than normal attrition rate on a growing company.

Okay.

Thank you so much.

Sure.

We have our next question coming in from Jeremy Hellman from Singular Research.

Please go ahead.

Hi, guys, nice quarter.

Thank you, Jeremy.

Couple of questions.

What was that cash flow from operations number again?

I just couldn't keep up with you there.

About $2.5 million.

For the quarter right?

No for the year.

For the full year.

Okay.

Did you have a Q4 number, too?

I think it was close to that for the quarter as well.

Okay.

And this is kind of more of a general question, and just to preface it -- it is not rooted in having heard or read anything but with the change in administration, are you seeing anything or expecting anything different out of the court system in terms of friendliness to patent protection or otherwise?

I don't think there will be any change.

Obviously the sitting judges, as long as there's not any major changes in the court system itself.

There obviously will be a new patent -- head of the patent office named shortly but again that usually doesn't impact from a judicial standpoint.

On the legislative side, Senator Leahy has announced again, he's lobbied heavily every year, they reintroduced the so-called patent reform legislation.

We certainly hope that one of these years, they get it completed.

Because we don't think there's any of the provisions that realistically would be approved, would have a significant impact on our business.

It may make it a little more complex but actually that's in our favor.

If enforcement of intellectual property becomes more complicated, obviously we as the leading Company will probably be the recipient of more people wanting to partner with us.

So, the only thing I can really say is you probably will see some talk in the spring about the reintroduction to some of the same patent reform proposals that have been in the past that have not cleared or certainly did not clear the Senate.

The one last year got through the Congress but not through the Senate.

Okay, thanks.

Sure.

(Operator Instructions).

And our next question in queue comes from [John Henderson] from JBH.

Please go ahead sir.

Hi, guys, nice quarter.

Thank you, John.

Just a couple of quick questions.

You guys are not providing any 2009 guidance at this point?

No, we're not.

Not on the revenue side, no.

Okay.

And looking ahead to later in the year, do you guys have a date for when the scheduled Verizon trial is scheduled?

I believe the location based cell phone services, there are a couple of venues where the litigation is progressing.

I think the first one, the current first trial date I believe is in the beginning of December.

Okay.

But it is actually the case has split into a couple of cases but I think that's the current date that's been established.

Great.

And what's your confidence level that in terms of -- that, trial and I think there's three other big ones slated for 2010.

How do you guys feel about those cases in general?

Obviously we feel good about them because we have chosen to partner with the companies that held these portfolios.

One of the benefits is we get to do the due diligence and be objective about the portfolios that we choose to license and enforce which is a distinct advantage over a company that may have developed their own patented technology.

Where they're kind of forced to go out with what they have.

And so I think we're certainly very discerning and the more opportunities we keep seeing, the greater opportunity we have to screen through for what we think are very compelling licensing programs.

And most of them, again, to remind the people on the call the national historical statistics are only about 3% of patent litigation ever even gets to a district court trial.

It is usually a backdrop for negotiations.

So we expect over time, probably only a handful of ours will actually go to trial.

Hopefully most of these matters will get negotiated and settled.

And, it is also a historical fact that no one is able to predict the outcomes based on jury trials and the national statistics are pretty close to 50/50 irrespective of how strongly either side feels about their case.

And that's why, quite frankly, many of them do settle is because it isn't very predictable.

So, obviously we like the portfolios that we've partnered on.

We think they're strong portfolios.

We think the patents are valid and infringed but if we do get that far, obviously it is always a risk of going to trial for both sides.

Sure.

Looking at the balance sheet with regard to the noncash stock compensation charges, you guys are thinking that those are going to probably dissipate by the end of this year or is there a time line when you think that's going to kind of come off?

Well, our noncash stock compensation charges relate to the outstanding stock options and restricted stock awards that we do have and our employees still do hold outstanding options that are vesting over a two or three year period and so our stock compensation charges will continue as long as those equity-based awards are vesting.

All right, great.

Thanks, guys.

Keep up the good work.

Thank you.

(Operator Instructions).

Looks like our next question in queue comes from Paul Berger, a Hammock investor.

Please go ahead sir.

Paul, did you give any update or can you on the DMT situation?

We did not.

The case is still progressing in the claims construction stage.

We're hoping at some point this year to get the claims construction up on appeal to the appellate court.

But until we accomplish that, there's probably not going to be an expectation of more licensing activity.

We continue to take in the revenues from our existing licensees.

The litigation has taken an extensive amount of time in the claims construction.

But we had our last -- supposedly last -- claims construction hearings later last year and hopefully we'll be getting those out in the spring and being able to get the whole thing up on appeal to the appellate court sometime around midyear, would be my hope.

But what you're saying, it is going to appeal before you even see the -- you're just waiting to see the final ruling but everybody realizes it is going to go to appeal?

Yes.

Okay.

Okay.

It looks like we have our next question in queue coming from Rob Ammann from RK Capital.

Please go ahead.

Could you give a little more color on the accelerated amortization expense in the quarter related to the patent that you terminated the rights to license?

Yes, it was a portfolio that we had done a significant amount of licensing.

It was the Multi-Dimensional Bar Code.

We basically completed the licensing program for that.

And so we did not have additional companies to license so we gave the rights back to the company which is an operating company and using it in their own business.

But there was no longer a need for us to do that and as a result of turning it back, we then took an accelerated charge on the remaining balance.

It was a portfolio that we acquired back in 2005 when we acquired Global.

So, it was certainly a very profitable portfolio for us, generated a lot of revenue but we were done with the licensing and therefore we accelerated the remaining carrying value in the fourth quarter.

So, given that acceleration, should we look for ongoing amortization of patents to kind of fall at a level nicely below where you were earlier in the year even?

Yes.

The scheduled amortization, for example, for 2009 is roughly around $4 million as far as the year is concerned.

So, yes, amortization outside of additional patent purchases during 2009 should begin to fall.

And where did you end the year in terms of head count?

42, I believe.

Yes.

42 full time employees.

42 full time.

Okay.

Thank you.

Thanks.

Thanks, Rob.

This will conclude the question and answer session.

I will now turn the call back over to Mr.

Ryan.

Okay.

I want to thank you all for being with us today.

Look forward to our next conference call with you.

In the meantime, if you do have any questions, please give myself or Rob Stewart a call and we'll be happy to help you.

Thanks for being with us.