Acacia Research Corp (ACTG) 2009 Q3 法說會逐字稿

Good afternoon and welcome, ladies and gentlemen, to the Acacia Research Third 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 will open up the conference for questions and answers after the 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 was filed with 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 generated $16.8 million in licensing transactions in the third quarter of 2009 resulting in third quarter license fee revenues of $12.8 million, a decrease of 7% compared to $13.8 million in the year-ago period.

We also generated deferred revenues of $4 million, which will be recognized in subsequent periods.

Acacia generated third quarter revenues from 36 new licensing agreements covering 18 different technologies, including initial revenues from three new licensing programs.

Acacia has now generated revenues from 56 different technologies.

Acacia's trailing 12-month revenues were $58.8 million, an increase of 40% compared to $42 million in the year-ago period.

Acacia Research reported a third quarter net loss of $4.8 million including noncash patent amortization and noncash stock compensation charges totaling $2.7 million.

In preparation for a number of trials scheduled for later this year and in 2010, our subsidiaries increased legal expenses by $2.4 million compared to the year-ago period.

This included payments for third party experts and for expert damage reports that will be used in trials.

Our licensing opportunities to continue to grow as we roll out new licensing programs and execute on licensing programs that have just begun to generate revenues.

During the quarter we acquired control of 9 new patent portfolios for future licensing and now control over 125 patent portfolios.

5 of these 9 new portfolio acquisitions consist primarily of patents issued to major technology companies.

We are seeing a significant increase in opportunities to partner with large companies.

These opportunities could lead to a significant expansion of our business.

We attribute these opportunities to Acacia's successful track record as a leader in patent licensing and the increasing interest among large companies to monetize their intellectual property and earn a return on their investment and research.

We are also seeing opportunities to invest a portion of the cash we have generated over the past couple of years, which could enable us to increase our margins and earn higher returns.

During the quarter we invested $8.8 million in acquiring patent portfolios with a contractual guarantee for Acacia to receive a minimum of $5 million in net proceeds, which significantly reduces the risk of these investments.

In addition, the majority of the remaining acquisition costs are subject to advanced royalty recovery provisions providing for higher percentage returns to our operating subsidiaries until the advances are fully recovered and generally provide for higher percentage payments during the full life of these licensing programs which will increase our margins.

Our current pipeline of new business opportunities is continuing to grow at an accelerated rate and we expect a growing portion of our future licensing programs to be the result of partnering agreements with large companies who want to generate financial returns on their IP.

We think Acacia is uniquely positioned to benefit from this trend and from the emergence of intellectual property as a new asset class.

During the quarter we received calls asking for updates on the post-trial motions and the favorable jury verdict our subsidiary received against Yahoo.

The current status is that our subsidiary has asked the court to enter a judgment in the amount of the $6.6 million verdict for enhanced damages based on the willful infringement finding, pre-judgment interest, attorney fees, court costs and for an ongoing royalty.

The court's decision on whether to grant enhanced damages or other monetary amounts is pending.

Yahoo has filed a notice of intent to appeal the verdict, which preserves their right to appeal the court's final decision.

We also received calls wanting to know the upcoming trial dates of our subsidiaries.

At the present time there are 15 scheduled trial dates over the next 12 months.

The next scheduled trial date is December 2nd for our D&T subsidiary versus Sprint Nextel and a total of 8 defendants in Eastern Virginia for our subsidiaries patented technology relating to the transmission of digital content to wireless devices.

Other scheduled trials include the following subsidiaries, which I will go through.

Often there are multiple defendants in these cases in addition to the named defendant.

Our subsidiary Diagnostic Systems has a trial date with Oracle, Location Base Services with AT&T, IP Innovation with Redhat, Performance Pricing with Google, IP Innovation with Google, [FryBurger] with Microsoft, Fast Memory Erase with [Spansion], Hospital Systems with General Electric, Web Tracking Solutions with Google, Software Tree with Oracle, and Thermoscalpel with Boston Scientific.

If you would like to monitor additions and scheduling changes to the litigation calendar, I would suggest that you identify -- there's multiple research reports that are out by analysts following our Company that regularly update.

They monitor the publically available court documents through Pay Serve and offer updated reports because the Company obviously will not be issuing such reports.

We are currently in discussions with a number of defendants in these upcoming trials, which could lead to additional licensing agreements.

In summary, we currently have the largest number of licensing opportunities in our history and we'll be rolling out a number of additional programs over the next few months.

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

Thank you, Paul, and thank you to everyone joining us for today's third quarter 2009 earnings conference call.

As indicated in today's earnings press release on a consolidated basis, third quarter 2009 license fee revenues totaled $12,831,000 as compared to $13,796,000 in the third quarter of 2008.

In addition, deferred license fee revenues, representing upfront license fee payments received or receivable from licensees at the beginning of the contractual license term, which are deferred and amortized as revenues in the income statement in future periods increased to $6,982,000 as of September 30, 2009, compared to $318,000 at December 31, 2008.

Including $4 million of additional deferred revenues recorded in the third quarter, third quarter 2009 licensing transactions totaled $16.8 million.

Third quarter 2009 revenues included license fees from 36 new licensing agreements covering 18 of our technology licensing programs as compared to 20 new licensing agreements covering 18 of our technology licensing programs I the third quarter of 2008.

License fee revenues continue to fluctuate from period to period based on the various factors discussed on previous earnings conference calls and in our periodic filings with the SEC.

Consolidated trailing 12 month revenues totaled $58.8 million as of the end of the third quarter as compared to $59.7 million as of June 30, 2009; $48.2 million as of December 31, 2008 and $42 million at September 30, 2008.

Third quarter 2009 revenues included initial license fee revenues for our lighting ballast technology, microprocessor technology and our online promotion technology.

For a summary of additional technology licensing programs generating revenues during the third quarter of 2009, please refer to today's press release and 8-K filed with the SEC.

Currently on a consolidated basis, our operating subsidiaries have generated revenues from 56 of our technology licensing programs.

Our average margin defined as gross license fees less inventor royalties and payments to non-controlling interests and contingent legal fees for the portfolios generating revenues during the period was approximately 41% for the third quarter of 2009 as compared to 40% for the third quarter of 2008.

As a reminder, you will need to include the net income attributable to non-controlling interests in operating subsidiaries line item in the income statement to compute the average gross margin for the 3 and 9 months ended September 30, 2009.

Net income attributable to non-controlling interest in operating subsidiaries represents the portion of net proceeds from the licensing and enforcement activities of one of our majority owned operating subsidiaries that are distributable to the operating subsidiaries non-controlling interest holders.

Average margins continue to 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 fees arrangements, if any.

For the third quarter of 2009, Acacia Research reported a GAAP net loss from operations of $4.8 million or $0.16 a share versus $2.4 million or $0.08 a share in the third quarter of 2008 as illustrated in today's press release and related 8-K filed with the SEC.

Excluding the impact of noncash patent amortization charges of $1.2 million and noncash stock compensation charges of $1.5 million, we reported a third quarter 2009 net loss of $2.1 million compared to approximately breakeven excluding noncash charges of $3.1 million for the third quarter of 2008.

Inventor royalties and payments to non-controlling interests expense for the third quarter of 2009 was $4 million as compared to $4.3 million in the prior-year period.

Contingent legal fees for the third quarter of 2009 were $3.5 million as compared to $3.9 million in the prior year period.

In the aggregate, inventor royalties and non-controlling interests in operating subsidiaries decreased 7% during the third quarter of 2009 as compared to the third quarter of 2008 consistent with the 7% decrease in license fee revenues recognized for the same periods.

Contingent legal fees expenses decreased 12% for the same periods due to certain patent portfolios with lower contingent fee rates generating revenues during the third quarter of 2009 as compared to the patent portfolios generating revenues in the comparable 2008 period.

Marketing general and administrative expenses including noncash stock compensation charges for the third quarter of 2009 decreased to $5,089,000 from $5,464,000 in the comparable 2008 period, primarily due to a decrease in noncash stock compensation charges resulting from a reduction in personnel since the end of the prior year period and decrease in the average fair value of equity based incentive awards expensed in the third quarter of 2009 as compared to the prior year period.

The decrease was partially offset by a minor increase in general and administrative expenses related to ongoing operations.

Patent related legal expenses for the third quarter of 2009 were $3.5 million as compared to $1.1 million in the third quarter of 2008.

Patent related legal expenses include patent related 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.

Patent related legal expenses fluctuate from period to period based on patent enforcement and prosecution activity associated with ongoing licensing and enforcement programs and the timing of the commencement of new licensing and enforcement programs in each period.

The increase in patent related legal expenses is due to an increase in litigation support related out-of-pocket expenses, third party technical consulting expenses and professional expert expenses incurred in connection with our continued investment in certain of our licensing and enforcement programs with trial dates scheduled for late 2009 and early 2010 and a net increase in costs related to new licensing and enforcement programs commenced since the end of the prior year period.

We expect patent related legal expenses to continue to fluctuate period to period based on the factors summarized earlier in connection with upcoming scheduled trial dates and our current and future patent acquisition development licensing and enforcement activities.

Patent related research, consulting and other expenses remained relatively flat, quarter over quarter totaling $404,000 in the current quarter as compared to $444,000 in the third quarter of 2008.

Patent related research consulting and other expenses fluctuate period to period based on patent-related research, licensing and enforcement and maintenance activities in each period.

Patent portfolio acquisition costs for the third quarter of 2009 totaled $8.8 million as compared to $100,000 during the comparable 2008 period.

During the third quarter we acquired a total of 9 patent portfolios with applications in the digital video enhancement, communications messaging, records management, power management, biosensors, integrated access, data synchronization between mobile and fixed computer systems and other technology areas.

The total number of patents foreign counterparts and US applications per portfolio acquired during the third quarter ranged from 1 to 59.

Several of the patent portfolios acquired in the third quarter of 2009 were acquired in connection with partnering arrangements executed with major technology companies reflecting our continued identification of opportunities to partner not only with individual inventors in small to medium sized technology companies, but also major well established technology companies with larger patent portfolios.

Of the $8.8 million in patent acquisition costs incurred during the third quarter of 2009, we have a contractual guarantee to receive a minimum of $5 million in net proceeds, which significantly reduces the risk associated with these initial investments.

The majority of the remaining acquisition costs incurred are subject to contractual provision providing for higher percentage returns to our operating subsidiaries early on in the licensing and enforcement program until such initial up-front acquisition costs are fully recovered.

The higher level of acquisition costs incurred in the current quarter reflects our continued identification of opportunities to partner with major technology companies and negotiate upfront advance royalty payments to patent owners for a reduced future inventor royalty percentage, resulting in the potential for higher returns on our investments for our shareholders in connection with future licensing and enforcement activity.

Looking forward for fiscal 2009, we expect MG&A, excluding noncash stock compensation charges to be in the range of $13.5 million to $14 million.

For fiscal 2009, estimated patent related legal expenses together with patent related research, consulting and other costs are expected to be in the range of $11 million to $12 million.

The increase in estimated legal and consulting expenses reflects the impact of the timing of the increase in legal expenses for certain of our licensing and enforcement programs with trial dates scheduled for late 2009 and early 2010 as discussed earlier.

From a balance sheet perspective, total assets as of the end of the quarter totaled $76.1 million compared to $73.1 million as of December 31, 2008.

As of September 30, 2009 cash and investment balances totaled $45.3 million versus $51.5 million as of December 31, 2008.

Net cash outflows from operations including payments to non-controlling interests for the third quarter of 2009 totaled $5.4 million versus cash flow of breakeven for the third quarter of 2008.

Net cash outflows for the current quarter reflects the impact of the timing of cash receipts from licensees and payments to inventors and contingent law firms quarter to quarter.

Net cash inflows from operations for the nine months ended September 30, 2009 totaled $3.7 million versus net cash outflows from operations of $4.2 million for the nine months ended September 30, 2008.

Accounts receivable from licensees totaled $6.5 million at September 30, 2009 compared to $7.4 million as of December 31, 2008.

Again, thank you for joining us for today's earnings conference call and I will now turn the call back over to Mr.

Paul Ryan.

Thank you, Clayton.

Operator, can you open the call for questions please?

Thank you, sir.

The question and answer session will begin.

(Operator Instructions).

Sir, please standby for your first question.

Our first question comes from Bennett Notman with [Wyso Research].

Good afternoon, guys, and congratulations on another solid quarter.

Could you just talk a little bit about the deferred revenue; the time period of which it will be recognized and sort of any other nuances we should understand from what's going on there?

Sure, we'll let Clayton handle that.

Sure, sure.

The deferred revenue that came in in the third quarter of 2009 relates to a license agreement that has certain terms related to it whereby we should be amortizing that over a 6-quarter period.

And this is -- if I remember correctly this is a sort of the second deal like this that you guys have done.

Should we start thinking of these as something that we'll see more often, or are these still just one-offs?

I think there'll be increasing trend to do that.

There's a number of intermediaries in the marketplace and buying clubs that are becoming involved in licensing and we're seeing definitely an increasing trend of that.

So I would expect more of that in the future.

Then could you just talk a little bit how all these impending court dates might be impacting the overall licensing negotiations that you're having with some of the bigger targets that you have?

As you get closer to pending court dates are we likely to see some bigger deals get done or just how does that ticking clock impact everything that you're doing?

Well oftentimes obviously as you move closer to trial dates there's an opportunity for negotiations between the parties and as I indicated in my remarks, we are in discussions with a number of defendants in those trials.

In each of those trials I just read you the lead defendant; many of them have multiple defendants in the trials.

So certainly it provides an opportunity for negotiations and probably an enhanced opportunity for getting more licensing deals done.

Okay and then last one from me Clayton.

I couldn't quite do the math off the top of my head, but should we look at this quarter's legal expense as the new normal given that you're going to be in such a heavy legal calendar going forward?

Well it's really based on the facts and circumstances and the actual trial dates that are up and coming.

I certainly would expect that as we do move closer to these trial dates, the trend will be to have some higher legal expenses but it's really based upon the actual details associated with each of the trials as far as the magnitude of the increase.

There's a lot of lead time involved.

There's a number of these trials where we're getting the expert expenses are ones that out next spring but you need to line up the expert damage opinions and technical experts far in advance.

So I would say there might be another quarter or two where it's going to be elevated, somewhere between where it used to be and this newer amount, but we don't expect it to go significantly higher than where it is.

Because as you know the vast majority of all of our litigation is being handled on a contingency basis, so basically we only have responsibility in most instances for all or a portion of the third party expenses.

Great, thank you.

(Operator Instructions).

Our next question comes from Bruce Stewart, a private investor.

Please state your question.

My question is, I want to congratulate the whole team, you've done a wonderful job.

Okay, well it's much appreciated.

That's all I have to say.

Okay, for those people on the call who don't know who Bruce Stewart is the original founder of Acacia Research and went on to found another public company, Arrowhead Research.

(Operator Instructions).

Your next question is a follow-up from Bennett Notman with Wyso Research.

Please state your question.

Could you just talk a little bit more about the larger companies that you're doing deals with?

Are these generally foreign companies?

Are they domestic companies?

Do they call on any particular subset of the technology industry and are there many more behind the ones you've already done?

I'm just trying to get a feel for once you've got your foot in the door there in one group of companies sees a couple others moving, do others then sort of (inaudible) and then they want to move with you guys too?

Okay, if I understand the question correctly, you wanted to know if we can identify any common characteristics amongst these larger companies, either geographic or by technology sector that are interesting in partnering with us; is that correct?

Yes, and then also just now that a few have started, are others looking at that as a seal of approval and maybe following in their footsteps?

I think there's no question about that.

I think we've had to build this track record and we've done it initially with a lot of smaller companies and I think based on our -- yes, many of these companies actually are companies we have litigated and enforced against quite frankly.

And I think they see the professional team we have, they see the logic of our business strategy and it makes sense for them to outsource patent licensing either of all or a portion of their patented technologies to us.

There are a variety of companies, certainly there are a number of international companies that we're in discussions with who basically would like us to enforce their intellectual property and license it in the United States, but we also have a lot of leading US companies doing the same thing.

I think it's really a result of the financial situation and companies looking at their balance sheets and realizing they have tremendous asset values that are eroding in the intellectual property category and many of the companies are aware that there are certain US technology companies that generate tremendous amounts of revenue from patent licensing and indeed it's a significant portion of their bottom line.

And I think more and more companies are realizing that it's a fiduciary obligation to do that.

And so we're ideally positioned as an outsource patent licensing company to do that.

So we're very encouraged.

We had a major Fortune 100 company here yesterday.

I mean the trend is definitely accelerating and I think there's no question that having done these deals and people in the industry knowing that we're now partnering with larger companies is leading to it becoming more acceptable.

Great.

Our next question comes from Paul Berger of Hammock Investors.

Please state your question.

Hi, it's Paul.

Could you give us a little more color on the Acacia Media suit and what that may mean as far as future revenues for the next year or so?

I assume you're referring to our original Acacia Media Technologies, the video-on-demand patent portfolio?

Correct.

Yes, at long last we have received a motion from the court in the northern district of California which essentially will enable us to take up to the Federal Circuit an appeal of the initial claims construction which we think was in error.

There are four key claims to the patents that we think -- were ruled upon the court as being indefinite that we feel are not indefinite and several outside law firms agree with us.

So we look forward to appealing that matter to the Federal Circuit, and if we're successful then that can certainly shift the dynamics in that case.

Right, but the way I read some of the language that's come out of it, the way the courts ruled on it, it invalidated it.

So in the period between the appeal and now, will you still be able to collect on the customers that you have?

Yes, our licensing agreements would only be voided if there were an ultimate invalidity or -- of the courts and certainly we're very early in that process now.

We'll go up the Federal Circuit on the claims construction.

So no, nothing in the current rulings has changed our ability to continue to collect from existing licensees.

And one final point on that.

Can you give us any idea how much quarterly you get from that license?

We have not broken that out for a number of years, Paul.

I mean we did when it was a significant component of our business, but we haven't for the last two -- at least two years or so.

So no, we don't have those numbers available.

It's less than 10% of the total, but --

Okay, one other thing.

To make a little easier track, is there a way that when you announce that you have a new license or you've got a new patent you can tell us the name of the corporation you're going to put it under?

Usually we make the announcements on a timely basis.

What happens is Acacia Patent Acquisition does the initial acquisition and then a separate entity and partnership is formed for that patent portfolio so that our IP partners have total transparency and we can meet the rights and obligations and then we form these stand-alone subsidiaries.

So there's an interim step where initially when we close the transaction it goes into Acacia Patent Acquisition.

So there isn't a name immediately.

Sometimes it can take a few weeks for us to set up the special operating subsidiary.

Is there some place on the website that you could maybe set it up, because once we have the name of the corporation doing it, it's a little easier to track the legal filing.

Yes, that's something we can consider doing.

Yes, that we haven't done in the past.

Basically we've just outlined the names of the technologies and we identify them with a press release, but that's something we'll consider.

Okay, thank you.

Okay.

Yes.

Our next question comes from Jonathan Skills of Davenport.

Please state your question.

Hi, just a couple quick questions.

The first one, the $8.8 million invested in acquiring portfolios in the quarter, was that primarily related to the portfolios acquired from large companies?

Primarily, yes.

And I guess when can we expect revenue generation from some of those portfolios?

Is that more the standard time that you've seen in the past with portfolios or is there potential that it will be quicker since some of these portfolios may have already generated revenue?

Yes, there may be some opportunities to start the monetization earlier than normal because a number of these have had early licensing activities or geographic licensing activities and generally when there's that history it enables our licensing executives to start generating new deals more quickly.

And can you quantify at all maybe the -- any percentage of royalties or percent of licensing that has already been accomplished in some of these portfolios or is your opportunity still pretty large with some of these?

Yes.

In all of them I would say our opportunities probably still at least 80% to 90% of the market.

So probably the ones that have been done it's probably 10%, 20% of the market's been licensed.

And can you provide any detail on the early revenue split or sharing from these portfolios between you and the large company?

Well, I would say only in general terms because obviously the transactions are subject to confidentiality.

But I would say if you look at them overall, probably our normal splits are 50-50 and I would say if you look at these in the overall context it probably moves our percentages from 50% up to 60% to 65% and with an acceleration on early revenues coming back to recoup our advances with even higher percentages than that until we recoup the totals.

Great.

We think given the pedigree of these patents and the depth of the patent portfolios and the early licensing activities that there's fairly modest risk given the -- in most cases wide licensing opportunities [of these] to recover our initial capital.

And then can you maybe talk a little bit about the acceleration you're seeing in time to first revenue from some of the other portfolios you've been acquiring.

In the past first revenue has been kind of 18 months from the time you bring in a portfolio.

Is that still roughly the average time, or is that time coming down?

I would say that's still roughly the average time.

It may have come down 10% or 15%.

I think usually when we're getting earlier deals done, we have a number of licensees now that we've done multiple licensing deals with and there are some large companies who have indicated to us that they would like to do early licensing deals.

So often times if we bring in a new portfolio we can go to some of those companies we've indicated that they want those types of transactions and get early deals done.

So I think it's more of a result of our growing history of relationships of licensing to certain large companies that are enabling us to do early licensing of these new portfolios as they come in to those companies.

And then just two more quick ones.

The increase in legal expenses in the quarter, was that the result of any case in particular or was it just a combination of the legal dates you have on the calendar?

It's a combination of a wide variety of legal dates.

As you know, later this year and certainly in the first quarter of next year we've got a number of major cases.

So -- and usually these legal expenses if they're going to occur, they're 3 to 6 months in front of the trial date.

And then on those trial dates, there's the one that you mentioned, the D&T case in early December.

Is the trial date for the E-911 case still firm for December or will that be more of 2010 event?

I think there's two separate dates.

Yes, it's going to be a 2010 event.

There's actually three separate litigations.

There's two different districts in Ohio and in Texas.

The AT&T case in Akron is still on I believe for February, don't hold me to this I don't have the notes in front of me.

There's been -- the defendant in the first scheduled trial, Sprint, it was originally scheduled in December, filed a reexamination request.

The court granted them a temporary stay.

The patent office, which only about 5% of the time do they deny a re-exam request, denied their request based on the fact that they didn't feel there was any prior or significant enough to grant the re-exam request, which was a good sign for us.

The court rescheduled the date and then the plaintiff filed an appeal with the patent office to appeal the denial of the re-exam, which generally are not granted percentage-wise, but we can't predict that.

So the case has been temporarily stayed.

We're expecting a resolution from the patent office on that appeal of the denial of their re-exam request shortly and we would expect that the trial date would be delayed the approximate amount of time that this appeal has gone on.

So that would probably push that one into the February, March timeframe as well.

Okay and one final question; on the D&T case, has that technology been licensed in the past?

I really don't know.

I can't recall -- not that I'm aware of.

There may have been some licensing, but not that I'm aware of.

I think there has been one license.

Okay, thank you.

But I think it was prior to us becoming a partner.

Our next question comes from Bill Jones of Singular Research.

Please state your question.

Hi, guys.

Hello.

I was wondering if you could elaborate in the highlights in recent development section, the first bullet, regarding financial systems innovation, the settlement with several retailers?

Well, to give you a little history, the credit card fraud technology; it's one of those histories where we have preserved -- when we first partnered the inventor had tried to through various law firms license that technology I think for a decade, 15 years Dooyong Lee tells me.

We took it out and as you probably recall back in '06, '07, probably licensed 70 or 80 companies.

One of the strategies of the defendant's was multiple re-exam requests.

They kept putting it back in the patent office, we kept prevailing and it went in three different times and emerged all three times with no changes.

And the patent actually has expired now, so when we announced the deals it really isn't a license, it's a settlement.

I believe we have another roughly 100 companies that we have not settled with and we will continue to do that.

So that's a program that people have tested us on and they've seen that we're never going to go away.

We partner with someone, we're going to license the entire market regardless of whatever strategies are employed.

So our inventor obviously is extremely happy and it's been a great program for us and we expect more licensing the balance of this year and into next year.

Okay, our next question comes from Brett Johnson of Rocket Capital.

Please state your question.

Great quarter, guys.

Thank you.

I have a couple of questions.

My first one as you mentioned that you had a decrease in personnel over last year; can you talk about that a little bit?

It was very modest.

I think our MG&A costs have been basically flat.

I think our headcount is currently, what, 42?

44.

44, and it was 47 or 48.

So I mean it's a minor adjustment; not anything significant.

Are you planning on ramping that up anytime in the near future?

We really don't see a need too.

We can really leverage the teams we have, as you know we have many legal partners and we have lots of outside advisors and consultants that we're leveraging and quite frankly we think we can take this to much higher revenue levels with basically the same cost structure.

Great, great.

Another question in regards to these new larger deals, are you going to have the same profitability profile that your other portfolios have or are they going to be a little bit different here?

Well the transactions we've done on average I would say are probably going to be similar to the ones we've done historically, around 50%.

It's generally if we can use some capital upfront, which we feel there's fairly modest risk of recovery, that's how by advancing monies you can get larger splits on the backend, but typically our deals with both small and large companies are 50-50 splits of the revenues.

And if we provide advances, we want additional percentages for providing those advances.

Okay, and did the $5 million that you mentioned was guaranteed.

Did that get accounted for on the balance sheet at all or is that just --

No, it's not accounted for on the balance sheet, it's just contractual obligation.

Okay, great.

And then lastly one other thing; did you mention the number of revenue producing programs you had?

In the quarter or to date?

In the quarter, yes.

Yes, that number is 18.

18, okay great.

And then what's the year-to-date number?

56 is where we're at in total.

We don't have a year-to-date number.

The total amount of programs that have started generating licensing is --

56.

56.

Okay, that's what I thought.

All right, that's all I have.

Okay, thanks.

This will conclude the question and answer session.

I will now turn the call back to Mr.

Ryan.

Okay, I want to thank you all for being with us.

If you have follow-up questions, you can give me a call or Rob Stewart our Senior VP of Investor Relations and look forward to you on the next call.

Thanks.

(Operator Instructions).

This concludes our conference for today.

Thank you all for participating and have a nice day.

All parties may now disconnect.