CTT
Fiscal 1Q 07 Conference Call
Good
morning ladies and gentlemen. This is Jennifer Carberry and I am Director
of
Marketing and Communications for Competitive Technologies. Thank you for
joining
us on our first quarter 2007 Investor Conference Call.
I
call
your attention to the CTT website, www.competitivetech.net, where you will
find
our earnings release containing our latest financial information as of the
quarter ended October 31, 2006. I want to point out that in light of the
situation with CTT’s proxy solicitation we are not going to be opening the phone
line at the end of this call for questions and answers today, but we invite
you
to listen to the prepared remarks and encourage you to look out for additional
filings and information over the next several weeks.
To
begin,
I must remind you that statements about our future expectations, including
development and regulatory plans, and all other statements in this conference
call, other than historical facts, are “forward-looking statements” within the
meaning of applicable Federal Securities Laws, and are not guarantees of
future
performance. If and when used herein, the words “anticipate,” “believe,”
“intend,” “plan,” “expect,” “estimate,” “approximate,” and similar expressions,
as they relate to us or our business or management, are intended to identify
such forward-looking statements. These statements are subject to risks and
uncertainties related to market acceptance of and competition for our licensed
technologies, growth strategies, operating performance, industry trends,
and
other risks and uncertainties inherent in our business, including those set
forth in Item 1A. under the caption “Risk Factors,” in our Annual Report on
Form 10-K for the year ended July 31, 2006, filed with the Securities and
Exchange Commission on October 30, 2006, and other factors that may be described
in our other filings with the SEC, and are subject to change at any time.
Our
actual results could differ materially from these forward-looking statements.
We
undertake no obligation to update publicly any forward-looking
statement.
I’d
now
like to turn the call over to Dr. D. J. Freed, President & CEO of CTT. Don-
DON
FREED
Thank
you
Jennifer, and good morning.
I’d
like
to begin with a discussion of our progress, and then I will turn the call
over
to Michael Davidson, our CFO, who will talk specifically about our financial
results.
We
expected 2007 to be a transition year, and the first quarter results, were
as we
expected. Michael Davidson will get into details in just a moment, but I’d like
to begin with a discussion about our plans to turn Competitive Technologies
around and achieve sustainable profitability.
Our
goal
is to increase our recurring revenue and grow this revenue annually by expanding
our technology pipeline and replacing revenue from expiring patents, while
developing new revenue sources over and above what we have now.
We
believe that the key to our long-term success is to have a diverse, broad
revenue base. Previously, this company’s business model was dependent upon the
periodic successful commercialization of individual technologies. While that
approach resulted in periods of success and profitability as we won certain
patent suits or royalty streams from individual technologies for a period
of
time, it also meant that we were subject to significant volatility and risk.
With almost all of the company’s attention focused on the success of a few
technologies, the Company was left with expiring patents or relying on lawsuits
that might not have been ruled in our favor.
For
example, a substantial portion of the revenues realized in 2004 and 2005,
directly or indirectly, stemmed from the Materna (Wyeth) litigation initiated
in
1993 only reaching final non appealable judgment in fiscal year 2004, when
we
received our award of several million dollars. The LabCorp case, upon which
our
homocysteine success was built, was initiated in 1999. When the court ruled
to
uphold the validity of our patents, this enabled us to better pursue other
infringers resulting in dramatically increased revenues in 2005. Litigation
is
not, and should not be, a primary component of our strategy but unfortunately
is
an inevitable part of the licensing business and we will continue to pursue
legal action when necessary to protect the rights of our clients and
ourselves.
As
we
have been reporting over the past year, our strategy will take time to become
effective as our business is such that there is an 18 to 36 month period
from
the point of identifying a commercially viable technology to the point of
realizing any revenue. That means our efforts today might not be evident
in our
financial results for several more quarters, but the process is well
underway.
Unfortunately
when I became president of the Company in June 2005, our pipeline was
practically dry. Our focus over the past year has been to build an
infrastructure of people, systems and an inventory of licensable technologies
by
relentlessly searching for promising technologies in academia, government
labs
and the private sector. There is substantial uncertainty on whether any
particular technology, no matter how attractive it initially appears to be,
can
be successfully commercialized. Therefore, we believe that we need hundreds
of
technologies in our pipeline to effectively identify those with viable revenue
opportunities and monetize them. Our goal is diversify across industries
as well
as across development stage. We are seeking technologies in the early, mid
and
late stages in order to sustain steady income sources over time.
We
have
started to see positive results from this stepped up business development
effort. As we reported to you throughout the first quarter, we have entered
into
agreements to commercialize products and technologies including optical
technology for the LED lighting market, a groundbreaking Lupus diagnostic
and
monitoring technology, and cleansers and skin care products made with green
tea extract. We are partnering in strategic alliances that we believe will
help us further expand our licensing activities.
Just
this week we announced an exciting new relationship with Yet2.com, a
unique
electronic marketplace that brings together innovative technologies and
organizations that can put them to use. As part of the agreement, we will
aggressively start cross-marketing efforts, beginning with the reciprocal
listing of technologies on each of our websites. This is an example of the
steps
we are taking to yield greater results for our clients and increase value
for
our shareholders over time.
During
the quarter we also added new service offerings that build on our core expertise
in technology transfer, intellectual property and licensing. We launched
our IP
Valuation and Market Assessment services as well as a technology sourcing
business. This is an important part of our growth strategy as it complements
our
core business while opening up new opportunities for us to diversify our
sources
of revenue.
Last
quarter we spoke with you about our new rapid technology assessment
capabilities. We are now building the foundation for long term continued
success. We will continue to pursue legal action in cases where we believe
there
has been an infringement of one of our patents and where we believe there
is a
potentially robust stream of royalty income due to us, but we will not be
doing
so to the potential detriment of expanding our pipeline.
This
business is one that requires patience, since the turn around is not short.
We
must invest today and take actions today to help assure that we are in a
much
better situation in the future.
Now
I’d
like to turn the call over to our CFO, Mike Davidson, who will review our
financial results. Then I’ll close the call with some final comments .
Mike?
MIKE
DAVIDSON
Thank
you
Don.
Before
I
begin, I want to point out that our 10-Q was filed yesterday and you can
find
additional analyses in the 10-Q. For the first quarter, total revenues were
$900,000, compared to $1.4 million in the same period a year earlier. The
decline in total revenues was due primarily to a decrease in retained royalties.
Retained royalties were $700,000, versus $1.2 million last year as a result
of
fewer royalties received from homocysteine licenses. The $500,000 decrease
in
homocysteine royalties was due principally to two items. In the first quarter
of
fiscal 2006 we received $200,000 related to an upfront license fee received
from
a new license that we granted in a prior year, and two of our larger licensees
reported a combined $300,000 decline in homocysteine royalties. Such swings
in
revenue illustrate the potential volatility that comes with relying on a
limited
number technologies.
Total
expenses during the quarter were $2 million versus $1.7 million in the same
quarter the prior year. Approximately $170,000 of the increase was directly
due
to expenses incurred related to future revenue generating activities, primarily
the hiring of additional team members responsible for new business development.
In addition, patent enforcement expenses, net of reimbursements, increased
approximately $175,000. As we have learned, it is quite difficult to control
the
timing and magnitude of legal costs, especially for enforcement cases and
cases
under appeal. Unfortunately, this is part of our business but we do watch
costs
in order to spend our resources wisely.
The
net
loss for the first quarter was $1.1 million, or $0.14 per share, compared
to a
net loss of $300,000, or $0.04 per share, in the first quarter of the prior
fiscal year, for the reasons just described.
We
continue to believe that infringements of our homocysteine patents are occurring
by companies that we believe are utilizing our technologies without paying
CTT
royalties. This not only reduces potential royalty revenues, but also results
in
high legal costs to resolve the issues. Currently we are pursuing Carolina
Liquid Chemistries Corporation, Catch Inc. and the Diazyme Laboratories Division
of General Atomics in an alleged infringement case. However, such enforcement
actions can be lengthy and Competitive Technologies likely will not see any
revenues for some time.
We
are
pleased with the strength of our balance sheet and ended the quarter with
cash
and cash equivalents of $12.3 million. A strong cash position is critical
for
our plans and our vision to succeed, and we are maintaining that strong cash
position.
Don,
back
to you.
DON
Thanks,
Mike.
As
many
of our investors are probably aware, there is a group which has filed a proxy
solicitation proposing a new slate of directors.
Over
the
next several weeks leading up to our shareholders meeting scheduled for January
16th,
we will
file additional information addressing some of the points that had been raised
in the opposing proxy. The election of directors is of the utmost importance
to
the future of this company and its shareholders. Before voting, I strongly
urge
you to check the facts and weigh the information that is presented.
In
conclusion, I just want to remind you of the strategy of this management
team.
During my first full year as CEO of Competitive Technologies, we have worked
to
overcome some significant challenges and made steady progress towards
transforming our business.
We
have
spent the past 18 months putting in place an infrastructure that we believe
is a
foundation to turn CTT around and generate long term profits and increased
share
price. Prior thereto, we had been the beneficiaries of lawsuits and technologies
that has been initiated many years ago. Otherwise, our cupboard was largely
bare. This turnaround is going to take some time but our pipeline of
technologies is starting to fill, and I am encouraged by our progress. Our
balance sheet is strong. We have a detailed strategic plan designed to broaden
our revenue base, increase recurring revenues and lower our dependence on
any
single “home-run” technology. I truly believe we are taking the appropriate
steps to develop the platform necessary to achieve sustainable growth and
profitability and in turn build shareholder value.
This
concludes our call for today. Thank you for your continued support and interest
in Competitive Technologies.