Leading technology commercialisation company QPSX Ltd (ASX: QPX) today advised on progress in the company's flagship SAR licensing program, third party licensing programs including Telstra and FST patent portfolios, SafeGuard security technology commercialisation, together with a financial performance update.
QPSX's objective is to be the premier intellectual property commercialisation company in Asia Pacific. The company has expanded its management team and developed the strategies, systems and processes to achieve this goal and to generate diversified, sustainable revenue streams. A core part of the strategy is to build strong relationships with sources of research and development, and become their commercialisation partner of choice. Outsourcing of patent portfolio licensing by large corporations and research institutions is becoming common practice internationally. The worldwide market for licensing Intellectual Property (IP) represented some US$150 billion last year and is forecast to grow at more than 30 per cent annually over the next five years.
QPSX represents the emergence of a new asset class in Asia Pacific. The company's IP licensing programs typically involve QPSX taking technologies from the region onto the world stage, and securing a fair return for both QPSX and the technology developers. Where there is a retrospective element to the use of the IP, then patent enforcement sometimes is also necessary, as evidenced by QPSX's current SAR licensing program.
The purpose of this update is to provide a progress report on QPSX's activities since listing in December 2000 as well as current performance indicators.
QPSX's flagship licensing program focuses on the Segmentation and Reassembly ('SAR') patent portfolio a technology developed in the late '80s and owned 100% by QPSX. In April 2001, QPSX launched a SAR licensing program in Europe with the objective of establishing substantial new royalty revenue streams in addition to those generated historically. In July 2001, the company announced the first SAR licensing agreement, with European telecommunications giant Ericsson. The agreement specified a royalty bearing licence for QPSX technology, including the SAR patent, and is expected to deliver QPSX royalties commencing in financial year to 30 June 2003. Negotiations with a number of other global vendors are in progress and further meetings are scheduled with these vendors in Europe in June this year.
To support the licensing program, in April 2001 QPSX Europe GmbH, a wholly owned subsidiary of QPSX and licensee of the SAR German patent, filed a DM125 million (A$115 million) writ in Germany against Siemens and Deutsche Telekom for infringement of the SAR patent. Various arguments have been presented by all parties and a formal court communication confirming the court's position, as stated on March 14 th 2002, is expected on June 6 th 2002. QPSX's legal counsel have advised that achieving this next stage is a significant milestone.
In January 2002, QPSX announced that the US Patent covering the SAR technology had been issued, running retrospectively from 1991 through to 2008. QPSX had previously been granted SAR patents for the United Kingdom and Germany (which together represent approximately 10% of the world market) and for Canada (approx 30%). The US patent provides QPSX with recourse to equipment manufacturers and vendors controlling approximately 50% of the global market for ATM technology.
As part of the company's diversification strategy, QPSX announced this week an agreement with Telstra's research and development group, Telstra New Wave Pty Ltd (TNW), which grants QPSX the exclusive licensing rights to a portfolio of patents. Telstra has the financial and intellectual resources to identify and invest in new technologies and QPSX has the track record and expertise to successfully commercialise technologies and deliver licensing revenue streams to both companies.
In January 2002, QPSX also acquired exclusive licensing rights to a portfolio of patents covering fundamental database and relationship pricing functions owned by Melbourne based Financial Systems Technology Pty Ltd ('FST'). FST pioneered the concept of relationship pricing for transaction based services in the banking sector and the technology currently processes financial transactions worth trillions of U.S. dollars every day. QPSX's has conducted extensive due diligence on the FST portfolio to determine the best licensing approach, revenue potential and timing. Following initial US based licensing discussions, a comprehensive update on this program will be provided during the next 3 months. For the Telstra and FST programs, QPSX will receive at least of 50% of the revenues generated. QPSX has also been selected by the Australian Telecommunications Cooperative Research Centre (ATcrc) as a commercialisation partner. The ATcrc comprises tertiary research institutions, including CSIRO, Curtin University of Technology, Monash University, Royal Melbourne Institute of Technology (RMIT), Victorian University of Technology, Strategic Industry Research Foundation and University of Western Australia, as well as commercial partners, including Ericsson Australia, Agilent, Vodafone Network and QPSX. This partnership provides QPSX access to a number of R&D initiatives which should result in commercialisation opportunities for QPSX.
On the product front, QPSX is commercialising a 100% QPSX owned security product, SafeGuard, which (historically) had over $8m invested in R&D. It is a high grade, multi-function, communications security device that protects sensitive voice, fax and data communications. The market for SafeGuard includes non-US governments, defence, police, taxation, telecommunications companies, banks and health services as well as other privacy conscious organisations.
With an estimated current market size of some US $6.7 billion and a compound annual growth rate of 25%, the communications security market is booming. Following recent events in the United States and the reaction of world governments to the September 11 attacks, QPSX conducted further market assessment and successful trials with the Australian government and a number of Asian governments. QPSX concluded that a significant market opportunity exists for the SafeGuard product, and in May 2002 launched it's latest updated model. Pleasingly, this has enabled QPSX to secure its first Asian government customer order, a pilot order that whilst not financially material, will position QPSX well for identified regional sales opportunties. QPSX is also currently negotiating a number of distribution agreements for the product globally. perational Modes PSTN Voice Clear and Cipher
FINANCIAL PERFORMANCE
Management have been very careful to ensure that outgoings are sustainable until new SAR royalties and other revenues commence.
For the FY '01, QPSX reported a net profit after tax of $0.4m, on revenues of $1.8m, which exceeded the projections contained in the QPSX November 2000 prospectus of an after tax loss of $32,000, on revenues of $1.1m.
Non SAR revenues in FY2001 & FY2002 are forecast at $1.2M & $0.3M against $0.8M and $nil respectively in the projections contained in the November 2000 prospectus. The projected SAR European revenues for 2002 were estimated at $18M resulting in a NPAT of $7.7M. Projected royalty returns from Canada and the US were not included in the prospectus but represent considerable upside to QPSX. Key assumptions underlying the projections included the timing of potential licensees taking up licences and the lump sum/royalty rates agreed. The potential SAR revenue stream is in the hundreds of millions of dollars, and the view of both our German legal counsel and US based licensing partner is that there is a strong probability of success. Whilst excellent progress as described above has been made, attainment of these revenues prior to June 30 th 2002 is still subject to negotiations underway and accelerating post June 6 th 2002 or from an out of court settlement. If QPSX is unable to finalise licensing agreements by 30 th June 2002, this would result in an after tax loss forecast at $0.8M. The company's cash position remains strong and cash is forecast to be $3.7M at June 30 2002, with an annual expense rate forecast of $1.5M.
QPSX has minimised its exposure to the costs and risks associated with the SAR litigation by sourcing up to US$4 million of funding from Lloyds to support the action. This amount is considerably higher than the anticipated costs of the current litigation and the bulk of the German litigation costs (court and legal fees) have already been paid.
In addition, QPSX's US venture capital partner CRL is contributing 25% of QPSX SAR related licensing program costs, including litigation. Expenses and amortisation costs (net of CRL contributions) in 2001 and 2002 came to $1.1M & $1.7M against projections of $0.9M & $1.5M respectively.
Whilst QPSX originally allowed $2M for acquisition of new technologies (which was capitalised in the projections), we have been able to acquire exlusive licensing rights to the FST & Telstra technologies at no upfront cost.
In summary, the Company's cash position will be sufficient to meet all outgoings until SAR related revenues commence to flow. QPSX expects such revenues to commence during FY2003.
Further Information: Graham Griffiths, CHIEF EXECUTIVE OFFICER, QPSX Ltd Tel: 08 9381 9518 Email: graham.griffithsqpsx.com Website: http://www.qpsx.com
ends - AAP
QPX Price at posting:
0.0¢ Sentiment: None Disclosure: Held
