Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Bruce Inocente – Private Investor.
Bruce Inocente – Private Investor
I appreciate the fact that you’re having this conference call. I think it’s something good all the way down the line for the future, too.
My question is, if you go back to the last three years and the current quarter, and take your relationship between the operating expenses, and I’m talking about PDS right now, we were running anywhere from 6% back in 2006 to 11%, and I’m talking operating expense compared to licensing revenues, 11% in 2007, 31% in 2008, and in this last quarter 77%. Could you please explain to us what makes up the operating expense and why they are getting so high as a percent of total revenue?
Clifford L. Flowers
The most significant portion of PDS’s operating expenses is the legal expenses incurred by them and there isn’t necessarily a direct correlation to revenues with any given quarter and the legal expenses incurred by them. So the extent they are able to secure new licensees and new licensee revenues without incurring legal costs, certainly that presents an opportunity for a more productive relationship between the revenues and expenses.
Right now we know that we are involved in a litigation against a group referred to as the T3 and so it wouldn’t be unusual for there to be a sort of disproportionate relationship between the expenses and the revenue numbers, pending an outcome of this matter.
Bruce Inocente – Private Investor
So we can assume that since the majority of the legal expenses are what make up that operating expense, that the legal expenses are not based on a percent of total revenue coming in based on licensing, it’s also that plus whatever hourly costs they incur for representation, too?
Clifford L. Flowers
These are primarily third-party legal expenses, and I believe that is what you were getting at, so I will confirm that’s true. And so just to reiterate, when TPL is able to engage new prospective licensees with the encumbrance of incurring legal costs, they can do so in a very productive and efficient way, but you’ll see that change from period to period based on the level of engagement they have in ongoing litigation.
Bruce Inocente – Private Investor
In this quarter not only did we have the 77% operating expenses out of the licensing revenue, we also had the additional $571,000 for TPL with another $429,000 coming down the line before the end of the fiscal year. Can you in some way explain to us what this $1.0 million is for this certain service they perform?
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