QPX qpsx limited


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    QPX - ASX Company Announcement
    24 May 2002
    Part 1/1

    HOMEX - Perth
    QPSX Market Update

    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

    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

    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


    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

    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,
    Tel: 08 9381 9518
    Email: graham.griffithsqpsx.com
    Website: http://www.qpsx.com

    ends - AAP

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