Jason Assad - IR Doug Croxall - Chairman & CEO Frank Knuettel - CFO.

Michael Latimore - Northland Capital Markets David Hoff - Private Investor.

Hello, and thank you for standing by. And welcome to Marathon Patent Group's Third Quarter 2016 Financial Results Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. At this time, I would like to turn the conference over to Jason Assad, Investor Relations with Marathon Patent Group.

Please go ahead..

Thank you, operator. Good afternoon and welcome to the Marathon Patent Group's 2016 third quarter results conference call. With us today are Marathon's Founder and Chief Executive Officer, Doug Croxall; and Chief Financial Officer, Frank Knuettel.

Before I turn the call over to management, please remember that certain statements contained in this release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements contained in this release relate to, among other things, the effect of the global economic downturn on technology companies, the ability to successfully develop licensing programs and attract new businesses, rapid technological change in relevant markets, changes in demand for current and future intellectual property rights, legislative, regulatory and competitive developments addressing licensing and enforcement of patents and/or intellectual property in general and general economic conditions.

They are generally identified by words such as believes, may, expects, anticipates, should, and similar expressions; readers should not place undue reliance on such forward-looking statements which are based upon the company's beliefs and assumptions as of the date of this release.

The Company's actual results could differ materially due to risk factors and other items described in more detail in the Risk Factors section of the Company's Annual Reports filed with the SEC, copies of which may be obtained at www.sec.gov. Subsequent events and developments may cause these forward-looking statements to change.

The Company specifically disclaims any obligation or intention to update or revise these forward-looking statements as a result of changed events or circumstances that occur after the date of this release, except as required by applicable law.

In addition, certain of the financial information presented in this call references non-GAAP financial measures.

The Company's earnings release which was issued this afternoon is available on the company's website, presents reconciliations to the appropriate GAAP measure and an explanation of why the Company believes such non-GAAP financial measures are useful to investors. Finally, this conference call is being webcast.

The webcast link is available on the Investor Relations section of our website at www.marathonpg.com. With that, it's now my pleasure to turn over the call to Marathon's Founder and CEO, Doug Croxall.

Doug?.

Thanks, Jason, and thank you everyone for joining us this afternoon to discuss Marathon Patent Group third quarter operating results. While we remain pleased with our record year-to-date revenues of $36.5 million, almost double last year's full year results. Our third quarter revenues were obviously but not expectedly very light.

It's for this very reason that long suggested nature of our business lends itself to being evaluated on an annual basis as opposed to a quarterly basis. While potential revenue events existed in this quarter, we refuse to material compromise what we believe to be reasonable royalty rates in an effort to impact result in a particular quarter.

As discussed on our previous earnings call, we're keenly aware of investor's desire to see predictable revenue, it's for that reason that we are and have been refocusing our revenue generation on license that provide a recurring revenue feature.

This recurring revenue may take the form of fixed quarterly or annual payments by licenses to Marathon and should help investor's better model future revenue potential.

If part of this ongoing strategy to provide creative outsource solutions to patent owners capable of generating both predictable and recurring revenues, our Luxemburg subsidiary previously entered into a strategic relationship with a large fund and a Fortune Global 50 company to commercialize and monetize approximately 11,500 patents, all within a particular industry vertical.

Today, I'm happy to tell you that Marathon has entered into an agreement with General Electric oil and gas division to pursue the global monetization opportunities with respect to the GE oil and gas patent portfolio. This transaction brings together extremely high quality patents, intelligent capital and an experienced transactional team.

Importantly, because of GE's culture of innovation, the partnership portfolio is expected to see a continual flow of new assets. I believe that this model has the potential to be repeated with other corporate partners that will extend Marathon's portfolio of ever growing assets into other industry sectors.

In addition to GE, we previously announced an agreement with Siemens AG which covers two distinct portfolios; the first portfolio of 221 patents relates to WCDMA and GSM Cellular Technology and cover all major global economies including China, France, Germany, the United Kingdom and the United States.

The second Siemens portfolio of 86 patens relates to Internet of Things; generally, the portfolio subject matters directed toward self-healing networks for building automation system.

The patents are relevant to wireless mesh networks for use of Internet of Things and enable simple commissioning application level security, simplified bridging and an end-to-end IP security. The technology can support a wide variety of Internet of Things enabled devices including lighting, sensors, appliances, security and more.

These transactions with Siemens will allow us to expand our licensing activities to the increasing important Chinese market.

As the further end of our further global expansion, our wholly owned subsidiaries Traverse Technology recently acquired a portfolio of approximately 40 worldwide patents that relate to battery anodes and cathodes that utilize bulk thin film and nanostructure fabrication technique.

It enables exceptional battery performance per large-scale application such as electric vehicles in consumer electronic, and also allows for the integration into microsystems to enhance overall functionality.

The technology utilizes both nanomaterial and nanostructures to significantly improved battery performance and covers all the major global economies including China, Germany, Japan, Korea, the United Kingdom, and the United States. In aggregate, our wholly owned subs now manage approximately 12,000 worldwide patent assets.

While we remain on our way to having a record year in our core patent licensing business, despite this quarter, we also previously announced the launch of our complementary IP commercialization platform. We were fortunate to partner with HP on 3D Nanocolor.

The IP exclusively licensed by 3D Nanocolor is the result of years of research and development at HP and is an advancement of HP's leadership in microfluidic technology. 3D Nanocolor is commercializing HP's disruptive technology to target the multi-billion dollar commercials smart glass and window market.

Their UK film technology is an optical switching film using electrically charged ink that can be applied to glass services to enable dynamic control of color and contrast. This novel disruptive technology can be applied to both new and existing windows offering improved color options, energy saving, and immediate switching response.

Importantly, manufacturing and production cost of 3D Nano's EK film are expected to be lower when compared to the current leading Smart Window Technology. We are particularly pleased to discuss the recent progress related to 3D Nanocolor.

3D Nanocolor has completed an exclusive license agreement with the University of Cincinnati and their patent pending applications based on 3D Nanocolor's Electrokinetic Technology. The inventions were made at the University's highly claimed novel devices laboratory, and grounded on EK Technology originally developed at HP.

The patent applications are designed to advance smart window technology based on EK film technology. The company has also recently completed and shipped a prototype of its technology that will be showcased to executive at a leading European automobile manufacturer in early 2017.

They R&D lab for 3D Nano has been put in place at Oregon State University in Corvallis, Oregon. The RD team continues to build it and test the EK ink films to meet the expected optical requirement for a variety of markets, including windows, doors and wearable application. These efforts are being assisted by the recent addition of Dr.

James Abbot, as the Company's Electric -- excuse me Electronic Film Engineering Director and Cassady Roop, as it's Senior Electrical Engineer, two highly capable and accomplish technologist with specific experience in the company's field of technology. Both Dr. Abbot and Mr.

Roop's decade long experience at HP makes them the perfect additions to the team. We believe their skillsets will expedite our intention to ultimately bring a disruptive commercial ready technology to market.

We continue to explore other opportunities for 3D Nanocolor to grow the standalone business that maybe -- that may in the future be spun-off to our existing shareholders in a public offering.

In summary, we are reacting to market conditions and opportunities and as a result we believe that our business model will include our existing patent monetization strategy, as well as at other lines of business that may involve like the revenues from other forms of intellectual property. Those expansion many include both trade-marks and brands.

We will continue to expand our licensing activities across Europe and soon in Asia. We will continue to attempt to structure all future licenses with fixed periodic payments to build future book revenue which we hope may provide our investors with a better sense of our revenue and earnings potential.

Lastly, we believe the result of the recent presidential election has the potential to favorably improve the macro environment for patent owners in companies like Marathon going forward. That concludes my prepared remarks.

With that I would now like to turn the call over to Frank, our CFO for a detailed look at our third quarter financial results, followed by a discussion of importance subsequent events to the quarter.

Frank?.

Thanks, Doug. Third quarter revenues totaled $43,000 revenue for the quarter was based solely on recurring royalty based revenue from a couple of our mid tech licenses. Direct cost the revenues in Q3 2016 approximately $1.1 million. As compared to direct cost the revenues in Q3 2015 in approximately $4.0 million.

Direct cost the revenues include both contingent and non-content and the enforcement council in patent enforcement advisers and investors. The drop in direct cost the revenues is largely attributable to the absence of any contingent fee payments during Q3 2016. The company reported other operating expenses in Q3 2016 of approximately $9.7 million.

The 76% increase as compared to other operating expenses, a $5.5 million in Q3 2015. Other operating expenses declined year-over-year -- I'm sorry other operating expenses increase primarily from the Patent impairment right off during Q3 2016. Taking out Patents impairment charges of $5.5 million in Q3 2015.

Other operating expenses declined 24% in Q3 2016 verses Q3 2015. Total operating expenses in Q3 2016, included non-cash expenses totaling approximately $8.1 million which included $2.0 million in Pat memorization. Approximately $470,000 in non-cash stock compensation expenses. And approximate $5.5 million in Patent impairment charges.

This is up to approximate $3.8 million in non-cash operating expenses during Q3 2015. Which included $2.9 million in Patent amortization expense with the rest largely comprised of non-cash stock competition expenses. Cash operating expenses were down slightly year-over-year.

For Q3 2016 the company reported GAAP net loss of $6.3 million or $0.42 per basic share compared to a GAAP net loss of $3.8 million or $0.26 per basic share of Q3 2015. Our non-GAAP net loss for Q3 2016 was $3.2 million compared to non-GAAP net loss of $0.1 million for Q3 2015.

Included in this in utilization of a portion of Marathon differed tax path. A full reconciliation of GAAP and non-GAAP financial can be found in both -- Both of financial tables at the end of our all -- of our quarterly results, press release issued today as well as in form 10 Q filed with the STC. We ended the third quarter 20166.

With cash totaling $1.3 million as compare the $2.6 million as of December 31, 2015. And importantly we have continued to pay down remaining fortress debt. As of September 30, 2016 where apartment 15.0 weighted average basic shares outstanding.

Importantly, I'd like also to note that the beginning of 2016 warrants to purchase approximately 1.5 million shares associate with prior financing transaction have expired. Thank you for all of your attention. Operator you may now open the call for question. .

Thank you. [Operator Instructions] First question comes to Mike Latimore with Northland Capital Markets. Please proceed with your question..

Great, thanks a lot.

Can you talk a little bit about it we just think about -- about the next 6 to 12 months be, what are some of the kind of key dates to think about whether the litigation event or the time you might want to give certain parties to think about stocks placed and maybe just give a little perspective on things to focus on really from 6 to 12 months..

Yes, so regarding the licensing phase right now, Mike, which is evident by the revenues generated in Q.3. I would say that that window is closing rather quickly, it doesn't there's a lot of different initiatives right now.

Across all these portfolios so some of the stuff like moving discussions will continue because those windows just opened recently and other discussion will start to close relatively soon. So I would say over the next 30 to 60 days will see series of suit that potentially will be filed those discussions don't end favorably for Marathon.

You will probably see a pretty steady flow of suits mostly foreign suits that will be filed in Q4 and well as Q1 and Q2. Next year. So certainly, we think that we want to give everybody an opportunity to have a meaningful discussion and see if we can get a license done outside the litigation.

But if we can't clearly then we fall to the only dispute resolution that we know which is -- which is you know filing suit, clearly when we license without litigation we have arm much improved margins but you get your take two to license something, so it's tough to force somebody.

But I would say you should start seeing things this quarter, as well as Q1 and Q2; and then we do have a trial with regard to Fiat Chrysler in June of next year. So you know we'll have at least one trial in Q2, and potentially others -- Other trials over overseas that could be in summer based upon whatever we file suits this winter. .

In terms of the trying to get quarterly and annual payment, can you provide little more on how you might go about achieving that, what the receptive of those kind of payments; just trying to get some of those firms payment?.

The discussions have obviously, we been in discussions already with potential licensees and clearly we talk about structure kind of a fixed payment approach, and the reception has been pretty positive. I can't tell you that we have anything close right now, but we're certainly in discussion.

And I don't think that I don't suspect that revenue strategy is going to be difficult to achieve, if that discussions we're having now indicative of what we might see in the future..

And just the OpEx in the third quarter, should we think of that as kind of relatively stable going forward or assuring OpEx?.

Yes, Our OpEx have been pretty stable overtime, it's vastly a little bit around $1 million but I think that the third quarter OpEx results are there for what we anticipate going forward. .

Okay, thanks..

[Operator Instructions] Our next question comes from a line of David Hoff. Please proceed with your question..

Hi, good afternoon. I have a couple questions it can you guys give a quick update on dynamic advance and where is that, I heard the settlement the earlier this year and kind of waiting to see what the next development is, just wondering if we can get update there..

Those are part of the soft licensing discussions that we're currently having. .

Okay. Can you give maybe a range of potential entitlement that might be in place, maybe a dozen out there are half a dozen. .

Can you say that question again..

Can you give the number of stands to agreement that might be out there, maybe six licensees, or 12..

Kind of let's say in that range between a half dozen and a dozen and you know we were watching the -- We're watching kind of the AI environment and there's new initiative being launched all the time. So that number can grow but right now we're in kind of a 6 to 12 potential licensees range at this point..

Okay.

I guess moving toward the cash balance I see that it under $2 million, is it reasonable to expect that a lot of the outstanding litigations that's been out there for two or three years really going to get closed within the next six months in order to pay for some of the new monetization opportunities or is there some kind of alternative financing in the way.

.

We can't comment on any sort of alternative financing that might be in the works but I think our feeling is that a lot of the kind of you call phase one through, are starting to come home, we're just nothing to report at this point though. .

Okay, that's it for me..

Thank you. Your next question comes from the line of Matthew Campbell with Capital [ph]. Please proceed with your question..

I was wondering if you could just expand a little bit more on the GE partnership, how'd that come about..

It just came about through have GE looking to find a good partner, I suppose. And that took quite some time to negotiate and put in place.

And we think it's a great opportunity for us and we think it's a real shift in kind of how to approach, I mean in the past and even today, we'll look at a portfolio and we know that you know it has a limited life because we will license those assets out and\or those assets will eventually expire, but with an ongoing relationship, the thought is as GE continues to innovate and patent their inventions, our opportunities will continue along that same phase.

So we are pretty excited about that and look you know we talked to a lot of companies all the time, about doing different types of Pat monetization strategy and this frankly was the result of those ongoing conversation. .

Got it. And another -- and I think you said in your earlier on this year potentially working with other organizations as well to develop the same kind of model is that is alright, did I hear that correctly. .

Yes, you are correct. .

Got it. And just if I could ask one question a follow up to the previous question about the financing clearly you said you're not able to comment but is this something where it's an equity component or can you expand upon that, because first thing I think about is a secondary. .

It is not an equity component, but that's all we are going to say at this point. .

That's helpful, thank you very much. .

Thank you. Our next question comes on the line of Vax Fisher [ph]. Please proceed with your question..

Hi, guys, thanks for having me today, one real quick question you know and Eric had mentioned trademarking and that being a business the Marathon was going to be getting into here in the future, you speak to that as far as meeting milestones or on any targets that he has set forth as far as getting that business for Marathon. .

There a component of the overall intellectual property definition. And so we were in constant conversations with it executive that own and are looking to find partners to help -- to help license the patent that they have, and those conversation have at times turned toward assisting them in licensing trademark and or brand.

And so I can say specific which opportunities we're reviewing today but you know we have been reviewing for over year actually. A couple of different opportunities one, it progressed more so than the other and we really think there's a lot of crossover in this skill set that's required to license patents and frankly license trademarks.

Now it's an eminently different business from a motivation standpoint. Most of the time motivation for our patent licensees to take a license because they're trying to settle a law suit. On the trademark side, it's typically different because someone want to take that trademark for that brand and apply it to a product or service offering.

Though it there's more of a carrot motivation if you will. But w we are -- we have been over the last couple of quarters pretty focused on one opportunity in particular, and we're in the diligent stage right now and if things check out then we hope something to announce for this year or before the end of a calendar year. .

Excellent. One last question, do you see that trademarking becoming a substantial part of the business moving forward. I mean are you still just kind of being a segment. .

Well, I mean look it'll be a revenue line how substantial just depends on how many opportunities we're able to review and successfully close on. The one that we're at right now we think would be with the 50 substantial definitions. So it definitely could be. .

Okay, thank you. .

Thank you. Our next question comes from the line of Jay [ph] with Axiom Capital. Please proceed with your question..

It occurs to me that a company with a weak balance sheet is in a poor negotiating position for a licensing agreement. Large company looking at your balance sheet might say Gee let's wait it out maybe they can't finance the cash burn that they've been generating. And they'll run out of steam.

What's the appropriate amount of cash that you need to have on your balance sheet to avoid that series of events. .

So I don't agree with your assumption as matter fact the largest license that we signed was March, April of this year. You just can't -- you just can't weight everything out.

There are days that our current litigation despite the size and our popularity of a defendant, they just can't change what a court wants to do with regard to litigation life cycle. .

So then given the litigations that up you started and intend to start. How much money do you need, to prosecute those litigations..

We've been able to do it on exactly the same cash balance we have today, we've been able to do it on a much bigger cash balance, so clearly we want to have a healthy balance sheet but with think that $3 million to $7 million range is sufficient, we know what we have projected to come internally on settlement and cash flow basis that we know what our cost structure looks like, with regard to funding litigation.

As you know most of our litigation is done on a contingency basis and frankly most of the out of pocket cost that occur in litigation don't occurred the onset of filing suits it typically occurs as you get closer to trial.

So a settlement -- when settlement occur prior to that point in time, you really have, you really do have control over your costs. And that's a business model we've been very successful at running four years of Marathon and for eight years prior to Marathon. .

As you approach your budget so for next year. And I know you don't want to give us numbers, I will ask the question this way. Do you have high expectations during the course of the year. Or the course of the next two years on a chart basis as to when to expect cash to come in, on a revenue basis. That requires a yes or no. .

Yes, I am trying to follow the question. We have we have proposed -- We know what we expect internally obviously I can't share that.

Yes, I mean we go through -- we already been though our budget process for next year, which includes both revenue expectation as well as the costs associated with the revenue and the cost associated with just running the company. So yes, we've been through that and we're pretty comfortable with what we have projected internally. .

Thank you..

Welcome..

Thank you. There are no further questions at this time. I'd like to turn the call back over to Mr. Croxall for closing remarks..

Just want to say thank you everybody, I know that the quarterly revenue wasn't what we hope for now or what potentially be investors hope for. And again if we could take the $36.5 million and spread out evenly over three quarters we be looking at a $12 million revenue quarter, but in fact in each of our business lent itself often times to lumpiness.

This is what we're trying to improve upon in 2017 and beyond.

If there are any additional major announcements, we certainly will have press releases that will issue for the end of the year, and as always I thank everyone for supporting the company, if there's any question or things that you would like to talk about please don't hesitate to contact me or Jason. Thank you. .

Thank you. This concludes today conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day..