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NCT Group is experiencing
significant growth patterns in their Artera Group subsidiary that focuses on optimizing
the Internet and enterprise networks
Electronic INST. & Controls
Technology
(NCTI-OTC)
NCT Group, Inc.
20 Ketchum Street
Westport, CT 06880
Phone: 203-226-4447
Michael J. Parrella
Chairman
Interview conducted by:
Diane Reynolds
Associate Publisher
CEOCFOinterviews.com
September 2004
BIO:
Mr. Parrella is currently Chairman and Chief Executive Officer of NCT Group, Inc.
He has led the TAPS Division of Informatics General Corporation, a engaged in the
development and marketing of systems software. Informatics acquired the TAPS product line
from Decision Strategies Corporation; a company established and owned by MR. Parrella. As
an entrepreneur and inventor with a computer systems background, Mr. Parrella has been
involved in several High-technology start-up ventures during his career. Mr. Parrella is a
true visionary who has transformed anti-noise technology from a laboratory science into a
marketable commodity. Under his direction, NCT has built one of the largest intellectual
property portfolios in the industry. NCT technology is now available in a wide range of
consumer, commercial and industrial products.
Company Profile:
NCT Group, Inc. is a publicly-traded, high-tech company with a strong technology base.
NCTI is rich in intellectual property with 595 patents and related rights. The company’s
major focus is the development of its communications subsidiaries. Artera Group, Inc. is
the developer of patent-pending software-based technology that accelerates data
transmission over any existing communications link. As a “Virtual Bandwidth”
solution, Artera Turbo routinely delivers a 5X speed improvement over 56 Kbs dial-up
connections and wireless mobile telephones. The technology also speeds ISDN, DSL, T1/E1,
cable and satellite links. For residential and small business use, Artera Turbo service
optimizes all web traffic, all email protocols and Native File Transfer Protocol (FTP)
uploads and download. For enterprises and extended range of protocols are optimized.
Artera Turbo residential service also includes an ultra-secure firewall and parental
control features. For enterprises, government agencies and other large networks,
application of Artera Turbo technology results in a 70%-85% reduction in bandwidth
consumption for web-based applications, yielding significantly increased network capacity
with virtually no capital expenditure. PRO Tech Communications, Inc. (OTCBB: PCTU) is a
manufacturer fo headsets and other communications products for a variety of applications.
Pro Tech is currently a leader in headsets for the fast food market and has a strategic
agreement with the McDonald’s Corporation. In addition to expanding its product lines
to address the rapidly-growing telephony, multimedia and cellular markets, PRO Tech is
developing products for other applications including consumer audio, industrial safety,
spectator racing, two-way radio communications and aviation. NCTI also has strategic
licensing relationships with manufacturers for integration of certain NCTI technologies
into products and applications.
CEOCFOinterviews: Mr.
Parrella, please tell our readers a little bit about the company.
Mr. Parrella: “NCT
Group Inc. is a company that has approximately 600 patents on a worldwide basis. We
exploit the value of those patents by either licensing them or creating subsidiary
companies that exploit the patents by developing them to third parties for particular
markets. NCTT’S main focus is on communications technology.”
CEOCFOinterviews: What
are these patents in relation to?
Mr. Parrella: ‘Many
of our patents relate to various form of noise cancellation. One area is cancellation of
noise and vibration by using anti-noise and anti-vibration waveforms. Another is the
cancellation of noise within communications, both echo and noise. For example, on a noisy
communications line we actually take the noise out and leave the voice. That applies to
all forms of telephony and voice recording. Yet another area is the cancellation of noise
for individuals by using headsets and earplugs where we cancel the noise when an
individual is in a noisy environment. Some of our more recent patents pending are in the
area of networking technologies, which is the focus of our Artera subsidiary. With Artera
Turbo we can both speed up the network and make the network more cost effective. Those are
basically the fundamental technologies that we have in our patent pool.”
CECCFOinterviews:
Communications, media and technology; out of those areas where is the majority of your
growth coming from?
Mr. Parrella: “Right
now we are focused on communications, specifically through our Artera subsidiary. Artera
is the developer of proprietary Internet accelerations and optimization technologies for
residential users, small businesses, enterprises, government agencies and service
providers. As a “Virtual Bandwidth” solution, Artera Turbo™ routinely
achieves speeds equivalent to broadband over standard dial-up (56 Kbs) connections and
wireless mobile telephones, a 5X speed improvement. Performance improvements by up to a
factor of five are also achieved over ISDN, DSL, T1/E1, cable and even satellite links.
When we apply Artera Turbo to broadband networks we reduce bandwidth consumption by
70%-85%, yielding significantly increased network capacity with virtually no capital
expenditure. This is very compelling for business networks because the optimization
techniques we employ are equally effective for both Internet and private Intranet traffic.
Also, for ISPs, Artera technology can be applied simultaneously to the network and used by
subscribers which significantly impacts EBITDA per subscriber. This is a very exciting
area for our company, and we expect some pretty significant growth in this subsidiary.”
CEOCFOinterviews: I noticed much of your company news is
about Artera Group.
Mr. Parrella: “If you think about it, let’s take
any example you want, say India. India has 250-260 million potential Internet users right
now. They have an incredibly weak infrastructure for delivering services to both
corporations and residential because their telephony infrastructure has to be redone. So
we deliver tremendous value to a country like India. The same goes for China or any of the
South American countries where you go in with a product and change the entire EBITDA of a
service provider. With Artera Turbo, we can deliver the same results, eliminate 70-85% of
the bandwidth cost and improve the speed at the same time within 2-5x. This is done just
by installing the right software in the network, and that is what we have developed. It’s
quite a breakthrough and we feel it is going to provide significant shareholder value
appreciation in the next 12-24 months.”
CEOCFOinterviews: I noticed on your financial reports, it was
a little lower than the past, what contributed to this?
Mr. Parrella: “Over the past few years we had a lot of
up front licensing revenues, such as from NXT, which were amortized over a specified
period of time. A lot of those contracts are coming into volume production. As those
upfront license fees become fully recognized the license revenue recognized from such
agreements declined as royalty revenue began to increase. So what you are seeing now is
the metamorphosis of our company from a licensing environment to an operational product
royalty revenue environment where the revenues each month are increasing and will get to a
point where our operational revenues will be in the black. From that moment on we will be
eff3ectively converted from an R&D company to a real operational company with positive
cash flows and good messages to deliver to our shareholders.”
CEOCFOinterviews: You also mentioned in the press release
that you believe that one subsidiary should have an improvement in the next quarter or
two.
Mr. Parrella: “Pro Tech Communications, Inc. is a
subsidiary focused on headsets and other communications products. What we’ve done
with Pro Tech is granted them an expanded license to over 50 patents, patents pending and
innovations relating to active noise reduction (ANR) and noise and echo cancellation. The
license now encompasses all styles of headsets, which is an expansion from lightweight,
open back styles, including headphones, earmuffs, earbuds, earplugs, etc. It also includes
all markets including lightweight cellular, multimedia, telephony, consumer audio,
industrial safety, spectator racing, two-way radio communications and aviation. We well
now be bringing them into the marketplaces where they can compete with technologies that
no one else has. You will see some significant changes and improvements in the next
several quarters.”
CEOCFOinterviews: Out of all of the subsidiaries, how are you
helping them financially?
Mr. Parrella: “In most cases, we fund them. We fund
their operations until they are in a position to produce their own positive cash flows. In
the case of the Pro Tech they are pretty close to that right now. In the case of one of
our other subsidiaries we will be getting there. We typically fund them like an incubator
would until they get into a place where their cash flows are making them self-sustaining.”
CEOCFOinterviews: As far as their marketing strategies and
manufacturing abilities, do you leave them alone on that or do you have a large input on
that area as well?
Mr. Parrella: “When you look at manufacturing, where do
you think people manufacturing today? China. If you are saying do we use our contacts in
China that we have developed over the years to help each of our subsidiaries, then the
answer is yes. We help them from the perspective of setting up initial contacts from the
Chinese manufacturers and help them set up the deals, and then we leave them alone and it
is a matter of executing, building inventory, putting it on the boat, getting it over here
and getting it to the distribution channels.”
CEOCFOinterviews: With all of the conflict in the government
right now, about outsourcing and using other countries and taking jobs away from the
people here in the United States, has any of this affected you or do you see this
affecting this company in the future?
Mr. Parrella: “No, I don’t think so. The issue is
where can you make the products with quality at the cheapest prices? Right now the
answer is China. If you are looking at all of the major corporations, they are doing their
manufacturing in China. The United States has to look to other areas to develop its
autonomy like maintaining its leadership in the information revolution. To become more
competitive in the manufacturing they have to use more advanced ways of making things to
compete with the low prices of China and everywhere else in Asia. I prefer getting our
manufacturing contracts in the United States, but how do I stay competitive if I do that?”
CEOCFOinterviews: All of the subsidiaries do have competition
in the different areas that they represent, whether it may be headphone, the
NoiseBuster®, or whatever area, how are they competing with the other larger companies?
Mr. Parrella: “One of the main reasons for patenting
technology is to protect some technological differentiation you have created. In our focus
areas, we have differentiating technologies and therefore we can compete effectively.”
CEOCFOinterviews: How much longer do you have the patents
for?
Mr. Parrella: “Some of the patents haven’t been
granted yet. Usually I would say on an average between 12-17 years.”
CEOCFOinterviews: Since you have come to this company what
would you consider being your biggest challenge as far as getting these subsidiaries
together?
Mr. Parrella: “I think our biggest accomplishment was
making this company survive during the biggest dot com collapse in the last 3 years. When
the dot coms all went out of business, hundreds of companies had to declare bankruptcy
because they couldn’t acquire any capital they needed for their growth. An incubator
like us needs capital to develop its subsidiaries and the capital just wasn’t
available so we had to get creative and had to findsources of capital where a lot of other
companies weren’t able to. I credit that to my management team, myself, and our
employees that we got through that in a very effective way and we are now able to deliver
some very exciting products to the marketplace that I think will significantly change
shareholder value.”
CEOCFOinterviews: I saw that happen and knew there was going
to be a crunch. You then knew who were the good companies and the ones who were going to
survive.
Mr. Parrella: “The ability to continue to develop your
technology and bring it to a state of market readiness when sources of capital have dried
up is very difficult to do. I think it has impacted America’s entrepreneurship very
much by not having sources of capital. I also feel the dot com era was one where people
lost focus. It was more hpye than reality and when the hype was disclosed everyone else
was damaged because the capital world went into a spin. It is just getting out of that
spin right now and I think surviving that period was quite a challenge.”
CEOCFOinterviews: It is a slow precess coming out of it. Lots
of people geared away from those companies because they didn’t know who was going to
be around when the dirt cleared and I think that it is slowly coming around but NCT Group
is not the only one in this position who has subsidiaries and are building on that. There
are other companies doing that. What makes this company unique in this area?
Mr. Parrella: “I think it’s the nature of the
technologies we have and the nature of the needs that those technologies meet. However,
selling technology is not what we do—we are really selling the opportunity for
substantial cost savings. When you can translate your technology into significant savings
and significant benefits where it impacts an EBITDA ten the technology gets itself quite
readily accepted. Let me give you an example. You have a satellite and the satellite has a
fixed bandwidth asset and the satellite is delivering over the Internet. You can take that
fixed bandwidth asset and you can handle five times the number of subscribers in that
fixed asset, and increase the speed three to five times. That changes the whole EBITDA
return on the investment for that asset called a satellite, so if we go in there and prove
by simply demonstrating to that satellite company who now has a million subscribers that
they can have five million subscribers on the same exact satellite it completely changes
the financial characteristics of the satellite company. That is what we can do. When you
can do that and demonstrate that, then you have a product that is going to change the
nature of return on investment on Internet delivery or communications delivery. That is
what we do, we prove it, we demo it, we trial it for anyone who wants to and when you
bring those kinds of financial forces to a balance sheet and to a P&L statement, we
will be successful.”
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