DSS Inc (DSS) 2011 Q4 法說會逐字稿

Greetings and welcome to the Document Security Systems 2011 fourth quarter financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Patrick White, Chief Executive Officer for Document Security.

Thank you, and good afternoon. Welcome to the conference call and webcast. Phil Jones, our CFO, is with me, as well as Mike Roy, President of the DSS Digital Division; our Chairman of the Board, Mr. Robert Fagenson; and also the newest addition to our Board of Directors, Mr. John Cronin.

During the call today, we'll review and discuss our 2011 financial results, talk about significant business developments and market conditions, as well as provide an update of our strategy and operations. This webcast will be archived in the investor relations section of our website.

Please note that during the course of this call, we'll be making forward certain forward-looking statements including those regarding revenue recognition matters, results of operations and investments, initiatives and growth strategies. These statements are subject to many assumptions, risks, uncertainties, and changes in circumstances. Any assumptions we offer about future performance represent a single point in time estimate. Actual results may vary materially from those expressed or implied by such statements. We expressly disclaim any obligation to revise or update any assumptions, projections or other forward-looking statements to reflect events or circumstances that may arise after the date of this conference call. For more information about risk factors that may cause actual results to differ from expectations, please see the Company's filings with the SEC, including our latest Form 10-K.

Phil will begin by reviewing our financial results. I will then discuss our outlook and execution on strategy. Phil?

Thank you, Pat. I am Phil Jones, CFO of Document Security Systems. Today we filed our 2011 10-K with the SEC and we also released our earnings in a press release along with our fourth quarter results.

I'm very pleased to report for sales we posted our highest quarterly sales total ever at $4.2 million. This is a 2% increase over our previous best quarter, which was the fourth quarter of 2010, this despite a 27% decrease in printing sales. As we have discussed in previous quarters, we have significantly reduced our reliance on (technical difficulty) as we have right-sized that division to focus on its core strength of security printing for its largest corporate and government customers.

In addition, during the quarter, packaging sales, while strong, were down 7% from the fourth quarter of 2010. This, actually, I believe, is a positive as that division has diversified its sales base to make it less concentrated in the fourth quarter, which will be a benefit going forward.

Our plastics division, on the other hand, continued its extremely strong performance, posting a 45% increase in sales from the fourth quarter of 2010. In addition, digital sales and licensing sales primarily due to the result of the addition of ExtraDev in May of 2011 increased 231% from the fourth quarter of 2010.

More importantly, gross profit increased 8% in the fourth quarter of 2011 as compared to the fourth quarter of 2010 with significant increases in gross profits from both the plastics and digital groups which offset the large decrease in gross profit from the printing division. Once again, commercial printing business was an area of challenge for the Company in 2011, which did offset the strong performances by other divisions. We expect that we have seen the last of this trend as we enter 2012 and believe that the issue in that division has been rectified.

Operating expenses for the fourth quarter of 2011 decreased 13% from the fourth quarter of 2010 despite increases in the number of employees and costs at our digital division. The Company has added significant resources to that division with the addition of programmers and sales management since we acquired it in May of 2011.

Net loss for the fourth quarter was $949,000, a 40% improvement from the fourth quarter of 2010. This reflects the increasing gross profits coupled with a decrease in operating expenses. The Company continues to strive for profitability and have realized significant progress in that area despite the decrease in the performance of our commercial printing group.

In regards to the full-year results, we are very pleased to have ended the year with such a strong fourth quarter which allows for positive year-over-year sales growth, however, albeit small. After being down 9% in sales after the first two quarters of the year, we were able to make up the difference in the third and fourth quarters to end the year flat. But more importantly once again, gross profit for the year increased 13%. So we have been able to replace lower margin revenue with higher value revenue, which was the major push we initiated this year with our sales and marketing efforts. I believe that this is the most important trend established during 2011 which will continue to show in 2012 and beyond.

During 2011, operating expenses for the year increased 1% while net other income expense items turned from a net expense of $688,000 in 2010 to a net income of $115,000 in 2011. As a result, net loss before income tax benefits decreased 26% during the year. Finally, net loss for 2011 decreased 7% compared to 2010 and net loss per share was $0.17 as compared to $0.20 in 2010.

Looking at the balance sheet, we ended 2011 with approximately $718,000 in cash. We had a negative working capital position as we leveraged our balance sheet to meet our operating cash flow needs for the quarter. In addition, during the year we increased our long-term asset base with the acquisition of our packaging division building, which was primarily financed with long-term debt. However, as you may have seen with various 8-Ks that we have released during the first part of 2012, we have significantly improved our balance sheet, especially our working capital position since the December numbers which will be reflected in the first quarter.

As a result, we are strongly positioned for the remainder of 2012 and beyond. With that, I invite you to please review our financial statements that were filed in our 10-K, and in addition, please ask me any questions you may have during the Q&A session at the end of this call.

Thank you, and I will now turn the call over to Pat White.

Thank you, Phil. Before I begin, I would like to respond to the numerous questions posed to me concerning our litigation with Coupons.com.

For those of you who are new to DSS, briefly, DSS filed a lawsuit against Coupons.com, which is a private company that generates billions of consumer product coupons from a website on the Internet. DSS filed the suit in federal court in here Rochester, New York last fall for breach of contract and a trade secret issue. If it makes it that far, the case will be a jury trial. It is DSS' contention that Coupons.com has been utilizing trade secrets they received from DSS under a signed nondisclosure agreement on billions of Internet-generated coupon since 2006.

Based on media reports on Coupons.com's coupon volume, along with our royalty rate, our amount of estimated damages is north of $250 million. This is strictly an estimate and will be confirmed when depositions begin. The amount will likely be material, which would require disclosure by Coupons.com in the risk factors section of any prospectus they may file in an initial public offering which has been predicted by various media.

The other factor is that the next hearing is scheduled on October 9, 2012. DSS has engaged the law firm of Nixon Peabody to represent DSS in this matter. And, finally, it's important to note that Nixon Peabody took the matter nearly entirely on contingency after performing their due diligence.

So that should wrap up the summary for those with questions on this litigation. So now let's begin the formal presentation.

2011 operating performance was generally in line with our expectations. Our successful growth in security printing, packaging, plastic access cards, RFID, and cloud computing was tempered by the continued phaseout of the lower margin commercial print revenue. In 2012 DSS expects improved financial performance with growth in revenues, margins, and cash flow. To accomplish this, we anticipate an increase in our operational budget for research and development, software development, outside consulting, and legal services. The focus will be the expansion of our intellectual property portfolio and the licensing and deployment of the technology in broad, commercial applications.

As we press released earlier this quarter, DSS has contracted with the ipCapital Group to optimize the value of DSS' intellectual property. In addition, we also contracted with the ipCapital Group to assist DSS in marketing its intellectual property to integrators. We expect this relationship to lead to substantial growth in licensable digital technology and patent assets in 2012 and well into the future. It's an important to note that after a review of our patent assets, ipCapital determined, number one, that DSS is an overall leader in patent filings related to core enabling technologies for Document Security; number two, DSS is among the top 20 patent assignees in the document security field; number three, most of DSS' patent portfolio has been filed since 2005, which makes it a young IP portfolio. ipCapital also states that by working with DSS and their IP development program that by the end of 2012 DSS has the potential to become the IP leader in the secure printing space.

Their review also discovered that DSS technology bodes very well for digital applications and ipCapital feels that there is major financial opportunity for DSS technologies in cybersecurity, mobile applications, cloud computing, digital signatures and database security management. To me, this is the key revelation. ipCapital saw the crossover of DSS printing technologies to major digital applications.

Based on their recommendation, DSS has begun focusing on everything digital at this point. As an example, DSS has filed patent applications for mobile devices such as utilizing the Apple iPhone to authenticate documents, labels, and packaging as well as to prevent the iPhone from capturing counterfeit images.

Additionally, we have recently completed a cloud distribution system where we can secure user documents on our servers and remotely print these documents anywhere on the planet.

In total, DSS now has over 125 different technologies in various stages of the patent process, most of which are digital applications. I also think it's worth a mention that the ipCapital Group's managing director and chairman, Mr. John Cronin, took a position on the DSS board of directors. John is on the call, as I mentioned earlier, and will have a few words at the conclusion of my remarks and will answer any questions you may have.

Finally, you should know ipCapital is already working on several revenue licensing opportunities with various billion-dollar companies on DSS' behalf.

I'm also pleased to report that during the first quarter, DSS has experienced an unusual amount of inquiries from major integrators. We think the uptick in this activity stems from increased counterfeiting problems and a December, 2000 federal government bid in which the US government specified and mandated in writing DSS as the sole supplier of one of the DSS technologies to secure the US social security card printing for the next five years. This came as a pleasant but not completely unexpected surprise. We can only assume that the government reviewed the results of the technology on a previous version of the card, validated the benefits, and specified it for the future production runs.

This is highly unusual for the government to sole-source a technology. In the past, this has been done when there is a very serious security issue. I'm happy to say that a DSS licensee was awarded this project. DSS will receive a royalty per card that is significantly higher than previous royalty streams for this product.

As a side note, due to the government specification, the same licensee is now inquiring about licensing additional DSS technologies.

During the first quarter of 2012, the DSS digital division entered into formal negotiations with a major original equipment manufacturer, OEM, that is seeking a license for a digital form of DSS technology. Our technology would reside on a chip that would be installed in secure printing devices. The particular license, the OEM outlined, was for use in 160 different countries, mainly for medical and government uses.

Another opportunity which came to DSS through ipCapital is with a large cloud computing subsidiary of a major global corporation that is seeking DSS data security software technology. This particular client seeks to distribute the technology from its cloud to apply security to all forms of data, especially government and medical data.

Also, I'm pleased to inform you that our digital division has completed and made available the first-ever cloud-produced, variable secure document, or VSD, as we call it. Briefly, DSS now has the ability to protect variable information for printing in remote locations and around the globe from our cloud computing servers. This is not, I repeat, not, in a testing or development situation. The software product is finished and being marketed today by DSS. We now have the ability to produce variable secure documents over the Internet that contain counterfeiting production, have the ability to be authenticated as well as protect the data from compromise.

As an example of our marketing efforts, DSS has submitted proposals to multiple countries who sought us out for cloud security applications such as secure Visas, gasoline rationing coupons, traditional retail coupons, and the much-publicized SAT examinee authentication. In addition, we have added new cloud clients, including disaster recovery for a large Washington DC-based computing firm, which focuses on the legal industry.

Finally, I think it's important to note that DSS Digital sells business continuity backup utilizing our three remote secure data centers. This service is available to clients of any size.

Turning now to our relationship with Eastman Kodak. I can safely say that since their bankruptcy, our relationship with them has only grown stronger. Approximately two weeks ago, we signed a new reseller agreement with them and that strictly between DSS and Kodak. Our previous contract had a third party centered in the relationship which is no longer the case. We now work directly with Kodak in all matters without an intermediary.

In working and speaking with Kodak management, I can tell you that brand protection remains an important part of Kodak's plan of resurgence once the bankruptcy is behind them. Kodak is now protecting over $10 billion in brand owner products worldwide with their track and trace system. Now, I'm not here to give a report on Kodak, but this information lays the foundation that Kodak's private branding of DSS technologies is a huge win for the Company and our shareholders.

Their sales team all around the world is being trained in selling DSS technologies along with their own applications. Just last week, Kodak included DSS technologies in a proposal to a large consumer product company for label security. The revenue potential for DS are 100% gross margins, and it would be an ongoing mid-six-figure revenue stream. This is just one example of the opportunities that lay ahead with Kodak which drives growth and profits at DSS.

Kodak has also recently invited DSS personnel to join them in their booth at Drupa. Drupa is the largest print trade show on the planet. It's held every two years. At the show, Kodak will be promoting their private branded form of DSS digital security technology as produced on their digital press, the NexPress. DSS personnel will be on hand to meet and greet attendees as well as answer technical questions. Our technologies will be loaded on the press in digital format and will provide the NexPress with the ability to produce counterfeit-protected secure documents, labels and packages that can be easily authenticated.

On top of that, DSS has been invited to partake in a Drupa panel session at the show, sponsored by Kodak. DSS will be one of four panelists made up of brand protection experts to answer the audience's questions on the subject. For those who are interested, the Drupa show takes place May 3 through May 16 of this year in Dusseldorf, Germany.

Finally, I don't know if you were aware of this, but during the fourth quarter, Kodak and DSS secured a high-end wine label in China where counterfeits in the wine industry are booming. This project is ongoing and from what we hear the technology was a huge hit with the Chinese wine bottlers. More importantly, this project is a great example as to the value-add of DSS technologies. This is an example of a Chinese brand owner that selected Kodak private branded DSS technologies to protect its product in one of the most notoriously counterfeited countries in the world.

I'm also pleased to inform you that our packaging division has had a rise in sales this quarter as it began making the packaging for the Kogeto Dot camera attachment for the Apple iPhone. By the way, Kogeto Dot camera is now in Apple stores and we have received reorders in the first quarter. Also, I heard today that we are getting our first order for the European introduction of the product for Apple.

Speaking of Apple, our plastics RFID division, which is now performing strongly, reports that Apple continues to give DSS orders for secure access control products. This work has been recurring and continuously growing. Our business development people are happy since this work is allowing DSS to get face time as well as build our relationships with key Apple buyers.

The DSS plastics RFID division will be busy in 2012 as it reports that it has secured the Super Bowl credentials again this year and we are sending our DSS RFID team to Australia this month to begin work on a hospital RFID tracking project. They also have orders for a foreign country's correctional facility project as well as orders from state-run casinos for player cards. And just on Friday of last week, the DSS plastics division was granted a driver's license project for a small European country.

One last thing you may find interesting is that sometime this year, you may be walking down the breakfast cereal aisle at your local grocery store and notice that on the front panel of a popular cereal brand, you will see an image appearing then moving and changing as you walk by the box. That would be a US patented DSS technology you are looking at. Our packaging division has been contracted to work with a major brand owner to manufacture cereal box samples that incorporate a DSS optical technology used for this eye-catching marketing purpose. It really is a first of its kind, which is something the brand owners' marketing people cherish. The first print test samples will be produced this week.

By the way, this packaging project is 100% gross margin and mid-six-figure royalties are earned by DSS every time it's run. Hopefully once it is seen publicly, there is a possibility it takes off as a marketing tool for other brand owners outside of the breakfast cereal industry and DSS will reap the large potential financial benefits.

That concludes my comments. I hope you understand the picture that I have drawn here today. 2012 is the year everything changes for DSS with over 20 potential new licensing royalty agreements pending with the ipCapital Group, the signing and enhancing the intellectual property portfolio, potential strategic mergers, the new cloud initiative, Kodak selling our technologies around the world -- it goes on and on. What I have described is the new DSS.

I'll now turn it over to our newest member of the board, Mr. John Cronin, who will give you his thoughts on our strategy and opportunities and then he'll turn it over to our Chairman, Robert Fagenson, for some closing remarks, followed by questions. John?

Thank you, Patrick, and I am proud to be a new board member of DSS. My specialty is in intellectual properties and intellectual properties strategy, and what my company, ipCapital Group does, is to try to bring to companies the ability to have big company thinking at a small company.

If I look at Document Security, I was clearly amazed when I took my first look at the company, of its intellectual property portfolio that was actually started, I believe, in 1993, and has developed a number of patents in certain areas of document security.

Prior to my being become involved in document security, I have become aware of many of the issues regarding security in cloud computing. I have a number of companies that I work with whereby the security in the cloud is really important from understanding how images are moved, documents are moved, how software is applied. And I became aware that Document Security Systems have the ability to (technical difficulty) security of documents in the cloud.

When I took a look at where Document Security Systems was headed, I recognized because they had a cloud computing aspect to their technology, that they were uniquely situated to not only take their base document security system, but also leverage their knowledge of cloud computing and combine those two in such a way -- to have a business in cloud computing for document security.

So I knew that there was a real future for Document Security Systems, and what I hope that ipCapital itself then brings to Document Security is the ability to really create a lot of intellectual property in the area of the application of DSS into the cloud. And I'll give you some examples of that in a moment.

So, currently, we are contracted to consulting practice to help get more patents created for Document Security Systems, I think within a year's time maybe 60 to 70 of them. We've held certain initial brainstorming meetings already and found that even in one brainstorming session of eight hours we had many, many dozens, if not 100 potential ideas that we could leverage in the future.

Let's just talk for a minute about how one could leverage Document Security in the cloud. One of the things that Document Security Systems has is algorithms that basically allow you to print on images. When you look at the image, you can't really see what they print, but when an optical scanner or copier sees it, it will see that information and basically print or display what -- the information you have hidden on the document. I liken it to National Treasure, the movie, when they are looking at the Constitution on the back for the secret map they can't see anything. But when they put the blue lens over -- Benjamin Franklin's glasses over, they can see one image. When they put the red over, they could see another image; then when they combine the blue and the red, they can see yet a third image.

Even though Document Security Systems is not an invisible ink, it is like this technology that only certain -- that you can print things or image things on certain images, and when technology of scanners looks at it, they can see things that you can't see.

If you take that and say that that's really a software application that creates that, it creates secret algorithms, that what you'd like to do in the future is to be able to decide whether or not you want to print those images on a document or not.

Well, 10 years ago when you printed a document, you connected your computer to a printer almost directly or hardwired it. Today, what you do is you do it to the LAN or local area network. Everybody knows that their printer is somewhere in the building, but they'll print through a printer server driver to the printer. And then if you want to copy it, you do the same; you go to the copier and copy it.

With cloud computing, the ability to send information up to a local area network, it can also then be put into the cloud so that Document Security Systems' technology could actually work in the cloud itself. That is, I can define if I want a secure printing and I can define in that secure printing, what algorithms I want to use. So I print into the cloud and then the cloud determines what to print back on the local device.

So I saw this opportunity as a pretty significant one that all documents could be secured into the cloud and also take advantage of the leverage of these software trade secret algorithms could be even further and from everyone rather than just giving it to a vendor that could actually take information and print it on their own systems.

Now first of all, I saw that there was a whole range of things that could be done with Document Security Systems' technology. As you probably know by listening to some of these calls in the past, they have different divisions of -- Document Security Systems has different divisions. And I recognized by combining the cloud computing group with the document security group that we could move it up into the cloud.

If you look at all the different authenticated devices from -- everything from bar code readers to cameras to scan and copiers to digital readers to OCR, DSS plays a role in all of these, because we can add our technology in front of these devices. So it's not just about scanners, it's about barcode readers, it's about optical lens filtration, it's about digital readers, et cetera.

So there's more to it than just the cloud. As a for instance, I was really impressed when I saw the technology that allows them to print their technology on bar codes so that you can't see that the code is there but a device can pick up whether or not that barcode has been copied. I think as we are all aware in theft of products that not only the product is copied but the packaging of the product is copied and then sold as if it is the original owner of the product. So this technology could find its way into really the huge business of -- where products are stolen and copied.

So it's not just the cloud in the enterprise and it's not just RFID or optical or OCR, it's real stuff that's at the level of packaging for products that are being sold.

So recently, as Patrick mentioned, I had the opportunity to a relationship, and the reason why I joined as a board member is not only could my company ipCapital assist in the strategy, but as a board member I might be able to do more valuable things for the company as well, like for instance, introduce it to the relationships that I have through my 15 years experience in working with technology companies. So recently I introduced DSS to a very large company that is developing a private cloud solution. And I took them through a DSS presentation of our technology, and I think the quote/unquote words was, this is absolutely amazing; this is what we've been looking for, end quote.

So just by litmus testing just in one instance this technology into the cloud as I foresaw it, I was really happy that experts in the private cloud or in cloud enterprises actually, saw it as well. So it verified to me that we are on the right track.

Recently, as we mentioned, where -- another reason why joined the board is I thought at a higher level I could assist DSS in helping negotiate rather large licensing deals or transactions and recently in working with Patrick and his team to actually coordinate a model that allows us to essentially use our technology and get very interesting and novel licenses with these large companies. And so we've just completed that model. We have it into Patrick actually this week, and we will be able to, I believe, create for DSS a licensing model that allows us to base the licenses on, say, the number of printers sold or the number of copiers sold, et cetera rather than on the software itself. So I hope to help DSS negotiate that.

So to summarize, I was -- prior to getting to Document Security Systems, I was very aware of the current technology and the need for security. And when I found DSS, I recognized that they had those two combination of raw skills; that is, cloud computing and document security. I recognize that we might be able to create a strategy for more intellectual property across the landscape thinking that maybe this group had a lot of pent-up intellectual property and finding out at just in one meeting we found literally hundreds of potential ideas.

Third, I recognized that I could test out very quickly to see if these ideas made sense to real companies, and they do. So I joined the board with the idea that I could bring both the company, ipCapital Group, and make sure that gets managed correctly to create more patents, but do it very strategically in its landscape to leverage its business.

So with that, I'll conclude my comments and turn it over to Robert.

Thank you, John. I'm traveling, I apologize, everyone, in case the call gets dropped. Can you all hear me?

Yes, we can hear you, Robert.

Great. I think for those of you who have been investors in Document Security for a long time, you understand that perhaps the most frustrating element of the Company's growth and progress over the years has been the fact that we've never seemed able to adequately unleash the tremendous value we felt we had in our intellectual property and the broad possible uses that the industry could have if we ever got discovered to the point where we had more distribution as a result of a much broader revenue stream.

I think you can see that we've adjusted the strategic focus of the Company towards the practical way of realizing that dream and making it realizable in the near future. Bringing John on board, not only through his company but through his representation on the board and direct hands-on involvement with management in the company, I think is adding a different aspect that is both exciting and potentially extremely rewarding for this Company, and finally presents for us bridging the strategic gap between having things that we felt were of extreme value and releasing that value into the marketplace. Because when all is said and done, each of us is here to see the value of our Company's shares increase, and that means increased revenue, and finally, increased margins and profits.

So I am extremely pleased that it appears the strategic change we have made is now actually not only part of the fabric of Document Security, but is starting to work.

The printing division has been a drag, but management has moved aggressively not only to fix that problem, but also to expand the operating capabilities and margins of our other divisions, which are performing well and picking up the slack. With the additional punch that I believe and truly hope that we're going to see in the near future with John's involvement -- and this is not theoretical, but actual involvement -- I really believe that the promise that we've all felt was buried in DSS for all these years is now within reach. So I will turn the call back to Pat for the question-and-answer session, and unless I get dropped off the call, I would be happy to participate.

Thank you very much, Robert and John, and we'll now open it up to questions, operator.

(Operator Instructions). Sandy Wyman, Gilford Securities.

Yes, thank you, and thank you, John, for joining us. I've had the pleasure of, obviously, speaking with you in the past concerning VirnetX and what you helped us do in terms of raising money there. Quite frankly, I've been waiting for quite some time to see Document Security's finally monetizing some of this technology, and I look forward to it.

I guess this would be for Robert or Patrick. In the last couple of conference calls, you've talked about the possibility of spinning off the printing division. But I gather now that we're very close, there probably won't be a need of that. That's number one.

And then number two, sometimes in the past, we've been able to come up with a magic formula as to sales to the point in time where we're at least cash flow positive or earnings positive. And I'm wondering if you could address that one as well.

Sandy, this is Phil Jones, and I can log in on the first question.

So, clearly, as the printing group, and especially the commercial printing group -- it deteriorated a little beyond what we had expected when we acquired that group, and divesting that group was an option. However, our ability to generate client relationships with large Fortune 1000-type companies with our security printing really is the cornerstone of that group. So what we have done is we believe we have right-sized that group to really focus on its core -- the core strength that we bring to it, which is in security printing, which really allows us to open the door to many types of clients like we've mentioned in the past. Secure couponing is an area where we've gained interest to very large Fortune 1000-type customers. So we don't want to lose that capability.

And our goal with the printing group was to right-size it so it does not become a drag with the obvious intentions of making that a profitable division. But I don't believe at this point in time divesting it would make sense for the group.

Yes, just as an add-on, we are looking at strategic structures which are always possible that we could do something with that division, other than what -- where it sits today.

Could you sub-contract out anything or sublease it?

Yes, there's a lot of different opportunities, but we need to vet out some of the strategies we're working with John and what would be the best format for the Company's structure going forward. So that's part of the analysis that we are involved in and we will be disseminating that information as we make some decisions.

Sandy, we're already subcontracting out some work where we find that the margin mix in the printing business leaves it more beneficial for us to not run an extra shift and do that work, but to subcontract it out as we are driving the printing division to be self-sustaining. And in terms of the other part of the question, it's finally sneaking up on us. So I mean the dreams and hopes that we have had for having the Company move from the red into the black --

Well, obviously, a lot depends upon on the licensing front, what percentage of sales that is because of the obvious much greater gross margins and so forth. But in the past we've always figured if the Company got to X number in sales then we'd finally be profitable. I presume just on the back of the envelope, you've got some projections in terms of certain assumptions when we could start to see something other than red ink.

Obviously, from a point of view of moving the margin mix in the right direction, you are 100% right. That's where we get away from the grind that we were going to in terms of trying to achieve that on an operating basis from strictly operating divisions rather than the licensing. And as the mix moves, as it's starting to, that job becomes a lot more easy to achieve and more readily in hand. In terms of zeroing in on it, I've been disappointed before, so I'm not going to do that other than to say the needle continues to move in the right direction. So the proof of the pudding is finally in the eating. And let's see how we do the next couple of quarters.

Great.

There are some very large licensing deals out there, much larger than we've ever had in the past.

Great.

Yes, but our problem has been that they've been out there and we haven't been able to land them. It looks like our probabilities are finally turning in our favor.

Well, that's wonderful. Thank you very much.

Okay.

Howard [Ize], private investor.

-- you want to enhance your relationship with the stockholders, because it seems like you're not getting the notoriety that was desired and that would be appreciated by seeing things in print and enhancing the price of your stock.

Hi, Howard, how are you?

I'm fine.

Howard, the issue is this and it's a delicate balance and I hope you can appreciate it and be a little bit patient with us. We've had so many disappointments in the past and so many promises that haven't come to fruition, that we are a little bit gun shy now. As I say, as the needle starts to move in the right direction, perhaps we're a bit more conservative and a bit more tight-lipped than we ought to be until we actually can show it at the bottom line because the proof of the pudding for us is the bottom line and everything else is just conversation.

So I just say, please bear with us and understand that if we're a bit reticent to come out and say things that we absolutely can't 100% know are going to show through in our income statement, that we're just -- based on past disappointments, we're a bit more conservative than maybe a small company of our size would normally be. And we are making sure that we are not out there with hype, but more with substance.

So please bear with us. We hope that two quarters from now things will be visible enough that we won't have to be as conservative in our comments as we are.

Okay, thank you very much.

[Ben Beano], private investor.

I have been an investor in this Company for approximately five years. Been following the Company from when the stock was $12 until the stock went down to $1.30, throughout all the swings. I've noticed obviously, the Company has changed course in what their plan was originally to do, to what the plan is to do today. One of my questions is why five years ago when I think the Company was probably 10% of what it was, the stock was at $12 -- today, that the Company sounds like it's got -- it has everything. The stock fluctuates anywhere from between $3 to $5 on sometimes heavy volumes; sometimes not; sometimes (inaudible) a [one day bingo], stock, is down $1; it's up $1. That is one of my questions.

Ben, there was an entire group of investors who believed that we were going to have a tremendous success in our lawsuits against the European monetary authority in terms of defense of our patents and infringement. And as a result, people who are doing extrapolations on what they've felt the Company would garner if we were even moderately successful in those suits and the numbers were staggering. That proved to be an incorrect assumption. And as a result, the Company has gone through almost a complete change of its shareholder base. And a lot of people who unfortunately paid high prices have left. And the Company is now based more on in terms of what it's doing than what is out there in terms of expectations and extrapolations of what might happen if we had a supposed windfall.

So I think we are more rationally based in terms of both expectations and valuations now. And I think that is in large part what has happened. There has been over the years periods of tremendous illiquidity and tremendous liquidity, and they are tremendously uneven. And it is very hard to explain one day to the next what is causing the stock's volume and what it's causing the stock's price movement.

But in terms of the last three or four months, I think the increased volume and increased liquidity has become much more regular, and I think that's very heartening, and as a significant shareholder, we see that I think as our shareholder base turns over, the valuations and the volume are based model more on rational expectations and progress at the Company in terms of growth in many areas.

So, as I say, I hope that 2012 shows real progress in all those areas and we'll be looking at a stock price that is more easily rationalized and more easily understood as we approach the end of this year.

Okay, thanks, I have one more question. The Company obviously has a tremendous amount of potential, has done, like you said, Document Security has done with the Super Bowl and they've done with Social Security cards, and Apple and there is a tremendous amount of things going on.

How come the Company can't come out and make a formal announcement that this is what is going on, guys? Give the shareholders and give everyone else out there who are either shorting the stock or doing whatever it is, to show them where you guys are really at as opposed to just saying here on the conference call -- come out with a formal announcement saying everything the way it is?

More often than not, when we're dealing with the larger companies and the government entities, we're not permitted to publicly come out and announce that during the period of [tendency] in the contract. And what we've had in the past is every time annually as we had announced with greater regularity, a lot of these breakthroughs, our competitors would move in and try and steal the contracts from us. And at times, even our own licensees were successful in siphoning off the customer that we announce. So we became very gun shy.

And where something is going to have a material impact, we work as hard as we can to be allowed to make an announcement. Unfortunately, larger companies, when they are dealing with us and they are paying us for the service, they control, particularly if they are public entities. So we have to dance to their music. But it would appear in the months ahead, we may be in a position to be able to talk more about it.

But it's certainly not a lack of willingness on our part to share with our shareholders and the investment community our success. If ever we don't say something, it's because we're being constrained by our customer or we're afraid that a contract or a license is in a state of such jeopardy that if we were to publicize it we would risk losing it.

So let's hope we find ourselves on a much stronger footing over the balance of this year where we don't have to have those worries and we can, in fact, announce things on a more timely basis and get our customers to allow us to. So it's our hope. Trust me; we would love to be out there. We just don't want to appear to be a Company that is hyping. And we certainly don't want to have our customers looking at us cross-eyed and canceling business with us because we have spoken out of turn.

So just, please, be understanding.

Okay, thank you.

Thank you. We have no further questions at this time. I'd like to turn the floor back over to management for closing remarks.

Well, I'd like to thank everybody for joining us today and we look forward to speaking with you in the future.

And if you have questions, please don't be shy about calling us. We're happy to speak with you within the confines of obviously, a public company's dissemination and the rules and laws of the SEC on fair disclosure. But don't be shy, and we hope that in the months and quarters ahead, we'll have more and more to share with you on a positive nature.

I thank the management team for all the good work that they are doing, and I welcome John as a valuable new member of our team. And I couldn't be happier to say that the progress we've made in the last quarter feels like it's finally built us the type of momentum that we've been looking for all along.

So thank you all for your patience and sticking with us.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.