Safeguard Scientifics Inc (SFE) 2004 Q4 法說會逐字稿

Good morning. My name is Sonny and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Safeguard Scientifics fourth quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers; remarks, there will be a question and answer period. (Operator Instructions). Thank you. Ms. Janine Dusossoit, you may begin your conference.

Thank you, operator, and good morning. Thank you for joining us today for a review of Safeguard's fourth quarter and full year 2004 results. I am here with Tony Craig, our President and Chris Davis, Executive Vice President and Chief Administrative and Financial Officer. As shown on slide 2, Tony will share some of the highlights of Safeguard activities since we spoke with you in October and he will give you an update on activities at our Company. Chris will provide details on Safeguard's financial results for the fourth quarter and full year and then Bob will have some brief remarks and finally as usual, we will take your questions.

Before we begin, I want to caution you concerning reliance on forward-looking statements as shown on slide 3. In the course of today's conference call, we will use words such as expect, anticipate, believe, intend when referring to our goals or events in the future. We cannot be certain that the final outcomes will be as we describe today. In Safeguard's filings with the SEC, we describe the risks and uncertainties associated with managing and we encourage you to read this language in our filings. And now I would like to turn it over to Tony Craig.

Good morning. We are very pleased with the progress made by our companies in the fourth quarter of 2004. Each company posted quarterly revenue growth and we're seeing good momentum. On slide 4, you can see some overall highlights of Safeguard's fourth quarter. We sold our position in CompuCom Systems on October 1 and reviewed that sale extensively in our third quarter call in late October, so today I will just review that at a high level.

We received $128 million in gross cash proceeds. We used 55 million of the proceeds to retire the balance of our 5 percent notes which we were due in 2006. We used $16.7 million to escrow interest payments on our 2.625 percent debentures through March 2009 and we used the remaining cash to strengthen our balance sheet.

In December, we completed the acquisition of Laureate Pharma, a privately held bioprocessing services firm, for $29.5 million. This is a classic example of a time to volume company and we're very excited about their prospects for growth. They're well positioned in the bioprocessing outsourcing market, which according to industry sources, is growing at 20 percent per year. I will give a little more detail on Laureate in a few minutes.

We spent significant time in the fourth quarter working with our companies to help them achieve their financial and operating objectives, and as I mentioned, the consolidated companies all reported increased revenues in the fourth quarter compared to the third. Let's take a brief look at each of them.

On slide 5 is Alliance Consulting. Alliance provides custom software solutions and IT consulting services to Fortune 2000 clients. Alliance offers thought leadership, methodologies and high-volume offerings in the area of master data management, data warehousing and business intelligence. It has a proven track record of solving the pressing data management problems which are at the core of most of its clients key IT initiatives and it is developing repeatable solutions to drive margins in doing so. In the fourth quarter, Alliance reported $24 million in revenues, a 9 percent increase over the prior year's fourth quarter and an 11 percent jump from the 2004 third quarter. For the full year, they reported revenues of 93 million versus 88 million in 2003. Our share of Alliance's pretax loss in 2004 was 5.3 compared to the loss of 18.6 million in 2003. Included in the 2003 loss was a $16 million impairment charge. But looking at the 2004 results, you will recall that we discussed in previous calls the investments Alliance has made during 2004 in new members of its executive tame, in building its offshore capabilities and in restructuring charges which adversely affected their 2004 results, but which position the Company well for the future. Alliance's expertise in life sciences, financial services and manufacturing and distribution and draws on the skills of more than 600 consultants and independent contractors with deep domain knowledge. They use a flexible engagement approach that allows clients to optimize the return on IT spending, whether by supplementing internal client teams with domain experts or by fully outsourcing projects on-site, off-site or offshore. Alliance is focused on developing longer-term recurring revenue client relationships, especially through the outsourcing of application maintenance and support that provide tangible cost savings and service level improvements. In the fourth quarter, we helped Alliance finalize the acquisition of Mensa Mind (ph), a software development and consulting firm based in Hiderabad (ph), India. Now named Alliance India, this is the backbone of its own on-site offshore global delivery model which allows it to blend in the right amount of lower cost resources to ensure optimum price performance without losing the on-site domain expertise and relationship required for engagement success.

The IT services market remains mixed in the fourth quarter and may be starting to show some signs of strengthening. Industry analysts are predicting 5 to 7 percent growth in 2005. Having realigned its field management and solutions salesforce in the second half of 2004, Alliance is succeeding in gaining new business. They won multiyear contracts during the fourth quarter, especially satisfying wins, as they were up against major competitors. Looking ahead, Alliance is targeting above-market topline growth for 2005 and its goal is to achieve positive cash flow by year end.

Now let's look at ChromaVision Medical Systems on slide 6. ChromaVision is a leading provider of specialized diagnostics and laboratory services and technologies in both clinical and drug development applications. Its automated cellular imaging system is a sophisticated diagnostic tool that combines an automated microscope and digital camera with computer-based color imaging technology to provide highly accurate images used by clinicians and researchers in cell-based analysis. During 2004, ChromaVision completed an extensive re-evaluation of its business strategy. They have broadened their offerings well beyond the selling their ASIS (ph) cancer diagnostic equipment. After successfully launching their new lab service business in Q2 last year, they received in November the license to operate as a full-service cancer diagnostic laboratory. Revenue from the state-of-the-art laboratory have been ramping up and in the fourth quarter, reached $1.3 million.

CSDN, a public company in which Safeguard holds a 50 percent interest, reported its fourth quarter and full year results on February 24. They reported fourth quarter revenues of 2.9 million, up from 2.6 million in Q3, but a slight decline from 3.1 million a year ago. For the full year, ChromaVision reported revenues of 9.8 million compared to 11.9 in 2003. In its release, the Company cited the significant decline in Medicare reimbursement rates in 2004 versus 2003 as the primary factor. Those declines which were anticipated were a factor in ChromaVision redirecting its strategy. The Medicare reimbursement rates on image tests for breast cancer, however, increased by 20 percent beginning January 1, 2005. So that's good news for ChromaVision.

Looking head, the Company also said in its release that it anticipates its operating loss and use of cash should decline in the coming quarters due to the completion of the principal capital investments in the new laboratory and the growing revenues from that operation. Reflecting their new strategy and direction, ChromaVision recently announced it will change its name effective March 15 to Clariant Inc. and its ticker symbol to CLRT. The new name is designed to better reflect their expanded service offering in a way that shows the Company's deep commitment to the cancer diagnostics marketplace. We think this is an exciting time for the Company and we look forward to helping them progress further in 2005. For more information on ChromaVision, soon-to-be Clariant and their expanded services, please visit their Web site at www.clariantinc.com.

Let's look at Mantas on slide 7. Mantis is a leading provider of sophisticated analytic applications that address risk management, fraud detection and operation analysis, including anti-money laundering and trading compliance issues. This technology is used by some of the best-known names in the financial services and telecom industry worldwide. Mantas' proprietary behavior detection platform can analyze billions of accounts and transactions all in the context of one another in order to identify suspicious activity that needs further review. In the fourth quarter of 2004, Mantas reported record revenues of 8.8 million, up 47 percent from 6 million in Q3 and up 22 percent from 7.2 million in the fourth quarter of 2003. Mantas' operating loss narrowed considerably in the fourth quarter of 2004 to $200,000, compared with a loss of 4.8 million in the prior year quarter. While we believe Mantas will continue to grow and report improved results of operations, we do want to remind you that it is still a young company and has lumpy revenue recognition from quarter to quarter.

During the fourth quarter, Mantas signed multiple deals to provide its anti-money launching and compliance projects to major financial service firms both in the U.S. and Europe. We also won a contract to provide their Best Value routing product to a major telecoms customer. For the full year, revenue of Mantas increased 11 percent to 26 million from 23 million in 2003 and with the continued focus of regulators on the financial service industry, sales of Mantas products and service to banks and brokerage services have been strong. Mantas recognizes revenue from software licenses, post-contract customer support and related consulting. The business has a long sales cycle, plus a long revenue recognition cycle. Therefore, backlog is one way to measure Mantas' progress in the marketplace. At the end of December 2004, Mantas' backlog was 40 million compared to 33 million in September and far above the 28 million at December of 2003. They continue to reinforce their strong positioning in the marketplace and for the second consecutive year have been named Best Compliance Company by Waters Financial Technology.

Looking ahead to 2005, Mantas will focus on driving revenue growth, improving the mix of license versus services and developing next-generation products. In fact in January, they launched two new products that broadened the affectability of their compliance solutions. Mantas Advanced enables the integration of all compliance data, information, risk management and document management systems into a single compliance dashboard. Mantas Select enables customers to choose behavioral detection scenarios from across all of Mantas' compliance and operational risk management solution sets, including anti-money laundering, trading compliance and broker compliance.

Turning to slide 8, Pacific Title and Art Studio, a leader in feature film post-production services in Hollywood, rebounded from a soft third quarter and reported revenues in the fourth quarter of $6.1 million, up 33 percent from the third quarter of 2004. In comparing quarterly revenues year-over-year, it's important to note that in 2003, a threatened labor dispute in Hollywood caused the industry to shift their production schedules and resulted in an abnormally high fourth quarter rate of activity and a higher rate of revenue for Pacific Title in the fourth quarter of 2003. The revenues in the fourth quarter of 2004 were 10 percent less than that. Pacific Title's full year 2004 revenues were 25.6 million; that was 19 percent lower than 2003, but in 2003, that number included 4.5 million in sales of large format projector systems which they no longer sell and is a discontinued line.

Pacific Title has been investing to expand its services for future growth as Hollywood moves to digital format. Pacific Title now provides enhanced editing, color correction and special effects and has over 200 terabytes of storage to complement their SGI supercomputers. They've also developed a technologically advanced film restoration and digital film archiving solution which is getting good market reception, although in the short term, the associate startup costs have affected operating results. Looking into the first quarter of 2005, the pace of business appears to have picked up as evidenced by new post-production business booked in the last several weeks as Hollywood begins gearing up for its summer releases.

Turning to slide 9, in December, we completed the acquisition of Laureate Pharma for 29.5 million. Laureate is a bioprocessing in drug delivery services company that operates two facilities in New Jersey and employs about 70 people. Laureate is a perfect example of a time to volume stage company. Its Q4 revenues were approximately $2.1 million. Since the business was part of a larger company which did not track Laureate Pharma's results separately, we do not have prior quarterly information. Total revenues in 2004 were $10.3 million and going forward, we will provide quarterly results. It is a strong competitor in a large and rapidly growing sector of the biopharmaceutical industry. According to industry research, the biopharmaceutical services market in North America is projected to grow at 20 percent per year, reaching 2.6 billion in 2006. Based on the number of potential clinical phased projects typically conducted in North America each year, we believe Laureate Pharma's addressable market is about $600 million. It is ideally positioned to capitalize on the trend toward outsourcing by biotech firms needing fast, high-quality production of their pharmaceutical products as they go through clinical trials.

In 2005, as Laureate Pharma ramps up its sales and marketing efforts to utilize existing production capacity, we will be lending significant support to the Company, including a seasoned marketing executive who knows the biopharma market well.

Briefly, our less than majority owned companies also have been achieving milestones, particularly NexTone Communications, which recently announced a new customer for its multiprotocol session controller and introduced the latest version of its iVIEW management system that allows carriers to track interconnect costs.

Let me now turn the call over to Chris Davis, our Chief Financial Officer, who will provide more detail on the financials of the fourth quarter and the full year 2004.

Thank you, Tony, and good morning. As you can see on slide 10, I'm going to update you on Safeguard's Q4 and full-year 2004 consolidated results, our parent company balance sheet and parent company cash, Safeguard's carrying values and current market values, and finally, an update on Sarbanes-Oxley.

Before I begin the financial review, I want to remind you of two changes in the presentation of Safeguard's financial statements as noted on slide 11. Results for CompuCom are shown as discontinued operations for all periods presented. Since the transaction closed on October 1, 2004, the gain on the sale of CompuCom of approximately $1.8 billion was recorded in the fourth quarter as part of discontinued operations. Over the last three years, CompuCom represented approximately 90 percent of our consolidated revenues. The sale of our interest in CompuCom prompted us to reexamine our operating segments in accordance with FAS 131. We now report four of our consolidated companies as separate segments for 2004, that is Alliance Consulting, ChromaVision, Mantas and Pacific Title and Arts Studio. Laureate Pharma, which we acquired in December of 2004, will be reported as a separate segment beginning in the first quarter of 2005. For the fourth quarter of 2004, it is included in other companies on our segment reporting. The results of operations of companies in which Safeguard has less than a majority interest as well as our ownership in funds are also reported in the other companies' segment. All prior periods have been reclassified to reflect this new segment reporting. We believe that this change in our segment reporting provides additional clarity on Safeguard and our consolidated companies. In fact, our Form 10-K report, which will be filed with the SEC next week, will provide expanded information about each company and its market which we hope you will find useful. Now to our operating results.

As shown on slide 12, Safeguard reported consolidated revenues from continuing operations of $42.9 million for the fourth quarter of 2004 versus $42.5 million for the same period in 2003. The increase was primarily a result of revenue increases at Alliance and Mantas and the inclusion of Laureate Pharma, partially offset by declines in Pacific Title and ChromaVision. In addition, the prior year quarter included $3 million of revenues at Tangram Solutions, which was sold in February of 2004. The fourth quarter of 2004 also included $900,000 of revenues from Laureate Pharma. For the fourth quarter of 2004, we reported a consolidated net loss from continuing operations of $20.4 million. This compares to a net loss from continuing operations of 35.5 million in the fourth quarter of 2003. The improved results are primarily due to a decline of $16 million in impairment charges. In 2003, they were 23.1 million and in 2004, they were 7.1 million. Impairment charges in 2004 included $3.4 million related to a loan made to our former, Chairman in Mr. Musser, and $3.7 billion related to the value of two private equity funds in which Safeguard is a partner.

Net loss in the fourth quarter of 2004 was 18.6 million, or 15 cents per share, compared with a net loss of 32.9 million, or 28 cents per share in the fourth quarter of 2003. Income from discontinued operations of 1.8 million in 2004 represents the gain recorded on the sale of CompuCom in the fourth quarter. For the full year ended December 31, 2004 as shown on slide 13, Safeguard's consolidated revenues from continuing operations were $156.7 million compared to $167.4 million in the prior year period. The decrease was primarily a result of decreased revenue at Pacific Title and ChromaVision, partially offset by increases at Alliance and Mantas as well as the inclusion of Laureate Pharma. The largest contributor to the year-over-year decline is the net change of $9.3 billion in revenue related to Tangram, which we sold in February of 2004.

Net loss from continuing operations for the full year ended December 31, 2004 was $35 million, compared to a loss from continuing operations of 41.3 million in the prior year. The improved results are due to the following -- impairment charges declined by $15.6 million from 25.9 million in 2003 to 10.3 million in 2004. Our general and administrative costs declined by $2.3 million and our interest expense declined by $2.5 million, primarily because of the cost savings related to the refinancing in February 2004 of our 2006 convertible notes. Partially offsetting these improvements was a decline of 8.3 million in other net gains on sales from 50.5 million in 2003 to 42.2 million in 2004. Included in 2004 is a gain of $31.7 million on the sale of Sanchez and an $8.5 million gain on the sale of Tangram.

Net loss for the full year 2004 was 54.8 million or 46 cents per share compared to a net loss of 33.3 million or 30 cents per share in 2003. In 2004, discontinued operations related to CompuCom accounted for a loss of $19.8 million compared to income of $8 million a year ago. The 2004 loss from discontinued operations included $28.7 million of impairment charges net of minority interest related to CompuCom.

We know many of you are focused on Safeguard's general and administrative expenses, so let me just add here that in 2004, our G&A expense budget was $19 million and our actual G&A expenses were $17 billion. For 2005, our G&A expense budget is $18 million.

As you can see on slide 14, we have provided results of operations by segment for the three months ended December 31, 2004 versus the three months ended September 30, 2004. You will notice in our segment reporting format that we present each consolidated companies' revenues in the first column and their total operating income or loss in the second column. In the third column, we present Safeguard's share of the pretax income or loss after any minority interest adjustments. Each column is net of any inner-company transactions.

Alliance reported $24.1 million in fourth quarter revenues versus 21.7 million in Q3. The increase is primarily attributable to a large private management contract in Q4 and to a lesser degree, to an increase in pass-through revenue items. Alliance's operating loss was $200,000 less in the fourth quarter despite a onetime charge of $400,000 relating to the terminating their office lease on the Philadelphia headquarters. ChromaVision's revenues in the fourth quarter were $2.9 million, a $300,000 increase over Q3 2004. This increase is primarily attributable to revenue recognized from the new lab services business, offset by a decrease in the older system sales as only one system was sold in Q4 versus two in Q3. Their fourth quarter operating loss was related to the significant operating expenditures to build the new lab services business.

Fourth quarter revenues at Mantas were $8.8 million, 47 percent higher than Q3 2004 revenues of $6 million as a result of an increase in license revenues of 1.9 million related to product acceptances in Q4. Mantas' operating loss decreased from $2.8 million in Q3 to $200,000 in Q4 as a result of higher margin license revenue as operating expenses were held constant.

As Tony mentioned, the Q4 operating loss was considerably less than it was in the prior year. Adjusted for approximately $1 million of amortization and depreciation, Mantas actually achieved positive EBITDA for the fourth quarter of 2004.

At Pacific Title, fourth quarter revenues were $6.1 million versus Q3 revenues of 4.6 million in Q3 2004, reflecting the holiday seasonality in the movie business. Their operating income in the fourth quarter was $300,000 versus the operating loss of 1.3 million that they reported in Q3. The increase in operating income is a result of the improved revenues and increased margins, offset modestly by increased operating expenses.

The next two slides which I won't review are included for your reference and provide the results of operations by segment for the three months ended December 31, 2004 versus the same period in 2003 and the 12-month comparative results.

In addition to the consolidated financial information, we have included the parent company balance sheet on slide 17. This shows the financial position of Safeguard as if all of the consolidated companies were accounted for on the equity method, including Alliance and Laureate. In previous presentations, Alliance was reflected as a consolidated company for parent company reporting purposes.

Slide 18 shows a roll-forward of our parent company cash balance since our last conference call on October 27. At that time, we reported 254 million in parent company cash. That figure included $128 million in gross cash proceeds from the sale of CompuCom and was net of $16.7 million that we used to purchase a portfolio of government securities to meet our interest obligations through March 2009 on our new debentures.

Slide 18 shows the significant components of the change in cash since October 27. The significant changes relate to the following. We redeemed the remaining $55 million of the outstanding 2006 notes for $56 million, which included accrued interest and call premiums. The redemption was completed using a portion of the proceeds received from the sale of CompuCom. We acquired Laureate Pharma in December. The purchase price was $29.5 million plus transaction costs. We used $25 million in Safeguard available cash and $5 million in borrowings made by Laureate under a new term loan. Subsequent to the acquisition, we provided $1 million of working capital to Laureate. We funded the remaining $2 million of a $10 million commitment to Mantas and we acquired additional shares of Pac Title for a total of $1 million, raising our ownership percentage to 93 percent.

Let me also note that the parent company cash balance at December 31 does not include $19 million of additional cash balances at our majority-owned consolidated subsidiaries and it does not include $16.7 million in escrow for the interest on the debentures. These securities appear on Safeguard's balance sheet as restricted marketable securities. Also, just to note, these convertible debentures are now registered and are now trading on the portal market without restriction. Our parent company cash balance as of March 9 was $157 million. We anticipate funding $6.1 million during the remainder of 2005 to private equity funds based on today's existing commitments.

And finally, we intended to put our cash to work this year to acquire new companies that meet our acquisition criteria. We are seeking acquisitions in information technology and life sciences that are roughly between 10 million and $50 million in size. Our sourcing team has reviewed more than 400 potential candidate companies since last summer and the pipeline is building.

Slide 19 shows the carrying value of our investments at December 31, 2004. At December 31, the total carrying value of our investments was $180 million compared to 153 million at September 30, 2004. As you can see on the slide, the components include the carrying value of our interest in public companies, in private companies and in private equity funds. The carrying value of our public company investments has changed rather dramatically of course since the start of 2004 as a result of the sale of our interest in Tangram, Sanchez and CompuCom. At December 31 of 2004, it was $23 million. At December 31, 2004, the carrying value of our private company investments was $128 million. We think this figure is conservative since the carrying values represent our original acquisition price, plus any follow-on investments, plus our share of the earnings or losses of each company reduced by any impairment charges we may have reported since our investment was made. And lastly, at December 31, 2004, the carrying value of our private equity fund interest was $29 million.

Now let's look at the market value of Safeguard's ownership in public companies on slide 20. We currently have ownership interest in public companies, primarily ChromaVision Systems and eMerge Interactive with an aggregate market value of $52 million as of March 9, 2005.

Finally I would like to say a few words about our Sarbanes-Oxley compliance activities which have consumed an enormous amount of time and financial resources. We have successfully completed the evaluation of our internal controls over financial reporting in accordance with PCA OB (ph) Standard Number 2 and we have concluded that our internal controls of our financial reporting were effective as of December 31, 2004. Approximately $2 million, or 11 percent of our 2004 G&A expenses, was directly attributable to professional fees incurred in completing the Section 404 testing and other Sarbanes-Oxley compliance requirements. Our consultants worked more than 12,000 hours documenting procedures and testing key controls over significant processes at Safeguard and four of our consolidated subsidiaries. These numbers exclude a significant amount of time spent by the finance teams at Safeguard and each of its subsidiaries. Our auditors have substantially completed their audit of our assessment of our internal controls of our financial reporting. We expect that they will concur with our assessment and that their opinion will state that they believe we have maintained in all material respects effective internal control over financial reporting December 31, 2004. Now let me turn the call back to Tony.

Thanks, Chris. I want to repeat how pleased we are with the progress made by our companies in the fourth quarter of 2004. They really have good momentum and you should look for topline growth in our consolidated companies this year as well as for their progress towards profitability. We work closely with them and we will provide you with regular updates.

Finally, as you saw in a separate segment by Safeguard issued today, I have notified the Board of Directors of my intention to retire. My timetable is somewhat flexible and we want to ensure a smooth transition, so I've agreed to stay on as President and CEO until a successor is in place. I feel proud of what our team has accomplished over the last few years and while the Safeguard stock price does not yet reflect the progress the Company has made, I'm personally optimistic that there will be even more milestones achieved in the next several years. I will continue to serve Safeguard as a Director and I look forward to being associated with the growth ahead. Before we open up the call to questions, Bob Keith, Safeguard's Chairman of the Board has joined us and would like to say a few words.

Good morning. Since his arrival at Safeguard, Tony has been a major change agent. He led the Company as it faced a number of critical challenges following the dot-com crash. Tony and this management team have completed a difficult turnaround over the past two years and Safeguard today has a cleaner balance sheet and a more focused portfolio of companies. On behalf of the Board, I want to thank Tony for his service at Safeguard and appreciate his willingness to continue in his role until we find a successor.

The Board of Directors has commenced the search for a new CEO for Safeguard and has retained an executive search firm. At this time, we don't know how long the process will take, but we do expect the transition to be orderly and successful. Tony has graciously agreed to remain in his role until a successor is named. The Board and I have complete confidence that Safeguard is in excellent condition and poised for growth in 2005.

Operator, that concludes our formal comments for today and we're now ready to take any questions. Will you begin the Q&A for us, please?

(Operator Instructions) Eric Swerco (ph), Gruber & McBain (ph).

Good morning. First of all, I want to thank you for getting the Company through a difficult time and repositioning the Company and certainly cleaning up the balance sheet in a difficult situation. My question is more for the Board of Directors, and it's the same question I been asking on and off for the last 18 months, which is periodically, the equity value of the Company gets to near or periodically even below the net asset value that you list in your quarterly reports of cash plus private positions, plus public securities, minus the value of your debt. And in that even, I cannot understand what the Board's argument is for not having a share repurchase plan in place. Given that the Company has totally made a couple of investments for growth in the last year or so, it appears that there is certainly plenty of cash available for at least a modest share repurchase, if not a significant tender offer without impeding the Company's growth at this time. Thanks.

Good morning, Eric, this is Chris. I think we have discussed this before. It is an item that we continue to evaluate and at this point, we have no plans to announce that sort of program, but we will continue to evaluate it as we go forward.

What I'm curious about is what analysis has the Board done with respect to this? I know this has been the standard answer for the last year, but given that this has happened repeatedly, I find that answer to be harsh and inadequate. If I saw greater growth prospects out of the Company, I would agree that the cash should be dedicated towards those growth prospects, but you have been able to fund (indiscernible) you've been able to make a new investment in Laureate, yet you still have all of this cash sitting on your balance sheet. Your burn rate has been greatly reduced as shown in your results today. It seems to me that the Board is just stuck in the mud on the issue, and in an environment where companies are paid to be flexible, strategic as well as being able to react to changes in the environment, just shows to me that the Board is just basically stuck in the mud and not taking action.

To follow-up on Chris' response, this has been a continuing discussion at the Board level and we have made a business judgment that the opportunities presented outside are greater than what would result in a stock buyback. So I guess we have difference of opinion on that.

Thank you.

Bill Sutherland, Boenning and Scattergood.

Good morning everybody. Chris, can you give us a sense of what the Sarbanes costs were in '04 and what you expect them to be next year or this year?

Yes. As I mentioned, the costs this year were about $2 million, which was about 11 percent of our total SG&A expenses for this year, and that was really just the outside expenses. It was not any of the internal costs. We have not projected what the cost would be for 2005 yet, but obviously expect that they will be dramatically lower. Much of the money we spent this year was directed to documenting the procedures. That documentation won't need to be done again so it will be limited in 2005 to testing. So it will be dramatically lower, but we don't have a specific number for you today.

Is that partly what's reflected in your budget you gave us for '05?

Yes. We do obviously have an estimate in the budget but aren't prepared to discuss it in a lot of detail this morning.

Does the budget reflect the search fees you're going to be taking on?

Yes.

Chris, would you mind -- I could not quite keep up when you discussed at Alliance, the Q4, there was a lease cancellation and I think something else impacting the operating number.

The fourth-quarter number that I mentioned was $400,000 relating to the termination of their office lease for the Philadelphia headquarters. That was the only Q4 item that I mentioned. They were some items earlier in the year that we have previously talked that referred to again today.

So everything else in the operating loss was just from general operating activity?

That's right. If you're looking to adjust the Q4 numbers, it would just be for that $400,000 lease restructuring charge.

And based on what Tony said, you are looking at -- when you talk about cash flow positive year end at Alliance, you mean on sort of a run rate basis as you exit?

Well, we've set the goal for them to achieve cash flow positive. I haven't tried to scale how much positive is with that or what it would mean through the course of the year. Frankly, I would expect by the end of the year that we would have a positive run rate and overall for the year, we would be able to show cash flow positive.

Okay, I didn't understand that. And then at Mantas, I understand how it can be lumpy. With such a big swing in the operating results, it's kind of hard to know where you are on more of a multi-quarter basis at Mantas. I know you've made a lot of progress, but are you thinking you can move towards cash-flow positive this year or?

We certainly are expecting that they will move towards it for the year. We are not giving any guidance about a particular number for the year. And the comment about the quarters was just to remind everybody that from quarter to quarter, the fluctuations or variances could be fairly significant. But they're obviously moving in the right direction and we continue to expect that they will make more progress in the right direction.

Okay. And then last, Chris, on the Q4 impairment, the related party was 3.4. I saw that on the balance sheet. What was the private equity fund?

It was a total of 3.7 million and it related to two of the existing private equity fund investments that we have.

And do you have any more -- I guess that is in the cash flow -- do you have any more funding requirements on the private equity funds?

Yes. I mentioned in my comments this morning that we are expecting about a total of $7 million for the year 2005. Some of that has been funded already, so the balance for the rest of the year is about $6.1 million. The total remaining funded commitments are right around $20 million and we expect that that will be called over (technical difficulty) period of time.

And this us just the private equity funds, right?

Just the existing private equity funds where we have old capital commitments that have not been completed and called yet.

Okay. I think that's all I have. Thanks a lot.

Thank you, Bill.

(Operator Instructions). At this time, there are no further questions. Do you have any closing remarks?

Thank you, operator, and thanks everybody for joining us this morning. If you wish to listen to a replay of today's call, it will be available on our website after 12 noon at the investors page. It will be available today and for seven days following. If you have any additional questions which occur to you that were not covered in today's call, we will be available all day today, so just give us a call. Thanks very much.

Thank you.

This concludes today's conference. You may now disconnect.