Safeguard Scientifics Inc (SFE) 2005 Q1 法說會逐字稿

Good morning. My name is Crystal and I will be your conference facilitator today. At this time I would like to welcome everyone to the Safeguard Scientific conference call to review first quarter 2005 results. [OPERATOR INSTRUCTIONS] I would now like to turn the call over to Ms. Dusossoit. Ma’am, you may begin.

Good morning. Thanks everybody for joining us today for a review of our first quarter 2005 results. This is Janine Dusossoit, Investor Relations Officer at Safeguard. I am here with Tony Craig, our President and CEO, and Chris Davis, Executive Vice President and Chief Administrative and Financial Officer. Today Chris Davis will begin our discussion as shown on Slide 2, by providing details on Safeguard’s financial results for the first quarter. Then Tony Craig will share his views on the accomplishments and the outlook at our company. 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, and 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 in detail the risks and uncertainties associated with managing our businesses and we encourage you to read this language in our filings. And now I will like turn the call over to Chris Davis.

We are pleased with the first quarter performance of our 5 consolidated companies, each of which we report as a separate segment. As you know, these companies are at a stage when they are investing for growth and as a result, most of them report operating losses which are included in our consolidated results. This is part of our business model and suggests that it may be more helpful to track our progress using net asset value instead of traditional EPS methodologies. On Slide 4 you will see results of operations by segment for the first quarter of 2005 versus the fourth quarter of 2004. On Slide 5 you will see the results of operations by segment for the first quarter of 2005 versus the first quarter of 2004.

On both slides we present each consolidated company’s 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 pre-tax income or loss after any minority interest adjustments. Each column is net of inter-company transactions.

For each company I’ll compare the quarter sequentially as well as to the year ago quarter. I begin with Alliance Consulting which provides custom software solutions and IT consulting services to Fortune 2000 clients. In the first quarter of 2005, Alliance Consulting reported revenues of $21.8 million and an operating loss of $600,000. Alliance’s operating results are continuing to reflect their transitions to higher margin services, including global delivery and master data management services. Quarter over quarter comparisons are affected by the fact that they finished a sizeable contract in Q4 2004 for their largest customer, and they also incurred 1 time charges related to terminating the lease for their Philadelphia headquarters as well as certain executive severance costs. As a result, on a sequential quarter basis, revenues decreased slightly but Alliance was able to reduce their operating loss. Compared to the first quarter 2004, Alliance’s first quarter revenues decreased, and the operating loss increased because in the first quarter 2004 they had a substantial post-merger integration contract for the same large customer. In addition, last year’s first quarter included more billable days than this year’s Q1.

Next is Clarient, the technology and services resource for pathologists, oncologists, and the pharmaceutical industry. Clarient, a public company in which Safeguard holds a 57% interest, reported its first quarter 2005 results on April 21st. They reported revenues of $4 million and an operating loss of $4.2 million. In the quarter, Clarient achieved a 38% increase in revenues over the fourth quarter of 2004. Clarient attributed the increase to revenue from their new lab services operations, which increase 50% over the quarter. With the increased revenues their first quarter operating loss declined 31% from the fourth quarter 2004.

Clarient achieved a 108% increase in revenues in the first quarter of 2005 as compared to the prior year due to the new lab services operations as well as to increased automated cellular imaging system sales, partially offset by a decline in fee per use revenue from the installed base of these systems. Their first quarter operating loss increased 14% from the prior year, primarily related to the investment in the new laboratory services.

Laureate Pharma reached a $2.6 million in revenues in the first quarter of 2005 and reported an operating loss of $3.2 million. Laureate provides bioprocessing and drug delivery services to support the development and commercialization of pharmaceutical and biologic projects. As you know, we acquired Laureate Pharma in December of 2004 and therefore, included only a portion of their results in our fourth quarter when it was included under the other company’s category. Our first quarter of 2005 includes a full quarter of Laureate’s results reported as a separate segment. We will not be able to provide year over year quarterly comparisons for Laureate in 2005, but as we move ahead we will compare Laureate Pharma’s results on a trailing quarter basis. As a point of reference for all of 2004, Laureate Pharma reported revenues at $10.2 million and a loss of $9.8 million.

Mantas reported $7.1 million in revenues and an operating loss of $1.6 million in the first quarter of 2005. Mantas is a leading provider of sophisticated analytic applications that address risk management, fraud detection, anti-money laundering, and trading compliance. First quarter revenues at Mantas decreased sequentially from the fourth quarter of 2004 as a result of the completion of several large installation projects in the fourth quarter. This also increased its operating loss on a sequential quarter basis. Year over year, the first quarter reflected significant improvement with a 27 % increase in revenues and a 62% improvement in their operating loss. These improvements resulted from increased demand for Mantas’ offerings when compared to the prior year, as well as cost control efforts undertaken during 2004. As a point of reference for all of 2004, Laureate Pharma reported revenues of $10.2 million and a loss of $9.8 million. Mantas reported $7.1 million in revenues and an operating loss of $1.6 million in the first quarter of 2005. Mantas is a leading provider of sophisticated analytic applications that address risk management, fraud detection, anti-money laundering and training compliance.

First quarter revenues at Mantas decreased sequentially from the fourth quarter of 2004 as a result of the completion of several large installation projects in the fourth quarter. This also increased its operating loss on a sequential quarter basis. Year-over-year the first quarter reflected significant improvement with a 27% increase in revenues and a 62% improvement in their operating loss. These improvements resulted from increased demand for Mantas’ offerings when compared to the prior year as well as cost control efforts undertaken during 2004.

Mantas recognizes revenues from software licenses, post-contract customer support and related consulting. The business has a long sales cycle plus a long revenue recognition cycle. Therefore, we believe backlog is a good way to measure Mantas’ progress. At the end of March 2005, Mantas’ backlog was $37 million, compared to $31 million in March last year.

Pacific Title reported revenues of $7.3 million and operating income of $900,000 in the first quarter of 2005. Pacific Title provides high technology, digital and other specialized post-production services to the Hollywood motion picture and television industry.

Pacific Title achieved a significant increase in revenues and gross margins as compared to both the fourth quarter of 2004 and first quarter a year ago. The improvement resulted primarily from main title design work, their new digital intermediate suite and increased sales of higher margin services.

To summarize we are pleased with the progress of our consolidated companies during the quarter and continue to work closely with them to help them achieve their gross strategies. Now that we have reviewed each company’s individual results for the first quarter, let’s take a look at the consolidated financial results.

As shown on Slide 6, Safeguard’s consolidated revenues remain fairly constant in the first quarter of 2005, as compared with the fourth quarter of 2004. Revenues increased at Clarient and Pacific Title and we reported $2.6 million in revenue from Laureate Pharma. These increases were partially offset by declines at Alliance and Mantas.

For the first quarter of 2005, you can see that our consolidated net loss from continuing operations improved by 21% from the fourth quarter of 2004. This improvement was due to a $2.3 million reduction in impairment charges associated with a related party note receivable as well as improved operating results at Alliance, Pacific Title and Clarient. Partially offset by the inclusion of the operating results at Laureate Pharma.

Slide 7 shows Safeguard’s consolidated revenues from continuing operations for the first quarter of 2005, increased 10% as compared to the prior year quarter. This was primarily a result of increases at Mantas, Clarient, and Pacific Title as well as the inclusion of Laureate Pharma. Partially offset by decreased revenue at Alliance. Included in the first quarter of 2004 was $1.3 million in revenue related to a company, which we sold in February 2004.

Our net loss from continuing operations in the first quarter of 2005 increased $10.4 million over the prior year primarily due to other income in Q1 2004 including a $8.5 million gain associated with the sale of a consolidated company.

The nature of our business model will result in quarterly variances of this nature as we exit investments from time to time. The change in other income was partially offset by a decline in interest expense of $1.7 million, primarily due to the cost savings related to the re-financing in February 2004 of the majority of our 2006 convertible notes. The increased loss was also due to the inclusion of the operating results of Laureate Pharma, partially offset by the improved operating results at Mantas.

Finally, income from discontinued operations of $1.1 million in 2004 represented Safeguard’s share of operating results of CompuCom in the first quarter of 2004. In addition to the consolidated financial information, we have included the parent company balance sheet on Slide 8. This shows the financial position of Safeguard as if all of the consolidated companies were accounted for on the equity method. It further allows you to see that Safeguard has sufficient assets available to cover corporate expenses, to fund the growth of our existing companies and to acquire new businesses.

Slide 9 shows the carrying value of our investments at March 31, 2005 at $172 million. The components included in this calculation are the carrying values of our interest in public companies, in private companies, and private equity funds. The total carrying value of the public company investments at March 31, 2005 was $20 million. The carrying value of our private company investments at March 31, 2005 was $125 million. Our carrying values represent the original acquisition price plus any follow on investments, plus our share of the earnings or losses of each company and any impairment charges that we may have recorded since we invested. Carrying value may not reflect actual market value since under Generally Accepted Accounting Principles we do not mark to market the value of our private companies. Lastly, at March 31, 2005 the carrying value of the private equity fund interest was $27 million. Now let’s take a look at the market value of Safeguards ownership in public companies on Slide 10. We currently have ownership interests in two public companies primarily Clarient and eMerge Interactive with an aggregate market value of $46 million, as of May 3, 2005.

Slide 11 shows a roll forward of our parent company cash balances since year-end. At that time, we reported $162 million in parent company cash. On a cash basis, our corporate operations are not level throughout the year and we expect full year SG&A expenses to be about $18 million. Let me also note that parent company cash at March 31, 2005 does not include $9.8 million of additional cash balances at our majority owned consolidated subsidiaries or $15 million held in escrow for interest payments on our convertible adventures. Parent company cash as of May 3, 2005 was $153 million. We anticipate funding $7 million during the remainder of 2005, primarily to private equity funds based on pre-existing commitments.

Now I will turn the call over to Tony Craig for his perspective on our companies and some trends contributing to their growth.

As you know, we intend to put our cash to work acquiring new companies. On Slide 12, we are actively seeking IT and Life Science’s businesses that are between $5 million and $50 million in size. Since last summer, our sourcing team has reviewed more than 400 potential candidate companies in the time of volume stage of growth and the pipeline is filling. We generally seek a majority ownership position and we favor businesses with operating leverage. We do employ a rigorous screening process to qualify candidate companies and while we did not acquire any new business in the first of quarter of 2005, we are seeing a great deal of activity.

I want to spend a few minutes on each of our consolidated companies because I feel they have all made good progress in the first quarter. They are achieving important milestones and these clearly demonstrate their growing value.

On Slide 13, Alliance Consulting has been gradually and successfully shifting the mix of its business towards higher margin services as Chris said. They are leveraging their global delivery capability and their master data management practice, which provides organization to proven solutions to create an integrated enterprise view of their customer, product, vendor, and material data. Being an available master reference data is the foundation of world-class business intelligence and an essential part of achieving the desired return on CRN, VRP and other application investments. Mensamind, which was acquired in the fourth quarter, now called Alliance India, is the backbone of the global delivery model and has been a key factor in winning both new and follow-on business. For example during the quarter Alliance signed a $2.1 million engagement with a large information technology company in which it uses a blended approach of on and off-shore consultants. Mantas services market remained mixed in the first quarter but Alliance has been successful in gaining new business and is still targeting above market top line growth for the full year with productivity improvement and positive operating cash flow by year-end.

During the first quarter Clarient on Slide 14, successfully completed its name change and launched their new brand. They executed this launch externally to customers and the media and just as important internally galvanizing the whole organization around the ultimate goal; to play an important role in the fight against cancer.

Clarient’s big jump in revenues in the first quarter was directly related to its new laboratory services business. At less than 9 months old it has generated $2 million of revenue in the first quarter and test volumes has been growing at more than 20% per month.

In addition, Clarient saw increased sales of its propriety cellular imaging system to research labs and further its goal to have that become a platform for the development of specific diagnostic tests to support increasingly targeted therapeutics. A good example of this was their announcement in April that Clarient will provide lab services expertise and diagnostic technologies to support 2 important clinical trials. The studies will use a proprietary assay developed by Clarient for circulating tumor cells to measure the accuracy of the drug Avastin for multiple types of cancers. This agreement is an important milestone for Clarient because if Avastin is approved for treating other cancers in addition to breast cancer, Clarient’s test could become the standard diagnostic tool used in such cases.

The significant top line growth and reduction in operating costs that Clarient reported in its first quarter is encouraging. In fact, Clarient’s CEO, Ron Andrews said in their conference call on April 21st that the company expects its operating losses to decrease steadily over the next several quarters.

On Slide 15, Laureate Pharma is our newest company and had a busy and productive first quarter. We signed a multi-year project with an existing client as well as agreements with 2 new clients. Additional discussions are ongoing with other existing and perspective clients. We have been working actively with Laureate Pharma to map out and implement a sales and marketing strategy for developing even more business.

In the first quarter more than 450 US Pharmaceutical and Biotechnology companies have been identified as potential clients for Laureate’s buyer processing services. A disciplined and thorough approach to market Laureate’s services through qualified prospects is planned to begin in the second quarter.

We see excellent growth prospects for Laureate Pharma as they ramp up their sales and marketing efforts, because of the existing available capacity at their Princeton, NJ location and because of the growing number of biotech firms needing fast, high quality production of their pharmaceutical products for clinical trials.

Mantas on Slide 16 had a very good first quarter as you heard Chris say and they continue to win new business. They recently signed a $4 million deal for global trading compliance with a major worldwide financial services firm and also has signed a new contract to provide anti-money laundering software to a large US bank. Mantas continues research and developed of complex scenario and algorithms to provide its customers with sophisticated tools to help them meet their compliance obligations and to protect the integrity of their institutions. New products were introduced in the first quarter, Mantas Advance and Mantas Select and they have been well received in the marketplace. As we have said before, revenues in this business tend to be lumpy from quarter to quarter because of the timing of contracts and the completion of project implementation. For example 2 key product installments that were largely completed by Mantas in the first quarter will be recognized and reported as revenue as part of the Q2 results. Mantas backlog and pipeline are strong, and the company continues to benefit from this leadership in the marketplace.

Pacific Title on Slide 17 reported the highest first quarter sales in its history. As Hollywood continues its shift towards digital, Pacific Title is gaining ground with their enhanced editing, digital color correction and special effects capabilities. Among the feature films on which Pacific Title recently completed work was Triple X2, a Sony Pictures action thriller, which was released last week and is playing at a theatre near you. [Inaudible] business in Hollywood appears good, with a steady supply of film products scheduled for release during the summer and the balance of the year. Pacific Title will soon open its second digital intermediate suite providing additional capabilities for state of the art editing, color correction and special effects.

In summary, I want to repeat how pleased we are with the progress made by our companies in the first quarter of 2005. They are doing a good job of levering their technologies in growing markets, winning new customers, and creating and launching new products and services to meet customer needs. They have good momentum and we anticipate top line growth in all of our consolidated companies this year, as well as meaningful progress towards profitability. We continue to work closely with our companies to help them achieve their financial and operating objectives and will provide you with regular updates.

There is one other thing I want to say about the companies in which Safeguard has invested. We are very excited about what we are doing from the standpoint of helping society and helping people. They are fighting cancer, providing anti-money laundering solutions, and supporting the development of new drugs, just to name a few. Several of our companies are testing the boundaries of new markets, markets that are expanding if front of them. They have significant science or technology in-house, and they are leaders in their space. We are very excited about our involvement with them, and we hope you can appreciate their progress and prospects as well. Now I'll turn back to Janine, who I think will open up a question and answer period.

Crystal we are ready to take questions from participants.

(OPERATOR INSTRUCTIONS). The first question comes from Lawrence Goldstein with Santa Monica Partners.

Good morning, we've never met, never spoken. Believe it or not our firm has been in for a roundtrip. We first invested in 1990 through 1994. I noticed on Bloomberg in their describing the company, they actually describe Safeguard as an investment company, which is fairly recent. Why aren't you a legally an investment company?

I think the simple answer to that is that the business development corporation I think might be what you are referring to that would allow investments according to that Investment Act in 1940. We have taken an approach not to become regulated and be in a position of forced distribution of cash that associates itself with that kind of regulation, and in order to do that, have to maintain a majority position in our companies with the same notion of growing them from time to volume, and then generating value by investing through the growth period and then realizing that at the time of exit. That is the chosen strategy, and as such, during the time we have these companies we operate much more like an operating company with much much higher involvement in the operation of companies than perhaps the portfolio or an investment company would do.

Isn't it true that you can be an investment company for Internal Revenue Services purposes but not for 1940 Act purposes. In other words, you would adhere to all the investment company rules, but if you chose not to pay out 90% you would continue to pay taxes as you do today.

That’s probably a subject for a much longer discussion than we have time to address in this Q&A. I would be happy to take your call maybe separately off line and have a chat with Chris Davis, our CFO.

The next question comes from Bill Sutherland with Boenning and Scattergood.

Just a few details if I could, what was the difference in billable days, Chris, for Alliance in Q1, this year, last year?

It's actually 5 work days or 1 week.

Okay, and give us just a bit more visibility, any data that you all can provide for Alliance in terms of pipeline and backlog?

As you know, we haven't given backlog or pipeline information for Alliance, and don't think that would be particularly meaningful or helpful information at this point, so I think we're going to decline to give you that information this morning as well.

Then on Laureate Pharma, we are just starting to get a sense of that company's numbers; can you provide us with a bit more color on some level of your expectations for it this year? I don't know exactly how you want to frame it? I realize you don't have year-over-year to utilize.

Let me just give you a little description in sort of the flavor of color. What attracted us to Laureate Pharma was the science they have in manufacturing of the small batch pharmaceuticals, particularly those that are large molecular [indiscernible] base, and the fact that that area is a very ripe and exciting area for the new [indiscernible] company's developing capabilities who need small batch production. So that was just the thesis to go with it. The asset base that we were able to acquire when we bought the company is at a very low level of utilization and a very high level of technical currency. So that gave us a capacity base framework that we could operate to build against. The execution thesis in the near term is very much building the sales and marketing model, which they did not have as a private division of a larger company. So our efforts are focused on building up the volume here, with what I call a small incremental expense on the sales and marketing side, to deal with a very large capacity penetration opportunity in the assets we bought. I hope that helps. It probably outlines a little what the business model should look like.

Yes, it sounds like it is in the, right in the sights of what you're trying to do with time-to-volume, that's for sure.

And Bill, from a numbers point of view, we've told you that last years revenue for Laureate were $10.2 million. We expect significant, at least from a percentage point of view, significant growth above that $10.2 million this year. That's probably as far as we can go in terms of giving you numerical guidance.

Significant as meaning double digit of some kind I guess?

Yes.

Can you provide a sense of utilization increase possible, kind of where you are, and where you think can operate?

I think utilization at this point is really quite low. It's probably in the 25% range and therefore, as Tony said, we're really excited about the opportunity of since filling up that excess capacity right now.

Okay. Chris, is the escrow still at the same level at year end of 16?

The change from year-ends to now is $1.9 million, $2 million rounded off, and relates to the interest payment on March 15th.

Okay, so now it's $14.8 million.

Right, it's come down by the $2 million because of the interest payment on March 15th.

You said you were going to be using about $7 million in Q2? Was that for equity funds?

$7 million for the remainder of the year, and most of that is the private equity fund.

Will there be additional funding likely next year?

For the private equity funds?

Yes.

Yes. We've been reporting I guess regularly that the remaining commitment in total is just under $20 million, and of that we expect this $7 million number to be funded this year.

And then last, any update on the CEO search?

Well, as we said when we announced my transition, we will probably update you when we have the search completed. We weren't going to conduct it in the public limelight. So all I can tell you this moment is that we don't have it completed and can't update you.

Okay, that's fair. Thank you.

Our next question comes from [Dean Shahinion] who is a private investor.

Hi, this is Dean Shahinion. In the news there was a report about Laureate Pharma and some of its work that I believe there were some problems with its work for a client. I was wondering if you could tell us, provide some amplification on what was in the news in terms of what happened, how large the contract was, what the impact was, if there has been some settlements, or the impact on the relationship with that client, and on getting future business? If you could give us amplifications on the impact on that?

Yes, you're correct there was a report about Laureate Pharma and the FDA inspection related to one of their customers. I can only provide a limited amount of information because some of the information does relate to this other customer, but I can tell you that good progress is being made. The issues that were raised are being addressed, and we're optimistic that that process will go forward very successfully.

Has this impacted the company, have there been legal settlements that the company had to pay out because of the work?

No, there is nothing like that, and in fact they continue to work with the customer to address the issues, and the relationship with the customer is quite good, and we expect that their product will move forward.

No adverse fallout from that?

No.

The only color on here is this was probably more related to the precision of documentation, according to FDA standards, and the mediation process removes that question.

Okay thank you. The other question I have is that, you mentioned in the presentation that you're going to use cash to buy new companies. As a shareholder, I guess wondering why you wouldn't devote the management energy towards running the companies that you already have more profitably, or moving them more profitably rather than diverting attention buying new companies.

In fact, our model does both of these things. We are not, and I should make this clear, focused on enhancing the short-term profitability of these companies. In most of these cases we are investing in a standing market and in standing growth, and as such going through an investment phase, we don't specifically plan for that with each company, and a specific notion of when and how they cross the line, and when and how they become profitable, as well as growing. Having said that, I think it's our view that enlarging our activity to perhaps a similar number of new companies would give us a stability of a portfolio that would allow entries and exits on a regular basis over time. And that's the business model, which is outlined. If you haven't seen it yet, I think our current annual report does a fairly specific job of outlining that, along with the enclosed 10-K.

I have the annual report in my hand, it's just given that the market hasn't caused the company to lose value rather than gain, it seems to me there ought to be additional consideration in tweaking the model, and making the results of the existing companies more successful before trying new ones, and that's one shareholder's view, so thank you very much.

Thank you for your view. We will take everything into account.

Your next question comes from Sam Rabatski with SER Asset Management.

Good morning gentlemen. Reviewing your numbers, and I guess your lines acquisition, which you have a goodwill of about $47 million and you paid $55 million, and for those 3 years it has lost money, what do you have to do to get value into this situation where it is profitable? You speak to the fourth quarter, where you expect it to be cash flow positive. What do you have to do to achieve the value in this investment?

I think the path to success with Alliance is partly articulated with their global delivery model and their master data model, both of which are significantly higher gross margin endeavors than what had been the tradition within the company. Now obviously you can do the incremental growth in a gross margin is better than what you’ve got, you’re going to enhance the overall company at the base level, and therefore, enhance its value. That’s the path that we’re on and that’s why we highlighted those two areas.

But I guess it would appear that carrying something at such a substantial valuation and you’ve lost money over these past 3 years, do you have to cut expenses? If you wanted to sell this company, what can you get for it in this kind of market?

Alliance has been fairly aggressive in cutting costs over the last year and a half or two years. So I think they have addressed that side of the equation and as Tony said they’ve been addressing the revenue and gross margin side of the equation with the global delivery and the master data management projects. In terms of what could we get for it if we tried to sell it, that’s not a question that we’ll try to answer this morning but I will tell you that we do an impairment review of our carrying value each quarter and we’re comfortable with the carrying value at March 31st is appropriate.

Having lost a substantial amount of money in this current quarter and the fact that your equity is down significantly from where it was a couple years ago, in order to -- and your stock price is significantly down -- is there a possibility -- and management has not started to buy any stock in the open market -- is it possible for the company to put in a 10-D-5 plan where individuals can commit who believe so strongly in the value of Safeguard, commit to buy stock in the open market and show the public investors that they truly believe in the value of this company?

The comment is very well taken to heart. We have been quite constrained as we went through this turn-around process for the last 2 years of unfortunately, constantly having internal and non-public information in front of us. So that possibility was not something that could be addressed at all. I think, going forward, it’s an individual decision on the part of managers if they want to do something like that. I could only say first of all, the inhibitions are somewhat removed, there are certainly less of that material inside information in front of us, and if we really believe what we’re doing, individuals will make their own choices.

That would be good. I suggest that the 10-D-5 plan works for both selling and buying, where if you have inside information it would permit individuals part of management to buy, even though they may have possessed information at that time.

We’re familiar with the program and are looking at it.

We do have a follow up question from Lawrence Goldstein with Santa Monica Partners.

Can you say something about what would make you go for liquidity event, particularly with the public companies which obviously are drifting down?

We address it in 2 parts. First of all, with the companies in which we’re investing and growing, the liquidity events could take several forms. They could take the form of an M&A exit if there was a strategic buyer that made sense, or they could take the form of --

Excuse me, I don’t mean the form. I mean what would make you reach the point to seek a liquidity event, and particularly, again with respect to the new public companies.

Well in general I think if the value we could obtain in an exit is greater than the value that we would obtain by holding, we look at that on a regular basis that would certainly be a driver. With the public companies themselves, it’s really a question of making the same determination on the individual investment.

The other part of the answer is really the Time-to-Volume model. If we think the company has grown to the point where it no longer fits that Time-to-Volume definition, then we would more actively consider an exit, but while the company is growing and while we think we can enhance its growth profile, we’re more inclined to be a holder and to help them grow and realize that value.

We do have a follow up question from Sam Rabatski with SER Asset Management.

The Mantas and the Pacific Title are 2 of your companies that you own almost 100%. It appears that these 2 companies have greater value in the marketplace. What are your plans, either of taking them public or merging them with another company, to put greater value in there, because you have this big capital loss carry forward and NOL carry forward where you set up a valuation of $250 million in order to permit you to utilize this substantial asset?

Well Sam, you are correct that we do have very substantial net operating loss and capital loss carry forwards, and the result of that is that we wouldn’t pay any federal taxes on any operating profits or on any gains on sales. So that part of the equation is correct. In terms of our plans to exit, again I think we come back to the business model and the Time-to-Volume model, which is while these companies are growing and while we think we can help them to achieve that growth, we’re more inclined to hold them than to sell them. We will continue to monitor their progress in the markets that they’re working in, and we’ll try to pick the optimum time to exit.

So you believe that these companies have greater value. Is there something in your plan to tell the marketplace, to tell the public investors, institutional and individual, what the values you believe there are in these companies so that they may see what you see and be more aggressive in buying the stock if they agree with you? Is there anything in your plan to publicly tell them what’s going on?

You’ve raised a very good point, which is how do we demonstrate the progress that the companies are making to the marketplace. You’re correct that we do think there is value in these companies beyond the carrying values that we show in our financial statements. Our activities to try to address that have been to expand and modify our segment reporting to give investors and analysts much more information about the individual companies and to allow them to do their own assessment of fair value by looking at comparable companies and by using revenue multiples to value the companies.

So that’s been most of our activity we’ve tried to, in addition to that, in these calls, tell you about the companies and their technologies and the marketplace that they’re addressing to give you a sense of their potential. But those are the ways we’ve been trying to demonstrate their value and we’re aware of the need to explain to the marketplace how excited we are about these companies and their progress and we trying to report milestones along the way for each of the companies.

I suggest that I guess you have to do a little better in this area and one way would be to road show telling about what you’re doing and further have the board approve a 10-D-5 plan and what about buying stock in the open market for the company if you believe it’s substantially undervalued?

We have all of those things under consideration. As far as a road show and that kind of thing, we work at that everyday in terms of communicating with shareholders and potential shareholders. So all of those things are on the list, we are working on them, and we will continue to do our best in those areas.

At this time there are no further questions. Are there any closing remarks?

Thank you very much for your time and attention today and we will be reporting again at the next quarter.

Yes, we will. On behalf of Tony and Chris Davis, thanks everyone for joining us. Once again this call will be available for replay at our website later today. If you have additional questions that we were not able to take this morning, please feel free to contact me at Safeguard.

This concludes today’s Safeguard Scientifics conference call. You may now disconnect.