Safeguard Scientifics Inc (SFE) 2005 Q3 法說會逐字稿

[OPERATOR INSTRUCTIONS]. I would like to welcome everyone to the third quarter 2005 results conference call. I would now like the turn the conference call over to Mrs. Dusossoit, Vice President of Corporate Communications. Mrs Dusossoit, please go ahead.

Good morning to everybody. Thank you for joining us today for a review of Safeguard's third quarter 2005 results, which we released yesterday after the market closed. I'm here with Peter Boni, our new President and CEO since August 16 and Chris Davis, Executive Vice President and Chief Administrative and Financial Officer.

Today Peter will begin our call by sharing some of his background and then discuss how Safeguard has refined its strategy since he joined the Company in August. He will review highlights from our partner companies and then we'll turn it over to Chris for a detailed review of the third quarter results. Finally, as usually, 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 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. We encourage you to read this language in our filings. Now I'd like to introduce Peter Boni, President and CEO of Safeguard Scientific.

Thanks Janine. Good morning, thanks for joining us. I'd like to start my comments by expressing my excitement about joining Safeguard. This is a company with a rich history and a strong future ahead of it. I'll begin with a few words about my background so you know something of my credentials to lead Safeguard and then I'll give you a sense of why I joined the Company and the opportunities I see for Safeguard going forward. Next I'd like to share a vision, a charter, and our action plan and finally I'll share some highlights on the third quarter.

Before joining Safeguard in late August, I was an operating partner at Advent International. It's a large global private equity fund with $10 billion under management. During my career I've been the CEO of several high-tech companies in varying stages of growth from early stage to maturity to repositioned to renewed.

Some of them have been public, some private and even an IPO. I have led businesses as small as a start up to as large as a New York Stock Exchange Fortune 1000 company in the midst of a turn around. Each of those businesses enjoyed some degree of value creation before realizing an exit. The exits came in the form of an IPO or acquisition by industry leaders such as computer associates and Cisco systems. I served as a fortune 500 corporate executive with stalks in sales marketing and general management.

Why did I join Safeguard? Well, I completed some extensive research on Safeguard before I arrived. Interviewing more than 75 people and a wide group of stake holders. I was attracted to Safeguard for a variety of reason. Safeguard's a 50 year-old public company with a rich and colorful history. The Company has and continues to partner with entrepreneurs and provides the growth capitol to build great companies.

There have been some huge wins over the years. Novelle, Cambridge Technology Partners, Internet Capital group to name a view. The wins have been much more notable than the misses. It was clear to me there was potential for more great deals to come. Safeguard has a history of innovation and I believe we can further that innovation in the coming years. I like the Company's focus on technology, life sciences, and information technology. It's an excellent combination as these two sectors tend to be counter cyclical and each is at the forefront of some cutting edge markets.

Safeguard has a unique business model. Some think of it as a venture capital firm, but it's actually quite different. Safeguard's public. Shareholders can invest a little or a lot. Their share are liquid. They have transparency in a partner companies progress. Safeguard offers value added operational support through an executive level staff. It doesn't need to prematurely exit to return capital and that enables Safeguard to help each company achieve its potential.

Most importantly, I believe Safeguard is posed for growth. The work of my predecessor, Tony Craig, has positioned the Company well. The Company has a strong balance sheet, a great team. These elements coupled with the high technology deal environment fits very well into my background, my experience, and my interests. So I'm really excited about the opportunities we have ahead of us. We're embarking on an aggressive program to get Safeguard positioned and penetrated in high-tech deal flow opportunities.

Now that I've explained who I am and why I joined the Company, let's talk about the future direction of Safeguard. I have a calabaritive style. During my first several weeks here, our team has met frequently to define and refine Safeguard's charter. We've chartered ourselves as follows. Advancing the value of revenue stage technology and life sciences companies. Providing growth capital as well as a range of strategic operational and management resources to help our partner companies build value in their businesses. By participating in expansion financing, management buyouts, recapitalization, industry consolidation and early stage financings.

In addition to our charter, we've put forth an action plan that includes initing our deal machinery. The IT group is headed by John Loftus. John is a veteran entrepreneur with GE training and a talented leader who knows the information technology market extraordinarily well. Life sciences is headed by Jim Datin whom I recruited the join Safeguard in September. Jim has a deep background in pharmaceuticals, diagnostics and devices within industry leaders, as well as an entrepreneurial CEO experience. John and Jim along with their teams are responsible for not only sourcing deals and shepherdling them through the acquisition process, but also for the operating results of companies in their respective areas.

Our team efforts have identified five key strategic themes that reach across both information technology and life sciences. Maturity, migration, conversion, compliance, and cost-containment. These are strong industry themes, they attract strong entrepreneurs. Safeguard wants to partner with strong entrepreneurs to build great companies. We've developed a methodology to aggressively identify and acquire companies that are capitalizing on these key trends. And I expect you'll hear more talk about these over the coming months.

The deal market continues to be highly competitive, but we're seeing a robust pickup in the quantity and the quality of opportunities we're reviewing just this past quarter. And we believe we're positioned quite well to capture our fair share of the activity. We're also working to expand our network of Alliances to promote deal flow and promote Safeguard's visibility. And finally, we intend to execute very boldly according to our strategy.

I'm very excited an the prospects that lie ahead and the potential we have for building a meaningful growth and meaningful value here at Safeguard. Let me touch on some highlights of our partner companies. In the third quarter, the IT group of partner companies achieved real breakthrough performance. Together they grew the top line by over 20% over last year and their operating results improved by 102%. All had positive cash flow from operations.

First Alliance consulting. Alliance provides custom software solutions and IT consulting services to Fortune 2000 clients. They've successfully repositioned to a business intelligence consultancy and have deep domain expertise in pharmaceuticals, financial services and manufacturing and distribution. Alliance has successfully introduced some new offerings, such as master data management and global delivery and their revenues were up 7% in Q3 versus last year. Also in Q3, they won several new engagements with existing, as well as new clients. And had huge improvements in bottom line performance from a year ago.

Mantas is a leading provider of sophisticated analytic applications that address risk management, fraud detection, anti money laundering and trading compliance. Their customers include many of the top tier global financial service firms. In September Mantas announced that Bear Stearns selected its compliance portfolio which monitors behaviors across operations globally and in Q3, revenues jumped 36% compared to last year. Most recently, they announced that [Linsco] private ledger, the nations largest independent broker dealer, has chosen the Mantas behavioral detection platform as the basis for multiple enterprise wide compliance applications. And they too have shown breakthrough bottom line performance.

Pacific title and art provides high technology, digital, and other specialized post-production services to the Hollywood motion picture and TV industry. Q3 revenues jumped 62% versus last year. That continues a trend of improved performance over the last few years. Traditional business lines of producing trailers for the studio is very strong as was revenue from its new digital intermediate and archiving services. We have to applaud the break through performance of our IT companies and we look forward to continued growth.

Now let's take a look at our Life Sciences companies. Clarient offers advanced cancer diagnostics and services for pathologist, oncologists and the pharmaceutical industry. Revenues increased 91% in Q3 versus last year. Diagnostic lab services reached $3 million. That was built from scratch a year ago. The Company is nicely positioned to realize its ambitions, in what we've defined as a large and growing market for targeted cancer therapeutics. That market is estimated by industry analysts to grow to $2.5 billion over the next 5 years.

In Q3, ten of Clarient's cellular imagining and analysis systems were sold versus three in the third quarter of a year ago. Plus their distribution and development agreement with DAKO, a leading global provider of cancer diagnostic tests and equipment is going quit well. DAKO's 150 person sales force is now marketing Clarient's system in concert with its own products.

We continue to be encouraged by Clarient's progress and we're supportive of their financing requirements. They're a public company, they haven't disclosed any details about their financing as yet, so we can't comment on it.

Laureate Pharma provides bio-processing services to support the development and commercialization of pharmaceutical and biological products. They specialize in the production of complex proteins which are the basis for many new drugs. Revenues in Q3 were $2.1 million.

During the third quarter, Laureate signed two new customers including Enobia Pharma a biotech company entering phase one clinical trials for its enzyme replacement therapy product. They also strengthened their business development capabilities by hiring a seasoned sales executive with deep industry knowledge. We're enthusiastic about the achievements of our Life Sciences companies and we continue to work closely with the management to help them execute their growth strategies.

Other news of interest, just a few notes on a couple of young companies in which we have an ownership interest. NexTone developed session controllers that gives carries the most scalable and flexible way to interconnect their voice-over internet protocol networks . They hired Malik Khan, Malik is a veteran telecom and networking industry Executive. He is CEO as of September. Malik has a GE and Motorola background and he will lead the Company through its next growth stage as it meets the demands for technologies that power emerging real-time internet protocol services. 74% of corporate phone lines worldwide are expected to be internet protocol lines by 2009. With $9.9 billion of revenue coming from corporate voice-over IP, as projected by leading industry analysts.

Traffic.com provides realtime traffic information through radio, TV, and onboard automobile navigation systems and they have filed an S1 statement for an IPO in August. To wrap up, I'm pleased with what I see here at Safeguard and I'm pleased with the energy and the professionalism of the management team here. We're all taking necessary steps to drive forward progress, I'm confident in our ability to build value for our partner companies and for our shareholders. I'll look forward to keeping all of you posted on our progress as we move forward. Let me turn the call over the Chris Davis, our Chief Administrative and Financial Officer for a detailed review of the quarter's results. Go ahead, Chris.

Thank you, Peter. Good morning, everyone. Safeguard's consolidated revenue increased by 32% in the third quarter of 2005 to $46 million from $34.9 million in the third quarter last year. This year's third quarter includes $2.1 million of revenue from Laureate Pharma which we acquired in December of last year. Our consolidating operating loss from continuing operations in the third quarter of '05 was reduced by 44% to $10.6 million from $19.1 million in the prior year.

In addition, each of the consolidated companies that we have owned for more than a year reported improved operating results in the third quarter of 2005 as compared to the third quarter last year. On slide 15, you'll see the results of operations by segment for the third quarter of 2005 compared to the second quarter of 2005. On slide 16, you'll see the results of operations for the third quarter of 2005 -- 2005, versus the third quarter of 2004. On all of the slides, we present each consolidated company's revenues in the first column, 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.

For each company, I'll compare the quarter's results sequentially as well as to the year ago quarter. I'll begin with Alliance consulting. In the third quarter of 2005, Alliance reported revenues of $23.3 million and break-even operating results. Compared to the second quarter of 2005, Alliance's revenues increased by $1.8 million and experienced a slight decline in operating income of about $100,000. Alliance attributes the revenue increase to growth in existing accounts. Operating income did not increase at the same rate as revenue due to some incremental severance costs and professional fees during the quarter.

Compared to the third quarter last year, Alliance's revenues increased by $1.6 million and operating income improved by $1.3 million. Growth at existing accounts, new clients, and new services such as Master Data Management and Global Delivery drove the improvements. Alliance also reduced its selling general administrative costs. With its increased targeted sales efforts, Alliance is expecting continued increases in revenue and incremental gross profit associated with the Master Data Management and Global Delivery.

At Mantas, the third quarter of 2005 reflected significant progress. Revenues increased by $100,000 as compared to the second quarter of 2005, which led to a decrease in their operating loss on a sequential quarter basis helped by improved margins and reductions in SG&A expenses. Revenues in the third quarter of Mantas increased 36% and they're operating loss shrank by 82% from the losses reported in the third quarter last year again as a result of improved margins and reductions in SG&A. Mantas expects revenue to continue to increase in the last quarter of 2005. Historically, the fourth quarter has been their highest revenue quarter due to customer decision cycles.

At Pacific Title, revenues declined 20% sequentially from the record levels achieved in the second quarter of 2005, but still increased by 62% over last year. This was primarily due to a seasonal slowdown in the industry after the summer film releases. Operating income also showed significant improvement over the prior year. Main title design work, new digital intermediate services, and overall increased sales of higher margin services led the improvement.

Next is Clarient, a public company in which Safeguard holds a 56% interest. They announced their third quarter results on October 19. In the quarter, their total revenue's decreased by 6% from the second quarter of this year, however, revenue from Clarient's diagnostic lab services increased 15% from the second quarter despite the traditional summer slowdown industrywide. Clarient continues to invest in their fast-growing diagnostic lab business and this contributed in part to the increase in their operating loss from the second quarter.

Compared to the prior year, Clarient achieved a 91% increase in researches in the third quarter. This was due to the strong growth in diagnostic lab services as well as to increased ACIS(R) System sales. Their third quarter operating loss decreased 21% from the prior year, mostly because of the success of the new diagnostic lab services. Clarient expects continued increases in revenues from its diagnostic services in the fourth quarter of 2005 because they are now able to offer a more comprehensive sweep of advanced cancer diagnostic tests. They also expect revenue from the sales of systems to increase with DAKO's distribution efforts.

Next is Laureate Pharma which we acquired in the fourth quarter of last year. As compared to the second quarter of 2005, revenues at Laureate decreased 43% and the operating loss increased 28%. Laureate attributes the decline in revenue to customer decisions to cancel or delay products based on the results of their clinical trials or other factors. Servicing clinical stage companies necessarily involves the risk that their trials may not be successful, despite the quarter's results, we are encouraged by their growing pipeline and the expanded array of services.

To summarize, we are pleased with the progress of the consolidated companies during the quarter and we'll continue to work closely with them to help them achieve their financial and operating objectives. While some of the companies have not yet reached the profitability, it is important to realize this is normal for young companies that are investing for growth. Now that we've reviewed each companies results for the third quarter. Let's take a look at Safeguard's consolidated financial results.

On slide 17, you can see that this is the third consecutive quarter of strong, year-over-year growth in quarterly consolidated revenues. 10% in Q1, 20% in Q2, and 32% in Q3. As shown on slide 18, Safeguard's consolidated revenues decreased from $48 million to $46 million in the third quarter of 2005. As compared to the second quarter. And our consolidated net loss increased from 7.7 million to 10.6 million. On slide 19, you can see the consolidated revenues from continuing operations for the third quarter of 2005, which includes Laureate Pharma, increased 32% compared to the prior year.

Our net loss from continuing operations in the third quarter decreased by $8.4 million from last year. This was because of improved operating results at the companies, a decline in the equity loss that we recognized, and a decline in interest expense resulting from the retirement of our 2006 convertible notes last year. Slide 20 shows Safeguard's consolidated revenues from continuing operations for the year-to-date in 2005. Including Laureate Pharma, revenues increased 20% compared to the prior year. Our net loss from continuing operations in 2005 increased $19.8 million over the prior year. Other income in 2004 included gains of $39.6 million related to the sales of companies.

The nature of our business model will result in quarterly variances of this nature as we realize the value of our companies from time to time. The increased loss was also due in part to the inclusion of Laureate Pharma's operating results in 2005. Partially offsetting these changes were improved operating results at all of the other consolidated subsidiaries and $3 billion of interest savings as a result of the refinancing of the 2006 convertible notes.

In addition to the consolidated financial information, we have included the parent company balance sheet on slide 21, which shows the financial position of Safeguard as if all of the consolidated companies were accounted for on the equity method. As you can see, Safeguard has enough assets to cover corporate expenses to fund the growth of our current companies and to acquire new businesses.

Slide 22 shows the carrying value of our holdings at September 30, 2005, at $149 million. The carrying value of our public companies at September 30, was $15 million and the carrying value of our private companies at September 30, was $123 million. Our carrying values represent the original acquisition cost plus follow-on funding, plus our share of the earnings or losses of each company and any impairment charges that we may have recorded. Carrying value may not reflect the actual market value since under generally accepted accounting principals, we cannot mark-to-market the value of companies.

In evaluating Safeguard, we think you should look beyond the carrying or book value of the companies. Since there are no market values readily available for our private companies, we will continue to discuss operating and business milestones in our news releases, quarterly reports, and conference calls so that you can track their progress as they grow. This is how we evaluate the growth in the value of our private companies and we will help you to measure or net asset value or NAV.

Lastly, at September 30, 2005, the carrying value of the private equity fund interest that we hold was $11 million. Now let's look at the market value of Safeguard's ownership in public companies on slide 23. We currently have ownership interest in two public companies, Clarient and EMerge with an aggregate market value of $35 million as of November First. Slide 24 shows a roll forward of our parent company cash balances since last year end. At that time, we reported $162 million in parent company cash. Spending for corporate operations is not level throughout the year and we expect that corporate SG&A expenses will be about the $18 million that we've previously discussed.

Let me also note the parent company cash at September 30, does not include $10 million of cash balances at the majority owned consolidated subsidiaries, nor does it include $13 million held in escrow for interest payments on our convertible. Parent company cash as of November 1, was $144 million. We anticipate going forward that Safeguard will use cash for acquisitions, for additional funding to our companies to foster their growth, and $2.9 million during the remainder of 2005 related to pre-existing commitments primarily to the private equity funds. I'll turn the call over to Janine to begin the Q&A.

Thank you, Chris. Joining us now for the question and answer section are John Loftus, the Managing Director of Information Technology here at Safeguard, and Jim Datin, the Managing Director of our Life Sciences Group. Operator, will you please begin the Q&A session now?

[OPERATORS INSTRUCTIONS]. Your first question comes from Bill Sutherland of Boenning & Scattergood.

Thank you. Good morning. Peter, perhaps Jim and John want to chime in on this. I was interested in your strategic themes that you've highlighted for the Company and I wonder if you could give us a little more color on those.

Hi Bill. More color on strategic themes. Maturity, migration, convergence, compliance, and cost containment. These themes transcend both life sciences and information technology. Our population is aging. Medicines are expiring, their patents are expiring. The IT infrastructure is aging. The industry is seeing evidence of maturity since there's a good deal of consolidation going on in the industry. Platforms are migrating from one place to the other.

For instance, the perpetual license model migrating to the subscription and the on-demand licensing model. Technologies are converging, information technology being used in life sciences. Devices, therapeutics and diagnostics are all converging. Regulatory compliance is a watch word. No matter where you turn in business or industry or technology and certainly in life sciences and Sarbane you see compliance having requirements. Cost containment is everywhere. Health care costs are escalating, the maintenance costs of the IT infrastructure is escalating. Trends like that attract entrepreneurs. And our business is to find and support the entrepreneur and provide him the capital to build a great company.

Okay. So it's not like you've, through this process you've gone through initially kind of drilled down to three or four that are going to be the main ones? It's just, across the board, you're going to look at all these opportunities?

We see significant themes and trends in both of those industries. We've drilled down a little further in terms of the specific kinds of products or vertical markets where we might see more opportunity than others. But we think these giant themes will provide guidance for the resources that we have to enable the right kinds of returns.

Okay. The other thing that you mentioned that I thought might merit some elaboration is initing the deal machine. The steps involved, and perhaps the pace we can expect?

Well, with me, the pace is never slow, Bill. And I've got two great people here in John Loftus and Jim Datin to lead this ignited deal machinery. John has a ten-year GE background rich in sigma operational excellence. He's a serial entrepreneur that knows and understands the game.

Jim is extremely experienced in the life sciences arena and a variety of areas. Diagnostics, drug delivery, specialty Pharma, and he's got some entrepreneurial experience himself as a CEO. A good deal of what he has done and his background with some major firms, was responsible for the strategic area of identifying areas for growth and opportunity . He's done a lot of M&A himself. Both of these folks are joined at my hip with the proper incentives to ensure that we execute very boldly our strategy to grow shareholder value.

Any benchmarks-- I realize it's going to be as fast as you can push it. Perhaps you can tell us a little of what you have done to date.

I've outlined what we've done to date Bill, and that is really outlining our strategy. We're out now executing our game plan.

Lastly, I wanted one specific company question on Alliance. You've referred to the roll out of Metro Data Management and Global Delivery as a couple of the key initiatives. Maybe John could just touch on what that really involves, just what those are and how much of an impact they're having?

Sure, John why don't you pick that up.

Sure. Thank you. Alliance has focused on those two areas to drive higher margins, the Global Delivery aspect is part of the acquisition they did last year of a facility in hydro back and has added a new dimension that drives both higher margins and longer term relationships with some of our clients in terms of application management. Master Data Management is the crux of aligning data around different dimensions so that it can be used better for different decisions. Large companies frequently define customers or products differently in different SBU's. Master Data Management helps make all that actionable across the enterprise. It has a great deal of trouble today making that happen.

Okay. Thank you. Actually, let me do one more and I'll jump off. That is in Laureate which you all did describe the dip in the third quarter. How quickly do you think this new business can have an impact. Are we looking into '06 for some real recovery?

Let me pass this over to Jim Datin and he'll address the Laureate situation of the.

Bill, as Peter mentioned, we've hired a seasoned executive with sales and marketing experience at Laureate who's done a good job building the pipeline. We're actively engaged to help them. We provided some introductions to pharmaceutical and biotechnology companies. We remain very enthused at the opportunities and you'll see us support that commitment to build that business in the future. I think you'll see or hear of some announcements of customer wins in the near future and we'll keep you abreast of those.

Great. Thanks all.

Your next question comes from Eric [Brugold] with Gruber & McBain.

Good morning, Peter, good morning Chris, how are you?

Hi, Eric.

It's refreshing to hear a new and exciting voice on this call. Peter, it sounds like you've got a great background to reinvigorate the team. I'm happy to see you on board.

Thanks, Eric. Happy to be here.

A couple of questions. Chris will think I'm beating a dead horse because I've gone back to this time and again, but the company's long-term investment record is quite successful, but over the last five years it's been less than stellar to put it bluntly and the Company is significantly over capitalized in terms of its cash position. While I recognize that the primary use of that cash ought to be driving long-term shareholder returns by investing in private companies, growing those companies, I also believe strongly that a share repurchase when the shares get down to around net asset value or below net asset value makes a lot of sense. If you were able to retire say 10% of the shares, you're adding 10% of the growth to the growth and earnings per share as an annuity for the entire company.

I'm pleased to see that you've taken a significant stake in the Company since you've come onboard as Chris has noted many times, is that we as one of your biggest public shareholders,actually own significantly more shares than the entire management team combined, and we've been frustrated by that. And frustrated to the point where we're considering launching in the coming proxy statement for next year, increasing our stake and asking other shareholders to vote along side us for a tender in the firm for the company to buyback shares, particularly when they trade near discount to the net asset value that you outlined in your comments combining the public, private, and cash values on the Company. I note this in your press release, you talk about using cash for future investments, but nowhere is it noted that the board would even consider a share repurchase. Thank you.

You made a statement, Eric. But I'm not sure what your question was so I'll say our board feels that the best way to put cash to work right now is to invest in growing businesses and finding additional ones. That being said, my job is to increase shareholder value. I'm new here, I'll do whatever I can to increase shareholder value. And I'll think out of the box and move accordingly. I don't know what that is just yet, but that's my job and that's what I'm going to do.

Can you give us a reasonable time horizon for which you would redeploy the cash assets. They've been sitting on the balance sheets for a couple of years here without being put to much good use.

We have an active and engaged staff and we're out to do what we've just outlined as our strategy, but I can not give you a forecast.

Thank you very much. I'm pleased to have a new voice onboard and it sounds like you'll be working hard for us. Thank you very much.

You're welcome, Eric. I look forward to meeting you.

Your next question comes from Sam Ribotsky of SER Asset Management.

Yes, Peter. I will reiterate what Eric said. I enforce all the things he said, but I'm so extremely happy to see that as soon as you joined the company in August, you bought 190,000 shares on the open market. This was something I had spoke to management about them doing way back as the stock got down to $1. I'm glad to see that Chris and all the other management did that. That sort of shows the way for your stock holders that have been with you a long time. I guess you're entitled to a honeymoon, a little bit.

Yes, about three days.

Okay. Your background and the team that you seem to be putting together seems to have a good approach. Now as far as the -- in the life sciences. Do you have a plan on how much money you could lose before you say, well maybe enough is enough? What is your cash burn setup for the -- for that area, for the rest of the year and going forward?

Okay. Sam. First, thanks for the "Atta-Boy" the purchase of shares, not only by me but by other members of the team and our board as well. I'm a value investor personally. I saw this as a great, great value and look forward to increasing that value for shareholders, myself included. Let me ask Chris to take your question regarding cash burn and life science area.

Sam, I think we've talked before. Our view when you're building great companies is that you're investing in their growth. When we see the losses, we measure that against the strategic objectives of the companies and the progress they're making. In terms of how much, we are not giving guidance about future results, certainly not for Clarient as a public company, we can't do that. I will tell you that we think the companies are making progress, that the investments that we're making in their growth are well made. And we certainly have the resources to continue to support them as well as to add new companies to the portfolio.

Just one critique. One of my first investments was American research and development, which was the premier venture capital company and I'd like to see you sort of, copy that a bit. And now as far as the profitable companies which sort of seem to be turning around, what's your plan for exiting or for bringing value into those? Do you have any thought on that?

Yes, Sam. I'm from Boston, so I'm very familiar with ARD in general and the whole history there. A good deal of the community in Boson actually worked with or for the general once upon a time. He was a great guy and I'd like to find another digital equipment corporation.

Okay, $70,000 would be very good.

I'd be happy to do that. We're repositioning ourselves from an operating to holding sort of a company. As a holding company, you time your efforts to maximize value. We'll do that.

One of your biggest assets, as I am sure you realize, is your big NOL. The question is how do you figure out to utilize that NOL. The only way to do that is make a lot of profits, because you don't have to pay any taxes going forward for a long time. Would you sort of, if there was another situation that made sense to merge with SFE, would you consider that?

My job is to increase shareholder value, there is no one wat to do that. I'll take a look at any means necessary to increase shareholder value.

Looking forward to meeting you.

Thanks. Appreciate it, Sam.

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

Yes, I think we're ready to close and I'm going to let Peter do that.

Okay. Thanks for taking the time to be with us today. I hope you sense, I'm very, very excited about being here at Safeguard. We have cash, we have a clear strategy, we have growing companies, we have a great team in place to execute our plans, we have resources, and we have goals. So with the support of all of our stakeholders we're out to do just that. Thanks very much, lood forward to touching base again.

This concludes today's conference.