Boardroom
Digimarc

In the Boardroom With…
Mr. Bruce Davis
Chairman and Chief Executive Officer
Digimarc Corporation (NASDAQ:DMRC)

SecurityStockWatch.com: Thanks for joining us today, Bruce. You’ve been Digimarc’s CEO and a Director since 1997, and Chairman of the Board since May 2002. Please give our audience an overview of your background.

Bruce Davis: As Chairman and CEO of Digimarc, I bring more than 20 years experience developing major new consumer technology markets and driving the early adoption of new digital technologies ranging from video games and computer entertainment to electronic TV program guides and most recently digital watermarking-based applications.

Since I joined the company, Digimarc has developed a continual stream of innovative media applications that address issues of major importance to the technology marketplace – counterfeiting and piracy deterrence, ID security, digital rights management, and simplified Internet access.

Prior to joining Digimarc, I founded and served as president of TV Guide On Screen, a joint venture of News Corporation and TCI that supplied electronic program guides and navigational software for the cable television market, which merged with Prevue Networks who was, at that time, the leading supplier of electronic program guides. My team developed what was and is the leading interactive program guide for cable television.

Prior to that, I served as chairman and CEO of Activision, a leader in the video game industry, for six years. I began my career as an intellectual property attorney at Orrick Herrington & Sutcliffe in San Francisco. My experience in intellectual property development at Orrick and later at TV Guide On Screen provided a solid foundation for our patent strategy at Digimarc.

I received a BS in accounting and psychology and an MA in criminal justice from the State University of New York at Albany, and a law degree from Columbia University.

SecurityStockWatch.com: August 2006 seems to have been a great month for Digimarc’s secure driver license solutions. On August 4, Digimarc announced a $16 million “win” in Canada and on August 29, the Company announced a two-year contract extension valued at nearly $7 million with the Louisiana Office of Motor Vehicles. Please elaborate on these 2 deals for our audience? 
 
Bruce Davis: Our recent win with the Atlantic-Canada region, which represents a new customer for the company, demonstrates the growing list of North American customers who rely on Digimarc to supply the highest value secure solutions for driver licenses and other citizen identification programs.

In regards to Louisiana, we are proud of what Digimarc and Louisiana accomplished together following last year’s Hurricane Katrina, ensuring that displaced and evacuated citizens were able to get the photo identification they needed to get jobs and access social services.

The Louisiana extension is part of an encouraging trend we are seeing among our long-time customers and evidence that customer loyalty efforts are paying dividends. As a trusted and responsive supplier, we provide expert advice and market leading solutions to these issuers as they upgrade their systems to better serve their customers and prepare to comply with REAL ID. These improvements include more secure enrollment, verification and production processes and documents.

SecurityStockWatch.com: Please tell us about the Nebraska drivers’ license pilot project.

Bruce Davis: Many States are engaging in impressive innovation in driver license security. But the U.S. Department of Transportation pilot study conducted by Nebraska, coupled with investments that Nebraska has made in identification security, provide a useful case study to inform the national debate about the use of driver licenses for crossing our land borders with neighboring nations and readily available ID authentication technologies.

In 2003, Nebraska was one of the first States in the country to incorporate Digimarc’s digital watermarking feature into its licenses. In 2005, the Nebraska Department of Motor Vehicles conducted a pilot under a grant from the U.S. Department of Transportation to demonstrate authentication of digitally watermarked driver licenses as a means to fight ID counterfeiting, reduce the purchase of age-restricted alcohol and tobacco products, and enhance traffic safety.

Digital watermark scanners were installed in a total of 18 point-of-sale sites, 30 DMV offices, and 35 law enforcement sites, and were used in "real time" for an average of 30 days. The deployed readers continue to be used by the state, and in fact, this summer, Nebraska plans to put new Digimarc Document Inspector units into production at DMVs across the State. This will arm front-office operators with the tools to inspect and positively authenticate the millions of U.S. driver licenses secured with Digimarc IDMarc digital watermarking. 

At the conclusion of the pilot, Digimarc staff interviewed the users regarding their experience with digital watermarking technology. Retailers, law enforcement and DMV operators were equipped with reader devices that allowed them to verify the information printed on a driver license-even an unfamiliar out-of-state driver license-against the information contained in the digital watermark. By doing so, they were able to determine if a driver license was valid or not and in the retail situations which, if any, age-controlled products the driver license holder was old enough to purchase. The scanner/reader devices proved invaluable in instantly determining whether or not the license presented was authentic, as well as validating the age of the driver license holder.

SecurityStockWatch.com: We understand that more than one in three driver licenses issued in the U.S. in 2006 will carry the Digimarc IDMarc feature. This market share, and the recent “wins”, are very impressive. What does this market segment look like for the Company for the remainder of 2006 and for 2007?
 
Bruce Davis: U.S. States began incorporating digital watermarking in their driver licenses in 2002, resulting in more than 35 million watermark-secured driver licenses in circulation. Digital watermarking is a covert, machine-readable feature that enables reliable cross-jurisdictional authentication of U.S. driver licenses. By the end of the year, 1 in every 3 issued driver licenses will include digital watermarks and this number is growing rapidly.

Visual inspection of ID documents - the key method our inspectors have today - is inadequate for a number of reasons, including the fact that there are more than 200 valid U.S. driver license formats. Only specialists, with years of training, have the skill sets needed to conduct reasonable visual inspections, and even then, visual inspection alone is not adequate to catch digital counterfeits.

As we’ve seen in the Nebraska pilot, authenticating documents like driver licenses and IDs can be done quickly and simply with a single device that scans both sides of the document simultaneously, and the Digimarc Document Inspector software that checks the validity of common ID security features, including the digital watermark.

We believe the experience of Nebraska, and similar experiences in several other States that have implemented driver license security innovations, can be leveraged by the Federal government to help make our nation's borders more secure in a timely and cost effective way as well to support our State driver license issuers in fighting identity theft and fraud and enhancing traffic safety.
 
SecurityStockWatch.com: Digimarc recently provided expert testimony to the Senate Finance Committee hearing on improving North American border security. Can you share with us some of the highlights of this testimony?
 
Bruce Davis: Customs and Border Protection and law enforcement officers face extraordinary challenges as they try to authenticate the more than 200 forms of valid driver licenses circulating in the U.S. today through unaided visual inspection. Our testimony discussed technological innovations that are available now and in use by several State governments and commercial entities to augment visual inspection of driver licenses. Such technologies, like digital watermarking, are already in broad distribution, and can be used to automatically authenticate U.S. driver licenses, travel documents and other modern identification documents. Solutions, like those demonstrated in our testimony, could be leveraged by the Federal government to improve the security of our borders within 6 to 12 months.

We recommend that the Federal government promptly deploy capabilities to machine verify the authenticity of U.S. driver licenses at the border, including reading and authenticating the digital watermark. Over time, these readers could be upgraded to accommodate enhancements being made to driver licenses and other identity documents from both the U.S. and Canada, and also other from other Western Hemisphere countries as deemed appropriate by the Department of Homeland Security and the Department of State. These technology solutions are scalable, having the capacity to integrate new technologies that will be developed in the future to ensure that criminals and terrorists are always challenged to defeat ever higher levels of security.

Every border crossing official can be equipped to do rapid and reliable machine-verification of driver licenses, processing the covert features in documents that are presented at the border. In addition to putting stationary readers at all border crossing stations, mobile readers should also be deployed to ensure that agents can do rapid and secure screening of driver licenses and/or travel documents. This will help ensure that transit times are not unduly affected.

The REAL ID law requires the States to add a machine-readable feature to their driver licenses. Given that digital watermarking is now widely deployed in U.S. driver licenses, we recommend that the Federal government require or encourage all States to adopt digital watermarking technology in addition to other appropriate machine-readable security features to comply with the requirements of this law so that national standard authentication will be realized.

We believe that Congress should help the States pay for REAL ID compliance. The REAL ID Act will help States meet the security challenges of the 21st century by ensuring that they deploy best-of-breed, end-to-end security systems. Given the initial cost estimates by the National Conference of State Legislatures suggest that compliance will run between $9 and $13 billion, and a recent report by INPUT, the authority on government business estimated REAL ID spending to be at $2.5 billion through 2012 -- the Federal government should bear a fair share of costs for upgrades mandated for the benefit of national security.

Finally, we recommend that Congress harmonize the Western Hemisphere Travel Initiative and the REAL ID Law. This approach would leverage the significant investments in ID security that the States have already, and will continue to make, in the coming years. The harmonization should require DHS to establish common security standards to be applied to credentials used for land border crossing. This approach would also leverage the existing ID systems that the US States and Canadian Provinces have already deployed. The opportunity for the United States and Canada to develop a collaborative approach should not be missed.
 
SecurityStockWatch.com: The U.S. District Court of Oregon recently dismissed the final of three consolidated securities class action lawsuits that were filed against the Company. What will this mean for Digimarc’s future operating performance?
 
Bruce Davis: The U.S. District Court of Oregon recently dismissed the final of three consolidated securities class action lawsuits that were filed against the Company and certain of its current and former executive officers, arising from accounting errors discovered by the Company in 2004 and rectified through a restatement of certain prior period financial statements. 

These decisions fit nicely into trends of improving operating and financial performance, helping to re-energize the Company as we put this chapter behind us and focus on customer satisfaction, market leadership, and the exciting business opportunities ahead.

SecurityStockWatch.com: At a recent investor conference, we believe you described Digimarc's vision as having its digital watermarking technology in all media objects. Please give our audience an overview of the Company’s business model as it supports this vision.

Bruce Davis: Digimarc’s vision is to improve the value of media content through technology. Our mission is two-fold:
    
     • To foster large-scale adoption of digital watermarking solutions licensed under
        the Company’s intellectual property
     • To be the most desired profitable supplier of driver license issuance systems

Today, the substantial majority of the Company’s revenues arise from provision of mission critical solutions to government agencies pursuant to long-term contracts — primarily U.S. state government agencies engaged in the issuance of driver licenses, a consortium of leading Central Banks, and national governments of certain foreign countries.

The remainder of the Company’s revenues is generated primarily from patent and technology license fees paid by business partners providing media and rights management solutions to movie studios and music labels, television and radio broadcasters, corporations, and creative professionals.

Our digital watermarking technology is a breakthrough that allows our customers to infuse digital data into all media content that is digitally-processed at some point during its lifecycle. The technology can be applied to printed materials, video, audio, and images. The inclusion of such digital data enables a wide range of improvements in security and media management, and enables new business models. We use digital watermarking as a value driver and differentiator in nearly all of our product offerings.

As an example, Digimarc IDMarc digital watermarking has been adopted by 15 states representing more than 40% of all U.S. driver licenses issued annually. This feature links together elements of the ID in a way that is imperceptible under normal use, can be added to existing designs, and is readily detected by enabled software and hardware. With the introduction of security features such as IDMarc, Digimarc’s secure IDs carry machine-readable features that allow for low-cost and effective cross jurisdictional authentication, augmenting visual inspection to determine if a presented driver license matches one of the more than 240 valid driver license designs. Digimarc is pioneering the use of point of inspection validation in its pilot study with the U.S. Department of Transportation and the State of Nebraska. The pilot uses digital watermarks for cross-jurisdictional ID validation at various law enforcement, DMV and retail locations as a means to reduce the use of fake IDs for underage drinking and to improve traffic safety.

Simultaneously, Digimarc’s business partners in the media and entertainment industry, under patent license from Digimarc, are delivering digital watermarking-based solutions to track and monitor the distribution of music, television, movies and radio to consumers. In sum, our solutions enable governments and businesses around the world to deter counterfeiting and piracy, enhance traffic safety and national security, combat identity theft and fraud, facilitate the effectiveness of voter identification programs, and improve the management of media content.

SecurityStockWatch.com: Congratulations on the deal with Microsoft. We understand that Microsoft will embed Digimarc digital watermarks into satellite images served up by its Virtual Earth platform. Can you give our audience an overview of this application and Microsoft relationship?

Bruce Davis : This agreement is consistent with trends across various media industries toward use of digital watermarking to protect copyrighted media assets as well as to enhance consumer experiences.  Generally, market conditions for digital watermarking are the most favorable we have seen in years.  Along these lines, we were very pleased with the recent decision by Microsoft to use our Digimarc ImageBridge™ digital watermarking software to embed digital watermarks into tens of millions of satellite images provided to Internet users by its new Virtual Earth mapping service. Recognition of the value of digital watermarking in the IT industry has lagged behind the growing momentum in the media and entertainment industry.  Given the important role that the IT industry is expected to play in providing infrastructure for many new means of distributing news and entertainment, it is encouraging to see a major IT industry player like Microsoft adopting digital watermarking.  As watermarking is increasingly used in entertainment content, we believe that the relevance of the technology to IT suppliers will become more obvious and inevitable. 

In this application of digital watermarking, users of Microsoft Virtual Earth platform will be able to check for copyright information or connect to additional opportunities through a Digimarc-enabled image by reading the digital watermark carried by the image. Digimarc digital watermarks can be read through the digital watermark reader plug-in found in many popular image editing applications, including Adobe Photoshop, or through Digimarc's free Reader software, which can be downloaded at www.digimarc.com

SecurityStockWatch.com:
Digimarc is a market leader in digital watermarking and in government-issued secure identity management. Let’s spend a moment on Digimarc’s work in the government secure ID business first.

Bruce Davis: Digimarc became a supplier of secure credential issuance systems via acquisition of the Large Government Programs business of Polaroid Corporation in 2001. By virtue of this acquisition, the Company became the leading supplier of driver license (DL) issuance systems in the United States, producing more than two-thirds of all driver licenses issued. Worldwide, hundreds of millions of people carry secure credentials produced by Digimarc issuance systems. On the heels of 9/11, we realized that our expertise in security printing and digital imaging technologies and systems placed us in a position to understand both the digital threats to identity management credentials and the issuer’s environment. In the strategic acquisition of the LGP business unit of Polaroid, we saw a unique opportunity to assist in efforts to deter identity theft and fraud and enhance Homeland Security through the combination of a new layer of security using our digital watermarking innovations and market-leading competence in secure ID solutions from Polaroid, furthering our strategy of delivering innovative customer-focused solutions. The resulting business has more than 47 years of experience from the production of more than 2 billion issued IDs. Customers have trusted Digimarc to guide them through numerous major upgrades and technology migrations in ID security.

SecurityStockWatch.com:
We understand that the State of Kansas Division of Motor Vehicles recently integrated two key elements of the Digimarc Identity Validation Suite into its driver license enrollment process to deter driver license fraud and identity theft and that the Company is a principal supplier of driver licenses in the United States, producing nearly two-thirds of all driver licenses issued. Please give us an overview of this business, today and tomorrow.

Bruce Davis: As the leading provider of secure ID credentials in North America, Digimarc systems produce more than 60 million driver licenses and other secure personal identification documents per year. Nearly two thirds of the U.S. states and many foreign governments, including Russia, Latvia, Mexico, and Canada, utilize Digimarc secure ID solutions. Many aspects of our advanced technology solutions anticipate both the mandate of the recently-passed REAL ID Act and the emerging consensus on best practices consistent with our product and service strategy.

Digimarc secure driver license solutions provide our customers with “best practices” and modular, flexible products designed to improve security within each component of the secure ID lifecycle—from the time an applicant applies for or renews his or her driver license; to the secure production and issuance of the ID to the legitimate cardholder; to the authentication of that document at a traffic stop, a bank, a border crossing, a store, or the DMV.

For example, in 2005, Digimarc introduced the Digimarc Identity Validation Suite (IDVS) to validate identity documents and verify the biometric and demographic data presented to establish an applicant’s identity. As identity credentials become more secure and difficult to counterfeit, counterfeiters turn to producing false breeder documents to fuel attempts to fraudulently obtain valid secure credentials. Thus the process of validating identity is becoming central to secure ID issuance as document quality improves, ensuring that only valid applicants receive genuine IDs. This market development is underscored by the focus of REAL ID on identity validation. IDVS is the Company’s most strategic product offering in 2006, enabling migration to REAL ID compliance, and expanding Digimarc’s footprint in the customer workflow.

SecurityStockWatch.com:
Secure ID, of course, has many applications beyond drivers’ licenses. You’ve had “wins” with Voter ID in Mexico and Haiti, and Digimarc’s ID validation has enabled Federal Agencies to meet Homeland Security Presidential Directive 12. Without divulging any confidential or sensitive information, please tell us about some of your “wins” and applications in these other Secure ID market segments.

Bruce Davis:
Both domestically and abroad, government ID issuers are increasingly sensitive to the issue of identity theft and fraud, to concerns around verifying personal identity, and to the role that the credentials – whether driver licenses, voter IDs or national IDs – play as a primary form of identity verification for personal access to secure facilities, and public transportation, the conduct of financial transactions, and at point-of-sale for age restricted products such as alcohol and tobacco. As the IDs themselves become harder to alter or counterfeit, more attention is being directed toward effective end-to-end solutions, encompassing enrollment, document issuance, and post-issuance verification. This presents an excellent opportunity for Digimarc to grow revenues by expanding our offerings to broaden the footprint with existing customers and expand our presence in related federal, law enforcement and financial markets.

                 

These favorable market trends are not limited to North America. Countries around the world are evaluating their ID processes and systems in the wake of heightened terrorist threats and increasing levels of identity theft and fraud. As the producer of over 60 million ID cards worldwide each year, Digimarc is well positioned to help the large, emerging, fragmented international market enhance and standardize its secure personal identification processes to meet the challenges of the 21st century.

SecurityStockWatch.com: Now let’s turn to Digimarc’s “digital watermarking” technology and your work in the Media & Entertainment market.

We understand Digimarc has more than 200 issued U.S. patents with more than 400 additional U.S. patent applications pending in “digital watermarking,” which allows imperceptible digital codes to be embedded in all forms of media content, including personal identification documents, financial instruments, photographs, movies, music and product packages. Please tell us about the traction Digimarc has achieved in this business.

Bruce Davis: Many major movie studios, record labels, broadcasters, corporations and creative professionals rely on digital watermarking as a cost-effective means to:

     • deter piracy and illegal use of movies, music and images;
     • protect entertainment content from copyright infringement;
     • track and monitor entertainment content for rights usage and licensing
       compliance;
     • monitor advertisements to verify ad placement and measure return on investment;
       and
     • enable fair and legitimate use of content by consumers.

Our business partners in this area now include Activated Content, Dolby Laboratories/Cinea, GCS Research MediaGrid, Nielsen Media Research, Royal Philips Electronics, Signum, Thomson, Verance and Verimatrix. While each partner addresses particular customer needs, as a whole they are propagating digital watermarking in music, movies, images, and television and radio as a means to improve media rights and asset management, reduce piracy losses, improve marketing programs, and provide more efficient and effective distribution of valuable media content.

SecurityStockWatch.com: Digimarc technology has been used by Central Banks to prevent counterfeiting. Please tell us about a couple of "wins" in this market segment.

Bruce Davis:
Banknote counterfeit deterrence was the first large-scale success for digital watermarking. Digimarc, in cooperation with an international consortium of leading Central Banks, developed a system to deter the use of personal computers in the unauthorized reproduction of banknotes. Due to the security and confidentiality of the program, I cannot discuss the project in any more detail.

SecurityStockWatch.com: The Company seems to have a very impressive list of strategic partner relationships in this business with Dolby and Thomson just to name a few. Care to give us some details about these key relationships?

Bruce Davis: In the media and entertainment field, profitable growth is dependent on the success of our patent and technology licensees, whom we support with our evangelism and innovation in digital watermarking. Digimarc and its licensees are delivering a variety of digital watermark-based solutions for forensic tracking of pre-release music and movies by most major movie studios and record labels and for broadcast monitoring by a number of producers of television and radio entertainment, news and advertising. In Q4 and 2005 as a whole, we continued to be encouraged by several developments across the spectrum of movies, music and television that bode well for our partners and our patent licensing business.

We recently announced new licensing agreements with two of the leading providers of digital watermarking solutions that help improve the management, distribution and protection of digital media content, including digital cinema: Dolby and its Cinea subsidiary, and Thomson. With the inclusion of digital watermarking earlier in the year as a component of the Digital Cinema System Specification, these two patent licensees are now well positioned to help in the secure rollout of digital cinema solutions in theaters around the world.

SecurityStockWatch.com: Digimarc recently announced that a recently passed U.S. Department of Defense bill has appropriated $1 million to the U.S. Army Night Vision Electronic Sensor Directorate for the use of digital watermarking in providing more effective battlefield, port and border intelligence. Please tell us about this Military deal and the broader opportunity going forward with the DOD.

Bruce Davis:
More than ever, Homeland Security and national defense rely on image and sensor data to understand, manage and respond to threats. This is especially the case for intelligence, mission planning and emergency response. By directly embedding key sensor and event data  in imagery and sensor streams with digital watermarking, analysts will be able to more rapidly synthesize and analyze data from multiple sources – an essential element to equipping military forces and intelligence personnel with an information advantage and building out the military’s network-centric war fighter capabilities. This project is expected to demonstrate the value that digital watermarking can bring to image- and sensor-based defense and intelligence applications.

The U.S. Army Night Vision Electronic Sensor Directorate is going to use Digimarc digital watermarking in its “Smart Data Project” to provide more effective battlefield, port and border intelligence. We are working on this contract with three other companies – GCS Research, S&K Electronics Inc., and AquilaVision Inc.

SecurityStockWatch.com: Bruce, going forward, what are the major market drivers for Digimarc’s fundamental strategy?

Bruce Davis: In the government market, we believe that the global market for secure identity management solutions is in the early adoption stage, characterized by a fragmented supply chain with no dominant brands, emerging standards, and increasing concerns about national and economic security, entitlement programs, and requirements for controlling access to information and physical assets. Serving the citizen identity management market involves successfully delivering a set of solutions that span the secure ID lifecycle, ranging from demographic data capture, identity validation, and applicant data and biometric verification systems, to the design and secure production of credentials incorporating linked and layered security features, culminating with effective ID authentication deployed at various points of inspection. It also requires the expertise to integrate these solutions with existing government agency applications and IT infrastructure, and the service, support and training necessary to effectively manage the implementations over the course of long-term customer relationships.

According to the U.S. Department of Transportation, there are more than 195 million licensed drivers in the U.S.. Digimarc estimates that the size of the U.S. driver license issuance market is significantly more than $100 million per year and believes the market is likely to expand due to: the broadening use of the driver license as a secure credential beyond its traditional role as evidence of competence to drive a motor vehicle, technological innovation, desire among issuers to improve security and efficiency, and new governmental regulations, including the REAL ID Act.

In the media and entertainment field, we believe our intellectual property is essential to substantially all known digital watermark implementations in the marketplace. The use of digital watermarking solutions from our business partners for forensic tracking of pre-release movies and music has gained a strong foothold in Hollywood. Digital watermarking is incorporated in more than 2 million audio tracks from major record labels to identify and track leaks of promotional, pre-release music onto the Internet. Customers of these solutions from Digimarc and business partners such as Activated Content include SonyBMG, Universal Music Group and Warner Music, mastering studios, disk duplicators and online business-to-business music distributors. In a similar application for movies, digital watermarking has been identified by representatives of the movie studios as dramatically reducing piracy of movies in the Academy Award screener program.

Digital watermarking may also play a role in the movie industry’s transition from film reel distribution to digital file format distribution for theatrical release. In July 2005, the Digital Cinema Initiative, which is supported by Disney, Fox, MGM, Paramount, Sony Pictures Entertainment, Universal and Warner Bros. Studios, released its Digital Cinema System Specification, which details industry guidelines designed to help spur deployment of digital cinema systems for the hundreds of thousands of movie theater screens in the United States and around the world while establishing uniform levels of security, distribution, performance, reliability and quality control. The specification requires that digital cinema systems be capable of applying digital watermarks in both the video and audio streams of digital movies upon request of the studios or other content providers. The digital watermarks can be used as a forensic tool to help identify the theater, location, production version and even the date and time that a film plays in a specific theater.

Broadcast monitoring allows clients to identify where, when and how their media content is being aired. This type of information is important to many different types of users. For example, every day, thousands of advertisements run in thousands of markets across the country. With highly regionalized cable, satellite and terrestrial delivery, advertising agencies and their clients need to know that the advertisements they pay for are actually being broadcast. By using digital watermarking-based services, these companies can monitor broadcasts in major media markets around the world, verify compliance by broadcast partners, and measure the effectiveness of the campaign. For example, consumer products companies like Coca Cola and Pepsi, and broadcast networks such as ABC Television Network, NBC News Channel, BBC and Reuters Television, currently apply solutions from these Digimarc partners to monitor broadcasts on over a thousand channels in more than 50 countries worldwide, studying the distribution of their content, verifying compliance by broadcast partners, and measuring the effectiveness of broadcasts.

SecurityStockWatch.com: Digimarc recently reported record revenues and improved cash flow for the third quarter ended Sept. 30, 2005. Third quarter revenue totaled $26.8 million, the Company's highest quarterly revenues ever and 14% higher than revenues of $23.5 million in the comparable period of 2004. What can you tell our audience about Digimarc’s current backlog and financial objectives going forward?

Bruce Davis:
The key success factors in our business begin with earning customers for life by profitably delivering exceptional value at fair prices and by growing our IP licensing margins as a trusted partner that supports our licensees’ businesses with technology and market evangelism. We believe we are making excellent progress toward those goals as evidenced by new contracts or extensions in late 2005 with three of our long-time customers – the States of Massachusetts, Texas and California -- and through the recent signing of licensing agreements with Dolby and Thomson, two leaders in the media and entertainment field.

Serving the citizen identity management market involves successfully delivering a set of solutions that span this secure ID lifecycle as well as the expertise to integrate these solutions with existing government agency applications and IT infrastructure, and the service, support and training necessary to effectively manage the implementations over the course of long-term customer relationships. That’s where Digimarc identity verification solutions like our Identity Validation Suite of products, IDMarc digital watermarking, and secure ID production offerings are gaining traction in helping many States fortify their enrollment and issuance processes, protect the integrity and value of the driver license as our de facto citizen ID, and prepare for compliance with the requirements of the REAL ID Act.

In terms of opportunities in the media and entertainment market, licensing of our digital watermarking patents is a critical element of our long-term shareholder value proposition. The greatest near-term interest in digital watermarking is in the entertainment field. The Company and our business partners are successfully propagating digital watermarking in music, movies, television and radio broadcasts, images and printed materials. Within these markets, digital watermarking has been used to provide improved media rights and asset management, reduced piracy and counterfeiting losses, improved marketing programs, and more efficient and effective distribution of valuable media content.

SecurityStockWatch.com: Thank you very much for your time today, Bruce.