Bruce Davis - Chairman and Chief Executive Officer Michael McConnell - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Corey Barrett Paul Sonz - Sonz Partners Adam Fisher - Burnham Kevin Hanrahan - KMH Capital Advisors

Good afternoon, and thank you for participating in today's conference call. Now I will turn the call over to Chairman and CEO of Digimarc, Mr. Bruce Davis. Mr. Davis, please proceed.

Thank you. Good afternoon, everyone. Welcome to our conference call. Mike McConnell, our CFO, is with me. The objectives of this call are to review and discuss second quarter financial results, talk about significant business developments and market conditions and provide an update on our strategy and operations. The webcast will be archived in the Investor Relations section of our website. Please note that during the course of the call, we will be making certain forward-looking statements including those regarding revenue recognition matters, results of operations, investments, initiatives and growth strategies. These statements are subject to many assumptions, risks, uncertainties and changes in circumstances. Any assumptions we offer about future performance represent a point-in-time estimate. Actual results may vary materially from those expressed or implied by such statements. We expressly disclaim any obligation to revise or update any assumptions, projections or other forward-looking statements to reflect events or circumstances that may arise after the date of this call. For more information about risk factors that may cause actual results to differ from expectations, please see the company's filings with the SEC, including our latest Form 10-Q. Mike will begin by commenting on our financial results. I will then discuss our outlook and execution of strategy. Mike?

Thanks, Bruce, and good afternoon, everyone. Our quarterly profits grew by $4.5 million over last year on significantly higher revenues. Our balance sheet remains in excellent shape, with more than $30 million of cash and securities and no debt. We purchased -- repurchased approximately 66,000 shares during the quarter, and we continue investing significantly in growth, including marketing of our intellectual property with Intellectual Ventures, building-out our joint ventures with Nielsen, developing the second wave of retained patents and beginning commercialization of Digimarc Discover, all in support of our vision of enabling computers, networks and other digital devices to see, hear, understand and respond to their surroundings. Q2 financial highlights included revenues of $9.5 million, 81% higher than the prior year, reflecting increases in our new relationship with Intellectual Ventures and strong growth in some of our long-term licensees. Our gross margins of 82%, which were 11 points higher than the prior year, reflect a greater mix of license revenues to the total while gross margins on service revenues were consistent with the prior year. Higher operating expenses reflect the increased investments in our new product initiatives and some ongoing litigation costs, an operating profit of $2.3 million or 25% of revenues. $700,000 capital contribution to our joint ventures with Nielsen, where our share of the net loss for the quarter was about $700,000. And $1.9 million net income tax benefit, primarily related to recovery of net deferred tax assets that were previously fully reserved. We'd expect our effective tax rate for the balance of the year to be in the neighborhood of 30%, subject to changes and are currently estimated at tax credits. Bruce will now provide his comments on our outlook and execution of strategy. Bruce?

Thanks, Mike. As I'd noted on our last call, we got off to a nice start to the year. Our overall operating performance continues in line with our expectations. Market conditions are robust. Signs continue to indicate to us that the dawn of the era of pervasive intuitive computing is upon us. As sensors proliferate and networks gain intelligence, [indiscernible] identification of what's being processed becomes less necessary. In this world, simple, reliable identification of media objects is increasingly commonplace. From security for digital images, band notes and movies to music discovery and synchronized television, the common theme is an increasing capability of digital devices to recognize what they are processing. To see and hear, largely as humans do. This growing capability will change the world, simplifying access to the benefits of computing throughout everyday lives for everyone. We think that Digimarc has an important role to play in this new world order. Given we are at the midpoint of what is proving to be a very busy and complex year of development for us, I will spend more time than usual today commenting on our execution strategy and market conditions across the range of our business and our plans to grow profits from these markets. Back to our level, these are remarkable times. Much of what we do is related to a concept referred to by many as the Internet of Things. At a recent industry conference, the VP of the European Commission for Digital Incentive for the EU commented that the Internet of Things is expected to connect 50 billion devices by 2020. That's about 6 for each man, woman and child on the planet. The shift from an Internet of People to an Internet of Things will create unprecedented market opportunities. We are seeking to play an important role in this new era. Now let's begin more specifically how things are going in execution strategy for doing so. First, in the Government area. I'm pleased to note that we have an approved plan on budget for 2012 with our Central Bank customers. The budget was recently consistent with the growth trends of the last few years. In other government work, revenues blurred [ph] our expectations during the first half of the year. However, some recent contract awards in cyber security defense lead us to believe that this servicing [ph] will begin to improve in the second half of the year. Digimarc is part of a winning team within Vertex Corporation to provide a broad range of research and development support to the national security community. And Vertex is the prime contractor to a government customer. The contract is an IDIQ contract, meaning indefinite delivery, indefinite quantity. And I suggest for those of you who are not familiar with this increasingly common form of government contract, you could go to Wikipedia and look up IDIQ for further explanation. The duration of the contract is 4 years, and the spending ceiling is $108 million for the work of all the contractors involved. And Vertex is one of the 4 winning prime contractors, and each contractor has exclusive ability to bid for task under this contract for this customer. Digimarc is expected to participate in some, but not all of the task. We anticipate beginning work later this year. In addition to this recent award, our defense and intelligent mark contains numerous other opportunities for growth. In the movie business, the transformation in movie distribution is accelerating. Standard definition DVD is rapidly being obsoleted by Blu-Ray. Netflix's success has inspired some change in investments by Amazon and existing cable and satellite video service providers. Blockbuster and VUDU are also offering streaming movies. Hulu another major video platform innovator is rumored to be a takeover candidate. Moving Picture Studios are expanding distribution into these new channels. As they do so, they are keeping security in mind and fostering increasing use of watermarking for copyright protection. As you know, digital watermarking is an industry standard in security architectures for Blu-ray and digital cinema. It is now rolling out an early video-on-demand markets for a consistent mandate from the rights holders. Our licensees, Verance and Civolution, are the leading suppliers of these watermarking based security solutions. Civolution is a new model in digital cinema and early video-on-demand. Verance, the watermarking supplier mandated by AECS for Blu-Ray continues to be a significant source of license income despite our ongoing contract dispute. We received favorable rulings from both Delaware and Oregon courts during the quarter, with the Delaware Court dismissing Verance's action through the territory release. The motions practice continues in these cases. So we continue to recommend PACER, for those who desire to follow these cases closely. Next, we'll review progress in developing and marketing the seeing/hearing device platform. It is our major growth initiative, and encompasses work in many media markets including music, television, publishing, packaging, direct mail, free-standing inserts and various niche applications. As you know, our ultimate goal is to enable mobile devices to see, hear, understand and respond with optimized network services when instructed by users to look or listen. This is intended to modernize the basic search function, reducing a lot of first generation text-entered-in [ph] keywords. As Google recently noted in an update on search, search is increasingly done via mobile devices. Typing keywords on these devices is cumbersome. Our model makes the process simpler, more efficient and intuitive. The current version of the platform includes Digimarc Discover and the Media-Sync venture with Nielsen. The largest of all Digimarc Discover software currently includes music discovery courtesy of our collaboration with Sony, and print-to-network connectivity based on QR code reading and digital watermarking. Our goal is to produce an efficient platform based on various recognition means that will play an important role in a new model of computing that we refer to as pervasive intuitive computing. We believe that this paradigm change is the logical next step in the evolution of search and the user interface for computing more generally. It is made possible by the proliferation sensors connected to digital devices. Most notably in smartphones, but also in laptops and tablets, and soon in televisions as well. During Q2, we conducted an extensive beta test of Digimarc Discover and our associated Online Services Portal that provides a simple and economic means of encoding digital watermarks into printed publications. The beta has been helpful in developing a better sense of how to make progress in facilitating this new era of pervasive intuitive computing. While our confidence in the vision [ph] grows, we are mindful of many practical obstacles to progress. I think we have the right strategy and patience and financial waterfall [ph] to see it through to a successful conclusion. As we encourage trial and adoption, the research and development concerning the platform continues to pace. We have been broadening and integrating various things of object recognition and innovating a higher order of sense fusion and inference. We've added music recognition and QR code reading to the watermarking embedding functions of the platform, progressing toward creation of a universal reader that uses various technologies to identify the content consumers want to experience further. Next up is likely to be conventional 1D barcode reading. It is under development and we expect to deliver it soon. I also look forward to an all-TV application emerging from our Nielsen joint venture. I continue to believe that the basic object recognition functions belong in the operating system, given that they should be routine and ubiquitous capabilities of the natural success of smartphones and first generation search. In the music area, the music market transformation is taking shape. I believe that the contours of the new industry paradigm are becoming obvious with the successful public offering of Pandora and numerous other announcements of cloud services. The pace of innovation in the music business has noticeably accelerated. Digital Music News recently reported that funding through music-related startups in the first half of the year reached nearly $400 million. Shazam alone raised $35 million, although public reports indicated much of this fund is targeted towards the television synchronization initiatives. More on that in a moment. Further in the music area, Google announced Music Discovery. And Microsoft announced that the new mobile operating system released in the fall will have Bing audio and visual search in it. Mobile music discovery will play a pivotal role in the new purchasing model for music. Earlier this year, we updated Digimarc Discover to enable music discovery via collaboration with Sony. We anticipate collaborating with Intellectual Ventures, in pursuing license income from the burgeoning music discovery suppliers. In the television area, we have some exciting news concerning Media-Sync. Grey's Anatomy's sync app for iPad, which launched in February for ABC's top-rated series has been nominated for a Primetime Emmy Award in the category of Outstanding Creative Achievement in Interactive Media. Powered by the Media-Sync platform, this app provides fans of the show with the ability to interact with exclusive content in real-time using their iPads. The Media-Sync platform, a product of our joint venture with Nielsen, is being designed as a comprehensive application development and operating environment that allows television content producers and broadcasters to deploy synchronized mobile apps in a rapid and scalable fashion. The platform relies on audio watermarks already inserted in nearly every television program in the United States, as part of Nielsen's industry-standard TV audience rating service. In addition to giving viewers the ability to interact with synchronous content -- content types of your favorite shows and enhancing the social TV co-viewing experience, the Media-Sync platform also delivers interactive advertising modules as companions to react [ph] on the big screen. This capability gives viewer the opportunity to dive deeper into TV ads for products that interest them and gives advertisers a powerful new way to extend the effectiveness of their TV ad buy. There's a lot of experimentation going on in this potential redefinition of television, providing encouraging signs that the transformation of television viewing experience that we envisioned is developing along the lines that we anticipated. Numerous initiatives have been announced by a wide range of suppliers regarding check-in, social TV and synchronization. We see these initiatives as validation of our vision, licensing opportunities and competition for our joint venture with Nielsen. We continue to build out the platform as more programmers are considering adoption and we are assessing the Walker Digital patent claims in determining the best course of action. Much of our attention is focused on continuing development in additional marketing of Digimarc Discover for publications. Now as projected on our last call, we have begun commercialization of Digimarc Discover while continuing research and development. Our public beta program launched in February, concluded at the end of May. Here are some statistics regarding trial usage from the program thus far, including the beta period and the first month of commercialization. Approximately 1,500 Online Service Portal accounts were opened. There have been more than 45,000 downloads of Digimarc Discover. We don't have reliable statistics on the numerous project label versions that have been created. Users in more than 60 countries have read more than 60,000 watermarks. And Digimarc Discover revenues so far are about $200,000, which is generally consistent with our 2011 operating plan assumptions. We still have a lot of work to do in developing and marketing for the publishing industry. We think it's a worthy investment. Our model in the total addressable U.S. market for resolution for newspapers and magazines alone yields an estimated value using our current pricing model and a strong end assumption of 1 watermark per page, to be in excess of $1 billion a year. We have not attempted to quantify the global opportunity and we haven't yet developed estimates for other verticals like direct mail, free-standing inserts and [indiscernible]. We're mindful of many practical impediments to exploitation of this potential and associated cost of risk. It will take time, investment, patience, determination, skill in entrepreneurship to get a better sense of how well we can exploit this potential. With regards specifically to newspapers. The U.S. market has been crushed over the last several years. It may be too late to save many of them. On the other hand, desperate times will motivate experimentation and evolution by those determined to survive. We are anticipating some interesting pilots launching soon here and overseas. These will be important initiatives in assessing the value of our technology to the industry. In parallel, we have hired a trusted consultant with whom we have considerable experience to explore opportunities in the Japanese market, home of the largest newspapers in the world. Whereas the U.S. newspaper industry is suffering mightily, the magazine industry is a different situation. Young people read magazines. According to the Magazine Publishers Association 2010 Fact Book, adults under 35 read more issues per month than older adults. The number of magazine readers has grown over the past 5 years. Magazines score significantly higher than television or the Internet in ad receptivity and other measures of engagement. In 2010, chief marketing officers canceled [ph] report noted that nearly 1/2 of magazine leaders go online to find more information about ads in printed magazines. According to another source, [ph] Research, magazines lead other media in influencing consumers to start a search online. Digimarc Discover greatly improves the efficiency and timeliness of this type of activity. Regarding digital versus print preferences, the majority of readers interested in magazines viewed digital as complementary to prints and not as a replacement. The annual magazine advertising revenues from the U.S. alone are approximately $20 billion. A number of small magazine have started using our platform. A couple of large U.S. magazines have begun testing it. We are beginning our outbound [ph] marketing for prospects. In another area of Discover, postal authorities around the world are exploring means to bolster revenues. They are particularly interested in bulk mail. The Royal Mail, UK's postal authority, has announced that they're working with our business partner there on a joint offering that will make direct mail interactive. According to the Royal Mail, they deliver about 8 billion pieces of unaddressed mail and about 1.7 billion pieces of addressed mail each year. The target for launch is later this year. A firm date has not been set. Other postal authorities are considering similar initiatives. In the packaging area, royalties from [indiscernible] Digimarc licensed supplier product authentication and concept [ph] protection solutions are showing some nice growth from a small base. As we develop the packaging market for Digimarc Discover, we hope to find more opportunities to accelerate their growth. Regarding Digimarc Discover for packaging, in late 2010, we announced that Catalent will be collaborating with us to develop the market. They will encourage us to pull forward work ideally left for later in our market development plan. In March of this year, Catalent sold its printed components business to a Dutch flexible packaging group. In the process, we lost our internal champion and Catalent relinquished the key division for implementation. We're not sure where things will go with them given these changes. In the meantime, a couple of other large packaging suppliers have approached us, and we are in the early stages of exploring mutual beneficial opportunities with them. We're still comfortable about the timing of implementation of packaging our long-term plan for Digimarc Discover. Our strategy has been and continues to be to focus on publishing in 2011. These packaging opportunities may encourage us to expedite work in this area. But if they don't, we intend to get packaging in due time. This concludes our update on the strategy execution for Digimarc Discover. In another area of our business, Digimarc for Images, we protect copyrights, facilitate licensing for digital images on the Internet. Customers include stock photography, business corporate brands and professional photographers. This application has generally contributed hundreds of thousands of dollars to annual revenues. Through some thoughtful and low executed investments in the last few years, it's begun to demonstrate a higher growth rate. Sales through the end of Q2 amounted to about $400,000. One of our business partners have been executing for the software leader on expanding the Digimarc for Images concept to a richer feature set and a wider range of document types. We hope to have more to say on this later in the year. In the licensing area, we know a very fortunate coincidence about how the infrastructure in our product markets has been developing in ways to facilitate the spread of pervasive intuitive computing and our relationship with Intellectual Ventures is operational, appreciation for the value of patents has been rising. This is particularly notable in the mobile market where Nortel sold 6,000 patent assets for about $4.5 billion, in a notable affirmation of the increasing appreciation for IP among tech industry leaders. In light of the Nortel patent asset sale, the use of the expression "patent assets" is becoming more common as a means to characterize the patent as key to the enterprises. Patent assets is the sum of issued patents and applications. We intended to focus attention on issued patents. To facilitate comparisons, we will begin using this approach as well. Along these lines, we have more than 1,000 patent assets, approximately 900 of which are exclusively licensed to [indiscernible]. We're happy to do a deeper dive on any patent with anyone who wants more details. Our license revenues were up materially at this year, aided by our Intellectual Ventures relationship or collaborating with RD on a number of licensing initiatives. I have been particularly pleased to see the proliferation of mobile music discovery services that [indiscernible] had envisioned. We've also noted increasing interest in social and synchronized television. We are working with Intellectual Ventures to assess license opportunities in these areas, among others. With regard to ROD, we excluded 132,000 patent assets from the IP deal. We generally return -- refer to these retained patent assets as the second wave portfolio. The second wave mostly embodying our research initiatives since 2008, focuses on enabling intuitive -- pervasive intuitive computing via mobile devices. These advancements will foster progress toward realization of our long-term vision, build upon and expand from the growing relevance of the first wave of digital watermarking-centric IP licensed to Intellectual Ventures. Our retained second wave portfolio, has already grown to over 160 patent assets, including the issued patents and 154 applications since the deal was announced. We have substantially increased our R&D budget and staff, we expect these investments to lead to substantial growth in our retained patent estate [ph] in the coming years. In closing, I would say overall we're executing very well on our strategy and anticipate a very exciting and rewarding year ahead. Thanks to the continuing support and commitment from our partners, customers, employees and shareholders in making this vision a reality. Thank you all. And now we'll open the floor to questions.

[Operator Instructions] You have a question from Corey Barrett of Pacific Crest Securities.

First question is on your QR code announcement. I was hoping you could just talk about what the benefit is to Digimarc there, and then just sort of broadly speaking, how QR codes and barcodes are competing with you in some of your initiatives, like packaging.

Sure. Our basic business, as you know, Corey, is intellectual property licensing. And we have been working for many years on the seeing/hearing platform for computing. And so, in that platform development, we use various object recognition means. Thus supporting barcodes, 1B, TD, 3B, QR codes and so forth. This is consistent with the strategy of building the seeing platform -- element of the seeing/hearing platform. We're now a watermarking company. We're enabling the pervasive intuitive computing vision and have already had substantial innovation filings and issued patents regarding broader elements on watermark-based object recognition. So it's really in support of our core business strategy of innovation and of resulting licensing. As far as the competition that goes on between various symbologies. I think they all have some place in the market, so maybe barcodes are pervasive already and they're primarily used for inventory management and facilitating retail transactions. They also are increasingly used in the mobile environment for comparison shopping. QR codes, TD codes, 3D codes, Microsoft Tag, all the various labels associated with a more elaborate barcode structures are being used primarily between publications and Internet services -- network services, much akin to what we do with digital watermarking. And there, we think that if there's plenty of room and the publisher may suggest that the aesthetics are acceptable. The QR codes and the other variants do an okay job of doing what we do. Our special role is where those assumptions are not true, which is in many places where space is important, where aesthetics are important, where visible intake [ph] does take up new space until it affects the aesthetics. So we think we have a pretty compelling and competitive edge and that will yield lots of business for us. But we don't feel it's necessary for us to defeat the competitors to win plenty of business to make us plenty of money. And so that's why we support all of the symbologies since for the basic licensing premise of the business and because we think it's actually healthy for consumers to gain experience, however they gain it, with the value of being able to connect directly from printed materials to network services. And so a few of our codes, in fact, teach that behavior and then we believe we have a superior solution in many environments, which is pretty obviously superior because of its basic nature.

Great. Can you provide any sort of update on IV? I know that they only provide a formal update once a year. So is there anything you can tell us there on the momentum or how is that progressing?

Nothing more than I said in my prepared remarks. We're working with them on marketing plans. The marketing plans include mobile music discovery and synchronized and social television.

Okay, yes. And that's where my next question was going. Relative to Shazam or other fingerprinting technologies, you had mentioned that you were going to sort of go through IV in pursuing licensing. Is that -- would we then hear an announcement from IV, or would that come at their annual -- at the time of their annual update to you guys?

I don't know yet. And so IV has announced licenses that they've done, but I also think they've done licenses that they didn't announce. So it will be at their discretion. The patents that we publicly stated we believe were relevant to Shazam have been exclusively licensed for sublicensing to IV, so it's up to IV to monetize those.

And then just quickly. Your operating expenses were lower than we had expected, primarily in G&A. Is that related to litigation expenses with Verance that were slower following the ruling in that case?

Corey, it's Mike. That had a little bit impact to it. But Q1, if you recall, had some heavy outside accounting and auditing cost. We changed auditors in December. So an entire year's audit occurred all in like 60-day period. So it's kind of doubling up on our expenses for the 2010 audit, but that's why you see the drop there.

Okay, perfect. So this is -- much of the delta there is sustainable at least until Q1 of next year?

Well, we've worked on that. We're to spread out our audit and accounting fees throughout the year where possible. But generally, it is heavier in the first quarter of every year, but not to the extent it was in, in 2011.

Okay. And then just lastly, could you repeat how many app downloads you have had for Discover? I can look it up in the transcript, but...

Yes, I want to make sure of the number here. Just a second. It's about 45,000, Mike. I think that's the right number. That's the branded app only. Digimarc Discover branded. There's just numerous private label branded apps, but we don't have the download figures for those.

The next question comes from Kevin Hanrahan of KMH Capital Advisors. Kevin Hanrahan - KMH Capital Advisors: Hi, Bruce. I had a question about the digital cinema and that whole evolution that you were talking about, you mentioned in your prepared remarks. And you mentioned Civolution. Is that -- is Civolution your main -- is that your main licensee in the digital cinema area? I know you were doing some stuff with Dolby some time ago, but maybe the Dolby stuff, which Dolby's involved in digital cinema, but maybe they're not doing that with you anymore.

We believe that Civolution is the sole supplier of the watermarking's trade blocks for digital cinema, because they're the only Digimarc licensed supplier. And if we knew anyone else was supplying, we would suggest they should have a license. Kevin Hanrahan - KMH Capital Advisors: I see. So there'd be another marking opportunity [indiscernible] --

[indiscernible] It must be in all their business of Blu-Ray.

[Operator Instructions] Your next question comes from Paul Sonz of Sonz Partners. Paul Sonz - Sonz Partners: I have a couple of questions. The first is, is there -- are there any plans to have a Developers Conference for -- to propagate the use of Digimarc Discover?

We don't have plans yet. We have talked about that though, Paul. So we may do that at some point. We're quite busy right now and content with how things are going as we are doing them at this point in time. But we have talked about that, and may do it at some point. Paul Sonz - Sonz Partners: Okay. Further question is, you mentioned that Verance is continuing to pay you a substantial fund. Is Verance again a 10% customer? Or 10% client?

I don't care that they're paying us substantial sums, but I'll let Mike answer the question.

Yes. For the second quarter, they were one of the larger customers that we named in our filings. Paul Sonz - Sonz Partners: Is there -- are there any new in excess of 10% customers? Not the usual old ones, but anyone new?

It's all the usual ones.

It's the same this quarter, Paul. Paul Sonz - Sonz Partners: Okay, got it. Last question, in light of the -- it seems like there has been a change in the way that the marketplace is looking at intellectual property assets. You had the bidding by Google for the patent of state, you now have the IDCC and the digital the data industry here. Both of these seem to represent more of the backbone of the mobile market, whereas you guys seem to be a step further than that rests on that. How does your deal with Intellectual Ventures affects the way that a potential company might look at you in terms of an acquisition candidate? This seems like a strange question, but I'm trying to understand the fact that you licensed the bulk of your assets for some time to Intellectual Ventures. And let's say that there's someone who sees the vision -- the same, has the same vision of the way things are going to develop as you do and decides that in light of what's happening now, it might be cheaper to buy earlier rather than later, and someone comes to your door to sort of buy wholesale as opposed to retail. How does the -- your relationship in the licensing agreement with Intellectual Ventures affect that kind of thinking?

Well, it depends. Let me give you a few scenarios and we'll cover most of the possibilities. So if the acquirer is licensed by Intellectual Ventures, then they would be acquiring us for our know-how, our software, and our second lien and our financial characteristics. If they're not licensed by Intellectual Ventures, then under the [indiscernible] they would obtain some rights that they might want to deal with IV as well as want to deal with us. So it kind of depends. What differentiates us from the sort of chaos that's going on with Nortel and IDCC is the nature of the IP where there's a presumption whether well-founded or not that the Nortel assets have immediate relevance to the global market. And our IP, as you know, we hope will be instrumental in the future of that market, more than the current market. So we're perceived as a bit more speculative. So what that tends to mean to us is that it increases the likelihood of a successful licensing program in Intellectual Ventures because we think people will pay higher prices for IP. This time the higher prices that we're seeing being paid for some of these basic patents in wireless.

[Operator Instructions] This concludes today's question-and-answer session. My apologies, we do have a question that just came up from Adam Fisher of Burnham. Adam Fisher - Burnham: A point of clarification. I believe you said that Digimarc Discover has generated about $200,000 in revenue?

Yes. Adam Fisher - Burnham: I'm trying to figure out the timeframe. Was that since it came out of beta in June or was that since it went into beta I guess in February?

That's year-to-date. Adam Fisher - Burnham: Year-to-date, okay.

Some people -- remember some people wanted to pay us during the beta period for various reasons. We try not to refuse any generous offers like that. Adam Fisher - Burnham: Was the majority of that in June?

I don't want to get down to that level of granularity and I don't intend to report on this regularly. The reason I mentioned that it's because I'm sure everyone's curious about how we're getting started here so I provided some statistics here and we're starting to market. But I'm not going to make this a regular accounting. Adam Fisher - Burnham: And second question on that. You mentioned, I think, in that when you were describing Digimarc Discover there were some private label apps out there already. Can you -- kind of how many are there? Can you talk about who's been developing them?

Well, in terms of what's already available in apps stores, I think there are 5. Maybe 5 to 6? I don't keep close track of them. Frankly, we're working on more now. And we believe there could be dozens or hundreds before we're done. So the basic posture in the market here early on, which I would call experimental, is that everyone still likes to do their own app and they want to maintain the brand relationship with the ultimate customer. And they don't see value with our brand because we're [ph] right? So it's not a difference in the vintage mark gain loss and we charge them to create these private label brands or private label versions. So we're fine with dealing -- I'm not sure whether it will be enduring or not, because as I noted in these remarks and you're already aware. I think that these functions become less functions. In which case, every app would have this feature, so to speak, because their API [ph] exposed to app developers. Generally in this case there might be thousands or tens of thousands of apps.

We have a follow-up question from Paul Sonz of Sonz Partners. Paul Sonz - Sonz Partners: Right now, the revenues that you generate or I'm looking in 3 buckets you have. The revenues that you generate from your relation with Intellectual Ventures. You have service revenue, and then you have revenue from I'll put it in -- all the other stuff in one bucket, both from the government and the Nielsen ventures. And I wondered if you could talk just a bit about what percentage of your revenues you see coming from each of those buckets over the next 6 to 12 months?

We, as you know, like to avoid [ph] projections with the public, I can't say much less. So we will see. We have nice growth opportunities in every curve of our business. We have potentially very high growth potential in some of the areas. The licensing area obviously, [indiscernible] an enormous contribution of 100% margin. And then, we're working on Discover and if it catches on, it could be quite interesting. And I noted, the addressable market is huge. We have a differentiated offering. And I feel comfortable that we're making good progress against our strategy, it's pretty much consistent with our expectations. And the way these things work, I have been in market development all my life, I can say is that for people who want the most of it a lot, they tend to think things just kind of either explode or don't explode out the door and that's entirely wrong. The way things usually happen is you're working along for a longer period of time than you think to get it going and then it takes off in the most unexpected way. Largely, by some events driving it. So I -- we will continue to work hard on this and see if we can create such an event. And if we do, then you'll see a big up-tick; if you don't, then hopefully you'll see steady growth until we get critical mass. At some point, there'll be an inflection, and it's not easy to discern in advance. And then we have all the other stuff that we're working on. So -- there isn't any part of our business right now that I don't think has good promise. So I wouldn't want to try for public benefit to guesstimate how it all looks a year or 2 from now. Paul Sonz - Sonz Partners: Would you like to take a crack at whether you think that the Digimarc Discover is more likely to develop before the interactive television?

No, actually I wouldn't because they're both pretty hot. Synchronized Television business, I've been joking lately -- I don't know anybody who does not want to be in it. It seems like it's attracting all kinds of interest from Yahoo! and Shazam and most recently, Audible Magic, an old friend of ours. You can bet the big players are going to want to try to play in this or hope -- probably 2 dozen companies, I haven't named, are trying to participate in the space. And then the Discover, the interest in the publishing business in connecting for print-to-networks services, I think is beginning to catch on. I think they're starting to get it. And I guess it's one of those situations where there's likely to be an inflection point. Someone notable or something which will cause everyone to want to be in the party. And one of the virtues of our strategy is having created the Online Services Portal. People can get done today, if they want to. No longer [indiscernible], no screwing around with us, just go and get the publishing done. And then the larger players are welcome to sign up with us or our service providers to build appropriate infrastructure to a large -- for a large scale into the technology and the fundamental transformation of their publications. So what else? Either one or both can take off at anytime.

The next question is a follow-up from Kevin Hanrahan of KMH Capital Advisors. Kevin Hanrahan - KMH Capital Advisors: Mike, I just have a housekeeping item. I wonder if you can just refresh our memory about how much is left on your share buyback authorization?

Sure, it's about $2.3 million that's remaining. Kevin Hanrahan - KMH Capital Advisors: $2.3 million. And can you tell us how much dollars you spent this quarter?

Yes, I think the cash flow probably has it that we -- total shares bought in both the corporate buyback program and in normal stock and option activity was 66,000 aggregated $1.9 million. Kevin Hanrahan - KMH Capital Advisors: Just about $1.9 million?

$1.9 million, yes.

This concludes the question-and-answer session for today's conference. I will now turn the floor back over to Mr. Davis for any closing remarks.

All right. Thanks very much everyone. We look forward to talking to you again in another quarter. Bye.

Thank you. This concludes your conference. You may now disconnect.