Safeguard Scientifics Inc

As explained in the proxy, we've concluded that the costs of being public have become too burdensome and the benefits very limited in light of our strategy to monetize our remaining ownership interests and return maximum value to our shareholders. The process to become a non-reporting company requires a shareholder vote to approve a series of stock splits, and we set the shareholder meeting date for December 15th. The intention of the stock splits is to reduce the number of shareholders of record to fewer than 300. Once we have fewer than 300 shareholders of record, safeguard is no longer required to be a recording company for SEC purposes, meaning we will not have to file 10-Ks and 10-Qs, thereby reducing our expenses significantly. The stock splits will create a relatively small number of fractional shares, which we intend to cash out at $1.65 per share. Details of how we arrived at this number is described in the proxy. Based on our current estimate, we expect the total cost of cashing out these fractional shares to be approximately $10,000. As part of our plan to delist from NASDAQ and become a non-reporting company, we also intend to make changes to our management structure to further reduce the cost to operate the business. We expect the transition safeguards general and administrative functions to an external service provider to be selected by the board. Our remaining officers and employees, the four of us, are expected to provide transition services to safeguard on an as-needed basis. The board has narrowed the search process for an external service provider to three, and we expect to have this in place by January 1st, 2024. Taken together, we believe these steps will substantially reduce the operating costs to manage and monetize the remaining companies in the portfolio. As disclosed in the proxy, we anticipate annual cost savings of approximately $1.5 million in cash and a reduction in annual base compensation of approximately $1.2 million. Reducing our expected operating costs frees up more of our balance sheet cash to return to shareholders via a dividend subject to board approval. We refer to this extra cash as excess cash, and it is defined as cash on hand, left the estimated amounts required to be retained to pay the cost of the transaction, support safeguards operations in the portfolio companies, as well as cover liabilities and contingencies. Subject to board approval, we intend to pay out this excess cash as a cash dividend in late December after the shareholder vote. We would not delist from NASDAQ until after the December 15th shareholder meeting, and assuming we move forward with the Godart transaction, any trading in our common stock after delisting will only occur in privately negotiated sales. We will be exploring whether Safeguard shares can trade on one of the OTC markets but there can be no assurances of that. We are required to file a 2023 10K, which will be our last SEC filing. Post the filing of the 10K, we expect the size of the board to drop from the current four members to two, with these two coming from our existing board. From an information perspective, while we are not required to do so, we currently intend to provide quarterly business updates and expect to provide an annual audit to shareholders. Any future distributions after the potential dividend will be dependent on actual cash exits, any changes to the estimates of the cost to operate through a liquidation, as well as any other contingencies. We estimate exit proceeds from our remaining positions at between $25 and $45 million. The monetization process is expected to take two years but could be longer. We are working with the board to finalize all operational elements required to consummate this transaction. Now let me turn to the portfolio. As we disclosed last quarter, we expect nearly all of the exit proceeds from the remaining portfolio to come from those companies that we categorize as bucket one companies. Consistent with what we said last quarter, the bucket one companies are Prognos and Equilibrium Clutch, and Moxie. We have also added InfoBionic to bucket one as it recently completed a recap and capital raise. As you recall from last quarter's call, we mentioned that one of our companies was in the midst of a potential recap and capital raise, and if this were to happen, we would expect that it would move to bucket one. This is what happened with InfoBionic. We continue to have board seats at Prognos, Moxibilibrium, Moxie and Clutch, and are actively engaged with management and co-investors to drive value creation and exit. Post-recap and given our reduced ownership interest, we have retained an observer's seat. Let me provide some further clarifications on the $25 to $45 million in future exit proceeds. First, the $25 to $45 million are estimated future exit values and are not discounted. Second, the inclusion of infobionic in bucket one does not have any impact on this range, nor does it represent the difference between the low and the high. And thirdly, the 25 to 45 million is expected to be generated exclusively from bucket one companies. All other remaining positions are bucket two, and we expect de minimis proceeds from them. On the M&A front, while the market has improved somewhat compared to earlier this year, it continues to be challenging for venture stage companies. For Safeguard, one of our bucket one companies recently hired an investment banker and expects to launch a process in January 2024. There are no immediate plans for the other four companies, but we continue to work closely to position them for exits or recaps that could generate proceeds to Safeguard as expeditiously as possible. We also have had discussions with a couple of secondary buyers for one or more of our positions, but these discussions have not resulted in any transaction. Regarding Q3 performance, our companies have experienced varied results. For example, meeting or exceeding revenue plans, but coming in under bookings, meeting or exceeding EBITDA plans, but missing revenues, and for three of the five companies, Q4 represents an important quarter due to the business's seasonality. The Q3 performance was taken into account when determining the $25 to $45 million of exit values. At this time, I'll hand the call over to our CFO, Mark Herndon. Thanks, Eric.

Sinclair reported net income for the quarter ended September 30, 2023 of $0.9 million or $0.06 per share as compared to a net loss for the comparable 2022 third quarter of $3.2 million or $0.19 per share. The year-to-date period ended September 30, 2023 with a net loss of $5.4 million or $0.33 per share as compared to $9.4 million or $0.57 per share for 2022. We ended the quarter with $15.7 million of cash, cash equivalents and restricted cash, and we continue to have no debt obligations. Our general administrative expenses were $1.3 million for the third quarter of 2023 versus $1.4 million for 2022, a decrease of 3.5%. Similarly, our general administrative expenses were $3.7 million for both the year-to-date period, a decrease of 1.5%. Corporate expenses for the quarter, which represent general and administrative expenses excluding stock-based compensation, severance expenses, and non-recurring and other items, were $0.9 million and $0.8 million on a rounded basis for each of the third quarters of 2023 and 22. The year-over-year increase was 9.8%. The corporate expenses for the nine months ended September 30, 2023, were $2.4 million as compared to $2.5 million in the comparable 2022 period, a 3.2% decrease. The increase during the quarter was due primarily to legal and other professional fees. We continue to expect the quarterly level of corporate expenses has generally stabilized to this approximate value before we implement any cost structure changes. However, this quarter's additional expenses have pushed our annual estimate of corporate costs back up to our original range. With respect to our ownership interests, we have an aggregate carrying value at September 30th of $14.8 million as compared to $15.4 million at December 31, 2022. There were no deployments this quarter. However, there was an increase at Infobionic resulting from their recapitalization transaction, which allowed Infobionic to raise cash and convert certain liabilities. Since we did not participate in this transaction, our ownership levels dropped to approximately 5%. This transaction also resulted in recording a $1.7 million non-cash observable price change gain that is recorded in other income. This quarter's activity also included the application of the equity method accounting at our other remaining interest. However, the impact was less than prior periods due to several entities carrying value being previously reduced to zero and year-to-date lower operating losses at the others. Our results under the equity method for the three months ended September 30th, 2023 resulted in a $0.4 million of equity income as compared to a $1 million million equity loss in a comparable period of 2022. This change is predominantly the result of several companies reaching zero carrying value during late 2022 or 23. At that point, we generally cease recording losses from those entities. I'd also like to remind everyone that we report our share of the losses. in the equity method companies on a one-quarter lag. So this quarter's share of losses reflects the second quarter of 2023. Also with respect to our ownership interest, this quarter's third-party debt for the remaining six companies was approximately $88 million versus $135 million last quarter. This decrease is due primarily to the recapitalization transaction at Infobionic. Cash at the same group of six companies was down to approximately $41 million. In terms of revenue performance, we reported a 10.3% increase at this group of six companies from the trailing 12-month period into June 30, 2023, due to the one-quarter lag. This increase was most favorably impacted by clutch, which was largely offset by decreases at progress. Also, we noted in our filing that our share count as of today, the filing date was approximately 16.6 million shares. Looking forward, we expect that share count to increase as we continue to settle director fees using shares. An exact number will depend on the share price when those shares are issued early next year, but we are estimating that the share count will grow to approximately 16.7 to 16.8 million shares by the time we file the final 10K we referred to earlier. Finally, I'd like to reiterate some points made by Eric and answer questions already received from shareholders who have had questions about the preliminary proxy definitive that was filed earlier today about how this will impact them and address the mechanics of what will happen to their shares. The proposed stock splits will not have an impact on any shareholder whose shares equal to or above the stock split number. For example, if the final ratio is based on the highest amount of the proposed range, 100 shares, any shareholder holding 100 shares or more will not be impacted by the share splits. Shareholders who own less than that amount would be cashed out if they hold their shares directly as a registered shareholder. On the other hand, shareholders who hold less than that amount in street name may or may not be cashed out. Street name shareholders should contact their bank or brokerage for more information. We also encourage shareholders to review the Q&A portion of the proxy, which provides further details and examples of the impact you should expect as a result of the proposed stock splits. As we addressed in the proxy document, cash requirements expected to repurchase these fractional shares that may result from these stock splits was estimated to be only about $10,000. As a result, most shareholders will not experience any significant impact of the split and should continue to be able to hold their shares in their brokerage account as we continue to wait for portfolio exits to fund future distributions. Now we will turn to the Q&A segment of the call, so operator.su.gov. And I do see that we've had a couple that have come in on the web, too. We'll address those in a moment as well. I'll let you give those instructions first.

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