Safeguard Scientifics, Inc. (NYSE:SFE) Q3 2023 Earnings Call Transcript

Safeguard Scientifics, Inc. (NYSE:SFE) Q3 2023 Earnings Call Transcript November 4, 2023

Operator: Greetings, and welcome to the Safeguard Scientifics Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. It is now my pleasure to introduce your host, Matt Barnard, General Counsel. Please proceed, sir.

Matt Barnard: Good afternoon, and thank you for joining us for this presentation of Safeguard Scientifics’ Third Quarter 2023 Financial Results. Joining me on today’s call and webcast are Eric Salzman, our Chief Executive Officer; and Mark Herndon, our Chief Financial Officer. Following our prepared remarks, we will open up the call to your questions. As always, today’s presentation includes forward-looking statements. Reliance on forward-looking statements involve certain risks and uncertainties, including, but not limited to, uncertainty of the outcomes of corporate strategic transactions, if any, uncertainty of our efforts to execute on and implement reverse and forward splits of our so that we can cease the registration of our common stock under the Securities Exchange Act of 1934 and delist our shares of common stock from trading on NASDAQ.

Uncertainty of the future performance of our companies, our ability to make good decisions about the monetization of our companies, the ongoing support of our companies, our inability to control our companies. fluctuations in the market prices of any of our companies that are publicly traded and the effect of regulatory and economic conditions generally and other uncertainties described in our filings with the SEC. Many of these factors are beyond our ability to predict or control. As a result of these other factors, the past financial performance should not be relied on as an indication of future performance. During the course of today’s call, words such as expect, anticipate, believe and intend will used in our discussion of goals or events in the future.

ImageFlow/Shutterstock.com

Management can’t provide any assurance that future results will be as described in our forward-looking statements. We encourage you to read Safeguard’s filings with the SEC on our Form 10-Q, which describe in detail the risks and uncertainties associated with managing our business. The company does not assume any obligation to update any forward-looking statements made today. With that, I would now like to introduce Eric.

Eric Salzman: Thanks, Matt. Thanks for joining us this afternoon for our Q3 2023 earnings call. Today, we will walk you through the rationale and key [technical difficulty] of our Going Dark Transaction, our thoughts around a potential Q4 2022 dividend, a brief update on our remaining portfolio of companies, and then Mark will run through the financials, and we’ll open up the call to questions. I will start with our Going Dark Transaction. We filed our definitive proxy this afternoon, which details the various elements of our plan to delist from NASDAQ and become a non-reporting company. As explained in the proxy, we’ve concluded that the costs of being public have become too burdensome and the benefits very limited, life of our strategy to monetize our remaining ownership interest and return maximum value to our shareholders.

See also 11 Easiest Instruments to Learn for Adults and Retirees and 10 Best Big Name Stocks to Buy Now.

Q&A Session

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 15. 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 reporting 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 in the proxy. Based on our current estimates, 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 to transition Safeguard’s 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 [indiscernible], and we expect to have this in place by January 1, 2024. Taken together, we believe these steps will substantially reduce the operating cost to manage [technical difficulty] 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 [technical difficulty] 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, less the estimated amounts required to be retained to pay the cost of the transaction, support Safeguard’s 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 cash dividend in late December after the shareholder vote. We would not delisted from NASDAQ until after the December 15 shareholder meeting, and assuming we move forward with the Going Dark 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 10-K, which will be our last SEC filing. Post the filing of the 10-K, 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. Key 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 million and $45 million.

The monetization process is expected to take 2 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 come from those companies that we categorized as Bucket 1 companies. Consistent with what we said last quarter, the Bucket 1 companies are prognosed meQuilibrium, Clutch and Moxe. We have also added InfoBionic to Bucket 1 as it recently completed a recap in 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 1.

This is what happened with InfoBionic. We continue to have Moxe, Prognos, meQuilibrium, Moxe and Clutch and are actively engaged with management and co-investors to drive value creation [indiscernible]. Post recap and given our reduced ownership interest, we have retained an observer seat [technical difficulty]. Let me provide some further clarifications on the $25 million to $45 million in future exit proceeds. First, the $25 million to $45 million are estimated future exit values and are not discounted. Second, the inclusion of InfoBionic in Bucket 1 does not have any impact on this range nor does it represent the difference between the low and the high. And thirdly, the $25 million to $45 million is expected to be generated exclusively from Bucket 1 companies.

All other remaining positions are Bucket 2, 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 1 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 businesses seasonality. The Q3 performance was taken into account when determining the $25 million to $45 million of exit values. At this time, I’ll hand the call over to our CFO, Mark Herndon.

Mark Herndon: Thanks, Eric. Safeguard 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 and 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 and 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 nonrecurring and other items were $0.9 million and $0.8 million around the basis for each of the third quarters of 2023 and ’22. The year-over-year increase was 9.8%. The corporate expenses for the 9 months ended September 30, 2023 were $2.4 million as compared to $2.5 million for 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 level of — the quarterly level of corporate expenses has generally stabilized at 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 interest, we have an aggregate carrying value at September 30 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 the transaction, our ownership levels dropped to approximately 5%. This transaction also resulted in recording a $1.7 million noncash observable price change gain and is reported 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 0 and year-to-date lower operating losses at the others.

Our results under the equity method for the 3 months ended September 30, 2023, resulted in a $0.4 million of equity income as compared to a $1 million equity loss for the comparable period of 2022. This change is predominantly the result of several companies reaching 0 carrying value during late 2022 or ’23. At that point, we generally ceased recording losses from those entities. I’d also like to remind everyone that we report our share of the losses, from the equity method company 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 6 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 6 companies was down to approximately $41 million. In terms of revenue performance, we reported a 10.3% increase at this group of 6 companies for the trailing 12-month period ended 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 million to 16.8 million shares by the time we file the final 10-K 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 that definitive that was filed earlier today about how this will impact them and address the mechanics of what will happen in their shares. The proposed stock split will not have an impact on any shareholders 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 split. 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 in 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 requirement is expected to repurchase the fraction of shares that may result from the stock split 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. Operator, I ask you to [technical difficulty].

And I do see that we’ve had a couple that have come in on the web to address those similar as well. I’ll let you give those instructions first.

Operator: Thank you. [Operator Instructions]

Mark Herndon: Yes. And [indiscernible] accumulating questions here, Eric, why don’t we address the couple that we know already. So the first question was [technical difficulty] this will be the last earnings call before the plan delisting. And I would say, yes, we continue to — we will make ourselves available as necessary for questions and comments as we try to be on a regular basis. So this is the last planned conference call before then. I think we’ve talked about a timing at the special meeting would occur in the middle of December and then a delisting if that ends up being the case as a result of the votes would be shortly thereafter. Do you want to add or Matt, do you want to add anything to that?

Matt Barnard: I think that’s right, Mark.

Eric Salzman: We can go to the second question, which was related to previously mentioned considering a year-end dividend being roughly half of the year in cash balance. So just to address how we are thinking about sizing the dividend and coming up with what we determined is excess cash. So the Board will estimate the year-end or make the decision, basically, we’ll take our September 30 cash less what we’ll spend the net outflows this quarter. From that, we would deduct the stock split and transaction costs of $1.2 million, which is on Page 10 of the proxy. From the remaining number, we would set aside estimated costs to operate as a non-reporting company, cost to support the portfolio, cover liabilities, contingencies and an ultimate wind down.

We indicated that’s roughly a 2-year process. It could be longer. And the net of this number would represent the excess cash that the Board would consider returning as a dividend. Last quarter, that was our preliminary estimate what we said, and we are currently half of year-end cash or up to half of the year-end cash. And we are currently working with the Board to arrive at the number that balances returning as much cash as possible without putting the remaining portfolio of operations at risk. So we are doing that analysis now, and we continue to be working with the Board. But the goal is to find that balance where we are returning much cash as possible. We do not want to [indiscernible] to keep excess cash necessarily. But on the other hand, we want to make sure that they’re sufficient to cover both the significantly reduced cost of operating as well as any other contingencies.

Mark Herndon: Yes. And Eric, I’m going to skip to the next question. I’ll let you handle the first half of it, but there’s a couple of questions in here that would talk about, I’ll call it, the mechanics of how things will operate in 2024. And so let me broadly cover those for a minute. The company, Safeguard, we will continue to have Board seats on our remaining portfolio of companies, right, where we have them now. So nothing changes there. What is being worked out right now is exactly would fit as our representative on those Boards, right? And we are — that could be the external service provider. It could be someone else. But we are working through that now. And I will tell you the — in terms of — one of the aspects related to this is just cost.

I mean, obviously, as we’ve talked about, one of the reasons for this transaction is to reduce costs. So while we haven’t put out a formal number for 2024, we’ve talked about reducing the cost by the number of case by $1.5 million, right? So if you compare that to your the 3.2-ish where we are at this year, then that’s going to be in that ballpark would be an early estimate of expenses for 2024. That said, there’s a variety of things that remain to be in play, including that a service provider while multiple firms have been considered and we are in discussions with them we have not settled on a firm or therefore, a firm price there. So there is a number of estimates involved, we continue to figure out how exactly how much the cost will be in 2024, but we expect that will be substantially less when we don’t have the full time management team here working with the company.

Eric?

Eric Salzman: Yes, sure. I’ll make one more just comment on the cost. So obviously, there are a number of benefits outsourcing the general administrative activities to a service provider, one of which is, as time passes and the needs of the portfolio or the company go down, then there’s an ability to scale down the cost of an external service provider in a way that is, frankly, almost impossible, were very difficult in our current — so that’s just — so when you think about the go-forward cost, it’s the savings that Mark indicated and we indicated in the proxy. But if you look beyond that, it would be reasonable to expect that the annual operating costs 12 months or 18 months out, et cetera, should come down as there are fewer portfolio companies and fewer activities.

The — another question we have is on the remaining Bucket 1 portfolio companies, are there any that have not been out in market for a sale process. So we have five of our Bucket 1 companies, two have not been in a sale process ever since my involvement. The third has not been in the sale process in at least the past 12 plus months. And the other two have — so that answers that question. Board seats, we talked about. Can you provide any additional color on the portfolio companies, perhaps the company’s most promising for exit values? What I would say is, as we indicated, it was on last quarter, we talked about the definition of what we’re using for a Bucket 1 company is well capitalized executing on its business plan while navigating kind of the risks and opportunities, and it does not have an excessive debt level, which has impacted negatively at a couple of other companies, as you know.

So I wouldn’t call one out over the other. I think we are optimistic and constructive on all of those companies, and we’ll be working closely with them to maximize the exits over the next 2 years.

Mark Herndon: Okay. Why don’t we pause there for a second, and then operator if we have any questions come up in the queue.

Operator: Yes. We have a question from John Power with Redwood Fund. Please proceed.

Unidentified Analyst: Thank you, operator. I appreciate your time gentlemen. And my question was regarding the excess cash, which you’ve covered a couple of minutes ago in your comments. So no questions [technical difficulty]. Thank you.

Eric Salzman: Okay. Thank you.

Operator: [Operator Instructions]

Mark Herndon: We have a question on the web that is can you go into more detail as to the $25 million lower bound of proceeds? Is the $25 million split fairly equally between the five companies. So just comment a bit on the methodology of how we came up with that number. So basically, we took the low end revenue estimates, right? So projected revenues for each of those five companies between now and [indiscernible], the low end of that, we applied kind of low end revenue multiples, low meaning if you look at the market, either public markets across cycle, and then we — that would get your enterprise value is tracked out your net debt, and you would run that remaining value through the waterfall, each company has its own preferred stock and auction pool, et cetera, to come up with Safeguard’s proceeds.

That would be the future value of Safeguard’s proceeds, which is the $25 million at the lower bound. And then — so that’s how we came up with it. It’s not equally weighted among the five because of the different — the way that the cap structures work in different companies and the preferred payouts that work. It wouldn’t be equal, the revenues aren’t equal. Multiples are not dramatically different than the low end across the companies, but revenues would differ and the cap stack would differ. So you wouldn’t get the same resulting value.

Eric Salzman: Another question is — I’m sorry, Mark.

Mark Herndon: I was going to add — yes, let me add, there’s a couple of question in here that’s asking about specific debt values and revenue values for different [indiscernible] of the portfolio. Trying to avoid giving you a specific number on the slide, I want to be accurate. But obviously, there does remain to be debt on the portfolio at our five. It is substantially less than the number that we quoted for the six companies because that other one is just a high debt entity. But — and I was not intending to provide that data at this moment. We can look into putting that out there at a later time perhaps.

Eric Salzman: Well, I mean, I’d add to it, just if you look at the Bucket 1 companies and you adjust it for the cash from the InfoBionic transaction that we mentioned earlier, there is slightly more cash than debt if you just summed it up, which, as Mark said, it’s significantly delevered compared to, let’s call it, in prior quarters. Some of that delevering happened because of capitalization by InfoBionic where there was a recap or a recast of some debt to equity. But if you kind of zoom out overall, the Bucket 1 companies today have more cash than debt slightly. Another question, the two companies that have not been out in the sale process is one of them, one that just hired a banker? Yes. Our share repurchase is possible still considering no portfolio companies are under M&A, M&A discussions until 2024.

Mark, do you want to talk a bit about how we thought about share repurchases versus dividend and as well as the goal or that to get to the fewer than 300 shareholders. So we would be [technical difficulty].

Mark Herndon: Yes, there’s — and there’s a variety of things embedded in that question, right? I mean, there’s the concept of — and I think what the questioner is getting that is the traditional, I’ll call it, window open under about material nonpublic information. So — and that’s something we would address that sort of at the time that we are trying to make a decision about whether to do a repurchase or not. The — sorry, cross the place here. What we had thought about in terms of repurchases is just to do a large repurchase like we last time requires generally more cash than we have available at this time. And we also experienced the — at the market purchases where that had a limited impact because just accumulating shares at a slow pace because of the low volume of the traded stock.

So part of our evaluation is simply taking those couple of considerations in and trying to figure out that the most exceeding way to get cash and value back to shareholders versus to pay a dividend to all the shareholders. And that’s the path and the direction that we’ve been talking about here for a couple of quarters.

Eric Salzman: We’ve another question on — you said revenue models were at the low end or about the same, about what revenue multiple ranges are you using for the low end proceeds across the five companies. Would say that it’s low single-digit revenue multiples? Yes. So we are reading this in real time as it comes [indiscernible] the web, so that’s why we …

Mark Herndon: Yes, it’s another — the next question — I’ll let Eric think for a second about, again, the dividend amount, and I understand how people are eager to think about exactly how much that value will be. And we are trying to be careful because obviously, the Board has to make a judgment decision there, and there will be — it will be ultimately a matter of judgment. The factors that we are thinking about, yes, are continuing to hold enough funds to operate the more limited scale operations of the company for a period of time to get them to completion as well as holding back amounts for any kind of contingency that we can think of that would exist, including potentially funding the company, although we don’t expect any funding.

We’ve also talked about — I know the metric has been put out there about 50% of year-end cash after a couple of adjustments. But we still don’t know exactly how much cash we are going to have at the end of the year, right? And we don’t think it will be substantially different than where we are at, but we don’t know. Those are the parameters that I would sort of provide to you without actually telling you a number or a value of what the dividend could be. But we are discussing a range of options with the Board on that front.

Eric Salzman: Yes. And I’ll just add a couple of comments to it. So firstly, one of the design parameters and the reserving the cash or, let’s call it, the holdback cash is that it needs to be sufficient to cover the operations portfolio wind down, regardless of when the next exit occurs. So we are not coming up with a cash number that assumes in June of next year x million is going to come in to help cover it. So we want to — we are coming up with a quantum of cash that will cover a complete operation support, one down contingencies, et cetera. So that’s how we’re thinking about it from that standpoint.

Mark Herndon: In that context, that part of that question, and maybe I read it a little closer now, but assuming the distributions in the future have become — rather, monetization in the future would flow for the most part, down to distribution. And the math that we just outlined would say, yes, but there’s — it’s always — it’s hard when you’re looking at the future, some other contingency may arise that the Board at that time would need to consider. So I don’t want to pin the [indiscernible] on that, but if it’s going perfectly, then it should be in that ballpark.

Eric Salzman: That is the goal. Another question, I think — question #12. Can you speak a bit about the confidence level of the 2-year monetization time frame given there are now for Bucket 1 companies you don’t have a real time line. There was another question that related to that around front end weighted versus back end weighted proceeds based on our internal — based on our estimates. I think given the fact that we have one company going to market, we have no companies in the market now of our Bucket 1 company [indiscernible], and we have one going to market in January. And if you look over, call it, a 27, 28 month period by the time you start, 24-month period at June 1, I think you would just assume that those exits would be occurring at least in the second half of that period more than the first half, where we are sitting today.

Now things do change. As I indicated, we have been having some conversations with some secondary buyers around seeing if there’s a bid for any of our physicians. We’ve also been working with one of our companies and a potential recapitalization, the proceeds of which could be used to take us out. So we are working all possible angles to monetize the investments. But from a hiring a banker and going out, I would say it would be the second part over the coming 24 months.

Mark Herndon: And while Eric is looking at another question there, one of the next question, we’ve had another question coming about revenue rates about which companies are growing the fastest. And I’ll add more to what we said earlier. Similar to what we’ve seen last quarter — or the last few quarters, Moxe and meQuilibrium as well as Clutch, all three of them on a trailing 12-month basis have experienced growth and [indiscernible] good growth. But that — in that period ended June 30, and then I think I would refer to Eric’s comments, we’ve had sort of varied results. Since then, some of the September numbers are still kind of shaking out. We had — but each of those three have had over 20% growth.

Eric Salzman: Question 14, given we are not controlled shareholders and of these portfolio companies, can we drive monetization time lines? That has been a — it’s a great question. It’s one that we’ve been working with for the last 3 years. And what I can say is that in each of our companies, we have very good alignment in terms of among ourselves and management and the other investors in terms of how long we want to be in the investment, right? So other — our co-investors are similarly — these are — the whole periods have been long, relatively long. So there’s alignment to exit the decision to exit is really less of a — or people or the management and the stakeholders to align to exit. It’s really more of the opportunity availability, valuation, does the company — is the company putting up the types of metrics needed to attract buyers in a reasonable way?

So that’s — it’s less of the — an issue about how to drive monetization time lines because there’s alignment.

Mark Herndon: And, Eric [indiscernible] have another question, come in about the range of proceeds, particularly the low end of the proceeds with respect to InfoBionic moving into Bucket 1. So — and I will tell you, I mean, we made that the full range estimate last quarter, right, when things were in flux with the one company. And we updated it again this quarter [indiscernible] in a bottoms up analysis. And as you might expect, there’s not a perfect level on any of these. And things vary within the portfolio even from the estimates. And we just — we still have come up with the same range. It just has not — moving InfoBionic in there. Yes, I would say they give you and more confidence at one end of the range, but it’s not something in and of itself, it’s going to move you from — move the range significantly or within the range significantly.

Eric Salzman: And I’ll add to that — and I’ll add to that. Last — when we did this analysis last quarter, we had some probability weighting for InfoBionic achieving a recap and a set of outcomes. So it wasn’t necessarily in a 0 last quarter and a big number this quarter. There was a number that reflected the probability of the recap getting done. And the second thing I would say is with a 5% ownership stake, which is what we have — it doesn’t — it moves the needle given where our stock price is and what we are trying to do, but it doesn’t swing as much as some of the other companies will have a larger ownership stakes.

Mark Herndon: [Indiscernible] for a second. Operator, were there any other questions on the line?

Operator: We have a question from Sherry Rubinstein, a Private Investor. Please proceed.

Sherry Rubinstein: Am I on?

Mark Herndon: Yes, you are. Hi. How are you?

Sherry Rubinstein: Oh, hi. I’m really new to this. I don’t try to understand. I only have 83 shares. So I’ll be cashed out. What does that mean exactly?

Mark Herndon: If you end up being cashed out, then you would — your brokerage account would simply receive a check cash and the price out run in the proxy of $1.65 per share.

Sherry Rubinstein: $1.65 per share. Because right now, it’s only $0.98.

Mark Herndon: Correct. Yes. The cash out price is at a premium to today’s traded price.

Sherry Rubinstein: So am I best to wait for until you cash me out or …

Mark Herndon: Well, I need to avoid giving individual investment advice.

Sherry Rubinstein: Okay. I just — so I should have to ask my broker that. So right now, if I sold it, I would be getting $0.98, if I wait when are you cashing out?

Mark Herndon: If this transaction is approved by shareholders, we would expect it to occur around December 15.

Sherry Rubinstein: December 15. Okay. So possibly then I could get $1.65 a share if I just wait until then. Is that correct?

Mark Herndon: That is correct. That is correct.

Sherry Rubinstein: And may receive the check, it’s a brokerage, I had [indiscernible] is that the way it works [indiscernible]?

Mark Herndon: Yes, that would all be handled through your brokerage account.

Sherry Rubinstein: Okay. All right, and I will give them a call. Thank you for all the information. I think it’s confusing to me.

Mark Herndon: You’re welcome. I understand.

Operator: There are no audio questions left in queue. I will turn it back to management for closing comments.

Eric Salzman: Yes. We have one more question #18. At what point would you expect to have clarity on whether [indiscernible] will continue to trade OTC or not? So as we said, we are starting to work with OTC, depending on the different levels within OTC, you need a market maker and so forth. So we have every incentive to try to make that happen to make that work. So we’ll do everything we can to see if we can get market makers to see if it can trade on one level, there’s no assurance that it will. Obviously, keep in mind that if we are a non-reporting company, so we’ll not be filing the equivalent of 10-Ks or 10-Qs, then it’s going to trade differently than proper NASDAQ listed company with Ks and Qs, although our current recent trade has been quite limited or episodic, if you will.

So we’ll do everything we can to try to achieve that. At this point, we can commit to trying we can’t commit to having it done subject to things that we are working on. Okay. It looks like that was the last question. So just to wrap up, I want to thank you for joining us on our call today. Please contact us if you have any questions, we’ll either answer the questions directly or [indiscernible] in touch with Computershare, whoever else to try to help you understand the transaction and address any questions or concerns you have. Thanks a lot. Have a good evening.

Operator: Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.