Safeguard Scientifics Inc (SFE) 2008 Q4 法說會逐字稿

Greetings and welcome to the Safeguard Scientifics 2008, fourth quarter results conference call. (Operator Instructions) It is now my pleasure to introduce your host, Mr. John Shave, VP of Investor Relations and Corporate Communications for Safeguard Scientifics. Thank you, Mr. Shave, you may begin.

Good morning and thank you for joining Safeguard Scientifics today for our fourth quarter and year end 2008 conference call. Joining me on today's call are Peter Boni, Safeguard's President and Chief Executive Officer, and Steve Zarrilli, Senior Vice President and Chief Financial Officer. During today's call, Peter will review highlights from the fourth quarter and full year 2008 and Steve will discuss the financial results and strategies for Safeguard and our partner companies. We will then open up the phone for your questions.

Before we begin today I must remind you that today's presentation includes forward-looking statements. As you know reliance on forward-looking statements involve certain risks and uncertainties including, but not limited to, the uncertainty of future performance of our partner companies and the risks of acquisition or disposition of interests in partner companies, capital spending by customers and the effect of economic conditions generally, as well as the deployment of the technology in life sciences markets on which Safeguard focuses. During the course of today's call words such as except, anticipate, believe and intend will be used in our discussion of goals or events in the future. The Company cannot be certain that final outcomes will be as described today. Safeguard's filings with the SEC, including our Form 10K, describe in detail the risks and uncertainties associated with managing our business. You are encourage to do read these filings. The Company does not assume any obligations to update any forward-looking statements made today. Here is Safeguard's CEO, Peter Boni.

Thanks, John and thank you for joining us on Safeguard's fourth quarter and year end 2008 conference call. Today we'll provide you with a progress report on Safeguard and our 18 partner companies as well as their performance expectations for 2009. As you all are aware, 2008 was unlike any other year that we've experienced in our life time. The unprecedented events of last year left us, and really is still leaving us, with an unstable financial services industry and a week wobbly economy. However, Safeguard and most of our partner companies continue to execute solidly during the fourth quarter and for the full year.

Our partner companies in aggregate are growing revenues and, with a strategic guidance from us, improving their corporate infrastructure, enhancing their competitive positioning and building value in their businesses. Consolidated revenue, that is Clarient's revenue for three months in the year ending December 31, 2008, increased 78% to $21.9 million for the quarter and 71% to $73.7 million for the year excluding discontinued operations. Our life sciences partners grew a bit ahead of our expectations. Our technology partners grew but the pace and magnitude of their growth was affected by the economic climate. At the Parent Company level we ended 2008 in a stronger position than we began the year. We realized approximately $75 million through the bundled sale of five legacy partner companies, reducing debt-- related debt guarantees by $31.5 million in the process. Now cash from that transaction helped to strengthen our balance sheet and fund the repurchases of $43 million in face value of our convertible senior debentures and $1.3 million of our common stock. We also deployed $16 million into four new partner companies.

So entering 2009 we remain in a position to deploy capital and selective growth stage businesses in our targeted niches within life sciences and technology sectors. Safeguard is disciplined and we are poised in 2009 to seize opportunities at a time when lingering uncertainty and volatility are creating some very compelling valuations. For those of you who are new to the Safeguard story, let me take a moment to review our business model, our game plan. First to deploy capital in high growth, life sciences and technology companies, second, to build value in these companies and lastly to the realize this value through selected well timed exits. Since my coming on board in Q3 of 2005, this management team has realized $275 million in exits and we deployed approximately $131 million in capital since the beginning of 2006. Five long-term trends drive our placement of capital. The themes of maturity, migration, convergence, compliance and cost containment remain forceful drivers in business today. For instance, the population is maturing, patents have their -- medicines have their patents expiring, the IT infrastructure is maturing and that sector is consolidating. There's a migration of business models and technologies-- technology companies are moving to on demand service models, from wire to wireless, from stand alone to integrated and so on. Technology and life sciences are converging including therapeutics, diagnostics and devices that are converging.

Regulatory compliance is driving new requirements for companies and industries and cost containment has never been more importantly as a consideration for management teams everywhere. You can see these themes permeate through the business plans of Safeguard's partner companies. We partner with entrepreneurs who are capitalizing on these themes in novel ways. Just as public company valuations have compressed in the current economic climate, valuations for private companies are also under pressure. Now, to us this represents opportunity. Safeguard has a number of exciting opportunities. Our pipeline of opportunities is particularly high quality in depth at this time, but only the best of breed will gain financing in this environment and the price points may be very attractive. Even so we will be very disciplined in our investing activities. However, because public and private company valuations are currently compressed, this is not a particularly good time to sell or to seek an exit. We are more focused on enhancing value in our Partner Company than pursuing exits.

Exit opportunities may arise at any time but in this challenging business climate we are working to build value in our partner companies, drive their growth and keep their spending plans in line. Now, here's an update on developments within our 18 partner companies. First, Clarient. Clarient, Safeguard's majority held partner, is publicly traded on the NASDAQ, CORT we own 60% of Clarient which we carry on our books at $20 million at year end, including loans under our meds facility. The market value for our Clarient shares was approximately $76 million at year end and it was approximately $86 million at market close yesterday. Clarient continues to grow robustly. It reported its 18th quarter of sequential revenue growth, and as I mentioned, fourth quarter and annual revenues increased 78% and 71%. Clarient reported positive adjusted earnings before interest, taxes, depreciation, amortization, and stock-based compensation, in other words, EBITDA, for the year, and that was the first for the Company.

Revenues continue to increase due to new higher margin cancer diagnostic services for tumors for the colon, prostate, breast and lung as well as increased testing volume and higher Medicare reimbursement rates. Clarient has given guidance that 2009 annual revenues expected to increase 26 to 33% were between 93 and $98 million. Clarient has also provided guidance that it expects to achieve positive adjusted EBITDA and operating income for the year.

Now let's move to some highlights at Safeguard minority held partners. We define this first set of seven partners as development stage companies. They are proving out technology, developing prototypes, refining their business models and building partnerships. Avid Radiopharmaceuticals is a leader in development of molecular imaging products for neurodegenerative diseases. Avid is conducting clinical trials at more than 25 research centers across the US and has initiated Phase III FDA trials for its tests for the presence of Alzheimer's disease in people with symptoms of cognitive impairment. Avid anticipates beginning Phase II trials for it's Parkinson's disease imaging products in the first half of 2009. Safeguard deployed $7.3 million in Avid in May of 2007 and we have a 14% ownership position.

Garnet Biotherapeutics is our newest Partner Company. This clinical stage regenerative medicine company has developed proprietary therapies to reduce scarring in cosmetic, orthopedic and cardiovascular surgical wounds. Garnet's cell therapy is based on distinct bone marrow stem cell capable of reducing inflammation and promoting healing. Garnet's cost-effective compliant manufacturing process derives a number of high doses from a single adult donor. Safeguard deployed $2.5 million in November of 2008 for a 31% position.

Molecular biometrics is a metabolics company developing novel clinical tools for the application and personalized medicine to more accurately characterize biologic functions in health and disease. Currently the Company is targeting the reproductive health market with its noninvasive procedure which is designed to help identify the most viable embryos with the greatest reproductive potential for invitro fertilization. Molecular biometrics objective in the treatment of infertility is to reduce the potential for and the risks associated with multiple births, while maintaining or improving pregnancy rates, which will ultimately reduce healthcare costs. International and domestic launches of the molecular biometrics product is planned for 2009 and 2010 respectively. Safeguard deployed $3.5 million in molecular biometrics for 38% position and during 2009 we expect molecular biometrics to move from the development stage to the initial revenue stage.

New Path specializes in therapeutics for the treatment of neurologic and psychiatric disorders including migraine and Parkinson's disease. Phase III FDA trials began in early 2009 for its transdermal patch for the relief of migraine, a condition suffered by an estimated 28 million people annually in the US alone. In addition to Safeguard, SR1, the venture capital arm of Merck, is also an investor. Merck makes the oral medication for migraine. Pre-clinical proof of concept studies are underway for New Path's novel approach for the treatment of Parkinson's disease. Since late 2006 Safeguard has deployed $10 million in capital in New Path and we own 24%.

Tengion is a clinical stage, organ regeneration company with products for urologic, vascular and renal regeneration. Phase II trials of the patented Tengion neo bladder augment were completed in late 2008 in patients with neurologic bladders due to Spina Bifida. Now it's on to Phase III trials and Safeguard deployed $7.5 million in capital in October of last year. In this economic downturn, very early stage companies are having trouble gaining traction and additional investment. And because of the economic environment [Kadu's] board of directors recently decided to cease company operations. Safeguard deployed $2.2 million in Kadu in August of 2007 for a 14% stake.

Swaptree, an online platform for trading books, CDs, DVDs and video games is experiencing rapid user growth, rapid growth of its user base. Swaptree's innovative model has gained significant media attention which has driven its unique visitors to grow more than 300% since becoming a Safeguard Partner Company. Safeguard deployed $3.4 million in capital in is Swaptree in July of last year and we own 29%. During 2009 we expect Swaptree to move from the developmental stage to the initial revenue stage.

Six of Safeguard's 10 life sciences partners are at the revenue stage. Three are at the initial revenue stage. They are Alverix, Cellumen and Rubicor Medical. These partners are developing customer relationships, starting to penetrate their target markets, rounding out their management teams, organizations and infrastructure. Alverix is an optoelectronics company developing low cost, hand-held reader devices with the accuracy and precision of laboratory instruments. The Company partners with manufacturers to deliver accurate results at the point of care. Physicians offices, laboratory outreach locations, retail clinics and homes where test information is critical to patient care. In other words, it's an OEM supplier. The Company has scalable design and manufacturing facilities in California and Malaysia. Safeguard deployed $3.9 million in capital in Alverix beginning in October of 2007 and we hold a 50% stake.

Cellumen Is penetrating the market with its cellular level tool that indicates drug toxicity earlier in the discovery and development process. The Company has a healthy backlog of big pharma-and biotech companies including Eli Lilly and Mitsubishi Tanabe. Cellumen recently was selected by the Drug Safety Executive Council as one of eight signature partners working to improve drug safety. Safeguard deployed $6 million of capital in Cellumen in June of 2007 and we hold a 41% stake. Rubicor Medical is a medical device company with FDA approved minimally invasive breast biopsy and tissue removal technologies. We are seeking a CEO and additional financial backing to further enhance its commercialization. The Company is exploring additional funding. Operating activities have been suspended until additional capital and management are secured. We deployed $20 million of capital in August of 2006 and we hold a 45% stake.

Four of our eight technology partner companies are in the expansion stage. They include Advantage Healthcare Solutions, Authentium, Beyond.com and Portico Systems. They are managing consistent revenue growth with solid management teams. Advantage Healthcare Solutions uses a proven platform to deliver medical billing solutions to physician groups. AHS continues to improve productivity while growing organically and through strategic acquisitions. Safeguard deployed $9 million of capital in AHS In November of 2006 and May of 2008 and we have a 38% ownership position. Authentium developments and markets security software that enables consumers to protect their personal data. Its new product,Safe Central, is a next-generation identity theft prevention product that provides secure access to sensitive information such as your Social Security number or bank account. They continue to receive positive reviews from security experts and thought leaders. Safeguard deployed $9.3 million of capital since April of 2006 for a 20% ownership position.

Beyond.com is one of the largest networks of online niche career communities with over 15,000 web sites. Sectors with increased online job posting in the fourth quarter were healthcare, sales and clerical administrative according to Beyond. com's quarterly trend analysis. More than half of the reporting industries posted fewer online jobs for the quarter compared to the third quarter level. Beyond.com maintains its solid position with long-term growth drivers firmly intact. Beyond.com also gained market share in 2008 over its larger competitors that are positioned differently. Safeguard deployed $13.5 million of capital in Beyond since March of 2007 for a 37% stake.

Portico Systems sells software and services to health plans to help them reduce administrative, medical and IT costs. Portico is experiencing growth as an increased number of health plans are investing in solutions that increase efficiency, lower cost, improve provider satisfaction. In addition to revenue growth, the number of employees expanded 20%. Portico attributes their success to the addition of flagship health plan customers who are investing in solutions to help run their business more efficiently. These healthcare plans are leading the industry in IT investments that lower the cost of healthcare which has contributed to a substantial growth in Portico's pipeline which is two times greater this year than last year. During 2008 the leadership team at Portico made several strategic investments including the acquisition of assets that position the Company for more advanced connectivity between plans and providers to enable medical, home, healthcare exchange and collaborative solutions. Porticos transformational solutions help to position health plans for the coming healthcare reform by enabling greater collaboration and transparencies among the plans, providers and members. Safeguard deployed $8.8 million in capital in Portico in August of 2006 and February of 2008 for a 47% ownership position.

The last few are Safeguard's high traction partner companies. Advanced BioHealings, Bridgevine, GENBAND and Clarient are all reporting solid growth during break even or driving further bottom line profitability and certainly gaining in their commercial traction. I already summarized Clarient's progress so let's go on to Advanced BioHealings, a leader in the regenerative medicine, developing and marketing, cell based and tissue engineered products for wound healing. ABH continues to perform extremely well, driven by strong demand for its FDA approved derma graft for diabetic foot ulcers, Safeguard deployed $10.8 million in capital in ABH in February and May of 2007 and we have a 28% ownership position. Bridgevine is a leading Internet marketing company that enables online consumers to compare and purchase digital services such as Internet, phone, Voice over IP, TV, wireless, music, entertainment and more. An expanded lineup of products and services for more merchants is the primary growth engine for this company. Safeguard deployed $8 million of capital in Bridgevine in August of 2007 for a 21% stake.

And then Genband merged with Safeguard's Partner Company NextPoint Networks in late 2008 to bolster its position as a market leading developer for next-generation IP infrastructure solutions. Genband's high performance gateway solutions are deployed in more of half of the words 100 largest fixed and mobile telecommunications providers. We have a 2.3% ownership position in Genband. I'll turn the call over now to Steve Zarrilli our CFO and Steve will review our financial strategies and our performance. Go ahead, Steve.

Thanks, Peter. Our earnings news release and financial statements were distributed earlier. I'd be happy to elaborate on those details during the question period. With respect to 2008 we were able to achieve a number of key initiatives including a 19% reduction in corporate operating expenses in comparison to 2007. The development of corporate expense plan for 2009 which should yield further reductions, the purchase of $43 million of convertible debt at an aggregate discount of approximately 22% and the creation of a new, larger and more flexible corporate facility to augment cash resources for short term working capital needs. Balance sheet strength and the prudent use of cash remain critical focuses for the Company especially in light of the current economic environment. Our priorities from a financial perspective for 2009 include the continued pursuit of cost efficiencies, where possible, with respect to operating expenses, the opportunistic early retirement of convertible debt at a discount, a conservative approach to cash deployments for existing and potential future partner companies with the priority emphasis to support existing partner companies, and the evaluation of potential sources of alternative pools of capital to augment existing funds and to leverage the current infrastructure of the Company.

We ended 2008 with $87.9 million in cash, cash equivalents and marketable securities, excluding restricted securities of $2 million and cash held in escrow of $6.9 million. Our cash balance decreased $19.2 million since the end of the third quarter primarily due to debt repurchases of $3.5 million, cash operating expenses for the quarter of $3 million, the deployment of a combined $10 million in new partner companies, Garnet, Bio Therapeutics and Tengion, the deployment of $1.2 million to support the growth of existing partner companies, and a $2.6 million advance to Clarient under the current mezzanine facility. Deployments in new and existing partner companies totaled $31.1 million in 2008. As mentioned our game plan for 2009 is to continue to remain fiscally conservative given the macro economic climate. Our first priority and our use of cash will be to support our current partner companies in their value building activities. We have assumed that no exits will occur during 2009 and although a few opportunities may exist for us. During this climate we will change as external conditions warrant and think outside the box when necessary. Corporate expense control and reduction remains a point of emphasis. Operating expenses for the fourth quarter including stock base compensation and depreciation expense were down 7% to $4.8 million compared with $5.2 million for the same period in 2007.

For the year, operating expenses were $18.4 million versus $22.8 million in 2008, representing a 19% reduction. Principal elements related to this decrease of $4.4 million were reduced compensation expenses of $1.7 million, reduced professional fees of $2.1 million, a reduction in stock option expense of $1.8 million, offset by an increase in severance expense of $1.4 million related to our continuing obligation to our former Chairman and CEO. We anticipate continued reductions in corporate operating expenses in 2009. We will also continue to opportunistically repurchase our convertible debt securities at a discount with the goal of retiring the issue by March of 2011. At December 31, 2008, approximately $86 million of the converts at face value were outstanding. There were no stock repurchases during the fourth quarter.

Our focus currently is on debt reduction rather than potential repurchase of additional shares of common stock. In early February, 2009, we announced that Safeguard entered into a $50 million, two-year credit facility with Silicon Valley Bank. This new borrowing arrangement replaces a one-year, $30 million credit facility with Comerica Bank. Though we have no anticipated or pending additional short term borrowing needs at this time, we are excited about this new relationship with Silicon Valley Bank. Working together we have been able to establish a borrowing facility which permits a certain amount of borrowing flexibility and capacity based on the value of both cash on hand and other asset values related to our equity ownership in our partner companies. We also believe that Silicon Valley Bank can be a valuable partner from a lending perspective to a number of our partner companies as their capital needs arise. This borrowing base differs significantly from our previous facility which based borrowing capacity solely on our cash on hand. Our deal pipeline is full; however, this doesn't automatically translate into planned transactions.

Given the current condition of the economy and the lack of clarity with respect to the future, we plan on being very disciplined in considering new Partner Company investment opportunities. We recognize that this current environment will present some unique investment opportunities. We intend to actively evaluate all such opportunities presented, but only consider those opportunities with exceptional future return capabilities. Our first priority, as mentioned before, will be to ensure our current partner companies have sufficient resources to meet their operating needs. With respect to our only majority owned Partner Company, Clarient, we continue to provide appropriate financial support in the form of a debt guarantee and a specific borrowing facility for their working capital needs. However, we are also continually evaluating a multitude of potential opportunities to reduce Clarient's future dependency on Safeguard for such working capital requirements. As for revenue guidance in 2009 we expect aggregate revenue of Safeguard's partner companies to be in the range of 200 to $220 million for the year. Aggregate revenue for 2008 was $173 million.

Among our life sciences partner companies we expect 2009 life sciences aggregate revenue to be between 145 and $155 million We anticipate 2009 technology Partner Company revenue, aggregate revenue to be between 55 to $65 million. Genband is not included in our revenue guidance and our new partners, Garnet, Bio Therapeutics and Tengion are pre-revenue companies and will not impact our aggregate revenue expectations. As you may recall there is a one quarter lag in reporting our interests in the results of minority held companies. Though we recognize the challenges presented by the current economic environment we believe certain key opportunities exist for Safeguard as we continue through 2009 including augmenting our existing pool of capital with ancillary funds (inaudible), the continued leveraging of the companies back office infrastructure for the benefit of our partner companies and potentially other external fund-oriented partners. Now let me return the call back to Peter.

Thanks, Steve. Before we go to Q&A I'd like to correct a statement I previously mentioned that SR1 was a venture capital arm of Merck. It's actually the venture capital arm of Glaxo Smith Kline. So I owe an apology to my syndication partner. Overall, last year was a positive one for the performances of our partner companies but not a positive one for the performance of our stock. The external environment has been a hostile and unpredictable for many out of favor sectors despite the good companies participating in them and we are one of them.

Overall our partners companies have adhered to our guidance, protecting their cash, reducing their burn, employing very aggressive marketing tactics in their respective areas. Some are pursuing M&A opportunities of their own, through which they can opportunistically acquire and expand their customer set, channels of distribution and product offering. We remain optimistic that we are on a pathway to realized value in our holdings as we build value now, for valuable exits at the appropriate time. On that note, Melissa, we will be happy to take any questions.

Thank you. (Operator Instructions) Our first question is a line from the line of Mr. Bob Labick with CJS Securities. Please state your question.

Hi. A couple of questions, first just wanted to ask you. Obviously mentioned you've done work on lowering total cost and overhead cost. Could you discuss your current cash burn rate from the corporate expense and then also a range of expected funding requirements for the holdings that you have right now?

Why don't we ask Steve to take that.

So, Bob, for 2009 our expectations are cash requirements for Safeguard will be less than $15 million. For operating expenses. With respect to future deployments of existing partner companies we anticipate that number will range somewhere between 15 to $20 million for 2009.

Okay. Great. How does the, I guess, the retirement of debt play into those plans or what are the expectations for that for '09?

I'm sorry, could you repeat that question?

Oh, sure, the retirement of your debt as well, I mean obviously it's trading at a discount right now and I know you've been active at buying it at a discount. Is that also in the plans for '09 or how can you elaborate on that, please?

We will opportunistically take advantage of situations where we think that there's an opportunity to purchase our debt at a discount. But regardless we are putting money aside, if you will, to ensure that we have adequate resources to meet that obligation by no later than March of 2011.

Okay. Moving to Clarient could you discuss obviously the beginning of the month of March you expanded your financing plans with them. Could you just elaborate on that credit facility and potentially the longer term financing plans for Clarient?

Well, for Clarient we keep opportunistically looking for ways in which they can reduce their dependency as it relates to Safeguard and we think there's some credible alternatives to be considered in the next couple of quarters. With respect to the credit facility that Safeguard has, we expect that that will not need to be used in any meaningful way in the foreseeable future, but wanted to make sure that we had that capacity in the event that we have a near term exit that may allow us to take advantage of an opportunity in the market and wanted to tap that line for that purpose.

Okay. Moving on to the partner companies, it sounds like from the release and from Peter's comments Avid is beginning Phase III trials as well as New Path. For the laymen among us could you discuss the time frames and expectations that should be looked for as it relates to Phase III trials and milestones we might see and the timing of when we might see them?

Well, both companies have begun Phase III trials. As we all know Phase III is the last of the FDA approval process prior to going to marketplace. I'd say New Path, we are looking at the end of the year for the completion of these trials. And Avid's completion is likely to go through 2010.

And typically-- I mean obviously-- I know this environment is not a typical environment but how at Safeguard-- how do you look at the exits of your investments as it relates to the timing of Phase III or to the market or how does this work into the portfolio of Safeguard timing?

Companies at this phase have a couple of choices when they have successfully gone through Phase III, often times they are scooped up by major members of the life sciences community. And their decision matrix is, do I want to get scooped up for whatever XYZ value is or do we go commercial with our product offering.

Great. Okay. I will get back in queue. Thank you very much.

Thank you. Our next question is from the line of Bill Sutherland with Boenning & Scattergood. Please state your question.

Thank you and good morning. Steve, could you,-- at the end there you kind of quickly summarized your plans to utilize capital and provide some additional investment opportunities. Could you maybe touch on those three with a bit more color as what we could expect in '09.

Well, within '09, again, we are going to remain physically conservative. And what we mean by that is we recognize that the exit environment is such that it may take a bit longer to exit a particular investment or partner company investment before-- later than it may have originally been anticipated. So with that as the backdrop we are going to be very deliberate in the pace of the use of our cash. We want to emphasize the continued support of our existing partner companies.

One of the things that we did do though, as I mentioned and probably did run through too quickly, one of the driving elements to wanting to put a new facility in place with Silicon Valley Bank wasn't to create a short term borrowing facility that would fund long-term investments, A.), was not put into place to augment cash for operating expenses, but was really put in place for two reasons. One, if we find we are in a situation where without, without fail or without doubt that we are going to have an exit, and that exit is just predicated upon a certain time line of events to transpire, we may cap that line to take advantage of a new investment opportunity if we wanted to augment our cash that way. But I can't even see us doing that in the short term because of the significant cash balance that we currently enjoy.

The other reason we want to do enter into the Silicon Valley Bank arrangement is that we believe that their lending philosophy and their level of activity in the market will be beneficial to some of our partner companies as they go to look for their own financing for their business needs. And we can use a relationship that we're developing with Silicon Valley Bank to augment the relationships that they may potentially hope to develop with an outside lender.

From a corporate expense standpoint we continue to look for ways to reduce our corporate expenses to be very efficient in the way that we use that cash. Part of our structure obviously is employee cost and part of it is non-employee cost and we look at the relationship of those and we look at the specific elements of those costs and every year look to make refinements.

If you look over the last three years we've actually taken our cash expenditures down from a high of $19 million in 2007 or at least a high over the last three years, to a plan number as I mentioned to be less than $15 million with a very active program to see if we can even be more aggressive in being efficient with the use of our operating cash. Does that help?

Yes. And I know that you've talked about some opportunities to bring in, I'm not sure exactly what to call them, indirect, to lever the overhead over other investment.

Yeah, we are looking for ways to be opportunistic and to leverage our infrastructure if you will. We enjoy a very solid, very capable back office set of skill sets in the areas of legal, finance, IR, marketing, PR, IT, human resources, that we use today to support our partner companies. We think that there might be some ways to leverage that in some other unique fashions in the marketplace. A. B., we are looking to see if we can augment our existing pools of capital with other ancillary funds that may be able to be viewed as a co-investment or co-participation fund or aside by side fund if you will.

But that's still in very early planning.

Planning and early identification stages. So nothing to report at this moment.

Okay. And then also, Steve, on the Rubicor impairment, I'm just curious about the assumptions that went into circling $4 million for that.

The net asset value if will you that remains on our books, the investment, the net carrying value, basically approximates our share of the underlying technology and product value that was determined based upon a combination of external sources and evaluations that we had performed at the end of the year. And we believe it is actually a conservative -- it's on the low ends of a range of values that were suggested as it related to this technology.

Okay. And I guess this is probably hard to pin down but, (inaudible) is there-- do you have a sense of Rubecor's time line this year as far as getting on track.

It is a priority at the highest level for Safeguard to not only find the right level of additional capital so that we can continue to build Rubicor but to find the right collection of executive resources in order to continue to build the company as well. So it's at the top of our priority list. I can't speak to exactly when all of the pieces fall into place but I can tell you that we are dealing with opportunities and matters related to it on a daily basis.

Great. Thanks, guys.

Thank you (Operator Instructions) Our next question is from the line of [Sam Robotski, with SER Asset Management.] Please state your question.

Good morning, Peter and Steve. When you look at your convertible debt as of September 30, there was a stated value of $91 million with a market value of about $63 million with the $86 million at the end of the year, what was the market value then and what's the current market value? I assume you haven't bought anything in the-- to currently and what's the current market value of that debt.

Current market value ranges somewhere between 60 and $62 million. The difference between the 91 and the $86 million, as you pointed out, was the purchase of an additional $5 million that we were able to achieve at a discount of 31%. So, and that, those converts today I think are trading on average between 68 and $0.72 to the dollar. When they trade.

So at this point in time I guess if an opportunity develops and you would sort of reduce the debt further, that's your plan?

Yes. Occasionally I'm tuned into some stress that's exists in the market and the two transactions that we accomplished in 2008 represented a moment in time when we felt that we could take advantage of some weakness on the part of the holders. We have some external parties that are working for us and are actively looking for situations where a holder, for whatever reason, unfortunately may need to exit their position earlier than anticipated. And if they need to have an exit we are willing to have a conversation as it relates to the price that they may consider for that exit.

Okay. And as far as the price of your stock and the ability to do a reverse split, the New York Stock Exchange, do they have a deadline for anything like that and what's, what are your thoughts on reverse split now that you have an authorization to do that?

It's our preference to not have to do a reverse split if at all possible unless we have something that's so substantially terrific to use as a catalyst for that split. So having said that, and as you know, we have shareholder a approval to do up to a reverse split of up to eight to one, The NYSE has continued to be very accommodating not only for Safeguard but for other public companies that are traded on the exchange and they continue to push out the date of compliance if you will to get back over a dollar.

So currently it is our understanding that that date is out to September 1st and we continue to have active dialogue with the exchange as it relates to a strategy to regain compliance on that particular matter. Hopefully as we continue to execute during 2009 and the market continues to firm and we continue to demonstrate that we are able to add value and create value for our shareholders that we may get closer or even above that threshold on our own. But that's the current game plan today.

Okay. Now as far as the-- you basically stated that with the difficult climate you don't expect to have-- do a transaction to exit anything based on the market conditions, various other things. And presumably with the desire to do something with the convertible you are going to-- even though you have the $50 million available from silicon, you are going to husband your cash much more closely. Is it fair to say that the numbered transactions during 2009 will be smaller than 2008.

Sam, I think our fiscal planning is that we are not anticipating an exit. We might work towards one or more but our fiscal planning is not anticipating that. Hence, we're conservative in our financial outlooks and we will be conservative in our deployment of capital in new situations. We may be deploying in new situations but there's a pretty high bar that we will look at in order to deploy and I can't quite predict to you how many deals or anything like that.

And the other important point is we are not crafting a plan that would that would suggest that we use our short term borrowing arrangement with Silicon Valley Bank to meet our obligations under the converts. As we pointed out earlier we are being very deliberate to ensure that we are gathering cash over the next two years, either by the retention what have we currently have, or through proper exits. And I emphasize the word proper because we are not trying to accelerate those exits for any particular reason to minimize value attainment, but we are very cognizant and are working very diligent to the make sure there is no risk of not having sufficient resources to meet those obligations when they become due. But we don't intends to use a short term borrowing range to refinance a long-term obligation.

That sounds very good. It's a very difficult environment as everybody knows and hopefully something will, one of your companies will be successful and sort of help you along. Clarient has been very positive and on their conference call they spoke of I think an expectation of about $93 million of revenue for the next year. So that's a rather significant portion of your 145 to $150 million that you're projecting. Is there anything else -- what is the next closest venture that will produce the greatest revenue for you?

You can't really predict where the exit is going to come from or how much, Sam. I think our next largest company is actually Genband but we have only a 2.3% stake. Gen band is $150 million plus in size. In the life sciences arena the next largest one is AB H., Advantage Healthcare Solutions -- Advanced Bio Healings, AB H., too many initials.

Thank you, there are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Thanks very much for your continued support. We will continue to work diligently to the build value in Safeguard and report to you our progress going forward. Thanks a lot.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.