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Date Certain M&A of Pegasus Biologics, Inc.

Posted in Board Of Intellectual Capital, Distressed Intellectual Property, Distressed IP, Investments, Market research, Super computing, Venture Capital, tagged , , , , , , , , , , , , , , , , , , , , , , , , on June 1, 2009| Leave a Comment »

Gerbsman Partners www.gerbsmanpartners.com has been retained by Pegasus Biologics, Inc. www.pegasusbio.com to solicit interest for the acquisition of all, or substantially all, Pegasus Biologics Inc.’s (“Pegasus”) assets.

Pegasus Biologics, headquartered in Irvine, California, is an emerging growth regenerative medicine company focused on the manufacturing and commercialization of advanced bio-surgical solutions for soft tissue repair and regeneration.

IMPORTANT LEGAL NOTICE
The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to Pegasus Biologics’ Assets has been supplied by Pegasus. It has not been independently investigated or verified by Gerbsman Partners or their respective agents.

Potential purchasers should not rely on any information contained in this memorandum or provided by Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing as a statement, opinion, or representation of fact. Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

Gerbsman Partners, and their respective staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of Pegasus’ or Gerbsman Partners’ negligence or otherwise.

Any sale of the Pegasus Biologics’ Assets will be made on an “as-is,” “where-is,” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of Pegasus Biologics and Gerbsman Partners. Without limiting the generality of the foregoing, Pegasus and Gerbsman Partners and their respective staff, agents, and attorneys,  hereby expressly disclaim any and all implied warranties concerning the condition of the Pegasus Biologics’ Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

This memorandum contains confidential information and is not to be supplied to any person without Gerbsman Partners’ prior consent. This memorandum and the information contained herein are subject to the non-disclosure agreement attached hereto as Exhibit A.

Pegasus believes its assets are attractive for a number of reasons

·       Privately-held regenerative medicine, medical device company – capitalized in Jan 2005.

·       $31.8MM raised through Three Arch Partners, Onset Ventures, Frazier Healthcare Partners, Affinity Capital and others.

·       Has developed and is commercializing a revolutionary bioscaffold comprised of highly organized collagen, sourced from equine pericardium that encourages the healing process by addressing the demands of a challenging biological environment.

·       Core product technology is based on a proprietary processing and sterilization method resulting in a sterile, structurally sound, biologically conductive scaffold that complements soft tissue repair and adds strength to the repair over time. .

·       Known as “flexible crosslinking”, the technology maintains the native collagen architecture, which supports cellular ingrowth and resists enzymatic degradation – ideal for both soft tissue reinforcement as well as chronic wounds.

·       Has obtained exclusive worldwide licenses for the processing and sterilization of biological tissue for use in orthopedic, oral/dental, spinal and neurological, abdominal and thoracic, breast and wound applications.

·       Technology has 6 issued US patents, 5 pending US patent applications and associated International filings.

·       A revenue model consistent with other medical devices that are invoiced at the time of application (surgery).  Current ASP holding at $2200 with attractive gross margins
·       To date, over 10,000 patients have been treated with Pegasus’ products in various orthopaedic and chronic, complex wound applications

·       Received four FDA 510(k) approvals:  For Unite® Biomatrix as a collagen wound dressing (Sept. 26, 2007), for Orthadapt® as a surgical mesh for the repair, reinforcement and augmentation of soft tissues repaired by sutures or suture anchors during tendon repair surgery (Aug 5, 2005 and May 4, 2007), for Duradapt ® as a dural substitute under an IDE, and for Orthadapt® PR (Peek Reinforced), also for the repair, reinforcement and augmentation of soft tissues repaired by sutures or suture anchors during tendon repair surgery (May 5, 2009).

·       Received 1 FDA Investigational Device Exemption (IDE) to evaluate the safety and procedural success of a product called Duradapt® (a version of Orthadapt) for the repair/replacement of cranial dura mater.

·       Inventory of 4000 units valued at $667K based on cost of goods.

Revenue Summary–

Pegasus has been generating revenue since mid 2006 with both Orthadapt and Unite products.  Total revenue summary is as follows:
·     2006 – $2,958,113
·     2007 – $7,323,429
·     2008 – $9,147,515
·     Q1, 2009 – $2,479,987
Pegasus Key Accounts –
·     UCSD Medical Center – San Diego, CA
·     Alexian Brothers Hospital – Arlington Heights, IL
·     Wellstar Cobb Hospital – Marietta, GA
·     Westchester General Hospital – Miami, FL
·     Memorial Hospital of Rhode Island – Pawtucket, RI

Pegasus Biologics Company Profile

Founded in June, 2004, Pegasus is a California based, revenue stage medical device company.  Over the last 4 years, the company has raised $32MM in equity and debt from leading capital venture firms such as Onset Ventures, Frazier Healthcare Partners, Three Arch Partners and Affinity Capital.

Pegasus is becoming recognized as a global leader in bio-surgical solutions for soft tissue repair.  With thousands of successful clinical outcomes, current applications range from the repair, reinforcement and reconstruction of tendons to limb preservation and advanced wound management.

Impact of Technology on the Market
With the growing demand for advanced biologics, Pegasus is well positioned for the future.  An estimated 850,000 orthopedic soft tissue repairs and over 365,000 chronic complex wounds performed annually worldwide support this theory, and the high failure rates of tendon repair reported in the literature indicate an unmet clinical need.  The OrthADAPT® Bioimplant and Unite® Biomatrix collagen-based products are both FDA cleared and CE Marked.

Pegasus Biologics has obtained exclusive worldwide licenses for the revolutionary bio-platform technology developed for the processing and sterilization of biological tissue for use in orthopedic, oral/dental, spinal and neurological, abdominal and thoracic, breast and wound applications.

Pegasus Biologics’ Assets
Pegasus Biologics has developed a portfolio of assets critical to the repair and reinforcement of soft tissues and the treatment of chronic, complex wounds. These assets fall into a variety of categories, including:
·       Patents
·       Product
·       Product designs and prototype
·       Software and control algorithms
·       Manufacturing equipment and fixtures
·       One (1) prospective, multi-center, clinical trial under an FDA investigational device exemption. (Dura)
·       Three (3)  prospective, multi-center clinical studies for marketing purposes (Achilles tendon, arthroscopic rotator cuff, wound)
·       One (1) retrospective study for marketing purposes (open rotator cuff)
·       Current FDA regulatory clearances and CE marks
·       Data from human clinical trials/studies
·       Intellectual capital and expertise
·       Trademarks
·       Domain names

The assets of Pegasus Biologics will be sold in whole or in part (collectively, the “Pegasus Assets”).  The sale of these assets is being conducted with the cooperation of Pegasus. Pegasus and its employees may be available to assist purchasers with due diligence.  Notwithstanding the foregoing, Pegasus Biologics should not be contacted directly without the prior consent of Gerbsman Partners.

The Bidding Process for Interested Buyers
Interested and qualified parties will be expected to sign a nondisclosure agreement (attached hereto as Exhibit A) to have access to key members of the management and intellectual capital teams and the due diligence “war room” documentation (the “Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has an opportunity to inspect and examine the Pegasus Biologics’ Assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of Gerbsman Partners, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and Gerbsman Partners (and their respective, staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.

Following an initial round of due diligence, interested parties will be invited to participate with a sealed bid, for the acquisition of the Pegasus Biologics’ Assets. Sealed bids must be submitted so that the bid is actually received by Gerbsman Partners no later than Friday, June 26, 2009 at 3:00 p.m. Pacific Standard Time (the “Bid Deadline”) at Pegasus’ office, located at 6 Jenner Dr, Suite 150 Irvine, CA. 92618.  Please also email steve@gerbsmanpartners.com with any bid.

Bids should identify those assets being tendered for in a specific and identifiable way. The attached Pegasus fixed asset list may not be complete and Bidders interested in the Pegasus Biologics Equipment must submit a separate bid for such assets. Be specific as to the assets desired.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase where applicable. All bids must be accompanied by a refundable deposit check in the amount of $200,000 (payable to Pegasus Biologics, Inc.). The winning bidder will be notified within 3 business days after the Bid Deadline. Non-successful bidders will have their deposit returned to them. Pegasus Biologics reserves the right to, in its sole discretion, accept or reject any bid, or withdraw any or all assets from sale.

Pegasus will require the successful bidder to close within 7 business days.  Any or all of the assets of Pegasus will be sold on an “as is, where is” basis, with no representation or warranties whatsoever.

All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the Pegasus Biologics Assets shall be the sole responsibility of the successful bidder and shall be paid to Pegasus at the closing of each transaction.

For additional information, please see below and/or contact:

Steven R. Gerbsman
steve@gerbsmanpartners.com

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“Date Certain M&A” of SiCortex Inc – including its Assets and Intellectual Property (“IP”), in whole or in part (collectively, the “SiCortex Assets”)

Posted in Board Of Intellectual Capital, boic, Distressed Intellectual Property, Distressed IP, Gerbsman Partners, Investments, Technology, Venture Capital, tagged , , , , , , , , , , , , , , , , , , , , , , , , , , on May 28, 2009| Leave a Comment »

Gerbsman Partners has been retained by the Board of Directors of SiCortex, Inc. “SiCortex” or the “Company, to solicit interest for the acquisition of substantially all of SiCortex’s assets, including its intellectual property (“IP”), in whole or in part (collectively, the “SiCortex Assets”)

IMPORTANT LEGAL NOTICE
The information in this memorandum does not constitute the whole or any part of an offer or a contract.

The information contained in this memorandum relating to the SiCortex Assets has been supplied by third parties and obtained from a variety of sources. It has not been independently investigated or verified by Gerbsman Partners or their respective agents.

Potential purchasers should not rely on any information contained in this memorandum or provided by Gerbsman Partners (or their respective staff, agents, and attorneys) in connection herewith, whether transmitted orally or in writing (the “Information”), as a statement, opinion, or representation of fact. Interested parties should satisfy themselves through independent investigations as they or their legal and financial advisors see fit.

Gerbsman Partners, and their respective staff, agents, and attorneys, (i) disclaim any and all implied warranties concerning the truth, accuracy, and completeness of any Information provided in connection herewith and (ii) do not accept liability for the information, including that contained in this memorandum, whether that liability arises by reasons of Gerbsman Partners’ negligence or otherwise.

Any sale of the SiCortex Assets will be made on an “as-is”, “where-is” and “with all faults” basis, without any warranties, representations, or guarantees, either express or implied, of any kind, nature, or type whatsoever from, or on behalf of Gerbsman Partners. Without limiting the generality of the foregoing, Gerbsman Partners, and their respective staff, agents, and attorneys, hereby expressly disclaim any and all implied warranties concerning the condition of the SiCortex Assets and any portions thereof, including, but not limited to, environmental conditions, compliance with any government regulations or requirements, the implied warranties of habitability, merchantability, or fitness for a particular purpose.

This memorandum contains confidential information and is not to be supplied to any person without SiCortex’s or Gerbsman Partners prior consent.

The Company

Founded in 2004, SiCortex is a venture backed High Performance Computer systems company based in Maynard, MA. To date, the company has raised $68.1 million in funding from Flagship Ventures, Polaris Ventures, Prism Ventures, JK&B Capital and Chevron Technology Ventures.

SiCortex’s assets include: patents (granted and pending); proven, energy-efficient computer systems (the company’s core products); sophisticated systems and management software; core engineering team members; advanced simulations; chip design verification; existing and partially complete next generation products such as sub-assemblies, backplanes, racks, fans, cabinets, design tools, testing lab tools and products; software and hardware roadmap; trademarks; customers (including government intelligence agencies); The Pathscale® Compiler Suite, OEM, ISV and reseller relationships; external manufacturing relationships; experienced systems management and sales team; market presence.

Interested parties can acquire SiCortex’s core technology, market presence, sales pipeline, customer base, contacts and vendor lists enabling the purchaser to leverage existing business and customer relationships for future growth. Sales of existing products exceed 50% gross margins.

The sale of SiCortex assets is being conducted with the cooperation of the company SiCortex and its employees and retained consultants will be available to assist purchasers with due diligence and in a prompt, efficient transition. Notwithstanding this offer of assistance, SiCortex should not be contacted directly without the prior consent of Gerbsman Partners or the Board of Directors.

The SiCortex Solution

SiCortex addresses the compelling problem of data center energy constraints head-on, giving it a unique market opportunity in a world where, according to McKinsey & Company, 90% of data centers will run out of power capacity by 2010. SiCortex designs, develops and manufactures the world’s most energy efficient high performance computers (HPC). High Performance computing is typically targeted at academic, research and government agencies looking to run and operate sophisticated science. These organizations are power-constrained in their data centers and are looking for alternative solutions to cut consumption.

The SiCortex solution is a unique family of three computers (Desktop, Department and Division) scaling from 72 to just under 6000 processors in a single, compact machine. The systems consume 60-80% less electricity than comparably capable Intel-based systems (Cray, Dell, HP, IBM, sgi…). SiCortex systems are recognized as a viable alternative to Intel-based systems, and for certain applications, the preferred platform.

SiCortex created the “Green Computing Performance Index” or GCPI that is now used to measure energy efficiency of the world’s top HPC vendors. This objective index is based on industry standard benchmarks and ranks vendors on a performance/watt basis using 18 tests.

The SiCortex software stack comprises optimized Linux, open source libraries, tools and management utilities, all pre-integrated and highly engineered for ease of use and simple system management: a SiCortex system is more like a PC to operate than a typical Linux cluster. “It’s “ready to run”. These machines can be installed and be operational in less than an hour. Competitor systems can take weeks to be operational. All software running on Intel machines is binary compatible and will compile on SiCortex. SiCortex sells its products directly in North America (6 reps, 4 SE’s) and works with resellers in Europe.

Next generation products in development seek to extend SiCortex’s energy-efficiency industry leadership and broaden its market applicability to include financial services, biotech, petroleum, computer aided engineering and digital media. These next generation systems are projected to deliver a 90% energy efficiency advantage to the internet (LAMP) stack, enabling web-based businesses to increase web traffic capacity while slashing energy costs and reducing space, cooling and support costs.

SiCortex Customers and Partners

Customers include: US Government Intelligence agencies, Columbia University, MIT, Purdue, U of Michigan, U of Maine, Cambridge University, University of Colorado, GE, Booz Allen, Lockheed Martin, Argonne National Labs, NASA, and many more. SiCortex has reseller agreements in the United Kingdom with Streamline Computing, France and Nordic region with Clustervision and Germany with MegWare. SiCortex has porting arrangements with a growing number of Independent Software Vendors (ISV’s).

KEY POINTS – Why SiCortex Assets are Attractive

-Proven, delivered technology with an immediate top line revenue and performance improvement for customers looking for multi-core, highly scalable compute power with unparalleled energy efficiency.

-Market segments include Government agencies, Academia, research institutes, manufacturing, aerospace, moving into financial services, biotech, petroleum exploration/reservoir management, CAE, digital media and internet hosting…

-Over 300 codes, libraries, and applications run on the SiCortex platform with an applications engineering team porting more each week.

-Growth rate in Q1 2009 of 30% over previous quarter, 100% over Q1 2008

-75 computers delivered to customers, all running at 99% uptime with no returns and no support problems.

-Unique “system on a chip” design for elegance, efficiency and reliability

-Currently operating with >50% gross margins

-Patents support the unique technology. 1 issued, 12 pending. These patents center around the unique communications architecture built into the machine (no wires or cables) that provides for <1 microsecond access time to over 5800 processors.

-The systems fit right into existing data centers or even your office. Many customers are “tapped out” of power in their data centers; because of the machine’s efficiency, customers are able to operate our computers in small labs, hallways, even a closet (Columbia University). The unique airflow of the machine allows for this flexibility.

-Supports all Linux software, Gigabit Ethernet, Infiniband, multiple files systems (Lustre and NFS), supports a plethora of I/O devices as well as up to 70 PCI express slots. Supports flash memory.

SiCortex Product Assets are Substantial
A SiCortex system embodies numerous assets and IP. Principal assets include:

(1) Node chip: The SiCortex node chip is a proprietary design that incorporates all of the hardware elements needed for a high performance cluster computing node, except for commodity DRAM.

(2) CPU Modules: Node chips are mounted on CPU modules, which are printed circuit boards designed by SiCortex that interconnect the chips and provide power, mechanical support, system monitoring support, and attachment points for standard PCI Express I/O modules.

(3) Processors: the processors on the node chip are derived from the MIPS R5000, with SiCortex designed performance enhancements added.

(4) Level 1 and Level 2 cache: Each processor on the SiCortex node chip has a 256Kbyte Level 2 cache and a 64 Kbyte L1 cache, both designed by SiCortex. The on-chip hardware interconnect and coherency protocol that link the processor caches together was also designed by SiCortex. Both the Level 1 and Level 2 caches contain ECC protection to improve system robustness at large scale.

(5) Interconnect: the Node chips are interconnected by a proprietary fabric based on the Kautz graph topology. The fabric delivers industry-leading throughput and latency, and is implemented by a combination of switching elements on node chip, wiring on the CPU module, and and a proprietary backplane that interconnects the CPU modules.

(6) DMA Engine and microcode: the DMA engine is a custom microprocessor designed by SiCortex and optimized to support standard interprocessor communication protocols. The microcode that runs on the DMA engine supports primitive operations that are used by a wide range of communication libraries (see below).

(7) Communication Libraries: SiCortex has extensively modified and optimized numerous open source interprocessor communication libraries to take advantage of the microcode and hardware support for fast communication that is available in the DMA engine and the hardware interconnect. These include MPI, SHMEM, GASnet (which supports the UPC, coarray FORTRAN, and other parallel languages), the Lustre Network Device, and the Buffered Message interface (which supports PVFS, the Parallel Virtual File system). Outside developers are extending this work to build other libraries such as the Aggregate Remote Copy Interface (ARMCI).

(8) I/O: Every node chip includes an I/O port, compatible with third party interfaces that conform to the PCI Express standard.

(9) System software: The SiCortex system Linux kernel, commands, and libraries provide standard software interfaces that make optimal use of proprietary hardware. In addition to optimizing the Linux software base for SiCortex systems, SiCortex has added documentation, integration, and verification testing that improves the robustness and usability of the open source distribution.

(10) Packaged math libraries: The SiCortex development environment includes numerous widely-used software libraries that have been pre-built and packaged for use by application developers. The current suite of packaged libraries includes PETSc, GOTO BLAS, Atlas BLAS, SPRNG, FFTW-2, LAPACK, FFTW-3, BLACS, ScaLAPACK, GSL, NETCDF, HDF5, and GMP.

(11) SiCortex Optimizing Compiler Suite: The SiCortex optimizing compiler suite is based on intellectual property obtained through the acquisition of Pathscale LLC in 2008 (prior to the acquisition, Pathscale had been developing compiler software under contract to SiCortex). The SiCortex Optimizing Compiler Suite supports C, Fortran, and C++. All of the optimization steps in the compiler have been extensively tuned for the SiCortex architecture.

(12) GCC Tool Chain: SiCortex has adapted the open source GCC tool chain to support its systems, including modifications to the compiler and linker to enhance the performance of compiled code.

(13) Optimized Math Libraries: In addition to the packaged libraries, the SiCortex development environment inlcludes several libraries that have been hand-tuned for optimal performance on SiCortex systems. These include standard libraries for math functions (both scalar and vectorized), string manipulation, and performance-critical functions such as memory copy. These libraries are available to application developers and (where appropriate) used by the GCC tool chain and the SiCortex Optimizing Compiler Suite.

(14) Debugging tools: The SiCortex development environment includes several debugging tools, including the Gnu Debugger (GDB), a stack backtrace tool, and several options for diagnosing memory usage problems.

(15) Performance profiling tools: The SiCortex system supports a powerful set of performance profiling tools that support analysis and correction of problems that affect scalability. These tools are based on facilities inside the node chip that count events such as cache misses, CPU pipeline stalls, interprocessor messages, and IO operations.

(16) Independent Software Vendor (ISV) packages: SiCortex systems support a growing suite of packaged software available from third party developers. Today, packages include the TotalView debugger, the Tau and Vampir performance analysis tool set, and the MOAB resource management system.

(17) System Service Processor (SSP): The system service processor is a commodity X86 server that runs SiCortex-developed software that manages the system. The software includes utilities that control bootstrap, restart, and shutdown, along with software that monitors the system, sends alerts, controls the cooling subsystem, and triggers shutdown under extreme conditions such as room air conditioning failure.

(18) MSPnet: The Management Service Processor network is an Ethernet that links the System Service Processor to all of the hardware elements in the system, including power supplies, fans, temperature sensors, and the CPU Modules. MSPnet includes processors and software that run on each CPU module that monitor and control the Node Chips and on-board power distribution.

(19) Software Distribution: Distribution of system software on SiCortex systems is managed by a set of software utilities that, under the control of the system administrator, automatically fetch and install software updates from a SiCortex-maintained site on the Internet. When necessary, these utilities are also capable of deinstalling software updates.

(20) Cabinet: SiCortex systems come in three different cabinet types, ranging in size from a deskside unit that houses 72 processors to a 5′ X 5′ cabinet that houses 5,832 processors. Each cabinet includes a chassis that holds the CPU modules, one or more fan trays that cool the system, a power supply that converts computer room power to the voltages needed by the components in the cabinet, a system service processor, and other elements that support system management and I/O.

(21) Diagnostics suite: SiCortex systems come with a diagnostics suite that is used in several settings including manufacturing test, burn-in prior to shipment, and isolation of hardware faults in the field.

SiCortex experienced chip development team

SiCortex has been able to compete with teams from Intel, AMD and others 20 times the size of SiCortex by designing its own processor. SiCortex has been able to include everything except the memory. The capabilities are to include the memory controllers, a PCI Express interface, a DMA engine and even a slice of the network switch. The objective is to implement an entire cluster by iterating a single chip plus a couple of DIMMs. This has big cost savings due to size, performance, and power-consumption benefits. Not only does SiCortex believe this is cheaper, the Company is able to earn the gross margin on the CPU chip, instead of paying it to Intel or AMD.

The Company does not do full-custom design. SiCortex focus is on doing ASIC development using standard cell libraries and synthesis tools. In a given technology the clock rate is therefore lower, but the company compensates for that with more cores, and the lower clock rate is the key to low power consumption–2x the clock rate equals about 6x the power consumption… SiCortex only designs logic where the company can add value–the CPU pipeline, the cache coherency hardware, and the communication protocol hardware. Intel and AMD typically do everything in-house.

Less than 20% of the area of one of SiCortex chips is designed by the company. SiCortex’s chip team has the domain expertise to select and integrate commercially-available IP. The SiCortex chip team consists of 2 architects, 8 designers, and 20 verifiers (over half of whom are contractors). Their value is that without this key Intellectual Capital, SiCortex would have a lower-communications-performance, lower-margin, larger, higher-power-consumption product that would be much less well-differentiated from products that rely on purchased x86 CPUs and their supporting chipsets.

In summary, the SiCortex approach is most similar to that of IBM’s Blue Gene family, except oriented to the bottom 50,000 users, not the top 500.

The Bidding Process for Interested Buyers

Interested and qualified parties will be expected to sign a nondisclosure agreement (attached hereto as Exhibit-A) to have access to key members of the management and intellectual capital teams, as well as the due-diligence “war room” documentation (“Due Diligence Access”). Each interested party, as a consequence of the Due Diligence Access granted to it, shall be deemed to acknowledge and represent (i) that it is bound by the bidding procedures described herein; (ii) that it has an opportunity to inspect and examine the SiCortex Assets and to review all pertinent documents and information with respect thereto; (iii) that it is not relying upon any written or oral statements, representations, or warranties of SiCortex, Inc. or Gerbsman Partners, or their respective staff, agents, or attorneys; and (iv) all such documents and reports have been provided solely for the convenience of the interested party, and Gerbsman Partners (and their respective, staff, agents, or attorneys) do not make any representations as to the accuracy or completeness of the same.

Following an initial round of due diligence, interested parties will be invited to participate in a sealed bid process, for the acquisition of the SiCortex Assets. Sealed bids must be submitted so that it is actually received by Gerbsman Partners no later than, Thursday, June 25, 2009 at 2:00 p.m. (Eastern Daylight Time) (the “Bid Deadline”) at SiCortex office, located at Three Clock Tower Place # 210, Maynard, MA 01754. Also, please forward to all bids to steve@gerbsmanpartners.com

Bids should identify those assets being tendered for in a specific and identifiable way. The attached SiCortex fixed asset list may not be complete and Bidders interested in the SiCortex Equipment must submit a separate bid for such assets, Exhibit B. Be specific as to the assets desired.

Any person or other entity making a bid must be prepared to provide independent confirmation that they possess the financial resources to complete the purchase where applicable. All bids must be accompanied by a refundable deposit check in the amount of $200,000 (payable to SiCortex, Inc.). The winning bidder will be notified within 48 hours of the Bid Deadline. Non-successful bidders will have their deposit returned to them.

SiCortex reserves the right to, in its sole discretion, accept or reject any bid, credit bid all or part of its debt, modify bidding procedures, or withdraw any or all assets from sale. SiCortex will require the successful bidder to close within a seven-day period. Any or all of the assets of SiCortex will be sold on an “as is,” “where is,” basis, with no representation or warranties whatsoever. All sales, transfer, and recording taxes, stamp taxes, or similar taxes, if any, relating to the sale of the SiCortex Assets shall be the sole responsibility of the successful bidder and shall be paid to SiCortex at the closing of each transaction…

For additional information, please see below and/or contact:

Steven R. Gerbsman
steve@gerbsmanpartners.com

Other sources in regards to SiCOrtex: Cnet, MassHighTech, WBJournal, Boston Globe, TMCnet, GreenTech Media, NetworkWorld, GigaOm, NewYork Times.

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The real problem with the stress tests and the bailout programs

Posted in Board Of Intellectual Capital, Business models, Distressed IP, Economy, Investments, Market research, Strategy, tagged , , , , , , , , , , , , , , on May 8, 2009| Leave a Comment »

We wrote about this topic yesterday, the bailout was just a bandaid – the real issue is the fundamentals. The recent stress tests uncovered some uncomfortable truths in regards of cash, GMAC among others might need bailout or face bankruptcy!

The ever so humble (not) Paul Krugman today wrote a good Op-Ed in NY Times. Here are some selected quotes explaining the situation very clearly.

“I won’t weigh in on the debate over the quality of the stress tests themselves, except to repeat what many observers have noted: the regulators didn’t have the resources to make a really careful assessment of the banks’ assets, and in any case they allowed the banks to bargain over what the results would say. A rigorous audit it wasn’t.

But focusing on the process can distract from the larger picture. What we’re really seeing here is a decision on the part of President Obama and his officials to muddle through the financial crisis, hoping that the banks can earn their way back to health.”

He continues;

“After all, right now the banks are lending at high interest rates, while paying virtually no interest on their (government-insured) deposits. Given enough time, the banks could be flush again.

But it’s important to see the strategy for what it is and to understand the risks.

Remember, it was the markets, not the government, that in effect declared the banks undercapitalized. And while market indicators of distrust in banks, like the interest rates on bank bonds and the prices of bank credit-default swaps, have fallen somewhat in recent weeks, they’re still at levels that would have been considered inconceivable before the crisis.

As a result, the odds are that the financial system won’t function normally until the crucial players get much stronger financially than they are now. Yet the Obama administration has decided not to do anything dramatic to recapitalize the banks.

Can the economy recover even with weak banks? Maybe. Banks won’t be expanding credit any time soon, but government-backed lenders have stepped in to fill the gap. The Federal Reserve has expanded its credit by $1.2 trillion over the past year; Fannie Mae and Freddie Mac have become the principal sources of mortgage finance. So maybe we can let the economy fix the banks instead of the other way around.”

Read the full article here.

Others covering this article can be found here: Economists View, Brooks and Krugman, NewsTrust, One Penny Street, Relevant Science.

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Do you think that the crash is over?

Posted in Board Of Intellectual Capital, boic, Distressed IP, Economy, Investments, tagged , , , on April 16, 2009| 2 Comments »

On a weekly basis I receive John Mauldin’s -” Outside the Box” update.  This is excellent commentary on the market, business and life.   Recently, a friend and I attended a Joh Mauldin sponsored investment seminar and we found it to be interesting, intriguing and we met some outstanding international guest speakers.

John was Chief Executive Officer of the American Bureau of Economic Research, Inc., a publisher of newsletters and books on various investment topics, from 1982 to 1987. He was one of the founders of Adopting Children Together Inc., the largest adoption support group in Texas. He currently serves on the board of directors of The International Reconciliation Coalition and the International Children’s Relief Fund. He is also a member of the Knights of Malta, and has served on the Executive Committee of the Republican Party of Texas.

He is a frequent contributor to numerous publications, and guest on TV and radio shows as well as quoted widely in the press.

John is the President of Millennium Wave Advisors, LLC (MWA) which is an investment advisory firm registered in multiple states. John Mauldin is President of Millennium Wave Securities, LLC a FINRA registered broker-dealer. MWS is also a Commodity Pool Operator (CPO) and a Commodity Trading Advisor (CTA) registered with the CFTC, as well as an Introducing Broker (IB).

For those seeking personal and business references, pictures of his family or further information, we would refer you to the Gallery section of his website;  www.johnmauldin.com and you can also email him at johnmauldin@investorsinsight.com

From John Mauldin – ” Outside the Box “

This week we will look at two shorter essays for this edition of Outside the Box. The first is some thoughtful words by Tom Au on whether or not we have put in a true bottom for the market. I particularly want you to read his thoughts on what earnings will look like going forward, and whether we can get back to the highs in corporate earnings we saw in 2006.

Tom is the executive vice-president of R. W. Wentworth, a contributor to Real Money at www.thestreet.com and the author of “A Modern Approach to Graham and Dodd Investing”

In last Friday’s letter I mentioned an article by William Hester, CFA, who is the Senior Financial Analyst at the Hussman Funds. (www.hussmanfunds.com) While I quoted a few paragraphs from his essay, on reflection I think I will re-produce it below, as this is a very important concept. I have written in past letters and in Bull’s Eye Investing about how powerful a driver earnings surprises can be (both positive and negative). Powerful bear and bull markets develop when there are numerous surprises in the same direction, re-enforcing market psychology.

So, read Hester’s essay with the knowledge of what Au writes about earnings. I think the two make a very powerful, thought-provoking concept. And I am off to Europe.

John Mauldin, Editor

Outside the Box

Do you think that the crash is over, as certain former bears do? This question arises as we have breached the first downside target, of Dow 7000, based on my proprietary investment value model, that was first published in thestreet.com October 24, 2007. It was less a forecast than an evaluation. The Dow has now vindicated this model by reaching “fair value,” as one would expect from a simple definition. Does that represent a base for a new bull market? Or is it just one more stop to the nether regions?

To understand my model, note that a stock can be analyzed as a combination of a bond plus a call option. My proprietary investment value metric for a stock is book value plus ten times dividends. That is a Ben Graham like construct that treats stocks almost like bonds, and gives no effect to growth over and above the pro rata return from the reinvestment of retained earnings. On the other hand, many investors prize stocks, particularly tech stocks, for their “optionality,” the hypothetical ability to generate “positive surprises” over and above what economic theory would support. At bottom, the belief in the new economy was a belief in “optionality,” that random positive events that occur from time to time, and did so with particular frequency in the 1990s, will become a recurring fixture of the economic landscape.

But such a process can also work in reverse, as it has recently. We are now experiencing what my colleague Robert Marcin calls the Great Unwind. A turbocharged economy is most likely to become “unstuck” when the conditions that initially favored it no longer exist. When this happens, an economy can grow as much below trend as it was formerlyabove trend, a fact that is likely to be reflected in the financial markets. History is not very encouraging on this score. In past downturns, such as those of 1932 and 1974, the Dow troughed at one half of my investment value metric, reflecting then-prevailing investor beliefs for negative optionality; that the economy will be worse than normal economic forces would dictate. With investment value at 7000 (actually a rounded version of 6600) on the Dow, half of that would be 3300. And during the 1930s, this metric actually fell, meaning that the “ultimate” low could be half of a number lower than 6600.

So having completed a first downleg, the market is now working on a second one. And this would be fully reflective of economic forces. For instance, financial earnings used to represent some 40% earnings (if you count the financing arms of some old line “industrial” companies such as General Electric and General Motors). Thus, they made up $32 of what used to be normalized S& P earnings of $80. But most of those financial earnings have disappeared. That, by itself, would take the S&P earnings into the $50s.. But how many of those non-financial earnings (of $48) were tied to the finance bubbles such as the homebuilding and the “housing ATM?” At least 10%, or around $5, and that is being conservative. Thus, normalized S&P earnings are likely to be no more $50 a share, if that.

The problem comes at payback time. For instance, much of the borrowing was tied to the housing market, on the bogus theory that houses could be made twice as valuable (as a multiple of rent) as they were for all of American history if prices could be kept on steady incline. The problem was that valuations collapsed when house prices fell, or even failed to rise, bringing down the market with it. To make up the shortfall, the U.S. economy now has to consume less than it produces, for a time. But the formerly virtuous circle became a vicious circle when falling prices (and consumption) led to falling production in a self-reinforcing process of the kind best described by George Soros in the Alchemy of Finance. This is a process called underabsorption, which in its strongest form, is called disintermediation. When a major part of the economy becomes “unstuck, the rest of it doesn’t merely go into retrograde. It has to fall apart also to keep pace.

But I can live with $50 trough earnings, say many. And at historical multiple of 14-16 times trough earnings, the S&P should stop its downside in the 700-800 range. But the point is, they’re not trough earnings, they are the “new normal.” And in the current “slow” (zero or worse) growth environment, a trough P/E of 6-8 times earnings is more likely. Put another way, we are about to get the worst of all worlds; below trend earnings, below trend growth from a depressed base, and below trend P/E, after having gotten the best of all worlds, astronomical P/Es on above-trend and rapidly growing earnings, about a decade ago. Warren Buffett now agrees, saying that we will get “almost the worst of all possible worlds…”

The bears-turned-bulls have taken the latter stance because the market now reflects at least a severe recession. One such commentator likened the recent market to 1938-1939, and feels that the latter represents a bottom. But the 1930s bottom was 1932, not 1939, which is to say that the market probably has further to fall. Having correctly dodged the “overvaluation” bullet earlier, the new bulls pin their hopes on the prospect that the current market represents everything bad short of the 1930s Depression. Unlike us, they aren’t willing to grasp the nettle that the current crisis will likely be as bad as anythingincluding the Great Depression.

A Stock Market Rebound Closely Linked with Economic Data Surprises

by William Hester, CFA – April, 2009

There are several ways to interpret the economic data in March, most of which came in above what economists were expecting. Some analysts concluded that the worst is over for the economy, and a rebound is ahead. Others suggested that the economy is still contracting, but at a slower rate for now. In any case, economists have overestimated the economy’s rate of contraction lately. The rebound in the stock market has been at least partially fueled by economic data that consistently came in better than expected last month. Some part of this rally is likely relying on the continuation of these “positive” surprises.

To track the trends in economic performance, we keep an ongoing tally of how data is announced relative to expectations ˆ a method of analysis originally inspired byBridgewater Advisors . Economic data that surpasses expectations gets added to a 3-month running total. Data that comes in weaker than expected gets subtracted. A rising line means that economic data is generally coming in above expectations, while a falling line means that the data has disappointed. A descending line could be the result of an economy that is not expanding as quickly as economists predict or ˆ like in 2008 ˆ it could be the result of an economy that is contracting at a faster rate than expected. In the first graph, and the others below, I’ve isolated only the data that measures the growth in the economy, leaving out measures that track the rate of inflation and sentiment. The first chart below shows the surprise line for growth-related economic data since last August, just prior to the passing of the Emergency Economic Stabilization Act, from which the first version of the TARP was born.

jmotb041309image001

There’s nothing quite like pointing out how bad a shape the economy is in to get people acting like the economy is in bad shape. During the early part of last summer the economy was actually holding up better then what was generally expected. But during the final quarter of last year, the economic surprise line (in blue) collapsed. Data persistently came in below expectations, which created the steepest drop in the line tracking economic performance versus expectations in the available data.

The red line in the graph above tracks the S&P 500 Index and it shows that stocks have recently closely tracked the trend in data surprises. The market fell along with the deteriorating surprise line last year, rallied slightly prior to improved news in December, and then rolled over again as the news weakened versus expectations in late January. In March the market rebounded along with a more pronounced persistence in favorable economic news versus expectations.

The data released in March was better (or less negative) than expected on a number of fronts. The slowdown in spending eased, there was temporary relief in the new and existing homes sales data, and sentiment measures mostly halted their steep decent of recent months. But while much of the data was surprising relative to expectations, it’s difficult to point to any piece of data that was surprisingly strong (outside of some of the volatile data series like, for example, durable goods). New homes sold at an annual rate of 337 thousand versus 300 thousand (and a peak of 1.4 million). GDP was revised to -6.3 percent versus an estimate of -6.6 percent.

Much of the excitement in the stock market ˆ at least that is related to the current performance of the economy – seems to be centered on an economy that is performing less badly than expected. The risks here seem to be that if the trends in data surprises change, so could investor’s attitudes toward stocks that are currently overbought on a number of measures.

There are a couple of reasons why the trend in the rate of data surprises could change. The first is that trends in economic surprises are very prone to reversals. The chart below shows a longer-term picture of the changes in the trends in economic data surprises. The one thing that stands out looking at the graph is that the trends in surprises often reverse abruptly. When the estimates of economists fall behind in an expanding economy – underestimating its strength – expectations are adjusted upward. These estimates eventually become too optimistic. The same can be said of an economy that is contracting more quickly than expected. And the data shows that the more pronounced their forecast errors ˆ the more abruptly economists begin to overestimate the economy’s recent trend.

jmotb041309image002

Another reason why the economic news may begin to disappoint at some point is that recoveries rarely proceed smoothly. The trends in month-to-month and quarter-to-quarter data tend to lurch forward and backward as the economy regains its footing (and at times, like in 1982, the economy can fall right back into recession).

One recent example of this was in 2002, which is shown in the graph below. The trends in economic data versus expectations were persistently better than expected from late 2001 as the economy emerged from recession that year through late spring of 2002. The S&P 500 surged by more than 20% from its 2001 low as the economy began to regain its footing and offer up positive data surprises. But by the summer of 2002 the rebound proved not robust enough when compared with economist’s expectations, and the surprise line rolled over. With stocks not yet at valuation levels that were attractive to investors, the S&P plunged along with the data surprise line.

jmotb041309image003

It’s important to note that this was during a period where the economy was, in hindsight, no longer in recession, and where there were many measures that showed the economy was growing again. But the market was still tripped up at least partly because expectations had moved ahead of the economic recovery. The bear market remained unfinished, and stocks fell to new lows. This may turn out to be an important risk over the next couple of months. The economic data is certain to be uneven, which in turn may cause investors to begin to question whether an economic recovery is really at hand. Risks will likely be higher at points where the market is overbought.

Investors tend to punish economic disappointments much more strongly during bear markets than during bull markets. The graph below, which shows the S&P 500 and the surprise line from 1998 to 2002, highlights this tendency.

jmotb041309image004

Although it’s just a portion of one cycle ˆ the late stages of an expansion and a mild recession, it’s worth noting how stocks performed in response to economic data surprises. In the last part of the 1990’s bull market, a rising economic data surprise line mostly fueled rallies. Data worse than expected weighed on performance ˆ often causing shallow declines like in 1998 and late 1999. Conversely, during the 2000-2002 bear market, disappointing economic data coincided with steep declines in equity prices, while positive surprises usually eased the market’s deterioration.

These trends were also evident during the market’s advance from 2003 through 2007, but were somewhat less dependable. During that period, the trends in the surprise data were shorter and more variable than the market’s slow, persistent advance. Since last summer, the correlation between the two has tightened considerably. In fact, the correlation between the S&P 500 and the data surprise line has climbed above .80, implying that investors are keeping a close eye on how data comes in relative to expectations.

If the high correlation between stock prices and data surprises holds, the recent rally in stocks might be tested. Even if the economy has bottomed, it’s very likely that the eventual recovery will prove to be uneven, causing the flow of positive surprises to be uneven. During these periods, the risks to stocks will be greatest when the market is overbought and investors have priced in high expectations of positive data surprises continuing.

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Successful Date Certain M&A of “Business Unit and Intellectual Property”

Posted in Board Of Intellectual Capital, boic, Distressed Intellectual Property, Distressed IP, Gerbsman Partners, Intellectual capital, Venture Capital, tagged , , , , , , , , on April 14, 2009| Leave a Comment »

Steven R. Gerbsman, Principal of Gerbsman Partners, Kenneth Hardesty and Dennis Sholl, members of Gerbsman Partners Board of Intellectual Capital, announced today their success in maximizing stakeholder value for a venture capital backed medical device company that developed a new minimally-invasive treatment option for patients with emphysema.

Gerbsman Partners provided Crisis Management leadership, facilitated the sale of the business unit, associated Intellectual Property and assets and recovered receivables. Due to market conditions, the senior lender and the board of directors made the strategic decision to maximize the value of the business unit and Intellectual Property. Gerbsman Partners provided leadership to the company with:

  • Crisis Management and medical device expertise in developing the strategic action plans for maximizing value of the business unit, Intellectual Property and assets;
  • Proven domain expertise in maximizing the value of the business unit and Intellectual Property through a targeted and proprietary “Date Certain M&A Process”;
  • The ability to “Manage the Process” among potential Acquirers, Lawyers, Creditors Management and Advisors;
  • The proven ability to “Drive” toward successful closure for all parties at interest.

About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in under-performing, under-capitalized and under-valued companies and their Intellectual Property. Since 2001, Gerbsman Partners has been involved in maximizing value for 52 Technology, Life Science and Medical Device companies and their Intellectual Property and has restructured/terminated over $770 million of real estate executory contracts and equipment lease/sub-debt obligations. Since inception in 1980, Gerbsman Partners has been involved in over $2.2 billion of financings, restructurings and M&A transactions.

Gerbsman Partners has offices and strategic alliances in Boston, New York, Washington, DC, San Francisco, Europe and Israel.

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