Micro-Cap Review Magazine Fall/Winter 2013 by Planet MicroCap Review Magazine

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TNI BioTech, Inc. Ticker: TNIB CEO, Noreen Griffin www.tnibiotech.com Page

CVSL Inc. Ticker: CVSL CEO, John P. Rochon www.cvsl.us.com Page

Ticker: YGYI Marilu Henner and Dr. Joel D. Wallach www.youngevity.com Page

PetVivo, Inc. Private Company CEO, John Lai www.petvivo.com Page

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Dark Pools [16] Medifocus - Improving the Standard [20] David Weild lV - Q & A [22] Repeal of General Solicitation Ban [30] Technorati Strangulation by Regulation [38]

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European View [40] How to Use New General Solicitation Rules [80] Biotech Update [46] What I’m Buying [83] What is Your Financial Health [50] Who’s Your Edgar Agent? [84] Tips for Using Rule 144 [52] India - Asia [86] Investing in China [60] How to Choose the Best Transfer The Incubator [63] Agent: WST Q & A [88] Hong Kong [65] Silver - Gold - Palladium - Platinum [68] Insurance [92] The Original SoupMan pg 34

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E D I T O R I a L In Loving Memory of Our Precious Daughter, and Sister, Sammi Kane Kraft www.snnincorporated.com www.stocknewsnow.com Follow us: @StockNewsNow SNN Incorporated and the Micro-Cap Review 4766 Admiralty Way #13004 Marina del Rey, CA 90295 www.snnincorporated.com PUBLISHER Sheldon “Shelly” Kraft SNN Founder skraft@snnwire.com Wesley Ramjeet SNN CFO wesley@microcapreview.com EXECUTIVE EDITOR Lynda Lou Kane Kraft SNN President Robert Kane Kraft SNN COO rkraft@snnwire.com ASIAN PACIFIC CORRESPONDENT Leslie Richardson SNN COMPLIANCE AND DUE DILIGENCE ADMINISTRATION Jack Leslie CHAIRMAN OF SNN ADVISORY BOARD Dr. Leonard Makowka ADVERTISING and SALES info@snnwire.com 424-228-2035 STOCKNEWSNOW RADIO Gary McKenzie SNN VP OF SALES Peter Orthos GRAPHIC PRODUCTION Tony Vibhakar Tony@unitronmedia.com GROWTH CAPITAL EXPO FINANCIAL CONFERENCE info@growthcapitalexpo.com 888-895-6807 Micro-Cap Review Magazine is published Quarterly, Spring, Summer, Fall, Winter POSTMASTER send address Changes to Micro-Cap Review Corporate Ofﬁces. ©Copyright 2013 by Micro-Cap Review Inc. All Rights Reserved. Reproduction without permission of the Publisher is prohibited. The publishers and editors are Not responsible for unsolicited materials. Every effort has been made to assure that all Information presented in this issue is accurate and neither Micro-Cap Review Magazine or any of its staff or authors is responsible for omissions or information that is inaccurate or misrepresented to the magazine. Micro-Cap Review is owned and operated by SNN Inc.

t’s been quite a year for micro-cap’s already and the year is not nearly over! One day in May, around Mother’s Day, I recognized the earliest sign of the beginning of the micro-cap Bull Market. For me the moment was very memorable. I remember it happened on a Monday while I was reading a press release, probably one of a hundred I read each day. The press release gave the details of how a Wall Street investment bank had completed a $10,000,000 private placement funding for a publicly traded company during the previous week. This occurrence was a signal. I had a feeling that the market had turned and with it, the micro-cap market would soon follow. A turning point, a trend beginning, and a noteworthy big bang and the market jump-starts. For me the announcement of a substantial capital raise for a micro-cap issuer was indeed significant. It wasn’t an IPO, but capital is still capital. Surly reinvigorating the microcap IPO market was next, but more importantly, private equity investors were writing checks and crowdfunding continued to creep ahead. Sleepy and dormant venture capitalists, like sleeping bears, are ending their hibernation. The street buzzing as CEOs began taking notice of these funding events and our readers begin paying attention to StockNewsNow. com not wanting to be left behind. News travels fast in the micro-cap market. The social networks, message boards, broker dealers and service providers all want to

know: Who did what? When? What terms? What price? What valuation? Who wouldn’t be curious? How does each news event help turn the market? Which sectors will be most affected? Where is the capital coming from? All the right questions have started being asked, all different from the market where very few deals were getting completed and terms were onerous for companies when completed. Until around May, it had been a buyer’s/funders market seemingly for years. I was ecstatic, who in the market wouldn’t be? I had the facts in my hand, the money from the sidelines had started to loosen up and the profit taking from big board stock sales started and meant the trickle down affect was underway! The Dow continued to increase as big names continued to attract big money and small money players but smart money had started selectively looking more at risk. Bottom fishers had less and less deals to swallow and capital fund managers were listening to new ideas. Money managers had money to spend; professional stock pickers were picking and buying. The micro-cap stock group, like an ocean liner, takes time to change direction in the big ocean of capital markets, but like an elephant, once the first step is taken the whole herd will follow. New liquidity has started flowing and where droplets of money become pools, and pools become ponds, and deal flow is soon to return just like fresh growth after a rain on the Kalahari Desert. Adding to the early bull is the push

The micro-cap stock group, like an ocean liner, takes time to change direction in the big ocean of capital markets, but like an elephant, once the first step is taken the whole herd will follow.

This Publication is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Micro-Cap Review Magazine and its employees are not, nor do they claim to be registered investment advisors or broker/dealers. This magazine contains forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 relating to companies’ future operating results that are subject to certain risks that could cause results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements. This publication undertakes no obligation to update these forward-looking statements. Micro-Cap Review Magazine, its owners, employees, their families and associates may have investments in companies featured within this publication and may elect to sell these investments or purchase additional investments in these companies at any time. However, the policy of our editorial staff is to avoid any pre-publication trading of featured stocks or sales until the release date of the magazine. In order to be in full compliance with the Securities Act of 1933, Section 17(b), where the publisher has received payment for advertisement/advertorial of a security, the amount and type of consideration will be fully disclosed. All information about the Company contained within an advertisement/advertorial has been furnished by the respective Company and the publisher has not made any independent veriﬁcations of such information and makes no implied or express warranties on the information provided. Readers should perform their own due diligence before investing in any securities mentioned. Investing in securities is speculative and carries a high degree of risk. All MicroCap Review Disclaimers apply http://www.microcapreview.com/disclaimer.php before investing view www.sec.gov/investors

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Micro-Cap Review Magazine

A new era of private crowdfunded start-ups and ramp-up companies and the crowdfunding websites and platforms are here as well. to emerging growth markets induced by the Jobs Act and general solicitation provisions of the Act which now provides companies the much needed ability to solicit and advertise seeking accredited investors. A new era of private crowdfunded start-ups and ramp-up companies and the crowdfunding websites and platforms are here as well. This issue of the Micro-Cap Review provides our reader a global perspective of emerging growth markets, covering both public and private companies with poignant articles covering the biotech sector to your financial health, and highlights dealing with markets in Hong Kong, Europe, China and Canada. As the

market changes and expands, many new companies, C- suite executives, incubators, start-ups, ramp-ups, investors and technology transfer groups are seeking experienced professionals and service providers specifically familiar with emerging growth companies and are micro-cap friendly. Although we are in a micro-cap bull market, cash is still precious and goes quickly, as companies execute their business models. Many of the service providers in this issue are sensitive to micro-cap issuer’s tight cash flow and day-to-day financial pressures. SNN salutes our information services strategic partners including: OTC Markets, QuoteMedia,

Marketwired, and MarketNexus Media, who are all taking part in changing the landscape for providing investors with access to micro-cap market information and data only market professionals once had. In addition visit service provider advertisers including: 144 Opinions, Russell C. Weigel III Esq., ChoiceTrade, Worldwide Stock Transfer, Edgar Agents, Thorson Insurance, Malone Bailey, Oswald & Yap and Profit Planners Management. Lastly, we hope to see you all at the Growth Capital Expo conference, April 29-May 1 in Las Vegas, Nevada, at Caesar’s Palace. For more information, go to GrowthCapitalExpo.com or StockNewsNow. com.

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CONTENTS WWW.MICROCAPREVIEW.COM fall/winter 2013

16 Dark Pools By David Franasiak, Joel Oswald, Eric Robins, and Rebecca Konst 22 An Interview with David Weild By David Weild IV 30 Repeal of General Solicitation Ban Ushers in New Era for Private Offerings By Brett Goetschius 38 Strangulation By Regulation By Joe Martin 40

A European View On How Banks and Regulators Together with Currency (=Euro) Crisis Cause an Economic One as Well By Dr. Drasko Veselinovic

46 BIOTECH 2013: Mid-Year Sector Update By Seth Yakatan 50 What is Your Financial Health? By Dr. Janet Zand

63 Life-Science Technologies The Incubator By Richard Koffler 65 Hong Kong Rebounding to be World’s 3rd Largest IPO Market in 2013 By Leslie Richardson 68 Silver - Gold - Palladium - Platinum By David Morgan 72 Do You Know Beans About (Soy)beans? By Mark Shore 77 Ask Mr. WallStreet Newsletter 80 How to Use the New General Solicitation Rule for Private Placements to Raise Capital By Mitch Goldsmith, Camilla Merrick, and Nancy Cass 83 What I’m Buying By Chris Lahiji 84 Who’s Your Edgar Agent?

52 Tips for Using Rule 144 to Remove Legends 88 Worldwide Stock Transfer from Stock Certificates By Ashley Bolduc 60 Investing in China By Corey Fischer, CPA

Profiled Companies

Legal, Tax & Accounting

Financial Puzzle

14 Marifil Mines Ltd.

Comic Strip

20 Medifocus, Inc.

54 The Compliance Corner By Russell C. Weigel, III 62 SNN StockWord Puzzle 67 WallStreet Chicken - Episode 9

10 CVSL Inc.

18 PetVivo, Inc. 26 Youngevity International, Inc.

Opinion

34 The Original SoupMan, Inc.

Insurance

78 Orphanbiotec Foundation

90 Ombudsman By Jack Leslie 92 Thorson Insurance Services www.stocknewsnow.com • www.snnwire.com • www.microcapreview.com

56 TNI BioTech, Inc. 86 Benchmark Healthcare Partners LLC

Micro-Cap Review Magazine

P R O F I L E D c O M Pa N Y

cvsl inc.: a new way to invest in a Powerful global sector of commerce

ike all visionary business leaders, John Rochon saw a need then found an innovative way to meet it. The result is an interesting new approach that’s making a splash in the $153 billion global direct selling industry. It’s called CVSL Inc. [stock symbol: CVSL]

“Direct selling” means selling any products or services directly to consumers without going through stores. It’s sometimes called “relationship marketing.” John Rochon calls

n JOHN P. ROcHON

Micro-Cap Review Magazine

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it “micro-enterprise.” Whatever you call it, it’s a massive business that stretches into every community in every part of the world. It’s estimated that 91 million people are involved in direct selling. (Source: World Federation of Direct Selling Associations). Rochon, 61, is the former chairman and CEO of cosmetics giant Mary Kay. As that company’s leader, he helped revolutionize direct selling. For example, he tapped into the power of e-commerce at a time when some people wondered if the Internet would hurt direct selling. He expanded Mary Kay to 37 countries around the world. At one point he was also the largest shareholder in Avon. As chairman of Richmont Holdings, Rochon has made more than 340 major investment transactions over the past 28 years, and he has generated average compounded annual returns of 92%, creating about $36 billion in wealth. Many of his investments have been in businesses outside direct selling. But he says he never lost his fascination with that unique form of commerce. “Micro-enterprise is incredibly powerful,” said Rochon recently, as he talked to Micro-Cap Review about his new venture. “It’s a way for literally any person to have an independent business and help his or her family and have fun doing it. But over the past few years I realized that the industry hasn’t seen a really interesting new idea for a long time. That’s what led me to a breakthrough, and I came up with the strategy for CVSL.” It’s a strategy that’s built on a few simple facts. There are about 200 companies in the U.S. Direct Selling Association, ranging in size from a few million dollars in sales to multibillion dollar giants. Some are publicly traded but most are private. In many cases, the person who founded the company is its charismatic leader who motivates and inspires the independent sales force. Many of the leaders want to find a way to monetize some of their stake in the company, but they can’t do that without selling

As chairman of Richmont Holdings, Rochon has made more than 340 major investment transactions over the past 28 years, and he has generated average compounded annual returns of 92%, creating about $36 billion in wealth. and exiting the company. Rochon’s idea was to solve that problem while at the same time strengthening the individual companies. By building a public company “umbrella,” he could bring multiple direct selling companies together under that umbrella. Each owner could have shares in the public entity – some of which they could convert into cash if they chose – while still remaining active in the business. As Rochon put it, “If you want to sell your company and exit, we’re not interested. If you want to grow your company, call us.” In CVSL, each company remains independent, with its own separate product line, sales force, compensation plan and leadership team. Rochon calls this “brand respect.” He points to Louis Vuitton Moet Hennessy (LVMH) as the model for an umbrella, under which are multiple independent brands. The public company vehicle to accomplish this was CVSL Inc. Rochon acquired the publicly reporting company in September of 2012 and made his first direct selling acquisition in March, 2013. First to become part of the CVSL “umbrella” was one of America’s best-known brands, a maker of hand-crafted baskets and other home items: The Longaberger Company. Based in Ohio, with revenues around $100 million, Longaberger celebrated its 40th year in business in 2013. Five generations of the Longaberger family have been in the business. The company recently made a splash in the news media when it announced it was bringing its entire line back to made-in-theU.S.A. One of the things that made Longaberger

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such a perfect fit with CVSL was the fact that it had a massive and under-used infrastructure, which was built to accommodate a much larger company. Prime office space, first class manufacturing, warehouse and distribution space – 500,000 unused square feet of it – and an excellent location near Columbus, Ohio all had the potential for meeting the needs of multiple CVSL companies. “Every direct selling company has the same basic needs in the ‘back of the house.’ They all need technology and accounting support. They all need warehouses and distribution. So if we can have shared infrastructure for at least some of these needs, we can have more profitable companies,” explains Rochon. This is especially true for what Rochon calls “gazelles”: new or up-and-coming companies that have a great product or service and just need a launching pad to ignite sales and expand into multiple markets. “It’s a terrible waste when a good direct selling company can’t get traction because it doesn’t have a home base,” says Rochon. “To use an analogy, these are gazelles that just need to be nourished and they’ll run like the wind.” One such up-and-coming company is Your Inspiration At Home, a two-year old maker of 250 hand-crafted spice blends made from natural ingredients from around the world. The company has won numerous awards since its launch in Australia. It is now ready to break into the North American and other markets, with CVSL providing the launch pad. As founder Colleen Walters put it when Micro-Cap Review Magazine

Product lines being processed at the facility include skin care, OTC medical devices, hair care, beverages, energy drinks, powders and spices. The facility has done contract work for major corporate clients in the food, drug and cosmetic sectors. she became part of CVSL, “This is the next step toward our becoming a truly global market.” Spices for the North American market will be blended at a state-of-the-art CVSL facility in Texas. ActiTech, a CVSL sister company just north of Dallas, is CVSL’s in-house manufacturing arm. It is a 600,000 square foot, state of the art R&D, manufacturing, filling and warehouse facility for health and beauty, nutritional and consumable products. The manufacturing facility is ISO 9001 compliant and is USDA certified organic. It performs new product development, manages regulatory review and compliance, and handles testing and monitoring. Air and water environmental monitoring in the facility are performed daily and it operates a USP purified water system. The facility has full capabilities for large volumes for blending, filling and bottle labeling, including several filling lines, each capable of handling up to 120,000 units per day. Product lines being processed at the facility include skin care, OTC medical devices, hair care, beverages, energy drinks, powders and spices. The facility has done contract work for major corporate clients in the food, drug and cosmetic sectors. Along with the infrastructure of offices, manufacturing and distribution facilities in Ohio and manufacturing for health and beauty and consumables in Texas, CVSL offers another form of “intangible infrastructure” through Richmont Holdings offices in Dallas: namely, the combined experience of the CVSL brain trust and the Richmont Holdings team.

This includes a CVSL board of directors who have decades of experience in direct selling and other fields. For example, one director developed and ran Mary Kay’s operations in Russia and Europe. Another has worked for or consulted with major direct sellers for many years. ActiTech’s founder serves on the board. The brain trust also includes experts in finance, marketing, mergers and acquisitions and operations. The company’s web site, www.cvsl.us.com, includes a discussion of its strategy, plus public filings and news. CVSL’s first shareholder conference call was a comprehensive discussion of the company’s plans. The call transcript is on the site. As CVSL looks to the future, Rochon says it will take a broad and flexible view of which companies are right for coming under the CVSL umbrella. “This is not a short-term thing,” he says. “We’re building value for shareholders over the long term. The average duration of my investments is 14 years,” says Rochon. “So we’re looking for companies to bring into CVSL that can grow and build value.” Those companies could range from small, in the $2-5 million range with good upside potential, to mid-size in the $100-200 million range, and up to even the largest companies. In general, CVSL is looking at market sectors such as nutritionals, healthy lifestyle, cosmetics and beauty and home décor, although it is open to additional categories as well. Rochon says that CVSL is looking for several things as it analyzes candidate compa-

Micro-Cap Review Magazine

nies. “We’re looking to add new categories. We want to fill in the world map. We’re looking for good value. And we’re looking to add for good connections in the consumer cloud.” After Longaberger and Your Inspiration At Home joined CVSL, a third company signed a letter of intent to join. Tomboy Tools, a 13-year old company that offers a unique line of pink tools designed for women, along with 24/7 home security monitoring services, brings CVSL into the massive home improvement tools ($11 billion) and home security ($13 billion) sectors. Rochon says that, as word of his CVSL strategy began to spread behind the scenes in the direct selling world, a large number of companies of varying sizes approached him about potentially being part of the venture. CVSL has a team of financial analysts continually looking at such potential transactions. “We want to make sure that any companies entering CVSL are a good fit for us, and believe we’re right for them,” says Rochon. “The response has been really encouraging. We see this as an idea whose time has come and we’re seeing that in the reaction to us around the industry.” “I’ve known the direct selling channel for three decades,” says Rochon. “I know firsthand how powerful it is. I know that my vision for CVSL is the best new idea this sector has seen in a long time. I’m absolutely convinced we’re going to give direct selling a whole new dimension as we acquire companies and give them a chance to reach their full potential. “This is a model that makes so much sense, not only for owners of direct selling companies but for everyone who appreciates this amazing industry,” said Mr. Rochon. It’s going to be really rewarding to guide CVSL and grow it over the years to come,” he added. (website: www.cvsl.us.com) n

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LYNNE BOLDUC OF OSWALD & YAP LAWYERS RECENT FINANCING TRANSACTIONS

Calliance Realty Fund $25,000,000 Private Real Estate Fund

Madison Realty Companies $15,500,000 Private Offerings

DNA Health Corp. $14,000,000+ Private Offerings

We represent Capital Alliance Advisors, Inc. in a series of offerings of real estate funds.

We represent Madison Realty Companies in their private offerings of residential real estate and senior living facilities.

We represent DNA Health, a health and wellness company, in a series of private offerings.

May 2013

Bill the Butcher, Inc. OTCQB: BILB Series of Private Offerings

Padrino Tequila We represent Finance 500, Inc., the $5,000,000 Private Offering Managing Dealer of a series of private placements for Bill the We represent Padrino Tequila in its Butcher, Inc. private offering of securities.

Fireman’s Brew, Inc. $5,000,000 Private Offering We represent Fireman’s Brew, Inc. in its private offering of securities.

May 2013

June 2013

September 2012

Black Shopping Channel $12,500,000 Private Offering

CompPartners, Inc. $12,000,000 Sale

Guardian 8 Holdings $3,000,000 Private Offering

We represent Black Shopping Channel in its private offering of securities. June 2013

Email: LPB@oswald-yap.com

We represented CompPartners, Inc. We represent Finance 500, Inc., the in its sale to a national healthcare Managing Dealer of this private conglomerate. offering. December 2012

February 2013

Lynne Bolduc, Esq. Oswald & Yap, APC 16148 Sand Canyon Avenue Irvine, CA 92618 Phone: (949)788-8900 Website: www.oswald-yap.com

PROFILED cOMPaNIES

Project generator model: Decreasing risk & increasing opportunity

ith the mining sector languishing and junior exploration companies battered and bruised, investors have learned the hard way the benefits of decreasing risk. With many junior explorers facing all-time low share prices, raising money and proving a valuable resource has become a risky and often dilutive process. Trying to overcome these inherent issues with the sector, some juniors have turned away from the traditional raise, explore, dilute, drill routine and moved toward the project generator model. Marifil Mines Ltd. (TSX-V: MFM) has followed this model since its inception and received distinct advantages from this business model. A typical project generator like Marifil focuses on acquiring multiple early-stage properties, often across a range of resources or countries. The company will then perform early-stage exploration on the resource. Next, where traditionally a junior would raise more capital (and dilute the stock), a project generator will partner with another company to conduct further exploration on the project. This partner will have to earn a stake through share and cash payments to the project generator and by financing further exploration. Once the partner has earned joint-venture status, the project generator will retain a stake and royalty in the property.

n BY JOHN HITE

Micro-Cap Review Magazine

Consider Marifil’s position. Marifil has an impressive portfolio of 22 precious metal, base metal, and fertilizer properties in Argentina. This diverse portfolio allows Marifil to take advantage of commodities that are currently in favor with investors, while the project generator model provides Marifil with the distinct advantage that the costs and risk of exploration are passed on to joint venture partners. In the project generator model, Marifil retains four different income streams: 1. Cash payments for earning a stake in the property 2. Shares in the joint venture partners 3. Net Smelter Return (NSR), which allows Marifil to receive cash flow when the property enters production 4. Retained Interest, either a carried or working interest, which allows Marifil to receive payment if the property is sold or placed into production. Marifil has utilized the project generator model with a number of past and present partners. These partners include: Southern Copper, NovaGold, BHP, Western Mining, IAMGOLD (with Barrick), Prophecy Platinum, Allana Potash, Castillan Resources, and Yamana Gold, among others. These companies have spent over $40 million on Marifil’s properties and allowed Marifil to benefit from their experience in the mining sector. “The project generator model allows us to maximize our chances of finding a huge discovery while sharing the bill with a larger, better funded mining company” says John Hite, President of Marifil Mines. “Our stream of incoming cash flow from our successfully joint ventured projects reduces the

need to dilute our stock to finance further acquisitions or exploration. To date, our joint venture partners have spent more than $40 million on our properties; this is real leverage for our investors.” Marifil’s property portfolio includes the following important projects: 1. San Roque: gold-silver-indium-leadzinc deposit with sulfides discovered throughout an area measuring more than 3km wide and 4km long. 2. K-1, K-2, K-3, K-4, K-5, and K-6 potash properties: some with indicated grades of 40 to 45% K2O in beds 3 to 4 m thick. 3. Pedernal: a “Carlin-type” gold target. 4. Toruel: a high grade silver-copper vein. 5. Punta Colorada: a cement-grade limestone deposit. 6. El Carmen: an oil and gas target. 7. Two porphyry copper targets. 8. Several high grade epithermal goldsilver veins. 9. Several important sulfur targets. 10. Las Aguilas: a Ni-Cu-PGM project with significant NI 43-101 resource. For more information on Marifil Mines or the benefits of the project generator model please contact : Head Office: John Hite, President Phone: 702.562.4880 Email: info@marifilmines.com Website: www.marifilmines.com Investor Relations: Hugh Oswald Phone: 604.838.2855 Email: hoswald@marifilmines.com n

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F E aT U R E D a R T I c L E

Dark Pools:

What Are They and What Does the Future Hold for Them? whaT are Dark Pools?

TyPes of Dark Pools

Dark pools refer to alternative trading systems (ATS) that do not publicly display bids and offers in their quotes and are not required to identify the particular ATS that executed the trade. In contrast, the trade reports of registered exchanges such as the NASDAQ or New York Stock Exchange (NYSE) are required to identify the trading venue that executed the trade. Dark pools have been around since the 1980s as “upstairs” trading in formal exchanges and generally handle institutional investors that trade sizeable positions in a company’s shares.1 These trades remain anonymous in dark pools so as to avoid possible adverse price movements in the market driven by these trades.

A variety of dark pools exist, distinguishable based on: (1) their market model (e.g., continuous vs. periodic crossing, blind vs. advertisement-based pools); (2) their ownership (e.g., is a dark pool owned by a traditional exchange or by broker-dealer(s)?); and (3) which traders have access to a dark pool.2 In fact, different types of dark pools3 include: • “Public Crossing Networks”: These are agency-only, broker-owned with a primary goal to generate commissions. Examples include Instinet, Liquidnet or Pipeline. • “Internalization Pools”: These aim to internalize the operator’s trade flows. Examples include Credit Suisse Crossfinder. • “Ping Destinations”: These accept “immediate or cancel” orders and their customers’ order flow only interacts with the operator’s flow. Examples include ATD or Citadel. • “Exchanged-Based Pools”: These are systems that are actually registered ATSs by exchanges. Examples include: NYSE Matchpoint, Nasdaq Crossing or Deutsche Börse’s Xetra XXL2.

• “Consortium-Based Pools”: Jointly operated by a number of brokers, partners first try to cross orders in their own dark pool and only send unexecuted orders to the consortium pool. Examples include LeveL or BIDS.

so how have regulaTors TreaTeD Dark Pools? In the United States, the Securities and Exchange Commission (SEC) has oversight of dark pools. With the growth in the number of dark pools since the implementation of Regulation National Market System (NMS), the SEC has taken a closer look at these venues, and in October 2009, proposed rules to further regulate them. The proposal aimed to: (1) require actionable indications of interest be treated like other “bids” or “offers” and be subject to the same disclosure rules; (2) lower the trading volume threshold for ATSs for displaying best-priced orders; and (3) create the same level of post-trade transparency for dark pools as for registered exchanges (i.e., amend existing rules to require real-time disclosure of the identity

1 How Dark are Dark Pools?- Part 1, TABBFORUM (April 18, 2013), http://tabbforum.com/opinions/how-darkare-dark-pools-part-1.

n BY BY DaVID FRaNaSIak, JOEL OSWaLD, ERIc ROBINS, aND REBEcca kONST

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2 Hans Degryse, Mark Van Achter, & Gunther Wuyts, Shedding Light on Dark Liquidity Pools (Nov, 18, 2008), available at http://papers.ssrn.com/ sol3/papers.cfm?abstract_id=1303482, pp.3-4. 3. Hitesh Mittal, Are you playing in a toxic dark pool? A guide to preventing information leakage, JOURNAL TRADING (June 2008), available at http://www.itg.com/news_events/papers/ITGResearch_Toxic_Dark_ Pool_070208.pdf, pp.3-7. OF

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of the dark pool that executed the trade).4 However, the SEC has not moved further on these rules. Current SEC Chairman Mary Jo White has expressed an interest in looking at equity market structure as “the SEC needs to be in a position to fully understand all aspects of today’s high-speed, high-tech, and dispersed marketplace”, noting that “[h]igh frequency trading, complex trading algorithms, dark pools, and intricate new order types raise many questions and concerns.”5 When the SEC proposed the rule in 2009, they calculated that the number of active dark pools was 29, an increase from 10 in 2002.6 The SEC compiled this data based upon the submissions from Form ATS in the second quarter in 2009. But the SEC acknowledged that there are other trading venues “that offer dark liquidity primarily in a principal capacity and do not operate as ATSs” and “these trading venues are not defined as dark pools because they are not ATSs.”

Dark Pools: Today and Tomorrow Today, darks pools are generally estimated by media sources to account for about 40% of the market, up from the 7.2% cited by the SEC in its 2009 rule proposal. So while several exchanges have raised concerns with the growth of these ATSs (suggesting a lack of transparency and fairness to investors), in reality, ATSs level the playing field by introducing more competition on execution speed, quality and cost. Furthermore, even the traditional exchanges have operated dark pools or introduced dark order types for years and continue to do so. For instance, the New York Stock Exchange (NYSE) in 2012 opened its own dark pool (in addition to its NYSE Matchpoint), known as

the Retail Liquidity Program (RLP), which allows for trades from retail investors and at prices in fractions of a cent that do not need to be made public. Overall, investors have benefited from the growth of and variety in dark pools. The mechanics of a dark pool clearly benefit the investor in the form of a better price, execution, and choice as broker-dealers or market makers may send an order through a number of dark pools to see if there is a match. If there is not a match or price improvement, an order may go to an exchange to be filled. The cost saved by this execution away from an exchange may be passed on to the retail consumer in the form of lower execution costs, better fill, and price improvement. It is impossible to hold back technological improvements in the market. In fact, these alternative trading systems help to lower costs for the investors and protect against adverse price movements for investors that could result from the trading on-exchange.

at Ernst & Young, working on tax, securities, and financial institution issues. From 1984 to 1987, he worked for British Petroleum on tax, finance, environment, and energy issues, and was Director of Tax at the U.S. Chamber of Commerce from 1981 to 1984. Previous to this position, he served as Staff Director to the Tax Oversight Subcommittee of the U.S. House of Representatives Small Business Committee. Early in his career, Mr. Franasiak worked on the legislative staffs of a city and county legislature, and worked as a venture analyst for a large multinational corporation while completing his graduate work. In addition to serving Williams & Jensen clients, Mr. Franasiak teaches a seminar at the University at Buffalo Law School’s New York City Program in Finance and Law, most recently on securitization and the crisis in the capital markets.

David Franasiak became a Principal of Williams & Jensen in 1992. As Vice President of Finance and a member of the Executive Committee since 1993, he is responsible for the day-to-day financial management of the firm, pension plans, and outside legal entities. Mr. Franasiak specializes in a legislative and administrative practice focused on tax, securities, financial institutions and natural resources. Mr. Franasiak has over twenty-five years of experience working on public policy issues with corporate executives, not-for-profit organizations, accounting firms, broker dealers, hedge funds, financial institutions, and associations. Prior to joining Williams & Jensen, he was a Principal in the Office of the Chairman

Eric Robins became associated with Williams & Jensen in 2006. He works with clients on legislative and regulatory issues, primarily in tax, trade and financial services. Prior to joining Williams & Jensen, Mr. Robins practiced securities and corporate law in New York for two years. In that role, Mr. Robins worked on federal, state and National Association of Securities Dealers dispute resolution cases. Mr. Robins also served as a legal adviser to various small publicly traded companies. In addition, Mr. Robins is a Level II Candidate for the Chartered Financial Analyst Exam. n

4. Regulation of Non-Public Trading Interest, Exchange Act Release No. 34-60997, 17 CFR Part 242 (Nov. 13, 2009), available at http://www.sec.gov/rules/proposed/2009/34-60997.pdf., pp.6-7. 5. Nomination of Chair for the Securities and Exchange Commission: Hearing Before the S. Comm. on Banking and Urban Affairs, 113th Cong. 1 (Mar. 12, 2013) (statement of Mary Jo White, nominee for Chair of SEC), available at http://www.banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=619e5603c2c8-4085-98c6-0014ce29bde7. 6.Regulation of Non-Public Trading Interest, supra note 4, at 6-7. www.stocknewsnow.com • www.snnwire.com • www.microcapreview.com

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PROFILED cOMPaNIES

Petvivo C

secures, manufactures and distributes disruptive human therapies for the animal market

o-founder & CEO of PetVivo, Inc. John Lai, has a passion for pets and finance that led him to use his finance and business acumen to help improve the lives of companion animals. In PetVivo, John has leveraged the company’s investments in the development of human therapeutics and is commercializing therapies within the less regulated companion animal market. PetVivo’s first product is currently ready for commercial production and sales in the fourth quarter of 2013. Often medical device, biologics and pharmaceutical companies look past the animal market to the human market benefitting PetVivo as the Company that secures disruptive human therapies for the animal market. Information available indicates U.S. consumers will spend an estimated $55 bil-

lion on pets this year—a number that has been growing at a pace of more than 5% per year over the last decade. Pet industry experts foresee continued, healthy growth in consumer spending in the U.S. pet market through 2017 and steadily into the following decade. “We are noticing several trends contributing to the growth in the industry,” said APPA President and CEO Bob Vetere. “These trends include the positive impact of pet ownership on human health, which we expect to continue and to fuel pet industry sales for many years to come. And, as the pet industry proves to be ‘recession resistant,’ we’re confident that this upward trend in spending will endure.” Mr. Lai has recognized that the role of companion animals has evolved over the past generations from simply being a house pet to

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becoming a companion animal and an integral part of the family. As a result, pet owners are willing to invest more and more money to maintain and extend the health and lives of their pets. As “family members” these pets are receiving treatments such as: stem cell therapy and cancer therapies that were very unusual just a few years ago. According to the American Pet Products Association, approximately 78% of U.S. dog owners treated their dogs with medications in 2010 as compared to 50% in 1998. PetVivo is benefitting from the recent shift in pet product distribution expansion from both online commerce and animal drug sales at pharmacies of warehouse stores. Historically, pet therapies, especially pharmaceuticals, were a meaningful revenue stream for veterinary clinics and hospitals. PetVivo is focused on the practice and returning revenue by providing products that require in-clinic expertise. PetVivo provides a significant revenue stream back to animal hospitals and clinics. In addition to John Lai, PetVivo was Co-founded by John Dolan. Mr. Dolan is a former patent examiner at the US Patent and Trademark Office and has practiced patent law for decades in the area of medical devices and biopharmaceuticals. His patent, licensing and chemistry background provides the expertise to lead the process of vetting human treatments, in the late stages of development, for use as potential animal therapy candidates. In securing exclusive worldwide animal licensing rights to therapeutics, PetVivo requires securitizating intellectual property for PetVivo and conform to PetVivo criteria for large market opportunities, multiple species, and required disruptive therapeutics. PetVivo focuses product manufacturing on scalability product shelf life, and adherence to regulatory requirements, and that product

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pricing meets the parameters of the veterinary and care providers market. PetVivo has leveraged lower regulatory requirements of the veterinary market, and while the FDA regulates veterinary medical devices, pre-market approval is not required. The FDA does not require submission of a 510(k) or formal pre-market approval for medical devices used in veterinary medicine. According to Mr. Dolan, “animal pharmaceuticals require fewer clinical studies for the FDA, involves fewer subjects and is conducted directly in the target animal. Accordingly, there is no need to bridge from pre-clinical studies in one animal to the final target – often humans, decisions on the potential efficacy and safety of a drug can be made more quickly and the likelihood of success can often be established earlier”. PetVivo plans to leverage established distributors to penetrate the veterinary market. According to the Federal Trade Commission (File No. 101 0023) reported in January 2013, nearly all veterinarians buy their supplies from distributors who specialize in supplying companion animal veterinary clinics. Veterinarians overwhelmingly prefer to buy through distributors because of the efficiency and customer service they offer. More than 75% of veterinarians prefer one of the top five distributors, which have an 85% market share of companion animal veterinarians sales, as their preferred distributors. PetVivo has recently entered into an exclusive license, manufacturing and supply agreement with Gel-Del Technologies, Inc. PetVivo has licensed Gel-Del Technologies, Inc. protein-based biomaterials for the treatment of pain and inflammation associated with osteoarthritis in canine and equine. PetVivo believes that Gel-Del Technologies Inc. treatments are superior to current methodologies that use non-steroidal antiinflammatory drugs, NSAID’s. Osteoarthritis, the most common inflammatory joint disease in both dogs and horses, is a progressive condition that is caused by a deterioration of joint cartilage. Over time, the joint cartilage deterioration creates joint

stiffness from ordinary mechanical stress, resulting in inflammation, pain, reduced range of motion, and lameness. Osteoarthritis, joint stiffness and lameness, worsens with time from gradual cartilage degeneration and ongoing losses of protective cushion and lubricity (i.e., loss of slippery padding). There is no cure for osteoarthritis and the various current treatment methods are focused on managing the related symptoms of pain and inflammation. Veterinarians recommend several treatments depending on the severity of the disease, including a combination of rest, weight loss, physical rehabilitation, and a regimen of anti-inflammatory and pain masking drugs (NSAIDs). Non-steroidal anti-inflammatory drugs (NSAIDS) are used to alleviate the pain and inflammation caused by osteoarthritis, but long-term NSAIDS can cause gastric problems. Moreover, NSAIDS do not treat the cartilage degeneration issue to halt or slow the progression of osteoarthritis. Mr. Lai stated, “The prevalence of companion animal osteoarthritis is significant and well documented. We estimate that there are 10.3 million dogs in the US with the osteoarthritis condition based on the estimated population of 83 million pet dogs in the US and data indicating twenty-percent of dogs over age one, show symptoms of osteoarthritis”. Brakke Consulting and Market Dynamics data indicates that 6.7 million dogs are diagnosed with osteoarthritis in the US each year. The PetVivo exclusive license with Gel-Del Technologies Inc. includes their osteoarthritis products using injected Gel-Del Particles (GDP). GDP has been used for a broad range of applications, including: the treatment of wrinkles as a dermal filler in a pivotal human trial that demonstrated the product is both safe and efficacious. This study was reported and published at www.clinicaltrial. gov (NCT00414544). In addition, Gel-Del Technologies successfully completed stringent biological, chemical and physical tests to satisfy FDA requirements for product approval; testing on the GDP for appropriate regulatory

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approval. This included the required ISO 10993 Biocompatibility Tests for medical device implants. GDP are manufactured using scalable inline single-use (disposable) technologies which reduce the infrastructure requirements and manufacturing risks. Gel-Del Technologies is scaling the manufacturing process for GDP production; to date making batches of up to 10,000 unit (syringe) quantities using GMP (Good Manufacturing Practices) standards acceptable for human clinical trial use. Third party studies indicate that GDP gelparticles can easily be combined with synovial fluid in a rabbit knee to form a joint cushion, buffering the adjacent bones/cartilage. These studies demonstrated no damage was caused to the cartilage from replacing the synovial fluid. GDP shows an effectiveness to repair, reconstitute or remodel the tissue, cartilage, ligaments and/or bone and/or enhance the functionality of the joint and repair deteriorated components present in the joint to provide cushion or shock absorbing features to the joint and joint lubricity. Studies in equine and canine models include injections into various joints resulting in promising joint outcomes. Horses have demonstrated greater mobility and less lameness, and dog studies indicate that joint injections are well tolerated and have not shown any complications. John Lai stated, “PetVivo is positioned with an exciting new product in a growth industry. Our goal for the company is to provide a huge market need with a well designed and safe series of new products beginning with Gel-Del Particles”. You can learn more at www.PetVivo.com. Gel-Del Technologies, Inc. is a biomaterial and medical device manufacturing company based in St. Paul, Minnesota that develops and manufactures a range of medical device implants using their thermoplastic biomaterial, including the GDP product. The Companys’ Founder and CEO, David B. Masters, Ph.D., is a wellknown expert in the area of drug delivery and protein matrices and primary inventor of Gel-Del’s Technology. n

Micro-Cap Review Magazine

PROFILED cOMPaNIES

improving the standard for breast cancer & bPh Treatment

edifocus, Inc. develops and commercializes minimally invasive focused heat thermotherapy systems for the treatment of cancer and other diseases. It is driving sales and advancing its product portfolio through two fully developed technology platforms, which hold comprehensive US and international patent protection: (1) The Endo-thermotherapy Platform-a catheter-basis focused heat technology platform that utilizes natural body openings to deliver precise microwave thermotherapy to the diseased sites. The U.S. FDA approved Prolieve Thermodilatation System for the treatment of Benign Prostatic Hyperplasia (“BPH”) was developed based on the Endothermotherapy and is currently generating revenue, and (2) The Adaptive Phased Array (APA) Microwave Focusing Platform-invented by MIT, licensed to Medifocus, directs precisely focused microwave energy at tumor center to induce shrinkage or eradication of tumors without undue harm to surrounding tissue. The Company’s APA 1000 Breast Cancer Treatment System, developed from the APA technology platform has received approval from the U.S. FDA and Health Canada to conduct the pivotal Phase III clinical trials. The Company believes that these two technology platforms can provide the design basis for the development of multiple cancer treatment systems for surface, subsurface and deep seated localized and regional cancers.

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“medifocus’ plan is for Prolieve® to return to market leadership as a minimally invasive treatment for benign Prostatic hyperplasia ‘bPh’. we believe we have made great progress towards achieving this goal during the first quarter of 2014. we are also pleased to report that our overall quarterly financial results have demonstrated the success of the investment that we have made in our sales force and infrastructure since acquiring Prolieve®, as we have increased revenue by 52% and reduced our loss by 51%. we expect to deliver continued top and bottom-line growth and to strive to achieve positive cash flow in 2014.” Dr. augustine y. cheung, President and ceo of medifocus

Prolieve® ThermoDilaTaTion sysTem for enlargeD ProsTaTe or bPh The Company’s Prolieve® Thermodilatation System was originally developed and commercialized by the current Medifocus management, product development, clinical and regulatory teams while at Celsion Corporation, which subsequently sold the Prolieve business to Boston Scientific Corporation. In July 2012, Medifocus reached an agreement with Boston Scientific Corporation for the purchase of all of the assets of the Prolieve business, including all Prolieve inventory, the mobile services assets, as well as the intellectual property associated with the Prolieve technology. The Prolieve system provides a 45-minute in-office treatment that combines Medifocus’ microwave thermotherapy capability with a proprietary balloon compression technology to simultaneously heat the prostate and dilate the prostatic urethra that

has been obstructed by the BPH disease. This technology is designed to be used by medical professionals in an office based setting without placing their patients under general anesthesia. The Prolieve system provides a relatively painless and effective alternative to drug therapy and certain types of surgical procedures to treat the symptoms of BPH. As the population continues to age, the prevalence of BPH, an age-related disorder, will continue to increase. It is generally estimated that approximately 50% of all men over the age of 55 and 90% of all men over 75 will have BPH symptoms at various times. The potential of the worldwide BPH treatment market is estimated to be in billions of dollars. Medifocus’ strategy to capitalize on the proprietary Prolieve Thermodilatation System is to generate recurring revenues through our mobile service and the sale of our disposal catheter kits.

aPa microwave focusing Technology for locally aDvanceD breasT cancer (labc) The APA technology’s first indication is locally advanced breast cancer (LABC),

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invesTmenT highlighTs

managemenT

Transition to Mature Medical Device Company through Prolieve® Acquisition: Prolieve® provides Medifocus with an FDA-approved, revenue-generating product catering to the multibillion dollar BPH treatment market worldwide.

Dr. Augustine Y. Cheung, PhD (CEO) Previously founder and CEO of Celsion Corporation in the US and professor at the University of Maryland, Dr. Cheung is a wellknown microwave expert. He has raised significant capital in the past for Celsion and successfully developed multiple focused heat based tumor targeting cancer treatment devices and pharmaceuticals. Dr. Cheung received a PhD in Electrical Engineering, from the University of Maryland.

Extensive Patent Portfolio: Including patents acquired from Prolieve®, Medifocus holds over 100 issued/pending patents covering its focused heat systems, positioning it to develop a rich pipeline of treatment products for a number of different cancers. Compelling Clinical Results for Treating LABC: Prior clinical results have already demonstrated that the Company’s combined heat and neo-adjuvant chemotherapy increases breast tumor shrinkage by an additional 50% over neo-adjuvant chemotherapy alone. Significant Revenue Potential: In addition to continued growth in Prolieve® sales, Medifocus expects that the APA 1000 breast cancer treatment system, if approved, could generate significant revenue through the sales of disposable probes. Experienced Management Team: Medifocus management was part of the original team at Celsion Corp. that successfully developed and commercialized Prolieve® system and developed the APA 1000 breast cancer treatment system. Commercialization Strategy: Our revenue strategy is capture recurring revenue stream through the sale of treatment disposal kits. Strong Growth Opportunities: Successful commercialization of Prolieve® and future commercial success of the breast cancer system is expected to provide validation for the clinical potential of the Company’s two technology platforms.

comPeTiTive aDvanTages • Two proprietary technology platforms with 100 + patents to position the APA 1000 & Prolieve at the forefront of their markets and to develop other focused heat product pipeline for the treatment of cancers and other diseases. • FDA approved revenue-producing Prolieve for the treatment of BPH. • APA 1000 breast cancer system in pivotal Phase III study.

which involves large tumors that are generally treated first with neo-adjuvant chemotherapy to induce tumor shrinkage and then followed by either radical surgery or breast conservation surgery, depending on the final size of the tumor. Medifocus’ focusedheat treatment can significantly improve the efficacy of neo-adjuvant chemotherapy in shrinking LABC, significantly improving the chance of breast conservation, and decreasing the need for radical breast surgery. Focused microwaves can be used to shrink breast tumors up to 8 cm in diameter, vastly improving the chance of breast conservation for these patients who under normal circumstances will have no option but to undergo radical breast surgery. With over 1.4 million new cases of breast cancer diagnosed

each year, Medifocus plans to raise the standards of care and treatment by using focused heat to enhance neo-adjuvant chemotherapy to provide better tumor shrinkage and control, leading to improved surgical outcomes and ultimately breast preservation. Upon receipt of regulatory approval for commercialization, Medifocus plans to market the APA 1000 system as a tool for breast sur-

Mr. John Mon (COO) Significant life sciences experience, Mr. Mon is previously V.P. of business and product development, General Manager, and Director of Celsion. He achieved FDA approvals for IDE/PMA/510K submissions, and has worked with clinicians, engineers, and patent attorneys on thermotherapy and breast-cancer-related devices. Mr. Mon holds many granted and pending patents in the area of thermotherapy for the treatment of cancer. Mr. Mirsad Jakubovic (CFO) Mr. Jakubovic is a Chartered Accountant. His experience includes working as the Director of Finance and Administration for Havana House Cigar and Tobacco Merchants Ltd. and as Director of Finance and Administration for Swatch Group Canada Ltd. Mr. Jakubovic received his EMBA from the Richard Ivey School of Business and his B.Comm. from the University of Toronto, Mr. Kurt O’Neill, CPA (VP, Sales and Finance) Mr. O’Neill was the Controller and Chief Financial Officer at Celsion Corp, where he later became the Director of Prolieve Clinical Trials and Director of Prolieve Product Development. Subsequently, he was Boston Scientific’s Business Development Manager— Prolieve® System, Atlantic Region before joining Medifocus Inc. as its Vice President of Sales and Finance in charge of Prolieve sales.

geons to improve treatment outcome (more BCS, fewer mastectomies) for patients and increase their revenue. As with Prolieve, Medifocus’ strategy is to capture recurring revenue stream by selling treatment disposable probes. n

conTacT informaTion Primary Contact: Medifocus, Inc. John Mon, COO Tel: 410-290-5734 Email: Johnmon@medifocusinc.com www.medifocusinc.com

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Operating Office: Medifocus, Inc. 10240 Old Columbia Rd. Suite G Columbia, MD 21046 United States Tel: 410-290-5734 Fax: 410-290-7255

IR/PR Inquiry: Consulting for Strategic Growth 1 Bob Giordano, Principle Tel: 917-327-3938 Email: rgiordanonyc@ gmail.com www.cfsg1.com

Corporate Office: Medifocus, Inc. The Exchange Tower PO Box 427 130 King Street West Suite 1800 Toronto, Ontario M5X 1E3 Phone: 905-319-7070

Micro-Cap Review Magazine

F E aT U R E D a R T I c L E

An Interview with David Weild E

n DaVID WEILD IV

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ditor’s note – David Weild is considered by many to be the “Father” of the JOBS Act which was enacted into law by President Obama on April 5, 2012. His studies, published by Grant Thornton in 2008, 2009 and 2010, have been cited broadly in the House, U.S. Senate, Executive Branch and by the IPO Task Force Report to the U.S. Treasury. Along with co-author Ed Kim, Weild demonstrated that the decline in the U.S. IPO market is largely due to the collapse in economic incentives to support small cap stocks brought on by Regulation ATS (alternative trading systems) and the dawn of modern-day electronic stock markets in 1998 (not Sarbanes Oxley which was not implemented until 2002). Their studies were also the first to document that the number of listed companies in the U.S. has declined every single year since 1998 and that the lack of IPO production is likely costing the U.S. economy, millions of jobs. These facts were cited by many of the sponsors of bills in the House of Representatives that later became individual titles of the JOBS Act. David attended the signing of the JOBS Act in the Rose Garden at the White House on April 5, 2012. He is currently in “stealth mode” with a technology venture that aims to create software to revitalize capital formation in public markets (www.issuworks.com). We caught up with David and asked him to update us on the progress being made in the implementation of the JOBS Act by the SEC and to share some of his hope for the future.

1. Please give an update on Crowdfunding - Crowdfunding is in limbo until the Securities & Exchange Commission publishes rules for comment and they take effect. It is clear from our conversations with industry participants that input has been given to the SEC to draft rules. However, it is unclear when these rules will be put out for comment. When the JOBS Act was signed into law by President Obama on April 5, 2012, very little of it was effective immediately. In fact, more than a year later, the key job-creating provisions – those that improve capital formation – have yet to be implemented (although new rules governing Reg. D Offerings are expected to take effect on or around September 24 –see below). These include i) The increase in “tick sizes” (Title 1, Section 106(b) of the JOBS Act) required to reverse the impact of “Decimalization” and provide the economic incentives essential to supporting small public companies in the aftermarket ii) The rescission of the prohibition against general solicitation on Reg. D Offerings (private placements), iii) Reg. A+ (a stripped down hybrid public/private offering structure whose cap was increased to $50 million in proceeds from the previous limit of only $5 million), and IV) Crowdfunding. Implementation of these provisions has been delayed by a combination of: SEC Transition – Former SEC Chairman Mary Schapiro retired from the SEC on December 15, 2012 and SEC Chairman Mary Jo White became the 31st Chairman of the

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SEC effective April 10, 2013. A number of key staff departed including the heads of two key divisions: The Division of Corporation Finance and the Division of Trading & Markets. SEC Work Load – The SEC is simultaneously working on rule promulgation for Dodd Frank where, according to a July 22, 2013 CNBC report on the third anniversary of Dodd Frank, regulators had written 13,789 pages and finalized only 155 rules with 243 rules still to go. Politics – At least one special interest group, according to Press reports , was not happy with elements of the JOBS Act and made threats to the SEC which caused the SEC, under Chairman Schapiro, to stall rulemaking and approval – despite the overwhelming support of Congress and the White House for this bill. 2. How does US Crowdfunding compare to emerging market Crowdfunding? There are two forms of Crowdfunding: i. Currently permissible (non-securities forms of Crowdfunding), and ii. That which requires the approval of the U.S. Securities & Exchange Commission (forms of Crowdfunding that offer securities). The United States is already extremely active in non-securities forms of crowdfunding. Platforms such as Kickstarter are being used to finance product development, manufacturing and even philanthropy. For example, a company that needs funding to produce an exciting new product could take advance orders for that product online and agree to ship that product against orders when and if that product becomes available. This form of “Crowdfunding” is growing in the United States since it is not restricted by U.S. Securities Laws and there is no upper limit as to how much money can be raised. Unfortunately, the United States may fall behind other areas of the world such as the UK (Seedrs Ltd – www.seedrs.com - is said to been the first equity Crowdfunding platform to have received regulatory approval in the UK) in the sale of securities over the internet. Even when the final rules are issued

We believe that the appropriate way to limit investor risk is through a cap on the amount of exposure that a non-accredited investor may have to any one investment. by the SEC, the sale of securities to the public via Crowdfunding portals (or through broker dealers) will be limited (by the JOBS Act) to a maximum of $1 million dollars. We think this is unfortunate for a variety of reasons: We believe that the concerns about fraud in the instance of a Crowdfunding “Portal” are overblown. What many fail to appreciate is that the internet will lead to a paradigm shift in the detection of fraud and bad actors. We believe that tools will evolve that leverage the “Crowd” to detect and stop securities fraud and that the “Crowd” will prove to be a much better safeguard than traditional supervision of retail stock brokers. One analogy is the peer-to-peer auction markets such as eBay which experience very little fraud as a percent of total sales. We also understand that the incidence of securities fraud in Crowdfunding in the UK is less than 1.5% of total proceeds. As a consequence, the $1 million limit imposed on Crowdfunding offerings of securities by the JOBS Act may be unnecessarily limiting to U.S. Crowdfunding entrepreneurs. And cut into the potential for job formation from SMEs (Small and Medium Enterprises). We believe that the appropriate way to limit investor risk is through a cap on the amount of exposure that a nonaccredited investor may have to any one investment. So, for example, if an investor makes $100,000 per year and is limited to a maximum $5,000 investment, why should it matter if 200 investors make a $5,000 investment for $1 million in proceeds or 100,000 investors make a $5,000 investment for a total of $500 million in gross proceeds? In our view, investors could still be individually

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protected while the potential to jumpstart our economy would be enhanced. One “Wild Card” here is how the Crowdfunding techniques will be applied to Reg. D private placements (Private placements to accredited and qualified institutional buyers). New rules are expected to go into effect on or around September 24, 2013 (see below). We foresee that “Crowdfunding” platforms will leverage Reg. D to offer securities in amounts much larger than $1 million. 3. Discuss the SEC position on US Crowdfunding, Decimalization, and Reg. A+ The SEC does not issue positions prematurely. They tend to work deliberately and publish rules for comment. So, no one knows definitively the SEC “position” on these issues at this point more than one year after the passage of the JOBS Act. And, as we saw with the stalling of Reg. D, political interests can derail the process. Recently however, new SEC Chairman White has said that the issuance of rules under the JOBS Act is a priority. According to Williams & Jensen, a Washington law firm and lobbyist that actively monitors legislative and regulatory developments stated that: “On May 1, the Securities and Exchange Commission (SEC) convened a meeting of the Advisory Committee on Small and Emerging Companies (Advisory Committee). Lona Nallengara (Acting Director of SEC Division of Corporation Finance) said that the SEC is working on key rulemakings under the JOBS Act, such as crowdfunding, general solicitations, and Regulation A+. He noted that Chairman Mary Jo White considers these rules a priority. Nallengara Micro-Cap Review Magazine

We were pleased to see the SEC include a “Bad Actor” prohibition in the Final Rules to lift the ban on General Solicitation. “Bad Actor” prohibitions help protect investors and support a higher level of investor confidence that the success of these capital markets will ultimately depend on. said that he could not offer a timeline for acting on the rules. He noted that the four recommendations made by the Committee at its last meeting were provided to the SEC Commissioners. He noted that the Commissioners are considering next steps regarding the decimalization recommendation. He said that the Commissioners are considering whether or not to implement a pilot program related to decimalization. Nallengara said that the SEC is working on a report on disclosure requirements in Regulation S-K, as part of a broader review of disclosure requirements.” Ironically, implementation delays will cost some entrepreneurs their jobs as continued delays and uncertainty in rule making cause them simply to run out of money. We believe that once the SEC does act, that Crowdfunding “Portals” are likely to be regulated by FINRA (The Financial Industry Regulatory Authority) in the same way that “Broker-dealers” are regulated by FINRA. While the Crowdfunding industry did discuss creating its own SRO (Self-Regulatory Organization) with the SEC (under former Chairman Schapiro), we understand that the SEC indicated that it would require $20 million to get a new SRO off the ground. Thus, the default option is FINRA which is extremely well capitalized. Rick Ketchum, Chairman & CEO of FINRA, expressed sensitivity last year to the fact that Crowdfunding platforms are in their infancy and not able to bear large regulatory costs. So, the challenge for FINRA will be to devise a scheme that is both effective

and low cost. 4. When will SEC rules repealing the prohibition against general solicitation and general advertising for Reg. D private become effective? On July 10, 2013, the SEC announced that it had approved the lift on the general solicitation ban under Chairman White. This was a long time in coming. The SEC first published a draft of the new Reg. D rules on August 28, 2012. The earlier draft was very well received but the approval process was stalled when one special interest group was reported to have threatened the prior SEC Chairman with an anti-consumer legacy. This is ironic because consumers are ultimately benefited when economic growth and job formation - essential ingredients for an elevated standard of living – are improved by higher rates of capital formation. The repeal of the prohibition against general solicitation and general advertising was a recommendation that we first made in our 2010 study entitled, “A wake up call for America.” Readers may find the published rules (which should go into effect on or around September 24, 2013) at www.sec.gov/ rules/final/2013/33-9415.pdf. They include amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act of 2013. The Final Rules run 116 pages and require filings by issuers to claim the ability to generally solicit; require that the “issuer takes reasonable steps to verify that such purchasers are accredited investors” and; disqualifies “Bad Actors” from participation under this rule.

Micro-Cap Review Magazine

We were pleased to see the SEC include a “Bad Actor” prohibition in the Final Rules to lift the ban on General Solicitation. “Bad Actor” prohibitions help protect investors and support a higher level of investor confidence that the success of these capital markets will ultimately depend on. When we testified in Congress in support of what is now known as “Reg. A+” (another title in the JOBS Act) we specifically recommended the inclusion of a “Bad Actor” prohibition. We would not be surprised to see a “Bad Actor” prohibition included in the Crowdfunding rules when they are ultimately released for comment. 5. What role will trading have in the future growth of the IPO market and vice versa? We believe that aftermarket trading should be an area of focus for a “JOBS Act 2.” Each of these markets – public and private – needs more liquid aftermarkets. Current aftermarket structures inhibit both private and public capital formation. There needs to be adequate economic incentives for bona fide market makers (intermediaries) to provide liquidity support by committing capital, sales and ultimately research to small stocks once they are public. This is something that we’ve written about quite extensively (see “The trouble with small tick sizes” published by Grant Thornton in September 2012). In fact, on April 15 of this year we presented a study (http://www. oecd.org/fr/gouvernementdentreprise/makingstockmarketsworktosupporteconomicgrowth.htm) to the 35 member nations at the Organization of Economic Cooperation and Development (see www.OECD.org) in Europe (coauthored by Edward Kim and Lisa Newport) that demonstrated clearly that the level of economic incentives in the U.S. listed markets (NASDAQ and NYSE) are the lowest of any of the World’s major IPO markets. As a result, the United States now ranks 24th out of top 26 largest IPO markets on a GDP-weighted basis, ahead of only Mexico and Brazil. We have been joined by the NYSE, NASDAQ, BATS, DirectEdge and OTC Markets in calling for a pilot to increase

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ticks sizes (the smallest increment in which a stock may be quoted). The ICI (the mutual fund trade group) has also called for an increase in tick sizes in an effort to restore liquidity to small capitalization stocks. . Ironically, the one-two punch (the Order Handling Rules in 1997 and Reg. Alternative Trading Systems in 1998) that killed the best IPO market that the world had ever seen, took place without any pilot program – The SEC implemented the single largest structural change in the history of U.S. stock markets, against the advice of many in the markets and without any testing to see what the impact would be. Well, the jury is in, and the world’s largest economy by GDP, which should have the world’s largest small IPO market, has now fallen to 12th place behind many smaller economies. The small company sector of US markets is inadequately represented at the SEC. The SEC has a so-called “Investor Advisory Committee” but this committee lacks critical representation from institutional investors that actually do fundamental investing in small public companies. The SEC needs a dedicated small company investor committee. In fact, in our view the SEC Advisory Committee on Small & Emerging Companies, which came out “for” a pilot to increase tick sizes, has more small company investors in its midst than the so-called “Investor Advisory Committee.” - That committee is highly deceptive in representing small investors which is why we urge the many small company investors that read Micro-Cap Review to write to the SEC and urge that they explore mechanisms to improve support for small public companies and capital formation – including a pilot to increase ticks sizes. The needs of issuers and investors in innately liquid vs. illiquid stocks are very different. Having a “One size fits all” Investor Advisory Committee at the SEC is a tragic mistake. Having a “One size fits all” Division of Trading & Markets at the SEC is a tragic mistake. The only division that has a “Small Company” discipline that I’m aware of is the

Division of Corporation Finance and this Division doesn’t have the authority to fix market structure to work for small public companies and the growth economy. We need a horizontally integrated group at the SEC that combines small company discipline across Corporation Finance, Trading & Markets and Enforcement. 6. Is there a direct relationship between unemployment, the disappearing IPO market and decimalization? Absolutely. We believe the loss of jobs attributable to “decimalization” (defined to include the three major regulatory changes that led to the collapse of aftermarket support, starting with the Order Handling Rules in 1997, Regulation Alternative Trading Systems in 1998 and culminating with Decimalization in 2001) is much larger than commonly understood – in excess of 10 million jobs (half the unemployment problem in the U.S. or more) when one factors in the so-called multiplier effect: Not only have we lost over 80% of IPO volume, but there is less capital available and less appetite to invest in private companies because the IPO exit is not what it used to be going all the way back to the 1980s. In fact, the accelerated rate of delistings and the decline in the number of venture capital funds is clear evidence that this market structure has precipitated job loss when it once was the foundation for job growth: Professor Enrico Moretti, in his book, “The New Geography of Jobs” estimates that there are five (5) service sector jobs created for every one (1) technology job. If the IPO market, funded by venture capital, was a driver of job growth, and now it is contracting in the United States, then it doesn’t take a rocket scientist to understand that decimalization put a lot of people out of work. Decimalization when applied to small companies is tantamount to economic treason. 7. Given the high costs, regulatory burdens and lack of aftermarket support, what companies should go public in the US? First, it is important to know that under

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the “IPO On-Ramp” or Emerging Growth Company designation of the JOBS Act that costs are coming down by being shifted into the aftermarket. As a result, companies can incur at least some costs AFTER they have received the proceeds from the IPO and have money to pay for those costs. Second, while this market structure has inadequate incentives to create visibility in the aftermarket, there is always a subset of companies – mostly big brand stocks – that create demand for their own shares. We all know these stocks – Tesla Motors, Facebook, Google, Yahoo, Twitter, eBay, However, for the vast majority of companies, they need marketing support to create demand for their shares (otherwise it becomes an added burden shouldered by ill-equipped management teams). The biggest problem today is that in order for Wall Street to survive (many Wall Street firms have gone out of business) it had to close money losing middle market institutional sales departments and convert most retail brokers into asset gatherers. As a result, companies that want to go public just don’t get the broad marketing support that they need. This is particularly harmful to capital intensive industries where story-telling is essential (e.g., Biotech, Semiconductors and Clean-Tech). This is a problem that my company, IssuWorks, is now working to fix. We hope your readers will join us in the fight to take back our markets and provide a better tomorrow. n

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F E aT U R E D a R T I c L E

Repeal of General Solicitation Ban Ushers in New Era for Private Offerings

he recent repeal of the ban on public advertising of private securities offerings either ushers in a new era of transparent, digitally-greased, and crowd-vetted capital markets, or it is a leap into the abyss that will pervert the world’s most trusted capital markets into a carnival midway of investment hustlers, crowd madness panderers and common thieves. That seems to be the consensus, or lack thereof, of regulators and growth capital professionals surveyed in the wake of the SEC’s action to implement the mandate set by Congress when it passed the JOBS Act.

n BY BRETT GOETScHIUS

Micro-Cap Review Magazine

On July 10, the Securities and Exchange Commission held an open meeting regarding its nine-month old proposal to repeal the ban on the advertising and general solicitation of Regulation D securities offerings. Although the amendment, known as Rule 506(c), was ultimately adopted, concerns regarding investor protection were raised by two commissioners, Elisse Walter and Luis Aguilar. Walter’s concerns about the risks of fraud and the promotion of investments inappropriate to less sophisticated investors came short of persuading her to vote against the repeal. Aguilar decried the Commission’s move to repeal the ban before approving additional mitigating rules aimed at keeping “bad actors” out of the market and strengthening disclosure requirements for private offerings. “The Commission is going ahead with the adoption of Rule 506(c), but only proposing the changes that would help to mitigate the harm to investors…. It is reckless to create a known risk today, with just the hope of a speculative remedy tomorrow,” Aguilar said before the vote. Seeking to deflect the criticism that removing the general solicitation ban would open the floodgates of fraud, the commission staff proposed additional amendments to Rule 506 that would formalize the verification process for accredited investors. The commission also voted to publish for public comment a proposal to impose several additional reporting requirements on Form D.

Both Commissioners Paredes and Gallagher opposed the Form D rule changes. Paredes said that the additional disclosure requirements would undermine the intent of the JOBS Act, and hurt the ability of small companies in particular to raise capital. According to the SEC, Reg D offerings completed from 2009-2012 raised an average of $30M. However, the median Reg D offering amount was $2M, illustrating the large volume of smaller deals that occur in the market. In addition to the Form D changes, the commission approved the long-proposed “bad actor” provisions of the Dodd-Frank financial regulatory reform act. The rules seek to exclude persons and corporate entities which have been convicted of a felony or have been involved in other disciplinary cases with the SEC from participating in restricted securities offerings. This rule would narrow coverage to executive officers, beneficial owners of 20% of an issuer, and investment managers involved in offerings. Additionally, events triggering the “bad actor” designation must occur after the adoption of the ruling, thus excluding past events. The final language, which narrowed the scope of the rule dramatically from that originally proposed in early 2011, drew another rebuke by Aguilar, who criticized changes from the original proposal which excluded any actions prior to adoption of the proposal from triggering bad actor status (the original proposal had included activities dating back five years.) Aguilar also criticized the expan-

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sion of the beneficial owner threshold from 10% to 20%, and the narrowing of covered persons from any officer of the issuer or any officer of a person paid to solicit investors, to only executive officers of such entities and officers who participate in the offering.

Market Reaction Split Equity crowdfunding advocates who had waited more than a year for the advertising ban, seen as the key obstacle to accredited investor-based crowdfunding, to be repealed, uniformly hailed the action. However, the reaction among traditional Reg D market professionals has been more mixed. Cromwell Coulson, president of OTC Markets, the primary quotation market for securities of unlisted public companies, hailed the repeal as a blow for market transparency. “I think it’s awesome that they lifted the ban on transparency,” Coulson said. Until now, private companies have been forced to raise capital in an information vacuum, he explained, in which the dissemination of information about the company was severely proscribed. “The general solicitation ban was really a ban on transparency. That’s terrible for market efficiency and investor education,” he added. Coulson believes the repeal of the solicitation ban “will totally change the path that a company will take toward becoming an exchange-listed company,” by creating gradations of ever-greater public reporting and trading levels, much like the three designations now accorded OTC stocks – the Pink, QB, and QX levels – at OTC Markets. Coulson believes the ability to solicit investment will keep a lot of companies private that might otherwise have gone public too early in their corporate and financial development to truly benefit from fully public status. “There will be lots of small companies that can exist as private companies, because transparency is now allowed. Public versus private distinctions should go away. ‘Sales restricted’ should be the new descrip-

Major Changes for Form D Filers In repealing the 70-year old ban on general solicitation of private securities offerings, the SEC has proposed several new rules regarding the filing of Form D by securities issuers. The new rules would: • require issuers and investors to provide additional information on Form D • eliminate the ability of an issuer to use Rule 506 exemptions if it failed to file a required Form D during the prior five-year period (with certain cure provisions) • require issuers to file a Form D at least 15 days prior to engaging in any general solicitation and to file a final amendment to that Form D not later than 30 days from the end of the offering • for an initial two-year period, require issuers engaging in general solicitations under Rule 506(c) to submit their solicitation materials to the SEC on a confidential basis • impose legending requirements on any general solicitation materials • extend the advertising guidance in Rule 156 applicable to public funds to private funds.

tion,” for private securities, he said. OTC Markets is moving quickly to adapt to the new regime. The company plans to begin quoting 144A securities, and introduce a service to announce and post Reg D offering prospectuses. Bill Hicks of Mintz Levin is similarly expansive on the potential of letting slip the dogs of advertising upon the private capital markets. Calling the change nothing less than “transformative” for corporate capital formation, Hicks suggested solicited 506(c) offerings could help fuel varieties of alternative public offerings (APOs). “This really opens the door,” said Hicks. The repeal of the solicitation ban is “the real crowdfunding bill. It will allow small companies to go out and market an offering broadly,” helping to create a retail shareholder base that is critical to maintaining liquidity in their shares. “This will allow the kind of ‘crowdfunding’ that is actually useful,” said Hicks, adding that solicited offerings could be used in conjunction with an institutional-investor led financing of a reverse merger, commonly called an “APO” or alternative public offering. “When you add a Form 10 self-filing with a reverse merger and a 506(c) filing, you have a very interesting possible format,” he said.

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Adding in a publicly marketed offering to the traditional APO process could broaden a newly public company’s shareholder base, providing better liquidity to initial APO investors, and offering institutions the trading volume, share price support and public float they demand before making significant long-term investments in emerging growth companies. Hicks said he believes that solicited offerings could make the Form 10 APO a favored path for larger private emerging growth companies seeking to go public without an IPO but for which establishing a large retail investor base quickly is critical. This path could be especially attractive to companies that can tap sizable retail customer or affinity group bases. He added that the repeal will be highly disruptive to the angel and venture capital markets, and that he sees the 506(c) offerings market developing more in parallel than in conjunction with those markets in the near term. Traditional angel and venture fund models are clearly the incumbents that will be disrupted by the new offerings, and are reacting with the typical hostility toward innovation that old-guard players express when their market hegemony is challenged. Mindful of that hostility, Hicks believes those companies seeking to raise capital will Micro-Cap Review Magazine

“The SEC seems to be saying you can either do it completely private in the old fashioned way, or fully public. The Commission is not allowing for any middle ground.” – Mark Wood, Katten Muchin Rosenman face a difficult choice between traditional venture-style capital raising and 506(c) offerings. Given the current lack of institutional venture investors which are willing to consider investment in companies with a dispersed shareholder base, “It will be more the exception than the rule,” says Hicks, that a 506(c) or Title III crowdfunded company will be able to attract institutional venture capital later on. Coulson agreed that the solicitation ban repeal and 50b(c) will be a “game changer” for the venture capital market, which in the past, “wanted all of their portfolio companies’ information, but wanted to keep it to themselves,” he said. This gave VC firms huge advantages in pricing and allocating capital that other potential capital providers lacked. Now, companies will be able to release financial information and projections to any potential funding source, leveling the playing field and expanding the potential investor pool.

Mark Wood of Katten Muchin Rosenman believes that repeal of the solicitation ban will impact the traditional PIPE market as well as private equity. Proposed requirements to submit Form D filings 15 days prior to commencing 506(c) offerings, and to require offering marketing documents to be filed with the SEC ahead of offering marketing periods will be “tricky” to navigate for issuers and PIPE agents, even when no truly public solicitation is intended.

“The SEC is taking the position that you are planning to do a public solicitation anyway, why should you have a problem with telling the world about your plans ahead of time,” said Wood. “But that assumes everyone is going to do it in a truly public way, taking full advantage of the rule. I think companies might seek to use [the 506(c) exemption] on the margins, to get around concerns that when you broaden a private placement beyond the investor group that you are really comfortable with but say, are conducting an offering pursuant to confidentiality agreements so that the offering remains confidential, you couldn’t do that if these proposals go through,” he said. “The SEC seems to be saying you can either do it completely private in the old fashioned way, or fully public. The Commission is not allowing for any middle ground. There is all this arcane guidance on public solicitation that is difficult to interpret and confusing for issuers. When you are doing a private placement, you’re worried you are going to cross some line. We had hoped these rules would allow companies that still really intended to follow the old model of private placement offerings to not worry so much about whether they’d unintentionally crossed the line [into public solicitation.] That if they found they had crossed the line, they could just declare it a publicly solicited offering. But it’s not going to work like that,” Wood said. “You are going to have to follow a different regime from the outset to qualify for the exemption.” Wood also thinks there will be a “great reluctance” among issuers to submit their

imPacTs on TraDiTional PiPe markeT

Micro-Cap Review Magazine

offering marketing materials to the SEC, even in a confidential manner. “That’s more scrutiny than most issuers want.” Jack Hogoboom of Lowenstein Sandler is highly skeptical that public promotion of private offerings will prove beneficial to the markets overall. He is particularly dismayed that the Commission moved in the same breath to weaken proposals that would have helped prevent fraud perpetrators from entering the market. He cited the elimination of any grandfathering of trigger events in the Bad Actor Rule as a prime example of the Commission’s poor judgment and naiveté. “That’s a loophole that people are going to be able to exploit.” Overall, he says he is taking a “wait and see” stance on the Form D proposals, expecting additional revisions before any final rules are adopted. Brett Goetschius is the editor of Growth Capital Investor, the journal of emerging growth company finance. He has covered the emerging growth capital market since 1999 and is the former editor and publisher of The PIPEs Report, The Reverse Merger Report, and The Registered Offerings Report. This article is excerpted from the July 15 issue of Growth Capital Investor. Interested in the full report with complete data on activity in the emerging growth capital market? Download a complimentary copy at http://www.growthcapitalist.com/mcr Or scan this with your cell phone’s QR reader: n

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it all started with a Passion for soup…

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recipes, and the phrases “Soup for You!” and “No Soup for You!” • The company has three primary growth strategies: • Leverage their brand awareness, quality, unique Tetra Pak soup carton technology and unique celebrity relationships to achieve significant penetration and sales in the $6 billion grocery soup aisle, Expand their existing franchise operations, which include restaurants and newly launched food trucks, Extend their institutional food service business, which now includes a coveted approval in the NYC school lunch program.

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ing Campbell’s and Progresso. Here are the investment highlights of SOUP: • The company owns the intellectual property to Al’s name and likeness, all his

The current investment opportunity – in The Original SoupMan Inc. (ticker: SOUP) – is a direct outgrowth of both Al’s original vision, and the additional fame the brand has acquired, globally, as a result of the famous “No Soup for You!” episode. In a recent survey, the Original SoupMan had the third highest level of brand awareness of any dedicated soup brand in the country, follow-

Micro-Cap Review Magazine

Original SoupMan’s world famous awardwinning soups in their innovative, ecofriendly Tetra Pak soup cartons are being widely welcomed by the largest grocery chains, in the $6 Billion+ retail soup category. These graphically attractive, consumerfriendly, shelf-stable products have distribution in over 4,000 stores, including select Walmart locations, Safeway, Stop ‘n Shop, HEB, Wegmans, Shop Rite, Giant, A&P and many more. Original SoupMan has achieved this market penetration because retailers know that their soup aisles are hungry for innovation; and consumers are seeking authentic, higher quality products and richer taste experiences than they are getting from Campbell’s and Progresso, whose long-term domination of the industry is being threatened. Retailers are also impressed by, and believers in, Original SoupMan’s unique celebrity model. Shaquille O’Neal, Jason Alexander

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and Reggie Jackson are investors in the business, and they use their social and personal power as evangelists. Recently, Shaq appeared on the Wall Street show “Closing Bell,” with Maria Bartiromo talking about the company’s prospects. Jason Alexander has starred in a viral video, and Reggie Jackson has made dozens of personal and TV appearances on the company’s behalf. This is a ground floor opportunity as the Company have just begun to ship product nationally. The Tetra Pak soup carton is the future of packaged goods as it is eco-friendly, recyclable, locks in flavor and freshness, it’s sustainable, and is free of BPA - all of which are critical benefits and buzz words for retailers like Wal-Mart, Safeway and Kroger’s. Tetra www.tetrapak.com, the multi-billion dollar manufacturer of the Original SoupMan package, is a marketing partner of Original SoupMan and is the gold standard in packaging quality. Original SoupMan’s competitors are largely stuck in the can, which may be on the wrong side of history. There’s a good reason that the respected “Food Dive” industry newsletter pointedly asked, “Is the soup can dead?” “We are excited to see the great success of the Original SoupMan ready-to-serve soups and its recent addition of new flavors. And it is great to know that our Tetra Pak cartons, thanks to their smart, compact design, environmental and protection profile are helping this product line score high with savvy consumers all over the country” stated Michael Zacka, CEO Tetra Pak North America. Early sales results for the 2013/2014 soup season are promising. Year-over-year sales

for the sell-in period are nearly double last year, and that doesn’t even include orders the company has booked but hasn’t yet shipped. This growth has been fueled by both a doubling of the distribution footprint and an increase in SKUs from four to seven.

Original SoupMan has successful franchisors in the system and are looking to expand nationally There are currently 15 franchised restaurants. The Mohegan Sun franchise, which grosses more than $1.4MM a year iy 650 sq. feet, with approximately 20% returns. The company recently entered an agreement with Robert Azinian and Bill White to open a new location in the Resorts Casino, in Atlantic

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City, New Jersey, in October, 2013. Messrs. Azinian and White are the largest owners of Johnny Rockets franchises; they also own and manage 10 other brands in 9 states, and are actively looking for additional locations for Original SoupMan franchises, focusing on casinos throughout the U.S. Their experience as successful operators is an asset to the company, allowing management to concentrate on building the supermarket business. All new locations will be opened under the name of “Al’s Famous New York Delicatessen & Restaurant,” which allows the company to extend into additional menu items and day parts. Original SoupMan is launching their franchised food truck business; it’s a low cost way for entrepreneurs to get into business with the power of the Original SoupMan brand behind them. The company looks to become the first national food brand to start a food

Micro-Cap Review Magazine

truck franchise. The company plans to have 50 food trucks rolling in 2014 with gross revenue to be projected to be greater than 10 million annually. Original SoupMan’s franchised restaurants and trucks serve two strategic goals: they represent a predictable revenue stream which requires no capital investment, and they are also branding opportunities to generate increased awareness for the company, thus helping to drive sales of their Tetra Pak soups. The institutional food service soup business is a multi-billion dollar market. This category includes schools, cafeterias, hospitals and other food service opportunities, providing the company with wellpositioned advantage to replace generic, unbranded, inferior products with its bettertasting, in-demand alternative. Original SoupMan’s Mexicali Bean™ is currently available in the New York City

Micro-Cap Review Magazine

schools; a school system tham serves over one million lunches daily, and Original SoupMan is approved for 2014, to deliver Curried Chick Peas with Tomatillos and Stewed Pinto Beans. The company has demonstrated its ability to deliver great taste and superior nutrition within the budgetary constraints of the system – 17 cents a meal – which demonstrates their skill at producing a quality product that is low sodium, high dietary fiber and low fat, at affordable prices. Original SoupMan is also working with Tim Horton and other strategic partners, to test a model where they replace their partners’ soup with SoupMan products. The company’s goal is to supply their unique and premium product to select chains with thousands of existing successful rooftops, just as Coke, Boars Head, and others offer branded products through existing distribution outlets.

A Management Team that is Equally Experienced and Entrepreneurial CEO, Lloyd Sugarman, is a legend in the restaurant world – he was called the “franchise whisperer” by Franchising Magazine – and was one of the founders of the Johnny Rockets chain. He brings to Original SoupMan a combination of restaurant, retail, food management and franchise expertise that is invaluable to the growth of the Company. The Company’s Chairman, another legend in the food business, is Tim Gannon, co-founder of The Outback Steakhouse and the culinary creator of the Bloomin’ Onion. Tim’s reputation, experience, input and guidance on matters related to menu development, sourcing, strategic partnerships and investor relations are invaluable.

Summary: The Investment Power of “Soup For You” We believe SoupMan (Ticker: SOUP) provides an opportunity for investors to participate in an expanding consumer franchise in a multi-billion dollar category, through an emerging, high-growth public company. The Company has built enormous consumer awareness and a parallel reputation for quality. SoupMan has created more than proofof-concept with its wide assortment of products currently distributed through major national chains. SoupMan is supported by well-known celebrities with massive followings who are also investors in the Company. As the Company continues to grow, additional revenue streams will come from the franchise business and their food service operations. SoupMan continues to innovate as well, having added three new flavors - Jambalaya, Crab Corn Chowder, and Chicken Gumbo to its product line - and is also adding new distribution as it ramps up to the 2013/2014 soup season that will represent the broadest reach and footprint in its history.

S-O-U-P is ON! Ticker: SOUP www.originalsoupman.com n

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BioMaryland salutes

Rachel K. King Chief Executive Officer GlycoMimetics, Inc. www.glycomimetics.com

on her recognition as a global industry leader

Chair, Bio Industry Association (BIO) Chair, Maryland Life Sciences Advisory Board (LSAB)

www.Bio.Maryland.gov

F E aT U R E D a R T I c L E

Strangulation by Regulation An Open Letter to the Canadian Mining and Mineral Exploration Industries from Joe Martin, Chairman – Cambridge House International Inc. can The junior comPanies lisTeD on canaDian exchanges survive This “Double whammy?”

n BY JOE MaRTIN

Micro-Cap Review Magazine

Venture companies listed on the Toronto Venture Exchange are facing a “Double Whammy”, something that the industry has never faced before. 1. Current market conditions have made it almost impossible to raise capital. 2. Regulations being imposed on raising venture capital in Canada may well make it impossible for any venture company to survive, even if, or when the taps for capital turn on. Markets go up and markets go down but this “Double Whammy” may well bring about the death of the great historical tradition Canada has achieved in becoming the number one nation in the world in finding mineable ore bodies and bringing them into production in countries around the world. At this meeting you will learn that this is not a question of changing one rule, or several rules. It is a question of overhauling the entire system. The system is broken and it must be fixed. Venture capital, required as risk capital

in speculative investing, is a fundamental requirement in starting, building, and growing companies. Apple Inc., the world’s largest company, started with two people developing computers in a garage. Microsoft had the determination of Bill Gates who went out seeking venture capital. Many great companies bear the name of their founders; all creative and imaginative individuals who needed speculative venture capital. Henry Ford, like all of them, had to raise capital. Look at thousands of jobs people like this have created. Canada’s Hemlo Gold mine, one of the great mines in the world, owes its startup because of the determination of Canadian investors to overcome hurdles and who stay the course to bring them to life. Canadian mineral exploration and mining companies are well known around the world for their ability to bring success to these high risk, high reward projects. Venture companies create jobs. Large companies build until they forget how they started: Nortel; Palm Pilot; Woodward’s; Eaton’s; Kodak. It is up to venture companies to create new opportunities and new jobs. And that means venture capital for speculative investments.

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The world will need commodities and prices will once again go up. But, when it does, our mining and exploration companies will wake up to the fact that Canadian regulators have killed their ability to survive. Canadian public markets are controlled by banks that have lost sight of the necessity of venture capital in growing an economy. The banks now own TMX, the company that controls both the TSX and TSX-Venture. They simply have no concept of the importance of having a venture market in creating jobs and growing an economy. As the resource industry continues to weather this storm, there have been an unprecedented number of regulations brought into play that may well kill all hopes of a recovery in mineral exploration and mining. In this time period the order of precedence in raising capital for venture companies is to: • pay accountants and auditors • pay legal • pay listing fees • keep the office doors open There are over 700 companies on the TSX Venture Exchange that do not have the capability of meeting the financial requirements to survive this year. One reason we are in a period of regulatory overkill is that there are very few people involved in venture capital represented on any of the governing bodies. These regulatory bodies are mostly a collection of lawyers: people who take fees, and increase regulation to create more fees. They are individuals who may think they are doing the right thing but in reality are killing the industry. The Governing Bodies: • The exchanges (The TSX and TSX.V are the two main exchanges but about 30% of their volume is done by other platforms that do not involve individual investors) • The 13 securities commissions governing Canadian provinces and territories • CSA – the Canadian Securities Association – the association of the 13 security commissions in Canada

• IIROC – Investment Industry Regulatory Organization of Canada • Independent brokerage firms have very little representation with IIROC A list of problems is long but they include: • Securities commissions that ineptly try to enforce their own regulations • Lack of transparency in trading stocks (the multiple trading platforms do not share information • Algorithmic trading – computer trading in milliseconds • Killer rules for brokers in “know your client – know your product” rules • Retail brokerage firms are being regulated to cemetery plots • Naked shorts • Multiple levels of costly repetitive compliance • fees, fees, fees These killer problems have not been created by firms requiring venture capital They have been created by unregulated regulators It is Strangulation by Regulation

The above facts are not fabricated. Information has been sourced from the following articles: • The Canadian Economy is Regulated to Death • Strangulation by Regulation – is the Venture Exchange on Its Deathbed? • The Impact of the TSX Venture on the Economy • Can the TSX Venture be Saved? • ‘Say goodbye to the public venture market’ Advisor warns Flaherty of disappearing TSX.V • Proof the Largest Canadian Banks are Taking Over • The Destruction of the Canadian Investor: Why the TSX Venture is Failing • NYSE Floor Trader Explains How Stocks Are Traded In Dark Pools vs. Lit Markets: Dark Pools Explained • The Shocking Truth About High Frequency Trading SUPPORT VCA ONLINE AT http://venturecompanyassociation.com n

WITHOUT SIGNIFICANT CHANGE, WHAT DOES THE FUTURE HOLD? • Jobs by the thousands will be lost in Canada • Jobs by the thousands will be lost by people working on Canadian mining projects around the world • Geology schools across Canada will close • Accounting firm will have massive layoffs • Legal firms will have massive layoffs • Canadians account for about 60% of world-wide exploration. The country will lose this position and the thousands of jobs that have created it • The Aussies and Chinese will take over Canada’s role in mineral exploration • Canada will hang its head in shame because a proud nation will have lost its job creation industries

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Micro-Cap Review Magazine

F E aT U R E D a R T I c L E

A European View On How Banks and Regulators Together with Currency (=Euro) Crisis Cause an Economic One as Well

hen the markets got very nervous about the solvency and/or liquidity (of banks) the subordinated debts‘ (not only equities’!) markets can be hit very hard and subject to selling at any price. The current Euro-zone crisis can have the potential to cause a very similar situation if it evolves negatively in the future. Therefore, a structure and a quality of the banks’ capital are of a paramount importance.

1. finDings anD Discussion The banks like to over-finance the development and growth in good times and underfinance them in bad times. From the macroeconomic point of view the situation should

n BY DR. DRaSkO VESELINOVIc

Micro-Cap Review Magazine

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have been the opposite way around. The central banks do have monetary instruments on disposal to accelerate or de-accelerate banks’ lending; however, it is significant that also central banks did not do their work properly. New capital accord regulation for banks (Basel III) which was supposed to be introduced in Europe in 2013 - but then postponed from some obvious reasons - would also play a negative role in the banks activities in the times of crisis. The regulation in Europe tends now to go to another extreme after leaving the first one. The banks’ regulators in Europe were too liberal in the good times and want to be too conservative in the bad times what is wrong. During the crisis (especially in 2009) private holders of Tier 2 and Tier 3 debt got juniority and the official ones (governments) got seniority. This is on one hand logical ‘solution’; however, on the other hand a very dangerous one (comparable to tough and a bit unusual conditions for Cyprus’ banks bail out). If private investors have to write off 50% of their Tier 2 debt investment and official ones nothing these can lead to some serious problems. Some prices of the subordinated banks’ debt on the secondary markets in 2009 but also today are hit very badly owing to all uncertainties in the market place. Many of them are connected to European Monetary Union (EMU=Euro-zone). Therefore, it is of utmost importance that all stability mechanisms set by European Commission (EC) and European Central Bank (ECB) really function, are sizable enough and operational. And finally, it seems they are now.

2. Risks, Risks, Risks, … Just to give the idea of the size of some of the financial risks in the last 20 years or so: euro/ USD currency rate movements between 0,8 and 1.5; US FED interest rate movements between almost 0% and 20%, ECB interest rate between 0,75% and 4,75% (in the last 13 years only!), German central bank (Bundesbank) interest rates movements after

the WWII and till introduction of Euro were fluctuating / volatiling between 1% and 9%, etc. – just to mention some of them. To all these and of course many other even more important financial risks (but especially the credit, market and country ones) banks are fully exposed. Therefore, the measurement, methodology and banks’ capital structure matter of utmost importance.

of economic recession in the Eurozone as a whole – local, regional and consequently global development will suffer. They expect output to decline in some countries and they also see a high probability of a fall in output for the Euro-zone as a whole. Checking predictions of U.S. rating agency from 2011, now in 2013, show us that they are all coming true.

3. S & P’s View on European Union and European Monetary Union

6. European Official Debt Gets Seniority, Private One Write-offs

The top world rating agencies have been constantly downgrading different EU, EMU countries and EU and EMU as whole. Many pro (especially official European Commission (EC) and European Central Bank (ECB)) and cons (Krugman, 2011; Stiglitz, 2010, 2012) EU and EMU comments could be and are possible; however, the fact is that economic picture of European countries does look problematic. Not of all countries but let’s say of most of them. Even in the long run the picture is very much connected to euro, EMU and the whole concept. It seems that European Stability Mechanism (ESM) which is gradually replacing European Financial Stability Facility (EFSF) and European Financial Stability Mechanism (EFSM) calmed the markets for the time being. They didn’t accelerate growth though. S & P cited five important factors for the future of EU and EMU. Firstly, tightening credit conditions will embark across the Euro-zone. Secondly, markedly higher risk premiums will ‘attack’ a growing number of Euro-zone sovereigns, including some that are currently still rated ‘AAA’. Thirdly, continuing disagreements among European policy makers on how to tackle the immediate market confidence crisis and, longer term, how to ensure greater economic, financial, and fiscal convergence among Euro-zone members. Fourthly, high levels of government and household indebtedness will burden a large area of the Eurozone. And fifth, there will be a rising risk

Of immense importance for market participants seems to be that private sector creditors will not be penalized in any future bailout, as they were in Greece or even in case of Cyprus. It has been the 50% write off for them in Greek case. ECB opposed this at the time. Possible future bailouts in EMU and EU are to be seen for the countries like Spain, Cyprus, Slovenia, Italy, Portugal (not necessary in that order though) and maybe for some others not yet on the list, as well. The second question that arises is how can all the debts be ever sized down without high economic growth and/or inflation? The crises started in U.S.A. but EU and especially EMU seem to have more problems with it than the country which triggered it.

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7. The Subordination (Debt) Capital structure and subordination problems of the banks came out as an issue of the paramount importance. Subordinated debt ranks after other debts should a company fall into liquidation or bankruptcy. In hard times subordinated debts must ‘stay’ in the banks, in some cases no interests and/or dividends paid out, the banks don’t buy them back before their respective maturities and investors in tier 2 instruments have to take the burden of banks’ rehabilitation and their ‘going concern’. For example: Royal Bank of Scotland was forced by the U.K. regulator FSA not to call its four subordinated debt issues. Micro-Cap Review Magazine

Market reactions were mixed with the exchange offers, into lower coupon senior notes. The focus has been to take advantage of depressed market conditions to generate Core Tier 1 capital through repurchase or exchange of Tier 1 and Tier 2 securities at a discount to nominal. The whole issue became in crisis times much more problematic not only from the institutional investors’ point of view but from the retail investors’ angle, as well. Many banks were earlier, by all means before the crisis in position to issue its Tier 2 instruments to retail investors. With the crisis not only that such solution minimized but many banks ceased to be in position of buying back its own subordinated debt as it was the case and custom in the times before the crisis.

7.1. Second Loan Subordination Problems When retail investors - well in the crisis already - were trying to refinance their first loan mortgages based on the U.S. government program they got into the second mortgage subordination problem. Basically banks denied the request that required keeping the loan ratio to remain the same as on the moment of getting it (Zillow, 2012). This looked illogical since refinancing would reduce the mortgage payments and people would improve their credit situation. As seen from the retail point of view, banks still want to capitalize on people who are trying to refinance. From the banks’ point of view the attitude was logical and rational keeping better mortgage position in their books and not lowering its interest rates on the assets side. Since such refinancing is completely normal routine in the normal times retail customers in fact took over some burden of banks’ rehabilitation through this process.

Micro-Cap Review Magazine

7.2. European Subordination Market in Crises There were a lot of tenders and exchange offers for subordinated securities by UK and Eurozone banks towards the end of 2011, 2012 and 2013 as well. Market reactions were mixed with the exchange offers, into lower coupon senior notes. The focus has been to take advantage of depressed market conditions to generate Core Tier 1 capital through repurchase or exchange of Tier 1 and Tier 2 securities at a discount to nominal. Offers have been targeted at institutional issuers. We have an excellent example how have the markets reacted on the depressed general situation and depressed capital (structure) situation of the leading European banks. And these cases happened just good 2 months before ECB cheaply pumped additional E500bn (=into USD600bn) into the European banking system (interest rate for 3 years credits was 1% p.a.) via crediting banks taking mostly government bonds as collaterals.

8. Banks’ Capital Accord Before and In the Crisis Banks’ capital structure might be complicated in complicated times. In fact, it is quite simple since we have Tier 1 and Tier 2 capital and capital like instruments. In some cases (different from some regulations and countries) Tier 3 capital instruments can be added to a capital; nevertheless, also

Tier 3 (by rule short-term) instruments are supposed to be together with Tier 2 ones at most 50% of all bank’s capital. In hard times regulators tend to upgrade the banks level of Tier 1 against reduced level of Tier 2 capital in order to improve the capital structure.

8.1. Banks’ Most Quality Capital The crucial and key element of any banks capital is equity capital and disclosed reserves (Tier 1). It also has a crucial bearing on profit margins and a bank’s competition abilities. The other elements of capital (supplementary capital) will be admitted into Tier 2 limited to 100% of Tier 1. Each of these elements may be included or not included by national authorities at their discretion in the light of their national accounting and supervisory regulations and according to their national ‘needs and circumstances’.

8.2. Banks’ Supplementary Capital Supplementary capital consists of undisclosed reserves, ordinary shares and noncumulative preferred stocks, revaluation reserves, general provisions for general loan-losses, hybrid debt capital instruments and subordinated debt. Especially the last 2 items tend to be very problematic in problematic times. Where hybrid debt capital instruments are closer to equity, in particular when they are able to support losses on an on-going basis without causing liquidation, they may be included in supplementary capital. In addition to perpetual preference shares carrying a cumulative fixed charge, the specific national instruments from certain countries/markets qualify. For example long-term preferred shares in Canada, ‘titres participatifs’ and ‘titres subordonnés à durée indéterminée’ in France, ‘Genussscheine’ in Germany, perpetual debt instruments in the United Kingdom and mandatory convertible debt instruments in the United States and some other similar ones in some other countries.

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The Most Rewarding Investment You’ll Make All Year

Dr. Ron Paul

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or nearly four decades, investors looking for safety and profits in a turbulent world have made a point of attending the annual New Orleans Investment Conference.

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Conservative approach to the banks’ capital will deduct all banks’ capital activities in subsidiaries from the mother’s capital in advance (ex ante). 8.3. PrescribeD DeDucTions from caPiTal

The so called Basel III was supposed to take effect in Europe from 1 January 2013 but it was delayed owing to many opened question and crisis. It seems that all existing Tier 1 securities and preference shares will not count as Tier 1 under Basel III (Taber, 2013). Some (additional) Tier 1 capital elements under Basel III are: 1. Issued and paid-in capital. 2. Subordinated to depositors, general creditors and subordinated debt of the bank. 3. Is neither secured nor covered by a guarantee of the issuer or related entity or other arrangement that legally or economically enhances the seniority of the claim vis-

à-vis bank creditors. 4. It is perpetual with no maturity date and no step-ups or other incentives to redeem. 5. May be callable at the initiative of the issuer only after a minimum of five years and even in that case under certain extremely strict requirements. 6. Any repayment of principal (for example through repurchase or redemption) must be with prior supervisory approval and banks should not assume or create market expectations that supervisory approval will be given. 7. The instrument cannot have a credit sensitive dividend feature, that is a dividend/ coupon that is reset periodically based in whole or in part on the banking organization’s credit standing. 8. The instrument cannot contribute to liabilities exceeding assets if such a balance sheet test forms part of national insolvency law. 9. Instruments classified as liabilities for accounting purposes must have principal loss absorption through either conversion to common shares at an objective pre-specified trigger point or a write-down mechanism which allocates losses to the instrument at a pre-specified trigger point. 10. Neither the bank nor a related party over which the bank exercises control or significant influence can have purchased the instrument, nor can the bank directly or indirectly have funded the purchase of the instrument. 11. The instrument cannot have any features that hinder recapitalization, such as provisions that require the issuer to compensate investors if a new instrument is issued at a lower price during a specified time frame. 12. If the instrument is not issued out of

According to Basel II certain deductions have to be made from the capital base for the purpose of calculating the risk-weighted capital ratio in order to fairly and transparently display the banks’ capital. Goodwill and increase in equity resulting from securitization exposure are to be deducted from Tier 1. Especially important issues are deductions resulting from investments in subsidiaries engaged in banking and financial (incl. nonbanking) activities which are not consolidated in national systems. Conservative approach to the banks’ capital will deduct all banks’ capital activities in subsidiaries from the mother’s capital in advance (ex ante). If not done so, in times of crisis such deductions come on the top of all other accumulated problems. Many U.S. banks tended to have these problems.

9. ProPoseD new banks’ caPiTal accorD

Micro-Cap Review Magazine

an operating entity or the holding company in the consolidated group (but through a special purpose vehicle), proceeds must be immediately available without limitation to an operating entity or the holding company in the consolidated group in a form which meets or exceeds all of the other criteria for inclusion in Additional Tier 1 capital. These criteria (particularly item 9) mean that some ‘old’ Tier 1 securities will no longer qualify under Basel III! Going through all 12 items as constitutive elements of capital within new capital accord it is obvious that regulation forces banks to have ‘too much’ of the most quality capital and, therefore, we could expect them to be much more conservative in lending activities than before the crisis. We will be moving from one to another extreme regarding banks’ lending and other business activities.

10. conclusion We showed that the methodology of banks’ capital measurement and banks’ capital structure is problematic and caused many serious problems to their customers and investors and consequently and (in) directly to the local, regional and also global (economic) developments of economies. We proved this via the subordination problem and relation between Tier 1 and Tier 2. n

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BRIDGING BIONICS FOUNDATION

WALK WITH US Exoskeleton technology has the power to turn a life around: that is, to turn "You will never walk again" into "We’ll show you how." —Bridging Bionics Foundation

Amanda Boxtel sustained a T11-12 spinal cord injury in 1992 in Snowmass, CO When I walk, I feel the tallness of my body and my neuropathic pain dissipates completely. I can now enjoy a heart-to-heart hug. I never imagined this was possible after 21 years of paralysis.

At 24, Amanda felt invincible. A skiing accident shattered four vertebrae, along with her illusions of immortality. Imagine if the freedom to move was robbed from you. We have the opportunity to advance human mobility beyond wheelchairs and unpowered orthotics, and impact quality of life. Our goal is to place exoskeletons into rehabilitation centers everywhere to help individuals like Amanda, walk again. Do you have a community hospital near you that you’d like to support with this outreach? Join us in this movement; turning no into yes , one step at a time. For more information or to donate now, contact info @ bridgingbionics . org or call 1-970-315-2235.

Bridging Bionics Foundation is a Section 501(c)(3) Colorado nonprofit corporation: EIN# 46-2182977

DONATE NOW AT

BRIDGINGBIONICS.ORG

F E aT U R E D a R T I c L E

BIOTECH 2013: Mid-Year Sector Update H

n BY SETH YakaTaN

alfway through the year and two things are really important in biotech: (i) the market for biotech IPOs is more robust than it has been in a decade; and (ii) hostile M&A is back like it was in 1985. The overall consensus among those on the buy-side is that the biotech sector is in one of the strongest positions in recent memory, with a number of interesting drugs and drug candidates on or nearing the market. The number of new drug approvals is also accelerating. During 2012 there were 39 new drugs approved, the most in 16 years. Biotech stocks have done very well this year as the sector has outperformed an already strong market. The BioCentury 100 index gained 6.0% in the 2nd quarter of 2013 and is up over 23% year to date. This is in line with the NASDAQ Biotechnology Index, which is up of 27% year to date. Both biotech indices outperformed the Dow Jones Industrial Average and the S&P 500.1 Just in case you have been avoiding the financial news lately, biotech stocks are hot and biotech IPOs are hotter than they have been in the last 13 years. Empirically recent data has been released by the National Venture Capital Association, illustrating that the 2nd quarter of 2013 provided the largest

number of biotech IPOs since the 3rd quarter of 2000. The NVCA tallied 21 venture-backed IPOs during the second quarter of 2013 that carried a collective market value of $2.2 billion. This is an amazing result given that there were only 7 biotech IPOs during 2008 and only 11 in 2009. During 2012 there were 46 biotech IPOs, compared to 29 in total for 2013, year to date. This run seems to be due to: (i) an increased number of new drug approvals; and (ii), strong performance by the existing public sector. We can only hope that the favorable market conditions that have existed during the first half of 2013 remain in the second. While overall M&A volume in the sector is down year to date 2013, we have seen some very interesting 1980’s style hostile M&A. For several years many on the buy-side have discussed mid to large capitalization names as buyout candidates, including, were Elan Corp. plc, Forest Laboratories Inc. and Shire plc. We have now seen a really interesting drama play out with Elan and Royalty Pharma even after Royalty Pharma ended its hostile bid last month. This one got really juicy and looked like it could even gat nasty.

1. Flanagan, Biocentury, Volume 21, Number 26, Page A1

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Barbs flew back and forth, however in June 2013, Elan rejected the hostile bid by Royalty worth alomst $8 billion. Instead, it put itself up for sale and is currently in discussions with several parties to find a rival buyer. If no rival offer emerges, Elan’s stock will likely fall back to where it was before Royalty made its first offer in February 2013. Elan’s shares were traded slightly above $10 per share right before Royalty’s offer, and since, have risen to around $14 a share on expectations of a takeover. Royalty, which is not currently participating in the sale process is watching the situation very closely. It is very complex but Royalty could get a second shot at buying the company. In May 2013 we saw Life Technologies’ $13.6 billion sale to Thermo Fisher, which many felt was a hefty price to pay by many conventional financial standards. But if Life’s DNA analysis technology continues to transform medicine and biology, it could wind up being a bargain. Life Tech and Illumina have turned the science of DNA sequencing into a platform for cracking the mystery of incurable diseases, detecting deadly infections and bringing genetic scanning into a price range

most people can afford. While the number is staggering at first glance, upon reflection this was a great deal for Thermo. $13.6 billion represents a purchase price multiple of 3.6 times 2012 revenue of $3.8 billion. We regularly see research reagent companies (which is essentially what Life is) trade between 2.0x and 4.0x revenue. Thermo Fisher obtained $13.6 billion in financing to fund the deal, of this the split will be cash and debt of $9.5 to $10.0 billion and equity of up to $4.0 billion. Borrowing $10.0 billion at LIBOR + fumes and kicking in a small amount of equity seems to be a good idea, and a cheap way to muscle in to the #1 spot in the sector for Thermo.

Completed Life Science transactions at KAI include: Twelve buy and sell-side M&A engagements, generating aggregate transaction value in excess of $345 million. Numerous early-stage pharmaceutical partnering assignments with aggregate value generated for clients of more than $875 million. Facilitation of several royalty monetization transactions, with aggregate realized value in excess of $125 million. Over the past twelve years as a co-founder of Katan Associates (KAI), Seth has successfully structured and managed strategic alliances and deals, based on his insight and expertise in the US and Global Life Science sector, including numerous buy- and sellside M&A transactions. Seth is a recognized as an expert in the valuation of life sciences companies, stemming from industry experience and academia. He has authored several publications and lectured and guest lectured at corporate workshop and universities on valuation theory and real-world practice and case studies, and consulted to several state and provincial governments worldwide on commercialization and capital access initiatives. n

About the Author: Seth Yakatan brings more than 20 years of experience as a corporate finance professional, actively supporting small cap and major companies in achieving corporate, financing and asset monetization objectives through the successful structuring and management of strategic transactions and investments totaling more than several billion dollars in value.

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Micro-Cap Review Magazine

A SNN INcorporAted ANd MIcro-cAp revIew MAgAzINe Survey

on behalf of you, our subscribers and readers, additional information about companies in this issue will be forwarded to you by checking the box and submitting your request. Information will be forwarded to you by mail or email. q 144 Opinions q A European View, Dr. Drasko Veselinovic q A Financial Paradox or Peace of Mind, Rabbi Stephen Robbins q Adamera Minerals Corp. – TSXV: ADZ q Ask Mr. Wallstreet Newsletter q Bill the Butcher - BILB q Bio Maryland q Biotech 2013 Update, Seth Yakatan q Black Shopping Channel q Bridging Bionics – Amanda Boxtel q Cambridge House International Conferences q Capital Alliance Advisors, Inc. q Caveat Emptor or Buyer Beware Book q ChoiceTrade Discount Broker q Compliance Corner, Russell C. Weigel lll Esq. q Commodities Corner, Mark Shore q CompPartners, Inc. q CVSL Incorporated – CVSL q Dark Pools, David Franasiak q DNA Health Corp. q Editorial, Shelly Kraft q ETF and ETP, New Record Highs, Debra Fuhr q Fireman’s Brew q Gespeg Copper - TSXV: GCR q Growth Capital Expo Conference - Las Vegas q Guardian 8 Holdings q Hong Kong, Leslie Richardson q How to Use the New General Solicitation Rule for Private Placements to Raise Capital Incubation, Cass, Goldsmith, Merrick q India-Asia, Barnett Suskind q Insurance Column – Thorson Insurance q Investing in China, Corey Fischer q Investing in Micro-Caps, Chris Lahiji, LD Micro q Investor Consultants q Invictus IPO Boot Camp

q Madison Realty Companies q MaloneBailey, LLP CPA q Marifil Mines – TSXV: MFM q Medifocus - MDFZF q Metals & Minerals Investment Conferences q Micro-Cap Review Magazine q New BD Formations & BD Withdrawl Summary, David Alsup q New Era for Private Offerings, Brett Goetschius q No Boring Lawyers - Oswald & Yap, Oswald-Yap.com q Ombudsman, Jack Leslie q Orphanbiotec, Dr. Frank Grossman q Padrino Tequila q Pet-Vivo Inc. q Profit Planners Management, Inc. - PPMT q QuoteMedia - QMCI q QuoteStream q Silver – Gold – Palladium – Platinum, David Morgan q Soltoro Ltd. - TSXV: SOL q StockNewsNow Radio, Gary McKenzie q Strangulation by Regulation, Joe Martin q The Incubator, Richard Koeffler q The Original Soupman - Soup q TNI BioTech, Inc. –TNIB q Tuesday’s Children q U.S. Equity Charts, Steven Shelton q WallStreet Chicken, Comic Strip q What is Your Financial Health? Dr. Janet Zand q Who’s Your Edgar Agent? - Edgar Agent Column q Who’s Your Transfer Agent? – Q & A with Worldwide Stock Transfer q Worldwide Stock Transfer q Youngevity International, Inc. – YGYI

please take the time to answer some simple survey questions so that we may provide the most comprehensive information, stories of interest, investment ideas, and industry analysis in future issues of Micro-cap review. we thank you in advance for your participation. 1. In a Bull Market would you: q Cost average up q Cost average down q Never cost average down q Set a target price and sell 3. Micro-Cap companies are both public and private. Which statement would you say best fits your investment portfolio? q 100% public companies q 75% public companies 25% private companies q 50% public companies 50% private companies q 25% public companies 75% private companies 5. Are you an accredited investor? q Yes q No q Not sure

2. Do you believe that we are in a micro-cap Bull Market? q Yes q No q No it’s a micro-cap Bear Market q Who cares, I’m making money q I wish it was a micro-cap Bull Market 4. Have you ever invested in a crowd funded company? q Yes q Yes, several times q Thinking about it q No q If yes, which website did you invest through: ___________________________________________ 6. Will you invest more money in micro-cap companies in 2014 than you did in 2013? q Yes q No q Will hold or sell what I have q Always looking for good ideas

8. Which company(s) in this issue would you invest in? q –––––––––––––––––––––––––– q –––––––––––––––––––––––––– q –––––––––––––––––––––––––– q All q None

7. Please list below you favorite 3 articles in this issue: q Page #_____________________ q Page #_____________________ q Page #_____________________ 9. Where do you go to invest in micro-cap stocks? q Discount broker q Full service broker q Online q CrowdFunding websites q I only invest in private placements 11. What is your biggest worry about the micro-cap stock market? q Lack of liquidity to sell shares q What I read and hear creates fear q Not sure who I can trust q Too much confusing promotion q Lack of information 13. Are you satisfied with your current data provider for stock quotes and financial news? Please include provider. q Yes ____________ q No ____________ q No, need new source 15. Could your business benefit from reduced energy costs? q Yes, need more information q Yes, immediately q No, does not apply to my company

10. How would you rank your investments by market sector? (From 1-6 with 6 being largest holding) q _____Biotech / Life Sciences q _____Technology q _____Minerals & Mining q _____Manufacturing q _____Social Networking q _____Telecom 12. Is your portfolio risk diversified? If so, how? (1 or more) q I invest in commodities q I invest in options q I invest only in micro-cap private companies q I invest in real estate q I invest in derivatives q I invest in ETF’s 14. Would you say you use mobile for financial data: q 100% of the time q 75% - 100% of the time q 50% or more of the time q under 50% of the time q never use mobile data

check off areas of interest: q Aerospace q Alternative Energy q Ask Mr. WallStreet Newsletter q Auto q Banking q Basic Minerals q Biotech q Business Services q Chemicals q China q Clean Energy q Communication q Construction q Consumer Products q Consumer Services q CrowdFunding

q Currencies q Defense q Direct Marketing q Drilling q Education q Electronics q Electronic Medical Records q Energy q Energy Savings q Entertainment q Finance q Financial Trade Shows q Food & Beverage q Gaming q Green Technology q Healthcare q India-Asia

q Industrial Goods q Industrial Metals & Minerals q Information Technology q Insurance q Life Sciences q Manufacturing q Media q Medical Devices q Metals q Mining q Mobile Apps. q Oil Drilling & Equipment q Oil & Gas Producers q Oil & Gas Exploration q Organics q Pharmaceuticals q Publishing

q Rare Earth Elements q Real Estate q Resource Exploration q Retail q Security q Social Media q Software q Technology q Telecom q Transportation q Travel q Veterinary Products and Services q Wellness q Wireless Communications

All participants in surveys receive a Free lifetime subscription to Micro-cap review Magazine.

Name: ____________________________________________________________________ Address: __________________________________________________________________ email: _______________________________ phone: ______________________________

q Add me to Ask Mr. wallStreet Free Newsletter

Send completed surveys to: SNN Incorporated or respond to survey online at: StockNewsNow.com 4766 Admiralty Way #13004 • Marina del Rey, Ca. 90295

F E aT U R E D a R T I c L E

What is Your Financial Health? W

e are pleased to announce the introduction of “Functional Health for The Investor, The Invested and Family.” The financial community, from the home office to Wall Street, presents specific and serious health care issues. It is a unique community. The goal of this column is to address, educate and give insight into healthier directions. Each issue will present a common problem with solutions. The goal of this column is to give you simple concepts and solutions that you can incorporate into your busy lifestyle.

“heDge your healTh“ or “Don’T waiT To geT sick To geT well” In this issue we discuss the white stuff sugar - a stronger addiction than cocaine. Today, sugar has been identified as the single most detrimental dietary threat to our entire health care system. The American Diabetes Association released new research on March 6, 2012, estimating the total costs of diagnosed diabetes (increased blood sugar) have risen to $245 billion in 2012 from $174 billion in 2007. This represents a 41% increase over a five year period. 41% - an impressive return - not bad in your business but a disaster in the sugar business. http://www.diabetes.org/advocate/resources/cost-of- diabetes. html

The sweeT life sick anD TireD of being sick anD TireD

n BY DR. JaNET ZaND

Doctor, “I am so tired - and I’ve felt this way for years.” I have been practicing natural medicine for more than 20 years and can tell you that I have heard this refrain thousands of times. This type of fatigue doesn’t develop overnight - it is often a result of years of stress, nutritional deficiencies and poor lifestyle choices. A 52 year old male patient, John, came to my office 6 months ago. He was tired with a large 40” waist that was something he “couldn’t relate to.” He told me that since

Micro-Cap Review Magazine

college he had maintained a 34” waist and it was only in the past 3 years that things had “gotten out of control.” He really wanted to get back to what he once was, John is an attorney with the additional stress of managing a large Los Angeles firm. He said he ate to make himself feel better but it wasn’t working. In addition, his wife was complaining about his low libido and disinterest in sex. OK - so how do we get out of this?

The whiTe sTuff Since 1983 sugar consumption in the US has increased by 28%. The average American is consuming 50 pounds of sugar each year. Many individual foods provide large amounts of the USDA’s recommended sugar limits. For instance, a typical cup of fruit yogurt provides 70 percent of a day’s worth of added sugar; a cup of regular ice cream provides 60 percent, a 12-ounce Pepsi provides 103 percent. One of the biggest problems with high-sugar foods is that they replace more healthful foods. According to USDA data, people who eat diets high in sugar get less calcium, fiber, foliate, vitamin A, vitamin C, vitamin E, zinc, magnesium, iron, and other nutrients. They also consume fewer fruits and vegetables. “If you are eating a candy bar instead of a piece of fruit, you’re missing a chance to cut your risk of cancer or heart disease, ”said Bonnie Liebman, CSPI (Center for Science in the Public Interest) nutrition director.

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USDA advises people who eat a 2,000-calorie healthful diet to try to limit themselves to about 10 teaspoons of added sugars per day. The average American does not eat a healthful diet, but consumes 22 teaspoons or 355 calories of added sugars per day. Is this you? “Something needs to be done,” says Dr. Robert Lustig, a world famous obesity expert, from the University of San Francisco. “Ultimately, this is a public health crisis... you have to do big things and you have to do them across the board, “he tells Sanjay Gupta. “Tobacco and alcohol are perfect examples,” he says, referring to the regulations imposed on their consumption and the warnings on their labels. “I think sugar belongs in this exact same wastebasket.” In July 2011, Kimberly Stanhope, of University of California Davis, reported her findings of her NIH study. She took 48 adults, ages 18-40 years and for five weeks before the study, subjects were asked to limit daily consumption of sugar containing drinks to one 8 ounce serving of fruit juice. The group was then divided into three groups. Each group consumed 25% of their daily calories as fructose, high fructose corn syrup, or glucose. The researchers found that within two weeks, study participants consuming the increased fructose or high fructose corn syrup exhibited increased blood indicators of three well known risk factors associated with heart disease: LDL cholesterol, triglycerides and a protein known as apolipoprotein-B which can lead to plaque buildup in arteries. After the study results came out, the researcher herself reports, “I started eating and drinking a whole lot less sugar.”

WHAT TO DO? The solution: to avoid sugar and any label that says “high fructose corn syrup” and fructose except in moderation in raw whole fruits. Deleting sugar from one’s diet sounds simple but from one sweet lover to you - it is not. Where does one begin? If you watch TV things are confusing. One channel has

“The Biggest Loser,” plagued by obesity and intently focused to lose weight through a good diet and plenty of exercise. On the next channel is an ad for a Snicker’s bar, a “healthy” and quick solution to ‘satisfy your hunger.’

CAN YOU ESCAPE THE NARCOTIC RELATIONSHIP? YES. In Chinese medicine the sweet craving is associated with “a weak earth or the function of the stomach and pancreas.” As an aside, the earth or digestion is also weakened by obsessive thoughts and stress. Sound familiar? So really the solution is ultimately to physiologically help to diminish the sweet craving. Once you are not sneaking into the pantry - panting for sweets - you can more easily begin changing other lifestyle choices. Nutrients such as chromium picolinate 200 mcg twice daily for 3 weeks and you should be on your way to diminished sweet craving. If you are one who needs a bigger solution and tends to run a higher fasting glucose you may want to look into a high quality gynemna sylvestre liquid. A few minutes after ingesting liquid gynemna it’s difficult to even taste sweet and therefore it’s not much fun to try to eat gooey sweets.

A good thing to remember in your quest to reduce sweets: Before people develop type 2 diabetes, they almost always have “pre-diabetes” — blood glucose levels that are higher than normal but not yet high enough to be diagnosed as diabetes. Recent research has shown that some long-term damage to the body, especially the heart and circulatory system, may already be occurring during pre-diabetes. The good news is there are things you can do to prevent or delay the development of type 2 diabetes. Eating fewer sweets is a great beginning.

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DID YOU KNOW Just in case you are thinking to replace sugar with aspartame (NutraSweet)......... Did you know that aspartame is made up of two amino acids - 40% aspartic acid and 50% phenylalanine - with an additional 10% from methanol, an alcohol that breaks down into formaldehyde in your body. Consider some of the natural sweeteners such as stevia. Most of them leave a horrible aftertaste. There is one brand which seems to have less of this aftertaste - NuNaturals Stevia. Some of my patients begin the sugar detox by using 1/2 stevia and 1/2 organic sugar when sweetening drinks etc. Sugar consumption is a herculean problem impacting our healthcare system and our energy and productivity. Even the smallest daily changes will ultimately make a surprising difference. Remember one can of soda a day equals annually 35 pounds of sugar taken into your body. You don’t have to be a nutritionist or a scientist to realize the impact of 35 pounds of unnecessary sugar. TAKE AWAY: Reduce your sugar intake and improve your health. In good health, Dr. Janet Zand, L.A.c., O.M.D. has over twenty years of clinical experience in acupuncture, botanical medicine, nutrition, and homeopathy. She is the author of Smart Medicine for a Healthier Child, A Parent’s Guide to Medical Emergencies, and Smart Medicine for Healthier Living (Avery Publishing, 1994, 1997, 1998, respectively). Janet Zand was the Chairman of the Board, cofounder and formulator for Zand Herbal Formulas. Dr. Zand lectures throughout the country to physicians, naturopaths, acupuncturists, nurses and other health care professionals on natural medicine and Traditional Chinese Medicine. n

Micro-Cap Review Magazine

F E aT U R E D a R T I c L E

Tips for Using Rule 144 to Remove Legends from Stock Certificates

f you are going to purchase or receive restricted stock, be aware of the following issues to ensure you can remove the restrictive legend when you want to sell your shares.

Your request for removal of the restrictive legend from stock of a former shell company also has to meet the holding period described below and be in connection with a sale of the stock.

check wheTher The comPany is a former shell comPany.

DeTermine wheTher you are an affiliaTe.

If the company issuing your restricted stock is a former shell company, there are additional requirements in order to qualify to use Rule 144 to lift the legend.

Former shell companies need to: 1. Cease to be a shell company; 2. Be “subject to” the Securities Exchange Act of 1934 by filing either a Form 10 or Form 8A, meaning being required to file reports with the SEC; 3. Be current in their filings, meaning all Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K have been filed; 4. Have filed current “Form 10 information,” (Form 10, Super 8-K, or similar) which includes financial statements of the acquired operating company; and 5. Wait one year since filing the Form 10 information described above.

n BY aSHLEY BOLDUc

Micro-Cap Review Magazine

An affiliate is an officer, director, or 10% or more shareholder of the issuing company. Make sure to check the company’s outstanding shares to see whether you will be an affiliate by owning 10% or more of the company’s outstanding shares. Remember that you are still an affiliate for 90 days after you cease to be an officer, director, or 10% or more shareholder. Affiliates need to ensure: 1. There is current public information on the company; 2. They do not exceed volume limitations – the greater of 1% of the shares outstanding (for Bulletin Board companies) or the average weekly trading volume for the four prior calendar weeks; 3. Manner of sale requirements for equity securities – brokers’ transaction, transaction directly with market maker or riskless principal transaction; and 4. Filing of Form 144 with the SEC if intended sales exceed 5,000 shares or $50,000.

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If you are an affiliate, there are four additional requirements in order to qualify to use Rule 144 to lift the legend.

The minimum holding period for restricted securities is six months, but can be one year if the company is nonreporting. If you do not meet the holding period, there is a possibility that you can tack your holding period to the previous owner’s holding period. If you want to tack your holding period, make sure the previous owner was not an affiliate when you purchase the shares. If you have convertible securities, such as convertible debt or convertible preferred stock, it may also be possible to tack your holding period if no additional consideration is given for the conversion. The most common example of this is when you hold a convertible note for longer than six months and convert into restricted shares, you will be able to tack your holding period for the shares to when you acquired the convertible note. Remember, the holding period starts running when consideration has been fully paid for the securities, whether that consideration is cash, services, or otherwise. Be aware that if you have stock options, the holding period starts running when the options are exercised, not when they are granted unless you exercise the options on a cashless basis. Restricted shares may be issued as compensation, especially when a company is just starting out and does not have enough cash to pay for your services. If you are consulting or providing other services for the company, instead of asking for a lump sum of shares at the end of each year, structure the agreement so that you receive shares on a rolling basis. Every month, as long as you complete your services for that month, you receive a portion of the total shares you are entitled to. This way you are able to free up some of

your shares earlier than if you received all the shares at the end of a year. Using Rule 144 to remove the legend from restricted securities can be confusing and complex because many of the rules do not address the myriad of situations that can arise. The best strategy is to consult

For those of you who are unfamiliar with the process, the easiest way to remove a restrictive legend is: 1. Meet all Rule 144 requirements; 2. Deposit the shares with a broker; 3. Contact an attorney to obtain a legal opinion as only attorneys are allowed to issue legal opinions under Rule 144 but the attorney does not need to be the issuing company’s attorney; 4. Once the legal opinion is complete, have your broker send your original certificate and other necessary paperwork to the transfer agent; and 5. Have the new certificate without a restrictive legend deposited with your broker so your shares can be sold on the public market.

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with a lawyer before purchasing or receiving restricted shares to confirm that you will be able to sell the securities when you want to and, if you are dealing with penny stock, to have a trusted broker to deposit the shares with as many brokerage firms are hesitant to accept new clients depositing restricted penny stock. Although I have not gone into all of the details of utilizing Rule 144, the above are the most common issues I see from clients on a day-to-day basis and issues that you should be aware of at the outset when purchasing or receiving restricted securities. If you have any questions about the process, or need a restrictive legend removed from securities you currently own, please don’t hesitate to contact me. Ashley Bolduc is an attorney with Oswald & Yap APC in Irvine, California, specializing in corporate and securities law. She handles Rule 144 legal opinions for the firm’s www.144opinions.com division, along with other transactional matters such as entity selection and formation matters for businesses just getting started; contract negotiations, review, and drafting; mergers and acquisitions; private offerings; public offerings; and public company reporting with the Securities and Exchange Commission. You can reach Ashley at aeb@oswald-yap.com or at 949.788.8900. n

Micro-Cap Review Magazine

cOMPLIaNcE cORNER

The Advent of Advertising and General Solicitation of Private Placements and the Disqualification of Certain Issuers

eptember 23, 2013 is the day that securities issuers will be able to conduct general solicitation and advertising of private capital raises pursuant to new Regulation D Rule 506(c) (implementation of Title II of the Jumpstart Our Business Startups Act).

n BY RUSSELL c. WEIGEL, III

Micro-Cap Review Magazine

With the advent of advertising and general solicitation, issuers will no longer be limited to conducting capital raises from friends, family, and pre-existing business relations under the restrictions of Regulation D. However, September 23, 2013 is also the beginning date for an era of “bad actor” disqualification from the ability to utilize Rule 506. From a compliance standpoint, two issues are evident for issuers utilizing new Rule 506(c): (i) how they conduct their advertising, and (ii) what documents they obtain to verify that the subscribers to the advertised offering are in fact accredited investors. Whereas, under existing Rule 506, issuers were concerned about leaking the existence of the private offering; with Rule 506(c), issuers will be concerned with the quality of their public communications. Antifraud laws still apply, and a merely negligent misrepresentation is sufficient under state law to support criminal antifraud charges against the issuer and those alleged to be involved. Also, if the issuer fails to comply with the accredited investor verification

requirements, the inclusion of one or more unaccredited investors in the purchase can blow the Rule 506(c) exemption completely, potentially subjecting the offering to blue sky registration requirements. The offer or sale of unregistered, non-exempt, securities is a felony in many states. The good news is that issuers can advertise, provided that they can demonstrate having taken “reasonable steps” to verify that the purchasers of the securities are accredited investors, either because they come within one of the enumerated categories of persons that qualify as accredited investors or the issuer reasonably believes that they qualify as accredited investors, at the time of the sale of the securities. The Rule suggests that less verification is needed if the accredited investor is a broker-dealer or investment company, but more evidence may be needed if the investor is a wealthy individual or charity. The nature-of-the-offering inquiry suggests that more information is needed if the issuer conducted the solicitation “broadly,” such as through a website accessible to the general public, or through the use of social media or

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email, but less is needed if the investors are pre-screened by a reliable third-party. Rule 506(c) provides a non-exclusive list of methods to verify accredited investor status for natural persons that will be deemed to satisfy the verification requirement. (No list is provided for accredited investors that are corporate entities.) For verifying status on the basis of income, an issuer may need to obtain tax returns, along with a written representation from the investor that he or she has a reasonable expectation of maintaining accredited status during the current year. For verifying status on the basis of net worth, an issuer may need to obtain bank statements, brokerage statements and other statements of securities holdings, CDs, tax assessments, and appraisal reports, and for liabilities, a credit report from at least one consumer reporting agency, along with obtaining a written representation from the investor. If compensation information is publicly available, such as in Form 10-K reports, issuers may be able to rely on that information or on the certification issued by the investor’s accountant or attorney that the investor is accredited. On September 23, 2013, Regulation D Rule 506(d) also becomes effective. Rule 506(d) is a “bad actor” disqualification that prohibits the ability of an issuer to utilize Regulation D if the issuer or other relevant persons have been the subject of specified disqualifying events involving securities fraud or certain other violations of law. The disqualified persons list includes the issuer, its predecessor and affiliates, its officers, directors, partners, managing members, persons with beneficial ownership of 20% or more of the issuers voting securities, placement agents, and investment managers of pooled investment funds. The disqualifying events are expansive and include criminal securities convictions, securities-related injunctions; cease-anddesist, suspension, and bar orders from federal or state agencies barring persons from engaging in securities, insurance, banking or similar activities. With the exception of bar

The disqualifying events are expansive and include criminal securities convictions, securities-related injunctions; cease-and-desist, suspension, and bar orders from federal or state agencies barring persons from engaging in securities, insurance, banking or similar activities. orders which have no limitation period, all of the other disqualifying events have a five or ten year limitations period. Only conduct that occurs after September 23, 2013 is disqualifying, but issuers that would have been disqualified under Rule 506(d) had it been in effect previously must disclose to investors that they would have been disqualified but for the September 23, 2013 effective date of the rule.

The law firm of Russell C. Weigel, III, P.A. practices corporation and securities law nationwide and specializes in taking companies public, helping public companies prepare SEC filings and stay compliant with federal and state securities laws, preparing transaction and disclosure documents for Rule 506 offerings, and defending issuers and other securities industry participants from SEC and FINRA enforcement actions and from customer arbitrations. Russell C. Weigel, III, was a branch chief and special counsel at the U.S. Securities and Exchange Commission and served during the years 1990-2001. n

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3 DRILL READY PROJECTS • Surrounding producing and historic high grade gold deposits • Hauling distance to existing mill requiring ore • Infrastructure/year round access Ticker Symbol: ADZ TSX.V For more information contact : Heather Kays Manager, Corporate Communications Tel: 604-689-2010 Email: info@adamera.com WWW.ADAMERA.COM

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Micro-Cap Review Magazine

P R O F I L E D c O M Pa N Y

Tni bioTech I

n November 2006, a scene unfortunately familiar to millions, played out in a Florida doctor’s office as Noreen Griffin waited uneasily to find out the results from her latest tests. Her fears were confirmed when she heard she had ovarian and cervical cancer.

Her doctor gave her the systematic course of action to treat the disease, which included surgery, cauterization, and chemotherapy, but Noreen knew there was another alternative to this “cut, burn, and poison” method that was described to her, and she would choose this alternative method over the conventional one. At 55, Noreen was in the prime of her life and career. With a humble beginning in real estate, she quickly found other business opportunities with public and private companies spanning a variety of sectors, from oil & gas to health & beauty. This expansive career allowed her to meet a variety of unique individuals, including Dr. Nickolas Plotnikoff. Dr. Plotnikoff had dedicated his life to the development of an immuno-

Micro-Cap Review Magazine

therapy treatment using Met-Enkephalin (MENK). Clinical trials have shown that MENK is capable of enhancing immune function in patients with cancer and HIV/ AIDS. Trials with MENK and cancer looked extremely promising, showing MENK as a possible immune modulator that helps restore patients’ immune functions and activate their lymphocytes to attack cancer cells and other infectious diseases. Dr. Plotnikoff also introduced Noreen to the work of Dr. Bernard Bihari, considered by many to be the “father” of an immunotherapy called Low Dose Naltrexone (LDN). LDN is oral medication that is believed to activate a patient’s immune system, helping the body itself to fight diseases, such as cancer and HIV. It is also believed that LDN aides in the rebalance of a patient’s immune system showing positive results with autoimmune diseases, such as Crohn’s disease and multiple sclerosis (MS). With this knowledge, Ms. Griffin decided to select a combination of LDN and MENK to treat her cancer. However, there was a catch - her MENK & LDN treatments had limited availability. It was her opinion that the decision to use these alternative treatments not only ended up saving her life, it gave her the motivation to improve the lives of others by making the treatments more widely available. She started by uniting some of the top immunologists and oncologists in the world under a unique vision and mission — improve global health by harnessing the body’s immune

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system while keeping it affordable and profitable enough to supply even the poorest of nations.

Un-fragmented Strategy Speeds Growth After Noreen’s successful treatment with MENK, she continued with daily doses of LDN. Over the next couple of years, free of cancer, she watched as Dr. Bihari, Dr. Plotnikoff and many other talented researchers, including Dr. Ian Zagon and his team (who were also working with LDN and MENK) were unsuccessful in commercializing their separate, yet similar goals. Finally in 2011, Ms. Griffin decided to jump into the world of immunology and biotech and see if she could help bring these revolutionary therapies to market. The LDN and MENK intellectual properties were extremely fragmented, with IND, patents, clinical data, and orphan drug designations held by a number of universities and individuals. It was Noreen’s belief that if she could bring all intellectual property into one company, then commercialization of the products would be far more productive than previous efforts. In 2012, with Dr. Nicholas Plotnikoff as NonExecutive Chairman, Noreen Griffin as CEO, Dr. Eugene Youkilis as President, Professor Fengping Shan as Chief Science Officer and Christopher Pearce as Chief Operating Officer, TNI BioTech, Inc. (OTCQB: TNIB) was created to acquire and commercialize existing LDN and MENK therapies to combat serious and often life threatening or fatal diseases. In Noreen’s quest to support the clinical development of LDN and MENK and build a corporate infrastructure capable of bringing TNIB’s therapies to market, she sought an introduction to Dr. Ronald Herberman, who was an esteemed leader and researcher in the field of oncology, immunology, and was also familiar with MENK and LDN. After their first meeting, Noreen made it her goal to not only involve Dr. Herberman in TNIB, but to make him Chief Medical Officer and Senior

Vice President of Research & Development. Dr. Herberman accepted the position and quickly went to work, assembling a research and development dream team that included: Dr. Angus Dalgleish, Fellow of the Royal College of Physicians of the UK and Australia, Royal College of Pathologists and the Academy of Medical Scientists; Joseph M. Fortunak, former Director and Head of Global Chemical Development at Abbott Laboratories Corporation; Annie Foster, former Senior Manager of regulatory affairs at Emergent BioSolutions and Cindy Douglas, former Regulatory Associate and Operations Manager at Intrexon Corporation. Sadly, Dr. Herberman passed away suddenly in June 2013, but the remaining team has persisted under the leadership of Dr. Dalgleish and Dr. Fortunak. To date, the executive and medical teams at TNI BioTech have worked tirelessly to acquire 25 patents, various INDs, and substantial clinical data surrounding LDN and MENK. TNI BioTech’s patent portfolio has the potential to treat a variety of indications and conditions, including Crohn’s disease, inflammatory and ulcerative diseases of the bowel, malignant lymphoma, pancreatic cancer, Parkinson’s disease, Hodgkin’s lymphoma, and non-Hodgkin’s lymphoma, chronic herpes virus infections, chronic infections due to the Epstein-Barr virus and a treatment method for humans infected with HIV/AIDS virus. TNI BioTech, Inc. recently held a Type C meeting with the U.S. Food & Drug Administration (FDA) and presented its briefing package for Phase III trials for adult and pediatric Crohn’s disease using naltrexone. The Company intends to submit final protocols to the FDA by the end of September 2013, and expects trials to begin the first quarter of 2014. In addition to Phase III trials with Crohn’s disease, the Company is preparing an end of Phase II meeting with the FDA for pancreatic cancer and hopes to obtain approval to begin Phase III trials with MENK for this indication in the first quarter of 2014. Additionally the Company

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is preparing to start the process with the FDA for trials involving multiple sclerosis, fibromyalgia and liver cancer during the last quarter of 2014.

A Self-Funding Biotech? With the research and development team moving forward with product development, it was time to look at near-term capitalization of the acquired patents and therapies. Over the past 12 months, TNI BioTech has focused on being able to generate nearterm revenue as a method to offset clinical development expenses, while seeking to make its therapies available in emerging nations. The Company has entered distribution agreements for its now branded immunotherapies: IRT-101 (MENK therapy) and Lodonal™ (LDN therapy also referred to as IRT - 103) throughout emerging markets in Africa, with expansion into the Caribbean, and Central & South America. In keeping with its business strategy, TNIB has sought local regulatory governmental approval for the importation of Lodonal™ and IRT-101 into a number of African nations, thereby providing exclusive protection for its therapies. There are a number of advantages to Lodonal™ in Africa: it is a safe, non-toxic treatment with a one-year shelf life requiring no refrigeration, which is a significant advantage as it can be delivered to remote villages without the need for specific storage requirements. TNIB is working with the Republic of Malawi, the Republic of Equatorial Guinea, and the Republic of Nigeria, and plans an initial launch of 15,000 daily doses of Lodonal™ beginning in September 2013, increasing to 25,000 doses a day by January 2014, and then expanding to over 500,000 doses a day within 24 months. TNI BioTech understands when calculating clinical development costs into its breakeven analysis, it appears it should charge more than $1.00 per dose for Lodonal™. However, the Company was able to forego development costs because it acquired the intellectual property significantly below Micro-Cap Review Magazine

typical development costs. This allows TNI BioTech to achieve its vision of making Lodonal™ affordable to everyone. TNIB will still have available cash flow from Lodonal™ sales of approximately $.40 cents a dose to help offset additional clinical trial development in the U.S., thereby allowing it to avoid debt and dilution of the Company’s stock. In February 2013, TNI entered into a manufacturing agreement with Hubei Qianjiang Pharmaceutical Co. Ltd. (Hubei Qianjiang) using their cGMP certified facility. TNI and Hubei Quianjian are currently working on obtaining a certificate of free sale. In addition to the manufacturing agreement, TNI BioTech has a signed framework agreement wherein Hubei Qianjiang will fund TNIB pancreatic cancer trials in exchange for exclusive marketing rights to IRT-101 in China with TNI BioTech receiving a 6% royalty.

Goals By Category Crohn’s Disease 2014

Initiate Phase III clinical trial evaluating LDN as a treatment for pediatric patients with Crohn’s disease

2014

Initiate Phase III clinical trial evaluating LDN in adult Crohn’s disease

2016

Complete Phase III study with LDN in pediatric Crohn’s disease

2016

Complete Phase III study with LDN in adult Crohn’s disease

2017

FDA Approval of LDN for pediatric Crohn’s disease

2017

FDA Approval of LDN for adult Crohn’s disease Multiple Sclerosis (MS)

2014

Initial Phase II clinical trial evaluating LDN as a treatment for patients with SPMS

2015

Complete Phase II study with LDN in patients with SPMS

2016

Initiate Phase III clinical trial evaluating LDN in SPMS

2018

Complete Phase III study with LDN in patients with SPMS

2018

FDA approval of LDN as an adjunct therapy for patients with SPMS

2014

Initiate Phase II clinical trial evaluating MENK in cancer patients

2016

Complete Phase II study with MENK in cancer and selection for Phase III evaluation

2017

Initiate Phase III clinical trial evaluating MENK in a selected oncology indication

2019

Complete Phase III study with MENK in a selected oncology indication

2019

FDA approval of MENK in a selected oncology indication

Cancer

Manufacturing In order to fulfill the near-term demand for IRT-101 and Lodonal™, TNIB will rely on a Ramos Laboratory manufacturing facility in Nicaragua for Lodonal™ distribution to African and South American countries. The facility meets cGMP standards and is able to meet the Company’s needs for delivery. The facility is capable of producing 40,000 pills an hour.

Note: SPMS (secondary-progressive multiple sclerosis)

TNI BioTech is implementing a growth strategy aimed at achieving a number of corporate goals over the next 6 to 24 months including: Entering into distributor agreement to market distribute its products in many countries across Africa, the Caribbean, and South America. Continuing ongoing clinical trials and drug development efforts, while seeking future FDA or other regulatory approvals. Requesting approval to begin phase III trials for pancreatic cancer trials by the first

quarter of 2014 in conjunction with TNIB’s Chinese partners at the end of Phase II meeting with the FDA. Beginning a phase III study of LDN for use in Crohn’s disease (adult and pediatric) in 2014. Submitting an application to up list to the NASDAQ. Bringing additional biotech management into the Company, including new board members and a new Chief Financial Officer with extensive biotech experience. Beginning work on drug development plans for MS and Liver cancer in the third or fourth quarter of 2014. TNI BioTech, Inc. is proud of the goals it has accomplished this year through the passionate commitment of the doctors and scientists surrounding TNIB; especially the late Dr. Herberman, Dr. Plotnikoff, Professor

Future

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Shan, Jacqueline Young on behalf of Dr. Bihari, Dr. Ian Zagon, Dr. Angus Dalgleish, Dr. Jill Smith, Dr. Patricia McLaughlin, and countless others. Many of these individuals licensed or sold their work and patents to TNI BioTech with the single goal of obtaining FDA approval for the specific indications. According to Noreen Griffin, “This is not something that could have been accomplished by one person, it took a team of dedicated researchers, scientists, and doctors as well as the TNIB research & development and executive teams to have us where we are today. Never in my life have I had the honor to work with so many dedicated scientists and doctors, and I am thankful every day to be a part of what so many great people started.” n

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For the past decade, Tuesday’s Children has been committed to serving all those directly impacted by the events of September 11, 2001. Now we’re using our expertise to help Newtown, Boston, First Responders, Wounded Warriors and Families of the Fallen. Tuesday’s Children serves children and families who lost loved ones on September 11th, 2001; the Rescue and Recovery Workers; Families of the Fallen; Wounded Warriors, as well as young people impacted by terrorist incidents worldwide through our international program, Project Common Bond. Given its successful model of long-term healing, Tuesday’s Children is also working closely with those assisting families in Newtown, Ct. and Boston. Provide an internship for a child who lost a parent, make a charitable donation, become a mentor to a child, fundraise, or simply call us and tell us how you’d like to get involved. We need your help to Keep the Promise.

For more information, please call 516-562-9000 or visit our website at www.tuesdayschildren.org.

F E aT U R E D a R T I c L E

Investing in China Has the Perfect Storm Passed?

U.S. AND CHINESE REGULATORS FORGE ENFORCEMENT COOPERATION AGREEMENT

he investor market for U.S.-listed Chinese companies is in a tailspin. A perfect financial storm has hit China. Allegations of fraud, a slow-down of the Chinese economy and a general reluctance by Chinese companies to embrace an investor-friendly demeanor have converged—leaving shareholders of Chinese companies in an investment quandary. A recently announced agreement between the U.S. Public Company Accounting Oversight Board (PCAOB) and the China Securities Regulatory Commission (CSRC) and its Ministry of Finance, however, appears to be a first step towards solving the regula-

tory dispute involving the audits of U.S.listed Chinese companies. While positioned as a cooperative agreement toward addressing transparency issues, many are questioning whether the agreement is enough to satisfy investor concerns going forward.

whaT haPPeneD? The highly publicized accounting frauds at a number of Chinese companies are the number one reason for the collapse of this market. Investor confidence is at a low point. Unfortunately, companies that had nothing to do with the scandals and actually

n BY cOREY FIScHER, cPa, MANAGING PARTNER, WEINBERG & COMPANY PA

Micro-Cap Review Magazine

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complied with all the U.S. regulatory and reporting requirements were painted with the same broad brush. The scandals have cast suspicion on the accounting practices and financial statements of all Chinese reporting companies. Investors have good reason to be weary of fraud when one of the major safeguards inherent in the U.S. financial reporting system is often missing with Chinese companies. U.S. accounting firms that audit public companies are subject to review and oversight by the PCAOB - but not the accounting firms operating out of China and Hong Kong. Interestingly, the PCAOB was itself created by the U.S. Congress as part of the Sarbanes Oxley Act of 2002 in the aftermath of a U.S. accounting fraud and scandal involving the Enron Corporation. The PCAOB is a regulatory organization that works under the authority of the Securities and Exchange Commission (SEC). It is charged with overseeing the quality and standards of accounting firms that audit public companies. Its strongest tool in fulfilling its oversight responsibility is its power to conduct inspections of its member accounting firms. Many Chinese accounting firms have registered with the PCAOB allowing them to conduct, or participate on audits of Chinese companies listed on U.S. exchanges. However, as many investors now know, the Chinese government does not allow the PCAOB to conduct inspections of the Chinese-based accounting firms that do Chinese company audits. It is hard for an investor to swallow the concept that there are allegations of fraud and faulty audits going on in these companies, while also knowing that the accounting firms conducting those audits are not subject to the same PCAOB oversight as non-Chinese registrants. The refusal of the Chinese authorities to allow the PCAOB to conduct inspections has other significant repercussions. Under the rules of the SEC, a registrant must be audited by a firm registered with the PCAOB. If the PCAOB cannot conduct inspections of those

audit firms, the PCAOB may de-certify them from performing future audits. If this were to happen, it is possible that all U.S. exchange listed Chinese companies could be de-listed as they would no longer have an auditor and thus could not meet public company audit requirements. Further, not only are the listings of these particular companies in question, the audits of large multi-national companies that have significant operations in China may also be in jeopardy.

lawsuits alleging fraud are pending against U.S. traded Chinese-based companies. Also, late last year the SEC filed legal action against the Chinese affiliates of five major U.S. accounting firms demanding they comply with U.S. regulations. Those accounting firms assert that to do so would violate Chinese law and subject their employees to jail. An SEC Administrative Judge will rule on that matter later this year, which should bring greater clarity to the issue.

What everyone already knows

Conclusion

The U.S. knows that without verifiable audits, U.S. investor capital is at risk. The Chinese know that U.S. investors represent a large and important source of foreign capital for its emerging companies and are essential for the growth of its private sector. Moreover, everyone knows that investor dollars will not be returning to China until some degree of faith and confidence can be re-established.

A positive step The recently announced agreement between the PCAOB and China regulators may be a first step in the right direction. In their Memorandum of Understanding (MOU) on enforcement cooperation, the parties established a cooperative framework for the production and exchange of audit documents relevant to investigations in both countries’ respective jurisdictions. While a positive step, some issues remain, including: • Under the MOU, some documents can still be withheld if China declares them state secrets. • No agreement was reached that would allow regulatory inspections, which are the most important function of the PCAOB, to verify the performance and compliance with accounting rules.

Although this new U.S./China agreement falls short, it is a positive signal of cooperation. As such it might mitigate the SEC’s threat to de-list all non-compliant Chinabased companies. The U.S.-China relationship is complex but financial interests have a habit of trumping ideological differences. If so, both sides will continue to move toward greater cooperation and that would be a positive development toward restoring investor confidence in China-based companies. Will the sun once again shine on Chinese companies after this perfect financial storm passes? Too soon to predict, but it appears the clouds are parting—if ever so slightly. Corey Fischer, CPA, is the Managing Partner of U.S.-based public accounting firm Weinberg & Company P.A. An early pioneer in the China market, the firm maintains Pacific Rim offices in Shanghai and Hong Kong. With over 25 years of public company accounting experience and more than a decade focused on China, Mr. Fischer is an expert on the cultural, accounting and business issues unique to the region. Corey Fischer, CPA, Managing Partner Weinberg & Company, P.A. Telephone: 310-601-2200 E-mail: CoreyF@weinbergla.com n

Unfortunately, the MOU does not address many of the concerns of the SEC. Several SEC

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StockWord Puzzle

Across

2. APO 3. PIPE 8. CVSL CEO 10. A 10Q is filed how many times a year? 11. The quote between bid and ask is called? 13. Steven Shelton 15. Required investor for PPMs 17. The higher quality of common or preferred stock is? 18. Russell C. Weigel, III professional 21. This issue’s commodity 22. Key component regarding individuals in general solicitation 25. Now companies can advertise for ____________ 33. Who’s your Edgar Agent? 34. Financial Paradox or________ written by Rabbi Robbins 35. Which company in this issue is a project generator? 37. Wesley Ramjeet is the consumate C-suite executive 38. Topic of Corey Fische’s article 46 Dark

47. Bonds pay __________ 49. Thorson Insurance 51. Sarbanes Oxley acronym? 52. Color of sheets on OTC 54. Oil & Gas sector 56. Profit Planners Management symbol 58. Every investor wants to sell high and _____ _____. 59. Long term options are called? 63. Editorial discusses this type of stock market 64. SNN Chief Operating Officer is 65. Opposite of debt 67. QuoteMedia data 69. What do you call a stock under $5.00 per share? 70. Leslie Richardson discusses __ ___ stock market 71. Pet-Vivo CEO 72. CNSX stands for this Canadian Stock Exchange 73. StockNewsNow.com 74. Drasko writes about which markets?

Down

1. Investor consultants 2. Brett Goetschius 4. Soltoro 5. Rare Earth ________ 6. Bridging Bionics Amanda _______ 7. Reg D 8. John Hornick Esq. writes about hard money lending in what investment area? 9. Preferred Stocks pay ________ 10. What does short squeeze mean? 12. IR stands for? 14. Tuesday Children’s honors 16. APO stands for? 19. The Original Soupman symbol 20. Youngevity stock symbol 21. Chris Lahiji 23. What is David Alsup’s article about? 24. Bio Maryland 26. Debra Fuhr’s expertise 27. The micro-cap exchange 28. Opposite of long

29. ChoiceTrade online 30. New retail way of investing in private companies 31. Favorite financial comic strip 32. David Drake 36. Site of Growth Capital Expo April 29 - May 1, 2014 39. Buy on rumor, sell on _______ 40 .What hotel is the Growth Capital Expo? 41. Non-recourse 42. Invictus IPO 43. Janet Zand article about your _____ _____ 44. What a company is before its IPO 45. Have you read Caveat ________? 48. TNI Biotech symbol 50. Jack Leslie 53. Micro-Cap stocks have less than this in capitalization 55. Malone Bailey specializes in _________ 57. World Wide Stock 60. 144 Opinions does what service? 61. David Morgan 62. The trend is your ________ 66. Strangulation by ________ 68. Gold, Silver, Copper etc.

Answers in the classifieds

T H E I N c U B aT O R

Life-Science Technologies The Incubator Upping the Odds of Commercial Success

act: Many biomedical innovations don’t do well in the market even when they get that far because the path to commercial success is arduous and expensive.

n BY RIcHaRD kOFFLER, CEO, GREENWINGS BIOMEDICAL

Years before a biomedical hardware or software device is ready for commercial distribution, it must transform itself from idea to prototype to release candidate, and then enter the FDA approval process, which can take months to years. Hardware and software products that the FDA doesn’t currently consider to be biomedical devices – such as certain consumer smartphone apps and electronic medical records systems – will be inevitably swept into its regulatory definition of “devices”, requiring approval before they can be commercialized. Developers of biomedical devices must thoroughly validate safety and clinical efficacy not only to satisfy the FDA but to accumulate compelling evidence that will hopefully persuade clinicians and purchasing decision-makers that the devices are worth buying and using. It is not uncommon for devices with strong evidence of

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significantly improving healthcare costs and outcomes to be received with indifference – sometimes hostility – from clinicians who don’t find enough incentive in the novel devices to change their diagnostic or treatment protocols. Complicating matters, we’re in a funding winter for early-stage biomedical devices. While plenty of capital from angel networks and venture-capital firms is flowing into healthcare enterprise software and consumer healthcare and wellness apps, there is a serious shortage of equity capital to fund the early stages of biomedical devices. This downward trend started a few years ago, with very few venture-capital firms now interested in early-stage biomedical ventures having shifted their attention to later stages when risk profiles are more favorable. Commercialization grants – such as those given by the National Institutes of Health, the National Science Foundation, the Micro-Cap Review Magazine

Traditional venture-capital firms are being replaced by the venture arms of companies like GE, Johnson & Johnson and Qualcomm looking to seed what might become future acquisitions; “super angels” with keen, educated interests in biomedical opportunities; and institutional and individual foreign investors primarily from Asia looking to get a foothold in the U.S. biomedical and healthcare markets. Department of Defense, and the Wallace H. Coulter Foundation – are valuable in jumpstarting research-based innovations from lab to market, but they unfortunately satisfy a tiny fraction of the demand for capital from biomedical inventors and entrepreneurs. It is too soon to know how helpful the crowdfunding and general-solicitation provisions of the JOBS Act will be because the SEC’s regulations might make compliance too onerous to be practical for most ventures. But as Economics 101 tells us, capital vacuums in promising markets don’t go unfilled for long. Traditional venture-capital firms are being replaced by the venture arms of companies like GE, Johnson & Johnson and Qualcomm looking to seed what might become future acquisitions; “super angels” with keen, educated interests in biomedical opportunities; and institutional and individual foreign investors primarily from Asia looking to get a foothold in the U.S. biomedical and healthcare markets. Capital, however, is necessary but not sufficient to ensure commercial success. Execution is more important. A well-funded, brilliant idea that is poorly executed usually equates to failure, while a not-as-well funded, more mundane idea that is well-executed has a reasonable chance of success.

The importance of combining promising ideas with effective execution underlies the growing popularity of biomedical and healthcare incubators and accelerators. Generally speaking, incubators are the entrepreneurs by identifying market opportunities, raising capital, developing innovations from research ideas to commercialgrade products, and launching ventures to commercialize the developed products. Examples of incubators include The Foundry in Palo Alto, Incept in Boston, my own Greenwings Biomedical in Los Angeles, and the just-announced collaboration between Children’s Hospital of Philadelphia and Osage University Partners. Incubator projects typically involve biomedical devices based on strong scientific research that will require a few years of discovery, product development and validation. The intellectual property is licensed from research institutions like universities, is from independent inventors or is conceived internally. Capital comes from either the incubator’s balance sheet or third-party investors. For instance, The Foundry has close working relationships with venture-capital firms Split Rock Ventures and Morgenthaler Ventures. An incubator’s “magic sauce” is its highly talented, experienced and motivated team working hands-on across a handful of active projects, each supplemented by specialized scientific and engineering professionals.

Micro-Cap Review Magazine

Accelerators support up to dozens of new projects every year, each conceived and operated by entrepreneurs looking for modest amounts of seed capital and a few weeks of education, guidance and office space to move their ideas toward working prototypes. Typical projects are smartphone apps and enterprise software that do not require much if any scientific research. Each venture sinks or swims primarily by the skill of its entrepreneurial team because the accelerators’ crew barely gets involved in execution. Examples of accelerators are StartUpHealth, which recently inked a threeyear collaboration with GE Ventures; Rock Health, which has a relationship with venture-capital firm Kleiner Perkins Caufield & Byers; and Healthbox, launched by venturecapital firm Sandbox Industries. Notwithstanding their differences, incubators and accelerators share the goal of upping the odds of commercial success for biomedical, healthcare and wellness innovation. Richard Koffler is CEO of Greenwings Biomedical, a Los Angeles-based incubator of biomedical ventures. He also chairs LAVA Healthcare, an interest group of the Los Angeles Venture Association, a 29-yearold organization that helps early-stage ventures in Southern California find financing strategies to fuel their growth. n

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F E aT U R E D a R T I c L E

Hong Kong Rebounding to be World’s 3rd Largest IPO Market in 2013

he Hong Kong Stock Exchange (HKSE), once the world’s biggest IPO market by the amount of money raised, has been experiencing a dramatic year of ups and downs.

n BY LESLIE RIcHaRDSON

The year began with high hopes of a bounce back from the low deal volume in 2012 based on forecasts of a revived China economy, strong IPO pipeline and improved market sentiments. The high hopes were dashed as the market turned into the worst performing in Asia and the Hang Seng Index (HIS) fell 16% from May 20 through June 24. However, the HSI made a sharp turnaround from its June 24th low and is currently the beating every market in Asia on signs the Chinese economy is strengthening. The leaders of the pick-up in IPOs for the year were to be China Galaxy Securities Co. (HK: 6881) and Sinopec Engineering (HK: 2386), which raised a total of US$3.6 billion. On May 15th, Beijing-based China Galaxy Securities Co. raised $1.1 billion and was the first deal to cross the billion-dollar mark in Hong Kong for the year. The company hired a record 21 bankers to market its deal and generate strong investor interest. The effort seemed to have paid off as the company soared 11% on its first day of trading. However, investors’ zeal quickly waned and the stock dropped 20.6% to a low of HK$4.02 on September 9th. The stock has

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rebounded to HK$5.39, yet it still trades 4.1% below its IPO price as of September 18. Sinopec Engineering, the refining and petrochemical-engineering unit of Chinese oil giant China Petrochemical Corp and the largest IPO in Hong Kong in the first half of 2013, hired 13 banks to work on its deal yet, was unable to generate the same level of investor enthusiasm as Galaxy. The company which raised US$1.8 billion in its IPO launch on May 23rd closed down 0.4% from its listing price of HK$10.50 in first day of trading and is 7.7% below its IPO price as of September 18. During the 2nd quarter the market started to get really shaky on weak data from China and an indication from the U.S. Federal Reserve that it may phase out quantitative Micro-Cap Review Magazine

Eight companies are seeking to raise US$14 billion from investors in the 4th quarter, more than double the amount raised so far this year. With renewed interest in the IPO market, many listing candidates are recording huge subscriptions from retail investors. easing which softened investors’ appetite for new listings. The week following Sinopec’s IPO, Langham Hospitality Investments Ltd. (HK: 1270) launched its IPO in Hong Kong raising $548 million. The company closed 9.2% below the HK$5.00 IPO price on its first day of trading giving the company the dubious honor of staging the worst debut for an IPO bigger than $500 million globally this year, according to Dealogic data. Prior to that, the record was held by another Hong Kong-listed company, Chinalco Mining Corp. International (HK: 3668), a copper-mining unit of Aluminum Corp. of Chinalco, which raised US$397 million in January and fell as much as 11.4% on its debut. Furthermore, hotel casino operator Macau Legend Development Ltd (HK: 1680) had to slash its July 4th offering to US$360 million after increasing it from US$600 to US$780 million amid increasing market concerns. The company intends to use the funds for property redevelopment as the Macau’s gaming industry is experiencing record growth. In 2012, gaming revenues reached a record US$38 billion, surpassing the entire U.S. gaming market of US$35.6 billion. As the market recovery was losing steam and investors became weary of IPOs, several companies moved to postponed their listings. Mando China Holdings was the first company in 2013 to postpone its US$270 million IPO citing adverse market conditions. A few weeks later, Hopewell Hong Kong Properties announced its decision to postpone its IPO stating market weakness.

The company planned to set its price on June 12th but was unable to generate enough demand for the transaction. Hopewell Hong Kong Properties Ltd is a unit of Hopewell Holdings Ltd and intended to raise up to US$780 million for new property development in Hong Kong’s market. New World Development Co. (0017.HK) cancelled its plans to raise up to US$1 billion through a hotel trust listing in an offering set for June 24th and US- based, Nexteer Automotive was forced to postpone its listing to raise up to HK$325 million which was set to be priced on June 26. In total, nearly US$1.8 billion worth of listings were postponed in June. However, investors’ appetite for IPO’s did not retreat for long as China’s economy is beginning to strengthen and Hong Kong remains the best place to put money to work in China. Eight companies are seeking to raise US$14 billion from investors in the 4th quarter, more than double the amount raised so far this year. With renewed interest in the IPO market, many listing candidates are recording huge subscriptions from retail investors. Food and beverage maker, Tenwow International Holdings Ltd’s (HKG: 1219), which raised $202 million in its initial public offering, was oversubscribed 55 times making it the most well-received IPO in four months. International Houseware Retail Co. which operates the Japan Home Center stores in Hong Kong and other Asian countries, raised US$78 million after shares in the retail allotment were more than 100 times oversubscribed. CT Environmental

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Group finished its IPO book building on September 17th attracting HK$490 million worth of orders from retail investors, for an oversubscription of six times. Other highprofile deals for the rest of the year include China Huishan Dairy Holdings Co., which is expected to raise up to US$1.3 billion in September while state-owned China Cinda Asset Management Co. is expected to raise around $2 billion in November. Nexteer Automotive Group Ltd has also indicated plans to kick off its listing plan again, raising about $251.46 million. In total, 80 companies are expected to raise up to HK $150 billion this year in Hong Kong, which will make it the world’s third largest initial public offering market in 2013. As for the most widely speculated IPO of the year, it is increasingly unlikely that Chinese e-commerce giant Alibaba will make a 4th quarter listing as it is running out of time to meet the 2013 submission deadline. It was hoped that Alibaba would be the largest IPO of the year raising up $15 billion on an estimated value between US$60 - $100 billion. Currently, Alibaba is lobbying the Hong Kong exchange and local regulators to allow it to keep the partnership structure despite the fact that the market has previously resisted the efforts of companies to treat any shareholders differently. If the parties can’t reach an agreement, there is the possibility that founder Jack Ma may decide to take the IPO to New York which would be a major hit to Hong Kong’s reputation as a global financial hub capable of attracting the world’s largest companies. n

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F E aT U R E D a R T I c L E

Silver – Gold – Palladium - Platinum: Will You End with Physical Reality or Fiat Fiction?

ntil a few years ago, investors who wanted to buy physical metals looked to the futures market to determine the “correct” price for gold and silver.

n BY DaVID MORGaN,

They saw the spot or cash price, which closely reflected what they could expect to pay, plus an additional, fairly predictable premium. During the 2008 global financial meltdown, which took virtually every asset class on a near-vertical ride toward the bottom, this relationship became sorely tested. Silver’s quoted ‘paper price’ low that year was around $9, yet someone who wished to actually purchase the metal was hard-pressed to find it for less than $12-$15 per ounce for any retail product. Indeed silver could be taken off the exchange in thousand ounce bar form, but the average investor was stuck paying huge premiums. In time, this paper-physical pricing relationship returned to a more normal bias – until the spring of 2013. On Friday April 12 and Monday April 15, gold and silver dropped through technical support levels of around $1550 and $26 respectively. Gold cratered to around $1,325 and silver declined into the $22 area. The best guess so far is that a combination of hedge fund liquidation, central bank-inspired selling, and brokerage house margin calls precipitated the event.

THE SILVER GURU

Micro-Cap Review Magazine

where IS The golD? More ominous is the possibility – some say likelihood - that the collapse got underway because very large bullion houses and banks simply did not have the physical metal on hand to meet the demands of customers, who just naturally assumed their metal was indeed available to them, should they decide to take delivery. When Germany requested repatriation of a portion of its gold, supposedly being held for them by the U.S. Federal Reserve, and were told it would be returned to them

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– within about 7 years - we can be excused for wondering just how much physical metal really backs the contractual agreements customers have with other central banks, commercial banks and brokerage houses. In the case of gold, the recent decline was shocking to market participants, but in the context of retracements, it seems so far – even if we see gold and silver drop below the April panic lows – to be along the scale of a second major correction in a gold bull market which has been rising for an almost unprecedented 12 consecutive years! What took place next, on a global basis, was a spontaneous, virtual run by investors to acquire physical gold and silver. Dealers in locations as diverse as China, India, Viet Nam, Great Britain, Australia, Canada and the U.S. reported ‘lines around the block’ as individuals tried to buy any and all available supplies. The U.S. Mint reported record sales of American Silver and Gold Eagles, coming on the back of three previous monthly order records for Silver Eagles – now averaging well over 3 million per month (April U.S. Mint sales of Silver eagles exceeded 4 million, with Gold Eagles selling 3 times faster than last year’s pace.) Central governments around the globe keep pumping out paper currency (a.k.a. ‘money’) with reckless abandon. They rightly fear rising gold and silver prices, because these historic sources of real money are true barometers indicating the health or lack thereof of a country’s currency. But now, much more so than in the 2008 meltdown – the Cat is Out of the Bag. By attempting to drag down the ‘paper price’ of the metals, and thereby discredit their value in the eyes of the public, market manipulators have instead literally ripped the lid off the Pandora’s Box of ills which fiscal mismanagement, asset bubbles, deficit spending and

naked short-selling have unleashed upon hapless citizens. Many theories abound on “why” the selloff occurred and one prime theme could be to discredit gold and silver (the ultimate monies) from safe haven status. Since the fundamentals have only strengthened since the 2008 financial crisis the psychological warfare of making gold and silver seem risky may indeed be the main motive.

Cypress has Crossed a Financial Rubicon

and silver weighed heavily on mining stocks as well. But then mining shares – from the best and most profitable producers, to pie in the sky exploration plays - had already been declining for almost two years. So now this group, in comparison to the metals’ price, is trading at over two standard deviations from the norm – a mathematic improbability of around 97%.

Gold (Silver and Palladium) are for Saving Jim “Mr. Gold” Sinclair had this to say:

Now Cypress has decided to dismantle depositors’ accounts in excess of 100,000 Euros – reportedly converting 37.5% of balances into Class A shares, with 22.5% held for possible future conversions, and another 30% “temporarily” frozen and held as a deposit. Sprott Asset’s David Franklin notes, “A financial Rubicon has (thus) been crossed”. Of course this could not happen in other European countries, Canada, or even the U.S., right? When asked this very question, Federal Reserve Chairman Ben Bernanke responded that it would be “extremely unlikely”. So… do you feel lucky today? It looks like a new paradigm is being formed. All of us will have to learn a few different rules in order to succeed moving forward. But it’s looking like a safe bet that owning physical metals, plus holding profitable producers, is going to be a requirement for those who hope to protect a portion of their wealth from the corrosive effects of inflation (hidden taxation), not to mention outright theft by banking and other financial interests. The recent paper price collapse in gold

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“Gold is for saving. Gold producers with low cost and low overhead are the only holders of the new supply of physical gold. The price of gold will not only reach our original target of $3,500, but it will greatly exceed that level as the fires that are burning in the financial world turn now into an inferno, but physical gold will allow you to survive the massive blaze and financial destruction.” Given that silver movement demonstrates a 90% + correlation to the price direction of gold…what do you think is likely to happen to the price of silver – not to mention those who produce it – going forward? Yes, when, not if that extension moves back toward the norm, well-run producers (and shareholders) are going to profit handsomely. The chart below illustrates beautifully just how disconnected the price of mining shares have become from their normal price relationship to the underlying price of the metals themselves. This spread could certainly widen a bit more. But when the share price of the most profitable and growing producers – especially in the junior and royalty/ streamer space - starts reverting from this historic extreme, you can be sure that the transition will be unexpected, violent…and long-lasting. People from all walks of life, from ‘average Joes’ to high net worth individuals, and now retirement and hedge fund managers, are coming to understand what others across Micro-Cap Review Magazine

resent unfinished transactions. Currency was invented to make the movement of wealth less hazardous and the storage of wealth more convenient and secure… it is critical to remember that currencies are not wealth, but simply a mechanism for the exchange of goods and services in the present…”

cultures and time periods for thousands of years have felt at a visceral level. Gold and silver have enduring value, which unlike paper currency, can never decline to zero. The supply of precious metal – also unlike paper currency – will always be finite. History teaches us that when metal and paper collide - as they are now doing - paper always loses.

2013 Will be the Transition Year for the Precious Metals I said at the beginning of 2013 that this would be the transition year for the precious metals. What’s taken place during the last few months supports this view and adds clarity for those who closely follow world events. This sea change– which again I’ve written and spoken about on many occasions since the very beginning of the current precious metals bull market – is now fully underway. The transition is simply this…the physical market is taking center stage, making the paper price of metals less relevant in the marketplace as the days, weeks and months go by.

Buyers around the globe are asking these questions: “What difference does a quoted paper price make if I cannot buy physical metal at that price? What good is having a precious metals account, if when I try to claim my gold and

Micro-Cap Review Magazine

silver, I am instead given a paper currency check? If I cannot see and touch my metals holdings - even in supposedly “allocated” accounts, is that metal even really there?” If your goal is to position yourself in order to take maximum advantage of what I believe is going to become the most outstanding opportunity we will see during this entire bull-run, then I humbly suggest that you give serious consideration to becoming a subscriber to The Morgan Report. You will have immediate access to our Silver-Investor. com site with its deep layers of content-rich information designed to help you make the most of your time and capital. Our analysis and portfolio suggestions are second to none in the industry. So – if you really want to have your best shot at ending the precious metals bull-run at the head of the class – then sign up before this historic profitpotential train pulls away from the station.

You do – so far – have a Choice Those who came before us made their choice, and now it’s time for you to decide. Hold some gold, silver and now, palladium and platinum (what the early Spaniards called ‘little silver’) in your hand and see if you don’t feel the historic connection that generations before us have known. As I have taught over the years, and as Robert Fitzwilson cogently remarks:

Whereas paper currency only has ‘utility’ – it can be exchanged for goods and services, precious metals serve the same function, but, in and of themselves also hold intrinsic value - the ability to be used in other ways, such as for industrial/medical applications, held as jewelry, etc. You can see where we’ve been. You know where we are. And by now you’ve probably got a pretty good idea as to where we’re headed. If that’s the case, then…

Are you going to hold onto physical reality…or settle for fiat fiction?

PS: The current environment for purchasing mining shares is beyond extraordinary, yet most investors will not buy this bottom. This is truly unfortunate, because the opportunity for significant gains are best when you are willing to buy low. At the same time, so is your relative risk! The Morgan Report (TMR) is now offering a 30 day Trial for new subscribers to our Basic Plus Service. All that is required is to opt into our free email list at the bottom of the website. See www.Silver-Investor.com David Morgan,The Silver Guru, is Editor of The Morgan Report: Money, Metals and Mining. He presents frequently at conferences in North America, Europe and Asia, and is a regular on financial talk shows across the U.S. and Canada. You can learn more about his services at http://www.silverinvestor.com/ and follow his perspective and teachings at http://www.youtube.com/user/ silverguru n

“The reality of currencies is that they rep

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cOMMODITY cORNER

Do You Know Beans About (Soy)beans? I

n our previous article we introduced the commodity markets. Moving forward we will discuss more specific educational topics about commodities and futures. This article discusses some of the fundamentals of the soybean market. According to the USDA, processed soybeans are the largest source of animal protein feed in the world and the second largest source in the world for vegetable oil.1 An estimated 90% of oilseeds produced in the U.S. are soybeans. The remaining 10% include cottonseed, sunflowerseed, canola, rapeseed and peanuts. Soybeans are only second to corn as the most planted field crop in the U.S. As Midwest farmers tend to produce a higher soybean yield and lower cash cost than

n BY MaRk SHORE

Micro-Cap Review Magazine

Southern or Eastern farmers, over 80% of soybean production occurs in the upper Midwest of the United States. Soybean futures contracts are one of the most liquid of the commodity futures markets. Soybean futures were introduced in 1936. The soybean complex (soybean meal and soybean oil) was introduced as futures contracts in the 1950s.2 There are seven standard expiration months for soybean futures; January, March, May, July, August, September, November. Soybean meal and soybean oil futures contracts also include the months of October and December. The full size contracts are 5,000 bushels per contract. The CME Group also trades mini-sized contracts of 1,000 bushels per contract. Soybeans are priced at cents per bushel. Soybean meal is priced at dollars per short ton. Soybean oil is quoted at cents per pound. Two major pricing factors of soybeans are

exporting and weather. As noted in Table 1, the United States is one of the largest producers and exporters of soybeans. They are planted and grown annually. Because of the annual planting farmers may be more flexible to increase or decrease their plantings based on current levels of supply and demand. There is a tendency for farmers to plant more when the price is high and plant less when the price is low. As noted in Chart 1, the U.S. was the leading exporter of soybeans with 94% of the market share in 1984. Soybean meal and soybean oil at 48% and 35% respectively. As the volume of production and exports has increased since 1984, the U.S. global export market share has decreased. As of 2009 soybean, soybean meal and soybean oil were 43%, 16% and 12% respectively of market share. The two primary factors reducing the U.S. export market share3: 1) Increase of foreign

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Table 1: Top Five Soybean Producing, Exporting and Importing Countries Ranked by Production

1000 Metric Tons

Ranked by Exporting

1000 Metric Tons

Ranked by Importing

1000 Metric Tons

United States 92,261

Brazil

41,500

China

69,000

Brazil

85,000

United States

39,463

EU-27

12,100

Argentina

54,500

Argentina

12,000

Mexico

3,550

China

12,000

Paraguay

5,000

Japan

2,760

India

12,000

Canada

3,200

Taiwan

2,500

Source: http://www.pecad.fas.usda.gov/cropexplorer/cropview/commodityView.aspx?cropid=2222000 As of 5/24/13

soybean production. Specifically Brazil and Argentina have become the largest competitors to the U.S. soybean market due to a lower acreage cost, decreasing marketing and transportation costs and eliminating or reducing the soybean export tax. The depreciation of the Argentina Peso assists soybeans to be less expensive for importing countries to purchase. (For more discussion of the relationship of commodities to

currencies see Currencies in your Future Portfolio? ). 2) Increase exports of U.S. meat products caused a higher domestic utilization of soybean meal for feed, thus reducing the supply available for export. In the United States, soybeans are planted in the spring, grown in the summer and harvested in the fall. Too much rain in the spring could impede the ability to plant due

Chart 1: U.S. Soybean Export Market Share since 1980.

Source: http://www.ers.usda.gov/topics/crops/soybeans-oil-crops/trade.aspx#US www.stocknewsnow.com • www.snnwire.com • www.microcapreview.com

to fields flooding. Not enough rain during the summer could cause drought-like conditions. Either case may cause a decrease of supply at harvest time. The summer months tend to experience price volatility as production uncertainty increases and weather patterns change. These factors also increase the market’s probability for quick “spike” moves. Commercials (hedgers) and speculators may hedge the volatility by going long or short soybean futures contracts. The market tends to be less volatile once the harvest is known until the next planting season the following spring. The soybean complex allows for spreading between soybeans, soybean meal and soybean oil. A common processing spread is the crush spread. This involves being long (buy) soybean futures and short (sold) soybean meal futures and soybean oil futures simultaneously. A processor will utilize this spread to hedge the future purchase price of soybeans and the future sale of the soybean products of meal and oil. “Crushing” is the conversion process of soybeans into soybean byproducts of oil and meal. The crushing process will convert a 60 pound bushel of soybeans into about 11 pounds of soybean oil and 44 pounds of soybean meal.4 There is an old adage “beans in the teens”. Historically when the soybean market rallies, a move above $10 per bushel was considered a large move. As seen in Chart 2, the market tested $10 a few times prior to 2005. The summer of 1988 the U.S. experienced a drought summer and pushed the beans into the teens. Since 2011 soybeans have averaged in the lower to mid teen price range. The increasing wealth of emerging nations is a major factor for sustained soybean prices. As nations become wealthier they tend to increase their consumption of meat, thus increasing the demand for cooking oils such as soybean oil and soybeans for feed. China is a well known example of an emerging nation’s increased wealth and increased consumption of commodities. A Micro-Cap Review Magazine

Chart 2: 25 Years of Monthly Nearest Futures Prices as of May 24, 2013

Source: www.barchart.com

lesser discussed country may be Mexico. The North American Free Trade Agreement (NAFTA) caused Mexico to eliminate their soybean and canola tariff by 2003 and reform their agricultural policies. This lead to the U.S. supplying most of Mexico’s soybean imports.5 Every commodity market has its specific players and natural nuances. The more someone understands the background, foundation and details of a market, the greater the ability to understand the personality and

profile of a market and what impact that may have going forward. (Endnotes) 1 http://www.ers.usda.gov/topics/crops/soybeansoil-crops.aspx#.UZ-j7NjfKSo 2 Self Study Guide to Hedging with Grain and Oilseed Futures and Options. CME Group P.4 3 Schnepf, R Dolman, E. and Bolling, C, (2001) Agriculture in Brazil and Argentina: Developments and Prospects for Major Field Crops, USDA Chapter 5 4 Chicago Board of Trade Soybean Crush Reference Guide (2006) 5 http://www.ers.usda.gov/topics/crops/soybeansoil-crops/trade.aspx#US

MEXICO’S NEXT SIGNIFICANT PRIMARY SILVER DEPOSIT

Copyright ©2013 Mark Shore. Contact the author for permission for republication at info@shorecapmgmt.com Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. His research is found at www.shorecapmgmt.com Mr. Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business where he teaches a graduate level managed futures/ global macro course and a frequent speaker at alternative investment events. He is a contributing writer for the Eurex Exchange, Reuters HedgeWorld, and the CBOE Futures Exchange. Prior to founding Shore Capital, Mr. Shore was Head of Risk for Octane Research Inc ($1.1 billion AUM) in NYC, where he was responsible for quantitative risk management analysis and due diligence of Fund of Funds. He chaired the Risk Management Committee and was a voting member of the Investment Committee. Prior to joining Octane, he was the Chief Operating Officer of VK Capital Inc, a wholly owned Commodity Trading Advisor unit ($250 million AUM) of Morgan Stanley. Mr. Shore provided research and risk management expertise on portfolio construction, product development and business strategy. Mr. Shore graduated from DePaul University with a degree in Finance. He received his MBA from the University of Chicago. Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions. n

add a shine to your portfolio 74

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o subscribe A company could have the greatest management, money in the bank, disruptive technology, a deep portfolio of IP, huge resources, sizable orders, a potential cure for a disease, huge potential with high expectations but if investors don’t know about it, they won’t care, and they won’t buy it or invest in the company. In fact awareness & visibility needs to be in place before the rubber meets the road and should begin early in the process of funding. Achieving funding is the most important job naturally but then the company needs to get its story out there into the market. The Jobs Act and its adjustments to rules & regulations change general solicitation methods and give private & public companies more freedom to advertise and solicit investor interest. Many consider this Act the most crucial securities law change since the 1933 & 1934 Acts. President Obama said the Jobs Act will “remove barriers for small businesses and will lead to job creation. New businesses account for almost every new job created in America,” the President spoke during the signing ceremony in the Rose Garden of the White House and added, “That’s why I pushed for this bill. The JOBS Act (Jumpstart Our Business Startups Act) removes restrictions for small business and startups to receive broader access to capital and investors. It’s for business owners who want to take their company to the next level; it’s a potential game-changer for startups. The above paragraph was included because our President used terms we are all familiar with like “startups” and “small business” and “access to capital” and “remove barriers”. SNN is dedicated to provide access to our institutional and investor database and subscribers through our products and services. The Jobs Act provides access for investors to small private and public companies, which I coin as the new “Entrance Strategy”. SNN Market Awareness and Investor Visibility begin with the entrance strategy and provide investors an ultimate “Exit Strategy”. SNN is the next step financial publishing, media, content, database and infotainment company providing reach and frequency to the exact target market for funding and market awareness. Subscribe to Ask Mr. WallStreet at info@snnwire.com place AMWS in the subject

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P R O F I L E D c O M Pa N Y

a comic book for rare Diseases

omic books have always been a great way for transmitting knowledge to children, as well as helping them to develop their imagination and excitement about reading. The charitable Swiss Foundation Orphanbiotec uses this channel and created a comic book specifically for children, explaining rare diseases through fun adventures, lively friendships, and educational and warm hearted content.

Taking a new aPProach Foundation Orphanbiotec is in its final phase of completing their latest project – the first children’s book on the market about multiple rare diseases. Through storytelling of 11 different diseases, the illustrated book “Special Like You and Me” builds a bridge between the available knowledge on this topic with the understanding of and for children. Millions of children and families suffer from the consequences of rare diseases and are too often left alone and isolated with their own thoughts and fears. The book will give children and other readers the feeling of trust, understanding and bonding.

n BY DR. FRaNk GROSSMaN

Micro-Cap Review Magazine

eleven Diseases exPlaineD The story, written by Orphanbiotec’s Founder and Director, Dr. Frank Grossmann, explores all diseases in pictorial language and explanatory texts. Each animal characterizes and represents a disease and explains its symptoms in a colorful and child-friendly manner. While the aim is to improve the visibility of orphan diseases, “Special Like You and Me” also facilitates easier access to this topic for children and should go towards creating acceptance in society. The book will be available first in three languages throughout Europe, North and South America and even India. After the editions in German, English and Spanish, additional languages (French, Japanese, Italian) will follow.

a founDaTion wiTh hearT Zurich-based Foundation Orphanbiotec was founded in 2009 and takes a stand for the development of orphan drugs, spreads information to affected people and key players and creates a unique network of mobilized patients and key stakeholders. The goal of the international non-profit organization is to fill the gap between costly research and the relatively small number of patients

spread across 7000 rare diseases. Through fundraising this goal can be reached and the sustainable business model of Orphanbiotec can continue to develop – a business model for which the Foundation was awarded 1st prize with the Swiss Social Entrepreneurship Start-Up Award in 2011 and received a partner nomination for the prestigious De Vigier Award in 2013.

how To suPPorT The comic book for rare Diseases In order to realize the comic book’s first edition language, USD 40,000 are needed for the final funding. This amount includes all of the production costs and allows the distribution of the book at a very low price ensuring families from all around the world are able to afford it. Any sponsor interested in supporting the next step of this project, which consists of further translations, the distribution and the extended number of printed copies, can become a donor and get in touch with the Foundation Orphanbiotec anytime at: foundation@orphanbiotec.com n

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New BD Formations & BD Withdrawal Summary 15 July 2013, as of 30 June

compiled by DAVID ALSUP

June: 9 New Formations… and 15* Withdrawals. (The three-‐year average is now 12.3 New Formations and 24.5↓* Closures per month.) NOTE: New Private Placement Formations are now net Positive! 9 New Firms were admitted. •

FIVE Firms admitted will trade equities. TWO firms admitted are Private Placement Firms.

• • •

ONE firm is a Mutual Fund Sponsor. ONE firm is "Other"

•

• EIGHT firms trading EQUITIES closed. (Net loss of three equities firms) • ONE Institutional equities firm closed. • FOUR Private Placement firms also went out of business. (Net LOSS of TWO Private Placement firms) • ELEVEN firms had less than 6 reps. • ONE firm was involved in a CONSOLIDATION.

(ONE is a Real Estate Issuer)

12 10 8 6 4 2 0

Pvt Placements Mut F, Variables Other

Apr May Jun

EquiRes

Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May June

This 15 month chart shows the types of firms admitted.

12 Mo Total of New Firms:

113

12 Mo Total Shuttered:

264

firms↓

The ratio of NEW formations vs. BDW's is now 42%, and the average net loss is about firms↓ 13 firms per month.

12 Mo Net Loss:

151

2012 127 New firms vs: 304 Withdrawals Net Loss: 177. 2011 173 New firms vs: 319 Withdrawals. Net loss: 146. 2010: 177 New firms vs: 325 Withdrawals. Net Loss: 148. (36 month total is 887 withdrawals) NOTE: There are now about 2100 firms currently with Clearing Arrangements. (vs.3029 in 2006.) 40 30 20 10 0

EquiRes Clearing Mut F, Variables

Other Pvt Placement

Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May June

This 15 Month BDW Chart shows the types of firms that are closing.

There are 4315 FINRA Member firm CRD Numbers as of June 30, 2013. (Note: There are some bankrupt firms still carried in CRD, such as Lehman Bros, & MF Global.) The above data has been sourced from regulatory agencies publications' and statistics, along with some independent third parties. While it is believed to be reliable there can be no guarantee of the accuracy of the data. The numbers have been cross-checked for accuracy, and they should be within plus/minus two percent. For example, there are as many as 10 firms NOT included in these statistics and NOT reported that filed for a BDW prior to March, 2013. David Alsup 949-468-0111 david@fishbowlstrategies.com

A Detailed analysis (or Customized) is available by Subscription.

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F E aT U R E D a R T I c L E

How to Use the New General Solicitation Rule for Private Placements to Raise Capital

he Securities and Exchange Commission (“SEC”) has finally adopted Rule 506(c) of Regulation D, which is the regulation used by most companies, both private and public, for Private Placement Offerings. Rule 506(c) repeals the absolute ban on general solicitation in private securities offerings. So mark your calendar for effective September 23, 2013, companies will be able to use general solici-

n BY MITcH GOLDSMITH,

caMILLa MERRIck, aND NaNcY caSS

Micro-Cap Review Magazine

tation and advertising to offer their securities in private placements to investors, subject to the limitations set forth in the rule. Certain specifics cannot be overlooked, such as the requirements that all purchasers must be Accredited Investors and the issuer company must document that it has taken reasonable steps to verify the investors’ accredited status. The significance of the lifting of this ban cannot be overstated. In effect, the SEC has created an entirely new form of public offering not subject to registration under the Securities Act of 1933. Although offerings made under Rule 506(c) are technically considered a private placement, by lifting the ban on general solicitation and advertising, companies now can widely advertise their 506(c) securities offerings across all kinds of media – on television, in newspapers, and, most importantly, over the internet. Proponents believe Rule 506(c) will make it easier for companies to raise money since they can contact a broader range and larger pool of investors. In this article, we take a closer look at what the new Rule 506(c) means for securities offerings and, more specifically, what companies need to consider when deciding whether to proceed under Rule 506(c), the steps for complying with the rule and opportunities afforded for advertising.

comPly wiTh The rule As noted above, there are two important

requirements for a company to take advantage of Rule 506(c). First, companies may only use the general solicitation afforded by Rule 506(c) when selling securities to accredited investors. This does not mean that companies must have actual knowledge that an investor is accredited. Rather, the company, after taking reasonable steps to verify accredited investor status (see below), must have a reasonable belief that the investor is accredited. Second, companies also must take reasonable steps to verify that purchasers are accredited investors. Whether the steps taken by the company to verify the investor’s accredited status are “reasonable,” will be determined based on the facts and circumstances of each sale. Importantly, companies may no longer rely on investor representations in subscription documents, so having the investor simply check a box in an investor questionnaire is no longer sufficient.

whaT are “reasonable sTePs” The SEC has been unwilling at this time to articulate exactly what constitute “reasonable steps” to verify an investors’ accredited status, but noted in its adopting release various methods for verifying investor status, including a so-called “principle based” method and four other non-exclusive methods. Under the “principle based” method, companies should consider, among others, the

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nature of the purchaser, the nature and scope of information the company has about the purchaser and the nature of the offering. The extent of the investigation required to verify the purchasers’ status will depend on these factors. For example, if the purchaser is able to meet a high minimum investment threshold and the company confirms that the purchase is being made in cash and not financed by a third-party, that may be sufficient in and of itself to satisfy the company that the investor is accredited. Likewise, if the company has access to publicly available information on the purchaser in regulatory filings, such as a proxy filing disclosing the investor’s salary, that also may be sufficient. On the other hand, if the company solicits investors through a newspaper advertisement or through a widely disseminated email, the company should take additional steps to verify accredited investor status. The SEC intends for the four non-exclusive methods to provide greater certainty for companies that they satisfy the verification requirement. These are specific verification methods of natural persons and include the income test, the net worth test, third party confirmation and existing investor certification. Under the income test, companies may rely on certain IRS forms reporting income along with a written representation from the investor that he or she has reasonable expectations of reaching the income level necessary to qualify as accredited investor during the current year. Under the net worth test, companies may rely on certain documents disclosing assets and liabilities. These documents include any of the following – for assets – bank statements, brokerage statements and other statements of securities holdings, certificates of deposits, tax assessments and appraisal reports by independent third parties – and for liabilities – a consumer report and a written report from the investor that all liabilities necessary to make a determination of net worth have been disclosed. With respect to third party confirmations, companies may rely on written confirmations from certain third parties such

as registered broker-dealers, SEC-registered investment advisers or licensed attorneys that such party has taken reasonable steps verifying that the purchaser’s accredited investor status and determined that such purchasers is an accredited investor. Lastly, in certain limited circumstances, an already existing investor of the company may satisfy the verification requirement by certifying that he or she is an accredited investor at the time of the sale. Regardless of which method(s) a company uses, the company must be able to demonstrate that its offering qualifies for the Rule 506(c) exemption. Therefore, companies conducting 506(c) offerings should retain adequate records of the steps taken to verify the investors’ accredited status. These records should be easily accessible and stored in a secure place.

Know your team--Bad Actor Disqualification. To reduce the risk of fraud, the SEC also adopted the bad actor disqualification for Rule 506(c) offerings. In most cases, the bad actor disqualifier will preclude companies from relying on Rule 506(c) if the company or other relevant persons assisting the company (such as underwriters, placement agents, directors, officers, control persons and significant shareholders of the company) have been convicted of, or sanctioned for, securities fraud or other violations of certain specified laws. Such disqualifying events include criminal convictions related to issuance or sale of securities, court injunctions and restraining orders related to securities, commodities or other financial regulation violations, certain SEC disciplinary, cease and desist and stop orders; suspension or expulsion from membership in a self-regulatory organization and US Postal Service false representation orders. The loss of exemption only applies to events occurring after September 23, 2013, the effective date of the rule. However, a company must furnish to each purchaser, prior to sale, a

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disclosure in writing of any matters that would have triggered disqualification, but pre-dated the rule’s effective date. Failure to provide such written notice may cause the company to lose the availability of the Rule 506(c) exemption. Accordingly, a company contemplating conducting a 506(c) offering will need to know and should have paperwork on the background of these persons. A third party background check as well as a questionnaire can easily address this requirement.

Keep up with SEC Rulemaking It is not only important that companies selling securities in reliance upon the 506(c) conditions comply with these requirements, but also that they also keep up with the SEC’s proposed rules. A securities attorney or FINRA broker-dealer will assist the company with sorting through proposed rules applicable to your company and staying compliant over the long term. When the SEC lifted the ban on the general solicitation prohibition, it proposed several additional rules that, if adopted, may greatly impact Rule 506(c) offerings. Accordingly, expect changes and fine tuning of the rules. These proposed rules include concepts such as advance filing and updating of Form D, penalties for failure to file form D and general solicitation materials requirements. In light of the investor protection concerns raised in connection with general solicitation, the SEC will likely adopt these proposed rules in the near future. One such proposed rule would require companies intending to engage in general solicitation to pre-file an initial Form D at least 15 days in advance of commencing a Rule 506(c) offering. Subsequently, the company would have to amend the pre-filed Form D within 15 days of the first sale of securities. Not only is the SEC proposing pre-filing of Form D, but until the company files an amendment to the Form D terminating the offering, the offering would be deemed ongoing and the company would be Micro-Cap Review Magazine

subject to certain continuous filing obligations. While failure to comply with these filing requirements (subject to a 30-day cure period) would not disqualify the company from claiming a Rule 506 exemption for that offering, the proposed rule provides that such failure would disqualify the company from claiming a Rule 506 exemption in any new offering for a period of five years. This is a far reaching penalty compared to the costs of compliance. Further, while the SEC did not adopt any rules governing the content and manner of advertising and solicitation for 506(c) offerings at this time, it has proposed a rule that would require companies to include certain legends and other disclosures in the written general solicitation materials and require companies to submit their general solicitation materials to the SEC. These legends are intended to better inform potential investors as to whether they are qualified to participate in the offering, provide information about the type of offering conducted and disclose certain risks associated with the offering. Similar to the penalties for failure to file Form D as required, the failure to comply with the legend requirement would not preclude the company from relying on the 506(c) exemption in the current offering, but the company could be disqualified from relying on Rule 506 in subsequent offerings. Again, including your bankers and attorneys in the offering process to ensure your compliance is a logical step given the potential far reaching penalty. Even when working with a good media outlet, reasonable compliance efforts are essential to limiting the company’s liability exposure. In addition to keeping up with SEC proposed rules, you should be mindful of other existing and proposed federal and state securities laws, and FINRA regulations. Companies conducting 506(c) offerings are still subject to the securities laws’ antifraud rules and, therefore, their general solicitation materials cannot contain any misrepresentation of any material fact. Further, companies have an obligation to furnish any material

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information that may be necessary to make any information, given or required under the securities laws, not misleading. Companies should fully and fairly disclose all material terms and risks. Companies targeting high net worth investors often provide private placement memorandums prepared by legal counsel. Further, companies and brokerdealers will need to be mindful of blue sky issues in connection with advertising the 506(c) offering. Advertising 506(c) offerings may trigger blue sky notice filings requirements for companies and state registration requirements for broker-dealers. Also, FINRA now requests copies of all documents provided to investors in connection with the capital raising process if a commission is paid to anyone licensed. FINRA expects to release guidelines related to 506(c) this fall. Because of special issues that may arise for public companies conducting private placement, we strongly recommend that they seek legal counsel prior to commencing and advertising a private placement.

Media and Expanded Market Options Companies will now be able to advertise in print, over the internet and using other previously-prohibited methods of solicitation. However, the means through which the company solicits purchasers may be relevant when determining the reasonableness of the steps taken to verify accredited investor status. For example, a website posting to an unscreened audience may have to undertake more steps to verify that the investors are accredited. Existing financial publishers and platforms are already adding programs to address this and assist companies in their offering. Further, the internet has dramatically expanded companies’ ability to reach international markets and thereby increased their ability to raise capital. Companies that solicit and sell to international investors must be prepared to comply with foreign securities laws.

Get in the game Rule 506(c) presents companies with an unprecedented opportunity to raise new capital by soliciting a broader range and larger pool of investors. However, Rule 506(c) also introduces new and additional compliance requirements and burdens on companies. Although it is a truly landmark opportunity created by Rule 506(c), a compliance failure could easily torpedo any great company and management team. Further, the SEC’s additional proposed rules currently under consideration are complex and evolving. Your best bet is to seek advice from experts in the securities field to guide you through a securities offering. So get in the game, but know the rules! Mitch Goldsmith is a shareholder with Shefsky & Froelich Ltd. and advises numerous issuers domestically and abroad in a broad array of industries with respect to their private offering and general corporate activities. Camilla Merrick is an associate with Shefsky & Froelich Ltd. and counsels domestic and foreign clients on securities offerings, securities regulation and general corporate matters. Nancy Cass is a co-founder of MerchantCass Advisors, LLC an investment banking and global business advisory firm headquartered outside of Atlanta, Georgia. MerchantCass acts as a financial advisor, placement agent and global strategic partner for its clients. Ms. Cass is also an experienced securities attorney licensed in multiple jurisdictions. MerchantCass executes securities transactions through StillPoint Capital, Member FINRA/SPIC. Mitchell D. Goldsmith, Esq., Shareholder Shefsky & Froelich Ltd. 111 East Wacker Drive Suite 2800 Chicago, IL 60601 Telephone: 312-836-4006 Mobile: 312-320-4657 E-Mail: mgoldsmith@shefskylaw.com Camilla Rykke Merrick, Esq., Associate Shefsky & Froelich Ltd. 111 East Wacker Drive Suite 2800 Chicago, IL 60601 Telephone: 312-836-4041 E-Mail: cmerrick@shefskylaw.com Nancy Cass, Esq. MerchantCass Advisors www.merchantcass.com Telephone: 561-889-5210 E-Mail: ncass@merchantcass.com n

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F E aT U R E D a R T I c L E

What I’m Buying T

o me, investing in micro-cap companies is a lot like playing poker. You win some hands, you lose some hands, and sometimes, you bet big. My approach is similar.

n BY cHRIS LaHIJI

I’ll buy small positions in a lot of companies. For the sake of this article, let’s call them “gambles”. That is why, like most gamblers, I am practically broke :-) We then track them. Closely. The ones that ultimately pass the “sniff ” test go on to become “core” holdings. Here are a couple new positions I have recently purchased for my own accounts. Paid Inc (PAYD): We met management at the B. Riley conference and were impressed by the fact that they have cut costs significantly in their existing business, which focuses on music promotion. The one thing we really find interesting is their patent portfolio. Basically, any online retailer that sells things over the Internet is infringing. Yes, its a very broad patent, but one that can be worth more than the current market cap of the company. We have been involved in many patent plays over the years. The one thing we have learned is either you make a lot, or lose it all. It is worth a look, and the CEO of the company is the largest shareholder. He also bought most of his shares at a much higher valuation – from my understanding, at around .30 cents a share. I like guys that put their money where their mouth is. Our average cost has been approximately .10 Mad Catz (MCZ): This is a company we have owned from time to time over the years. They are based out of San Diego, California and focus on providing accessories for the

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“gaming” market. In this case, video games. What is truly unique to us is the ten-year chart of the company. It has a “rolling” effect that becomes very easy to notice. If you delve in a little bit closer, you’ll notice that the chart correlates with the releases of new gaming consoles. In the next year or so, the Sony Playstation, Microsoft XBOX, and Nintendo are going to be launching their latest and greatest equipment. When that happens, consumers need to purchase new accessories for them. Hence, Mad Catz (MCZ). As of now, we look at it as more of a trade than anything else, but the company is improving its balance sheet, reducing debt, and increasing gross margins. I own shares around .50 cents and do not play video games anymore. Right now, the market is frothy. We expect a correction and a return to reality. Stay cautious and be intelligent about your investment choices whatever they may be. Above all, remember this line by Gary Player. “The more I practice, the luckier I get.” LD Micro researches and invests in companies most traditional investors wouldn’t. That makes us, for a lack of a better word, crazy. LD Micro is pleased to announce its sixth annual conference on December 3rd, 4th, and 5th, 2013. For more information, please go to www.ldmicro.com. n

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F E aT U R E D a R T I c L E

EDGAR AGENTS

Who’s Your Edgar Agent? T

he best way to acquire experienced personnel, minus the large salaries, is to hire an outsourcing company to handle certain jobs. Many agree that outsourcing your XBRL and Edgar jobs to seasoned professionals will give you the best results and industry perspective at a much lower rate than an in-house alternative. However, finding the right partner to take care of your Edgar and XBRL filings is not an easy feat. Below are some tips to consider when searching for an Edgar/XBRL filer. The cost of Edgar/XBRL conversions has been quoted at an annual rate of about $4,000 to $100,000, higher in some cases, but shopping around, comparing prices, and most importantly, comparing filing strategies could result in some major cost savings, states Bennet P. Tchaikovsky, chief financial officer of VLOV Inc, in his article titled “Take It from This CFO: How to Cut Your Corporate Filing Costs.” Nevertheless, some companies are only interested in filing agents that promote “free” services, but are then blindsighted when asked to sign up and pay for additional features not useful for their cause. Companies should instead consider other alternatives such as discounted yearly contracts that include all the necessary services.

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Companies need an agency that will ensure their documents get filed accurately and on time, while remaining compliant. Long term experience in the financial industry, particularly in Edgar/XBRL filing, guarantees your documents will be SEC compliant because veterans on staff are more likely to spot any red flags while formatting the document. They can, in turn, alert you of any discrepancies should this be the case. Getting the job done accurately, concisely and on time is challenging enough without last minute changes, however last minute changes are inevitable in this industry. To incorporate all edits before pencils down requires creativity and proven strategies that only experienced filers would know how to do. Having at least one senior person managing the department and communicating with clients, while junior professionals work on projects, is ideal for an efficient Edgar/

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Average Cost Savings to Outsource Edgar/XBRL This chart shows the average salary for each position necessary for an in-house Edgar/ XBRL department. Senior Edgar/XBRL Specialist $60,000 Proofreader $40,000 Third party licensing and software support $6,000 Source: Salary.com, dbistaffing.com, and Indeed.com, using New York City as the search location. XBRL department to run properly. This is also the type of staff you would want working for you. One tested and proven strategy is to work simultaneously on both Edgar and XBRL drafts to significantly cut the time it takes to turn projects around. Some filing agencies expect their clients to wait until the Edgar draft has been approved by the auditor before starting with the XBRL version. This method is dated, slow and will cause unnecessary strain on everyone involved during crunch time. It also leaves lots of room for error. Also, take into account that although an agency may have an experienced staff, their company methodology might be outdated and thus counterproductive. Nevertheless, if a filing agency lacks industry experience its quality assurance department might pick up the slack. Therefore, when choosing an Edgar/XBRL partner, be sure to also ask about their quality assurance methods and experience. If an agency has proofreaders fresh out college, chances are their learning curve will work against your time-sensitive needs. A more experienced reviewer is trained to spot details as well as the overall picture. Be aware that not all seasoned proofreaders need to be industry trained either. Many times an experienced reviewer from another industry will bring fresh ideas that improve accuracy and speed. Choosing a filing agent with a staff that is experienced in other fields, such as account-

ing for XBRL, is also a huge advantage. Former accountants familiar with financial statements will know which information to tag in XBRL and can speak knowledgeably with clients about financial statements and SEC mandates. A filer who has an accountant running its XBRL department has an edge over other agencies who typically hire and train someone with no financial background. In addition to XBRL, a knowledgeable staff in every department is extremely advantageous, especially when a client is only paying a fraction of the price it would have cost to hire each professional individually. It is also advantageous to have access to software support on hand should something go awry during heavy filing periods, for instance. Licensing and support alone could run at about $6,000 a year, not to mention additional costs per hiccup. Although it is good to outsource specific jobs for your business, you don’t ever want to hire an Edgar/XBRL provider who doesn’t own every aspect of its filing process. You want a filer that has its own in-house filing agents, reviewers and programmers taking care of your documents. By owning the entire process, a provider has no overhead that will trickle into your final bill and can guarantee specific client requests, like shorter timelines. Regardless, not all filers follow this philosophy and therefore can’t always deliver.

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Also, not all filers can promise 24 hour, seven day a week service, but you should definitely be on the lookout for one that does. Find one that provides all your financial needs such as printing, typesetting and newswires. With these strategies in place, you should be a lot more confident knowing your documents are in good hands. Edgar Agents, LLC. Providing Edgar/XBRL customized filing solutions for SEC compliance since 2002

Edgar Agents, LLC, is a full service SEC filing agent specializing in Edgar,XBRL and typsetting conversions with practical Edgar conversion experience since 1997. The company officially incorporated in 2002 under TP Electronic Filing Services Corp. and sold its assets to Edgar Agents, LLC in 2008. The company has since expanded its portfolio of products and services for the financial industry including financial printing such as: Annual Reports, Proxies and IPOs. Other services include: secure online Section 16 and Form D filings directly with the SEC; and Newswire services. Edgar Agents LLC promulgates and informs it’s clients on the latest SEC guidelines and mandates through high quality customer service and is recognized for accuracy and swift turn-around times, 24 hours a day, seven days a week. n

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P R O F I L E D c O M Pa N Y

marketing healthcare in india & asia The Opportunity, The Challenge, The Answer benchmark healthcare Partners getting your company in the Picture The oPPorTuniTy: For many companies, Asia represents the most significant opportunity for increased revenue and global market share. With Asia’s estimated 4.3 billion inhabitants, even a single distribution channel for your company’s products and services can produce immediate, profound financial implications, as well as a tectonic shift in a company’s growth trajectory. The core engines of the Asian opportunity are India and China. Global rating agency Standard and Poor’s expects India’s economy to grow by 6.5 per cent during 2013, while Credit Suisse recently increased its forecast for China’s 2013 growth from 7.4 to 7.6 percent. Expanding middle classes are a major consequence of this growth. The Indian middle class alone has grown to an excess of 300 million people—comparable to the entire population of the United States. In China, the middle class is an estimated 500 million. An expanding middle class with increasing disposable income usually means a sharp increase in demand for what families often care about most: healthcare. Express Healthcare has reported that the Indian healthcare industry is poised to double from US $60 billion to US $120 bil-

lion by 2015, growing at a 15 percent CAGR. Public spending in the sector is likely to be limited to approximately 20 percent of total annual healthcare spending, meaning that most of the expansion will be propelled by organized private players, such as hospitals. What makes this growth story unprecedented is not just the speed of the growth, but the transformations in allied sectors like pharmaceutical, wellness, medical technology, medical tourism, medical education, and health insurance. These transformations will be fuelled largely by innovation in technology and delivery mechanisms. Similarly, China will spend more on drugs, medical devices and hospital treatments as it lifts healthcare spending to 7 percent of gross domestic product, from 5.5 percent, or $350 billion, in 2010, McKinsey said yesterday.

This will make it the biggest market globally by 2020 after the U.S., which in 2009 spent $2.5 trillion, or 17.6 percent of its GDP, on healthcare, said the consulting company.

The challenge: The appeal of Asia is nothing new: CEOs began saying years ago, “We need to be there.” Unfortunately, the challenge of operating successfully in Asian markets is as significant as the opportunity itself. Determining a reasonable path given limited time and resources is a daunting process. Who do you speak to? What regulations are relevant? How does a company navigate foreign healthcare systems, regulatory bodies and cultures? How do you initiate dialogue when you are unsure who to trust and wheth-

n BY BaRNETT SUSkIND CEO BENCHMARK HEALTHCARE PARTNERS LLC

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er the investments in time, money, and energy will be, in the end, effective at all? After all, companies can spend months and even years trying to navigate these waters, only to find themselves in duplicitous dialogues that finally lead to the water’s edge, where the sea that was promised is found to be dry. Of course, problems are limited to the engagement and execution phases. Even assuming that you are successful in forming a partnership with a distributor or end user, will that partner represent your enterprise in a manner consistent with the ethos of your corporate mission and result in a stable revenue stream? Understandably, these difficulties result in thousands of companies steering clear of these markets and focusing on what they know.

comes out of the experiences I have had bringing my companies to China and to India to expand distribution and enhance revenue. Having spent roughly 5 years working with hospitals in India and working with the most prestigious hospital group in the country, Benchmark personnel have developed relationships and a methodology that allows us to provide your company the opportunity to present your solutions (products, services, technologies, etc.) directly to thought leaders and decision makers. Through our relationships with the largest hospital group in India, and with our additional potential reach into China, Bangladesh, and parts of Africa, we have the ability and leadership to guide you through the regulatory complexities, as well as provide appropriate points of distribution for your products and services.

The Answer: My intimate awareness of this problem is a result of my own experiences and initiatives in China and India over a period of 15+ years. Benchmark Healthcare Partners was created to offer its clients streamlined market penetration, including a sales contract with one of the largest hospital groups and distributors of healthcare and health products in Asia. Benchmark’s mission is to provide solutions that advance the delivery and quality of healthcare to the vast populations in the region. Our reach extends deeply and directly into India, with its 1.2 billion people, and indirectly into markets into China, Bangladesh, and northern Africa. Through our expertise and that of our partners in the hospitals, Benchmark will guide you through any regulatory issues associated with marketing your products or services, and provide direct communication with the decision-makers to expedite the process of positioning your company for revenue. All of this is provided to you at no upfront cost, so that your only risk is the minimal time spent working with us. Sound too good to be true? I can understand that sentiment. But this methodology

The Benchmark process is surprisingly simple: Under strict confidentiality, through information about your products and financials that you provide about your company, Benchmark becomes familiar with your solutions and how they enhance the delivery of healthcare. Typically, we have a conversation with the CEO and/or head of science, etc., to understand any nuance associated with your solutions. Subsequently, and only with your permission, we share this information directly to the appropriate decision-maker. For example, if you make an orthopedic product, we will speak to the heads of the orthopedic department and/or procurement personnel. Assuming that the end-users see a need for this product or an opportunity to improve the delivery of healthcare through your product, and have agreed that this is something they would like to have access to, only then do we agree to represent you and your company. In effect, we have prequalified your offering and have received agreement and assurance that yours is a solution that would be desired by the group and would be anticipated to succeed in the market. In

other words, we have high confidence of your acceptance before you have done anything! Upon your agreement to advance the dialogue, we set up direct meetings with the thought leaders and decision makers. After you have received a favorable response with an indication of intent, Benchmark formalizes our engagement through a contract and set up meetings to guide you through any potential trip to India or the appropriate jurisdiction. At the culmination of the meetings, you can anticipate receiving a Memorandum of Understanding that articulates what to expect in terms of national distribution, placement, sales etc. Within a month or two of the Memorandum of Understanding, a formal contract for distribution and sales will be generated for your company. You have spent nothing (except potentially the cost of some plane tickets), yet you have new market access, developed personal relationships with practitioners, and even received a firm contract for a defined amount of sales. Benchmark is rewarded for its services with a small commission on the sales of your products only after the company has been successful in selling and has received revenues from those sales. By participating in Benchmark’s process, your company is approaching distribution in Asia in the most efficient, economical, and safe way possible, and it is joining the truly inspirational efforts all across the continent to provide the most cutting edge healthcare products and services for millions of those who are gaining access to such care for the first time.

Author’s Bio: Barnett Suskind: 25+ years entrepreneurial experience: Investment Banking: ITF Global Partners Chairman and Managing Partner, Private Equity: The Investors Fund -Managing Partner, Biotech: The Institute for Regenerative Medicine/CEO, Stem Cell Research Therapeutics Inc. Chairman/CEO, GenaCell BioPharma Founder/ CEO, Benchmark Healthcare Partners LLC , CEO email: Barnett@benchmarkHCP.com telephone: 212-618-1374 Main Offices 14 Wall Street, 20th floor New York City, NY 10005 web: www. benchmarkHCP.com

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F E aT U R E D a R T I c L E

Worldwide Stock Transfer How to choose the best Transfer Agent? who is your Transfer agenT? As one of our readers, subscribers, service providers, or a C-Suite public or private company executive, you have most likely had to do business with a transfer agent directly or indirectly. Without transfer agents, the stock market would be chaos. Working with the best transfer agent possible to meet your company’s needs will solve existing problems and prevent future problems for both your company and its investors. What should you look for when choosing a Transfer Agent? How do you choose the right transfer agent for your company? Micro-Cap Publisher, Shelly Kraft, conducts a Q&A with the Worldwide Stock Transfer management team of Jonathan Gellis and Yonah Kopstick. Shelly Kraft (SK): As publisher of the Micro-Cap Review magazine and CEO of SNN Incorporated, I have heard the following questions many times from both public and private company CEOs. What should management look for when hiring a stock transfer agent? Worldwide Stock Transfer (WST): An agent that knows how to provide outstanding customer service. It all starts right there. In a world of instantaneous fulfillment of need, it is important to have response times

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reduced combined with accurate answers and the “personal touch” follow through. Most every company knows who their transfer agent is, if not, it’s a big problem. The company’s Transfer Agent can make life very easy or very difficult for a small microcap public company. The right Transfer Agent can help give guidance to a company issuer and provide them with tools, like online access, custody and escrow services. At WST, our technology provides company access 24/7 with ability to retrieve shareholder information, and flexibility to provide reports for or any amount of needed data, on demand. WST provides DRS/DWAC/ FAST for both companies and shareholders enabling the receipt of shares in the quickest and most efficient way for those companies on the WST system. SK: How does Worldwide Stock Transfer help a company navigate through all the FINRA and SEC rules and compliance issues? WST: Navigating the FINRA and SEC rules are extremely complicated. We have a vast network of securities attorneys, auditors, broker dealers and market makers, which we strategically partner with to help guide clients appropriately. The valuable introductions we make between these service providers and the issuing companies are especially important in helping microcap companies file form 211 and the myriad of other forms

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and applications they are required to file to be regulation compliant. SK: Why do Micro-cap companies have the most difficult time with Transfer Agents? WST: Micro-cap companies are besieged with many different regulatory requirements. We recognize this and have earned our reputation for being a “micro-cap friendly agent.” For example, micro-cap companies often face financial difficulties and are occasionally unable to meet monthly financial obligations. WST cooperates and works with micro-cap clients to ensure the company will not have complications transferring shares or issuing new shares if their account goes briefly into arrears, as long as payment is received within a given quarter. WST recognizes the unique needs of microcap management and understand that a flexible payment structure coupled with expert advice will enable our clients to successfully manage their business. SK: How do your fees compare to those of your competitors? WST: At WST we charge a monthly flat fee. We feel that one of the biggest problems in the stock transfer business is what we call, “the envelope fear factor” - the fear a company gets when the bill arrives from their transfer agent. They fear the variable nature of their monthly charges. WST has established an all inclusive flat rate fee which allows our client’s management team to focus on its core business and not worry about budgeting for unexpected / unknown transfer agency fees. I know it sounds repetitive but I cannot emphasize this enough, a micro cap company’s business relationship with their transfer agent should not be difficult, stressful or a cost leader. SK: How can you afford to provide a flat fee while others charge a la carte? WST: Our flat free pricing model is based on building a long-term relationship with each individual issuer we service. Our business model aims to simplify company payments to WST and maintain them as a client for many years. We are willing to sacrifice the short-term profitability an a la carte model

might provide in exchange for building a long lasting, mutually successful, multi- year or even multi- decade client relationship. In our opinion, this philosophy is crucial to maintaining customer loyalty. It is our experience that most issuer companies, especially micro-cap companies, struggle with unexpected costs. While our short –term profitability might suffer as a result of our more affordable fee structure, a viable long-term client is more valuable to us. SK: Please tell me more about DTC eligible and DTC ineligible stocks. WST: This is a new phenomenon in the Transfer and Clearing service industry. Over the last few years, Depository Trust Company, DTC, has defined different classes of companies: those DTC eligible and DTC ineligible. Majority of public companies are eligible for DTC Processing upon submitting their application. At times, DTC will take an eligible issuer and deem them “chilled” for certificate deposits and withdraws, thereby making it DTC ineligible. These chills have created a huge headache for companies and investors, with a new requirement that paper certificates be delivered from broker to broker in order to settle trades. This can cause long delays in settlements and inhibit investments into the company. In order to rectify the ineligibility, an issuer will rely on the Transfer Agent and their record keeping to work with DTC to remediate the chill. In the mean time, WST will process all transfers directly with the brokers and bypass DTC. WST will receive the issuer’s shares and work diligently to process them as quickly as possible so the issuer and brokers realize no negative effects from the DTC ineligibility. WST responds in a timely manner to turn all transactions around the same day in order to prevent any negative impact on the client. SK: What do I have to do to move my transfer business to WST? WST: That’s the easy part and can be done in three simple steps: 1. Get a board resolution approving the move. 2. Terminate present agreement with the

current agent. That means paying any outstanding balance and usually a small termination fee 3. Sign a contract with WST. This can usually be accomplished within 10 days. SK: When is the best time to begin working with WST if I am a private company going public? WST: The best time to engage WST is before you begin issuing shares. Establishing a system for accurate record keeping and shareholder database will prevent difficulties at a later date and properly provide the issuer with an organized system to track shareholders. WST offers new clients large discounts during the time the company is private and considering going public, making it affordable for any micro-cap company to engage WST while still private. Worldwide Stock Transfer is located in Hackensack NJ and has a great reputation for being Micro-cap friendly. For more information please contact their offices at info@wwstr.com n

V I E W P O I N T S n BY Jack Leslie

Ombudsman What does this act mean to the Brokerage community? Initial concerns about advertising and the elimination of FINRA approval has been met with mixed feelings. All too often the barn door is closed after the horses escape. In an attempt to make raising capital easier, the inmates may actually be running the asylum. An idea was initiated twenty years ago. It was called a SCOR (Small Company Offering Registration) registration. The SCOR concept resulted in very few entities actually completing the initial process of registration and even fewer raised the needed capital. Ultimately, various issues arose which made the registration less attractive. Basically the idea was to help small companies raise capital without using a Broker Dealer although they could use one if necessary. The capital maximum raise limitation limit was $1,000,000 dollars per annum. The State of Washington however had a registration requirement in the state. It is always recommended to contact each state of interest for their current requirements. Washington State was active in assisting small companies to understand the uses of SCOR. For small companies there were many advantages to seeking registration of a securities offering through a SCOR registration. Firstly, the SCOR registration was designed to minimize costs for small businesses seeking to raise capital through a securities offering. The question and answer disclosure document utilized in a SCOR offering was designed so that it may be completed without the expertise of securities attorneys and accountants. The form is electronic and easily reproduced on an office copier and is used as a prospectus for soliciting investors. A SCOR registration can be done as a Regulation D 504 or Regulation A filing. A Regulation 506 can be done for amounts larger than the limitation $1,000,000 of the Regulation D 504. Investors in a Regulation D 506 are limited to 35 unaccredited as compared to the SCOR which accredited or non-accredited investors may invest. Although an Issuer can use classified ads placed in media or use promotional shares and sell the offering themselves, the success rate has not been good. The Internet is a permitted medium to sell a “DPO” (Direct Public Offering). I raise this point to bring additional awareness because the Jobs Act does have limitations as to whom they can sell to and how much anyone can purchase of the offering. Regardless of Federal legal provisions or SCOR provisions, anyone can purchase the offering and there is no a limit per person. The main issue with either offering is the individual state regulatory restrictions of whom Issuers are soliciting their offering for sale in. The state regulators can halt the offering and will if their rules are violated. An Issuer should engage a reliable Broker Dealer, and agree to a fee, to make certain the offering is appropriate. Additionally, outside due diligence would be advised. An Issuer may save money short term but lose out in the end if the hired attorney is not familiar with individual state rules and regulations in the market sought by the offering entity. The “look before you leap” phrase is good advice. Do your homework before you proceed to take the offering process too far. In an uncertain environment the costs to raise capital may end up creating indigence for the company. Use common sense and determine how much you need to raise and the most appropriate path to take. n

hat will the Jobs Act do

to credible members of the financial industry?

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A Global Leader in Stock Transfer Services WST is a Full Service “FAST” (DRS & DWAC) Stock Transfer Agent that Oﬀers Competitive Flat Fee Pricing & Personalized Customer Service Worldwide Stock Transfer, LLC 433 Hackensack Avenue – Level L Hackensack, NJ 07601 Website www.wwstr.com Phone 201.820.2008 Fax 201.820.2010

INSURaNcE

Thorson insurance services inTro As insurance rates continue to increase across a broad spectrum of coverages, comprehensive and continuous risk assessments provide invaluable insights that help corporate executives design sound business strategies. Instead of simply making insurance rate projections for the coming year, this article will examine some of the causes for these rate increases, as well as demonstrate how a proper risk assessment can help develop proactive solutions to mitigate the rising cost of insurance.

raTe increases you care abouT Directors & Officers (D&O)– An increase in claims due to regulatory activity and investigations coupled with inadequate loss reserves amongst insurers has resulted in a rise in price for this coverage with the biggest in Professional and Financial Service companies. A pricing survey conducted by the National Alliance for Insurance Education and Research revealed an average 5% rate increase from March to June while some companies experienced as much as a 15% increase for their D&O coverage. Professional E&O/Cyber Liability- Driven primarily by an increase in frequency and severity of claims, rates began trending upward in 2013. Rates for both lines are up 5% for the year and are expected to continue to soar in the fourth quarter. Property & Casualty – The recent abundance of natural disasters and the severity of them exemplified by Superstorm Sandy has left insurers with a large bill. Substantial losses this year are forcing underwriters to seek rate increases in regions they traditionally

would not consider as catastrophe-exposed. Insurers have also been altering their definitions of covered losses in property policies. Workers Compensation— Large commercial states such as California, New York, New Jersey, Connecticut, Pennsylvania and Florida have undergone at least a 4% rate hike for the second consecutive year. A sizable kick considering work comp usually makes up a rather large portion of a company’s overall insurance expense.

a 360o view of risk Each company requires a bespoke portfolio of coverages based on a multitude of factors. For that reason, a comprehensive risk assessment should be executed to determine the efficiency of a company’s insurance portfolio and risk management strategy. In the most basic terms, a risk assessment should feature the following: • An examination of historical, existing and expected risk exposures • A review of all current insurance coverages and risk management strategies to determine if they are best suited for a com-

n BY MILES J. THORSON

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pany’s size, liquidity and risk appetite • An evaluation of all standard market options and solutions that achieve maximum cost and coverage efficiency • A recommendation of any pertinent specialty programs or alternative risk transfer options with the potential for even greater cost and coverage efficiency Unfortunately, some brokerages and carriers divide this process amongst different departments and specialists. While a team of experts is undoubtedly necessary to deliver an exceptional service, it is imperative that one insurance professional manage this entire process. This way, the overall vision of a successful risk management strategy remains intact without being corrupted by other, self-interested parties. Risk assessments are an essential insurance service and should be conducted frequently. Gaps in coverage or excessive insurance premiums are usually a result of neglect, not incompetence. The process allows both insurer and insured to be on the same page and gives everyone an opportunity to proactively address any issues.

SOLUTIONS THAT MAKE A DIFFERENCE Once a thorough risk assessment has been completed, a tangible and quantifiable plan should be implemented. As mentioned before, this plan should provide a tailored solution to fit a company’s financial goals, growth plans and core needs. A huge area of concern for many businesses right now is D&O for example. In today’s heightened regulatory climate, it is essential that clients have coverage that extends to expenses incurred during investigations from regulatory agencies like the SEC or even internal investigations. Having an insurance expert with access to unique or alternative solutions will also bring value to a business by more completely addressing their insurance needs with a full suite of industry-leading products. Every successful business should at least be made

aware of the potential for risk transfer and coverage solutions through non-standard insurance vehicles such as captives and specialty programs. These solutions allow a business to take advantage of tax shelters or even lay off particular risks. Sometimes the loss experience of the market is not reflective of your company’s which means that you shouldn’t be forced to pay a rate increase despite a good claims history. An experienced insurance professional will offer expertise and guidance on these additional opportunities that exist in order to deliver pricing and coverage that make sense for your business. Continuous services that compliment your company’s new insurance structure are also important to its efficiency and performance. One of the biggest costs a business faces today is the rate of their worker’s compensation coverage. The right insurance expert can keep this from getting out of hand. Frequent risk management services like implementing proper employee safety guidelines and effective claims handling are vital to a company. Managing the experience modification of a company is a time consuming service yet necessary because it directly affects their coverage rate. Oddly enough, there are plenty of brokers out there that do not adequately provide these services despite their importance. The only way to truly deliver the right insurance structure and the highest level of

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service is for an insurance expert to have the extensive industry relationships, expertise in creating comprehensive solutions and new insurance products, and quality partnerships. Be sure to partner with an insurance expert that has these attributes. The business climate is incredibly competitive in today’s world. Make your insurance program be a valuable asset of security and protection for your business and not just an expense.

ABOUT THORSON Thorson Insurance Services is a nationwide insurance brokerage and program manager. Established in 1984 by David C. Thorson, our company has gone on to build an impeccably curated collection of products and services for a discerning clientele. At Thorson, we believe in doing the right thing. We achieve this by empowering our network of friends, contacts, and partners so that they can make confident insurance decisions. We frequently combine the diverse experience and knowledge existing within our network to create successful products and services. By collaborating with individuals that share the same goals, ideas, interests and values we are able to consistently deliver a unique client experience. n

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