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quarTer 2 • 2012


mbleUpon Digg (16) Shoreline Energy



Capital Markets Visibility (18) Clean Wind Energy Tower (40) The Jobs Act by David Weild (42) Technorati DecisionPoint Systems (47) LinkedIn @StockNewsNow (52) The Perfect Storm for Micro-Cap Stocks (56) CommerceTel Mobivity (60) Internal Fixation Systems (77) ERF Wireless (82)


Exploration, Development and Production of Petroleum and Natural Gas

CALGARY Suite 400, 209 - 8th Ave SW Calgary, AB T2P 1B8

Phone: (403) 767-9066

TORONTO Suite 103, 145 King Street W Toronto, ON M5H 1J8

Ticker Symbol: SEQ.TO

E D I T o R I A L Follow us: @StockNewsNow SNN Incorporated Micro-Cap Review 4766 Admiralty Way #13004 Marina del Rey, CA 90295 PUBLISHER Sheldon Kraft, SNN Founder, CEO, Chairman Wesley Ramjeet, SNN CFO EXECUTIVE EDITOR Lynda Lou Kane Kraft, SNN President ASIAN PACIFIC CORRESPONDENT Leslie Richardson WRITERS Lance Jon Kimmel Lynne Bolduc, Esq. Holmes H. Stoner Jr. Leslie Richardson Sheldon “Shelly” Kraft Dr. Gordon Chiu Erik S. Nelson Peter Baxter

Micchael S. “Mickey” Fulp David Weild David Alsup Mark Shore Michael A. Berry Ph.D. Tom Opsahl Lynda Lou Kane Kraft Brett Goetschius



et’s face it for micro-cap companies it all comes down to getting funded. It is no secret a micro-cap company cannot exist or grow without Do Re Mi as they say. Both public and private companies are in the same boat. Until the revenue stream from sales begin to cover expenses and provide excess capital for growth, microcap companies need to rely on capital sourcing to develop the company into a profitable business. Over the last several years raising money has been a struggle for most microcap companies and during this time many companies have either stagnated, lost their value or have fallen off investors minds and screens. IPOs were making a comeback until the Facebook debacle. Success stories have been fewer and harder to find. There is a direct correlation between unfunded microcap companies and the huge high unemployment numbers in the United States. “Street” veterans see the depletion and unwillingness of venture capital money to venture their capital into startups has led to a defeatist attitude within the micro-cap funding world. The costs of raising money by brokers dealers has risen, micro-cap funding is smaller in numbers and slower in happening, company valuations have fallen, regulation has risen, public listings from IPOs have steadily been reduced and FINRA member broker dealer numbers are shrinking while cash is sitting on the sidelines. We knew there had to be a light at the end of the tunnel as small business has been in need of financial stimulation for years and

even the mid to large cap companies have been cutting costs by reducing work forces to survive as banks continue to sit on capital which they refuse to lend. Ladies and gentlemen, just when you think the U.S. micro-cap stock market is going to hell in a hand basket, both Congress and President Obama come through big! President Obama signed the Jobs Bill in law and is now the Jobs Act! The Jobs Act had bi-partisan political approval and could save small business, public and private, in this country, unanimously, we sure hope so. I cannot say enough positive things about this event and history will remember this great achievement of President Obama and I am ready to call this the “Obama Financial Act of 2012”. Within this issue of the Micro-Cap Review we bring to you, our readers, new information on the Jobs Act, Crowd Funding, global micro-cap markets, FOREX, and micro-cap market commentary. The new influence and changes within the micro-cap markets are monumental and in fact some believe are the most significant since the 1933 & 1934 Acts. As always SNN Incorporated management thanks you for your support to our websites and www., and our newly launched corporate website and please support our advertisers, visit their websites and contact any micro-cap CEO directly with your questions or for more information. n

VIDEO EDITOR-PRODUCTION ASSISTANT Sammi K. Kraft MARKETING CONSULTANT Rolv Heggenhougen Micro-Cap Review Magazine is published Quarterly, Spring, Summer, Fall, Winter POSTMASTER send address Changes to Micro-Cap Review Corporate Offices. ©Copyright 2009 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.

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 before investing view • •

Micro-Cap Review Magazine




Photos: Jack Hartzman






Medical Care



F E AT URED ARTICLES 7 11 12 16 18


28 31

34 38






Raising Capital Under the JOBS Act By Lance Jon Kimmel The Private Offering Super Highway By Lynne Bolduc, Esq. Hidden Opportunities in Hong Kong Micro Caps By Leslie Richardson Shoreline Energy Corp. Capital Markets Visibility Program Drives Investors Engagement for Small-Cap and OTC Companies By Sheldon “Shelly” Kraft Five Basic Items to Consider Before Becoming an Entrepreneur . . . By Dr. Gordon Chiu Crowd Funding and the JOBS Act By Erik S. Nelson Using the OTC QX and Reg 12G to Get Traction with US Retail Investors By Peter Baxter Graphite: The Newest “Next Big Thing” By Michael S. (Mickey) Fulp Silver: The Next 12 Months By David Morgan

Financial Puzzle

SNN StockWord Puzzle

Legal, Tax & Accounting

42 54 56

58 62 64 69

74 80 89 90


The JOBS Act By David Weild “The Best of Both Worlds” Matmown, Inc. The Perfect Storm for Micro-Cap Stocks May Already Be Here! By Sheldon “Shelly” Kraft Sifting Through the Crowdfunding Noise New BD Formations & BD Withdrawal Summary By David Alsup Currencies in Your Future Portfolio? By Mark Shore Are Markets Discounting the Great Debt Deflation? By Michael A. Berry PH.D. JOBS: The On-Ramp to Capital Formation By Tom Opsahl It’s ALL About the Show and it Sizzles . . . By Lynda Lou Kane Kraft Don’t Buy Business Equipment LEASE IT Emerging Growth Capital Rebounds from 2011 Lows By Brett Goetschius

Profiled Companies

Pacific Rim Chamber of Commerce and American International Business Council Report

The Compliance Corner By Russell C. Weigel, III


Clean Wind Energy Tower, Inc.

Financial Books


DecisionPoint Systems

Caveat Emptor or Buyer Beware Written by Sheldon “Shelly” Kraft



CommerceTel Mobivity



DM Roth

Ombudsman By Jack Leslie


Internal Fixation Systems

Comic Strip


ERF Wireless Inc.



WallStreet Chicken - Episode 6 • •

Micro-Cap Review Magazine


No Boring Lawyers

OSWALD & YAP Award Winning Business Lawyers

Specializing in Micro-Cap Companies for Over 25 Years Contact Lynne Bolduc 16148 Sand Canyon Avenue Irvine, CA 92618 Telephone: (949) 788-8900 Fax: (949) 788-8980 E-mail: 6 Micro-Cap Review Magazine • •


Raising Capital Under the JOBS Act The Good, the Bad and the Ugly


uch has already been written – and the SEC has yet even to propose regulations – on the impact the JOBS Act will have on growth companies for years to come. Some of the changes are long overdue, some may not be all they are heralded to be and some may be of far less utility than first assumed. Let’s start with the good news. The much-needed relaxation of the prohibition against general solicitation and advertising in private offerings with all accredited investor purchasers is nothing short of revolutionary. It is one of the biggest and most helpful changes since the advent of Regulation D itself over 30 years ago. The SEC has long taken the position that accredited investors do not need specified disclosure, as long as they receive complete and accurate disclosure just like any investor must always receive, because they can fend for themselves. That being the case, what is the harm if companies reach out to such investors more broadly than through the arbitrary – and often abused – notion of a “pre-existing relationship”. Congress now says there is no harm and, once the SEC

n BY Lance Jon Kimmel

proposes and adopts appropriate rules, this artifice will finally fall away. While it is too soon to tell what the SEC rules here will look like, although the SEC has only been given 90 days from enactment to adopt new rules. One can imagine on-line and in-person road shows to pre-screened accredited investors who are neither previously known to the company nor introduced through the auspices of the company’s placement agent – if they can find one. In fact, if the company has the wherewithal to put together some introductory road shows and the ramp-up advertising to fill a room, they might be able to do offerings without even the services of a placement agent. That might not be all bad news to FINRA member firms, because the overall risk, regulatory burden and cost to them of doing business is sufficiently high these days that FINRA member firms often won’t even consider raises of less than $5 million. Now, a company may be able to undertake the offering itself, with the right advisors of course. Remember: the ability to solicit and advertise addresses only the issue of how a company raising capital learns of these potential high net worth and/or high income investors. It does not take the place of needing a proper business plan, PPM or whatever disclosure materials are going to still be needed to make sure that all material information is conveyed to the investors under the antifraud provisions of the securities laws. The bad news belongs to the cool new kid on the block, crowdfunding. Crowdfunding is probably one of the most controversial • •

features of the JOBS Act. For one thing, the entire concept is very new and is the great unknown of how this aspect of social media translates as a practical matter into a financing mechanism, irrespective of the technical rules. There are too few data points to know if this is even a viable way to raise money, and yet we are marching headlong into the Social Financing 2.0 of affinity raises, which themselves have had a very uncertain success rate. For another thing, crowdfunding is going to take place on the opposite end of the spectrum from those using general solicitation and advertising – that is, among the least sophisticated potential investors. Relaxing decades of rules certainly sends a deregulatory message, and very small pre-revenue start-ups may especially feel that crowdfunding will give them a fighting chance at getting some financing going, if even angels pass on their deals or they just don’t have traditional friends and family investors. But is this the right message for a part of the public that is perhaps less sophisticated (therefore, more vulnerable) in assessing risky ventures; perhaps has fewer assets that can be staked and lost on an illiquid security if the venture does not turn out well; and perhaps has a lower income level to make back a lost investment. In uncertain times, could this be a lottery of hoping to pick the next Microsoft or Facebook? It’s bad enough to run with the pack in high school, but do we want to provide an environment where some could run with the pack simply because an eager investment novice sees that Micro-Cap Review Magazine


someone in social media says that an investment is “hot” or a “sure thing” or that it has been “liked” to death? There are also going to be some significant practical limitations on the utility of crowdfunding, some of which are in the JOBS Act and some of which will await new SEC regulations, which are due to be adopted within 270 days following enactment of the JOBS Act. For one thing, the capital raise may not be as inexpensive as one might think. The limit that can be raised through crowdfunding is $1 million in a 12-month period. If the company is raising more than $100,000, it will need to provide tax returns; if it is raising more than $500,000, it will need to provide audited financial statements. Offering materials will still needed, as the concept of “full and fair disclosure” remains inviolate, whether it is through general solicitation to unknown accredited investors or flash-mailing your 1,000 BFFs. The offering must take place through a broker or a crowdfunding web site, which itself will have to be registered with the SEC. There are significant limits on the amount or percentage of income or net worth that an investor can invest in such an offering if their annual income or net worth is under $100,000, which likely means searching for many very small investors in a small deal. There are mandatory annual reporting obligations to investors, which such reports to be filed with the SEC. Relative to the amount that is likely to be raised, the transactional costs of a crowdfunding raise may be quite high. So the ugly in all of this would have to be Regulation A. If ever there was a set of SEC rules that didn’t get respect, it would have to be much maligned Reg A. It predates Reg D, but never was easy to use. Reg D, especially for accredited investor (Rule 506) offerings, was much more user-friendly, especially once NSMIA treated 506 securities as “covered” securities and therefore outside the reach of state-level blue sky laws and administrators. Meanwhile, pure Reg A offerings still had to go through state clearance. There was also the dollar limit. Who really needed Reg A and

its $5 million limit when Rule 506 gave an unlimited dollar amount that could be raised? But Reg A offered something that Reg D never has and still cannot offer – a path to being public. Reg A securities are tradable, not that as a practical matter they historically have been due to limited volume and a narrow shareholder base. But that is why Reg A offerings are reviewed by the SEC – because you get a trading security out of the deal. However, with the dollar limitation and state blue sky burden, Reg A was of little practical use, because who would go public with not more than a $5 million raise? Reverse mergers and simultaneously raises seemed to put the nail in the coffin for Reg A long ago, if Rule 506 hadn’t already done that. The JOBS Act may – and I emphasize may – change this. For one thing, the Reg A limit has been raised to a very respectable $50 million in a 12-month period. Most emerging growth companies would be thrilled to raise $50 million in an IPO. At a $50 million level, it is certainly possible to attract investment bankers on a “best efforts” basis. A Reg A offering does not have the perceived negatives of a reverse merger, in part because a Reg A offering goes through SEC review (unlike the typical reverse merger and super 8-K), but does so in a process that is substantially more streamlined than an S-1. However, unless the security is going to trade on a national securities exchange or is sold to a qualified purchaser, the blue sky burden is still present in a Reg A offering. But it’s present in one form or another for other public financings for OTCBB companies, so that concern could be a wash. Similarly, issuers will have to provide audited financial statements annually after the raise and may be required by SEC rules to file other periodic reports, but that is also no different from what smaller reporting companies do right now. Will Reg A find acceptance among the investment banking community as an alternative way to go public? Informal polling shows that the jury is still very much out. And they may stay out for a while, because there is no time limit provided in the JOBS


Micro-Cap Review Magazine

Act for the SEC to adopt implementing rules. With the heavy SEC calendar of rulemaking they are already facing (in some cases, they are still doing Dodd-Frank rulemaking), it could be a while before we see the rules that might give new life to Reg A. But imagine a world one day where an emerging growth company raises its startup money through crowdfunding, advances to broadly advertised private offerings to accredited investors and finally raises $50 million in a Reg A public offering. Now the hard work comes to see if we can get there. Lance Jon Kimmel is the founding and managing partner of SEC Law Firm, which represents growth companies around the globe and the regulated professionals who serve them. Mr. Kimmel’s practice focuses on public and private securities offerings, SEC reporting, corporate governance, mergers and acquisitions, representation of companies before the SEC and stock exchanges, and SRO compliance for investment bankers and other service providers. He handles capital raising at every level, from seed capital to initial public offerings, from reverse mergers to PIPEs, from equity credit lines to bank credit facilities. Mr. Kimmel is actively involved in alternative public offering strategies, including reverse mergers for domestic and Chinese companies in the United States, and working with private and public companies going public or dual listing internationally on the AIM in the U.K., the TSX in Canada and the Frankfurt Stock Exchange. His clients reflect the spectrum of 21st century business, from manufacturing to medical devices, from biotechnology to green technology, from financial services to the entertainment industry, from real estate to consumer goods. As one of the most frequently quoted securities attorneys in America, Mr. Kimmel has contributed his insights to NPR Marketplace, Dow Jones, Sky Radio, the Los Angeles Times and Bloomberg Forum, among other mainstream and financial broadcast and print media around the world. Mr. Kimmel has written numerous articles and speaks often on current legal issues in the corporate finance and corporate governance arenas in the U.S., the U.K. and China. He co-chairs the Growth Capital Conference in Los Angeles, serves on the Securities Regulation Committee of the American Bar Association, served as a national coordinator of the SEC’s Small Business Forum and has given testimony to the SEC’s Advisory Committee on Smaller Public Companies on reform proposals to ease the burdens of the Sarbanes-Oxley Act for smaller reporting companies. n SEC Law Firm 11693 San Vicente Boulevard, Suite 357 Los Angeles, California 90049 Tel: (310) 557-3059 Fax: (310) 388-1320 email: • •

Ticker Symbol: HASC

15928 Midway Road, Addison, TX 75001 214 302 0930 |

Mobility Solutions to Meet the Needs of Today’s Seniors, Veterans and Disabled. Hasco Medical is a publicly-traded mobility consolidator designed to meet the unique transportation needs of seniors, veterans and disabled persons. Since 1986, Hasco Medical subsidiary companies have been leaders in the mobility industry and have dramatically improved the quality of living for our customers. Business Lines Wheelchair Accessible Vehicle Sales Accessible Vehicle Conversions Accessible Vehicle and Taxi Rental Services Vehicle Service and Maintenance Scooters and Home Mobility Products Best in Class Service 24/7 17 Convenient Locations Hasco Medical is the proud provider of accessible taxis to medallion holders in New York City and Philadelphia. Learn more about our innovative family of companies at

We proudly serve our country’s veterans.

Subsidiary Companies

Certified Medical Systems II

Proud distributor of


The Private Offering Super Highway T

he most commonly used exemption from registration with the United States Securities and Exchange Commission (SEC) for an offering of securities is Rule 506 of Regulation D of the Securities Act of 1933 (“Rule 506”). Rule 506 allows a company to raise an unlimited amount of money from an unlimited number of accredited and up to 35 non-accredited investors. A disclosure document, usually known as a Private Placement Memorandum (PPM), must be used disclosing all of the material information about the company and the offering. Historically, a company was not allowed to conduct a general solicitation or advertise a private offering, rather, the company principals and any broker/dealers making the offering could only approach individuals with whom they had a pre-existing, substantive relationship. On April 5, 2012, the Jumpstart Our Business Startups Act (JOBS Act) was passed which, among other things, will allow private offerings to be advertised. This is a radical change in the law which will open wide new channels for companies to raise money. Even better, another piece of the JOBS Act increased the threshold for the requirement for companies to register under the Securities Exchange Act of 1934 and file periodic reports with the SEC (i.e., a reporting company) from 500 shareholders to 2,000 shareholders (as long as the company doesn’t have 500 shareholders who are not accredited investors).


The company must also have more than $10 million in assets, in addition to the 2,000 shareholders, before it is required to become a reporting company. So a private company will now be able to advertise one or more private offerings, raising an unlimited amount of money, from up to 2,000 accredited investors before having to worry about the expense and time burdens of becoming a reporting company. While we do not yet know what the final rules for advertising a private offering will be exactly, it is a virtual certainty that you will be able to advertise your private offering using the following mediums: • Traditional print media (newspapers, magazines, etc.); • Internet (company website, digital print media websites, etc.); and • Social media (Facebook, Linkedin, etc.). A company is only permitted to advertise its private offering if the company is offering its securities exclusively to qualified institutional buyers and accredited investors. A qualified institutional buyer is a financial institution that owns and invests at least $100 million in securities of other companies. In general, accredited investors are individuals with: An individual net worth or joint net worth with their spouse in excess of $1 million (excluding primary residence); or An individual income of more than • •

$200,000 in each of the two most recent years with the reasonable expectation of the same in the current year or joint income with a spouse in excess of $300,000 in each of the two most recent years with the reasonable expectation of the same in the current year. Rule 506 offerings will continue to enjoy the luxury of no SEC review, no state securities regulator scrutiny, and the ability to make the offering in all 50 states and only to have file notice filings with the SEC and the states of residence of each investor 15 calendar days after a sale is made. Note that the new advertising allowances will not apply to private offerings exempt pursuant to Rule 504 (up to $1,000,000 every 12 months) or Rule 505 (up to $5,000,000). The final rules are required to be enacted by Independence Day (isn’t that ironic), but the SEC could ask for an extension of time to enact the final rules. Companies and their professional service providers, such as law firms, public relations agencies, etc., should start planning and preparing their advertising now to capitalize on these new allowances to increase their financing sources. The publisher of Micro Cap Review magazine will also be publishing Private Placement Review magazine, both in print and on-line, devoted exclusively to advertising private offerings. n During her 20-year legal career, Lynne Bolduc has structured and implemented over $1 billion in financings. A Partner with Oswald & Yap, Lynne practices corporate and securities law. She represents both private and public companies, as well as investment bankers and broker/dealers. Lynne’s experience includes 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. She is a member of the Board of Directors of the National Investment Banking Association and frequently serves as an expert witness in corporate and securities cases. Lynne is a Contributing Editor to Private Placement Review magazine.

Micro-Cap Review Magazine



Hidden Opportunities in Hong Kong Micro Caps T

hanks to its cultural ties to China and its western approach to capitalism, many investors are looking to the Hong Kong Exchange for tactical additions to their portfolios in order to profit from the economic boom in China and Southeast Asia while lowering their geopolitical risk. Due to Hong Kong’s high level of autonomy from a political perspective and close economic tie with China, investors can find some attractive risk/return profiles for undiscovered micro cap investment opportunities on the exchange. The Hong Kong Exchange (HKEx) has over 1400 companies of which slightly more than 200 companies have a market cap greater than US$2 billion. In other words, approximately 85% of the listed companies have a market cap less than $2 billion. At the end of March 2012, mainland Chinese companies accounted for 58% of the HKEx market capitalization. In comparing large cap

and micro cap Hong Kong stocks, large cap stocks tend to generate revenue regionally or globally, whereas micro caps are more likely to depend on local consumption and have a stronger relationship to the Hong Kong / Southeast Asian economy. As a result of the trend of increased listings in Hong Kong over the past several years, micros cap companies have greatly benefited from investors’ appetite for exposure to China compared to 10 years ago. However, micro cap companies tend to be extremely cyclical in that they perform very well during bull markets but quickly fall out of favor during bear markets. Additional risks associated with investing



Micro-Cap Review Magazine • •

SNN Microcap


salutes the recent


BioMaryland LIFE Prize winners

Sara Sukumar, Ph.D.

James Gammie, M.D.

Cynthia Salorio, Ph.D.

James Galen, Ph.D.

Johns Hopkins University

University of Maryland

Johns Hopkins University

University of Maryland

Developing biomarkers to better predict disease progression and response to therapy for patients with breast cancer.

Developing a mitral valve repair device providing a minimally invasive alternative to open heart surgery.

Developing a noninvasive device to aid patients with hemiplegia (marked by severe motor deficits on one side of the body).

Developing a vaccine against the deadly gastrointestinal disease caused by the Clostridium difficile bacteria.

Co-Director, Breast Cancer Program, Sidney Kimmel Comprehensive Cancer Ctr.

Professor of Surgery Head, Division of Cardiac Surgery

Asst Prof, Dept of Phys Med & Rehab; Pediatric Neuropsych, Kennedy Krieger Inst.

Associate Professor University of Maryland Medical Center

Leading Innovative Faculty Entrepreneurs ..turning RESEARCH into REALITY

in Hong Kong micro caps can include low liquidity, limited trading as well as higher trading costs and hidden fees. Moreover, almost every listed Hong Kong company is controlled by a major shareholder, many with family interests. The Hong Kong Exchange was the world’s largest bourse by market value up until March 2012 when the CME Group took the number one spot emphasizing the competitiveness of the global markets. In response to the increasing global competitiveness, the exchange has launched a three year strategic upgrade plan. Recently, the HKEx launched its new $380 million technology program, Orion, as a move to boost trading speeds and expand its derivative business and, the exchange has implemented the second phase of its trading hours changes for securities and derivatives with the goal of increasing liquidity. Later this year it aims to complete the construction of a new, $1.5 billion data center that will accelerate Hong Kong’s trading. The full upgraded system is scheduled to be rolled out in 2013. The main benchmark for Hong Kong equities is the Hang Seng Index (HSI) while micro caps performance is often measured against the Hang Seng Composite Small Cap Index (HSSI). Year-to-date* the HSI and HSSI are up 14.4% and 10.9%, respectively. Another popular micro cap index is the MSCI Hong Kong Small Cap Index which is up 16.3% year-to-date. The index is a free float-adjusted market cap weighted index designed to measure the performance of small cap equity securities in the bottom 15% of equity market capitalization in Hong Kong. Even though the HSSI tends to underperform the HSI, there are numerous opportunities to find quality micro cap companies that are under represented on the exchange and off the radar of most investors. Mr. Edwin Chen, UBS Small and Mid Cap equity analyst, stated that even though fundamentals may have reached bottom for small and mid cap companies, he remains cautious on their outlook as the recovery in equity performance is expected to take

a bit longer. However, Mr. Chen believes that U.S. export focused small caps may turnaround ahead of their domestic focused peers based on the strengthening U.S. economy. Furthermore, at the end of March UBS held their first Small and Mid Cap Corporate Day. Takeaways included continue high revenue growth through 2012 for a few niche companies that are not dependant on macro trends including Sunny Optical (HKG:2382), a manufacturer and distributor of optical and optical related products and Stelux (HKG:0084) an operator in mass-market watch retail market in Hong Kong. Sunny Optical and Stelux are up 33.9% and 18.3% year-to-date, respectively. Additionally, small cap exporters Man Wah (HKG:1999) and Samson (HKG:0531) have experienced strong new order flows as a result of the improving U.S. economy and are at full capacity until May – July 2012. Samson is up 15.6% year-to-date while Man Wah is down 10.7% year-to-date. More recently, Mr. Chen met with the management team from CPMC (HKG:0906), Sitoy (HKG:1023) and Tangong (HKG:0826) and reported that all companies have optimist growth numbers for 2012. CPMC is up 54.3%, Sitoy is up 18.2% and Tangong is up 48.1% year-to-date. A few other strong performers for the year include Soundwill Holdings (HKG: 0878), an investment company with holdings in five segments of the property market in Hong Kong, which is up 41.6% year-to-date. SITC International (HKG:1308) provides marine transportation and warehouse services in Asia and is up 19.0% year-to-date. The company’s niche focus on Asia is expected to enable the company to record above industry earnings in 2012 as the intra-Asia market is expected to have the strongest growth of all regions. Mr. Brendon Park, fund manager at investment company Goldswell Asset Management, has been investing in micro and small cap companies listed on the Hong Kong exchange since October 1991. Mr. Parks believes there are many opportunities


Micro-Cap Review Magazine

to find hidden gems among small and micro cap companies listed in Hong Kong. Since inception in October 1, 2004 through April 19th 2012, the Goldswell’s Hong Kong Small Cap Value Fund is up 82% after management fees compared to HSI and HSSI which are up 60% and 21%, respectively. The HSSI Total Return Index which including dividends is up 53% over the same period. He attributes the performance of his fund to a heavier weight on industries and stocks that are expected to outperform the market. There are several ETF that track HKEx small caps such as the IQ Small Cap Hong Kong ETF (NYSEARCA: HKK) which seeks to replicate the IQ Hong Kong Small Cap Index, a benchmark that includes about 100 small cap stocks. Year-to-date HKK is down 35.6%. The ETF doesn’t include huge financial institutions or oil companies, but rather smaller companies that may offer up more of a “pure play” on the Hong Kong economy. In January, 2012, iShares MSCI Hong Kong Small Cap Index Fund (NYSE:EWHS) was launched. The fund corresponds to the price and yield performance, before fees and expenses, of the MSCI Hong Kong Small Cap Index and is up 15.4% year-to-date. *Note – year-to-date is from January 1, 2012- May 4, 2012 n • •


Shoreline Energy Corp. The Junior Oil & Gas Company that pays dividends


horeline Energy Corp. Ticker: SEQ on the Toronto Stock Exchange is a junior oil and natural gas exploration and production company located in Calgary, Alberta Canada with its core land and production in the Peace River Arch (“PRA”) in North West Alberta. Of the several hundred junior oil and gas companies in Canada, at least half of which are publicly traded, Shoreline is currently one of the only junior oil and gas company on the TSX paying a sustainable quarterly dividend. Shoreline’s game plan is to acquire oil and gas assets in a perceived weak commodity price environment and weak economic environment when sellers are focused on their balance sheet and not their operations and assets. Three of the five acquisitions Shoreline completed in the PRA, were assets purchased from major producers. In these transactions, Shoreline acquired a working interest in 17 production facilities and is now operator of several of these facilities. For Shoreline to have a working interest in or to be the operator of a processing facility is a huge benefit and one that can be most valuable in

times of weak commodity prices when every penny counts. The benefits to Shoreline from operating its own processing facilities are reduced operating and transportation costs which have a measurable difference to the bottom line. As a result of these five strategic acquisitions, Shoreline owns a majority interest and is the operator of each of its drilling locations and operations.

The 3 key components of why Shoreline is a smart buyer 1. Buy assets with existing positive net cash flow PLUS growth through development opportunities that allow for a balanced 50/50 oil to natural gas mix with long reserve life index. 2. Acquire as much of the needed facilities and infrastructure from the vendor and their partners. 3. Only buy assets and reserves that the team knows, understands and has experience drilling and operating. Given the low natural gas price environment that has persisted since mid 2008, Shoreline has purchased natural gas producing properties at low price metrics (on average less than $30,000 per flowing barrel or equivalent) and uses that production cash flow to pay a dividend and to drill light sweet crude oil wells. On May 1, 2011, the day of Shoreline’s IPO, the Company was produc-


Micro-Cap Review Magazine

ing 750 BOED with just 12% of that being oil, today they are producing approximately 1750 BOED, 25% of that being oil. The company is targeting a 2012 rate of 2180 BOED at 40% oil production mix.

Drilling Shallow drilling of light sweet crude, 1800meter deep vertical oil wells beside deeper 3800meter resource type natural gas wells. Shoreline is drilling into known producing oil pools. When enough vertical wells have been brought on stream to prove up and delineate the reservoir, horizontal wells are drilled to increase the production volumes and rates. On average, a conventional horizontal well will cost twice that of a vertical well, but will produce 4 times as much oil at 4 times the current production rate. A simple economic formula, 2Xcost, 4Xproduction.

Today Shoreline’s current base production and longer than average reserve life index plus • •

fact, a sizeable purchase of 10,000 or 15,000 BOED, provided of course the assets are solid and the transaction is accretive would fit just perfectly into Shoreline’s plan. Going beyond 2012, Shoreline will continue to expand on its light oil drilling program and target a continued 50/50 oil to natural gas mix for the foreseeable future, thereby, never being dependent on anyone commodity,

Commodity Price Cycles and the Shoreline advantage

its exploration land base of 128,000 acres positions Shoreline to be a thriving, growing E&P company that pays a sustainable dividend.

Tomorrow Shoreline Management team are company builders and determined to complete a series of well planned accretive acquisitions that grow the company. Shoreline’s goal is to double production to 5000 BOED then be a 5,000 BOED producer going to 10,000 BOED and beyond. The management team is both capable and primed to grow the Company through strategic acquisitions. In

Alberta is largely a natural gas basin and junior companies are typically very sensitive to natural gas prices. This continued natural gas price weakness has left many companies with a tight balance sheet and they cannot access bank debt or capital markets to fund oil drilling opportunities at a time when oil prices are high and gas prices are low. Natural gas prices were weak from October 2011 through to May 2012, during this time; Shoreline was producing its gas economically, but derived little cash flow from it and had no opportunity to hedge or forward sell during this time. However, crude oil made a high of $109 during this time frame and so Shoreline forward sold 54% of its oil production for 2012 at an average price of $104 per barrel and half that amount for 2013. Now, in July, oil prices have weakened, natural gas prices have increased, Shoreline is forward selling its gas production above its budget forecast pricing. n

The Shoreline Highlights and Features • Consistently paid a quarterly dividend since inception • Opportunistically acquires and consolidates producing assets in weak commodity price environments • Explores for and produces oil and natural gas from a concentrated land base of 128,000 acres in the PRA • Uses conventional horizontal drilling technology to exploit known oil pools • Traded on the Toronto Stock Exchange • Rotation to balance of oil and gas over next year • Innovative and powerful use of physical and financial hedging to increase net cash flow bOperatorship of all major growth projects, allowing for control of timing of capital spent bRecent acquisitions have increased company’s position in a high impact oil resource play where other operators are drilling wells between 200 and 400 barrels of light oil per day. First drilling to occur in Q3 2012, with success potential for 10 to 25 follow up wells bLow risk light oil development opportunities being capitalized in 2012. New wells have initial production between 150 and 300 barrels per day each bStrategy to grow to between 5000 and 15000 BOED in the next 2 to 3 years. Currently evaluating over $300MM in potential acquisitions bSenior Management team has actively explored for, developed and managed between 15,000 and 50,000 BOED in the Peace River arch for much of the past two decades * BOED is Barrels of oil equivalent per day • •

Micro-Cap Review Magazine



Capital Markets Visibility Program Drives Investor Engagement for Smallcap and OTC Companies PR Newswire’s New 12-month Calendared Investor Relations Strategy Is Easy and Affordable to Implement


f you’re reading this Micro-Cap Review, chances are, you are well aware of the devastating impact the financial environment has had on small and micro-cap com-

panies. Simply: money is harder to raise, investors are hard to indentify and getting any notice from the financial press and portfolio managers is beyond challenging.

To help companies simultaneously address all those issues, PR Newswire - the global leader in news and information distribution services for professional communicators – has launched Capital Markets Visibility 365 ™, their newest service SPECIFICALLY built for small-cap and micro-cap companies. To explain the program, Micro-Cap Review sat down with John M. Viglotti, VP of Investor Relations and Compliance Services at PR Newswire. M-CR: What was the genesis of Capital Markets Visibility 365?



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JMV: Most professional investor relations tools are not created for smaller listed companies. We have identified that, across the entire capital markets landscape, thousands of small-cap, OTC and TSX listed companies are being underserved and ignored by many investor relations service providers. M-CR: Why are small companies “underserved and ignored?” JMV: In my opinion, most large IR service providers have placed all their sales focus exclusively on mid to mega-cap companies and big-ticket products like stock surveillance. They have neither the sales bandwidth nor the support resources to execute a product specially created for small-cap and OTC listed companies. This has left an “IR void” that has, unfortunately been filled by stock promotion. M-CR: What do small-cap and OTC companies need? JMV: They need investors and influencers to hear their story AND they need to deliver their story in a consistent and contiguous manner.

M-CR: “Consistent and contiguous manner” – thus the 12-month program? JMV: Yes. Capital Market Visibility 365 is a calendared strategic marketing plan. Once it is set-up, it almost runs on auto-pilot. M-CR: The program addresses three targeted audiences. Why? JMV: Without exaggeration, our clients’ shareholder messages will reach a targeted audience of hundreds of thousands. Each of the targets delivers different value to small-cap and OTC companies: Individual investors for immediate liquidity and (hopefully) “buy & hold” loyalty. Institutional investors for dramatic volume activity and Wall Street visibility. Financial and sector media (and bloggers) for third-party validation. M-CR: Will institutional investors have interest in companies under $100 million market-cap? JMV: Smart buy-side and sell-side analysts keep an eye on all companies within their sector, even if a specific company is too • •

Do you have a sample strategic calendar people can see? JMV: Yes. Normally, I’d say “click here for more information,” but as this is a printed interview, I invite anyone to simply call me directly at 201-360-6767. My email is john. M-CR: Thank you, John. JMV: Thank you. I appreciate the opportunity to introduce Capital Markets Visibility 365 to your readers. n

small today to publish an opinion or take a position. Small-cap and OTC companies must build a consistent and contiguous brand presence with the institutional investors within their sector to clearly differentiate and distance themselves from the inconsistent “pump and dump” marketing that is pervasive. M-CR: Will Hedge Funds take a position in a company under $100 million marketcap? JMV: The answer is often yes. To help with that, our Quantitative Targeting algorithm will identify portfolio managers that may prefer smaller-cap firms – matching their investment style to a specific client’s exact stock attributes. M-CR: What are the components in the program? JMV: There are 11 “moving parts” to the program combined from six different services and partners including PR Newswire and M-CR: 11 moving parts! It sounds complicated!

JMV: It’s not complicated, it’s calendared. We give clients an entire plan, monthby-month plan. There’s nothing else like it. M-CR: What is the cost? Or is that a secret? JMV: Like the program itself, we’re very transparent. Capital Market Visibility 365 is $3,000 per month. It’s a huge value. M-CR: Are there variations or options? JMV: The only Capital Market Visibility 365 variation, for this launch, is clients may substitute one of the two live virtual conference events (RetailInvestorConferences. com) with an IR Room - investor relations website. Companies MUST have an IR Room… it’s where investors go AFTER they receive your news. M-CR: Why aren’t SEC files included in this program? JMV: This is a visibility / marketing package. We are keeping the product focused on that rather than the compliance aspect of investor relations. M-CR: What do companies need to do to begin their Capital Markets Visibility 365? • •

John is responsible for the development of PR Newswire’s products and services to help public companies communicate with their key stakeholders. Viglotti has 25 years experience in the development, management and marketing of financial content and delivery platforms including Thomson One Investment Banking ™, StreetSight™, BondWatch™, IRtrack™, and Amex IR Online™. These platforms and associated proprietary content sets are market leaders serving over 6,000 institutional and corporate clients worldwide. In 2009, John formed Quantitative Targeting LLC (QT), focused on the creation of algorithms that measure the compatibility between a public company and institutional investors to aid investor relations professionals in their buyside targeting efforts. Prior to QT, John was VP of Content Strategy for Thomson Reuters and Managing Director of Georgeson Shareholder Analytics. At Georgeson, John was responsible for the global stock surveillance and shareholder analysis team as well as building dashboards for investor relations and institutional sales and trading. Prior to Georgeson, John spent 14 years with financial media companies in content, product and business development roles. John began his career in the financial media industry with a SEC based newswire, Federal Filings, which was acquired by Dow Jones. JohnViglotti VP, Investor Relations Products and Services PR Newswire/MultiVu 350 Hudson Street | 3rd Floor | New York, NY 10014 Phone 201 360 6767 | Mobile 212 729 8350 Fax 201 942 7013

Micro-Cap Review Magazine



Micro-Cap Review Magazine • •


Five Basic Items to Consider Before Becoming an Entrepreneur …


f you think you have what it takes to be the very next Bill Gates (but that is so 1980s), Mark Zuckerberg (much more on people’s radars today)? The fact is every year, a future mega-entrepreneur is in the making and many minor league entrepreneurs do quite well themselves. So how do you participate? The truth is even asking a question like this means that you have a desire to change your life and the lives of others on your team. Those who follow you will be sacrificing their lives in exchange to develop something extremely novel. Entrepreneurship can be an exciting and extremely rewarding when developing projects. However, there are some basics survival

skills that you should always keep in mind. First of all, not everyone makes it. That is a fact. More than 99% will fail within their very first year. More businesses die off or never become viable in their first two years from the lack of appropriate funding. Some businesses could have been better prepared by sitting down and thinking out the proper strategies rather than rushing right in. Remember, two years as an entrepreneur means you won’t be salaried like you are an employee and you should consider these five basic items before you jump right in.

n BY DR. goRDon ChIU


Micro-Cap Review Magazine • •

Pacific Rim chambeR of commeRce and business council

By Holmes H. Stoner Jr.

The PRCC and American International Business Council has been in business since 1996 helping SME’s (Small and Medium Sized Enterprises) around the world relocate and/or expand their interests through a process of legal, accounting and networking services. During this period of time we have associated with over 15,000 SME’s and affiliates in 14 countries! Obviously with the present focus on the relations between the USA and China, we have been extraordinarily busy helping companies on both sides grow exponentially with the help of our relationship with the CCPIT (China Council For the Promotion of International Trade) China Council for the Promotion of International Trade (CCPIT) is also called China Chamber of International Commerce. China Council for the Promotion of International Trade (CCPIT) comprises VIPS, enterprises and organizations representing the economic and trade circles in China. The aims of the CCPIT are to operate and promote foreign trade, to utilize foreign investment, to conduct activities of Sino-foreign economic and technological cooperation, to promote the mutual understanding and friendship of economic and trade relations between China and other countries and regions around the world, in line with laws, regulations and government policies of the People’s Republic of China and with the reference of international practice. Presently there are over 300,000 businesses in China under the direction of the CCPIT! 2012, the Year of the Dragon, represents a tremendous growth year for us and the CCPIT and now SNN Inc. who has become part of our worldwide network giving us reach and depth into the world of Finance we could have never enjoyed before! The Year of the Dragon will be a great one for all of us and we look forward to a year of prosperity for all our members and those around the world who participate with us. After almost 20 years of doing business in China in over 30 cities, first , second and third tier cities, I have learned so many valuable lessons on dealing in this ever evolving country. Over this period of time we have consummated over 50 major and hundreds of small deals that have translated into the tens of millions of dollars of FDI (Foreign Direct Investment) helping the China dream slowly come to fruition. I will enumerate the first five points that have helped us do things more successfully and also 5 points that should be avoided at all costs so others like me can learn from my mistakes over the years. 1) China is a top down styled economy with a lot of complicated relationships in every industry from real estate to manufacturing. Always try your best to cultivate high level connections with local, state and federal officials. It is tantamount to your deals getting movement. 2) The art of doing business in China is hinged mainly on personal relationships and built over time so go to the dinners and lunches, at least try to enjoy the food, drink the toasts and keep an open mind on the traditions and customs of your hosts. 3) Remember that ancient Chinese customs were Confucian inherently so knowing something about Confucianism will help a lot. 4) Mostly men dominate the first round of contacts with their positions very prominent but in the end game, most of the final transactions will be done by the women assistants who do most of the heavy work, translations and final document preparation. Women are instrumental in the business world of today’s China. 5) Usually the art of negotiating is based on the way the projects/deals are presented and packaged. Chinese like to see things very formal and official with lots of stamps, signatures and time dated. The documents should all be witnessed and certified by their own people, not yours. Things to avoid: 1) Avoid showing up late or not dressed at business meetings. It is frowned upon a lot. 2) Never assume things and be prepared at each and every meeting. 3) Never refuse the food or drink as you will be looked at differently as a bad stranger. 4) Don’t use bad numbers like 6 or 2 in your daily communication. It means bad luck. 5) Never appear weak or cheap. Chinese don’t like to know their foreign guests are not ready.

for information: (Place China in the Subject)

Basic Item #1: Don’t spend all your time on a business plan with a 5-year out plan of action when you are staring at a bank account that is underfunded or not funded. Instead: Make a one year plan and break it down into realistic monthly steps.

Basic Item #2: Don’t think that by increasing liquidity via entrance into public markets immediately solves all your problems. Being public creates a running cost that maybe much too high for you to sustain. That being said, staying private and not finding interest or support in your idea is also a dead end. Instead: Spend time thinking on what is your burn rate and which model is best to realize your vision.

Basic Item #3: Avoid dying a slow death and begin to think of adding relevant partners that understand and believe in the vision of the company. Who wants to fund anything that is just going to slowly die off? The growth, the opportunity and the void that is being filled needs to be provided clearly in every conversation, business plan and clearly displayed without making people confused. Make sure the plan holds up in growth, recessionary and tougher times and has the required capital to carry it through. Entrepreneurs will eventually need to be paid so how the business maintains itself and grows needs to be properly addressed.

of infighting within the leadership and management. It is to position your idea properly. This will involve how to make it into a business that will be around after the first year. How to build a team that is aligned and creates value. Show that the management and thinking of your people are in alignment. This all adds up to being termed, “the unfair competitive advantage”.

Basic Item #5: A popular topic is use of proceeds. Too often, entrepreneurs do not spend appropriately on the running a formal patent search when it comes to proper positioning of the business. The formal patent search should include the freedom to operate (FTO) while also protecting the idea: A freedom to operate (FTO) searches and identifies any potential patent barriers to the commercialization of products or technologies. It examines the claims language of third-party in-force patents and is conducted as due diligence to assess the risk of potential infringement.

Examples: 1. Supports the clearance of products, technologies, or processes 2. Assess infringement risk 3. Uncover licensing needs 4. Provide direction to product development programs

Consider going in a pack. Think about the possibilities you may run into while establishing this business venture and the talent and foresight you will need from your partners. Get creative but choose wisely. Synergy is very important. No one wants to be part of a company that has any chances

If the idea contains a piece of technology or concept that is novel, management needs to have the proper sense of urgency to protect it. Protection is a vital sign for everyone (investors, new hires) to know that the management team has the right mindset towards defending this investment. All it takes is for a cease and desist to be issued from anyone who has patented the idea and the investment is stalled or decimated. A cease and desist is an order or request to halt an activity (cease) and not to take it up


Basic Item #4:

Micro-Cap Review Magazine

again later (desist) or else face legal action. The recipient of the cease-and-desist may be an individual or an organization. In the U.S. the term is used in two different contexts. A cease-and-desist order can be issued by either a judge or government authority, and has a well-defined legal meaning. In contrast, a cease-and-desist letter can be sent by anyone, although typically they are drafted by a lawyer. Remember, if it starts to make big money, the lawsuits and settlements will follow close behind. n

About the author Dr. Chiu is an execution driven businessman with more than 15 years of combined domestic and international experience in biomedical, chemical, cosmetic, medical and technology industries. He has been invited to serve on the board of public and private companies and to provide vital advice to the board while increasing overall shareholder value. His solid background and broad experience has allowed him to accomplish and advise in areas of Alzheimer research, breast cancer research, dermatology, drug addictions research, green technology and antimicrobial research. He started his career as a research scientist at Pfizer Inc. and Merck & Co., Inc. and has healthcare and marketing experience with strong links to Wall Street and Asia. His educational background began with a B.S. degree in Chemistry from Rensselaer Polytechnic Institute with a summa cum laude. He graduated with an M.S. degree in Chemistry from Seton Hall University with high honors. Additionally, Dr. Chiu was accepted as an MD/PhD candidate under the National Institutes of Health’s Medical Scientist Training Program for four years at the Mount Sinai School of Medicine where he also researched, developed, consulted and advised the Department of Dermatology’s Dr. Huachen Wei in skin cancer research. Seeing the opportunity to impact foreign policies in healthcare, he transferred his credentials to the fully accredited University of Bridgeport School of Naturopathic Medicine to receive his doctorate in naturopathic medicine. With this unique background, he has investigated the validity of foreign treatments and their success level for public health. He has also been chosen to serve as an advisory role in the identification of low cost solutions (i.e. non-invasive diagnostic equipment) for emerging countries that cannot afford to maintain armies of physicians across numerous sub-specialties. His years of experience and continuous involvement have created deep relationships within the scientific, business, and medical communities. Dr. Chiu developed and owns methodologies called directed combinatorial algorithmic libraries (D.C.A.L.) that are used in various commercial applications, composition development and research. Disclosure: Dr. Chiu has been appointed as an independent adviser to SNN. • •


Crowd Funding and the JOBS Act O

n April 5, 2012, President Obama signed the Jumpstart Our Business Startup Act, commonly referred to as the JOBS Act, into law. Within the JOBS Act, Crowd Funding has gotten the greatest amount of attention. Crowd Funding allows companies to attract investors through a controlled method of public solicitation, and raise funds in the process through the issuance of restricted securities. Basically a form of a public offering of privately held stock in a company. Despite what you may have heard or read, the JOBS Act does not open up Crowd Funding into an unregulated free for all, akin to the Wild West of finance and investing. The JOBS Act actually attempts to regulate Crowd Funding and provide investors a variety of protections in the process. The JOBS Act places the following limitations on Crowd Funding: Funding Through a Registered Intermediary: The JOBS Act places several restriction on intermediaries in the crowd



Micro-Cap Review Magazine

funding process. The first is that intermediaries in the Crowd Funding process must register as either a broker/dealer or as a funding portal; and that they are also registered with the appropriate self-regulatory organization (SRO). For those who are not familiar, self-regulatory organizations are organizations that exercise regulatory authority over an industry or profession. Basically in order to do business within certain industries you either become a member and play by the rules of the appropriate self-regulatory organization or they kick you out of the organization and ban you from the industry. What this means for Crowd Funding is that it is either going to be conducted through broker/dealers who are members of the Financial Industry Regulatory Authority (FINRA) or a new Self Regulatory Organization is going to need to form and receive approval from the SEC to allow its members to participate in Crowd Funding activities. Until a new SRO is approved, only broker/dealers registered with FINRA will be able to serve as intermediaries in the Crowd Funding process. The JOBS Act also places a requirement on Crowd Funding intermediaries to perform adequate due diligence on the companies that they assist in the fund raising process. These are pretty extensive requirements, and most likely the SEC will set the guidelines for these due diligence requirements in line with those set by FINRA under Regulatory Notices 10-22. (Additional information FINRA 10-22 can be found at our website The cost of performing and obtaining these due diligence

reviews will most likely limit the number of smaller Crowd Funding projects. Capital Raise Limitation: The JOBS Act limits the amount of funds that may be raised by business to $1 million during any 12 month period. The JOBS Act provides that the funds being raised shall only be available to the company when the targeted amount of capital has been raised. For example if a company needs to raise $500,000 to complete the development of a product or fund its operations for the next 12 months, the company will only receive the funds once the full $500,000 has been raised; not as the funds trickle in from investors. This is designed to protect investors from the risks associated with a company that is only able to raise a portion of the capital it needs. Additionally the JOBS Act gives investors the right to cancel their investment commitment prior to the actual release of funds. Investor Limitation: The JOBS Act places strict limits on how much money an individual investor can invest in any single company or group of companies within a 12 month period. This limitation is broken down into two categories based upon an investor’s annual income. If an investor’s annual income or net worth is less than $100,000 per year, then that investor can only invest the greater of $2,000 or 5% percent of his annual income in a single company. If an investor’s annual income or net worth exceeds $100,000 then the investor may invest up to 10% of their annual income or net worth in a company. However the amount invested cannot exceed $100,000. • •

StockWord Puzzle




45 - 47 - Visit gold mines in Africa 1 - Statue for $7.2 million from Masterpiece 2 - WealthForgeOnline 51 - Cartoon about Wall Street 4 - Internal Fixation Products 3 - David Weild 54 - 2 SEC regulations covered in new Jobs Act 5 - 144 6 - McDermott is the host 55 - New Jobs Act Rule on _________solicitation 7 - Newly granted Alternative Trading System 10 - Size of Forex business trading daily 57 - Caveat Emptor 8 - 11 - Pizza Vending Machine 58 - Are you wrapping 9 - When you marry video with a text press release 12 - APEC conference held here in May 2012 59 - Data Point Symbol on 16 - This time of year in China drives gold prices higher 60 - did you fill this out and send in to SNN? 13 - Swiss Metal 17 - Asian Pacific Economic Council 62 - International Stock Exchange 14 - Micro-Cap Micro Brewery 21 - Laura Stein Executives Emeriti 15 - This company gets you ready 23 - Wallstreet newsletter and column 65 - Green energy story 18 - 96_______in magazine 27 - $38 IPO 68 - Read this magazine online 19 - Crowd funding 29 - Vintage Filings Product 71 - number one magazine in the micro-cap world is 20 - Why this State? 33 - National Investment Banking Association 72 - New $500 Million in market cap 22 - New Column in Micro-Cap Review 34 - Penny auction site 24 - Micro-Cap Review Publisher 73 - Metal over $1800 per oz in 2011 35 - entrepreneur article author 25 - PR Newswire & SNNwire program 74 - David Morgan 36 - contract manufacturing 26 - Leasing equipment better than buying 37 - $1 billion in revenue for micro-cap companies 28 - Orlando 38 - Shane Hackett 30 - BDW 42 - No Boring 31 - Brett Goetschius article subject matter

32 - Hunter Bay 33 - Visibility 365 by PR_________ 39 - The largest economy in the world 40 - Amarantus 41 - Ohlsson on biotech 43 - 44 - SNN market awareness and investor visibility 46 - New SNN website 48 - Shoreline 49 - Cover story 50 - DM Roth Insurance 52 - Indicator of investor confidence 53 - Matmown 56 - SNN VPR 61 - Mark Shore 63 - Upload a VPR 64 - new video editor & production assistant 66 - Asia Pacific Economic Cooperation Conference 67 - Mickey fulp likes this rare earth element 69 - global hunter conference topic 70 - Pacific Rim Chamber of Commerce

Answers in the classifieds

Issuer Disclosure and Reporting: There were a lot of articles prior to the passage of the JOBS Act deriding it for a lack of investor disclosure. However the JOBS Act significantly improves the disclosure requirements for private companies raising funds through the Crowd Funding process. While not as stringent as the current public company reporting requirements, the reporting requirements for a company in the Crowd Funding process are very similar and appear to be designed to contain a streamlined version of the same information that can be produced at a lower cost by the company seeking to raise capital. Additionally, companies that are privately held and participate in the Crowd Funding process will be required to file annual reports with the SEC, however they will not be required to file quarterly reports as publicly traded compa-

nies are required to do. Before people get too carried away criticizing the JOBS Act for the lack of requiring quarterly reports, everyone should remember that this is a vast improvement over the pre-JOBS Act requirements of no reporting by companies that have raised funds through private placements. It is probably going to be late 2012 before the SEC finishes drafting the regulations governing Crowd Funding. Once the SEC publishes the new regulations it will be very important to have a good understanding of those regulations and ensure that one is working with a company that is in full compliance with those regulations. Hopefully I have been able to shed some light on the framework those regulations will be built upon. While Crowd Funding is currently focused on privately held companies, I believe that Crowd Funding will quickly be


Micro-Cap Review Magazine

adopted by Micro-Cap companies seeking to fund their operations. As this process shakes out, it will obviously create some investor pain, however as the process refines itself and improves I believe it will become an important source of funding for America’s next generation of high growth companies. n Erik S. Nelson is the President of Coral Capital Partners, Inc. ( and Sterling Investment Services, Inc. (www.sterlinginvestments. com). Coral Capital Partners provides advisory services to private and publicly traded companies as well as to private equity partnerships and investment banks. Coral Capital Partners also provides due diligence services under the FINRA 10-22 guidelines. Sterling Investment Services, Inc. (www. Sterling is a publisher of a weekly market commentary and a daily trading blog. He can be reached at (404) 816-9220 or esn@ • •


Using the OTC QX and Reg 12G to Get Traction with US Retail Investors S

ince 1986 Peter Baxter has served in a wide range of functions in the securities industry. He began at the larger firms and for ten years worked in sales and

operations at the Atlanta offices of Lehman Brothers, Oppenheimer and Dean Witter Reynolds developing a substantial network of European bank clients for those firms. In 1996 he turned to corporate finance and brokered numerous PIPE financings for US micro-cap companies as a placement agent. In 1998 Mr. Baxter formed Baxter Capital Advisors Inc. to brand his capital advisory services as an independent broker with Moody Capital , a registered broker-dealer based in Atlanta, GA. In 2006 Mr. Baxter began a niche service by assisting Canadian mining companies get dual listed on the OTC QX exchange and help get market support from US retail brokers and investors thereafter. To date, BCA has helped over 100 Canadian microcap issuers get listed in the US and some firms have benefitted substantially as a direct result of their commitment to expanding their marketing to US investors. Mr. Baxter was educated at Georgia State University in Atlanta, GA and currently licensed as a registered rep with Moody Capital.


1. What compelled you to pivot your efforts to the Canadian junior space several years ago? In 2004-6 I attended many presentations • •

in Atlanta from Canadian junior resource companies. I saw then that the universe of Canadian juniors were superior to US micro-caps in many areas. On balance they had better management and had better internal controls than the ones I had seen to date from US companies in the microcap space. And to my surprise, many of them were audited by one of the big four firms. So I found this sector profile to be very compelling , especially given that these juniors would likely benefit from the great bull run in commodities already underway at that time and was delighted to pursue this venture. 2. How did your career background help you assist Canadian companies get listed in the US? My experiences to that point enabled me to understand the process and nuances of cross-border listings. I had extensive experience in back office operations and in working with foreign institutions while at Lehman Brothers and became familiar with the regulations affecting dual listings, and Micro-Cap Review Magazine


including the 12-g2b-3 exemption so important to Canadian juniors in overcoming the onerous SEC regs. I had also developed relationships with several market makers in the US over the years that were needed to sponsor the 15C-211 forms with FINRA for these Canadian juniors. 3. Why are so many Canadian junior mining companies now getting listed on the OTC QX? It has become clear that the QX offers something very intriguing to these juniors. The first is a very functional electronic marketplace that enables US investors to easily access the reported financials and see the current US marketplace in quoted by the market makers in real time in US dollars. Another virtue is the perceived advantage coming from the mandatory oversight function performed by the licensed PAL and DAD sponsors. This separates the QX brand from all other OTC markets. The other is the relative cost. The annual listing cost of just $15,000 for the QX is prohibitively less than any other global exchange. All of these features have enabled the Canadian junior resource sector to now become the dominant group of companies now trading on the OTC QX. 4. What is so special about the 12g3-2b exemption unique to Canadian issuers? The 12g-2bg3 exemption allows Canadian issuers to list on any OTC exchange in the US without the onerous expense, hassle and risk of becoming a US reporting issuer with the SEC via a 20-F or a 40F filing. It also allows Canadian firms to list in the US without conforming to US GAAP rules or the need to convert to the ADR format that is expensive and a hassle.

Sponsors- attorney PALS and Investment Bank PALS. Most companies on the QX today have used one of the attorney PALS to minimize their expense and separate the functionality of the services they are seeking. Each company must perform their own due diligence to vet the various sponsors. I use Merriman Capital as the sponsor for the companies I engage because they have sponsored so many QX listings and I have forged a great working relationship with their team. 8. What are some of the misconceptions that Canadian companies have regarding the OTC markets? One is the idea that SEC reporting is mandatory to list on the US markets. Another is that many Canadian issuers believe they already have a Pink Sheet listing but in fact it’s just a grey market ticker that is used only to designate shares bought on the TSX-V by US citizens. But perhaps the biggest is the importance of becoming “blue-skied” in the US so that market makers can quote their US shares and brokers can potentially solicit their US shares. This can enable more effective promotion of their shares to US investors but isn’t accomplished by any listing per se but instead by satisfying the public disclosure regs at the state and federal level. This is done through the filing of a 15C-211 form with FINRA and by securing S&P to handle the state blue-sky element.

7. Tell me about the firms that provide the oversight function to the QX- the PAL and DAD sponsors. Since most of the companies on the QX use PAL sponsors, I will limit my comments to those. There are two distinct PAL

9. How do Canadian issuers in the junior resource space get traction among US investors once they become dual listed on US OTC exchanges? Empirical evidence suggests that three things are needed for getting traction from US retail investors and brokers- a compelling story with a good news cycle forthcoming, the will and ability from management to promote their value proposition, and the satisfaction of federal and state blue-sky regulations that enable broker solicitation of their shares. Not all Canadian juniors meet this standard so the QX may not be ideal for all Canadian juniors. But many companies that


Micro-Cap Review Magazine

have done all the above have benefitted very much from their QX listing. To support this, the QX has published case studies of several individual companies that have seen a sizeable increase in the volume and market valuation after they got listed on the OTC QX. 10. What is your outlook for the Canadian junior resource sector in the next few years? Amazingly, Canadian junior miners and even established producers are still trading at sizeable discounts to their enterprise value, book value, or free-cash flow. Given the exponential growth in world population and the sizeable increase in the middle-class of so many Asian countries the demand for resources is sure to remain elevated for years to come. This mega-trend should benefit the junior resource sector that is still much under-owned by the very large universe of US retail investors. n Peter Baxter is a registered representative with Moody Capital LLC and is based in Scottsdale, Arizona. Since 2006 he has helped over 100 Canadian junior mining companies get listed in the US primarily on the OTC QX exchange. He services these companies by consulting them on the regulatory issues related to cross-border listings and then expedites the US listing for them. After they get listed on the OTC QX he arranges non-deal road shows for them in several US markets with brokers and fund managers active in the junior resource space. Mr. Baxter has served in a wide variety of functions since entering the securities industry in 1986. He began at the larger firms and for ten years helped to groom institutional sales teams at the Atlanta offices of Lehman Brothers and Dean Witter Reynolds that developed substantial trading operations with European commercial banks. In 1995 he turned to corporate finance as an investment banker for numerous PIPE financings as Director of Corporate Finance for the Malachi Group, an Atlanta based boutique investment banking firm. In 2000 he formed Baxter Capital Advisors to brand his capital markets advisory services under the umbrella of another boutique in Moody Capital LLC. Peter was educated at Georgia State University and is licensed with Series 7 and 63 registrations. • •


Graphite: The Newest “Next Big Thing”


ost micro-cap resource stocks have been underwater since a four year high ended in early March 2011 with the Toronto Venture Exchange

Index down about 40% since that time. Weakness in stocks has occurred despite record or near-record prices for most commodities in 2011 and continuing high prices in 2012. Many factors have contributed to the decline in junior exploration and mining stocks and I see little evidence for a quick recovery. However, stock markets, and certainly yours truly, will always find something to be long on. That current something in the junior resource sector for me is graphite. Along with diamond, graphite is an allotrope of the semi-metal element carbon. However, it has almost the exact opposite physical and chemical properties. Graphite is gray to black, opaque with a metallic

n By Michael S. (Mickey) Fulp


Micro-Cap Review Magazine

luster, a soft mineral with Mohs hardness of 1 to 2, and arranged in parallel hexagonal sheets. It is chemically inert and flexible yet very strong. Graphite is of low specific gravity, highly refractory with a 3927 C melting point, and electrically and thermally conductive. Its unique characteristics have led to many industrial applications. Graphite deposits occur in high-grade metamorphic rocks that are widespread and abundant across the Earth and tend to be small deposits that make low-cost mines. Graphite is much more than the lead in your pencil and the carbon fiber additive that lets you “grip it and rip it” with a big-headed composite driver. These uses actually constitute a small part of demand. Three-quarters of the world’s graphite is used in traditional applications such as steelmaking, foundry moldings, refractories, auto parts, and lubricants. Minor uses include batteries, pencils, electronics, and numerous other products. Significant future demand growth is projected to include fuel cells, lithium-ion and vanadium redox batteries, and pebble-bed nuclear reactors. Development of the much-ballyhooed graphene (single atom layer graphite) technology is a decade

or more away. The graphite industry is divided into three parts: natural, synthetic, and carbon fiber. Supply cannot meet current demand, and prices have risen substantially since the global economic crisis of 2008-2009. Synthetic graphite and carbon fiber are high purity, expensive forms produced from petroleum coke primarily in the United States with significant exports to other consuming countries. Natural graphite production comes mainly from small underground mines in China. By the early 2000s, graphite mines outside of China were rendered uneconomic when it flooded the market and drove prices down. World production totaled about 1.1 million tonnes in 2011 with an estimated 75 % coming from China. Other countries with significant graphite mine production include Brazil, North Korea, Canada, India, Romania, Ukraine, Mexico, Madagascar, and Sri Lanka. Three types of natural graphite are produced: • Vein, aka lump graphite, is coarsely crystalline, a small specialized market, and the highest-priced natural graphite. It is • •

Source: Industrial Minerals Inc

produced from Sri Lanka mines by handsorting. • Flake graphite is categorized by crystal size with large (+80 mesh), medium (-80 to +100 mesh), and fine (-100 to +300 mesh). Marketable products must grade 94-97% graphitic carbon (Cg) and are used for both traditional and new applications. • Amorphous powder graphite is crystalline but very fine grained at 80-85% Cg and used for lower-priced applications. In general, larger crystal sizes and higher Cg content command higher prices per tonne. Significant price increases have occurred over three years. Many specialized markets command premium prices but require further purification and processing. Examples include spherical graphite and expanded graphite. Reminiscent of the rare earth element run-up in 2009-2010, the graphite boom is driven by these catalysts: • Prices have increased because traditional demand exceeds mine supply. New technology applications have favored flake graphite and widened the price gap over amorphous graphite. • China has few flake deposits and mostly mines low-value amorphous graphite underground. • With domestic demand growing, China

is restricting exports thru taxes and licensing and may impose export quotas. • China is rationalizing its fragmented industry into a state-sponsored monopoly to remediate environmental degradation, improve labor standards, and address infrastructure and transportation problems. • The Western World views dependency on Chinese graphite as an unreliable and capricious source. • With rising prices, new export policies, and consolidation in China, graphite companies have been successfully promoted with dramatic increases in market capitalizations. Like the aforementioned REE bubble in 2009-2011, graphite is now the “Next Big Thing.” One year ago I was aware of two graphitefocused companies on the Toronto Venture Exchange. Based on evaluations of the commodity fundamentals and those particular stocks, I became a shareholder of a private graphite development company that went public in February 2012. At this juncture, these three companies appear to be “the cream of the crop”. Now it seems every snake, shark, charlatan, and shyster within a half kilometer of Vancouver’s Coal Harbor has a new graphite deal via a capital pool company, shell, IPO, or change of business. The bubble has blown up quickly with 50 listed companies holding • •

graphite projects and many more in process. Like recent junior sector bubbles (e.g., uranium, lithium, rare earth elements, Yukon gold), the graphite space will fill with many pretenders amongst the very few contenders. Many companies mine the stock market until another next big thing comes along. As per previous booms, 95% or more will fail. Promotion of micro-cap graphite companies has been tied to future growth of high tech and green tech applications. However, demand from traditional applications is currently outstripping supply, and there is optimism that this particular boom will demonstrate some staying power. My favorite few are graphite developers that have an advanced deposit in a geopolitically stable and mining-friendly location, nearby infrastructure including highway, power, and water, high-grade and/or a high percentage flake component, open pit configuration with a low strip ratio, and favorable process metallurgy. Graphite beneficiation uses standard mineral industry technology with crushing, grinding, flotation, drying, packing, and shipping. However, producing a marketable concentrate with >94% Cg content often requires multi-stage processing. As with all commodities, a graphite producer should fall into the lowest cost quartile of its peers to ensure sufficient margins in times of slow demand and low prices. Most graphite deposits are small so there should be room for development of a number of mines by competent juniors. Rationalization of the business by merger and acquisition will probably occur and may lead to large, integrated mine-to-market graphite companies. Graphite does not trade openly and marketing and sales are of utmost importance. Capital expenditures should be significantly less than $100 million and at one such pastproducing mine, are projected to be under $25 million. Project financings are likely to be achieved thru a combination of off-take agreements with strategic partners (consumers and end-users) and private debt instru Micro-Cap Review Magazine


ments (merchant banks, hedge funds, and/or high net-worth investors), and hopefully not by equity raises that tend to dilute and harm early shareholders. A graphite company is no different than any other junior resource company. In addition to evaluating a flagship project, we must always assess a company’s share structure, the people, and its peer market valuation. In that

regard, I urge you to read about my proven evaluation methods and trading philosophy at n

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Michael S. (Mickey Fulp Acknowledgements: Erin Ostrom is the editor of I thank Greg Bowes, Gary Economo, and Martin McFarlane for timely reviews. Glen Jones of Intierra Resource Intelligence kindly provided data on Toronto Venture Exchange-listed graphite companies. The Mercenary Geologist Michael S. “Mickey” Fulp is a Certified Professional Geologist with a B.Sc. Earth Sciences with honor from the University of Tulsa, and M.Sc. Geology from the University of New Mexico. Mickey has over 30 years experience as an exploration geologist searching for economic deposits of base and precious metals, industrial minerals, uranium, coal, oil and gas, and water in North and South America, Europe, and Asia. Mickey has worked for junior explorers, major mining companies, private companies, and investors as a consulting economic geologist for the past 24 years, specializing in geological mapping, property evaluation, and business development. In addition to Mickey’s professional credentials and experience, he is high-altitude proficient, and is bilingual in English and Spanish. From 2003 to 2006, he made four outcrop ore discoveries in Peru, Nevada, Chile, and British Columbia. Mickey is well-known and highly respected throughout the mining and exploration community due to his ongoing work as an analyst, writer, and speaker. Disclaimer: I am not a certified financial analyst, broker, or professional qualified to offer investment advice. Nothing in a report, commentary, website, interview, and other content constitutes or can be construed as investment advice or an offer or solicitation to buy or sell stock. Information is obtained from research of public documents and other content available on websites, regulatory filings, various stock exchange websites, and stock information services, through discussions with representatives, agents, other professionals and investors, and field visits. While the information is believed to be accurate and reliable, it is not guaranteed or implied to be so. The information may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. I accept no responsibility, or assume any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information. The information contained in a report, commentary, website, interview, and other content is subject to change without notice, may become outdated, and will not be updated. A report, commentary, this website, interview, and other content reflect my personal opinions and views and nothing more. All content of the website is subject to international copyright protection and no part or portion of the website, report, commentary, interview, and other content may be altered, reproduced, copied, emailed, faxed, or distributed in any form without the express written consent of Michael S. (Mickey) Fulp, Mercenary LLC. Copyright © 2012 LLC All Rights Reserved. • •

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Silver: The Next 12 Months W

hen we look at where the price of silver has gone over the last few years, it’s pretty obvious why it has been called “the restless metal” as well as

a lot of other names! It can move quietly in a fairly small range for months, and then with little warning, explode upwards. During the final portion of these up legs, which tend to last around 4 – 6 weeks, the average price increase has been between 25 and 30% (The one last year rose over 40%!). Once the final fence-sitters have been lured into taking on or adding to their position, we generally get a rolling collapse like what took place in May of 2011 – and which seems to be continuing this year as we head into summer. When one of these downdrafts gets underway, it’s difficult to stay onboard the silver bull. Whether the price tops due to a margin increase, a lack of new buyers, or “market manipulation” it definitely puts a crimp in the style of those on the long (wrong?) side. All sorts of predictions start coming out of the woodwork from the main stream news talking heads about how “this bull market is definitely over”. It makes you feel like asking some of them just how much silver they have ever owned.

Two Steps Forward, One Step Back

breaking one or more obvious chart “support” levels for a few days. When everyone has become sufficiently bearish, the price bounces back for awhile and then goes into a protracted sideways movement. Over time, this sandpaper action wears away many of the hardy souls who were not initially shaken out of their position on the way down. After building a solid foundation well off the post-collapse lows, silver then proceeds to claw its way back up the technical hill, challenging and eventually surpassing its previous peak. The process tends to last about two years, give or take. We saw this behavior play out from the highs achieved in 2004, 2006, and 2008. (The notable exception was 2010, when silver made a new bull market high above $22, and then ran to almost $50 without looking back – proving that holding a core position at all times not only makes sense, but dollars as well.) So, referring to this generally reliable historical pattern for guidance, it is reasonable to consider that a new silver price high eclipsing the May 2011 level can be expected to take place sometime in early to mid-2013.

Pay Attention to $50 Silver

n By David Morgan


Micro-Cap Review Magazine

If you take time to analyze these periodic silver swings, a rough pattern emerges. Shortly after an important new high takes place, the price falls away sharply in a series of medium term (several months) down legs until

Furthermore, once the $50 level is decisively penetrated with several strong closes into new (nominal) all-time high ground, it would not be the least bit surprising to see • •

a strong run to the $75 level. If and when the $50 area, which is now major resistance on the charts, turns into new support, then watch out! Expect a whole lot of people, who before this wouldn’t give silver the time of day, to suddenly “get religion” and decide that they must own some…as well as stock in the junior producers, who even now are making some serious profits. Speaking at investment conferences around the country, to individual investors and subscribers to The Morgan Report, I have often said that “the market will find and exploit every weakness you have”. You can either force yourself to buy quality mining stocks (as well as bullion) when prices go into a periodic downdraft – like the one we’ve been watching since February – or wait until a new high for the move gets underway. Yes, it’s “safer” to wait and buy after prices have gone where you thought they would in the first place. But then when silver makes its next waterfall decline, you will most likely panic and sell with the rest of the crowd…right at the bottom! Having this happen once too often could weaken you emotionally and/or financially to the point that you spend the rest of the bull market on the sidelines. Adding to one’s position in several price layers, if/as prices decline, and later selling a bit into great strength goes against the emotional grain for just about everybody. It can be upsetting to say the least and no one gets it right every time. But if you ever hope to make - and keep big money, this is exactly what you must do. In spite of all the bearish comments that a boatload of so-called experts have been making this year – many of whom still have not bought any precious metals during the 11 year consecutive rise in the price of gold and a decade of stronger silver values – I am firmly convinced that the price – especially for silver bullion and the high quality junior silver producers who dig it out of the ground – has a LOT more room to run on the upside over the next few years.

Do you wanT To be a player…or JusT waTch? So when will the next big wave up get underway? No one can predict with absolute certainty when silver, gold and the mining stocks will be off to the races again. It is looking like the mining shares as a group have already bottomed, but time will tell. But I do feel strongly that a large number of the investors who sold out this time on the way down, as well as virtually all of the newly-minted pundits we’ve been hearing non-stop on the financial talk shows – will NOT be going along for the ride. They will just be spectators. An investor of merit takes a position, holds onto it because he (or she) has done their research, made a plan, accepted responsibility for the decision, and has summoned the courage to…ACT! A spectator on the other hand – like the 165,000 people (including this writer) who attended the Kentucky Derby recently – only get to watch. Now there is no doubt that watching can be quite exciting.

However, if you ask me, participating –owning metals and a few high quality mining producers and explorers bought for their value is even more interesting, and potentially, a lot more profitable. Watching the results of your action – now that’s really a rush! n David Morgan is a widely recognized analyst in the precious metals industry and consults for hedge funds, high net worth investors, mining companies, depositories and bullion dealers. He is the publisher of The Morgan Report on precious metals, author of “Get the Skinny on Silver Investing” and is a featured speaker at investment conferences in North America, Europe and Asia. Go to for more information. There are three levels of membership services, as well as a free e-letter, published weekly.

An investor of merit takes a position, holds onto it because he (or she) has done their research, made a plan, accepted responsibility for the decision, and has summoned the courage to…ACT! • •

Micro-Cap Review Magazine



Clean Wind Energy Tower, Inc. Offers a Bold New Approach to Overcome the Limitations of Conventional Wind Energy Source


lean Wind Energy Tower, Inc. (OTCBB: CWET, the “Company”), a development stage company headquartered in Annapolis, MD., has invested over two years enhancing and modernizing a technique developed by the Technion almost 30 years ago to create a constant downdraft of wind within a tower structure; harness the downdraft inside the tower; and then extract the energy from that wind  to spin  turbines and power generators to make abundantly economical electricity.  For decades this technique has been known, but due to the sheer size requirement of the tower structure, the inability to construct the Tower has prohibited the Downdraft Tower from being built until recently.  The Downdraft Tower uses benevolent, non-toxic natural elements and has the capability of being operated with virtually no carbon footprint, fuel consumption, or waste production. This technique will generate clean, cost effective and efficient electrical power and clean water without the damaging effects caused by using fossil or nuclear fuels, and other conventional power sources. The Downdraft Tower is a hollow cylinder with a water spray system at the top. Pumps deliver water to the top of the Downdraft Tower to spray a fine mist across the entire opening. The water evaporates and cools the hot dry air at the top. The cooled air is denser and heavier than the outside warmer air and falls through the cylinder at speeds


Micro-Cap Review Magazine

Coordinated World Class Expertise

up to and in excess of 50 mph, driving the turbines located at the base of the structure that power generators to produce electricity. The CWET Downdraft Tower maximizes the capture and use of the available wind tunnel energy utilizing proprietary techniques that extract the maximum energy generated by the captured wind, with the least loss of power throughout the process, producing a much more consistent level of power output while compensating for the normal differentials in atmospheric conditions over any given period. The Downdraft Tower produces abundant affordable electricity while avoiding the adverse effects associated with fossil and nuclear fuels, and also the obvious limitations of solar collectors that work only when the sun shines or wind turbines that work only when the wind blows.

CWET has reported that they have located a site for its first Tower here in the USA and received key patents to protect its techniques to extract the wind’s energy from the Tower.  The Company has sought out some the best consultants in the world who have been and will continue to support CWET’s efforts to bring this first Downdraft Tower to market.  For example, Kroll Cranes S/A of Denmark ( has worked closely for almost two years to create a tower crane system and equipment elevator lift system that would guarantee the construction of the Tower in a timely and predictable manner.  CWET is looking to the General Electric Corporation (GE) for assistance in the development of the power plant system using existing generators that can work in conjunction with CWET’s patent to power the generators with hydraulic pressure to stabilize the output during varying wind speed conditions. GE could also be instrumental with the turbine design and control system which will utilize CWET’s patent to place a “series of  drafting turbines” in the tunnels which will spin hydraulic pumps to pressurize the system to power the generators.  Lead consultants from University of Oklahoma and Georgia Tech have been • •

engaged by CWET to provide the computerized technical data utilized to measure the predictable wind speeds and pressure that will be created by the Tower.  The weather data has been obtained for the first sites and final reports are nearing completion which will accurately calculate the Tower’s output capacity 24/7.  The Company has engaged the law firm of Holland & Knight who has guided the Company on energy and political policy since the beginning of the project.  The Company is involved in discussions with Bosch on the hydraulic system design with anticipation that Bosch would become be a part of the CWET team at the appropriate time.  The American Iron and Steel Institute is working with CWET to identify an American steel manufacturer to produce the neccessary steel alloy tubes required for the space frame wall sections.

Business Model The CWET business model is to create an Energy Compound of Towers, to be developed individually over 10 years, using the same Kroll tower cranes, common water supply and desalination facility, rail and water port for steel and equipment delivery,

Mediterranean), India and the Middle East.  The world market can support all the materials needed and can certainly use the electricity.  The cost per kilowatt hour is similar to that of a typical coal or gas-fired facility.  CWET management believes that they have positioned the Company to take advantage of this solution and bring the first project to market--setting the stage for a global “game changing” opportunity. 

Initial Energy Tower Compound Location, United States The first CWET Downdraft Tower site is located in San Luis, AZ on the Mexico/US border.  CWET has obtained a temporary operating permit from the US Department of the Interior’s Bureau of Reclamation to lease 1,750 acres in San Luis for the two towers as well as an assembly plant to assemble the space frame component wall sections for the Towers and to  conclude the necessary zoning and conduct the site evaluations and proceed with the NEPA process.  The Planning Commission has recommended the project and the required zoning and a hearing is set for May 9th, 2012 in San Luis for the City Council to consider final zoning for two eventual Towers and an assembly plant.

Capital Cost and Financing

and common component assembly plant and labor force.  These Energy Compounds could be developed simultaneously in North America, North Africa (to serve the European grid by piping direct current across the

The Company projects that the first Tower will absorb the capital cost of the infrastructure--rail siding, assembly plant, cranes, desalination/pipeline system and grid access. The first Tower will be developed with traditional project finance but the financial model will be based on 2:1 debt service coverage  on cash flow before debt service and after operations. After the initial Tower validates the model, much better financing terms are expected to be available for all future Towers.  CWET has an initial pro-forma which assumes 20-year straight amortized tax exempt bond financing at • •

8%.  Based on electricity sales @ .11 per kilowatt hour, the initial Tower should yield adequate first year net cash flow before taxes and after operations and after debt service.  The Company also projects that subsequent Tower finance terms should increase yields significantly.

Clean Wind Energy Tower Value Proposition The renewable energy industry will ultimately survive and be an integral component of world-wide energy policy, its breadth of execution being based on the economics that it brings to the producer and the end user. Driving this survival will be technologies that offer the industry’s market participants tangible benefits without the need to reinvent how clean, renewable energy is produced and distributed. Clean Wind Energy Tower’s business model is based on the exploitation of existing, proven technology with world-class partners to feed the increasing demand for abundant, affordable electricity while avoiding the adverse ecological, health and politcal effects associated with fossil and nuclear fuels. By providing clean energy to the world’s electrical grids while overcoming the conditional limitations currently afflicting the consistency and dependability of solar and wind energy production, CWET believes that their wind power technology under development is positioned to be a ground-breaking advancement in the profitable production of clean, renewable energy for the world. n

Micro-Cap Review Magazine



The JOBS Act Prologue, Present & Future

n By David Weild


Micro-Cap Review Magazine

Editor’s Note: On April 5, 2012, David Weild attended President Obama’s signing into law of The JOBS Act in the Rose Garden of The White House. No one had more to do with developing the hard evidence and creating the momentum that led to The JOBS Act than David Weild and his co-author Edward Kim. Weild was the former vice chairman of NASDAQ in charge of all the listed companies businesses. He also ran equity capital markets and investment banking at Prudential Securities where he oversaw over 1,000 successful IPO, follow-on and convertible offerings. He currently heads capital markets for Grant Thornton (the Global Six audit, advisory and tax firm) that has published his groundbreaking work (including, ‘Why are IPOs in the ICU?’, ‘Market structure is causing the IPO crisis – and more, and ‘A wake up call for America’). He is also Chairman & CEO of Capital Markets Advisory Partners. Weild has long said that the very changes in market structure that were intended to help investors have been undermining U.S. stock markets and the economy by degrading the infrastructure necessary to support capital formation. Beginning in November 2009, Weild and Kim released their first study, entitled, “Why are IPOs in the ICU?” at The New York Stock Exchange (NYSE) and National Venture Capital Association Blue Ribbon Panel on the IPO Crisis. The study demonstrated clearly that the small IPO market that flourished in the United States for decades had been decimated in 1998, fully four years before the implementation of Sarbanes Oxley. This was a revelation to many who maintained that there wasn’t an IPO Crisis (large companies

still went public) or that the crisis was caused by Sarbanes Oxley. Weild and Kim define the “Small IPO” as IPOs that raise less than $50 million. They have demonstrated that the Small IPO market remains depressed fully fourteen years since the implementation of Regulation ATS (Alternative Trading Systems) – the birth of the fragmented electronic stock market and the collapse of the economic model that small Wall Street firms depended on to provide support to small companies once they are public. As Weild likes to say, “You need a profitable aftermarket in small cap stocks to keep the IPO window open.” The drop in commissions and “tick sizes”(increments in which stocks were traded that collapsed from $0.25 and $0.125 per share to $0.3125 in 1998 and $0.01 per share in 2001 with “Decimalization”) caused a collapse in small broker-dealer revenues that paid for resources – research, sales and capital – that were (and are) essential to the aftermarket support of small companies. Aftermarket support drives performance which in turn keeps IPO windows open longer and brings capital to small businesses to drive economic growth and jobs growth. Here, Weild examines what happened that led to The JOBS Ac,and what was achieved by The JOBS Act, and then calls on small companies and investors everywhere to keep up the fight to restore this critical job formation engine – the IPO market – back to its pre-bubble glory so that the United States can reclaim the mantle of “The stock market envied by stock markets the World over.” • •

Prologue – It takes a village! Back in 2008, with the support of Grant Thornton, we started developing data to demonstrate what we had known for years: That market structure changes had killed the goose that laid the golden eggs of capital formation and contributed to a lack of job growth in the United States. Our most disturbing observations, which were incorporated, cited and discussed by many in the Executive Branch, the U.S. Senate, the U.S. House of Representatives and the Securities Exchange Commission include: • Small IPOs were decimated: 80% of IPOs historically were small (sub $50 million in proceeds raised). Beginning in 1997 and 1998, with the implementation of the Order Handling Rules by the SEC and Regulation ATS (Alternative Trading Systems), the number of small IPOs abruptly declined. • Leading to 43.5% fewer publicly listed companies: The number of listed companies on U.S stock exchanges has declined in every single year since 1997. By the end of 2011, there were 43.5% fewer companies on the NYSE, NYSE | AMEX and NASDAQ than there were in the peak listing year of 1997. • And the decade of the 2000’s, with a failed IPO market, was the first jobless decade in the modern era: The 2000s represents an anomaly: It is the first decade going back to 1940 that had zero job growth. Each of the prior three decades (70s, 80s and 90s) generated more than 20 million net new jobs each. No decade since the 1940s had less than 20% net new job growth.1 Why did the decade of the “naughts” (00s) generate no new job growth? Common sense would indicate that at least part of the dearth in job creation is a result of the depressive impact on economic activity that occurs when a market, which is generating 500 IPOs a year and growing – companies that are innovating for the future - suddenly dropped to a base level of 126 IPOs a year. As IPOs decline, so in turn do investments in private enterprise – the historical bedrock

of job creation. While our published work provided the spotlight and hard data that documented the IPO crisis, The JOBS Act could not have occurred without the intense interest from many leaders in the financial services community and in government, including: • Grant Thornton, who published our work. • The NYSE Blue Ribbon Panel on the IPO Crisis (Chaired by Duncan Niederauer, CEO of the NYSE, and Dixon Doll, then Chairman of the National Venture Capital Association). “Why are IPOs in the ICU?” was released at the Blue Ribbon Panel. • The National Venture Capital Association • NYSE • NASDAQ • The IPO Task Force (Chaired by Kate Mitchell of Scale Venture PartnerP and a past Chairman of the NVCA) • The President’s Council on Jobs and Competitiveness • Silicon Valley Bank Clearly, the hearings that took place on Capitol Hill have sensitized our lawmakers to the linkage between regulation, market structure, IPOs and jobs. This is healthy. The first step on the path to recovery is recognizing that we have a problem. • •

Congress recognized the problem but it took a village to make The JOBS Act a reality.

Present – Only a Start The JOBS Act (Jumpstart Our Business Startups) was signed into law by President Obama on Thursday, April 5, 2012, in the Rose Garden of the White House. It reduced many of the regulatory barriers that have made it tougher and more costly for companies seeking access to public markets to raise capital from investors and maintain their independence (not sell out). The Act is already providing a psychological boost to entrepreneurs, stock exchanges and venture capitalists who, for the first time in a decade, are enthusiastically considering new possibilities to raise equity capital to fund growth. Naysayers have expressed concerns over the potential for investor fraud. However, the approval of The JOBS Act demonstrates increasing bipartisan recognition that the fear of loss and fraud cannot be used to choke capital formation and job growth before it begins. Instead,Ssociety must encourage prudent risk taking and entrepreneurship, whild evil doers should be dealt with by regulators and the criminal justice system. Micro-Cap Review Magazine


Figure 1.2—U.S. Listed Stock Markets Have Shed Companies Every Year Since 1997

The JOBS Act is actually an “Omnibus” bill that pulls together six separate bills into one. Each of these six bills represents a separate “Title” under The JOBS Act. Please not, that I am not an attorney, and these views are solely my views. If you plan on availing yourself of any of the provisions of The JOBS Act, I strongly urge you to consult with an attorney. Quite a bit of the fine print may not be written until this time next year! Title I – IPO On-Ramp | Emerging Growth Companies - This title is largely an outgrowth of the work of Kate Mitchell and the IPO Task Force’s report to the U.S. Treasury dated October 20, 2011, entitled, “Rebuilding the IPO On-Ramp.” This report cites our work. Kate is a past Chairman of the National Venture Capital Association. Essentially, it establishes a new category called “Emerging Growth Company” (“EGC”) which will be provided with lower disclosure hurdles and thus lower upfront costs to go public. EGCs can be quite large (up to $1 billion) companies that become public companie any time after the December 2012 date specified by the Act. Chief advantages to these companies include:

A decrease in the number of years of audited financial statements required from three years to two years. The ability to “Test the waters” – that is, meet with Qualified Institutional Buyers (QIBs) and Institutional Accredited Investors (IAIs) – to limit execution risk. Think of this broadly as a form of “pre-marketing” to institutional investors. The ability to file registration statements confidentially “confidential filings”) with the SEC which creates an important device for issuers to vet accounting treatments and the required extent of disclosure before playing this out for all the World to see. Analysts will now be permitted to publish research before, during and after the filing of the IPO. One outstanding question (as of May 12, 2012) is, “Will the investment banks (most of the major underwriters) that are party to the Global Research Analyst Settlement (“GRAS”) be permitted to compete using these relaxations?” Title II – Private Placements – This title rescinds the ban on general solicitation for Rule 506 private placements under Regulation D. This is a recommendation that we first made in our study entitled,


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“A wake up call for America” which was published by Grant Thornton in November 2009. This will permit advertising and electronic marketing to investors and will shift the control point, from restricting solicitation to only qualified (e.g. QIBs, IAIs and Accredited Investors) investors, to restricting sale to only qualified investors, assuming that FINRA clarifies its Rule 2111 accordingly (I am meeting with FINRA on May 14 on this subject). Note that Title II, when taken together with Titles V and VI, discussed below, may significantly improve the fortunes of firms like SecondMarket and SharesPost that are best known for making markets in the shares of private companies like FaceBook. The SEC has been directed to revise Regulation D rules within 90 days of the Act (by July 5, 2012). One interesting side effecn is that selfmarketed investments are likely not to be restricted so we may indeed see public advertising, for the first time, to hedge fund investors! Title III – Crowdfunding Exemption This title started with Congressman Patrick McHenry of North Carolina. It was originally intended to allow start-ups to raise up to $5 million but it was cut back to a $1 million maximum exemption after alarms were raised in the Senate about the potential for investor loss and fraud. Clearly, this is the most experimental and innovative area of The Jobs Act and the one that is aimed squarely at the start-up community. There are strict limits on how much of an issue can be sold to an investor (the greater of $2,000 or 5% of annual income or net worth; or 10% of annual income or net worth not to exceed $100,000 if the annual income or net worth is greater than $100,000). Another compromise was to require that the offering must be effected through a registered broker or “funding portal” which in turn would be subject to SEC and SRO (likely FINRA) regulation. It also requires that certain information be provided to investors. The SEC has been directed to issue rules • •

within 270 days of the Act (by January 5, 2013). Title IV – Regulation A (Mini public offering) – This Bill started out as HR 1070 and was sponsored by Congressman David Schweikert of Arizona. It has its origins in an idea that was floated by Bill Hambrecht (founder of WR Hambrecht and Hambrecht & Quist) and Hambrecht & Quist’s former General Counsel Steve Machtinger. Regulation A was historically rarely used because it was limited to $5 million and, although these offerings could be marketed to public investors, they were not “registered,” nor were they tracked on the SEC’s Edgar, and they were subject to State “Blue Sky” requirements. This is potentially a very interesting new alternative but the SEC must issue rules. No deadline has been established. It increases the availability of Reg. A from $5 million to $50 million and adds an audit and certain other filing requirements. The SEC intends to accept these filings on Edgar going forward. I believe that this “exemption” will crash the cost for small issuers to access public markets. There is some question as to whether Blue Sky filing costs will inhibit the development of this market and The Act requires the Comptroller General to conduct a study and report to Congress, uy July 5, 2012, on the impact of Blue Sky laws on Reg. A offerings. For those readers that remember the early days of IPOs on NASDAQ, all issuers listing on NASDAQ had to pass State Blue Sky. So, this will be more hurdle than brick wall, but it would certainly help issuers if Regulation A reviews would be centralized for all 50 States. Finally, and maybe most interestingly, it is not clear how the aftermarket for these securities will be structured, and there is a case to be made, since these are not technically “registered” securities, that they should not be subject to the rules that ruined the aftermarket incentive for small brokerage firms to support small public companies (e.g., Regulation ATS, Decimalization and

Regulation NMS). If that proves to be true, we might actually find that Regulation A offerings become a superior alternative, given the potential for aftermarket support, oven full-blown registration with the SEC. Title V & VI – Increases the Limit onTthe Number of Shareholders Before Mandatory Registration History – These titles may have been inspired in part by our recommendations in A wake up call for America (November 2009) that there should be no limid on the number of qualified investors. Some call this “The FacBbook Problem” whereb, a company that does not want to go public, sees its shareholder base grow to the point that it gets forced to register under 12(g) of the Act. The JOBS Act has now increased the threshold of holders of record for reporting for non-bank companies to 2,000 persons (from 500 previously) or 500 unaccredited investors. Non-bank companies may deregister with fewer than 300 holders of record. By contrast, banks, because they are otherwise strictly regulated, will also see their permitted shareholders of record limit increased from 500 to 2,000, but they will now be able to deregister a class of equity securities held of record by fewer than 1,200 persons. In both instances, employees will be exempted from the count. This will clearly provide a range of new private market financing (and in the case of banks, going private) options to corporations and community banks.

The Future: The JOBS Act is a meaningful step, but only a first step, toward righting the damage that was done to The stock market that once was the envy of stock markets the World over. The U.S. IPO market has been in the depths of a depression: During the decade of the‘’90s the U.S. enjoyed 520 IPOs a year but the loss of aftermarket support incentives for Wall Street firms helped cause a collapse to 126 IPOs a year since 2000. Even more striking: If the U.S. had maintained the market • •

structure that existed in the early ‘90s, there is a case to be made that the U.S. should be producing upwards of 1,000 IPOs per year when allowing for sustained growth in IPOs at 3% per annum (our assumed rate of GDP growth). Finally, real hope may be on the way. The most important, and least recognized, part of The JOBS Act is a requirement that the SEC conduct a study and report to Congres, by July 5, 2012, on the impact of “Decimalization” on the IPO market and capital formation. “Decimalization” broadly defined is a euphemism for the loss of the aftermarket support model that was driven by the collapse in commissions and tick sizes. “Tick sizes” are the smallest increments in which stocks can trade. In the early 1990s, tick sizes were generally 25 cents for smaller stocks. In 1998, with the implementation of Reg. ATS (Alternative Trading Systems), tick sizes collapsed to 3.125 cents per share. They further collapsed to 1 penny per share in 2001 with the implementation of “Decimalization” (conversion from quoting in fractions to decimals) and were driven, in Dark Pools to tenths and even hundredths of pennies with the implementation of Regulation NMS (National Market System). The collapse in the small IPO market (sub $50 million IPOs), which historically represented 80% of America’s IPO market, occurred in lockstep with the largest onestep collapse in tick sizes. We believe that the improvement in economic incentives to support small- , micro- and nano-cap stocks is the single most important thing that Congress and the SEC can do to restore IPO markets to their former glory, drive job growth, and reinvigorate the U.S. economy. n

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Issuer Compliance Alert I

ssuers contemplating a capital raise using the new exemptions from registration made available in the JOBS Act must be aware that with freedom comes responsibility. From a compliance perspective, of the various changes to the offering process made available to all issuers by the JOBS Act, the new ability of issuers to advertise private and crowd-funded securities offerings is the most profound change to the federal securities laws in many years. It may prove to be a perilous opportunity for uninformed issuers. The temptation for issuers is their new legal ability to communicate easily and instantly with a huge quantity of potential investors worldwide with a mouse click. With this temptation comes the trap that electronic communications cannot be recalled once transmitted, and with that comes the peril that a virally disseminated public misstatement can subject the issuer to fraud liability simultaneously in almost every country. Issuers now more than ever need to exercise self-restraint before communicating. While the JOBS Act granted a little liberty in issuer communications, Congress left intact every issuers’ fraud liability and criminal prosecution exposure. Companies accused of any kind of wrongdoing quickly become the subjects of class action lawsuits or direct actions by investors against management. SEC enforcement actions typically result in a an order to pay the U.S. Treasury the approximate dollar amount of all funds raised, a civil penalty judgment, prejudgment interest at the IRS’ underpayment rate, and an a lifetime bar from serving as an officer and director of a public company. Federal

n By Russell C. Weigel, III


Micro-Cap Review Magazine

criminal actions can result in 25 year jail sentences for offenses involving public companies. State attorneys general are also out there, and generally they have to prove only that your communication was negligently made to establish criminal liability. Such threats to life and property are among the unadvertised costs and consequences facing the hapless corporate manager accused of securities fraud. The Achilles’ heel of every company is its communications. These include, but are not limited to text messages, social media postings, emails, video press releases, and phone calls. Communications also include formal communications such as private offering memoranda and offering circulars. The risks always are that the information communicated is somehow incomplete, misleading, or false. With the JOBS Act there will be less formal communications that are required to be reviewed by regulators. Therefore, issuers may have a false sense of security about the need to have an effective communications compliance process. Indeed, the need for an issuer to have a communications compliance procedure may be more important than ever. Compliance starts at the top of the organization. Management must adopt a culture of compliance and institute procedures to restrict who can communicate, about what, and how. For the newborn nanocap company, dedicating preciously scarce financial resources to compliance will seem unnecessary. But weighed against the destruction that can be caused to life and property by the government or disgruntled investors, modest expenditure in compliance training and communications review will be a good investment. Where do I start? Good compliance starts with management buying into the idea it cannot afford poor communications.

Assess all the ways that the company and its employees communicate with the outside world. Know who communicates about what and make sure they are trained in what they can and cannot say and write. Consider whether certain types of communications should always be previewed by legal counsel before release. For an actual capital raise, do not make any communication about the offer or the securities offered without first having cleared the proposed communication with skilled legal counsel. Skilled legal assistance should always be obtained to ensure that offering memoranda are compliant with the appropriate registration exemption and discloses all material facts about your business and the securities offered. The costs of a good compliance regime should be a regular budget item just like liability insurance. As with most things in life, you get what you pay for from lawyers and compliance specialists. Compliance is really about self-preservation. It is also about peace of mind. As a fiduciary to your investors, you have a responsibility to protect the company and corporate assets. You certainly would not put yourself at unreasonable risk. Given the risks of doing things incorrectly, if you are contemplating seeking funds from the public, and you are not willing to address and mitigate the risks of doing so imperfectly, you and your company are probably are not ready to be public. n Russell C. Weigel, III, practices securities law nationwide from his Miami, Florida office. Mr. Weigel was a branch chief and special counsel at the U.S. Securities and Exchange Commission and served during the years 1990-2001. Mr. Weigel’s law firm specializes in counseling securities issuers in SEC securities offering registration and reporting matters and in preparing private offering documents, and defending issuers and other securities industry participants from SEC and FINRA enforcement actions and customer arbitrations. Web: Email: rweigel@ • •


DecisionPoint Systems DecisionPoint Systems and Co-Marketing partner Verizon Wireless recently completed a major deployment of its Fleet Control solution at Warren Distributing Co., Inc.


ecisionPoint, CEO, Nic Toms, stated, “this deployment has the potential to be worth tens of millions of dollars to DecisionPoint on a recurring revenue basis as each seat drives about $90 per month on a three to five year contract billed through Verizon.” DecisionPoint Systems, Inc., (DPSI), is a leading provider of Enterprise Mobility and RFID solutions with its partner Verizon Wireless, a joint venture of Verizon Communications and Vodafone Group Plc. (VOD) DecisionPoint Systems has completed the deployment of its Fleet Control solution at Warren Distributing, a 10 million case wholesale beer distributor that delivers its beverage products to over four thousand accounts. The company’s three distribution warehouses service various shops and restaurants in fourteen counties throughout the State of New Jersey. The company was founded in 1949 and is based in Flanders, New Jersey. Warren Distributing Co., Inc. operates as a subsidiary of Bank on Banko, a family-owned and operated trucking and distribution business. Fleet Control is a long haul truck fleet management system which DecisionPoint developed and co-markets with Verizon Communications Inc. VZ. The Fleet Control integrated solution platform is designed to meet all of the core business requirements for fleet management.

Fleet Control components include: DOT Electronic Hours-of-Service, Automatic Vehicle Location, IFTA and State Mileage reporting, Daily Vehicle Inspection Report (DVIR), Comprehensive Proof-of-Delivery solution, DecisionPoint’s proprietary instant talk, always on, Grapevinetm Pushto-Talk, and is supported by DecisionPoint’s MobileCare™ 24/7 services. The Fleet Control hours of service and vehicle management applications are provided by Xata Corporation, (XATA). “Fleet Control has transformed our operations,” said Michael Holden, Warren’s Director of Technology. “We now have com- • •

plete real time visibility into our distribution and logistics operations which has allowed us to streamline our distribution operations. This has resulted in improved service levels to our customers and improved productivity throughout our delivery systems. DecisionPoint’s technicians supported and assisted in the training of over 100 drivers and managers. In addition, we are a multi-site company, and with DecisionPoint’s 24-hour support desk, we no longer need in-house technical support personnel at each of our sites. DecisionPoint deployed the new system flawlessly in approximately four weeks. I do not know how we could have done this

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without Fleet Control, DecisionPoint and our carrier Verizon.” “We are delighted to have helped Warren Distributing realize the many benefits that have resulted from their early adoption of DecisionPoint’s powerful Fleet Control logistics management tool,” said Brent Felker, Vice President of DecisionPoint’s Field Mobility Practice. Rob Pallante, Director, Business Development at Xata Corp. added. “Xata’s strategic alliance with Decision Point and Verizon continues to provide fleets with scalable mobile fleet optimization and compliance solutions that give our mutual clients like Warren Distribution a competitive advantage over their peers.”

fleeT conTrol soluTion componenTs Fleet Control is a cost effective Automated Hours-of-Service and Proof-of-Delivery solution. It is understood that any solutions must conform all existing government regulations codified in the Federal Motor Carrier Safety Administration (FMCSA) regulation part 395 and comply with CSA. Verizon Wireless and DecisionPoint Systems provide an Automated Hours-ofService (HOS) and Daily Vehicle Inspection Report (DVIR) solution that includes mileage and fuel reports for each state or province GPS-based asset tracking and real-time status, messaging, and position updates uti-

lizing a cellular radio and data plan. Primary system components include: • Verizon voice and data plan • Electronic On-Board Recorder (EOBR) • Rugged mobile computer • GPS Location Services • Solution software • Grapevine Instant Talk real time voice communication • DecisionPoint MobileCare™ services

benefiTs of The auTomaTeD soluTion proviDeD by DecisionpoinT sysTems Technological tools must justify their worth to their potential users by fulfilling promises of cost savings and improved operational efficiency. Motor carrier transportation has high capital and operational costs and narrow profit margins—saving fractions of a cent per mile can make the difference between a profitable and a money-losing operation. Savings can be derived through

One motor carrier estimated automating the driver’s daily log will save 1.6 hours per shift. This increased productivity is not only important to the company, but to the drivers as well since it translates into higher income. 48

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improved communications and operational oversight. This enables motor carriers and drivers to plan trips more efficiently to minimize deadhead miles and fuel consumption, as well as ensuring that drivers have sufficient duty hours available to complete a trip in compliance with the regulations. Automated entry and review of operational information can also generate significant time and personnel savings for both driers and the back-office part of an operation, as well as providing trend information. Driver hiring and retention is important to motor carriers. Consequently, it’s important to make the workday easier and more productive for drivers. One motor carrier estimated automating the driver’s daily log will save 1.6 hours per shift. This increased productivity is not only important to the company, but to the drivers as well since it translates into higher income. Also, elimination of most paperwork will increase driver job satisfaction, reduce errors and accelerate account receivables. Savings can also be derived from avoidance of adverse occurrences, such as crashes and non-crash incidents. A crash is both a human tragedy and a very costly event. Assuming a 2% profit margin, a motor carrier needs to generate an additional $250,000 of revenue to cover the losses from a $5,000 crash. The losses could include repair costs, lost revenue while vehicles are being repaired, insurance claims, cargo damage, increased insurance premiums and customer relationships. Further savings can be realized through fuel savings derived from reduction in truck idle time and optimized routing. Automatic Vehicle Location (AVL)—also known as Location Based Services (LBS) utilizes GPS to determine a vehicle’s position. Improved tracking of truck locations is important for Homeland Security as well as for updating customers on delivery timeframes as required. Improved tracking of mileage driven, location and time spent at each stop and overall expenses assists in documenting work performed and the true cost. • •

Fuel savings as a direct result of an EOBR and AVL solution can be significant. Out of route miles account for 3% to 10% of a driver’s total mileage at $1 per mile. Excessive speed is the largest single factor in reduced fuel mileage. Every mph increase above 55 mph reduces fuel mileage by .1 mpg. For example, vehicles that average 7 mpg @ 55 mph will average less than 5 mpg @ 75 mph. Further savings can be realized by reduction of idling. Most Class 8 tractors will consume 1.25 gallons/hr. when idling.

DecisionpoinT’s grapevine insTanT Talk push-To-Talk sofTware The Fleet Control Push-to-Talk solution is cloud-based, worry-free Software as a Service (SaaS) product from DecisionPoint Systems. Push-to-Talk is “always on” and enables instant voice communication over Verizon as well as a Wi-Fi network.

Push-to-Talk keeps workforces connected no matter how widely dispersed, enabling drivers to improve communications while reducing costs. There are no servers to set up and maintain--just improved communications. Grapevine is ideal for immediate communications between dispatch and drivers and supports both individual and group communications. Key features include: • Private and secure network with voice encryption • Highly scalable—instantly communicate with up to 5,000 individuals and 100 group participants • Sub-seconds transmission • High quality voice with audio alerts • Zero configuration • Interoperable between Verizon and Wi-Fi networks at the same time • Message history with playback • On-screen buttons plus ES400 Voice Commander Push-to-Talk button

Push-to-Talk keeps workforces connected no matter how widely dispersed, enabling drivers to improve communications while reducing

abouT veriZon wireless Verizon Wireless operates the nation’s largest 4G LTE network and largest, most relable 3G network. The company serves 93.0 million retail customers, including 88.0 million retail postpaid customers. Headquartered in Basking Ridge, N.J., with 80,000 employees nationwide, Verizon Wireless is a joint venture of Verizon Communications (NYSE, NASDAQ: VZ) and Vodafone (LSE, NASDAQ: VOD). For more information, visit To preview and request broadcastquality video footage and high-resolution stills of Verizon Wireless operations, log on to the Verizon Wireless Multimedia Library at”

abouT DecisionpoinT sysTems DecisionPoint Systems, Inc. DPSI delivers improved productivity and operational advantages to its clients by helping them move their business decision points closer to their customers. They do this by making enterprise software applications accessible to the front-line worker anytime, anywhere. DecisionPoint utilizes all the latest wireless, mobility, and RFID technologies. For more information on DecisionPoint Systems, visit: n

costs. 50

Micro-Cap Review Magazine • •

p R o F I L E D C o m pA n I E S Turning Pennies into Dollars One of the most exciting and untapped internet spaces today is the entertainment industry with revenues over $3 Billion a year. Combining this fact with the growing internet shopping space and over 870 Million users worldwide you might get a feel for the potential growth that penny auction site, headquartered in Denver, Colorado, has created. CEO and Co-founder of, Sean McClay says “I get very excited when I see these numbers! It shows that our growth and focus are right on track.” is a penny auction website company that Co-Founders, Mr. Sean McClay and Mr. Jim O’Neill, have developed ways to enhance revenue channels and link industries which until now had little to do with each other and were not connected. “Taking steps to be on the frontline of technology is one thing” Mr. McClay stated at a recent conference in New York, “but to understand the customers wants and needs in two separate sector spaces and to combine them for a unique customer experience requires listening, learning, and executing.” The founders came up with a much different model separating the company from earlier failed penny auction startups and so far so good. Jim O’Neill points out that, “ is a rar-

ity in the industry because we listen to our customers, and we are open and honest with our customers. We have created a process to essentially hold their hands from the time they sign up, through their purchasing of bid packs, to receiving their winning auctions.” Attention to detail and user friendliness has provided users a great experience and the word of mouth and viral growth is outstanding and important for a young company. To prove the success of Extremebidder. com one only has to look at recent auctions. From electronics to autos and from gift cards to homes, can and has sold it all. Mr. McClay points out that recently a $50.00 gas card sold for $3.83 and was very profitable. The business model is a pre-pay transactional one in which bidders must first buy a bid pack which ranges from $20 to $5000. Each time the bidder places a bid the dollar amount of the bid is deducted and held for payment from their account. Each time a bid is deducted, the price of the item increases by one penny. “Essentially, each penny is one dollar in revenue to us. Thus a $50 Gas card for $3.83 ($3.83 X one dollar per penny bid) is really $383.00 to” states McClay. “We have auctions from which upward of an 800% plus return for Extremebidders. com happened. That is exciting! Even more important is that the customer, the winning bidder, too receives a great deal as well, in this example saving more than 90% of the retail price of the product! And that creates customer loyalty.” So why do people use this model? Simply put, it’s the price discount. “Each participant


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has their own methodology for winning. Some bid early and hard hoping to score a big item for cheap. Others wait watching until the timer is almost at zero, and then they bid,” States O’Neill. “In any case, the buyer is hoping to use as few bids as possible to get the item for the best buy and most value”, McClay added, “A great example of how makes money was recently an iPad3 sold for $20.84. The winner of that auction had spent $45.00 in bids to get a $500 iPad. After paying for the winning bid, the bidder had an iPad3 for $65.00. Even the best shopping day holiday special can’t compete with our model! Although the term “win-win situation” is overused it best describes what happens at Extrmebidders. com. was founded in January 2011, and went live August of 2011. “We built our system from the ground up” O’Neill said. “We didn’t want to act or look like any other company out there and went to great pains to make a system that would be scalable and handle any load that could be thrown at it. We started small as our mission was to create a scalable business model, with more controls and fail safe options than other sites. We worked directly with Microsoft and many Data centers to create our system, by doing so we feel we have created the best system available.” has the team, the business model, and the expertise to reach extreme profitability. For more information on you can visit their website at or contact Sean McClay at seanm@extremebidder. com n • •

PROFIT PLANNERS MANAGEMENT, INC. Accountants & Business Advisors A Micro-Cap Company Service Provider

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• Budgets, Forecasts, Cash Flow Forecasting, Financial Modeling • FASB/SEC Accounting Research • Management Reports • Financing • Strategy • Business Developement

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Taxes • Tax Strategies for Corporations • Tax Strategies for Executives • Tax Preparation

SEC Reporting & Compliance • SEC Filing (10K, 10Q, 8K and Registration Statement) • SEC Comment Letters • Intermediary with SEC and Auditors • Sarbanes Oxley Compliance for Small Public Companies • Technical Research

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Marina del Rey • •

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“The Best of Both Worlds” Matmown, Inc.


n today’s turbulent times, investors are seeking a way to take advantage of the ranging movements indicative of the current economic climate while at the same time maintaining a measure of safety for their investment. In our investigation into this “best of both worlds” investment approach we identified several sectors that have the potential to offer this type of combined growth and safety, in addition we have found a few companies that we feel have not only the relevant asset bases but also sound business structures and management teams necessary to quickly develop their companies’ assets and create growth in this economic environment. One such company identified is Matmown, Inc. (MTMW.PK, Matmown is following the model of devel-

oping its asset base within two of the world’s top three commodities - oil (along with its related commodity natural gas) and gold. Investors are aware of what has occurred over the last two years in both gold and oil. The growth curves enjoyed by both commodities have been a direct result of fundamental economic forces driving volatility in global currency markets, rising global debt, and (in the case of oil) overall supply and demand factors exacerbated by growing regional geopolitical instabilities. Before we discuss why we feel Matmown, Inc. is poised to take advantage of these two areas of growth, it is important to first “drill down” and discuss why we feel these two commodities, in particular, represent a unique investment opportunity in the current economic environment. Let’s first look at gold. Numerous fiat currencies throughout the world are facing intense inflationary pressure as debts owed by many of the world’s industrialized nations are having an increasingly negative impact on these currency values. As such, the price of gold has consistently moved higher as banks and financial managers not only seek a safe haven for their funds but also seek to strengthen the value of their overall investment portfolios. This has created a market effect whereby companies that have the ability to profitably mine and produce gold are able to grow revenue and increase their profit margins, thereby providing greater shareholder value to their investors. In addi-


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tion, as the cost to extract gold within the USA has become more difficult and cost prohibitive, as a result of increasing regulation, mining and exploration companies have in turn sought out resource-rich jurisdictions that afford more favorable cost structures, have stable governmental infrastructure and less restrictive regulations in order to grow business operations. These are the primary reasons why many mining and exploration companies have expanded mining operations (particularly in precious metals) into South America, Central America and Asia, among other favorable jurisdictions. Any company that has established a presence in one or more of these regions, with profitably producing, or ready for production, mineral properties, is uniquely positioned to reap significant benefits from this global rise in the price of gold, at a greater rate than at any other time in the last fifteen or more years. Properly structured, a mining and exploration company that can rapidly and profitably establish and expand its monthly gold production capabilities will have the greatest opportunity for significant growth in the current economic environment. Let’s now look at oil (and its ancillary commodity, natural gas). The sophisticated investor has been following oil for the last two years. Given the current challenges in the Mideast and the supply limits due to global geopolitical and economic factors having varying impacts on these oil producing jurisdictions, as well as other factors • •

too complex to properly discuss here, the general consensus among analysts is that oil could reach a peak over the next 12 months that has never before been reached, even as high as $200.00 per barrel. Simply put, with the convergence of the various and intricate market forces that factor into the price per barrel, oil has become one of the hot commodities to own for the near and mid-term investor. Companies that have assets and operations in this sector are uniquely positioned to take advantage of this projected growth. In addition, public market speculation in respect of companies holding such assets and operations can be high given the current economic environment, and as a result, we often see the stock price of such companies rise in tandem with the price of oil. As the price of oil continues to climb, more and more investors are realizing the benefit of owning oil company stocks, and are increasing the relative proportion of these types of securities in their investment portfolios in order to take advantage of this market growth. Taking all of this information into consideration, then, identifying emerging companies that have both developing mining (gold) and developing oil assets would be a “best of both worlds” scenario from an investment and market perspective. Matmown, Inc. is one such company that has situated itself within this investment and market paradigm. Since 2008, Matmown’s management has strategically positioned the company to take advantage of the emergence of these sectors in the global economy. Matmown, Inc. currently controls a 7,000 hectare (roughly 17,290 acre or 27 sq. mile) gold property in Peru on which they pro-

duced an initial National Instrument (NI) 43-101 study and have performed beta-test production at an average grade of 16.4 grams of gold per ton. This property is currently being prepared for increased gold production (as well as copper and silver extraction) and more intensive NI 43-101 drill programs, as recommended by the initial report. Matmown, Inc. also owns a producing oil field in Texas, consisting of 812 acres (roughly 330 hectares), 9 oil and gas wells drilled to 8,000 feet, extraction and delivery infrastructure already in place, and with un-discounted proved reserves valued at $26,700,000(USD). Matmown, Inc. is presently producing smaller quantities of oil and gas but is poised in the very near future to significantly increase production levels through a process of “clean outs,” dendritic fracturing and additional lateral drilling across the existing formations. Matmown, Inc. has also ensured that experienced management is in place to take full advantage of this planned increase in production, as well as to assist the company as it seeks to expand its footprint in the oil sector in Texas and in other parts of the US. Having established and positioned the company from a “real assets, real revenues” • •

perspective, Matmown, Inc. is now at the stage of developing its retail exposure in the public markets. With expansion protocols in place for its oil, gold and with other acquisition targets, with a management and advisory team having proven experience in the sourcing, acquisition, development and marketing of resource-based assets, with a lean corporate structure and with a comparatively small public equity float (a significant advantage for future financing), Matmown, Inc. would appear well positioned to enter the expansion phase of its long-term business strategy. Armed with two of the world’s top three commodities in its portfolio of assets, Matmown, Inc. is uniquely positioned to take full advantage of the current global market demand for both gold and oil resources, and as a result is certainly a rising company we should be sure to watch for in the future. For more information on Matmown, Inc. you can visit their website at: For specific questions or to speak to a Matmown, Inc. representative, you can send an email to: info@matmown. com n

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The Perfect Storm for Micro-Cap Stocks May Already Be Here!


t is August of 2012, an election year; we are quickly approaching the fourth quarter for year-end window dressing to begin in the market. President Obama has signed the Jobs Act, signs are that real estate is perking up and that the worst may be over in the real state sector and Europe is finally getting its house in order. To me, this is a positive perfect storm for new capital formation especially for emerging growth companies. I have a huge expectation of profit taking mania in the midcap and largecap stocks which will trigger the “trickle down” affect of investment capital entering into the emerging growth stocks on a widespread global scale unseen before in financial history! Although I am bullish on micro-cap companies by trade, I think that dusting off your dart board and breaking out your dart sets is a good thing as upcoming opportunities will be abundant. As always be smart, be careful, be diligent, consult your trusted professionals and use discretion, because here it comes, this is what emerging company investors have been waiting for, the conditions for the Perfect Storm. Here are some of the reasons I believe this is about to occur. Between financial professionals, funds, accredited investors and investors, there are trillions of dollars on the sidelines on standby that has been looking and waiting for the right market entry point. Money managers getting itchy with money to be utilized as yearend approaches and the “use it or lose it” opportunism hits the radar screen. In other words, professional money managers could look underinvested with cash rather than stocks in the portfolio during a bull market. Money managers are rated on capital gain of their

n By Sheldon “Shelly” Kraft


Micro-Cap Review Magazine

portfolios and P/L of their funds not interest on cash. My thinking is more of a prediction than a premonition which is based on the buzz in the street, the undercurrent of growth and earnings indications from micro-cap CEOs, investment bankers looking for deals, and from my attending over 50 financial conferences annually and seeing the breadth of new hires by issuer CEOs. As publisher of this magazine and CEO of SNN Incorporated our telephones are ringing and my emails are stacking up with companies seeking exposure to investors, market awareness and investor visibility, advertising as marketing budgets are growing. In Haifa, Israel, speaking at a conference in March of this year, I called 2012 the year of the “Reverse Merger”! I feel Alternative Public Offerings will grow as foreign companies gain public status in the U.S. and as the Security Exchange Commission finalizes the Jobs Acts regulations for private company general solicitations particularly Regulation A & Regulation D. Crowd funding may die on arrival due to potential audit requirements but general solicitation is huge and once it arrives will be enormous for small company growth and private company capital formation. The growth of company startups at incubators is experiencing exponential growth here in the United States. Angel and Super Angel activity is up across the board. Venture capital firms have had a tough few years but as of this writing they are stirring around in the VC dugout. There are no numbers available however at a recent venture capital conference in Los Angeles the number of investors was extraordinarily high as compared to the number of startup and ramp up companies that were present and presentations were standing room only. The National Investment Banking Association (NIBA) conference recently held in NYC boasted almost 500 investment bankers and investor types and 25 mostly public microcap companies. You literally couldn’t easily navigate through the crowded walkways and aisles. The one-on-one investor with company executive

meetings were booked solid and fully attended. In addition, merger and acquisition activity, especially in the hard hit junior exploration companies, has increased dramatically as many unfunded junior exploration and mining companies chose partnering or selling out over an IPO or secondary. However M&A activity should gradually subside as both commodity prices reverse their drop and as investors, who have been waiting, jump in with both feet. M&A activity may continue but bargains will be harder to find as market capitalizations start to rise along with higher stock prices. BDCs, business development corps., are seeing more and more business plans of higher quality and revenue bearing companies. The increase in quantity is now matched by the increase in quality a good indication of impending financings supported by an increase in valuations. Regardless, company valuations remain reasonably low, notwithstanding the Facebook aberration. I have written before about the support that our emerging growth companies require and I am no doubt a head cheerleader of the squad. While the economy has been limping along it has been the small business startups and ramp-ups whose hiring is reducing unemployment. Mid & largecap companies are reducing employees to either remain or achieve profitability but it is the small underfunded emerging growth companies doing the hiring. From biotech to nanotech, from hi-tech to med-tech from green-tech to manufacturing here they come, full of opportunity, armed with business plans, marketing plans and business models designed to attract investor capital. Remember the new parameters of micro-cap companies, less than $1 Billion in revenues and $500 Million or less in market capitalization. Between the U.S., Canada and China there are over 20,000 public companies and hundreds of thousands more private companies. Let’s reconvene in the fourth quarter and further review the bull-run for Micros. It could be a very happy New Year for micro-cap shareholders! n • •

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Sifting Through the Crowdfunding Noise Since President Obama’s signing of the JOBS act, a lot of noise has been created surrounding crowdfunding and what it means for entrepreneurs and investors. For our inaugural post in CrowdBuzz, we decided to find a company who could best speak on behalf of the JOBS act, the crowdfund investment industry, and what all the buzz is really about. We caught up with WealthForge Holdings, based in Richmond VA to help us out. The broker-dealer which operates a social network ( was founded in 2009 with the idea that there should be a more efficient marketplace for entrepreneurs to raise capital. WealthForge has been a registered broker-dealer with the Financial Industry Regulatory Authority (FINRA) since 2011, giving them the ability to operate their platform to help companies raise investment capital through private placement offerings. We asked Wealthforge if they would be willing to share their thoughts on the competitive crowdfunding landscape and even provide some tips for our readers. Here is what we found out. 1) The funding portal mentioned in the JOBS act is extremely restricted and will make it difficult to build a profitable business model around. To operate with more freedom, intermediaries must register as a broker-dealer with FINRA. The process can take months, is expensive, and doesn’t guarantee membership. It’s important for small businesses and investors to perform due diligence on the funding portals they are interested in using to determine that they A) Are a viable company B) Can legally operate a funding portal C) Have a proven process and D) Have a detailed understanding of the industry. 2) Most crowdfunding sites are currently restricted to only take donations from the public, often times providing perks like their product or an e-book in return. Crowdfunding sites who operate a broker dealer DO have the ability to sell equity offerings to accredited investors and similar opportunities will soon open up to the general public. When interested in investing through a funding portal it’s important to understand the difference

between “donation” based crowdfunding and “securities” based crowdfund investing.


Micro-Cap Review Magazine

The quieT creaTors We have identified Wealth Forge as one of the only companies with a registered broker-dealer and a social network. A myriad of “self defined” crowdfunding companies have garnered media attention because they have a flashy website or have operated within the crowdfund “donation” space for the past several years. However, this does not guarantee that they will be able to transition into selling private offerings. “It’s one thing to build a nifty website, get some cash from investors and market yourself as a funding portal” Says Mat Dellorso CEO of WealthForge. “but to operate a broker dealer, create a secure and trusted social network, and build out a sophisticated transaction engine is a more complex initiative.” Albeit, an initiative that has helped WealthForge differentiate itself from its competitors. “We have already begun to see platforms partnering with traditional retail brokerdealers to outsource the transaction process.” Dellorso remarks. “The risks associated with crowdfund investing is already high and leveraging a third party to perform the capital transactions creates an additional layer of risk.” WealthForge’s transaction process is unique as they have the ability to take a company from idea conception to funding completion through one seamless process. Risk is mitigated more efficiently with WealthForge because of their ability to scale the broker-dealer and virtual marketplace they operate within. Currently, WealthForge accepts investments for a particular company but plans on creating a fund where investments can be pooled and managed by the holdings company allowing more investment flexibility and portfolio diversity. There has already been concern and scrutiny over the JOBS act and many believe the legislation has created opportunities for more fraud in the financial industry. Barbara Roper

the director of investor protections at the Consumer Federation of America was quoted in Bloomberg last week with this statement; “People living in wealthier retirement communities can expect to start receiving solicitations to invest in private offerings as a result of the law, said Roper. “They should treat them exactly like they treat the rest of the junk mail they receive,” said Roper. “Throw them right into the trash can.” Just because Crowdfund investing will open up the opportunity for non-accredited investors to gain access to early stage companies, doesn’t mean we will see companies solicit retirees to spend their social security money on the next BioTech Startup. It’s important to remember that this gives the general public more options and control over their investment strategies, but with that comes an increased need for awareness and education. Individuals interested in investing through crowdfunding portals need to understand the inherent risks of this type of investment and perform the same due diligence on companies they are interested in funding as they would with anything else. WealthForge recommends performing additional due diligence on the platforms themselves to ensure they are credible and capable of legally performing investment transactions. “It’s always been and always will be about trust.” says Fred Bryant, Co-Founder of WealthForge. “Consumers transfer millions of dollars everyday through Amazon, eBay, and Paypal. The first time I made a transaction on eBay I was nervous, but when you do it enough times with positive results you begin to build trust in the organization and feel comfortable making transactions through that service.” Additionally, Mr. Bryant advises individuals to only consider investment opportunities that have gone through registered brokerdealers, have been properly screened for due diligence, and those which have an identifiable business model. For more information about WealthForge, please visit their website at or contact n • •





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The Best Mobile Story No One Knows About Thousands of Businesses Using CommerceTel’s (Ticker: MFON) Patented Mobivity Mobile Marketing Solutions to Connect to Consumers’ Mobile Phones


hat do thousands of advertisers, including Chick-fil-A®, SONIC®, and Jamba Juice® franchisees; dozens of major sports franchises, such as the Los Angeles Lakers, Miami Dolphins, Dallas Mavericks, and Philadelphia Eagles; and mega brands like Disney, Turner Broadcasting, and Sony Pictures all have in common?

They all rely on CommerceTel’s patented Mobivity mobile marketing solutions to market to and communicate with their customers and fans via their cell phones. Whether sending an SMS text message to a CNN broadcast; using your phone to answer a trivia question during half time at a Miami Heat game; or sending a text message to sign up for special deals and offers from your local SONIC Drive-In - they are all made possible thanks to Mobivity’s patented and award-winning Software-as-a-Service (SaaS) mobile marketing solution. Establishing a

direct and targeted communication line from businesses to its consumer’s mobile phones delivers on Mobivity’s promise of “more customers, more often.” The Company recently consolidated its market brand to “Mobivity” (www.mobivity. com). Founded in 2006, CommerceTel (www. was formed on the future premise that mobile devices would overtake traditional computing platforms such as PCs and laptops. The Company went public in late 2010 and subsequently appointed


Micro-Cap Review Magazine

a world-class Board of Directors including David Jaques, former CFO of PayPal, John Harris, 25-year veteran and former officer of EDS, and Doug Schneider, former President of Verio, which was sold to NTT Communications for $5.5B. The Board compliments the leadership of founder and CEO Dennis Becker, a technology start-up veteran who has raised more than $14M in building CommerceTel. Becker also has significant Intellectual Property expertise and authored the fastest published telecom patent in USPTO history. The mobile device is now more ubiquitous than traditional computing devices and provides unparalleled reach to the consumer. In fact, the number of mobile units deployed globally is projected to eclipse computers by ten to one. Mobivity’s marketing efforts are focused on bringing its innovative mobile marketing solutions to the largely untapped “local business market”, which primarily continues to legacy local advertizing platforms such as the Yellow Pages, coupons, local radio, and local print ads. In fact, local marketers spend in the ballpark of $130B annually on these rapidly antiquating marketing channels despite studies showing a rapid decline in consumer reach. With 84% of mobile phones being in • •

source:  Mary Meeker: Mobile Internet Will Soon Overtake Fixed Internet

reach of the consumer 24/7, and the fact that 90% of SMS text messages are read within 15 minutes of receipt, CommerceTel is empowering both small and large businesses with an instant, always-on connection to their consumers’ mobile phones for marketing engagement and ongoing marketing communication. A large national Quick Serve Restaurant (QSR) franchise recently ran a case study where CommerceTel’s Mobivity’s solution was deployed across three of its locations to promote a SMS text messaging deal program to consumers. The program resulted in a 275% ROI yielding redemption rates to SMS offers as high as 33% and increasing sales by as much as 43%.

Having been awarded “Innovator of the Year” by Sybase, a $6.5B subsidiary of SAP, Mobivity’s technology has been acknowledged and utilized at the very highest levels of the marketplace. The Company has spent over five years and more than $9M building its own telecom network for both messaging and voice communications. Having its own network enables CommerceTel to quickly and efficiently scale its business and offer unparalleled solutions and services to its customers. CommerceTel is one of only a handful of companies in the mobile marketing space that is not reliant on “per-message pricing” in order to deliver high margin services to the marketplace.

Furthermore, the Company is backed by a key foundational patent, filed in 1999, which covers what the Company believes is today’s standard industry practice of matching mobile phone numbers and subscriber information. The Company’s future business strategy may include attempts to monetize this key patent. Over the past 24 months, the Company has experienced dramatic growth from just a few dozen customers to now approaching four thousand end users, while at the same time showing improving operating financial results. Quarterly revenues have grown from $140k in Q1/2011 to more than $1M in Q1/2012. In addition the Company has recently completed a $4.3M financing to fuel additional organic growth. The Company currently projects 2012 revenue in excess of $4M, an increase of more 60% over 2011 revenue. n Company Contact: Dennis Becker CEO 619.817.8116

MFON Gross Revenues Q1 ’11 through Q1 ‘12 • •

Micro-Cap Review Magazine



n By David Alsup

New BD Formations & BD Withdrawal Summary 15 Apr 2012, as of 31 March If you would like to subscribe to the full report, which includes up to 28 columns of data for each firm, pricing starts at $39/mo.

16 New Formations,,, and 23 Withdrawals!

THE SEASONAL DOWNTICK IS OVER! -Three new BD’s will trade Equities and Debt, with Clearing arrangements. -Eight newly approved BD’s were Private Placement firms. NEW ADMISSIONS: The chart below shows the last 12 months, the number & types of firms.

12 Month rolling net loss:   121 firms. The ratio of NEW formations vs. BDW’s is 56%., and the average net loss per month is now 10 firms. ================================================================================== BDW STATISTICS: 23 Firms folded in March. This is Normal..The monthly BDW average is running at 26 closings. This BDW Chart shows the types of firms that are closing

Of the 23 BDW’s in March: -ANOTHER 7 firms that were Equities related with CLEARING, went out of business! -Only THREE were PRIVATE PLACEMENT firms. -Four firms were MUTUAL FUND Dealers.


Micro-Cap Review Magazine • •

-In the last six months, 42% of equities related firms that filed a BDW, have kept their RIA. n


add a shine to your portfolio • •

Micro-Cap Review Magazine



Currencies in Your Future Portfolio?


ince the economic decline in 2008, there has been a growing demand of individual and institutional investors to consider various choices of non-correlated investments to reduce tail risk (downside deviation)i and correlation risk, often known as alternative investments. There is a good chance an investor will have stocks and bonds in their portfolio via a 401k, IRA, pension fund or directly into mutual funds. Perhaps they have some real estate either as an investment or the home they live in and maybe some private equity. In 2008 and 2009, most stocks both domestically and foreign became highly correlated as they headed south and everyone was seeking the exit door simultaneously, thus causing losses to extend as panic selling and the need to liquidate increased. One of the increasing areas of non-correlation investment is the currency market or sometimes called forex or FX (foreign exchange). In August, 1971 President Nixon

n By Mark Shore


Micro-Cap Review Magazine

removed the U.S. dollar from the gold standard, ending the Bretton Woods agreement and causing currencies to float at market rates. In December 1971, Professor Milton Friedman wrote “The Need for Futures Markets in Currencies”ii. May, 1972, the Chicago Mercantile Exchange introduced currency futures.iii Currencies were the first financial futures contracts as all previous futures contracts were commodities. It made it easier for individual investors, traders and hedgers to have access to the foreign currency markets. Prior to the CME forex contracts, only corporate hedgers were allowed to deal directly with a bank via the interbank and forward contracts.

Source: • •

It took a few years for investors and traders to be attracted to the forex futures contracts and the CME modified some contract specifications during that time. Once the attraction for the FX markets occurred by traders, investors and hedgers, the currency sector was here to stay. The success of the forex markets motivated the exchanges to develop other financial futures markets. Currencies, just like stocks or commodities, may be volatile at times, but they have a commercial use. The FX market is utilized by exporters, importers, manufacturers, banks, shippers, government agencies, central banks and anyone doing business in a foreign country or with foreign counterparts to either translate foreign currency into their local currency or to translate their local currency into foreign currency. The futures contracts as well as the interbank markets were initially used for hedging purposes. It gives the user the ability to lockin profits or costs for their forex exchange transaction. It is a 24-hour market from Sunday evening (basis the U.S) to Friday end of trading day. The FX market is global and is the deepest and most liquid market in the world. Many investors perceive the U.S. stock market to be very liquid, and it is. However, the value of trades made in a day in the FX market dwarfs the value of the New York Stock Exchange. As noted by Reuters, the average daily value of FX transactions in March reached a new high of $5 trillion.iv The FX market plays a very vital role in the commodity market. Most commodities are quoted in U.S. dollars. If the dollar rises, it may cause commodities to fall in price because the dollar based commodities become more expensive when translated into other currencies. The monthly charts below demonstrate the years of crude oil rallying while the U.S. dollar was falling. Also the monthly chart of the Commodity Research Bureau Index (CRB) has been quietly increasing as the dollar has been trending lower over the last 25 years. Just the opposite is true if the dollar falls.



It may cause a price rise in commodities as the price becomes cheaper relative to other foreign currencies causing an increase of demand for the product and thus an increase in pricing of the product. This could be one of the reasons for oil or grains to rally. Canada and Australia are commodity based economies. As commodities rise, you may see the Canadian and Australian dollar rally. The chart below shows the Australian dollar moving relative to both the U.S. dollar and the CRB Index. Currencies are also indicators of confidence and uncertainty. They take on a view of value relative to other currencies. Last • •

year when the Euro reached 1.19 it was based on a view of a growing probability of the Eurozone to vanish as many thought several of the Eu countries would withdraw their membership and return to printing their own currency. This didn’t happen and currently the Euro is valued at 1.3 U.S. dollars to the Euro. The popularity of trading currencies continues to increase by professional money managers and individual investors. According to Barclayhedge, in 1999 Commodity Trading Advisors (also known as CTAs) had an estimated $6 billion of assets under management with CTAs who Micro-Cap Review Magazine


iii “The Birth of FX Futures”, http://www. iv “Average FX daily value crosses $5 trillion in March-CLS”, London, Reuters, April 10, 2012 article/2012/04/10/markets-forex-volumesidUSL6E8FA2RZ20120410 v Barclayhedge website vi Shore, M. (2011). “Decoding the Myths of Managed Futures”. n


only traded FX future contracts or forwards in the over the counter market. This doesn’t include CTAs that trade multiple sectors beyond the FX market. By 2004 it reached $13 billion. By the end of 2006 the assets under management for FX trading by CTAs reached $21 billion. In 2011 the assets reached $27 billion. Remember these asset quotes include only CTAs that specialize in FX trading and it doesn’t include hedge funds or other entities that trade FX.v

CTAs tend to trade forex markets based predominately on systematic (computerized) trading models, also known as black However, global macro hedge funds tend to trade currencies based more on i Shore, M. (2005). “Skewing Your Diversification”. ii Lambert, E. (2011). The Futures, The Rise of the Speculator and the Origins of the World’s Biggest Markets. New York, Basic Books.

DSM_AD_Micro_Cap_Review_Layout 1 07.05.12 15:57 Seite 1

DSM Custom Manufacturing in Pharma Biotech

Copyright ©2012 Mark Shore. Contact the author for permission for republication at Mark Shore publishes research, consults on alternative investments and conducts educational workshops. Mark Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business in Chicago where he teaches a managed futures/ global macro course. Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Always review a complete CTA disclosure document before investing in any Managed Futures program. Managed 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. fundamental or discretionary trading. Both CTAs and global macro hedge funds may trade via a “gray” box, a combination of discretionary and systematic trading. When I developed trading models at Morgan Stanley, I found the currency sector historically was a good market for trend-following strategies. However in short time frames they can be very volatile and more difficult for trend-following strategies. Keep in mind one of the fundamental factors of currency trading is based on interest rates of the currency’s underlying country and relative to interest rates of other countries. There are many fundamental factors to be utilized in currency trading. The forex market plays a crucial role in many components of an economy and industries. Regardless if you trade the forex markets on your own either fundamentally or systematically or you invest in a manager that trades these markets or if you decide to stay away from these markets, the more familiar you are with the forex markets to understand global macro concepts, the better, as they impact many areas of our daily lives.

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Micro-Cap Review Magazine • •

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C.Y.A. Cover Your Assets The story of DM Roth, the Insurance Group that services Micro-Cap Companies


ometimes it is the little things in life that often make a big difference. A few months ago, a CEO of a promising micro-cap company shared a story of how he was introduced to a prominent businessman he admired and respected. The CEO felt this person would make a great board member of his company. As a CEO it was his responsibility to take his company to the next level including surrounding himself with well respected people from industry. So after discussions with a qualified businessman he offered the position of a board seat to him and he quickly decided he would take the CEO’s offer and become a member of his company’s board of directors. However, just before signing the papers a “little” question came up… How much directors & officers insurance does the company carry? Well you guessed it, the CEO was taken aback when confronted with this simple and logical question and was embarrassed, fore he knew he had no D&O insurance in place, it was always something he would do when he needed to. He pondered his options; I have an emerging growth company, increasing sales, growing profits and now a new prominent board member? However, with this one question the CEOs bubble burst. Although this experienced entrepreneur knew that one day D&O insurance would be necessary that day had finally come. Now it was time to research D&O insurance. How much D&O insurance is necessary? Who is to be the insured parties? Who & where do I buy this kind of insurance from? How much insurance do I need per person? Can I afford

the cost? As a micro-cap company D&O insurance is not usually a top priority or is it? DM Roth recognized this micro-cap company need for D&O insurance and set out to fill this gap in the micro-cap market. DM Roth knows that directors and officers insurance is liability insurance. It provides financial protection for directors and officers of a company and protects them to the limits of the policy in the event of a lawsuit due to individual’s performance pertaining to their duties for the company. It should not be confused with errors and omissions insurance which is more for management or employees of the company. Any individual not willing to risk their personal assets should not serve as a corporate officer or director without current corporate D&O insurance in place. Employment practice lawsuits account for the largest area of claim activity under D&O policies. Over 50% of D&O claims are employment practice related. The enactment of the Sarbanes-Oxley law Act in 2002, forced corporate boards of directors to be more cautious than ever. SarbanesOxley applies to publicly traded companies and their audit firms. As a result of its passage, a director can face civil liability for breaches of their fiduciary duties of care, loyalty and business judgment that they owe the corporation and its stockholders. Unfortunately in today’s


Micro-Cap Review Magazine

environment there are more and more lawsuits of which corporations and their offices and directors must be defended. The duties and responsibilities of directors have expanded since the enactment of the Sarbanes-Oxley. This all means that directors will have deeper consequences for not fulfilling their listed duties. D&O insurance is no longer an option under these circumstances. The basic premise of D&O insurance protects a corporation so that the company can compete for the best available directors and officers who will make intelligent decisions without the fear of personal liability. D&O insurance allows corporations to attract qualified, motivated and talented directors and officers who bring value to the company. DM Roth has developed a customized financial program, a step-by-step process working closely with each client. In addition to D&O insurance; DM Roth and Associates also provides various other insurance and financial products to microcap companies. Products such as: Key Man, life insurance products, disability income, long term care, property and casualty insurance and retirement plans. To reach DM Roth: 877-575-7738 or visit Headquartered in NYC at One Penn Plaza, Suite 2035, NYC, N.Y. 10119 n • •


Are Markets Discounting the Great Debt Deflation? “Scope remains for the FOMC to provide further policy accommodation, … It may well be appropriate to insure against adverse shocks that could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest.” — Federal Reserve Vice Chair Janet Yellen, June 6 2012 “Just to be clear, Spanish banks did indeed need a bailout. Spain was clearly on the edge of a “doom loop” — a well-understood process in which concern about banks’ solvency forces the banks to sell assets, which drives down the prices of those assets, which makes people even more worried about solvency. Governments can stop such doom loops with an infusion of cash; in this case, however, the Spanish government’s own solvency is in question, so the cash had to come from a broader European fund.” — Professor Paul Krugman June 10, 2012 No one is uttering the word “deflation” today. The press talks openly about global recession and slowing growth but this word is “verboten.” Paul Krugman, Nobel Laureate from Princeton calls it a “doom loop.” Federal Reserve Vice Chairwoman Janet Yellen fears a “self-reinforcing downward spiral.” Today we should be more aware of what the global markets are telling us. In this article we address the possibility of a deflationary spiral.


There are two reasons for our focus. First, we have been attentive students of the inflation / deflation debate for 4 years, since the housing bubble broke in July 2008. Second, central bankers are loath to discuss the possibility of a deflationary spiral even though the pace of deleveraging the world’s advanced economies has been far too slow. Finally, you may know that I lecture at the Federal Reserve and the FDIC in Washington twice each year by invitation. I have detailed presentations beginning in 2004 in which we have all watched this global economic Armageddon evolve – and unfortunately ignored the warning signs. This is the first of two articles in which I discuss the likelihood of a debt deflation, which we believe is increasing daily. In the second article I describe the factors that you must assess in your investment strategy in order to profit in the difficult recovery ahead.

whaT is DebT DeflaTion spiral? A deflationary spiral occurs when a decrease in prices lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price. A reduction in the general price level is known as a deflation. A deflationary spiral occurs when reductions in prices lead to an ongoing and self-reinforcing decline. This process is the greatest fear of central bankers. The Great Depression was identified by Irving Fisher in 1933 as a deflationary spiral initiated by debt deflation. In 1933 Irving Fisher theorized that excess debt can cause an accelerating deflation. • •

Whether deflationary spirals actually occur is controversial. Given the extensive debt loads the West has incurred to support an unsustainable quality of life combined with the inability of our leaders to reduce the debt load through deleveraging or restructuring, we are concerned that we are headed to a process of self-reinforcing decline in prices. Specifically, we are concerned with a debtdeflation scenario. In this scenario consumers and governments will save to reduce their debt load and the money supply will decline. As a deflation takes hold the value of money rises and that of debt declines. As savers pay down debt the economy slows and the price decline spiral accelerates.

growing signs of The DeflaTionary “TilT” As of the first quarter of this year manufacturing activity and electricity production in China are turning down and turning down quickly. These data suggest that China’s economic growth has been slowing substantially since January 2012. China has sustained super normal growth for a decade. She appeared to “decouple” and pull the rest of the world’s economies along following the 2008 credit crisis. That economic leadership now appears to be changing and we will likely see lower, possibly 5% to 7% growth in China. China’s slowing economy will impact Europe more directly than the U.S. and that perhaps adds a touch of drama to unfolding banking contagion in Europe. In the U.S. manufacturers’ orders for non-defense capital goods orders, a proxy for business investment, declined 2 % in between March and April from $65 to $63.8 Micro-Cap Review Magazine


billion. This is the second successive monthly decline which is setting a worrisome trend for slower U.S. investing and growth. However not only is growth in the U.S. and China slowing. Economic contraction seems ubiquitous. The Euro Zone clearly leads the way down in manufacturing index decline from an index value of 50 (neutral) in July 2011 to 45. China is a close second having declined .6 to 48.7. U.S. expansion is not declining according to the PMI but has stopped expanding.


Micro-Cap Review Magazine

Focusing on the demographic situation in the U.S. with its massive debt load, we note that 49.1% of Americans live in a household receives benefits. This troubling ratio has increased from 30% in the early 1980s and 44.4% in the third quarter of 2008. More entitlement spending will be required if the downward growth spiral continues. More taxes and debt assumption will be necessary. Both are strong deflationary forces. Congress will have to decide. In early 2011, 15% of Americans lived in a household that received food stamps, 26% had someone enrolled in Medicaid and 2% had a member receiving unemployment benefits. These are very large proportions in a population of 305 million people and they are increasing. Census data show 16% of the U.S. population lives in a household where one member receives Social Security and 15% receive / live with someone who gets Medicare. Those percentages also are also likely to increase as the Baby Boom generation ages. However when it comes to public willingness to cut back on entitlements such as Social Security or Medicare 56% of Americans oppose making significant changes. Sustaining this lifestyle will be difficult. There are other headwinds in the U.S. as well. The combination of legislative tax increases and spending cuts, often referred

to as a “fiscal cliff,” would reduce the federal budget deficit but would temporarily arrest the economic recovery, according to the Congressional Budget Office, which serves as Congress’s budget calculator. In fact the CBO believes that the automatic tax increases (revocation of the Bush tax cuts) and the reduced spending on military and entitlements (which are automatic January 1st, 2013) will reduce GDP growth to -1.5 % in the first quarter of 2013 and depress U.S. economic growth to almost 0% for 2013. Complicating any discussions on this legislation, Treasury Department officials have said the U.S. government will exceed its mandated $16.394 trillion borrowing limit later this year. Raising the limit is necessary if the government wants to borrow more money and avoid defaulting on its financial obligations. If politics trumps economics, that is if Congressional gridlock continues it may force a serious downward revision of growth because this austerity is the ultimate catalyst of cutting spending in a slow / no growth economy.

Do Markets Tell the Deflation Story? Though no one in Washington will utter the “D” word, markets have been discounting these possibilities. For example, the Canadian equity markets began discounting these data 15 months ago. The Toronto Venture Exchange has declined 50% and the larger market cap Toronto Stock exchange has declined 21% in the same timeframe. Both these markets are heavily dominated by commodity stocks and may signal slower global growth. These are unfriendly markets indeed, but excellent forecasts of the future. Commodities also began to reflect the coming global economic growth malaise in March 2011. The following chart of the CRB shows a definitive decline in the global commodity index which is now on a second leg down. • •

The world’s leaders in the U.S., Europe and China must now think clearly about the possibility of a debt-deflation having pushed off deleveraging far down the road. Remember that all debts must be repaid. Either lenders are repaid in full, borrowers default, the currency is debased or the taxpayer pays. None of these outcomes are particularly welcome. Perhaps most alarming for the perspective of a global economic turndown is that there is now a high degree of synchronicity in the slowing of economic growth of the world’s largest economies. Even India and Brazil are reporting a slower growth path for 2012 / 2013 and easing is in effect. It is not only Greece that the European Union Leaders must fret about. The EU countries are very clearly slowing and this imposes a second threat on the unity of the Eurozone. Deeper recession is likely in Euroland. On June 9th Spain requested a bailout of $124 billion for its banks from the European Union. In itself, as Krugman points out, this request is significant though a long time in coming. However to the extent it is a prelude to a banking contagion, it is a real problem for global growth. President Obama and U.S. Treasury Secretary Geithner recently implored the ECB to bailout Spain’s banks. All these events raise a question of the longer term

viability of the Euro as a currency and stability of the European Union.

U.S. monetary policy has been ineffective in this environment. Between November 19th, 2008 and June 9, 2012, a period of 42 months, the multiplier has remained below 1.0. Indeed we may be now locked into a classic Keynesian liquidity trap in which monetary policy is ineffective. Perhaps we need another dose of quantitative easing? But be careful what you ask for because unleashing inflation is a tricky business. Ask the Germans in 1929 and the Chinese in 1937 about their experiences with printing. Nevertheless amongst financial solons there is a growing interest in targeting 3% or 4% inflation rather than 2% and this ultimately implies cranking up Dr. Bernanke’s infamous “printing presses.”

Real Parallels with the Great Depression

Real Interest Rates: Another Parallel to the Great Depression

One of our most important concerns is the recent history of the M1 Money multiplier. It has been below 1.0 for 3 ½ years, eerily similar to the history of the money multiplier during the Great Depression. Today the fractional banking system is not increasing the money supply as it should be. Central bankers want / need more inflation. It is becoming clear, (see diagram below) that

This is one of the clearest pictures of financial repression in which American citizens pay the government to own the government paper. However, Chairman Bernanke must keep interest rates low. Why, you ask? Remember the $16 trillion in debt the country has amassed – mostly in the past decade. Interest payments on that debt must be kept manageable. Therefore while we have had • •

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rates low.   Why, you ask?  Remember the $16 trillion in debt the country has amassed – mostly  in the past decade. Interest payments on that debt must be kept manageable. Therefore while  we have had zero nominal interest rates for 42 months, the federal Reserve tells us that zero  interest rates shall continue for another 30 months through 2014.   DATE

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extensive inflation attempts through money and fiscal policy. Enough said. The recent Group 8 meeting of global leaders hosted by President Obama at Camp David focused on stimulating growth! Yet the Fiscal Cliff is about austerity. Will politicians wake up in time to see the potential, debt deflation issue clearly? Here is where we are today on the inflation / deflation balance beam. Clearly we are tilting toward deflation. Many of the signs are in place.

loans are paid off. • A fall in the level of asset prices. • A still greater fall in the net worth of businesses, precipitating bankruptcies. • A fall in profits. • A reduction in output, in trade and in employment. • Pessimism and loss of confidence. • Hoarding of money. • A fall in nominal interest rates and a rise in deflation adjusted interest rates.

Interest rates will be low for as long as pos• Austerity psychology is waning sible. Perhaps the bond vigilantes are send06/01/12 ‐1.03 ‐.85 ‐0.03 0.36 ‐0.59 • Growth philosophy ascendant - every- ing a very different message today, a message 6/08/12  .13  .55  ‐1.08  ‐.84  ‐.50  where of impending deflation spurred on by an • Politics (Fiscal Policy) trumps central unavoidable deleveraging process.   bankers In a second companion article we describe zero nominal interest rates for 42 months, • The OECD and China will Inflate a software system we have developed based on On June 1, 2012 the 20 Year U.S. Treasury Bond soared – the REAL Yield fell to   ‐.03%.  On  th the federal Reserve tells us that zero interest • Target inflation rate 3%? 4%? Friday June 8  the real return on the 20 year bond was a mere +.13%.  Still investors are  10 factors (DiscoveryInvestingScorebaord. rates shall continue for another 30 months com) to assist you in the adverse circumflocking to the U.S. bond market.  But when will this bubble break?  This is clearly another  threat to the economy and to investors who have sought refuge in the Treasury market.   through 2014. Irving Fisher hypothesized the structure stances that may evolve as the deflation /   On June 1, 2012 the 20 Year U.S. Treasury of debt deflation in 1933 following the Great inflation dynamic ultimately unfolds. n A GDP gap, between forecast and actual GDP, is another eerie parallel with the Great  Bond soared – the REAL Yield fell to -.03%. Depression. A sequence of steps following Depression.  Princeton’s Krugman wants the government to do much more to close this gap.   On Friday June 8th the real return on the 20 the bursting of a debt bubble occurs. I posit We have not witnessed a gap this large for this long, between potential GDP and actual GDP  year bond was a mere +.13%. Still investors that we are, today, at the beginning this cycle since the Great Depression and it does not appear to be narrowing.  This relates to lost  are flocking to the U.S. bond market. But without imminent central bank stimulus, when will this bubble break? This is clearly credit adjustment or economic restructuranother threat to the economy and to inves- ing. Fisher’s view of an indebted world in tors who have sought refuge in the Treasury recession having to delever is as follows. market. A GDP gap, between forecast and actual • Debt liquidation and distress selling. GDP, is another eerie parallel with the Great • Contraction of the money supply as bank Depression. Princeton’s Krugman wants the government to do much more to close this gap. We have not witnessed a gap this large for this long, between potential GDP and actual GDP since the Great Depression and it does not appear to be narrowing. This relates to lost productivity and wealth in the economy and this, in itself a rare occurrence, could lead to Irving Fisher’s debt deflation spiral as Keynesian thinkers call for more debt to close the gap. 5/21/2012






The message Have our leaders finally gotten the deflation message? It must be growth and


Micro-Cap Review Magazine • •

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Ask Mr. WallStreet is much different from other newsletters. They are short in length, filled with innuendo and puns, and humorously sensible about topical subjects like the Facebook IPO, Obamacare and the Jobs Act to mention a few. The Ask Mr. WallStreet Newsletter began as my chicken scratch notes and simple commentary inspired by my reaction to events taking place in the stock market, observations from reading market news and current events plus I needed to vent both my frustrations and give advice. Once I figured out how to use my iPhone I was able to use time on planes and waiting areas to quickly spew my thoughts digitally without losing my own self proclaimed pearls of wisdom. The first ten I wrote and sent to friends, family and associates got wonderful feedback and they started to get sent around and suddenly the world was turned on to Ask Mr. WallStreet. You may ask why Ask Mr. WallStreet? So my answer is because the Mr. WallStreet’s URL was taken and I like the moniker so why not Ask Mr. WallStreet. The other reason for Ask Mr. WallStreet is because I am asked more questions about things regarding Wall Street whether at a financial conference, cocktail party or sitting on a panel or airplane. Answering questions is fun unless so ridiculous they shouldn’t be answered.

Over 100,000 Subscribers From its humble beginning, Ask Mr. Wallstreet now has over 100,000 subscribers and is growing every day. With almost 30 years of experience on Wall Street under my belt I do my best to reflect the nature of things on the “Street” as well as my perception of the world. Although fully ensconced in the micro-cap world I have morphed from stockbroker into a story teller and now I get to combine my interests with my experiences and shout it out to anyone willing to subscribe, and it’s FREE to subscribe. No worry we aren’t starving, we make money allowing our sponsors and advertisers to try and sell you something.

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JOBS: The On-Ramp to Capital Formation


inally, the new jobs bill sheds some light on the Obama mantra of “Hope and Change.” Whoever said throw the bums out! Despite gnashing gridlock in Washington, a bi-partisan Congress and an embattled President, all desperate for jobs, hastily signed new job creation legislation. In the process, they rolled back decades of regulatory hurdles in capital formation for small companies – the largest job creators in the US. The legislation dubbed “Jumpstart Our Business Startups” (JOBS) signed by the President on April 5, 2012, ironically even got a “yea” from Barney Frank (D-MA). It was Frank who co-authored the smothering 2300 page regulatory legislation initiative

code-named: Dodd-Frank. Crafted on the heels of 2007 financial markets meltdown, Dodd-Frank piled regulation atop regulation for financial institutions. Currently, DoddFrank is only partially funded by a tight-fisted and dubious Congress. The new JOBS bill takes an axe to the root of reforms pontificated through Dodd-Frank, Sarbanes-Oxley, and other job-killing legislation from the past decade. The legislation and the speed it moved through Congress is proof that no politician wants to be known as a job-snob in a recession hamstrung election year?

n by Tom Opsahl


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In its final form, the JOBS bill is a potpourri

In its final form, the JOBS bill is a potpourri of multiple pieces of legislation; all offered up either to spur job creation or to make capital formation easier for small businesses. One of the sexiest (yet perplexing) features of the legislation is the “Crowdfunding” component of the bill. Crowdfunding will allow the solicitation and issuance of securities through the internet e,g. via social networking websites. But the legislation limits small investors to a total investment of $2000 per company. It also restricts issuers to raising $1 million per year. The thought here is to limit the potential exposure to the general public in any one company (or per fraudster).

of multiple pieces of legislation; all offered up

The acTs The JOBS bill modifies some security rules enacted during the Great Depression era. Before the stock market crash of 1929, issuers and their promoters were not required by law to disclose material facts about the securities they were selling. Beginning with the Securities Act of 1933, however, Congress enacted reforms that required full disclosure in the sale of securities. Full disclosure will still be preeminent after the JOBS bill, but the game-changer in the Crowdfunding legislation is that now small companies will be able to promote their company’s securities to the masses through advertising on the internet. Before JOBS, companies not registered with the SEC and their promoters were required to have a ‘substantive and pre-existing relationship’ with the individual investor before a solicitation or offer of securities was allowed. Not only that, but under the old law, the investor had to be “accredited.” That is, have a net worth exceeding $1 million exclusive of the investor’s primary residence. The Crowdfunding aspect of the JOBS bill puts an end to some of these stipulations. Remember, though, the “accredited” restriction still remains in play in Regulation D, private placement investments (see below).

either to spur job creation or to make capital formation easier for small businesses. DisplaceD regulaTors As the current over-regulated environment would have it, the Crowdfunding part of the JOBS legislation was bitterly opposed by NASSA (the regulatory association of the states) who argued that individual states should have approval rights on any Crowdfunded security. NASSA lobbied that states’ approval was necessary to protect small investors from having their pockets picked. This is ironic since every state has a lottery which targets the billfolds of the public in a $25 billion rip-off every year. Question: Where are the regulators to protect the public from that scam? It must be different rules when the sham promoters are the regulators’ employer! Alas, this digresses.

now To wriTe The rulebook Speaking of regulators, the SEC was given 270 days to write the new rules and regulations for the Crowdfunding aspect of the new law. In its final move, our courageous representatives in the Senate punted their liability for signing the bill to the SEC. Now, the SEC is on the hook with the final say. This creates a palpable pause for concern for the Crowdfunding adherents. It will not be easy for the SEC to move too far away from allowing securities sales outside the institutional mindset of “registration.” That system includes a harsh penal code, which ultimately holds an individual at a broker dealer or registered investment advisor (RIA) firm • •

accountable for non-compliance with the labyrinth of the SEC rules and regulations. The system ultimately pins the blame on an individual, working its way up the ladder to the Chief Compliance Officer unless an underling supervisor can be made culpable. The penalties include fines and career-ending disclosures for compliance officers and other supervisors. It will be especially interesting to see what the SEC does with “funding portals.” These are a new “intermediary” who will apparently offer Crowdfunding securities on their websites. As mentioned above, the SEC has always relied on registration to keep the securities industry accountable to its regulations. While the new law requires web portals to register with the SEC and join a “national securities association,” it remains to be seen how SEC will propose to oversee compliance with the new law. Also, with the SEC already hopelessly underfunded in its charge to implement Dodd-Frank, will FINRA be asked to step in and provide the regulatory big stick? Time will have to provide the telling. One thing is for certain, Crowdfunding will test everyone’s sanity.

general soliciTaTion Many of the other JOBS components, however, like the lifting of the prohibition on general solicitation and advertising for private placements of securities have been discussed for many years. But little was happening with regard to these reforms in capital formation until social media came along and gave legs to the JOBS bill. With the advent Micro-Cap Review Magazine


The unintentional consequence of Sarbanes-

doubt conflicts will arise, but for the sake of forming capital, it is worth an honest try.

Oxley is that regulation steers issuers toward

markeT making

illiquid and exempt securities e.g. private placements of securities instead of IPO’s. of JOBS, capital formation will probe the next dimension in space and time. The JOBS Act gives the SEC 90 days to write the new rules on general solicitation with respect to Regulation D securities. This along with the expansion from 500 to 2000 investors (the threshold for having to publically register) will put Regulation D front and center for issuers who don’t want to tackle registration with the SEC. With the higher shareholder threshold, Regulation D issues will become larger and stay on the market longer than in the past.

congressional Toe-sTubbing The JOBS Act will also make it easier and lessen the requirements for small companies to go public. This is known as the new “IPO On-Ramp” for small companies. A new definition and a new class of company to come out of JOBS is: “emerging growth companies.” These are companies with less than a billion dollars in annual revenues. Ever since Sarbanes-Oxley Act passed Congress in 2002, small issuers have been virtually shut out of the IPO market. Initially conceived, Sarbanes-Oxley requirements would prevent recurrences of the Enron and Worldcom debacles. But Congress in a bazaar vote outsmarted itself once again by applying the financial standard to all US companies instead of just the very large ones. As with all knee jerk Congressional reactions to market corrections, Sarbanes-Oxley has been a disaster for small company IPO’s because


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of the higher cost of complying with the regulation.

Possibly one of the opportunities that will arise is for those broker dealers who make markets in emerging growth companies’ stocks or for new exchanges which specialize in trading them. Decimalization has reduced the spreads and therefore the profit for market makers. This will need to be addressed to somehow provide the needed liquidity for investors and a profitable risk reward scenario for market players to step up.

over The wall The hope anD The change The new JOBS legislation relaxes some of the more discriminatory rules in SarbanesOxley with respect to emerging growth companies. It allows research analysts and investment bankers to once again communicate and work together in the marketing process, lifting some of the “Firewall” requirements that have kept the two discharges in the IPO process separated. The new law also amends the rules on research reports on emerging growth companies, deeming them not to constitute an offer of a security. In very direct language, the authors of JOBS have expressly preempted the regulators from circumventing the obvious goals of the new legislation, which is to roll Sarbanes-Oxley for emerging growth companies.

illiquiD versus ipo The unintentional consequence of SarbanesOxley is that regulation steers issuers toward illiquid and exempt securities e.g. private placements of securities instead of IPO’s. Meanwhile, the investing public might fare better with securities that can be bought and sold more readily as with companies who go through the IPO process and trade on an exchange. Also, investors typically demand a premium for illiquidity, so that encouraging more IPO’s may be better for everyone: investors, issuers, and even regulators. No

All in all, how about a Hip Hip Hooray for the leaders in Washington who listened to the voices of the securities industry who were telling them the capital markets were broken and needed fixing. Thanks also to the proponents of Crowdfunding whose push for change got this JOBS bill into the end zone! With JOBS, the capital markets for small companies and investors alike have a shot at meaningful improvement. Hopefully, it works for the good of all. n

abouT The auThor: Tom Opsahl is the CEO and founder of Oak Street Securities, Inc., a privately held boutique investment banking firm providing brokerage, M & A, and capital formation services for emerging growth companies. Tom is a multi-decade veteran of the securities business and founded Oak Street Securities in 2005. He currently serves as the chief compliance officer at the firm and holds the Series 4, 7, 8, 24, 53, 63, 65, 79, and 99 registrations. Tom is a graduate of Gustavus Adolphus College in St. Peter, MN with a BA in Business. He is a frequent contributor to various blogs and is a volunteer with The Miracle League of Minnesota. Tom can be reached at 715-220-8861 or visited at • •


Internal Fixation Systems


r. Stephen Dresnick, President of Internal Fixation Systems, Inc. told the following story: “I recently ran into some old friends who knew me when I was running my previous public company. They asked me what I was doing. I realized they knew very little about medi-

cine so I simply replied; we make “bone products.” They inquired politely what type of products? To which I responded, “Plates and Screws.” The following week, I received in the mail a letter from these people along with the attached picture to see if we could make a matching set of, in their words, “Bone Plates.” Needless to say, Dr. Dresnick got a good laugh. It started to make him think that many people that he encountered really had little or no understanding of exactly what IFS did or what he was trying to accomplish. Perhaps with this writing Internal Fixation Systems will be more easily understood and appreciated. Internal Fixation Systems (IFS) is a manufacturer and marketer of value priced orthopedic, podiatric and spinal implants. IFS is focused on commonly used, market proven products that have been the standard of care for many years rather than trying to create and design new ideas which would require a much lengthier and certainly more expensive process to gain FDA approval. Our business model is to redesign existing implants • •

to incorporate improved features desired by and often recommended by surgeons and supply them for prices below existing products sold by our competition. Our current customers and sales channels include ambulatory surgery centers, hospitals, surgeons, and Group Purchasing Organizations (GPOs). In order to deliver quality and value priced implants, IFS is innovative in all aspects of the business from product design to distribution and sales. At IFS the key to success is to look for ways to enhance products, promote better inventory management, reduce redundancy and streamline distribution and supply through the sales channels below competitive prices. According to iData, the orthopedic implant market in the United States is expected to reach $34 Billion by 2014. There are several national competitors, who have employed a strategy of premium pricing to date. Until recently, companies offering premium priced surgical implant products have had little competition. The cost of implants has increased an average of 8 to 10% annually over the last 10 years. Medicare and more recently Medicaid and other third party payers have reduced reimbursement rates for surgical implants. This has and will continue to cause buyers of implants (e.g. hospitals and surgi-centers) to increasingly focus on ways to reduce their costs of obtaining needed implants. As a means of attaining a competitive price advantage over premium priced companies, certain companies have chosen to import into the United States lower cost and in many cases lower quality products, manufactured in Asia and Latin America. Many surgeons are wary of implants that are manufactured outside of the United States and acceptance to date has been low. There Micro-Cap Review Magazine


is often a bias by surgeons that lower price means lower quality. In order to compete effectively, products must be equivalent or superior to those sold by the industry leaders and not just cheaper. IFS currently has FDA 510(k) approval for 25 products which cover a majority of fractures treated and procedures performed. Approved products include mini to large cannulated screw systems used for bone fixation as well as locking plate and screw systems for use in the ankle, wrist, elbow, clavicle and shoulder. IFS recently has added an External Fixator to its product line. IFS has new products in various stages of development including calcaneal plates, a wrist plate, and an anatomic fibular plate. In order to further broaden our product line, IFS is evaluating private label programs. The company announced a distribution agreement with Intelligent Orthopaedics, a British manufacturing company which

produces a fracture alignment device called The STORM. The STORM sells for one half of the competitive product. Early feedback from customers and sales channels is that the STORM is much easier to use and is a very good addition to the IFS product line.

proDucT research/Design/ DevelopmenT /manufacTure Our marketing and manufacturing strategy is to focus on commonly used, market proven orthopedic, podiatric and spinal implant products of which 80% of the surgeons, hospitals, and surgery centers typically use. Our product development team identifies product priorities based on the needs of our target market and their revenue potential. IFS identifies the leading product in that product segment and brings it to an IFS’s Advisory Panel which is comprised of nationally recognized surgeons. Each prod-

IFS designs its surgical sets to allow physicians maximum flexibility while minimizing redundant inventory. IFS self contained modules provide all the implants and

Micro-Cap Review Magazine

moDular seT Design IFS designs its surgical sets to allow physicians maximum flexibility while minimizing redundant inventory. IFS self contained modules provide all the implants and instruments surgeons need. IFS determined that surgeons use only one or two types of surgical screws during any one case. As a result it was determined that breaking up large cumbersome sets which have historically had a variety of implants, allows us to reduce the amount of inventory that sits in the field currently not being available to other physicians in surgery. IFS has standardized the components within these sets as well as to design these sets with set cost as a major consideration providing huge cost savings allowing the company to pass along part of these savings to customers.

DisTribuTion IFS employs multiple distribution methods. While some physicians express a desire to

instruments surgeons need. 78

uct is evaluated and any potential improvements are recommended. IFS has separate panels in podiatry, orthopedics and spine. Each Advisory Panel consists of approximately 10 Board Certified surgeons who are active in principal hospitals and trauma centers in their area. Each has an average of 10 years of surgical experience and many are involved in academic teaching. Panel members have extensive experience with competitive products and are helpful in identifying improvements and enhancements. After collecting feedback from the Panel Members, our product development team creates a new design which is reintroduced to the panel for final comment or approval. Once the design is finalized and approved the product is put into production. The company recognizes that this process leads to the development of superior implants and products. IFS uses suppliers based in the United States only which have FDA certified facilities and use only U.S. medical grade alloys. • •

have a sales representative in the operating room during surgery, a number of facilities, in an effort to control cost, are choosing to buy directly from manufacturers like IFS. For common surgeries, many facilities do not require an onsite representative.   The elimination of a representative for every case allows IFS to reduce the cost of delivery. The IFS Go-Direct™ program is attractive to facilities that are looking to reduce their costs. Go-Direct customers can either purchase the base set at a significant discount or can have the set on consignment. The facility is then responsible for maintaining the set and reordering the necessary replenishment supply from IFS when needed.

New Markets and New Products IFS feels it has just begun to scratch the surface of potential markets and needed new products. The company is actively evaluating an entry into the very lucrative market of spine surgery. Current IFS plate case generates approximately $700 per case whereas a spine case will generate $4-5,000 per case. The IFS Spine panel is organized and in place and the company is seeking to add spine products by the end of 2012 if not sooner. Additionally, IFS is adding new distribution as our inventory becomes available. IFS has distribution in 16 states which includes products and surgical trays.

2012 Restructuring As with many fast growing companies, there can be delays and situations where expenses and revenue are not in balance. IFS is aggressively working to realign expenses with current revenue. Additionally, we have moved toward contract manufacturing and away from in-house manufacturing, a significant cost saving measure. The company has found numerous outsourcing manufacturers to manufacture to our specifications. These fixed costs reduce overhead costs will

allow IFS to be more responsive and more nimble in addressing the changing products for our products.

Summary IFS is well positioned to take advantage of the changes that are occurring in healthcare. Medicare is no longer reimbursing implants separately and is now paying one reduced global fee. Private insurance companies are following suit or lowering implant reimbursement rates. These changes in reimbursement and the purchasing environment demonstrate an increased need for lower cost alternative products that IFS provides. In the past, surgeons would request products they wanted regardless of their price. Many surgeons were not aware of the costs. In this new environment, the decision making process is shared, and surgeons are included in product purchasing decisions. • •

More and more, purchasing managers are requiring value analysis studies to be completed on products before the facility accepts them, indicating that price has become an important consideration when approving vendors. CEO Stephen Dresnick MD feels Internal Fixation Systems is a company which is positioned perfectly for the changes that are occurring in healthcare and has stated that IFS is deploying the company’s assets to meet the expected and projected demand for its products. n

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It’s ALL About the Show and it Sizzles… And they know how to put on a big show…


NN Incorporated, by invitation, attended the Asia Pacific Economic Cooperation (APEC) event in Langfang, China. SNN Incorporated representatives traveled as part of a U.S. VIP delegation. This APEC meeting was sponsored by Chinese companies including XXXXX and Smart City and Intelligent Industry and which is an important part of the future development of Langfang. APEC provides a stage for government officials, business executives and well known scholars to give a perspective of the development underway throughout China. We experienced well choreographed presentations, discussions and networking which began with an international exchange will lead to cooperation with visiting U.S. dignitaries. This particular event focused on Smart City and Intelligent Industry being developed in Langfang, China and the expansion of Langfang including the building of the largest international airport in the world which have 8 runways No strangers to the financial conference circuit, SNN attends more than 50 or more such events worldwide annually, this was

my first experience in China.Traveling half way around the world, from the U.S. to Beijing and then ground transportation to Langfang meant little or no sleep and my expected jet lag. What happened next was quite unexpected! The first day in China our hosts treated us like VIP dignitaries which included red carpet treatment, special seating at all events, preferred meetings, introductions and what I refer to as all the sizzle and glitz of a Hollywood premiere. Our hosts have mastered the presentation including lighting, giant wall to wall full screen presentations, professionally produced video, coordinated music videos with bilingual graphics or translated and color coordinated appendages throughout. Our experience showed me that these Chinese hosts were so accommodating and relentlessly professional and of utmost kindness, curiosity and lovely engaging conversation.. From limos, tour guides, grand banquets, many photographers, grand big screen pre-

n by Lynda Lou Kane Kraft


Micro-Cap Review Magazine • •

sentations…China CCTV anchors…talk show hosts and video cameras wherever you looked. I haven’t been this photographed since by own wedding. We sat thru presentations about this incredible Smart City and Intelligent Business and would not be surprised if our Chinese hosts were well underway with construction on my next visit to China. They know how to put on show! With grace and charm filled with tons of character. I was truly taken by the entire whirlwind of the experience. The outcome thru all the glitz and glamour was a warm and cozy feeling…China to me represented and incredible opportunity and China business people truly embrace the American way of doing business. Their open arms will be forever apart of my great memories of this unforgettable experience. For SNN it certainly was a way of starting to work together. n • •

Micro-Cap Review Magazine



ERF Wireless Inc.

of specialized vertical markets such as oil and gas, healthcare and education. ERF Wireless has also contracted for expanded rural wireless network coverage through a series of Master Service agreements with wireless companies throughout much of the U.S. and Canada. As a result of all of these initiatives, the company can now provide its customers one of the largest rural wireless broadband networks in North America, covering more than 450,000 square miles across Texas, Oklahoma, Arkansas, Colorado, Kansas, Wyoming, North Dakota, Louisiana, New Mexico and the Canadian province of Alberta, Canada. The company has regional offices located throughout many of the more active of these areas, including Pampa, Lubbock, Odessa, Seagraves and Plains, Texas. In addition, new regional offices are being opened in North Dakota and Colorado.

Stock Symbol: ERFB

ERF Wireless Inc. is a fully reporting public corporation, founded in 2004 and headquartered in League City, Texas. The primary objective of ERF Wireless is the generation of profitable recurring revenue from a base of highly-satisfied wireless broadband customers in North America. To achieve this objective, ERF Wireless acquires the most promising competing Wireless Internet Service Providers (WISPs) in targeted rural markets and combines them with a steady build-out of additional networks in areas needing reliable, wireless broadband coverage. The company then increases profits exponentially by offering high-speed wireless broadband products and services to commercial and residential customers and overlaying that traditional customer base with a number

EBI Earned Revenue 2009/2010/2011 $1000K

Total EBI Revenue

$800K $600K $400K $200K $0 2012






Micro-Cap Review Magazine









Key Vertical Markets ERF Wireless uses its wireless network infrastructure to provide Internet bandwidth to residential and commercial customers, as well as vertical markets that include the oil and gas industry, regional banks, healthcare institutions and educational institutions. The oil and gas industry and regional banking industry are the are the company’s largest vertical markets, comprising more than 50% of the ERF Wireless revenue. The balance of the company’s revenue is generated from residential and commercial wireless broadband Internet customers.

Energy Broadband Inc. Serving the Oil and Gas Industry Overview – The Energy Broadband Inc. (EBI) subsidiary of ERF Wireless was created in 2007 to serve the wireless broadband needs of the oil and gas industry throughout North America. Many of the ERF Wireless acquisitions have been in the most prolific oil and gas exploration regions of the U.S., giving the company by far the largest and most strategically-placed wireless broadband network in the oil and gas regions of North America. Due to the expansive nature of many of the new software programs utilized by the oil and gas industry, traditional VSAT satellite communications with their inherently slow signal transit time have been rendered ineffective for modern real-time operations. As a result, ERF Wireless’ extremely fast terrestrial • •

wireless broadband Internet solution is preferred and in great demand. To serve the extremely remote oil and gas regions in rural North America, ERF Wireless utilizes a fleet of some 200 trailer-mounted, 50-foot erectable Mobile Broadband Towers (MBTs) that can be delivered directly to the drilling site. EBI technicians deploy these towers behind a fleet of trucks, erect the towers and establish wireless connections back to fixed towers that may be up to 25 miles away in the ERF Wireless fixed network. When the drilling rigs move to new locations, the EBI technicians

move the trailer-mounted towers to the new locations and establish connectivity using the same process. Current Projects – EBI is currently supporting multiple Fortune 500 oil and gas customers in all the major oil and gas exploration regions of Texas, Louisiana, New Mexico and Oklahoma, as well as operations in North Dakota, Colorado, Kansas, Nebraska and Montana. The EBI revenue has been steadily growing as more and more new customers begin service and new operating regions initiate service. Future Plans – Expanded operations are planned for EBI as new operating regions are opened for service, additional MBT towers are delivered, and new products are added to this highly-profitable business unit.

Enterprise Network Services Serving the Regional Banking Industry Overview – The Enterprise Network Services (ENS) division of ERF Wireless primarily provides wireless broadband connectivity to the regional banking industry in the U.S. The division also provides its services to rural school districts, hospitals and clinics. ENS has developed a patented, proprietary hardware and software solution that allows its bank customers to meet the stringent requirements of federal banking regulators when deploying wireless broadband solutions that replace leased telephone company circuits. ENS typically is contracted by the bank to design and implement a wireless broadband solution to connect their various bank branches to each other as well as the bank’s operations center. ENS then designs wireless circuits from each bank location out to the ERF Wireless-owned network in the area using the company’s patented CryptoVue® technology. After the bank network is operational, ENS provides monitoring services and maintains the network. This strategy allows ENS to generate both one-time construction revenue as well as long-term recurring revenue on each bank network contract. Current Projects – ENS is currently servicing numerous wireless broadband bank networks in Texas and Louisiana, connecting approximately 125 bank branches and operation centers into the ERF Wireless rural network system. Future Plans – ENS is expanding and upgrading a number of locations for its current banking customers, while planning new networks for additional bank customers. • •

Recent Investments CEO Family – The family of the CEO has invested approximately 70% of all of the outside capital needed to grow the company from its formation to its current size. The family is committed to long-term shareholder value and will continue to provide a $12M credit facility to the company. Dakota Capital Fund – ERF Wireless has secured $3 million in debt financing from Dakota Capital Fund LLC. The funding will be used to quickly expand Energy Broadband’s presence in the major oil and gas exploration regions of North America. E-Bond Offering – ERF Wireless is currently receiving funds under a $2.5 million E-Bond offering and expects the funding to be completed during the 2nd quarter of 2012.

The Outlook ERF Wireless will continue to grow its recurring revenue base in all of its business segments, with the greatest contribution coming from Energy Broadband’s high-margin oil and gas business. For calendar 2012, the company is targeting consolidated revenues of $10-14 million, with blended gross margins of 65-70%. ERF Wireless will also continue its plans to secure a listing on a national market stock exchange to improve stockholder liquidity and value. n

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Value Statement: - Inventor of Out-of-Band Authentication - Inventor of Keystroke Encryption - Awarded 1-Patent, 2-Patents Pending - Major Fortune 500 and 1000 Clients - Increasing Recurring Revenues - Cash Flow Positive in 2012 - Experienced Management Team


Ticker: SFOR To Learn More: Contact: Mark L. Kay, CEO 732.661.9641 MARKLKAY@STRIKEFORCETECH.COM

StockWord Puzzle answers TM


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Don’t Buy Business Equipment LEASE IT R

obert D. Parker, CEO of LEASEStation, recently commented, “Companies in need of equipment should conserve their capital for growth opportunities and business development and lease the equipment rather than use precious capital to acquire equipment”. This hidden secret that some companies have discovered is a valuable tool for businesses of all sizes especially start up and micro-cap companies. Robert further quoted “would you pay an employee the first year salary up front before they earned it?” Adding: “Why would you pay for equipment up front before it earned you money?” A great point and one that is very hard to argue with. Pay for the equipment monthly as it earns you money. It is a true eye opener that even a one day old business can get financed through LEASEStation. They are one of the most aggressive and competitive lessors in the USA. They will lease everything from a $1,500 auto lift for a repair shop to a $30 million IT solution for an enterprise size company. LEASEStation added reasons for a company to lease:

Acquire Equipment without Tying Up Your Capital

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A lease payment is made with pre-tax dollars, while a cash purchase is made with after-tax dollars. A lease payment can qualify as an expense, which will reduce taxable income and your tax burden.

Simplify Accounting Protect Your Lines of Credit A lease does not affect your bank borrowing power, allowing you to preserve those funds for other business opportunities or needs.

Since a lease payment can be an expense, it is listed on your income statement as such and is not shown as an asset or liability on the balance statement.

Lock-in Payment Maintain a Competitive Edge Leasing allows you to acquire the latest equipment at an affordable cost. You can then perform your job more quickly, efficiently and less expensively than the competition.

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Save on Additional Costs A lease not only covers the equipment’s cost, but can also include expenses, such as delivery and installation. • •

Unlike bank lines and adjustable rate loans, lease payments are fixed for the term of the lease and are not affected by market conditions. A lease cannot be called early, as a bank can do on a loan. A fixed payment also protects against inflation. In conclusion I would recommend considering leasing the equipment you need for your business. Hold onto your cash. I have included Robert Parker and his Business Development Managers contact information. n Robert D. Parker President/CEO 818-917-0153 Cell 888-436-1152 Fax Business Development Manager Daniel Schulz 818-261-0472 Micro-Cap Review Magazine



Emerging Growth Capital Rebounds from 2011 Lows VC and PE-backed Private Placement Investments in Small Cap Companies Surge


nvestment activity in U.S.-listed emerging growth compa­nies via equity private placements surged 77% in Capital the first quar­ter, while the average Growth Investor

size of new placements rose 24% to more than $5.5 million, an impressive

Emerging Growth Capital Rebound

rebound from the final quar­ter of 2011.

VC and PE-backed Private Placement Investments in Sm

Even more impressive was the flood of placement capital into emerging growth Brett Goetschius “unstruc- companies has eclipsed traditional “strucmoney intoBy growth-oriented tured” equity private placements (EPPs) in tured” privategrowth placement (i.e. “financial Investment via Gr Investment activity in U.S.-listed emerging compaemerging growth companies by long-term activity in first the quarEPP mar­ket in nies via equity private placements PIPE”) surged 77% in the $10 Billion fundamentalter,inves­ tors, rose of therose percentage of deals and dolwhile thewhich average size268% of new terms placements 24% to more over the previous quarter to $5.88 billion, lars for the straight than $5.5 million, an impressive rebound fromsecond the final quar- quarter, as $8 as of 2011. moreinvested impressivegrowth was thecapital flood of money embrace into representingter73% of allEven capital investors EPPs growth-oriented “unstructured” private placements (EPPs) and nurture via equity-linked private offerings in U.S. equity an efficient vehicle to acquire in emerging growth companies by long-term fundamental invespublic companies. positions in up-and-com­ ing public $6 comtors, which rose 268% over the previous quarter to $5.88 billion, The flow of growth-oriented private panies. Unstructured equity private placerepresenting 73% of all capital invested via equity-linked private $4 offerings in U.S. public companies.1 2


Growth Capital Equity Private Placements Unreg'd GC EPPs 300

Reg'd GC EPPs


Non-GC EPPs 0

1Q 2011



billion in capital in valued at more than Unlike tradition 150 tal EPPs have a histo their investors and co 100 ing sponsored deals 50 gain for common sh Over the past year, t 0 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 nies that closed a spo 31% gain in the 30 The flow of growth-oriented private placement capital into 20% gain after six m 2 emerging • • growth companies has eclipsed traditional “structured” Active growth c private placement (i.e. “financial PIPE”) activity in the EPP mar200

n By Brett Goetschius


Micro-Cap Review Magazine

ter to $5.88 billion, quity-linked private

acement Investments in Small Cap Companies Surge


ing growth compa% inNon-GC the firstEPPs quarrose 24% to more om the final quarood of money into placements (EPPs) fundamental invester to $5.88 billion, quity-linked private



Non-GC EPPs 1Q 2012

cement capital into ditional “structured” ity in the EPP marollars for the second embrace EPPs as an ons in up-and-comprivate placements, d cousins that once s ommon shareholder 2011 resets, 1Q 2012 rices, pre-sold ngage structured inolders. capital into cement ate equity and other ditional “structured” nvestors, have ity in thewhich EPP marleadership in identiollars for the second during mbracetheir EPPsearliest as an growth capital EPPs, ons in up-and-comtor that placements, is primarily private family office cord cousins thatoronce ls comprising $3.81 ommon shareholder


ices, resets, pre-sold ngage structured inolders. ate equity and other t vestors, which have eadership in identiduring their earliest r rowth capital EPPs, tor that is primarily % family office or cor. ls comprising $3.81 e e



$2 Investment via Growth Capital Equity Private Placements $10 Billion 0 1Q 2011

2Q 2011

3Q 2011

4Q 2011

1Q 2012


billion in capital in the first quarter, with the median placement valued at more than $15 million. $6 Unlike traditional structured PIPEs, sponsored growth capital EPPs have a history of delivering strong, sustained returns for $4 their investors and common shareholders alike. The top-performing sponsored deals in the first quarter delivered an average 23% $2 for common shareholders in the first month after closing. gain Over the past year, the top quartile of emerging growth companies that closed a sponsored growth capital EPP logged an average led 0by mutual fund giants Fidelity T. Rowe institu1Q 2011 2011post-closing, 3Q 2011and 2011 Price, 1Qan 2012 31% gain in the 302Qdays and4Qmaintained average tional advisors Baron Capital, Wellington Management and UBS 20% gain after six months. O’Connor, and venture firms Ayer Capital, Quaker BioVentures Active growth sponsors themedian first quarter were billion in capital in capital the firstEPP quarter, withinthe placement and Atlas Venture. valued at more than $15 million. And the pipeline looks strong for new companies entering the Largest Sponsored Unlike traditional Deals structured PIPEs, sponsored growth capipublic emerging growth capital market in 2012. Private equity inSymbol Proceeds talCompany EPPs have a history of delivering strong,Placement sustained Agent returns for vestment in the first quarter was concentrated in companies valued Cheniere Energy Partners CQP shareholders $2,000,000,000alike. CreditThe Suisse Securities their investors and common top-performbelow $50 million. Investments in these companies accounted for Halcon Resources Corp. Barclays an Capital; Goldman,23% Sachs ing sponsored deals in HK the first $400,000,599 quarter delivered average 58% of theResources quarter’s PERAM deal flow, with 187 deals closed, up sharply RAM Energy $275,000,000 Jefferies gain for common shareholders in the first month after closing. from the year-ago period. valuedCowen; under million Horizon Pharma HZNPCompanies $110,820,003 JMP$500 Securities; Stifel Over the past year, the top quartile of emerging growth compaaccounted for over 95% of PE investment in Nicolaus the firstWeisel* quarter.3 nies that closed a sponsored capital EPP logged average VITC growth $34,848,903 Houlihan, Lokey,an Howard, The growing momentum of initial public offerings in the & Zukin 31% gain in the 30 days post-closing, and maintained an average fourth quarter of 2011 has carried over into 2012 as issuers have Paramount & Silver PZG $21,356,441 Sutter Securities 20% gainGold after six months. priced deals at the quickest pace $19,000,000 in more than a decade. Investors Transgenomic TBIO Capital were Active growth capital EPP sponsors in Craig-Hallum the first quarter have shown a penchant for emerging growth issuers, and buyers in Lake Shore Gold Corp. LSG $15,060,472 BMO Capital Markets most deals healthy returns. Many venture capital and BioLineRx Ltd.have reapedBLRX $14,998,712 Roth Capital Partners Largest Sponsored Deals private have pounced on thePiper upbeat Athersys equity sponsorsATHX $9,000,000 Jaffray;sentiment First Analysis to Company Symbol Proceeds Placement Agent Securities; William Blair; take portfolio companies to market. WBB Securities Cheniere Energy Partners CQP $2,000,000,000 Credit Suisse Securities Issuers raised $5.9 billion in 44$3,000,000 IPOs in thePalladium first quarter of 2012. Document Security Systems DSS Capital Advisors Halcon Resources Corp. HK $400,000,599 Barclays Capital; Goldman, Sachs From aStates transaction represented a 33% UnitedEnergy Antimony perspective, UAMY that $2,205,000 Global Hunterincrease Securitiesover RAM Resources RAM $275,000,000 Jefferies the number of deals completed in the quarterCowen; a yearResearch ago. But dollar Nova Lifestyle STVS $2,068,000 Radnor & Advisory Horizon Pharma HZNP $110,820,003 JMP Securities; Stifel volume lagged as deals were concentrated in the small-cap Nicolaus Weisel* emerging $34,848,903 Howard, growth market resultingVITC in an average deal sizeHoulihan, of $141Lokey, million com& Zukin 4 pared to $418 million in the first quarter of 2011. Paramount Gold & Silver


Transgenomic Active Q1 SponsorsTBIO

Lake Shore Gold Corp. LSG Advisor Name BioLineRx Ltd. BLRX Fidelity Management & Research Athersys ATHX Baron Capital T. Rowe Price Associates GE CapitalSecurity Systems Document DSS QuakerStates BioVentures United Antimony UAMY UBS O'Connor Nova Lifestyle STVS Wellington Management Raging Capital Management Ayer Capital Partners Great Hill Partners Sutter Hill Ventures Atlas Venture The Frost Group

$21,356,441 Sutter Securities $19,000,000 Craig-Hallum Capital $15,060,472 BMO Capital Markets Total Investment Deals $14,998,712 Roth Capital Partners $101,196,825 5 $9,000,000 Piper Jaffray; First Analysis $85,080,318 2 Securities; William Blair; $73,055,700 1 WBB Securities $20,000,000 2 $3,000,000 Palladium Capital Advisors $19,999,989 2 $2,205,000 Global Hunter Securities $8,749,996 2 $2,068,000 Radnor Research & Advisory $8,640,000 1 $8,325,000 2 $8,000,000 2 $6,679,094 1 $3,670,000 1 $3,000,000 1 $2,100,000 3

Top Performing Sponsored Deals

privateemerging equity sponsors pounced u public growth have capital marketon in the 2012 take portfolio to was market. vestment in thecompanies first quarter concentrated in raised $5.9 billion in 44 the fi belowIssuers $50 million. Investments in IPOs these in comp From a transaction perspective, that represented 58% of the quarter’s PE deal flow, with 187 deal the number offinancially-engineered dealsperiod. completed in the quarter thetheir year-ago Companies valued au ments, from unlike volume lagged as deals were concentrated ininthe accounted for over 95% of PE investment th structured cousins that once dominated growth market resulting in an average deal size o The growing momentum of initial publ the EPP market, are aligned with compared to $418 million in the first quarter of 2011 fourth quarter of 2011 carriedno over into 2 mon shareholder interests andhas contain priced deals at the quickest pace in more than variableActive conversion prices, resets, pre-sold Q1 Sponsors have shown a penchant for emerging growth iss equity line puts, or offsetting hedges thatTotal Invest Advisor Name most deals have reaped healthy returns. Many disengage structured vestors’ returns $101,196,8 Fidelity Management in­ & Research private equity sponsors have pounced on the u BaronofCapital $85,080,3 from those common shareholders. take portfolio companies to market. T. Rowe Price Associates $73,055,7 Fueling this capiIssuerstrend raised are $5.9 venture billion in 44 IPOs$20,000,0 in the fi GE Capital tal, private equity and other “long-only” From transaction perspective, that represented Quakera BioVentures $19,999,9 and long-term growth-focused investors, $8,749,9 the number a UBS O'Connorof deals completed in the quarter which have embraced EPP market and $8,640,0 volume lagged asthe deals were concentrated in the Wellington Management Raging Capital growth marketManagement resulting in anfying average size of are providing leadership in identi­ anddeal$8,325,0 Q1 PE Deals by Company Valuation Ayer Capital Partners $8,000,0 pared to $418 million in the first quarter of 2011 nurturing high-growth companies during

Great Hill Partners their earliest stages of post-private life. $6,679,0 Sutter Hill Ventures $3,670,0 Active Q1 Sponsors These “sponsored” growth capital EPPs, $3,000,0 Atlas Venture Advisor Name Total Investm which include at least one fundamental $2,100,0 The Frost Group Fidelity Management & Research $101,196,8 investorBaron that Capital is primarily a venture capital, $85,080,3 Under $50M Performing Sponsored Deals private Top equity, mutual fund, family office T. Rowe Price Associates $73,055,7 $50M investor, – $250M accounted $20,000,0 GE Capital or cor­porate strategic Company Symbol Date Proc Quaker BioVentures for 31 deals comprising $3.81 billion in $19,999,9 Response Genetics RGDX 2/2 $7,885 O'Connor $8,749,9 capital inUBS the first Holdings quarter, the median $250M with – $500M SearchMedia 2/17 $3,000 Wellington Management IDI $8,640,0 placement valued at more than $15 million. American DG Energy ADGE 3/26 $1,600 Raging Capital Management $8,325,0 2/16 $34,848 UnlikeAyer traditional structuredVITC PIPEs, sponCapital Partners $8,000,0 XOMA Corp. XOMA 1/3 $10,000 sored growth tal EPPs have a history $6,679,0 Great Hillcapi­ Partners United States Antimony UAMY 1/19 $2,205 Sutter Hill Venturessustained returns of delivering strong, for – $3,670,0 $500M $1B Horizon Pharma HZNP 2/22 $60,000 Atlas Venture $3,000,0 their investors and commonCQP shareholders $1B Cheniere 2/27– $2.5B $2,000,000 The Frost Energy Group Partners $2,100,0 alike. The top-perform­ing sponsored deals Transgenomic TBIO 2/2 $19,000 Colfax Corp. CFX 1/24 $465,000 in the first an average 23% billion in Topquarter Performing Sponsored Deals Financial sponsors backeddelivered 36 IPOs valued at $4.8 gain for common shareholders in the first the first quarter. Of1 PlacementTracker, those, financiala service sponsors were Research. involved in all of Sagient 2 Company Symbol Date month after closing. Over thecompanies past year,with the Defined as publicly traded market Proce capita 13 technology company offerings, which generated almost $1.2 3 Response Genetics RGDXcompa­ 2/2 $7,885 Pitchbook. top quartile of emerging growth n ies billion. Sponsored companies continue to dominate the IPO ac4 PricewaterhouseCoopers; Renaissance Capital. SearchMedia Holdings IDI 2/17 $3,000 that closed tivity: in April, venturea sponsored capital andgrowth privatecapital equity EPP funds backed American DG Energy ADGE 3/26 $1,600 10 IPOs that raisedan $1.6 billion. Nearly half of all IPO issuers in logged average 31% gain in the 30 days VITC 2/16 $34,848 the first fourpost-closing, months of 2012 had market caps of less than $500 and maintained an average XOMA Corp. XOMA 1/3 $10,000 million. Through April, IPO investors have United UAMY enjoyed 1/19 an average $2,205 20% gain afterStates six Antimony months. return of 26%.ActiveHorizon Pharma HZNP 2/22 $60,000 growth capital EPP sponsors in Cheniere Energy Partners CQP 2/27 $2,000,000 the first quarter led Capital by mutual fund Brett Goetschius is theTransgenomic editor ofwere Growth TBIO Investor, 2/2 the journal $19,000 and T. Rowe has Price, institu­ of emerging giants growthFidelity company covered Colfax Corp. finance. He CFX 1/24the emerging $465,000 tional advisors BaronandCapital, Wellington growth capital market since 1999 is the former editor and pub1 PlacementTracker, a service of Sagient and O’Connor, and Research. venlisher of TheManagement PIPEs Report, The UBS Reverse Merger Report, and The Reg2 Defined as publicly traded companies with market capita 3 ture Report. firms Ayer Capital, Quaker BioVentures istered Offerings This article is excerpted from the May issue Pitchbook. 4 PricewaterhouseCoopers; Renaissance Capital. of Growth Capital Investor. and Atlas Venture.

And the pipeline looks strong for new companies entering the public emerging Interested in the full report with complete data on activity growth capital market in 2012. Private in the emerging growth capital market? Download a compliequity in­vestment in the first quarter was mentary copy at concentrated in companies valued below Or scan this$50 with your cell phone’s CRI reader:compamillion. Investments in these

Post-Closing Performance Micro-Cap Review Magazine Proceeds 1 Week 1 month 3 month • •


Response Genetics










Great Hill Partners $6,679,094 1 Sutter Hill Ventures $3,670,000 1 Issuers raised $5.9 billion in 44 IPOs in the first quarter of 2012. Atlas Venture $3,000,000 From a transaction perspective, that represented a 33% increase1 over Thenumber Frost Group $2,100,000 the of deals completed in the quarter a year ago. But 3dollar

Financial sponsors backed 36 IPOs valued at $4.8 billion in in the growth market? Download a complithe firstemerging quarter. Of those,capital financial sponsors were involved in all mentary copy at 13 technology company offerings, which generated almost $1.2

billion. companies continue dominate the IPO acOr scanSponsored this with your cell phone’s CRItoreader: volume lagged as deals were concentrated in the small-cap emerging tivity: in April, venture capital and private equity funds backed Top Performing Sponsored Deals billion. Nearly halfhalf of all issuers in the growth market resulting in an average deal size of $141 million com10 IPOs that raised $1.6 billion. Nearly of IPO all IPO issuers in Post-Closing Performance pared to $418 million in the first quarter of 2011.4 first fourhad months of caps 2012ofhad market caps the first four months of 2012 market less than $500 Company Symbol Date Proceeds 1 Week 1 month 3 month of IPO less than $500have million. Through April, investors enjoyed an average Response Genetics RGDX 2/2 $7,885,901 43.22% 67.80% million. N/AThrough April, Active Q1 Sponsors of 26%. IPO investors have enjoyed an average return SearchMedia Holdings IDI 2/17 $3,000,000 36.36% 50.00% return N/A Advisor Name American DG Energy

Deals 22.83% ADGE 3/26Total Investment $1,600,000 15.22% N/A of 26%. n Fidelity Management & Research $101,196,825 is the editor of Growth Capital Investor, the journal VITC 2/16 $34,848,903 8.39%5 19.49% Brett Goetschius N/A Baron $85,080,318 emerging growth company Heis has covered the emerging XOMACapital Corp. XOMA 1/3 $10,000,000 20.87%2 16.52% of 140.00% Brett finance. Goetschius the editor of Growth Capital T. Rowe Price Associates $73,055,700 capital market since 1999 is the former editor and pubInvestor, the and journal of emerging growth company United States Antimony UAMY 1/19 $2,205,000 7.87%1 13.78% growth 57.48% GE Capital $20,000,000 finance. has covered emerging capiHorizon Pharma HZNP 2/22 $60,000,000 8.13%2 12.35% lisher of N/A The PIPEs Report, TheHe Reverse MergertheReport, andgrowth The Regtal market since 1999 and is the former editor and Quaker $19,999,989 CheniereBioVentures Energy Partners CQP 2/27 $2,000,000,000 16.75%2 10.10% istered N/A Offerings Report.publisher This article is excerpted from the May issue of The PIPEs Report, The Reverse Merger UBS O'Connor $8,749,996 Transgenomic TBIO 2/2 $19,000,000 8.40%2 9.24% of Growth N/A Capital Investor. Report, and The Offerings Report. This Copyright © Registered 2012 Wellington Management $8,640,000 1 Colfax Corp. CFX 1/24 $465,000,031 -6.01% 8.64% -1.86% article is excerpted from the May issue of Growth Raging Capital Management $8,325,000 2 Capital Investor. 1 PlacementTracker, Ayer Capital Partnersa service of Sagient Research. $8,000,000 2 2 Interested in the full report with complete data on Defined publicly with market capitalizations $10billion million to and common share prices above $1.00. nies accounted fortraded 58% companies of the quarter’s PE Issuersranging raised $5.9 in$144billion IPOs in Great HillasPartners $6,679,094 1from Interested in the full report withactivity complete data 3 Pitchbook. on capital activity in the emerging growth acapital market? in the emerging growth market? Download compliSutter Hill Ventures $3,670,000 1 deal flow, with 187 deals closed, up sharply the first quarter of 2012. From a transac4 PricewaterhouseCoopers; Renaissance Capital. Download a complimentary copy at http://www. Atlas Venture $3,000,000 1 mentary copy at from the year-ago period. Companies val- tion perspective, that represented a 33% Or scan this with your cell The Frost Group $2,100,000 3 ued under $500 million accounted for increase over the number of deals com-yourphone’s CRI reader: Or scan this with cell phone’s CRI reader:

over of PE investment the first pleted in the quarter a year ago. But dollar Top95% Performing SponsoredinDeals quarter. volume lagged as deals were concentrated Post-Closing Performance The growing momentum in the small-cap Company Symbolof initial Date pub-Proceeds 1 Week 1emerging month 3 growth month market Genetics RGDXquarter 2/2 of 2011$7,885,901 67.80% deal N/A lic Response offerings in the fourth resulting43.22% in an average size of $141 SearchMedia Holdings IDI 2/17 $3,000,000 36.36% 50.00% N/A has carried over into 2012 as issuers have million com American DG Energy ADGE 3/26 $1,600,000 15.22% 22.83% N/A priced deals at the quickest pace in more Financial sponsors backed 36 IPOs VITC 2/16 $34,848,903 8.39% 19.49% N/A than a Corp. decade. Investors shown $10,000,000 a ued at $4.8 billion16.52% in the 140.00% first quarter. Of XOMA XOMAhave 1/3 20.87% penchant emerging growth those, financial involved in United Statesfor Antimony UAMY 1/19issuers,$2,205,000 7.87% sponsors 13.78% were 57.48% Horizon Pharma HZNP 2/22 $60,000,000 8.13% 12.35% N/A and buyers in most deals have reaped all 13 technology company offerings, which Chenierereturns. Energy Partners CQP 2/27 $2,000,000,000 16.75% healthy Many venture capital and generated almost 10.10% $1.2 billion.N/ASponsored Transgenomic TBIO 2/2 $19,000,000 8.40% 9.24% N/A private equity sponsors have pounced on companies continue to dominate the IPO Colfax Corp. CFX 1/24 $465,000,031 -6.01% 8.64% -1.86% the upbeat sentiment to take portfolio activity: in April, venture capital and private 1 PlacementTracker, a service of Sagient Research. companies to market. equity funds backed 10 IPOs that raised $1.6 2 3

Copyright © 2012

Defined as publicly traded companies with market capitalizations ranging from $10 million to $1 billion and common share prices above $1.00. Pitchbook. institu4 Q1 PE Deals by Company Valuation PricewaterhouseCoopers; Renaissance Capital. 3

we Price, agement and UBS uaker BioVentures

panies entering the Private equity incompanies valued nies accounted for closed, up sharply nder $500 million first quarter.3 c offerings in the 12 as issuers have decade. Investors uers, and buyers in enture capital and beat sentiment to

Under $50M $50M – $250M

$250M – $500M

$500M – $1B $1B – $2.5B

Financial sponsors backed 36 IPOs valued at $4.8 billion in rst quarter of 12012. PlacementTracker, of Sagient Research. the firsta service quarter. Of those, financial sponsors were involved in all publicly traded companies with market capitalizations ranging from $10 million to $1 billion and common share prices above $1.00. 33% increase2 Defined over as 13 technology company offerings, which generated almost $1.2 3 Pitchbook. ear ago. But 4dollar billion. Sponsored companies PricewaterhouseCoopers; Renaissance Capital. continue to dominate the IPO acmall-cap emerging tivity: in April, venture capital and private equity funds backed $141 million 92com Micro-Cap Magazine of all IPO issuers 10 IPOsReview that raised $1.6 billion. Nearly half in • • 4 the first four months of 2012 had market caps of less than $500

V I E W PO I N T S n Written By Jack Leslie

Ombudsman What is unclear to almost all of the Broker Dealers is how these individuals are trained and by whom. Over the course of the past year I have had the opportunity to visit with some individuals employed by both agencies mentioned above. The FINRA employee stated that if we license our employees they would leave us faster than they do now. Turnover would be more costly for the agency. The State Department of Securities has a limited budget but makes attempts to bring in Individuals to assist when necessary to ascertain fairness in dealing with a Broker Dealer. This begs the question of how much training do employees have. A general consensus is 6 weeks at FINRA. In an industry constantly being scrutinized by the media, investors, and congress, this is unacceptable. The average Broker needs to pass a test just to sell the basic menu of securities. A supervisor needs to pass another battery of tests and accumulate experience in many facets of the Securities industry before they can attempt to do business with potential clients. The original entity, NASD was comprised of educated and experienced individuals from the industry. Some may argue that there was an issue of potential conflict. Is the current system more effective? When the FINRA audit begins why do they incur unnecessary expenses? Why can’t they do the initial examination on their computers from their office, they certainly have access to all initial documents they need. This would allow a more experienced individual to assist the newly trained person in making sure the examination is appropriate. It is supposed to be an SRO. When the inexperienced examiner makes an error, how is the problem resolved? Where does the Broker Dealer turn to for help? Try the office of the OMBUDSMAN. Their responsibility should be fair and use appropriate handling of a matter if conflicts exist. They are appointed to receive grievances and report them. Too often personality issues exist between the inexperienced FINRA employee and a seasoned veteran compliance officer of the Broker Dealer. How about a reporting system of FINRA employees similar to The Brokers CRD. This would be done by someone regulating the regulators. A Broker Dealer would be able to review any complaints, any actions or sanctions against the examiner. This is supposed to be an agency to help the Broker Dealer do the right things and not be adversarial. This would allow the Broker Dealer to ask for someone else to do their examination if the current person has been found to have been biased against a particular firm.


ho is regulat-

ing the regulators? In this uncertain time of transition, Broker Dealers are faced with constant visits by FINRA and sometimes State Department of Securities Examiners.


Micro-Cap Review Magazine

Full disclosure by FINRA would give the public confidence that the Regulators care about their needs and those of the individuals managing their money. At the State level, an appeal process exists and more experienced individuals discuss and handle the issues at hand. Maybe my initial question needs to be asked of the members of FINRA and members of Congress. Who is regulating the Regulators? Until that question is answered, use the office of the Ombudsman, it is your future you are protecting. For more information on the Ombudsman contact: • • Ticker: IFIX

ERF Wireless owns and operates the largest high-speed terrestrial wireless network serving the North American oil and gas industry Founded in 2004, ERF Wireless provides a full range of advanced communications solutions to oil and gas drilling/production operations throughout North America. By utilizing our large fleet of mobile broadband towers (MBTs), Wireless can link within minutes even the ERF Wi most remote oil patch sites to the company’s extensive high-speed, high-capacity fixed wireless broadband network and deliver office-quality broadband IT solutions.

Trading Symbol: ERFB

League City, Texas (800) 538-9050

Micro-Cap Review Magazine Spring/Summer 2012