Micro-Cap Review Magazine Fall/Winter 2013

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

fall/winTer • 2013 microcapreview.com

$5.00

European View [40]Biotech Update [46]What is Your Financial Health [50]Tips for Using Rule 144 [52]Investing in China [60]The Incubator [63]Hong Kong [65]Silver - Gold - Palladium - Platinum [68]

How to Use New General Solicitation Rules [80]What I’m Buying [83]Who’s Your Edgar Agent? [84]India - Asia [86]How to Choose the Best Transfer Agent: WST Q & A [88]Insurance [92]

TNI BioTech, Inc.Ticker: TNIBCEO, Noreen Griffinwww.tnibiotech.comPage 56

Ticker: YGYIMarilu Henner andDr. Joel D. Wallachwww.youngevity.comPage 26

CVSL Inc.Ticker: CVSLCEO, John P. Rochonwww.cvsl.us.com0

PetVivo, Inc.Private CompanyCEO, John Laiwww.petvivo.comPage 18

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E D I T O R I a L

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 Securi-ties 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 verifi cations of such information and makes no implied or express warranties on the information provided. Readers should perform their own due diligence before investing in any securities mentioned. Investing in securities is speculative and carries a high degree of risk. All MicroCap Review Disclaimers apply http://www.microcapreview.com/disclaimer.php before investing view www.sec.gov/investors

It’s been quite a year for micro-cap’s

already and the year is not nearly over!

One day in May, around Mother’s Day, I

recognized the earliest sign of the beginning

of the micro-cap Bull Market. For me the

moment was very memorable. I remember it

happened on a Monday while I was reading

a press release, probably one of a hundred

I read each day. The press release gave the

details of how a Wall Street investment bank

had completed a $10,000,000 private place-

ment funding for a publicly traded company

during the previous week.

This occurrence was a sig-

nal. I had a feeling that

the market had turned

and with it, the micro-cap

market would soon follow.

A turning point, a trend

beginning, and a note-

worthy big bang and the

market jump-starts. For

me the announcement of

a substantial capital raise

for a micro-cap issuer

was indeed significant. It

wasn’t an IPO, but cap-

ital is still capital. Surly

reinvigorating the micro-

cap IPO market was next,

but more importantly,

private equity investors

were writing checks and

crowdfunding continued

to creep ahead. Sleepy and

dormant venture capitalists, like sleeping

bears, are ending their hibernation. The

street buzzing as CEOs began taking notice

of these funding events and our readers

begin paying attention to StockNewsNow.

com not wanting to be left behind. News

travels fast in the micro-cap market. The

social networks, message boards, broker

dealers and service providers all want to

know: Who did what? When? What terms?

What price? What valuation? Who wouldn’t

be curious? How does each news event help

turn the market? Which sectors will be most

affected? Where is the capital coming from?

All the right questions have started being

asked, all different from the market where

very few deals were getting completed and

terms were onerous for companies when

completed. Until around May, it had been a

buyer’s/funders market seemingly for years. I

was ecstatic, who in the market wouldn’t be?

I had the facts in my hand,

the money from the side-

lines had started to loosen

up and the profit taking

from big board stock sales

started and meant the

trickle down affect was

underway! The Dow con-

tinued to increase as big

names continued to attract

big money and small

money players but smart

money had started selec-

tively looking more at risk.

Bottom fishers had less

and less deals to swallow

and capital fund managers

were listening to new ideas.

Money managers had

money to spend; profes-

sional stock pickers were

picking and buying. The

micro-cap stock group,

like an ocean liner, takes time to change

direction in the big ocean of capital markets,

but like an elephant, once the first step is

taken the whole herd will follow. New liquid-

ity has started flowing and where droplets

of money become pools, and pools become

ponds, and deal flow is soon to return just

like fresh growth after a rain on the Kalahari

Desert. Adding to the early bull is the push

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Micro-Cap Review Magazine is published Quarterly, Spring, Summer, Fall, Winter POSTMASTER send address Changes to Micro-Cap Review Corporate Offi ces. ©Copyright 2013 by Micro-Cap Review Inc. All Rights Reserved. Reproduction without permission of the Publisher is prohibited. The publishers and editors are Not responsible for unsolicited materials. Every effort has been made to assure that all Information presented in this issue is accurate and neither Micro-Cap Review Magazine or any of its staff or authors is responsible for omissions or information that is inaccurate or misrepresented to the magazine. Micro-Cap Review is owned and operated by SNN Inc.

The micro-cap

stock group, like

an ocean liner,

takes time to

change direction

in the big ocean

of capital mar-

kets, but like an

elephant, once the

first step is taken

the whole herd will

follow.

In Loving Memory of Our Precious Daughter, and Sister, Sammi Kane Kraft

4 Micro-Cap Review Magazine www.stocknewsnow.com•www.snnwire.com•www.microcapreview.com

to emerging growth markets induced by the

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companies and the crowdfunding websites

and platforms are here as well. This issue of

the Micro-Cap Review provides our reader

a global perspective of emerging growth

markets, covering both public and private

companies with poignant articles covering

the biotech sector to your financial health,

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we are in a micro-cap bull market, cash is

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day-to-day financial pressures. SNN salutes

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ners including: OTC Markets, QuoteMedia,

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Sheldon “Shelly” KraftPublisher n

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C O N T E N T SWWW.MICROCAPREVIEW.COM

fall/winter 2013

16 Dark Pools By David Franasiak, Joel Oswald, Eric Robins, and Rebecca Konst

22 An Interview with David Weild By David Weild IV

30 Repeal of General Solicitation Ban Ushers in New Era for Private Offerings By Brett Goetschius

38 Strangulation By Regulation By Joe Martin

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

46 BIOTECH 2013: Mid-Year Sector Update By Seth Yakatan

50 What is Your Financial Health? By Dr. Janet Zand

52 Tips for Using Rule 144 to Remove Legends from Stock Certificates By Ashley Bolduc

60 Investing in China By Corey Fischer, CPA

63 Life-Science Technologies The Incubator By Richard Koffler

65 Hong Kong Rebounding to be World’s 3rd Largest IPO Market in 2013 By Leslie Richardson

68 Silver - Gold - Palladium - Platinum By David Morgan

72 Do You Know Beans About (Soy)beans? By Mark Shore

77 Ask Mr. WallStreet Newsletter

80 How to Use the New General Solicitation Rule for Private Placements to Raise Capital By Mitch Goldsmith, Camilla Merrick, and Nancy Cass

83 What I’m Buying By Chris Lahiji

84 Who’s Your Edgar Agent?

88 Worldwide Stock Transfer

Legal, Tax & Accounting54 The Compliance Corner By Russell C. Weigel, III

Financial Puzzle62 SNN StockWord Puzzle

Comic Strip67 WallStreet Chicken - Episode 9

Opinion90 Ombudsman By Jack Leslie

Insurance92 Thorson Insurance Services

Profiled Companies10 CVSL Inc.

14 Marifil Mines Ltd.

18 PetVivo, Inc.

20 Medifocus, Inc.

26 Youngevity International, Inc.

34 The Original SoupMan, Inc.

56 TNI BioTech, Inc.

78 Orphanbiotec Foundation

86 Benchmark Healthcare Partners LLC


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

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

“Direct selling” means selling any products

or services directly to consumers without

going through stores. It’s sometimes called

“relationship marketing.” John Rochon calls

The result is an interesting new approach

that’s making a splash in the $153 billion

global direct selling industry. It’s called

CVSL Inc. [stock symbol: CVSL]

Like all visionary business leaders, John Rochon saw a need then found an innovative way to meet it.

n JOHN P. ROcHON


it “micro-enterprise.” Whatever you call it,

it’s a massive business that stretches into

every community in every part of the world.

It’s estimated that 91 million people are

involved in direct selling. (Source: World

Federation of Direct Selling Associations).

Rochon, 61, is the former chairman and

CEO of cosmetics giant Mary Kay. As that

company’s leader, he helped revolutionize

direct selling. For example, he tapped into

the power of e-commerce at a time when

some people wondered if the Internet would

hurt direct selling. He expanded Mary Kay to

37 countries around the world. At one point

he was also the largest shareholder in Avon.

As chairman of Richmont Holdings,

Rochon has made more than 340 major

investment transactions over the past 28

years, and he has generated average com-

pounded annual returns of 92%, creating

about $36 billion in wealth.

Many of his investments have been in

businesses outside direct selling. But he says

he never lost his fascination with that unique

form of commerce.

“Micro-enterprise is incredibly power-

ful,” said Rochon recently, as he talked to

Micro-Cap Review about his new venture.

“It’s a way for literally any person to have

an independent business and help his or her

family and have fun doing it. But over the

past few years I realized that the industry

hasn’t seen a really interesting new idea for

a long time. That’s what led me to a break-

through, and I came up with the strategy

for CVSL.”

It’s a strategy that’s built on a few simple

facts.

There are about 200 companies in the U.S.

Direct Selling Association, ranging in size

from a few million dollars in sales to multi-

billion dollar giants. Some are publicly

traded but most are private.

In many cases, the person who founded

the company is its charismatic leader who

motivates and inspires the independent sales

force. Many of the leaders want to find a way

to monetize some of their stake in the com-

pany, but they can’t do that without selling

and exiting the company.

Rochon’s idea was to solve that problem

while at the same time strengthening the

individual companies. By building a public

company “umbrella,” he could bring mul-

tiple direct selling companies together under

that umbrella. Each owner could have shares

in the public entity – some of which they

could convert into cash if they chose – while

still remaining active in the business.

As Rochon put it, “If you want to sell your

company and exit, we’re not interested. If

you want to grow your company, call us.”

In CVSL, each company remains inde-

pendent, with its own separate product line,

sales force, compensation plan and leader-

ship team. Rochon calls this “brand respect.”

He points to Louis Vuitton Moet Hennessy

(LVMH) as the model for an umbrella, under

which are multiple independent brands.

The public company vehicle to accomplish

this was CVSL Inc. Rochon acquired the

publicly reporting company in September of

2012 and made his first direct selling acquisi-

tion in March, 2013.

First to become part of the CVSL “umbrel-

la” was one of America’s best-known brands,

a maker of hand-crafted baskets and other

home items: The Longaberger Company.

Based in Ohio, with revenues around $100

million, Longaberger celebrated its 40th year

in business in 2013. Five generations of the

Longaberger family have been in the busi-

ness. The company recently made a splash

in the news media when it announced it was

bringing its entire line back to made-in-the-

U.S.A.

One of the things that made Longaberger

such a perfect fit with CVSL was the fact

that it had a massive and under-used infra-

structure, which was built to accommodate

a much larger company. Prime office space,

first class manufacturing, warehouse and

distribution space – 500,000 unused square

feet of it – and an excellent location near

Columbus, Ohio all had the potential for

meeting the needs of multiple CVSL com-

panies.

“Every direct selling company has the

same basic needs in the ‘back of the house.’

They all need technology and accounting

support. They all need warehouses and

distribution. So if we can have shared infra-

structure for at least some of these needs,

we can have more profitable companies,”

explains Rochon.

This is especially true for what Rochon

calls “gazelles”: new or up-and-coming

companies that have a great product or ser-

vice and just need a launching pad to ignite

sales and expand into multiple markets. “It’s

a terrible waste when a good direct selling

company can’t get traction because it doesn’t

have a home base,” says Rochon. “To use an

analogy, these are gazelles that just need to

be nourished and they’ll run like the wind.”

One such up-and-coming company is

Your Inspiration At Home, a two-year old

maker of 250 hand-crafted spice blends

made from natural ingredients from around

the world. The company has won numerous

awards since its launch in Australia. It is

now ready to break into the North American

and other markets, with CVSL providing the

launch pad.

As founder Colleen Walters put it when

As chairman of Richmont Holdings, Rochon has

made more than 340 major investment transactions

over the past 28 years, and he has generated aver-

age compounded annual returns of 92%, creating

about $36 billion in wealth.


she became part of CVSL, “This is the next

step toward our becoming a truly global

market.” Spices for the North American

market will be blended at a state-of-the-art

CVSL facility in Texas.

ActiTech, a CVSL sister company just

north of Dallas, is CVSL’s in-house manu-

facturing arm. It is a 600,000 square foot,

state of the art R&D, manufacturing, filling

and warehouse facility for health and beauty,

nutritional and consumable products.

The manufacturing facility is ISO 9001

compliant and is USDA certified organic. It

performs new product development, man-

ages regulatory review and compliance, and

handles testing and monitoring. Air and

water environmental monitoring in the facil-

ity are performed daily and it operates a USP

purified water system. The facility has full

capabilities for large volumes for blending,

filling and bottle labeling, including several

filling lines, each capable of handling up to

120,000 units per day.

Product lines being processed at the facil-

ity include skin care, OTC medical devices,

hair care, beverages, energy drinks, powders

and spices. The facility has done contract

work for major corporate clients in the food,

drug and cosmetic sectors.

Along with the infrastructure of offices,

manufacturing and distribution facilities in

Ohio and manufacturing for health and

beauty and consumables in Texas, CVSL

offers another form of “intangible infrastruc-

ture” through Richmont Holdings offices in

Dallas: namely, the combined experience

of the CVSL brain trust and the Richmont

Holdings team.

This includes a CVSL board of directors

who have decades of experience in direct

selling and other fields. For example, one

director developed and ran Mary Kay’s oper-

ations in Russia and Europe. Another has

worked for or consulted with major direct

sellers for many years. ActiTech’s founder

serves on the board.

The brain trust also includes experts in

finance, marketing, mergers and acquisitions

and operations.

The company’s web site, www.cvsl.us.com,

includes a discussion of its strategy, plus

public filings and news. CVSL’s first share-

holder conference call was a comprehensive

discussion of the company’s plans. The call

transcript is on the site.

As CVSL looks to the future, Rochon says

it will take a broad and flexible view of which

companies are right for coming under the

CVSL umbrella.

“This is not a short-term thing,” he says.

“We’re building value for shareholders over

the long term. The average duration of my

investments is 14 years,” says Rochon. “So

we’re looking for companies to bring into

CVSL that can grow and build value.”

Those companies could range from small,

in the $2-5 million range with good upside

potential, to mid-size in the $100-200 mil-

lion range, and up to even the largest com-

panies. In general, CVSL is looking at market

sectors such as nutritionals, healthy life-

style, cosmetics and beauty and home décor,

although it is open to additional categories

as well.

Rochon says that CVSL is looking for sev-

eral things as it analyzes candidate compa-

nies. “We’re looking to add new categories.

We want to fill in the world map. We’re

looking for good value. And we’re looking

to add for good connections in the consumer

cloud.”

After Longaberger and Your Inspiration At

Home joined CVSL, a third company signed

a letter of intent to join. Tomboy Tools, a

13-year old company that offers a unique

line of pink tools designed for women,

along with 24/7 home security monitoring

services, brings CVSL into the massive home

improvement tools ($11 billion) and home

security ($13 billion) sectors.

Rochon says that, as word of his CVSL

strategy began to spread behind the scenes

in the direct selling world, a large number

of companies of varying sizes approached

him about potentially being part of the

venture. CVSL has a team of financial ana-

lysts continually looking at such potential

transactions.

“We want to make sure that any compa-

nies entering CVSL are a good fit for us, and

believe we’re right for them,” says Rochon.

“The response has been really encouraging.

We see this as an idea whose time has come

and we’re seeing that in the reaction to us

around the industry.”

“I’ve known the direct selling channel

for three decades,” says Rochon. “I know

firsthand how powerful it is. I know that

my vision for CVSL is the best new idea this

sector has seen in a long time. I’m absolutely

convinced we’re going to give direct selling a

whole new dimension as we acquire compa-

nies and give them a chance to reach their

full potential.

“This is a model that makes so much

sense, not only for owners of direct selling

companies but for everyone who appreciates

this amazing industry,” said Mr. Rochon.

It’s going to be really rewarding to guide

CVSL and grow it over the years to come,”

he added.

(website: www.cvsl.us.com) n

Product lines being processed at the facility include

skin care, OTC medical devices, hair care, beverag-

es, energy drinks, powders and spices. The facility

has done contract work for major corporate clients

in the food, drug and cosmetic sectors.

Lynne Bolduc, Esq. Oswald & Yap, APC

16148 Sand Canyon Avenue Irvine, CA 92618

Email: [email protected] Phone: (949)788-8900 Website: www.oswald-yap.com

LYNNE BOLDUC OF OSWALD & YAP LAWYERS RECENT FINANCING TRANSACTIONS

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

Fund

We represent Capital Alliance Advisors, Inc. in a series of

offerings of real estate funds.

May 2013

Madison Realty Companies $15,500,000 Private Offerings

We represent Madison Realty Companies in their private

offerings of residential real estate and senior living facilities.

May 2013

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

We represent DNA Health, a health and wellness company, in a series

of private offerings.

May 2013

Bill the Butcher, Inc.

OTCQB: BILB Series of Private Offerings

We represent Finance 500, Inc., the Managing Dealer of a series of private placements for Bill the

Butcher, Inc.

May 2013

Padrino Tequila

$5,000,000 Private Offering

We represent Padrino Tequila in its private offering of securities.

June 2013

Fireman’s Brew, Inc. $5,000,000 Private Offering

We represent Fireman’s Brew, Inc. in its private offering of securities.

September 2012

Black Shopping Channel $12,500,000 Private Offering

We represent Black Shopping Channel in its private offering of

securities.

June 2013

CompPartners, Inc. $12,000,000 Sale

We represented CompPartners, Inc. in its sale to a national healthcare

conglomerate.

December 2012

Guardian 8 Holdings $3,000,000 Private Offering

We represent Finance 500, Inc., the Managing Dealer of this private

offering.

February 2013


Project generator model: Decreasing risk & increasing opportunity

With the mining sector lan-

guishing and junior explora-

tion companies battered and

bruised, investors have learned the hard way

the benefits of decreasing risk. With many

junior explorers facing all-time low share

prices, raising money and proving a valu-

able resource has become a risky and often

dilutive process. Trying to overcome these

inherent issues with the sector, some juniors

have turned away from the traditional raise,

explore, dilute, drill routine and moved

toward the project generator model. Marifil

Mines Ltd. (TSX-V: MFM) has followed this

model since its inception and received dis-

tinct advantages from this business model.

A typical project generator like Marifil

focuses on acquiring multiple early-stage

properties, often across a range of resources

or countries. The company will then per-

form early-stage exploration on the resource.

Next, where traditionally a junior would

raise more capital (and dilute the stock), a

project generator will partner with another

company to conduct further exploration on

the project. This partner will have to earn

a stake through share and cash payments

to the project generator and by financing

further exploration. Once the partner has

earned joint-venture status, the project gen-

erator will retain a stake and royalty in the

property.

need to dilute our stock to finance further

acquisitions or exploration. To date, our

joint venture partners have spent more than

$40 million on our properties; this is real

leverage for our investors.”

Marifil’s property portfolio includes the

following important projects:

1. San Roque: gold-silver-indium-lead-

zinc deposit with sulfides discovered

throughout an area measuring more than

3km wide and 4km long.

2. K-1, K-2, K-3, K-4, K-5, and K-6 potash

properties: some with indicated grades of 40

to 45% K2O in beds 3 to 4 m thick.

3. Pedernal: a “Carlin-type” gold target.

4. Toruel: a high grade silver-copper vein.

5. Punta Colorada: a cement-grade lime-

stone deposit.

6. El Carmen: an oil and gas target.

7. Two porphyry copper targets.

8. Several high grade epithermal gold-

silver veins.

9. Several important sulfur targets.

10. Las Aguilas: a Ni-Cu-PGM project

with significant NI 43-101 resource.

For more information on Marifil Mines or

the benefits of the project generator model

please contact :

Head Office:

John Hite, President

Phone: 702.562.4880

Email: [email protected]

Website: www.marifilmines.com

Investor Relations:

Hugh Oswald

Phone: 604.838.2855

Email: [email protected] n

Consider Marifil’s position. Marifil has

an impressive portfolio of 22 precious

metal, base metal, and fertilizer properties

in Argentina. This diverse portfolio allows

Marifil to take advantage of commodities

that are currently in favor with investors,

while the project generator model provides

Marifil with the distinct advantage that the

costs and risk of exploration are passed on

to joint venture partners. In the project gen-

erator model, Marifil retains four different

income streams:

1. Cash payments for earning a stake in

the property

2. Shares in the joint venture partners

3. Net Smelter Return (NSR), which allows

Marifil to receive cash flow when the prop-

erty enters production

4. Retained Interest, either a carried or

working interest, which allows Marifil to

receive payment if the property is sold or

placed into production.

Marifil has utilized the project generator

model with a number of past and present

partners. These partners include: Southern

Copper, NovaGold, BHP, Western Mining,

IAMGOLD (with Barrick), Prophecy

Platinum, Allana Potash, Castillan Resources,

and Yamana Gold, among others. These

companies have spent over $40 million on

Marifil’s properties and allowed Marifil to

benefit from their experience in the mining

sector.

“The project generator model allows us

to maximize our chances of finding a huge

discovery while sharing the bill with a larg-

er, better funded mining company” says

John Hite, President of Marifil Mines. “Our

stream of incoming cash flow from our suc-

cessfully joint ventured projects reduces the

PROFILED cOMPaNIES

n BY JOHN HITE


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

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

whaT are Dark Pools?

Dark pools refer to alternative trading sys-

tems (ATS) that do not publicly display

bids and offers in their quotes and are

not required to identify the particular ATS

that executed the trade. In contrast, the

trade reports of registered exchanges such as

the NASDAQ or New York Stock Exchange

(NYSE) are required to identify the trad-

ing venue that executed the trade. Dark

pools have been around since the 1980s

as “upstairs” trading in formal exchanges

and generally handle institutional investors

that trade sizeable positions in a company’s

shares.1 These trades remain anonymous in

dark pools so as to avoid possible adverse

price movements in the market driven by

these trades.

• “Consortium-Based Pools”: Jointly

operated by a number of brokers, partners

first try to cross orders in their own dark

pool and only send unexecuted orders to the

consortium pool. Examples include LeveL

or BIDS.

so how have regulaTors

TreaTeD Dark Pools?

In the United States, the Securities and

Exchange Commission (SEC) has oversight

of dark pools. With the growth in the

number of dark pools since the implementa-

tion of Regulation National Market System

(NMS), the SEC has taken a closer look at

these venues, and in October 2009, proposed

rules to further regulate them. The proposal

aimed to: (1) require actionable indications

of interest be treated like other “bids” or

“offers” and be subject to the same disclosure

rules; (2) lower the trading volume threshold

for ATSs for displaying best-priced orders;

and (3) create the same level of post-trade

transparency for dark pools as for regis-

tered exchanges (i.e., amend existing rules to

require real-time disclosure of the identity

n BY BY DaVID FRaNaSIak, JOEL OSWaLD, ERIc ROBINS,

aND REBEcca kONST

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

2 Hans Degryse, Mark Van Achter, & Gunther Wuyts, Shedding Light on Dark Liquidity Pools (Nov, 18, 2008), available at http://papers.ssrn.com/ sol3/papers.cfm?abstract_id=1303482, pp.3-4.

3. Hitesh Mittal, Are you playing in a toxic dark pool? A guide to preventing information leakage, JOURNAL OF TRADING (June 2008), available at http://www.itg.com/news_events/papers/ITGResearch_Toxic_Dark_Pool_070208.pdf, pp.3-7.

TyPes of Dark Pools

A variety of dark pools exist, distinguish-

able based on: (1) their market model (e.g.,

continuous vs. periodic crossing, blind vs.

advertisement-based pools); (2) their own-

ership (e.g., is a dark pool owned by a tradi-

tional exchange or by broker-dealer(s)?); and

(3) which traders have access to a dark pool.2

In fact, different types of dark pools3 include:

• “Public Crossing Networks”: These are

agency-only, broker-owned with a primary

goal to generate commissions. Examples

include Instinet, Liquidnet or Pipeline.

• “Internalization Pools”: These aim

to internalize the operator’s trade flows.

Examples include Credit Suisse Crossfinder.

• “Ping Destinations”: These accept

“immediate or cancel” orders and their cus-

tomers’ order flow only interacts with the

operator’s flow. Examples include ATD or

Citadel.

• “Exchanged-Based Pools”: These are

systems that are actually registered ATSs

by exchanges. Examples include: NYSE

Matchpoint, Nasdaq Crossing or Deutsche

Börse’s Xetra XXL2.


of the dark pool that executed the trade).4

However, the SEC has not moved further on

these rules. Current SEC Chairman Mary Jo

White has expressed an interest in looking at

equity market structure as “the SEC needs

to be in a position to fully understand all

aspects of today’s high-speed, high-tech, and

dispersed marketplace”, noting that “[h]igh

frequency trading, complex trading algo-

rithms, dark pools, and intricate new order

types raise many questions and concerns.”5

When the SEC proposed the rule in 2009,

they calculated that the number of active dark

pools was 29, an increase from 10 in 2002.6

The SEC compiled this data based upon the

submissions from Form ATS in the second

quarter in 2009. But the SEC acknowledged

that there are other trading venues “that offer

dark liquidity primarily in a principal capac-

ity and do not operate as ATSs” and “these

trading venues are not defined as dark pools

because they are not ATSs.”

Dark Pools: ToDay anD

Tomorrow

Today, darks pools are generally estimated

by media sources to account for about 40%

of the market, up from the 7.2% cited by

the SEC in its 2009 rule proposal. So while

several exchanges have raised concerns with

the growth of these ATSs (suggesting a lack

of transparency and fairness to investors),

in reality, ATSs level the playing field by

introducing more competition on execution

speed, quality and cost. Furthermore, even

the traditional exchanges have operated dark

pools or introduced dark order types for

years and continue to do so. For instance,

the New York Stock Exchange (NYSE) in

2012 opened its own dark pool (in addi-

tion to its NYSE Matchpoint), known as

the Retail Liquidity Program (RLP), which

allows for trades from retail investors and at

prices in fractions of a cent that do not need

to be made public.

Overall, investors have benefited from the

growth of and variety in dark pools. The

mechanics of a dark pool clearly benefit the

investor in the form of a better price, execu-

tion, and choice as broker-dealers or market

makers may send an order through a num-

ber of dark pools to see if there is a match.

If there is not a match or price improvement,

an order may go to an exchange to be filled.

The cost saved by this execution away from

an exchange may be passed on to the retail

consumer in the form of lower execution

costs, better fill, and price improvement.

It is impossible to hold back technological

improvements in the market. In fact, these

alternative trading systems help to lower

costs for the investors and protect against

adverse price movements for investors that

could result from the trading on-exchange.

David Franasiak became a Principal of

Williams & Jensen in 1992. As Vice President

of Finance and a member of the Executive

Committee since 1993, he is responsible

for the day-to-day financial management

of the firm, pension plans, and outside legal

entities. Mr. Franasiak specializes in a leg-

islative and administrative practice focused

on tax, securities, financial institutions and

natural resources.

Mr. Franasiak has over twenty-five years of

experience working on public policy issues

with corporate executives, not-for-profit

organizations, accounting firms, broker

dealers, hedge funds, financial institutions,

and associations.

Prior to joining Williams & Jensen, he was

a Principal in the Office of the Chairman

at Ernst & Young, working

on tax, securities, and finan-

cial institution issues. From

1984 to 1987, he worked

for British Petroleum on

tax, finance, environment,

and energy issues, and was Director of

Tax at the U.S. Chamber of Commerce

from 1981 to 1984. Previous to this posi-

tion, he served as Staff Director to the

Tax Oversight Subcommittee of the U.S.

House of Representatives Small Business

Committee. Early in his career, Mr. Franasiak

worked on the legislative staffs of a city and

county legislature, and worked as a venture

analyst for a large multinational corporation

while completing his graduate work.

In addition to serving Williams & Jensen

clients, Mr. Franasiak teaches a seminar at

the University at Buffalo Law School’s New

York City Program in Finance and Law, most

recently on securitization and the crisis in

the capital markets.

Eric Robins became

associated with Williams &

Jensen in 2006. He works

with clients on legislative

and regulatory issues,

primarily in tax, trade and

financial services. Prior to joining Williams

& Jensen, Mr. Robins practiced securities

and corporate law in New York for two

years. In that role, Mr. Robins worked on

federal, state and National Association of

Securities Dealers dispute resolution cases.

Mr. Robins also served as a legal adviser to

various small publicly traded companies. In

addition, Mr. Robins is a Level II Candidate

for the Chartered Financial Analyst Exam. n

4. Regulation of Non-Public Trading Interest, Exchange Act Release No. 34-60997, 17 CFR Part 242 (Nov. 13, 2009), available at http://www.sec.gov/rules/pro-posed/2009/34-60997.pdf., pp.6-7.

5. Nomination of Chair for the Securities and Exchange Commission: Hearing Before the S. Comm. on Banking and Urban Affairs, 113th Cong. 1 (Mar. 12, 2013) (state-ment of Mary Jo White, nominee for Chair of SEC), available at http://www.banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=619e5603-c2c8-4085-98c6-0014ce29bde7.

6.Regulation of Non-Public Trading Interest, supra note 4, at 6-7.


Petvivobecoming a companion animal and an inte-

gral part of the family. As a result, pet owners

are willing to invest more and more money

to maintain and extend the health and lives

of their pets. As “family members” these pets

are receiving treatments such as: stem cell

therapy and cancer therapies that were very

unusual just a few years ago. According to the

American Pet Products Association, approxi-

mately 78% of U.S. dog owners treated their

dogs with medications in 2010 as compared

to 50% in 1998. PetVivo is benefitting from

the recent shift in pet product distribution

expansion from both online commerce

and animal drug sales at pharmacies of

warehouse stores. Historically, pet therapies,

especially pharmaceuticals, were a meaning-

ful revenue stream for veterinary clinics and

hospitals. PetVivo is focused on the practice

and returning revenue by providing prod-

ucts that require in-clinic expertise. PetVivo

provides a significant revenue stream back to

animal hospitals and clinics.

In addition to John Lai, PetVivo was

Co-founded by John Dolan. Mr. Dolan is a

former patent examiner at the US Patent and

Trademark Office and has practiced patent

law for decades in the area of medical devices

and biopharmaceuticals. His patent, licens-

ing and chemistry background provides the

expertise to lead the process of vetting human

treatments, in the late stages of development,

for use as potential animal therapy candi-

dates. In securing exclusive worldwide ani-

mal licensing rights to therapeutics, PetVivo

requires securitizating intellectual property

for PetVivo and conform to PetVivo criteria

for large market opportunities, multiple spe-

cies, and required disruptive therapeutics.

PetVivo focuses product manufacturing on

scalability product shelf life, and adherence

to regulatory requirements, and that product

Co-founder & CEO of PetVivo, Inc.

John Lai, has a passion for pets

and finance that led him to use

his finance and business acumen to help

improve the lives of companion animals. In

PetVivo, John has leveraged the company’s

investments in the development of human

therapeutics and is commercializing thera-

pies within the less regulated companion

animal market. PetVivo’s first product is cur-

rently ready for commercial production and

sales in the fourth quarter of 2013.

Often medical device, biologics and phar-

maceutical companies look past the animal

market to the human market benefitting

PetVivo as the Company that secures disrup-

tive human therapies for the animal market.

Information available indicates U.S. con-

sumers will spend an estimated $55 bil-

PROFILED cOMPaNIES

lion on pets this year—a number that has

been growing at a pace of more than 5%

per year over the last decade. Pet industry

experts foresee continued, healthy growth in

consumer spending in the U.S. pet market

through 2017 and steadily into the follow-

ing decade. “We are noticing several trends

contributing to the growth in the industry,”

said APPA President and CEO Bob Vetere.

“These trends include the positive impact of

pet ownership on human health, which we

expect to continue and to fuel pet industry

sales for many years to come. And, as the pet

industry proves to be ‘recession resistant,’

we’re confident that this upward trend in

spending will endure.”

Mr. Lai has recognized that the role of

companion animals has evolved over the past

generations from simply being a house pet to

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


pricing meets the parameters of the veteri-

nary and care providers market.

PetVivo has leveraged lower regulatory

requirements of the veterinary market, and

while the FDA regulates veterinary medical

devices, pre-market approval is not required.

The FDA does not require submission of a

510(k) or formal pre-market approval for

medical devices used in veterinary medicine.

According to Mr. Dolan, “animal pharma-

ceuticals require fewer clinical studies for the

FDA, involves fewer subjects and is conduct-

ed directly in the target animal. Accordingly,

there is no need to bridge from pre-clinical

studies in one animal to the final target –

often humans, decisions on the potential

efficacy and safety of a drug can be made

more quickly and the likelihood of success

can often be established earlier”.

PetVivo plans to leverage established dis-

tributors to penetrate the veterinary market.

According to the Federal Trade Commission

(File No. 101 0023) reported in January

2013, nearly all veterinarians buy their sup-

plies from distributors who specialize in sup-

plying companion animal veterinary clinics.

Veterinarians overwhelmingly prefer to buy

through distributors because of the effi-

ciency and customer service they offer. More

than 75% of veterinarians prefer one of the

top five distributors, which have an 85%

market share of companion animal veteri-

narians sales, as their preferred distributors.

PetVivo has recently entered into an

exclusive license, manufacturing and supply

agreement with Gel-Del Technologies, Inc.

PetVivo has licensed Gel-Del Technologies,

Inc. protein-based biomaterials for the treat-

ment of pain and inflammation associated

with osteoarthritis in canine and equine.

PetVivo believes that Gel-Del Technologies

Inc. treatments are superior to current

methodologies that use non-steroidal anti-

inflammatory drugs, NSAID’s.

Osteoarthritis, the most common inflam-

matory joint disease in both dogs and horses,

is a progressive condition that is caused by a

deterioration of joint cartilage. Over time,

the joint cartilage deterioration creates joint

stiffness from ordinary mechanical stress,

resulting in inflammation, pain, reduced

range of motion, and lameness.

Osteoarthritis, joint stiffness and lameness,

worsens with time from gradual cartilage

degeneration and ongoing losses of protective

cushion and lubricity (i.e., loss of slippery

padding). There is no cure for osteoarthritis

and the various current treatment methods

are focused on managing the related symp-

toms of pain and inflammation. Veterinarians

recommend several treatments depending on

the severity of the disease, including a combi-

nation of rest, weight loss, physical rehabilita-

tion, and a regimen of anti-inflammatory and

pain masking drugs (NSAIDs).

Non-steroidal anti-inflammatory drugs

(NSAIDS) are used to alleviate the pain and

inflammation caused by osteoarthritis, but

long-term NSAIDS can cause gastric prob-

lems. Moreover, NSAIDS do not treat the

cartilage degeneration issue to halt or slow

the progression of osteoarthritis.

Mr. Lai stated, “The prevalence of compan-

ion animal osteoarthritis is significant and

well documented. We estimate that there are

10.3 million dogs in the US with the osteo-

arthritis condition based on the estimated

population of 83 million pet dogs in the US

and data indicating twenty-percent of dogs

over age one, show symptoms of osteoarthri-

tis”. Brakke Consulting and Market Dynamics

data indicates that 6.7 million dogs are diag-

nosed with osteoarthritis in the US each year.

The PetVivo exclusive license with Gel-Del

Technologies Inc. includes their osteoarthri-

tis products using injected Gel-Del Particles

(GDP). GDP has been used for a broad range

of applications, including: the treatment

of wrinkles as a dermal filler in a pivotal

human trial that demonstrated the product

is both safe and efficacious. This study was

reported and published at www.clinicaltrial.

gov (NCT00414544).

In addition, Gel-Del Technologies suc-

cessfully completed stringent biological,

chemical and physical tests to satisfy FDA

requirements for product approval; test-

ing on the GDP for appropriate regulatory

approval. This included the required ISO

10993 Biocompatibility Tests for medical

device implants.

GDP are manufactured using scalable

inline single-use (disposable) technologies

which reduce the infrastructure require-

ments and manufacturing risks. Gel-Del

Technologies is scaling the manufacturing

process for GDP production; to date mak-

ing batches of up to 10,000 unit (syringe)

quantities using GMP (Good Manufacturing

Practices) standards acceptable for human

clinical trial use.

Third party studies indicate that GDP gel-

particles can easily be combined with synovial

fluid in a rabbit knee to form a joint cushion,

buffering the adjacent bones/cartilage. These

studies demonstrated no damage was caused

to the cartilage from replacing the synovial

fluid. GDP shows an effectiveness to repair,

reconstitute or remodel the tissue, cartilage,

ligaments and/or bone and/or enhance the

functionality of the joint and repair dete-

riorated components present in the joint to

provide cushion or shock absorbing features

to the joint and joint lubricity.

Studies in equine and canine models

include injections into various joints result-

ing in promising joint outcomes. Horses

have demonstrated greater mobility and less

lameness, and dog studies indicate that joint

injections are well tolerated and have not

shown any complications.

John Lai stated, “PetVivo is positioned

with an exciting new product in a growth

industry. Our goal for the company is to pro-

vide a huge market need with a well designed

and safe series of new products beginning

with Gel-Del Particles”. You can learn more

at www.PetVivo.com.

Gel-Del Technologies, Inc. is a biomaterial and medi-cal device manufacturing company based in St. Paul, Minnesota that develops and manufactures a range of medical device implants using their thermoplastic bio-material, including the GDP product. The Companys’ Founder and CEO, David B. Masters, Ph.D., is a well-known expert in the area of drug delivery and protein

matrices and primary inventor of Gel-Del’s Technology. n


has been obstructed by the BPH disease. This

technology is designed to be used by medi-

cal professionals in an office based setting

without placing their patients under general

anesthesia. The Prolieve system provides a

relatively painless and effective alternative

to drug therapy and certain types of surgical

procedures to treat the symptoms of BPH. As

the population continues to age, the preva-

lence of BPH, an age-related disorder, will

continue to increase. It is generally estimated

that approximately 50% of all men over the

age of 55 and 90% of all men over 75 will

have BPH symptoms at various times. The

potential of the worldwide BPH treatment

market is estimated to be in billions of dol-

lars. Medifocus’ strategy to capitalize on

the proprietary Prolieve Thermodilatation

System is to generate recurring revenues

through our mobile service and the sale of

our disposal catheter kits.

aPa microwave focusing

Technology for locally

aDvanceD breasT cancer

(labc)

The APA technology’s first indication is

locally advanced breast cancer (LABC),

Medifocus, Inc. develops and

commercializes minimally inva-

sive focused heat thermotherapy

systems for the treatment of cancer and

other diseases. It is driving sales and advanc-

ing its product portfolio through two fully

developed technology platforms, which hold

comprehensive US and international patent

protection:

(1) The Endo-thermotherapy Platform-a

catheter-basis focused heat technology plat-

form that utilizes natural body openings to

deliver precise microwave thermotherapy to

the diseased sites. The U.S. FDA approved

Prolieve Thermodilatation System for the

treatment of Benign Prostatic Hyperplasia

(“BPH”) was developed based on the Endo-

thermotherapy and is currently gener-

ating revenue, and (2) The Adaptive

Phased Array (APA) Microwave

Focusing Platform-invented by

MIT, licensed to Medifocus, directs

precisely focused microwave energy

at tumor center to induce shrinkage

or eradication of tumors without

undue harm to surrounding tissue.

The Company’s APA 1000 Breast

Cancer Treatment System, developed

from the APA technology platform

has received approval from the U.S.

FDA and Health Canada to conduct the piv-

otal Phase III clinical trials. The Company

believes that these two technology platforms

can provide the design basis for the develop-

ment of multiple cancer treatment systems

for surface, subsurface and deep seated local-

ized and regional cancers.

PROFILED cOMPaNIES

Prolieve ®

ThermoDilaTaTion sysTem

for enlargeD ProsTaTe or

bPh

The Company’s Prolieve® Thermodilatation

System was originally developed and com-

mercialized by the current Medifocus man-

agement, product development,

clinical and regulatory teams

while at Celsion Corporation,

which subsequently sold the

Prolieve business to Boston

Scientific Corporation. In

July 2012, Medifocus reached

an agreement with Boston

Scientific Corporation for the

purchase of all of the assets of

the Prolieve business, includ-

ing all Prolieve inventory, the

mobile services assets, as well

as the intellectual property associated with

the Prolieve technology.

The Prolieve system provides a 45-min-

ute in-office treatment that combines

Medifocus’ microwave thermotherapy capa-

bility with a proprietary balloon compres-

sion technology to simultaneously heat the

prostate and dilate the prostatic urethra that

“medifocus’ plan is for Prolieve® to return to market leadership as a minimally

invasive treatment for benign Prostatic hyperplasia ‘bPh’. we believe we have

made great progress towards achieving this goal during the first quarter of 2014.

we are also pleased to report that our overall quarterly financial results have

demonstrated the success of the investment that we have made in our sales force

and infrastructure since acquiring Prolieve®, as we have increased revenue by

52% and reduced our loss by 51%. we expect to deliver continued top and bot-

tom-line growth and to strive to achieve positive cash flow in 2014.”

Dr. augustine y. cheung, President and ceo of medifocus

improving the standard for breast cancer & bPh Treatment


which involves large tumors that are gener-

ally treated first with neo-adjuvant chemo-

therapy to induce tumor shrinkage and then

followed by either radical surgery or breast

conservation surgery, depending on the final

size of the tumor. Medifocus’ focused-

heat treatment can significantly improve

the efficacy of neo-adjuvant chemotherapy

in shrinking LABC, significantly improv-

ing the chance of breast conservation, and

decreasing the need for radical breast sur-

gery. Focused microwaves can be used to

shrink breast tumors up to 8 cm in diameter,

vastly improving the chance of breast conser-

vation for these patients who under normal

circumstances will have no option but to

undergo radical breast surgery. With over 1.4

million new cases of breast cancer diagnosed

each year, Medifocus plans to raise the stan-

dards of care and treatment by using focused

heat to enhance neo-adjuvant chemotherapy

to provide better tumor shrinkage and con-

trol, leading to improved surgical outcomes

and ultimately breast preservation. Upon

receipt of regulatory approval for commer-

cialization, Medifocus plans to market the

APA 1000 system as a tool for breast sur-

geons to improve treatment outcome (more

BCS, fewer mastectomies) for patients and

increase their revenue. As with Prolieve,

Medifocus’ strategy is to capture recurring

revenue stream by selling treatment dispos-

able probes. n

invesTmenT highlighTs

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

Extensive Patent Portfolio: Including patents acquired from Prolieve®, Medifocus holds over 100 issued/pending patents covering its focused heat systems, positioning it to develop a rich pipeline of treatment products for a number of different cancers.

Compelling Clinical Results for Treating LABC: Prior clinical results have already demonstrated that the Company’s combined heat and neo-adjuvant chemotherapy increases breast tumor shrinkage by an additional 50% over neo-adjuvant chemotherapy alone.

Significant Revenue Potential: In addition to continued growth in Prolieve® sales, Medifocus expects that the APA 1000 breast cancer treatment system, if approved, could generate significant revenue through the sales of disposable probes.

Experienced Management Team: Medifocus management was part of the original team at Celsion Corp. that successfully developed and commercialized Prolieve® system and developed the APA 1000 breast cancer treatment system.

Commercialization Strategy: Our revenue strategy is capture recurring revenue stream through the sale of treatment disposal kits.

Strong Growth Opportunities: Successful commercialization of Prolieve® and future commercial success of the breast cancer system is expected to provide validation for the clinical potential of the Company’s two technology platforms.

comPeTiTive aDvanTages

• Two proprietary technology platforms with100 + patents to position the APA 1000 & Prolieve at the forefront of their markets and to develop other focused heat product pipeline for the treatment of cancers and other diseases.

• FDA approved revenue-producing Prolievefor the treatment of BPH.

•APA1000breastcancersysteminpivotalPhase III study.

Primary Contact:Medifocus, Inc.John Mon, COO

Tel: 410-290-5734Email: [email protected]

Operating Office:Medifocus, Inc.

10240 Old Columbia Rd.

Suite G Columbia, MD 21046United States

Tel: 410-290-5734

Fax: 410-290-7255

IR/PR Inquiry:Consulting for Strategic Growth 1Bob Giordano, PrincipleTel: 917-327-3938 Email: [email protected]

Corporate Office:Medifocus, Inc.The Exchange Tower PO Box 427 130 King Street West Suite 1800Toronto, Ontario M5X 1E3Phone: 905-319-7070

managemenT

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

Mr. John Mon (COO)Significant life sciences experience, Mr. Mon is previously V.P. of business and product development, General Manager, and Director of Celsion. He achieved FDA approvals for IDE/PMA/510K submissions, and has worked with clinicians, engineers, and patent attorneys on thermotherapy and breast-cancer-related devices. Mr. Mon holds many granted and pending patents in the area of thermotherapy for the treatment of cancer.

Mr. Mirsad Jakubovic (CFO)Mr. Jakubovic is a Chartered Accountant. His experience includes working as the Director of Finance and Administration for Havana House Cigar and Tobacco Merchants Ltd. and as Director of Finance and Administration for Swatch Group Canada Ltd. Mr. Jakubovic received his EMBA from the Richard Ivey School of Business and his B.Comm. from the University of Toronto,

Mr. Kurt O’Neill, CPA (VP, Sales and Finance) Mr. O’Neill was the Controller and Chief Financial Officer at Celsion Corp, where he later became the Director of Prolieve Clinical Trials and Director of Prolieve Product Development. Subsequently, he was Boston Scientific’s Business Development Manager—Prolieve® System, Atlantic Region before join-ing Medifocus Inc. as its Vice President of Sales and Finance in charge of Prolieve sales.

conTacT informaTion


An Interview with David Weild


Editor’s note – David Weild is consid-

ered by many to be the “Father” of

the JOBS Act which was enacted into

law by President Obama on April 5, 2012.

His studies, published by Grant Thornton in

2008, 2009 and 2010, have been cited broadly

in the House, U.S. Senate, Executive Branch

and by the IPO Task Force Report to the U.S.

Treasury. Along with co-author Ed Kim,

Weild demonstrated that the decline in the

U.S. IPO market is largely due to the collapse

in economic incentives to support small

cap stocks brought on by Regulation ATS

(alternative trading systems) and the dawn

of modern-day electronic stock markets in

1998 (not Sarbanes Oxley which was not

implemented until 2002). Their studies were

also the first to document that the number

of listed companies in the U .S. has declined

every single year since 1998 and that the lack

of IPO production is likely costing the U.S.

economy, millions of jobs. These facts were

cited by many of the sponsors of bills in the

House of Representatives that later became

individual titles of the JOBS Act.

David attended the signing of the JOBS

Act in the Rose Garden at the White House

on April 5, 2012. He is currently in “stealth

mode” with a technology venture that aims to

create software to revitalize capital formation

in public markets (www.issuworks.com).

We caught up with David and asked him

to update us on the progress being made in

the implementation of the JOBS Act by the

SEC and to share some of his hope for the

future.

1. Please give an update on Crowdfunding

- Crowdfunding is in limbo until the

Securities & Exchange Commission publish-

es rules for comment and they take effect. It

is clear from our conversations with industry

participants that input has been given to the

SEC to draft rules. However, it is unclear

when these rules will be put out for com-

ment.

When the JOBS Act was signed into law by

President Obama on April 5, 2012, very little

of it was effective immediately. In fact, more

than a year later, the key job-creating provi-

sions – those that improve capital formation

– have yet to be implemented (although new

rules governing Reg. D Offerings are expect-

ed to take effect on or around September 24

–see below). These include i) The increase

in “tick sizes” (Title 1, Section 106(b) of the

JOBS Act) required to reverse the impact of

“Decimalization” and provide the econom-

ic incentives essential to supporting small

public companies in the aftermarket ii)

The rescission of the prohibition against

general solicitation on Reg. D Offerings

(private placements), iii) Reg. A+ (a stripped

down hybrid public/private offering struc-

ture whose cap was increased to $50 million

in proceeds from the previous limit of only

$5 million), and IV) Crowdfunding.

Implementation of these provisions has

been delayed by a combination of:

SEC Transition – Former SEC Chairman

Mary Schapiro retired from the SEC on

December 15, 2012 and SEC Chairman Mary

Jo White became the 31st Chairman of the n DaVID WEILD IV


SEC effective April 10, 2013. A number of

key staff departed including the heads of two

key divisions: The Division of Corporation

Finance and the Division of Trading &

Markets.

SEC Work Load – The SEC is simultane-

ously working on rule promulgation for

Dodd Frank where, according to a July 22,

2013 CNBC report on the third anniver-

sary of Dodd Frank, regulators had written

13,789 pages and finalized only 155 rules

with 243 rules still to go.

Politics – At least one special interest

group, according to Press reports , was not

happy with elements of the JOBS Act and

made threats to the SEC which caused the

SEC, under Chairman Schapiro, to stall rule-

making and approval – despite the over-

whelming support of Congress and the

White House for this bill.

2. How does US Crowdfunding com-

pare to emerging market Crowdfunding?

There are two forms of Crowdfunding: i.

Currently permissible (non-securities

forms of Crowdfunding), and ii. That

which requires the approval of the U.S.

Securities & Exchange Commission (forms

of Crowdfunding that offer securities).

The United States is already extremely

active in non-securities forms of crowd-

funding. Platforms such as Kickstarter are

being used to finance product development,

manufacturing and even philanthropy. For

example, a company that needs funding to

produce an exciting new product could take

advance orders for that product online and

agree to ship that product against orders

when and if that product becomes available.

This form of “Crowdfunding” is growing in

the United States since it is not restricted by

U.S. Securities Laws and there is no upper

limit as to how much money can be raised.

Unfortunately, the United States may fall

behind other areas of the world such as the

UK (Seedrs Ltd – www.seedrs.com - is said

to been the first equity Crowdfunding plat-

form to have received regulatory approval

in the UK) in the sale of securities over the

internet. Even when the final rules are issued

by the SEC, the sale of securities to the public

via Crowdfunding portals (or through bro-

ker dealers) will be limited (by the JOBS Act)

to a maximum of $1 million dollars.

We think this is unfortunate for a variety

of reasons:

We believe that the concerns about fraud

in the instance of a Crowdfunding “Portal”

are overblown. What many fail to appreciate

is that the internet will lead to a paradigm

shift in the detection of fraud and bad actors.

We believe that tools will evolve that leverage

the “Crowd” to detect and stop securities

fraud and that the “Crowd” will prove to

be a much better safeguard than traditional

supervision of retail stock brokers. One anal-

ogy is the peer-to-peer auction markets such

as eBay which experience very little fraud as

a percent of total sales. We also understand

that the incidence of securities fraud in

Crowdfunding in the UK is less than 1.5%

of total proceeds.

As a consequence, the $1 million limit

imposed on Crowdfunding offerings of

securities by the JOBS Act may be unneces-

sarily limiting to U.S. Crowdfunding entre-

preneurs. And cut into the potential for job

formation from SMEs (Small and Medium

Enterprises). We believe that the appropri-

ate way to limit investor risk is through a

cap on the amount of exposure that a non-

accredited investor may have to any one

investment. So, for example, if an investor

makes $100,000 per year and is limited to a

maximum $5,000 investment, why should it

matter if 200 investors make a $5,000 invest-

ment for $1 million in proceeds or 100,000

investors make a $5,000 investment for a

total of $500 million in gross proceeds? In

our view, investors could still be individually

protected while the potential to jumpstart

our economy would be enhanced.

One “Wild Card” here is how the

Crowdfunding techniques will be applied

to Reg. D private placements (Private place-

ments to accredited and qualified institu-

tional buyers). New rules are expected to go

into effect on or around September 24, 2013

(see below). We foresee that “Crowdfunding”

platforms will leverage Reg. D to offer securi-

ties in amounts much larger than $1 million.

3. Discuss the SEC position on US

Crowdfunding, Decimalization, and Reg. A+

The SEC does not issue positions prema-

turely. They tend to work deliberately and

publish rules for comment. So, no one

knows definitively the SEC “position” on

these issues at this point more than one year

after the passage of the JOBS Act. And, as

we saw with the stalling of Reg. D, political

interests can derail the process.

Recently however, new SEC Chairman

White has said that the issuance of rules

under the JOBS Act is a priority.

According to Williams & Jensen, a

Washington law firm and lobbyist that

actively monitors legislative and regulatory

developments stated that:

“On May 1, the Securities and Exchange

Commission (SEC) convened a meet-

ing of the Advisory Committee on Small

and Emerging Companies (Advisory

Committee).

Lona Nallengara (Acting Director of SEC

Division of Corporation Finance) said that

the SEC is working on key rulemakings

under the JOBS Act, such as crowdfunding,

general solicitations, and Regulation A+.

He noted that Chairman Mary Jo White

considers these rules a priority. Nallengara

We believe that the appropriate way to limit inves-

tor risk is through a cap on the amount of exposure

that a non-accredited investor may have to any one

investment.


said that he could not offer a timeline for

acting on the rules. He noted that the four

recommendations made by the Committee

at its last meeting were provided to the

SEC Commissioners. He noted that the

Commissioners are considering next steps

regarding the decimalization recommenda-

tion. He said that the Commissioners are

considering whether or not to implement

a pilot program related to decimalization.

Nallengara said that the SEC is working

on a report on disclosure requirements in

Regulation S-K, as part of a broader review

of disclosure requirements.”

Ironically, implementation delays will cost

some entrepreneurs their jobs as continued

delays and uncertainty in rule making cause

them simply to run out of money.

We believe that once the SEC does act,

that Crowdfunding “Portals” are likely to be

regulated by FINRA (The Financial Industry

Regulatory Authority) in the same way that

“Broker-dealers” are regulated by FINRA.

While the Crowdfunding industry did dis-

cuss creating its own SRO (Self-Regulatory

Organization) with the SEC (under former

Chairman Schapiro), we understand that

the SEC indicated that it would require $20

million to get a new SRO off the ground.

Thus, the default option is FINRA which is

extremely well capitalized.

Rick Ketchum, Chairman & CEO of

FINRA, expressed sensitivity last year to

the fact that Crowdfunding platforms are in

their infancy and not able to bear large regu-

latory costs. So, the challenge for FINRA will

be to devise a scheme that is both effective

and low cost.

4. When will SEC rules repealing the pro-

hibition against general solicitation and gen-

eral advertising for Reg. D private become

effective?

On July 10, 2013, the SEC announced that

it had approved the lift on the general solici-

tation ban under Chairman White. This

was a long time in coming. The SEC first

published a draft of the new Reg. D rules on

August 28, 2012. The earlier draft was very

well received but the approval process was

stalled when one special interest group was

reported to have threatened the prior SEC

Chairman with an anti-consumer legacy.

This is ironic because consumers are ulti-

mately benefited when economic growth

and job formation - essential ingredients for

an elevated standard of living – are improved

by higher rates of capital formation.

The repeal of the prohibition against gen-

eral solicitation and general advertising was

a recommendation that we first made in

our 2010 study entitled, “A wake up call for

America.” Readers may find the published

rules (which should go into effect on or

around September 24, 2013) at www.sec.gov/

rules/final/2013/33-9415.pdf. They include

amendments to Rule 506 of Regulation D

and Rule 144A under the Securities Act of

2013. The Final Rules run 116 pages and

require filings by issuers to claim the ability

to generally solicit; require that the “issuer

takes reasonable steps to verify that such

purchasers are accredited investors” and;

disqualifies “Bad Actors” from participation

under this rule.

We were pleased to see the SEC include a

“Bad Actor” prohibition in the Final Rules

to lift the ban on General Solicitation. “Bad

Actor” prohibitions help protect investors

and support a higher level of investor con-

fidence that the success of these capital

markets will ultimately depend on. When

we testified in Congress in support of what is

now known as “Reg. A+” (another title in the

JOBS Act) we specifically recommended the

inclusion of a “Bad Actor” prohibition. We

would not be surprised to see a “Bad Actor”

prohibition included in the Crowdfunding

rules when they are ultimately released for

comment.

5. What role will trading have in the future

growth of the IPO market and vice versa?

We believe that aftermarket trading should

be an area of focus for a “JOBS Act 2.” Each

of these markets – public and private – needs

more liquid aftermarkets. Current after-

market structures inhibit both private and

public capital formation.

There needs to be adequate economic

incentives for bona fide market makers

(intermediaries) to provide liquidity support

by committing capital, sales and ultimately

research to small stocks once they are public.

This is something that we’ve written about

quite extensively (see “The trouble with small

tick sizes” published by Grant Thornton

in September 2012). In fact, on April 15 of

this year we presented a study (http://www.

oecd.org/fr/gouvernementdentreprise/mak-

ingstockmarketsworktosupporteconomic-

growth.htm) to the 35 member nations at

the Organization of Economic Cooperation

and Development (see www.OECD.org) in

Europe (coauthored by Edward Kim and

Lisa Newport) that demonstrated clearly

that the level of economic incentives in the

U.S. listed markets (NASDAQ and NYSE) are

the lowest of any of the World’s major IPO

markets. As a result, the United States now

ranks 24th out of top 26 largest IPO markets

on a GDP-weighted basis, ahead of only

Mexico and Brazil. We have been joined by

the NYSE, NASDAQ, BATS, DirectEdge and

OTC Markets in calling for a pilot to increase

We were pleased to see the SEC include a “Bad

Actor” prohibition in the Final Rules to lift the ban

on General Solicitation. “Bad Actor” prohibitions

help protect investors and support a higher level of

investor confidence that the success of these capital

markets will ultimately depend on.


ticks sizes (the smallest increment in which a

stock may be quoted). The ICI (the mutual

fund trade group) has also called for an

increase in tick sizes in an effort to restore

liquidity to small capitalization stocks. .

Ironically, the one-two punch (the Order

Handling Rules in 1997 and Reg. Alternative

Trading Systems in 1998) that killed the

best IPO market that the world had ever

seen, took place without any pilot program

– The SEC implemented the single largest

structural change in the history of U.S. stock

markets, against the advice of many in the

markets and without any testing to see what

the impact would be. Well, the jury is in, and

the world’s largest economy by GDP, which

should have the world’s largest small IPO

market, has now fallen to 12th place behind

many smaller economies.

The small company sector of US mar-

kets is inadequately represented at the SEC.

The SEC has a so-called “Investor Advisory

Committee” but this committee lacks criti-

cal representation from institutional inves-

tors that actually do fundamental invest-

ing in small public companies. The SEC

needs a dedicated small company investor

committee. In fact, in our view the SEC

Advisory Committee on Small & Emerging

Companies, which came out “for” a pilot

to increase tick sizes, has more small com-

pany investors in its midst than the so-called

“Investor Advisory Committee.” - That

committee is highly deceptive in represent-

ing small investors which is why we urge

the many small company investors that

read Micro-Cap Review to write to the SEC

and urge that they explore mechanisms to

improve support for small public companies

and capital formation – including a pilot to

increase ticks sizes.

The needs of issuers and investors in

innately liquid vs. illiquid stocks are very

different. Having a “One size fits all” Investor

Advisory Committee at the SEC is a tragic

mistake. Having a “One size fits all” Division

of Trading & Markets at the SEC is a tragic

mistake. The only division that has a “Small

Company” discipline that I’m aware of is the

Division of Corporation Finance and this

Division doesn’t have the authority to fix

market structure to work for small public

companies and the growth economy. We

need a horizontally integrated group at the

SEC that combines small company disci-

pline across Corporation Finance, Trading &

Markets and Enforcement.

6. Is there a direct relationship between

unemployment, the disappearing IPO mar-

ket and decimalization?

Absolutely. We believe the loss of jobs

attributable to “decimalization” (defined to

include the three major regulatory changes

that led to the collapse of aftermarket sup-

port, starting with the Order Handling Rules

in 1997, Regulation Alternative Trading

Systems in 1998 and culminating with

Decimalization in 2001) is much larger than

commonly understood – in excess of 10 mil-

lion jobs (half the unemployment problem

in the U.S. or more) when one factors in the

so-called multiplier effect: Not only have

we lost over 80% of IPO volume, but there

is less capital available and less appetite to

invest in private companies because the IPO

exit is not what it used to be going all the way

back to the 1980s. In fact, the accelerated

rate of delistings and the decline in the num-

ber of venture capital funds is clear evidence

that this market structure has precipitated

job loss when it once was the foundation

for job growth: Professor Enrico Moretti,

in his book, “The New Geography of Jobs”

estimates that there are five (5) service sec-

tor jobs created for every one (1) technology

job. If the IPO market, funded by venture

capital, was a driver of job growth, and now

it is contracting in the United States, then it

doesn’t take a rocket scientist to understand

that decimalization put a lot of people out

of work.

Decimalization when applied to small

companies is tantamount to economic trea-

son.

7. Given the high costs, regulatory burdens

and lack of aftermarket support, what com-

panies should go public in the US?

First, it is important to know that under

the “IPO On-Ramp” or Emerging Growth

Company designation of the JOBS Act that

costs are coming down by being shifted into

the aftermarket. As a result, companies can

incur at least some costs AFTER they have

received the proceeds from the IPO and have

money to pay for those costs.

Second, while this market structure has

inadequate incentives to create visibility in

the aftermarket, there is always a subset of

companies – mostly big brand stocks – that

create demand for their own shares. We all

know these stocks – Tesla Motors, Facebook,

Google, Yahoo, Twitter, eBay,

However, for the vast majority of compa-

nies, they need marketing support to cre-

ate demand for their shares (otherwise it

becomes an added burden shouldered by

ill-equipped management teams). The big-

gest problem today is that in order for Wall

Street to survive (many Wall Street firms

have gone out of business) it had to close

money losing middle market institutional

sales departments and convert most retail

brokers into asset gatherers. As a result,

companies that want to go public just don’t

get the broad marketing support that they

need. This is particularly harmful to capi-

tal intensive industries where story-telling is

essential (e.g., Biotech, Semiconductors and

Clean-Tech).

This is a problem that my company,

IssuWorks, is now working to fix.

We hope your readers will join us in the

fight to take back our markets and provide a

better tomorrow. n

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


The recent repeal of the ban on pub-

lic advertising of private securities

offerings either ushers in a new

era of transparent, digitally-greased, and

crowd-vetted capital markets, or it is a leap

into the abyss that will pervert the world’s

most trusted capital markets into a carnival

midway of investment hustlers, crowd mad-

ness panderers and common thieves. That

seems to be the consensus, or lack thereof,

of regulators and growth capital profession-

als surveyed in the wake of the SEC’s action

to implement the mandate set by Congress

when it passed the JOBS Act.

Both Commissioners Paredes and

Gallagher opposed the Form D rule changes.

Paredes said that the additional disclosure

requirements would undermine the intent

of the JOBS Act, and hurt the ability of

small companies in particular to raise capi-

tal. According to the SEC, Reg D offerings

completed from 2009-2012 raised an aver-

age of $30M. However, the median Reg D

offering amount was $2M, illustrating the

large volume of smaller deals that occur in

the market.

In addition to the Form D changes, the

commission approved the long-proposed

“bad actor” provisions of the Dodd-Frank

financial regulatory reform act. The rules

seek to exclude persons and corporate enti-

ties which have been convicted of a felony or

have been involved in other disciplinary cases

with the SEC from participating in restricted

securities offerings. This rule would nar-

row coverage to executive officers, beneficial

owners of 20% of an issuer, and investment

managers involved in offerings. Additionally,

events triggering the “bad actor” designation

must occur after the adoption of the ruling,

thus excluding past events.

The final language, which narrowed the

scope of the rule dramatically from that orig-

inally proposed in early 2011, drew another

rebuke by Aguilar, who criticized changes

from the original proposal which excluded

any actions prior to adoption of the proposal

from triggering bad actor status (the original

proposal had included activities dating back

five years.) Aguilar also criticized the expan-n BY BRETT GOETScHIUS

On July 10, the Securities and Exchange

Commission held an open meeting regard-

ing its nine-month old proposal to repeal the

ban on the advertising and general solicita-

tion of Regulation D securities offerings.

Although the amendment, known as Rule

506(c), was ultimately adopted, concerns

regarding investor protection were raised by

two commissioners, Elisse Walter and Luis

Aguilar.

Walter’s concerns about the risks of fraud

and the promotion of investments inappro-

priate to less sophisticated investors came

short of persuading her to vote against the

repeal. Aguilar decried the Commission’s

move to repeal the ban before approving

additional mitigating rules aimed at keeping

“bad actors” out of the market and strength-

ening disclosure requirements for private

offerings.

“The Commission is going ahead with

the adoption of Rule 506(c), but only propos-

ing the changes that would help to mitigate

the harm to investors…. It is reckless to

create a known risk today, with just the hope

of a speculative remedy tomorrow,” Aguilar

said before the vote.

Seeking to deflect the criticism that

removing the general solicitation ban would

open the floodgates of fraud, the commis-

sion staff proposed additional amendments

to Rule 506 that would formalize the verifi-

cation process for accredited investors. The

commission also voted to publish for public

comment a proposal to impose several addi-

tional reporting requirements on Form D.


sion of the beneficial owner threshold from

10% to 20%, and the narrowing of covered

persons from any officer of the issuer or any

officer of a person paid to solicit investors,

to only executive officers of such entities and

officers who participate in the offering.

markeT reacTion sPliT

Equity crowdfunding advocates who had

waited more than a year for the advertising

ban, seen as the key obstacle to accredited

investor-based crowdfunding, to be repealed,

uniformly hailed the action. However, the

reaction among traditional Reg D market

professionals has been more mixed.

Cromwell Coulson, president of OTC

Markets, the primary quotation market

for securities of unlisted public companies,

hailed the repeal as a blow for market trans-

parency.

“I think it’s awesome that they lifted the

ban on transparency,” Coulson said. Until

now, private companies have been forced

to raise capital in an information vacuum,

he explained, in which the dissemination of

information about the company was severely

proscribed.

“The general solicitation ban was really

a ban on transparency. That’s terrible for

market efficiency and investor education,”

he added. Coulson believes the repeal of the

solicitation ban “will totally change the path

that a company will take toward becoming

an exchange-listed company,” by creating

gradations of ever-greater public reporting

and trading levels, much like the three des-

ignations now accorded OTC stocks – the

Pink, QB, and QX levels – at OTC Markets.

Coulson believes the ability to solicit

investment will keep a lot of companies pri-

vate that might otherwise have gone public

too early in their corporate and financial

development to truly benefit from fully pub-

lic status. “There will be lots of small com-

panies that can exist as private companies,

because transparency is now allowed. Public

versus private distinctions should go away.

‘Sales restricted’ should be the new descrip-

tion,” for private securities, he said.

OTC Markets is moving quickly to adapt

to the new regime. The company plans to

begin quoting 144A securities, and introduce

a service to announce and post Reg D offer-

ing prospectuses.

Bill Hicks of Mintz Levin is similarly

expansive on the potential of letting slip the

dogs of advertising upon the private capital

markets. Calling the change nothing less

than “transformative” for corporate capital

formation, Hicks suggested solicited 506(c)

offerings could help fuel varieties of alterna-

tive public offerings (APOs).

“This really opens the door,” said Hicks.

The repeal of the solicitation ban is “the

real crowdfunding bill. It will allow small

companies to go out and market an offering

broadly,” helping to create a retail share-

holder base that is critical to maintaining

liquidity in their shares.

“This will allow the kind of ‘crowdfund-

ing’ that is actually useful,” said Hicks, add-

ing that solicited offerings could be used in

conjunction with an institutional-investor

led financing of a reverse merger, commonly

called an “APO” or alternative public offer-

ing.

“When you add a Form 10 self-filing with

a reverse merger and a 506(c) filing, you have

a very interesting possible format,” he said.

Adding in a publicly marketed offering to

the traditional APO process could broaden

a newly public company’s shareholder base,

providing better liquidity to initial APO

investors, and offering institutions the trad-

ing volume, share price support and public

float they demand before making significant

long-term investments in emerging growth

companies.

Hicks said he believes that solicited offer-

ings could make the Form 10 APO a favored

path for larger private emerging growth

companies seeking to go public without an

IPO but for which establishing a large retail

investor base quickly is critical. This path

could be especially attractive to companies

that can tap sizable retail customer or affin-

ity group bases.

He added that the repeal will be highly

disruptive to the angel and venture capital

markets, and that he sees the 506(c) offer-

ings market developing more in parallel

than in conjunction with those markets in

the near term. Traditional angel and venture

fund models are clearly the incumbents that

will be disrupted by the new offerings, and

are reacting with the typical hostility toward

innovation that old-guard players express

when their market hegemony is challenged.

Mindful of that hostility, Hicks believes

those companies seeking to raise capital will

major changes for form D filers

In repealing the 70-year old ban on general solicitation of private securities offerings, the

SEC has proposed several new rules regarding the filing of Form D by securities issuers.

The new rules would:

• requireissuersandinvestorstoprovideadditionalinformationonFormD

• eliminatetheabilityofanissuertouseRule506exemptionsifitfailedtofilea

required Form D during the prior five-year period (with certain cure provisions)

• requireissuerstofileaFormDatleast15dayspriortoengaginginanygeneral

solicitation and to file a final amendment to that Form D not later than 30 days from

the end of the offering

• foraninitialtwo-yearperiod,requireissuersengagingingeneralsolicitationsunder

Rule 506(c) to submit their solicitation materials to the SEC on a confidential basis

• imposelegendingrequirementsonanygeneralsolicitationmaterials

• extendtheadvertisingguidanceinRule156applicabletopublicfundstoprivate

funds.


face a difficult choice between tradition-

al venture-style capital raising and 506(c)

offerings. Given the current lack of institu-

tional venture investors which are willing

to consider investment in companies with a

dispersed shareholder base, “It will be more

the exception than the rule,” says Hicks, that

a 506(c) or Title III crowdfunded company

will be able to attract institutional venture

capital later on.

Coulson agreed that the solicitation ban

repeal and 50b(c) will be a “game changer”

for the venture capital market, which in the

past, “wanted all of their portfolio com-

panies’ information, but wanted to keep it

to themselves,” he said. This gave VC firms

huge advantages in pricing and allocating

capital that other potential capital provid-

ers lacked. Now, companies will be able to

release financial information and projec-

tions to any potential funding source, lev-

eling the playing field and expanding the

potential investor pool.

imPacTs on TraDiTional PiPe

markeT

Mark Wood of Katten Muchin Rosenman

believes that repeal of the solicitation ban

will impact the traditional PIPE market as

well as private equity. Proposed require-

ments to submit Form D filings 15 days

prior to commencing 506(c) offerings, and

to require offering marketing documents to

be filed with the SEC ahead of offering mar-

keting periods will be “tricky” to navigate for

issuers and PIPE agents, even when no truly

public solicitation is intended.

“The SEC is taking the position that you

are planning to do a public solicitation any-

way, why should you have a problem with

telling the world about your plans ahead of

time,” said Wood. “But that assumes every-

one is going to do it in a truly public way,

taking full advantage of the rule. I think

companies might seek to use [the 506(c)

exemption] on the margins, to get around

concerns that when you broaden a private

placement beyond the investor group that

you are really comfortable with but say, are

conducting an offering pursuant to confi-

dentiality agreements so that the offering

remains confidential, you couldn’t do that if

these proposals go through,” he said.

“The SEC seems to be saying you can either

do it completely private in the old fashioned

way, or fully public. The Commission is not

allowing for any middle ground. There is all

this arcane guidance on public solicitation

that is difficult to interpret and confusing for

issuers. When you are doing a private place-

ment, you’re worried you are going to cross

some line. We had hoped these rules would

allow companies that still really intended

to follow the old model of private place-

ment offerings to not worry so much about

whether they’d unintentionally crossed the

line [into public solicitation.] That if they

found they had crossed the line, they could

just declare it a publicly solicited offering.

But it’s not going to work like that,” Wood

said. “You are going to have to follow a dif-

ferent regime from the outset to qualify for

the exemption.”

Wood also thinks there will be a “great

reluctance” among issuers to submit their

offering marketing materials to the SEC,

even in a confidential manner. “That’s more

scrutiny than most issuers want.”

Jack Hogoboom of Lowenstein Sandler

is highly skeptical that public promotion

of private offerings will prove beneficial to

the markets overall. He is particularly dis-

mayed that the Commission moved in the

same breath to weaken proposals that would

have helped prevent fraud perpetrators from

entering the market. He cited the elimina-

tion of any grandfathering of trigger events

in the Bad Actor Rule as a prime example

of the Commission’s poor judgment and

naiveté.

“That’s a loophole that people are going

to be able to exploit.” Overall, he says he is

taking a “wait and see” stance on the Form

D proposals, expecting additional revisions

before any final rules are adopted.

Brett Goetschius is the editor of Growth

Capital Investor, the journal of emerging

growth company finance. He has covered the

emerging growth capital market since 1999

and is the former editor and publisher of The

PIPEs Report, The Reverse Merger Report, and

The Registered Offerings Report. This article

is excerpted from the July 15 issue of Growth

Capital Investor.

Interested in the full report with complete

data on activity in the emerging growth capi-

tal market? Download a complimentary copy

at http://www.growthcapitalist.com/mcr

Or scan this with your cell phone’s QR

reader: n

“The SEC seems to be saying you can either do it

completely private in the old fashioned way, or fully

public. The Commission is not allowing for any

middle ground.”

– Mark Wood, Katten Muchin Rosenman

Distinguished Guest Speaker:

Industry Keynote Presenters:

RON PAULFormer Congressmanand Advocate for Liberty

BUD CONRADCasey Research

JAMES DINESThe Dines Letter

FRANK HOLMESU.S. Global Investors, Inc.

RICK RULESprott Global ResourceInvestments, Ltd

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recipes, and the phrases “Soup for You!” and

“No Soup for You!”

•Thecompanyhasthreeprimarygrowth

strategies:

•Leveragetheirbrandawareness,quality,

unique Tetra Pak soup carton technology

and unique celebrity relationships to achieve

significant penetration and sales in the $6

billion grocery soup aisle, Expand their exist-

ing franchise operations, which include res-

taurants and newly launched food trucks,

Extend their institutional food service busi-

ness, which now includes a coveted approval

in the NYC school lunch program.

The Three growTh

PlaTforms in more DeTail

Original SoupMan’s world famous award-

winning soups in their innovative, eco-

friendly Tetra Pak soup cartons are being

widely welcomed by the largest grocery

chains, in the $6 Billion+ retail soup cat-

egory.

These graphically attractive, consumer-

friendly, shelf-stable products have distribu-

tion in over 4,000 stores, including select

Walmart locations, Safeway, Stop ‘n Shop,

HEB, Wegmans, Shop Rite, Giant, A&P and

many more.

Original SoupMan has achieved this mar-

ket penetration because retailers know that

their soup aisles are hungry for innovation;

and consumers are seeking authentic, higher

quality products and richer taste experiences

than they are getting from Campbell’s and

Progresso, whose long-term domination of

the industry is being threatened.

Retailers are also impressed by, and believ-

ers in, Original SoupMan’s unique celebrity

model. Shaquille O’Neal, Jason Alexander

In 1984, long before the famous Seinfeld

episode, Al Yeganeh took his life savings

and opened Soup Kitchen International

on West 55th Street in New York City.

Everything about this tiny outpost of soup

brilliance was original – Al’s recipes, Al’s rules,

Al’s everything. It soon developed an enor-

mous following; lines formed long before

lunch, and continued long after. During

this period, Spike Feresten, a writer for the

David Letterman show, who worked down

the block from Soup Kitchen International,

would frequently join the patient throngs.

The combination of the world’s most deli-

cious soup – and the zaniness of Al and his

rules – made an indelible impression. He

tucked it away for future use. Fortunately for

the entire universe of people who love soup

and love comedy, Spike found a way to use

his SoupMan experience.

The result - first broadcast on November 2,

1995 - became one of the most famous seg-

ments in television history in which George

Costanza is tossed out for not following the

rules. And as Jerry pointed out, you have to

sit down to eat this soup, because your knees

will buckle.

The oPPorTuniTy ToDay…

from Tv To suPermarkeTs

everywhere

The current investment opportunity – in

The Original SoupMan Inc. (ticker: SOUP)

– is a direct outgrowth of both Al’s original

vision, and the additional fame the brand

has acquired, globally, as a result of the

famous “No Soup for You!” episode. In a

recent survey, the Original SoupMan had the

third highest level of brand awareness of any

dedicated soup brand in the country, follow-

PROFILED cOMPaNIES

it all started with a Passion for soup…

ing Campbell’s and Progresso.

Here are the investment highlights of

SOUP:

• The company owns the intellectual

property to Al’s name and likeness, all his


and Reggie Jackson are investors in the

business, and they use their social and per-

sonal power as evangelists. Recently, Shaq

appeared on the Wall Street show “Closing

Bell,” with Maria Bartiromo talking about

the company’s prospects. Jason Alexander

has starred in a viral video, and Reggie

Jackson has made dozens of personal and

TV appearances on the company’s behalf.

This is a ground floor opportunity as the

Company have just begun to ship product

nationally.

The Tetra Pak soup carton is the future

of packaged goods as it is eco-friendly, recy-

clable, locks in flavor and freshness, it’s

sustainable, and is free of BPA - all

of which are critical benefits

and buzz words for retailers

like Wal-Mart, Safeway and

Kroger’s. Tetra www.tetra-

pak.com, the multi-billion

dollar manufacturer of the

Original SoupMan package, is

a marketing partner of Original

SoupMan and is the gold standard in

packaging quality.

Original SoupMan’s competitors are

largely stuck in the can, which may be on the

wrong side of history. There’s a good reason

that the respected “Food Dive” industry

newsletter pointedly asked, “Is the soup can

dead?”

“We are excited to see the great success of

the Original SoupMan ready-to-serve soups

and its recent addition of new flavors. And it

is great to know that our Tetra Pak cartons,

thanks to their smart, compact design, envi-

ronmental and protection profile are helping

this product line score high with savvy con-

sumers all over the country” stated Michael

Zacka, CEO Tetra Pak North America.

Early sales results for the 2013/2014 soup

season are promising. Year-over-year sales

for the sell-in period are nearly double last

year, and that doesn’t even include orders the

company has booked but hasn’t yet shipped.

This growth has been fueled by both a dou-

bling of the distribution footprint and an

increase in SKUs from four to seven.

original souPman has suc-

cessful franchisors in The

sysTem anD are looking To

exPanD naTionally

There are currently 15 fran-

chised restaurants. The

Mohegan Sun franchise,

which grosses more than

$1.4MM a year iy 650 sq.

feet, with approximately 20%

returns. The company recently

entered an agreement with Robert

Azinian and Bill White to open a new

location in the Resorts Casino, in Atlantic

City, New Jersey, in October, 2013.

Messrs. Azinian and White are the largest

owners of Johnny Rockets franchises; they

also own and manage 10 other brands in 9

states, and are actively looking for additional

locations for Original SoupMan franchises,

focusing on casinos throughout the U.S.

Their experience as successful operators is an

asset to the company, allowing management

to concentrate on building the supermarket

business.

All new locations will be opened under the

name of “Al’s Famous New York Delicatessen

& Restaurant,” which allows the company to

extend into additional menu items and day

parts.

Original SoupMan is launching their fran-

chised food truck business; it’s a low cost way

for entrepreneurs to get into business with

the power of the Original SoupMan brand

behind them. The company looks to become

the first national food brand to start a food


truck franchise. The company plans to have

50 food trucks rolling in 2014 with gross

revenue to be projected to be greater than 10

million annually.

Original SoupMan’s franchised restau-

rants and trucks serve two strategic goals:

they represent a predictable revenue stream

which requires no capital investment, and

they are also branding opportunities to gen-

erate increased awareness for the company,

thus helping to drive sales of their Tetra Pak

soups.

The institutional food service soup busi-

ness is a multi-billion dollar market.

This category includes schools, cafeterias,

hospitals and other food service opportu-

nities, providing the company with well-

positioned advantage to replace generic,

unbranded, inferior products with its better-

tasting, in-demand alternative.

Original SoupMan’s Mexicali Bean™ is

currently available in the New York City

schools; a school system tham serves over

one million lunches daily, and Original

SoupMan is approved for 2014, to deliver

Curried Chick Peas with Tomatillos and

Stewed Pinto Beans. The company has dem-

onstrated its ability to deliver great taste

and superior nutrition within the budgetary

constraints of the system – 17 cents a meal –

which demonstrates their skill at producing

a quality product that is low sodium, high

dietary fiber and low fat, at affordable prices.

Original SoupMan is also working with

Tim Horton and other strategic partners, to

test a model where they replace their partners’

soup with SoupMan products. The compa-

ny’s goal is to supply their unique and premi-

um product to select chains with thousands

of existing successful rooftops, just as Coke,

Boars Head, and others offer branded prod-

ucts through existing distribution outlets.

a managemenT Team ThaT is

equally exPerienceD anD

enTrePreneurial

CEO, Lloyd Sugarman, is a legend in the res-

taurant world – he was called the “franchise

whisperer” by Franchising Magazine – and

was one of the founders of the Johnny Rockets

chain. He brings to Original SoupMan

a combination of restaurant, retail, food

management and franchise expertise that is

invaluable to the growth of the Company.

The Company’s Chairman, another leg-

end in the food business, is Tim Gannon,

co-founder of The Outback Steakhouse and

the culinary creator of the Bloomin’ Onion.

Tim’s reputation, experience, input and

guidance on matters related to menu devel-

opment, sourcing, strategic partnerships and

investor relations are invaluable.

summary: The invesTmenT

Power of “souP for you”

We believe SoupMan (Ticker: SOUP) pro-

vides an opportunity for investors to par-

ticipate in an expanding consumer franchise

in a multi-billion dollar category, through

an emerging, high-growth public company.

The Company has built enormous consumer

awareness and a parallel reputation for qual-

ity. SoupMan has created more than proof-

of-concept with its wide assortment of prod-

ucts currently distributed through major

national chains. SoupMan is supported by

well-known celebrities with massive follow-

ings who are also investors in the Company.

As the Company continues to grow, addi-

tional revenue streams will come from the

franchise business and their food service

operations.

SoupMan continues to innovate as well,

having added three new flavors - Jambalaya,

Crab Corn Chowder, and Chicken Gumbo

to its product line - and is also adding new

distribution as it ramps up to the 2013/2014

soup season that will represent the broadest

reach and footprint in its history.

S-O-U-P is ON!

Ticker: SOUP

www.originalsoupman.com n

www.Bio.Maryland.gov

salutes

Rachel K. KingChief Executive Officer

GlycoMimetics, Inc.www.glycomimetics.com

on her recognition as a global industry leader Chair, Bio Industry Association (BIO)

Chair, Maryland Life Sciences Advisory Board (LSAB)

BioMaryland


Strangulation by RegulationAn Open Letter to the Canadian Mining and Mineral

Exploration Industries from Joe Martin, Chairman –

Cambridge House International Inc.


can The junior comPanies

lisTeD on canaDian

exchanges survive This

“Double whammy?”

Venture companies listed on the Toronto

Venture Exchange are facing a “Double

Whammy”, something that the industry has

never faced before.

1. Current market conditions have

made it almost impossible to raise capital.

2. Regulations being imposed on rais-

ing venture capital in Canada may well make

it impossible for any venture company to

survive, even if, or when the taps for capital

turn on.

Markets go up and markets go down

but this “Double Whammy” may well bring

about the death of the great historical tradi-

tion Canada has achieved in becoming the

number one nation in the world in finding

mineable ore bodies and bringing them into

production in countries around the world.

At this meeting you will learn that this is

not a question of changing one rule, or sev-

eral rules. It is a question of overhauling the

entire system.

The system is broken and it must be fixed.

Venture capital, required as risk capital

in speculative investing, is a fundamental

requirement in starting, building, and grow-

ing companies.

Apple Inc., the world’s largest company,

started with two people developing comput-

ers in a garage. Microsoft had the determi-

nation of Bill Gates who went out seeking

venture capital. Many great companies bear

the name of their founders; all creative and

imaginative individuals who needed specu-

lative venture capital. Henry Ford, like all of

them, had to raise capital. Look at thousands

of jobs people like this have created.

Canada’s Hemlo Gold mine, one of the

great mines in the world, owes its startup

because of the determination of Canadian

investors to overcome hurdles and who stay

the course to bring them to life. Canadian

mineral exploration and mining companies

are well known around the world for their

ability to bring success to these high risk,

high reward projects.

Venture companies create jobs. Large

companies build until they forget how they

started: Nortel; Palm Pilot; Woodward’s;

Eaton’s; Kodak. It is up to venture companies

to create new opportunities and new jobs.

And that means venture capital for specula-

tive investments.n BY JOE MaRTIN


The world will need commodities and

prices will once again go up. But, when it

does, our mining and exploration compa-

nies will wake up to the fact that Canadian

regulators have killed their ability to survive.

Canadian public markets are controlled

by banks that have lost sight of the necessity

of venture capital in growing an economy.

The banks now own TMX, the company that

controls both the TSX and TSX-Venture.

They simply have no concept of the impor-

tance of having a venture market in creating

jobs and growing an economy.

As the resource industry continues to

weather this storm, there have been an

unprecedented number of regulations

brought into play that may well kill all hopes

of a recovery in mineral exploration and

mining.

In this time period the order of precedence

in raising capital for venture companies is to:

•payaccountantsandauditors

•paylegal

•paylistingfees

•keeptheofficedoorsopen

There are over 700 companies on the TSX

Venture Exchange that do not have the capa-

bility of meeting the financial requirements

to survive this year.

One reason we are in a period of regula-

tory overkill is that there are very few people

involved in venture capital represented on

any of the governing bodies. These regulato-

ry bodies are mostly a collection of lawyers:

people who take fees, and increase regulation

to create more fees. They are individuals who

may think they are doing the right thing but

in reality are killing the industry.

The Governing Bodies:

•Theexchanges(TheTSXandTSX.Vare

the two main exchanges but about 30% of

their volume is done by other platforms that

do not involve individual investors)

•The13securitiescommissionsgoverning

Canadian provinces and territories

• CSA – the Canadian Securities

Association – the association of the 13 secu-

rity commissions in Canada

•IIROC–InvestmentIndustryRegulatory

Organization of Canada

• Independent brokerage firms have very

little representation with IIROC

A list of problems is long but they include:

• Securities commissions that ineptly try

to enforce their own regulations

• Lack of transparency in trading stocks

(the multiple trading platforms do not share

information

•Algorithmictrading–computertrading

in milliseconds

• Killer rules for brokers in “know your

client – know your product” rules

• Retail brokerage firms are being regu-

lated to cemetery plots

•Nakedshorts

•Multiple levelsof costly repetitivecom-

pliance

•fees,fees,fees

These killer problems have not been cre-

ated by firms requiring venture capital

They have been created by unregulated

regulators

It is Strangulation by Regulation

wiThouT significanT

change, whaT Does The

fuTure holD?

• Jobs by the thousands will be lost in

Canada

• Jobs by the thousands will be lost by

people working on Canadian mining proj-

ects around the world

•GeologyschoolsacrossCanadawillclose

•Accountingfirmwillhavemassivelayoffs

•Legalfirmswillhavemassivelayoffs

• Canadians account for about 60% of

world-wide exploration. The country will

lose this position and the thousands of jobs

that have created it

• The Aussies and Chinese will take over

Canada’s role in mineral exploration

• Canada will hang its head in shame

because a proud nation will have lost its job

creation industries

The above facts are not fabricated.

Information has been sourced from the fol-

lowing articles:

•The Canadian Economy is Regulated to

Death

• Strangulation by Regulation – is the

Venture Exchange on Its Deathbed?

• The Impact of the TSX Venture on the

Economy

•Can the TSX Venture be Saved?

•‘Say goodbye to the public venture mar-

ket’ Advisor warns Flaherty of disappearing

TSX.V

• Proof the Largest Canadian Banks are

Taking Over

• The Destruction of the Canadian

Investor: Why the TSX Venture is Failing

•NYSE Floor Trader Explains How Stocks

Are Traded In Dark Pools vs. Lit Markets:

Dark Pools Explained

• The Shocking Truth About High

Frequency Trading

SUPPORT VCA ONLINE AT

http://venturecompanyassociation.com n


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


The current Euro-zone crisis can have the

potential to cause a very similar situation if

it evolves negatively in the future. Therefore,

a structure and a quality of the banks’ capital

are of a paramount importance.

1. finDings anD Discussion

The banks like to over-finance the develop-

ment and growth in good times and under-

finance them in bad times. From the macro-

economic point of view the situation should

n BY DR. DRaSkO VESELINOVIc

When the markets got very nervous about the solvency and/or liquidity (of banks) the subordinated debts‘

(not only equities’!) markets can be hit very hard and subject to selling at any price.


have been the opposite way around. The cen-

tral banks do have monetary instruments on

disposal to accelerate or de-accelerate banks’

lending; however, it is significant that also

central banks did not do their work prop-

erly. New capital accord regulation for banks

(Basel III) which was supposed to be intro-

duced in Europe in 2013 - but then post-

poned from some obvious reasons - would

also play a negative role in the banks activi-

ties in the times of crisis. The regulation in

Europe tends now to go to another extreme

after leaving the first one. The banks’ regula-

tors in Europe were too liberal in the good

times and want to be too conservative in the

bad times what is wrong.

During the crisis (especially in 2009) pri-

vate holders of Tier 2 and Tier 3 debt got

juniority and the official ones (governments)

got seniority. This is on one hand logical

‘solution’; however, on the other hand a very

dangerous one (comparable to tough and

a bit unusual conditions for Cyprus’ banks

bail out). If private investors have to write

off 50% of their Tier 2 debt investment and

official ones nothing these can lead to some

serious problems.

Some prices of the subordinated banks’

debt on the secondary markets in 2009 but

also today are hit very badly owing to all

uncertainties in the market place. Many of

them are connected to European Monetary

Union (EMU=Euro-zone). Therefore, it is of

utmost importance that all stability mecha-

nisms set by European Commission (EC)

and European Central Bank (ECB) really

function, are sizable enough and operation-

al. And finally, it seems they are now.

2. risks, risks, risks, …

Just to give the idea of the size of some of the

financial risks in the last 20 years or so: euro/

USD currency rate movements between 0,8

and 1.5; US FED interest rate movements

between almost 0% and 20%, ECB inter-

est rate between 0,75% and 4,75% (in the

last 13 years only!), German central bank

(Bundesbank) interest rates movements after

the WWII and till introduction of Euro were

fluctuating / volatiling between 1% and 9%,

etc. – just to mention some of them. To all

these and of course many other even more

important financial risks (but especially the

credit, market and country ones) banks are

fully exposed. Therefore, the measurement,

methodology and banks’ capital structure

matter of utmost importance.

3. s & P’s view on euroPean

union anD euroPean

moneTary union

The top world rating agencies have been

constantly downgrading different EU, EMU

countries and EU and EMU as whole.

Many pro (especially official European

Commission (EC) and European Central

Bank (ECB)) and cons (Krugman, 2011;

Stiglitz, 2010, 2012) EU and EMU com-

ments could be and are possible; howev-

er, the fact is that economic picture of

European countries does look problematic.

Not of all countries but let’s say of most

of them. Even in the long run the picture

is very much connected to euro, EMU and

the whole concept. It seems that European

Stability Mechanism (ESM) which is gradu-

ally replacing European Financial Stability

Facility (EFSF) and European Financial

Stability Mechanism (EFSM) calmed the

markets for the time being. They didn’t

accelerate growth though. S & P cited five

important factors for the future of EU and

EMU. Firstly, tightening credit conditions

will embark across the Euro-zone. Secondly,

markedly higher risk premiums will ‘attack’

a growing number of Euro-zone sovereigns,

including some that are currently still rated

‘AAA’. Thirdly, continuing disagreements

among European policy makers on how to

tackle the immediate market confidence cri-

sis and, longer term, how to ensure greater

economic, financial, and fiscal convergence

among Euro-zone members. Fourthly, high

levels of government and household indebt-

edness will burden a large area of the Euro-

zone. And fifth, there will be a rising risk

of economic recession in the Eurozone as

a whole – local, regional and consequently

global development will suffer. They expect

output to decline in some countries and they

also see a high probability of a fall in output

for the Euro-zone as a whole. Checking

predictions of U.S. rating agency from 2011,

now in 2013, show us that they are all com-

ing true.

6. euroPean official DebT

geTs senioriTy, PrivaTe one

wriTe-offs

Of immense importance for market par-

ticipants seems to be that private sector

creditors will not be penalized in any future

bailout, as they were in Greece or even in

case of Cyprus. It has been the 50% write off

for them in Greek case. ECB opposed this at

the time. Possible future bailouts in EMU

and EU are to be seen for the countries like

Spain, Cyprus, Slovenia, Italy, Portugal (not

necessary in that order though) and maybe

for some others not yet on the list, as well.

The second question that arises is how

can all the debts be ever sized down without

high economic growth and/or inflation? The

crises started in U.S.A. but EU and especially

EMU seem to have more problems with it

than the country which triggered it.

7. The suborDinaTion (DebT)

Capital structure and subordination prob-

lems of the banks came out as an issue of the

paramount importance. Subordinated debt

ranks after other debts should a company fall

into liquidation or bankruptcy. In hard times

subordinated debts must ‘stay’ in the banks,

in some cases no interests and/or dividends

paid out, the banks don’t buy them back

before their respective maturities and inves-

tors in tier 2 instruments have to take the

burden of banks’ rehabilitation and their

‘going concern’. For example: Royal Bank of

Scotland was forced by the U.K. regulator

FSA not to call its four subordinated debt

issues.


The whole issue became in crisis times

much more problematic not only from the

institutional investors’ point of view but

from the retail investors’ angle, as well. Many

banks were earlier, by all means before the

crisis in position to issue its Tier 2 instru-

ments to retail investors. With the crisis not

only that such solution minimized but many

banks ceased to be in position of buying

back its own subordinated debt as it was

the case and custom in the times before the

crisis.

7.1. seconD loan

suborDinaTion Problems

When retail investors - well in the crisis

already - were trying to refinance their first

loan mortgages based on the U.S. govern-

ment program they got into the second

mortgage subordination problem. Basically

banks denied the request that required keep-

ing the loan ratio to remain the same as on

the moment of getting it (Zillow, 2012). This

looked illogical since refinancing would

reduce the mortgage payments and people

would improve their credit situation. As

seen from the retail point of view, banks still

want to capitalize on people who are trying

to refinance. From the banks’ point of view

the attitude was logical and rational keeping

better mortgage position in their books and

not lowering its interest rates on the assets

side. Since such refinancing is completely

normal routine in the normal times retail

customers in fact took over some burden of

banks’ rehabilitation through this process.

7.2. euroPean

suborDinaTion markeT in

crises

There were a lot of tenders and exchange

offers for subordinated securities by UK and

Eurozone banks towards the end of 2011,

2012 and 2013 as well. Market reactions were

mixed with the exchange offers, into lower

coupon senior notes. The focus has been to

take advantage of depressed market condi-

tions to generate Core Tier 1 capital through

repurchase or exchange of Tier 1 and Tier 2

securities at a discount to nominal. Offers

have been targeted at institutional issuers.

We have an excellent example how have the

markets reacted on the depressed general

situation and depressed capital (structure)

situation of the leading European banks.

And these cases happened just good 2

months before ECB cheaply pumped addi-

tional E500bn (=into USD600bn) into the

European banking system (interest rate for

3 years credits was 1% p.a.) via crediting

banks taking mostly government bonds as

collaterals.

8. banks’ caPiTal accorD

before anD in The crisis

Banks’ capital structure might be compli-

cated in complicated times. In fact, it is

quite simple since we have Tier 1 and Tier

2 capital and capital like instruments. In

some cases (different from some regulations

and countries) Tier 3 capital instruments

can be added to a capital; nevertheless, also

Tier 3 (by rule short-term) instruments are

supposed to be together with Tier 2 ones at

most 50% of all bank’s capital. In hard times

regulators tend to upgrade the banks level of

Tier 1 against reduced level of Tier 2 capital

in order to improve the capital structure.

8.1. banks’ mosT qualiTy

caPiTal

The crucial and key element of any banks

capital is equity capital and disclosed reserves

(Tier 1). It also has a crucial bearing on prof-

it margins and a bank’s competition abilities.

The other elements of capital (supplementa-

ry capital) will be admitted into Tier 2 limit-

ed to 100% of Tier 1. Each of these elements

may be included or not included by national

authorities at their discretion in the light of

their national accounting and supervisory

regulations and according to their national

‘needs and circumstances’.

8.2. banks’ suPPlemenTary

caPiTal

Supplementary capital consists of undisclosed

reserves, ordinary shares and noncumulative

preferred stocks, revaluation reserves, gen-

eral provisions for general loan-losses, hybrid

debt capital instruments and subordinated

debt. Especially the last 2 items tend to be

very problematic in problematic times. Where

hybrid debt capital instruments are closer to

equity, in particular when they are able to

support losses on an on-going basis without

causing liquidation, they may be included in

supplementary capital. In addition to per-

petual preference shares carrying a cumula-

tive fixed charge, the specific national instru-

ments from certain countries/markets qualify.

For example long-term preferred shares in

Canada, ‘titres participatifs’ and ‘titres sub-

ordonnés à durée indéterminée’ in France,

‘Genussscheine’ in Germany, perpetual debt

instruments in the United Kingdom and

mandatory convertible debt instruments in

the United States and some other similar ones

in some other countries.

Market reactions were mixed with the exchange

offers, into lower coupon senior notes. The focus

has been to take advantage of depressed market

conditions to generate Core Tier 1 capital through

repurchase or exchange of Tier 1 and Tier 2 securi-

ties at a discount to nominal.

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8.3. PrescribeD DeDucTions

from caPiTal

According to Basel II certain deductions

have to be made from the capital base for

the purpose of calculating the risk-weighted

capital ratio in order to fairly and transpar-

ently display the banks’ capital. Goodwill and

increase in equity resulting from securitiza-

tion exposure are to be deducted from Tier

1. Especially important issues are deductions

resulting from investments in subsidiar-

ies engaged in banking and financial (incl.

nonbanking) activities which are not con-

solidated in national systems. Conservative

approach to the banks’ capital will deduct all

banks’ capital activities in subsidiaries from

the mother’s capital in advance (ex ante). If

not done so, in times of crisis such deduc-

tions come on the top of all other accumu-

lated problems. Many U.S. banks tended to

have these problems.

9. ProPoseD new banks’

caPiTal accorD

The so called Basel III was supposed to take

effect in Europe from 1 January 2013 but it

was delayed owing to many opened ques-

tion and crisis. It seems that all existing Tier

1 securities and preference shares will not

count as Tier 1 under Basel III (Taber, 2013).

Some (additional) Tier 1 capital elements

under Basel III are:

1. Issued and paid-in capital.

2. Subordinated to depositors, general

creditors and subordinated debt of the bank.

3. Is neither secured nor covered by a

guarantee of the issuer or related entity or

other arrangement that legally or economi-

cally enhances the seniority of the claim vis-

à-vis bank creditors.

4. It is perpetual with no maturity date and

no step-ups or other incentives to redeem.

5. May be callable at the initiative of the

issuer only after a minimum of five years and

even in that case under certain extremely

strict requirements.

6. Any repayment of principal (for exam-

ple through repurchase or redemption)

must be with prior supervisory approval and

banks should not assume or create market

expectations that supervisory approval will

be given.

7. The instrument cannot have a credit

sensitive dividend feature, that is a dividend/

coupon that is reset periodically based in

whole or in part on the banking organiza-

tion’s credit standing.

8. The instrument cannot contribute to

liabilities exceeding assets if such a balance

sheet test forms part of national insolvency

law.

9. Instruments classified as liabilities for

accounting purposes must have principal

loss absorption through either conversion to

common shares at an objective pre-specified

trigger point or a write-down mechanism

which allocates losses to the instrument at a

pre-specified trigger point.

10. Neither the bank nor a related party

over which the bank exercises control or

significant influence can have purchased

the instrument, nor can the bank directly or

indirectly have funded the purchase of the

instrument.

11. The instrument cannot have any fea-

tures that hinder recapitalization, such as

provisions that require the issuer to compen-

sate investors if a new instrument is issued at

a lower price during a specified time frame.

12. If the instrument is not issued out of

an operating entity or the holding company

in the consolidated group (but through a

special purpose vehicle), proceeds must be

immediately available without limitation to

an operating entity or the holding company

in the consolidated group in a form which

meets or exceeds all of the other criteria for

inclusion in Additional Tier 1 capital.

These criteria (particularly item 9) mean

that some ‘old’ Tier 1 securities will no lon-

ger qualify under Basel III! Going through all

12 items as constitutive elements of capital

within new capital accord it is obvious that

regulation forces banks to have ‘too much’

of the most quality capital and, therefore,

we could expect them to be much more

conservative in lending activities than before

the crisis. We will be moving from one to

another extreme regarding banks’ lending

and other business activities.

10. conclusion

We showed that the methodology of banks’

capital measurement and banks’ capital

structure is problematic and caused many

serious problems to their customers and

investors and consequently and (in) directly

to the local, regional and also global (eco-

nomic) developments of economies. We

proved this via the subordination problem

and relation between Tier 1 and Tier 2. n

Conservative approach to the banks’ capital will

deduct all banks’ capital activities in subsidiaries

from the mother’s capital in advance (ex ante).

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Do you have a community hospital near you that you’d like to support with this outreach?

Join us in this movement; turning no into yes, one step at a time.

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

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Exoskeleton technology has the power toturn a l ife around: that is, to turn "You will never

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Do you have a community hospital near you that you’d like to support with this outreach?

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

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For more information or to donate now, contact [email protected]

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after 21 years of paralysis.


BIOTECH 2013: Mid-Year Sector Update


Halfway through the year and two

things are really important in bio-

tech: (i) the market for biotech

IPOs is more robust than it has been in a

decade; and (ii) hostile M&A is back like it

was in 1985.

The overall consensus among those on the

buy-side is that the biotech sector is in one

of the strongest positions in recent memory,

with a number of interesting drugs and

drug candidates on or nearing the market.

The number of new drug approvals is also

accelerating. During 2012 there were 39 new

drugs approved, the most in 16 years.

Biotech stocks have done very well this

year as the sector has outperformed an

already strong market. The BioCentury 100

index gained 6.0% in the 2nd quarter of

2013 and is up over 23% year to date. This

is in line with the NASDAQ Biotechnology

Index, which is up of 27% year to date. Both

biotech indices outperformed the Dow Jones

Industrial Average and the S&P 500.1

Just in case you have been avoiding the

financial news lately, biotech stocks are

hot and biotech IPOs are hotter than they

have been in the last 13 years. Empirically

recent data has been released by the National

Venture Capital Association, illustrating that

the 2nd quarter of 2013 provided the largest

number of biotech IPOs since the 3rd quarter

of 2000.

The NVCA tallied 21 venture-backed IPOs

during the second quarter of 2013 that car-

ried a collective market value of $2.2 billion.

This is an amazing result given that there

were only 7 biotech IPOs during 2008 and

only 11 in 2009. During 2012 there were 46

biotech IPOs, compared to 29 in total for

2013, year to date.

This run seems to be due to: (i) an

increased number of new drug approvals;

and (ii), strong performance by the exist-

ing public sector. We can only hope that

the favorable market conditions that have

existed during the first half of 2013 remain

in the second.

While overall M&A volume in the sector is

down year to date 2013, we have seen some

very interesting 1980’s style hostile M&A.

For several years many on the buy-side have

discussed mid to large capitalization names

as buyout candidates, including, were Elan

Corp. plc, Forest Laboratories Inc. and Shire

plc.

We have now seen a really interesting

drama play out with Elan and Royalty

Pharma even after Royalty Pharma ended

its hostile bid last month. This one got really

juicy and looked like it could even gat nasty. n BY SETH YakaTaN

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


Barbs flew back and forth, however in June

2013, Elan rejected the hostile bid by Royalty

worth alomst $8 billion. Instead, it put itself

up for sale and is currently in discussions

with several parties to find a rival buyer. If

no rival offer emerges, Elan’s stock will likely

fall back to where it was before Royalty made

its first offer in February 2013. Elan’s shares

were traded slightly above $10 per share

right before Royalty’s offer, and since, have

risen to around $14 a share on expectations

of a takeover. Royalty, which is not currently

participating in the sale process is watching

the situation very closely. It is very complex

but Royalty could get a second shot at buying

the company.

In May 2013 we saw Life Technologies’

$13.6 billion sale to Thermo Fisher, which

many felt was a hefty price to pay by many

conventional financial standards. But if Life’s

DNA analysis technology continues to trans-

form medicine and biology, it could wind up

being a bargain. Life Tech and Illumina have

turned the science of DNA sequencing into

a platform for cracking the mystery of incur-

able diseases, detecting deadly infections and

bringing genetic scanning into a price range

most people can afford. While the number is

staggering at first glance, upon reflection this

was a great deal for Thermo. $13.6 billion rep-

resents a purchase price multiple of 3.6 times

2012 revenue of $3.8 billion. We regularly see

research reagent companies (which is essen-

tially what Life is) trade between 2.0x and 4.0x

revenue. Thermo Fisher obtained $13.6 billion

in financing to fund the deal, of this the split

will be cash and debt of $9.5 to $10.0 billion

and equity of up to $4.0 billion. Borrowing

$10.0 billion at LIBOR + fumes and kicking in

a small amount of equity seems to be a good

idea, and a cheap way to muscle in to the #1

spot in the sector for Thermo.

abouT The auThor:

Seth Yakatan brings more than 20 years of

experience as a corporate finance profession-

al, actively supporting small cap and major

companies in achieving corporate, financing

and asset monetization objectives through

the successful structuring and management

of strategic transactions and investments

totaling more than several billion dollars in

value.

Completed Life Science transactions at

KAI include:

Twelve buy and sell-side M&A engage-

ments, generating aggregate transaction

value in excess of $345 million.

Numerous early-stage pharmaceutical

partnering assignments with aggregate value

generated for clients of more than $875 mil-

lion.

Facilitation of several royalty monetiza-

tion transactions, with aggregate realized

value in excess of $125 million.

Over the past twelve years as a co-founder

of Katan Associates (KAI), Seth has suc-

cessfully structured and managed strategic

alliances and deals, based on his insight and

expertise in the US and Global Life Science

sector, including numerous buy- and sell-

side M&A transactions.

Seth is a recognized as an expert in the

valuation of life sciences companies, stem-

ming from industry experience and aca-

demia. He has authored several publications

and lectured and guest lectured at corporate

workshop and universities on valuation the-

ory and real-world practice and case studies,

and consulted to several state and provincial

governments worldwide on commercializa-

tion and capital access initiatives. n

A SNN INcorporAted ANd MIcro-cAp revIew MAgAzINe Survey on behalf of you, our subscribers and readers, additional information about companies in this issue will be forwarded to you by checking the box and submitting your request. Information will be forwarded to you by mail or email.q 144 Opinionsq A European View, Dr. Drasko Veselinovicq A Financial Paradox or Peace of Mind, Rabbi Stephen Robbinsq Adamera Minerals Corp. – TSXV: ADZq Ask Mr. Wallstreet Newsletterq Bill the Butcher - BILBq Bio Marylandq Biotech 2013 Update, Seth Yakatanq Black Shopping Channelq Bridging Bionics – Amanda Boxtelq Cambridge House International Conferencesq Capital Alliance Advisors, Inc.q Caveat Emptor or Buyer Beware Bookq ChoiceTrade Discount Brokerq Compliance Corner, Russell C. Weigel lll Esq.q Commodities Corner, Mark Shoreq CompPartners, Inc.q CVSL Incorporated – CVSLq Dark Pools, David Franasiakq DNA Health Corp.q Editorial, Shelly Kraftq ETF and ETP, New Record Highs, Debra Fuhrq Fireman’s Brewq Gespeg Copper - TSXV: GCRq Growth Capital Expo Conference - Las Vegasq Guardian 8 Holdingsq Hong Kong, Leslie Richardsonq How to Use the New General Solicitation Rule for Private Placements to Raise Capital Incubation, Cass, Goldsmith, Merrickq India-Asia, Barnett Suskindq Insurance Column – Thorson Insuranceq Investing in China, Corey Fischerq Investing in Micro-Caps, Chris Lahiji, LD Microq Investor Consultantsq Invictus IPO Boot Camp

q Madison Realty Companiesq MaloneBailey, LLP CPAq Marifil Mines – TSXV: MFMq Medifocus - MDFZFq Metals & Minerals Investment Conferencesq Micro-Cap Review Magazine q New BD Formations & BD Withdrawl Summary, David Alsup q New Era for Private Offerings, Brett Goetschiusq No Boring Lawyers - Oswald & Yap, Oswald-Yap.comq Ombudsman, Jack Leslieq Orphanbiotec, Dr. Frank Grossmanq Padrino Tequilaq Pet-Vivo Inc.q Profit Planners Management, Inc. - PPMT q QuoteMedia - QMCIq QuoteStreamq Silver – Gold – Palladium – Platinum, David Morganq Soltoro Ltd. - TSXV: SOLq StockNewsNow Radio, Gary McKenzieq Strangulation by Regulation, Joe Martinq The Incubator, Richard Koefflerq The Original Soupman - Soupq TNI BioTech, Inc. –TNIBq Tuesday’s Childrenq U.S. Equity Charts, Steven Sheltonq WallStreet Chicken, Comic Stripq What is Your Financial Health? Dr. Janet Zandq Who’s Your Edgar Agent? - Edgar Agent Columnq Who’s Your Transfer Agent? – Q & A with Worldwide Stock Transferq Worldwide Stock Transferq Youngevity International, Inc. – YGYI

1. In a Bull Market would you: q Cost average up q Cost average down q Never cost average down q Set a target price and sell

3. Micro-Cap companies are both public and private. Which statement would you say best fits your investment portfolio? q 100% public companies q 75% public companies 25% private companies q 50% public companies 50% private companies q 25% public companies 75% private companies

5. Are you an accredited investor? q Yes q No q Not sure

2. Do you believe that we are in a micro-cap Bull Market? q Yes q No q No it’s a micro-cap Bear Market q Who cares, I’m making money q I wish it was a micro-cap Bull Market 4. Have you ever invested in a crowd funded company? q Yes q Yes, several times q Thinking about it q No q If yes, which website did you invest through: ___________________________________________6. Will you invest more money in micro-cap companies in 2014 than you did in 2013? q Yes q No q Will hold or sell what I have q Always looking for good ideas

please take the time to answer some simple survey questions so that we may provide the most comprehensive information, stories of interest, investment ideas, and industry analysis in future issues of Micro-cap review. we thank you in advance for your participation.

Send completed surveys to: SNN Incorporated or respond to survey online at: StockNewsNow.com4766 Admiralty Way #13004 • Marina del Rey, Ca. 90295

7. Please list below you favorite 3 articles in this issue: q Page #_____________________ q Page #_____________________ q Page #_____________________ 9. Where do you go to invest in micro-cap stocks? q Discount broker q Full service broker q Online q CrowdFunding websites q I only invest in private placements

11. What is your biggest worry about the micro-cap stock market? q Lack of liquidity to sell shares q What I read and hear creates fear q Not sure who I can trust q Too much confusing promotion q Lack of information

13. Are you satisfied with your current data provider for stock quotes and financial news? Please include provider.

q Yes ____________q No ____________q No, need new source

15. Could your business benefit from reduced energy costs?q Yes, need more informationq Yes, immediatelyq No, does not apply to my company

8. Which company(s) in this issue would you invest in? q –––––––––––––––––––––––––– q –––––––––––––––––––––––––– q –––––––––––––––––––––––––– q All q None 10. How would you rank your investments by market sector? (From 1-6 with 6 being largest holding) q _____Biotech / Life Sciences q _____Technology q _____Minerals & Mining q _____Manufacturing q _____Social Networking q _____Telecom

12. Is your portfolio risk diversified? If so, how? (1 or more) q I invest in commodities q I invest in options q I invest only in micro-cap private companies q I invest in real estate q I invest in derivatives q I invest in ETF’s

14. Would you say you use mobile for financial data: q 100% of the time q 75% - 100% of the time q 50% or more of the time q under 50% of the time q never use mobile data

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

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check off areas of interest:


What is Your Financial Health?


We are pleased to announce the

introduction of “Functional

Health for The Investor, The

Invested and Family.” The financial com-

munity, from the home office to Wall Street,

presents specific and serious health care

issues. It is a unique community. The goal

of this column is to address, educate and give

insight into healthier directions. Each issue

will present a common problem with solu-

tions. The goal of this column is to give you

simple concepts and solutions that you can

incorporate into your busy lifestyle.

college he had maintained a 34” waist and it

was only in the past 3 years that things had

“gotten out of control.” He really wanted

to get back to what he once was, John is an

attorney with the additional stress of man-

aging a large Los Angeles firm. He said he

ate to make himself feel better but it wasn’t

working. In addition, his wife was complain-

ing about his low libido and disinterest in

sex.

OK - so how do we get out of this?

The whiTe sTuff

Since 1983 sugar consumption in the US has

increased by 28%. The average American

is consuming 50 pounds of sugar each

year. Many individual foods provide large

amounts of the USDA’s recommended sugar

limits. For instance, a typical cup of fruit

yogurt provides 70 percent of a day’s worth

of added sugar; a cup of regular ice cream

provides 60 percent, a 12-ounce Pepsi pro-

vides 103 percent. One of the biggest prob-

lems with high-sugar foods is that they

replace more healthful foods.

According to USDA data, people who eat

diets high in sugar get less calcium, fiber,

foliate, vitamin A, vitamin C, vitamin E,

zinc, magnesium, iron, and other nutrients.

They also consume fewer fruits and vegeta-

bles. “If you are eating a candy bar instead

of a piece of fruit, you’re missing a chance to

cut your risk of cancer or heart disease, ”said

Bonnie Liebman, CSPI (Center for Science

in the Public Interest) nutrition director.

“heDge your healTh“ or

“Don’T waiT To geT sick To

geT well”

In this issue we discuss the white stuff -

sugar - a stronger addiction than cocaine.

Today, sugar has been identified as the single

most detrimental dietary threat to our entire

health care system. The American Diabetes

Association released new research on March

6, 2012, estimating the total costs of diag-

nosed diabetes (increased blood sugar) have

risen to $245 billion in 2012 from $174 bil-

lion in 2007. This represents a 41% increase

over a five year period. 41% - an impressive

return - not bad in your business but a disas-

ter in the sugar business. http://www.diabe-

tes.org/advocate/resources/cost-of- diabetes.

html

The sweeT life

sick anD TireD of being sick

anD TireD

Doctor, “I am so tired - and I’ve felt this way

for years.” I have been practicing natural

medicine for more than 20 years and can

tell you that I have heard this refrain thou-

sands of times. This type of fatigue doesn’t

develop overnight - it is often a result of

years of stress, nutritional deficiencies and

poor lifestyle choices.

A 52 year old male patient, John, came

to my office 6 months ago. He was tired

with a large 40” waist that was something he

“couldn’t relate to.” He told me that since n BY DR. JaNET ZaND


USDA advises people who eat a 2,000-calorie

healthful diet to try to limit themselves to

about 10 teaspoons of added sugars per day.

The average American does not eat a health-

ful diet, but consumes 22 teaspoons or 355

calories of added sugars per day. Is this you?

“Something needs to be done,” says Dr.

Robert Lustig, a world famous obesity

expert, from the University of San Francisco.

“Ultimately, this is a public health crisis...

you have to do big things and you have to

do them across the board, “he tells Sanjay

Gupta. “Tobacco and alcohol are perfect

examples,” he says, referring to the regula-

tions imposed on their consumption and

the warnings on their labels. “I think sugar

belongs in this exact same wastebasket.”

In July 2011, Kimberly Stanhope, of

University of California Davis, reported her

findings of her NIH study. She took 48

adults, ages 18-40 years and for five weeks

before the study, subjects were asked to

limit daily consumption of sugar contain-

ing drinks to one 8 ounce serving of fruit

juice. The group was then divided into three

groups. Each group consumed 25% of their

daily calories as fructose, high fructose corn

syrup, or glucose. The researchers found that

within two weeks, study participants con-

suming the increased fructose or high fruc-

tose corn syrup exhibited increased blood

indicators of three well known risk factors

associated with heart disease: LDL choles-

terol, triglycerides and a protein known as

apolipoprotein-B which can lead to plaque

buildup in arteries. After the study results

came out, the researcher herself reports, “I

started eating and drinking a whole lot less

sugar.”

whaT To Do?

The solution: to avoid sugar and any label

that says “high fructose corn syrup” and

fructose except in moderation in raw whole

fruits. Deleting sugar from one’s diet sounds

simple but from one sweet lover to you - it

is not. Where does one begin? If you watch

TV things are confusing. One channel has

“The Biggest Loser,” plagued by obesity and

intently focused to lose weight through a

good diet and plenty of exercise. On the

next channel is an ad for a Snicker’s bar, a

“healthy” and quick solution to ‘satisfy your

hunger.’

can you escaPe The

narcoTic relaTionshiP?

yes.

In Chinese medicine the sweet craving is

associated with “a weak earth or the func-

tion of the stomach and pancreas.” As an

aside, the earth or digestion is also weakened

by obsessive thoughts and stress. Sound

familiar? So really the solution is ultimately

to physiologically help to diminish the sweet

craving. Once you are not sneaking into the

pantry - panting for sweets - you can more

easily begin changing other lifestyle choices.

Nutrients such as chromium picolinate

200 mcg twice daily for 3 weeks and you

should be on your way to diminished sweet

craving. If you are one who needs a bigger

solution and tends to run a higher fasting

glucose you may want to look into a high

quality gynemna sylvestre liquid. A few

minutes after ingesting liquid gynemna it’s

difficult to even taste sweet and therefore it’s

not much fun to try to eat gooey sweets.

a gooD Thing To remember

in your quesT To reDuce

sweeTs:

Before people develop type 2 diabetes, they

almost always have “pre-diabetes” — blood

glucose levels that are higher than normal

but not yet high enough to be diagnosed

as diabetes. Recent research has shown that

some long-term damage to the body, espe-

cially the heart and circulatory system, may

already be occurring during pre-diabetes.

The good news is there are things you can

do to prevent or delay the development of

type 2 diabetes. Eating fewer sweets is a great

beginning.

DiD you know

Just in case you are thinking to replace sugar

with aspartame (NutraSweet)......... Did you

know that aspartame is made up of two

amino acids - 40% aspartic acid and 50%

phenylalanine - with an additional 10%

from methanol, an alcohol that breaks down

into formaldehyde in your body.

Consider some of the natural sweeteners

such as stevia. Most of them leave a horrible

aftertaste. There is one brand which seems

to have less of this aftertaste - NuNaturals

Stevia. Some of my patients begin the sugar

detox by using 1/2 stevia and 1/2 organic

sugar when sweetening drinks etc.

Sugar consumption is a herculean prob-

lem impacting our healthcare system and

our energy and productivity. Even the small-

est daily changes will ultimately make a

surprising difference. Remember one can

of soda a day equals annually 35 pounds of

sugar taken into your body. You don’t have

to be a nutritionist or a scientist to realize the

impact of 35 pounds of unnecessary sugar.

TAKE AWAY: Reduce your sugar intake

and improve your health.

In good health,

Dr. Janet Zand, L.A.c., O.M.D. has over twenty years of clinical experience in acupuncture, botani-cal medicine, nutrition, and homeopathy. She is the author of Smart Medicine for a Healthier Child, A Parent’s Guide to Medical Emergencies, and Smart Medicine for Healthier Living (Avery Publishing, 1994, 1997, 1998, respectively).

Janet Zand was the Chairman of the Board, co-founder and formulator for Zand Herbal Formulas. Dr. Zand lectures throughout the country to physi-cians, naturopaths, acupuncturists, nurses and other health care professionals on natural medicine and

Traditional Chinese Medicine. n


Tips for Using Rule 144 to Remove Legends from Stock Certificates


Your request for removal of the restrictive

legend from stock of a former shell com-

pany also has to meet the holding period

described below and be in connection with a

sale of the stock.

DeTermine wheTher you are

an affiliaTe.

An affiliate is an officer, director, or 10% or

more shareholder of the issuing company.

Make sure to check the company’s outstand-

ing shares to see whether you will be an affili-

ate by owning 10% or more of the company’s

outstanding shares. Remember that you are

still an affiliate for 90 days after you cease

to be an officer, director, or 10% or more

shareholder.

If you are going to purchase or receive

restricted stock, be aware of the follow-

ing issues to ensure you can remove the

restrictive legend when you want to sell your

shares.

check wheTher The comPa-

ny is a former shell com-

Pany.

If the company issuing your restricted stock

is a former shell company, there are addi-

tional requirements in order to qualify to use

Rule 144 to lift the legend.

n BY aSHLEY BOLDUc

Former shell companies need to:

1. Cease to be a shell company;

2. Be “subject to” the Securities

Exchange Act of 1934 by filing either

a Form 10 or Form 8A, meaning

being required to file reports with

the SEC;

3. Be current in their filings, meaning

all Quarterly Reports on Form 10-Q

and Annual Reports on Form 10-K

have been filed;

4. Have filed current “Form 10 infor-

mation,” (Form 10, Super 8-K, or

similar) which includes financial

statements of the acquired operating

company; and

5. Wait one year since filing the Form

10 information described above.

Affiliates need to ensure:

1. There is current public information

on the company;

2. They do not exceed volume limita-

tions – the greater of 1% of the

shares outstanding (for Bulletin

Board companies) or the average

weekly trading volume for the four

prior calendar weeks;

3. Manner of sale requirements for

equity securities – brokers’ trans-

action, transaction directly with

market maker or riskless principal

transaction; and

4. Filing of Form 144 with the SEC if

intended sales exceed 5,000 shares

or $50,000.


If you are an affiliate, there are four addi-

tional requirements in order to qualify to use

Rule 144 to lift the legend.

The minimum holDing PerioD

for resTricTeD securiTies is

six monThs, buT can be one

year if The comPany is non-

rePorTing.

If you do not meet the holding period,

there is a possibility that you can tack your

holding period to the previous owner’s hold-

ing period. If you want to tack your hold-

ing period, make sure the previous owner

was not an affiliate when you purchase the

shares.

If you have convertible securities, such

as convertible debt or convertible preferred

stock, it may also be possible to tack your

holding period if no additional consider-

ation is given for the conversion. The most

common example of this is when you hold a

convertible note for longer than six months

and convert into restricted shares, you will

be able to tack your holding period for the

shares to when you acquired the convertible

note.

Remember, the holding period starts run-

ning when consideration has been fully paid

for the securities, whether that consideration

is cash, services, or otherwise.

Be aware that if you have stock options,

the holding period starts running when the

options are exercised, not when they are

granted unless you exercise the options on a

cashless basis.

Restricted shares may be issued as com-

pensation, especially when a company is just

starting out and does not have enough cash

to pay for your services. If you are consulting

or providing other services for the company,

instead of asking for a lump sum of shares

at the end of each year, structure the agree-

ment so that you receive shares on a rolling

basis. Every month, as long as you complete

your services for that month, you receive a

portion of the total shares you are entitled

to. This way you are able to free up some of

with a lawyer before purchasing or receiving

restricted shares to confirm that you will be

able to sell the securities when you want to

and, if you are dealing with penny stock, to

have a trusted broker to deposit the shares

with as many brokerage firms are hesitant

to accept new clients depositing restricted

penny stock.

Although I have not gone into all of the

details of utilizing Rule 144, the above are

the most common issues I see from clients

on a day-to-day basis and issues that you

should be aware of at the outset when pur-

chasing or receiving restricted securities.

If you have any questions about the pro-

cess, or need a restrictive legend removed

from securities you currently own, please

don’t hesitate to contact me.

Ashley Bolduc is an attorney with Oswald & Yap APC in Irvine, California, specializing in corporate and securities law. She handles Rule 144 legal opin-ions for the firm’s www.144opinions.com division, along with other transactional matters such as entity selection and formation matters for businesses just getting started; contract negotiations, review, and drafting; mergers and acquisitions; private offer-ings; public offerings; and public company report-ing with the Securities and Exchange Commission. You can reach Ashley at [email protected] or at 949.788.8900. n

your shares earlier than if you received all the

shares at the end of a year.

Using Rule 144 to remove the legend

from restricted securities can be confusing

and complex because many of the rules do

not address the myriad of situations that

can arise. The best strategy is to consult

For those of you who are unfamiliar with

the process, the easiest way to remove a

restrictive legend is:

1. Meet all Rule 144 requirements;

2. Deposit the shares with a broker;

3. Contact an attorney to obtain a

legal opinion as only attorneys

are allowed to issue legal opinions

under Rule 144 but the attorney

does not need to be the issuing

company’s attorney;

4. Once the legal opinion is complete,

have your broker send your origi-

nal certificate and other necessary

paperwork to the transfer agent; and

5. Have the new certificate without

a restrictive legend deposited with

your broker so your shares can be

sold on the public market.


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

c O M P L I a N c E c O R N E R

requirements, the inclusion of one or more

unaccredited investors in the purchase can

blow the Rule 506(c) exemption completely,

potentially subjecting the offering to blue sky

registration requirements. The offer or sale

of unregistered, non-exempt, securities is a

felony in many states.

The good news is that issuers can adver-

tise, provided that they can demonstrate

having taken “reasonable steps” to verify that

the purchasers of the securities are accredit-

ed investors, either because they come within

one of the enumerated categories of persons

that qualify as accredited investors or the

issuer reasonably believes that they qualify as

accredited investors, at the time of the sale

of the securities. The Rule suggests that less

verification is needed if the accredited inves-

tor is a broker-dealer or investment com-

pany, but more evidence may be needed if

the investor is a wealthy individual or charity.

The nature-of-the-offering inquiry suggests

that more information is needed if the issuer

conducted the solicitation “broadly,” such as

through a website accessible to the general

public, or through the use of social media or

With the advent of advertising and gen-

eral solicitation, issuers will no longer be

limited to conducting capital raises from

friends, family, and pre-existing business

relations under the restrictions of Regulation

D. However, September 23, 2013 is also the

beginning date for an era of “bad actor”

disqualification from the ability to utilize

Rule 506.

From a compliance standpoint, two issues

are evident for issuers utilizing new Rule

506(c): (i) how they conduct their advertis-

ing, and (ii) what documents they obtain

to verify that the subscribers to the adver-

tised offering are in fact accredited investors.

Whereas, under existing Rule 506, issuers

were concerned about leaking the existence

of the private offering; with Rule 506(c),

issuers will be concerned with the quality

of their public communications. Antifraud

laws still apply, and a merely negligent mis-

representation is sufficient under state

law to support criminal antifraud charges

against the issuer and those alleged to be

involved. Also, if the issuer fails to com-

ply with the accredited investor verification n BY RUSSELL c. WEIGEL, III

September 23, 2013 is the day that securities issuers will be able to con-duct general solicitation and advertising of private capital raises pursu-

ant to new Regulation D Rule 506(c) (implementation of Title II of the Jumpstart Our Business Startups Act).


email, but less is needed if the investors are

pre-screened by a reliable third-party.

Rule 506(c) provides a non-exclusive list

of methods to verify accredited investor sta-

tus for natural persons that will be deemed

to satisfy the verification requirement. (No

list is provided for accredited investors that

are corporate entities.) For verifying status

on the basis of income, an issuer may need to

obtain tax returns, along with a written rep-

resentation from the investor that he or she

has a reasonable expectation of maintaining

accredited status during the current year. For

verifying status on the basis of net worth, an

issuer may need to obtain bank statements,

brokerage statements and other statements

of securities holdings, CDs, tax assessments,

and appraisal reports, and for liabilities, a

credit report from at least one consumer

reporting agency, along with obtaining a

written representation from the investor. If

compensation information is publicly avail-

able, such as in Form 10-K reports, issuers

may be able to rely on that information or

on the certification issued by the investor’s

accountant or attorney that the investor is

accredited.

On September 23, 2013, Regulation D

Rule 506(d) also becomes effective. Rule

506(d) is a “bad actor” disqualification that

prohibits the ability of an issuer to utilize

Regulation D if the issuer or other relevant

persons have been the subject of speci-

fied disqualifying events involving securities

fraud or certain other violations of law. The

disqualified persons list includes the issuer,

its predecessor and affiliates, its officers,

directors, partners, managing members, per-

sons with beneficial ownership of 20% or

more of the issuers voting securities, place-

ment agents, and investment managers of

pooled investment funds.

The disqualifying events are expansive

and include criminal securities convictions,

securities-related injunctions; cease-and-

desist, suspension, and bar orders from fed-

eral or state agencies barring persons from

engaging in securities, insurance, banking or

similar activities. With the exception of bar

orders which have no limitation period, all

of the other disqualifying events have a five

or ten year limitations period. Only conduct

that occurs after September 23, 2013 is dis-

qualifying, but issuers that would have been

disqualified under Rule 506(d) had it been

in effect previously must disclose to inves-

tors that they would have been disqualified

but for the September 23, 2013 effective date

of the rule.

The law firm of Russell C. Weigel, III, P.A. prac-tices corporation and securities law nationwide and specializes in taking companies public, helping public companies prepare SEC filings and stay compliant with federal and state securities laws, preparing transaction and disclosure documents for Rule 506 offerings, and defending issuers and other securities industry partici-pants from SEC and FINRA enforcement actions and from customer arbitrations.

Russell C. Weigel, III, was a branch chief and special counsel at the U.S. Securities and Exchange Commission and served during the years 1990-2001. n

For more information contact : Heather Kays Manager, Corporate Communications Tel: 604-689-2010 Email: [email protected] WWW.ADAMERA.COM

Exploring for high grade gold and silver in Washington State

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Ticker Symbol: ADZ TSX.V

The disqualifying events are expansive and include

criminal securities convictions, securities-related

injunctions; cease-and-desist, suspension, and bar

orders from federal or state agencies barring per-

sons from engaging in securities, insurance, banking

or similar activities.


Tni bioTech

therapy treatment using Met-Enkephalin

(MENK). Clinical trials have shown that

MENK is capable of enhancing immune

function in patients with cancer and HIV/

AIDS. Trials with MENK and cancer looked

extremely promising, showing MENK as

a possible immune modulator that helps

restore patients’ immune functions and acti-

vate their lymphocytes to attack cancer cells

and other infectious diseases.

Dr. Plotnikoff also introduced Noreen to

the work of Dr. Bernard Bihari, considered

by many to be the “father” of an immuno-

therapy called Low Dose Naltrexone (LDN).

LDN is oral medication that is believed to

activate a patient’s immune system, help-

ing the body itself to fight diseases, such as

cancer and HIV. It is also believed that LDN

aides in the rebalance of a patient’s immune

system showing positive results with autoim-

mune diseases, such as Crohn’s disease and

multiple sclerosis (MS). With this knowl-

edge, Ms. Griffin decided to select a combi-

nation of LDN and MENK to treat her can-

cer. However, there was a catch - her MENK

& LDN treatments had limited availability.

It was her opinion that the decision to use

these alternative treatments not only ended

up saving her life, it gave her the motivation

to improve the lives of others by making the

treatments more widely available. She started

by uniting some of the top immunolo-

gists and oncologists in the world under a

unique vision and mission — improve global

health by harnessing the body’s immune

Her doctor gave her the systematic course of

action to treat the disease, which included

surgery, cauterization, and chemotherapy,

but Noreen knew there was another alterna-

tive to this “cut, burn, and poison” method

that was described to her, and she would

choose this alternative method over the con-

ventional one.

At 55, Noreen was in the prime of her

life and career. With a humble beginning in

real estate, she quickly found other business

opportunities with public and private com-

panies spanning a variety of sectors, from

oil & gas to health & beauty. This expan-

sive career allowed her to meet a variety of

unique individuals, including Dr. Nickolas

Plotnikoff. Dr. Plotnikoff had dedicated his

life to the development of an immuno-


In November 2006, a scene unfortunately familiar to millions, played out in a Florida doctor’s office as Noreen Griffin waited uneasily to find out

the results from her latest tests. Her fears were confirmed when she heard she had ovarian and cervical cancer.


system while keeping it affordable and prof-

itable enough to supply even the poorest of

nations.

un-fragmenTeD sTraTegy

sPeeDs growTh

After Noreen’s successful treatment with

MENK, she continued with daily doses of

LDN. Over the next couple of years, free

of cancer, she watched as Dr. Bihari, Dr.

Plotnikoff and many other talented research-

ers, including Dr. Ian Zagon and his team

(who were also working with LDN and

MENK) were unsuccessful in commercial-

izing their separate, yet similar goals. Finally

in 2011, Ms. Griffin decided to jump into the

world of immunology and biotech and see

if she could help bring these revolutionary

therapies to market. The LDN and MENK

intellectual properties were extremely frag-

mented, with IND, patents, clinical data,

and orphan drug designations held by a

number of universities and individuals. It

was Noreen’s belief that if she could bring all

intellectual property into one company, then

commercialization of the products would be

far more productive than previous efforts. In

2012, with Dr. Nicholas Plotnikoff as Non-

Executive Chairman, Noreen Griffin as CEO,

Dr. Eugene Youkilis as President, Professor

Fengping Shan as Chief Science Officer

and Christopher Pearce as Chief Operating

Officer, TNI BioTech, Inc. (OTCQB: TNIB)

was created to acquire and commercialize

existing LDN and MENK therapies to com-

bat serious and often life threatening or fatal

diseases.

In Noreen’s quest to support the clinical

development of LDN and MENK and build a

corporate infrastructure capable of bringing

TNIB’s therapies to market, she sought an

introduction to Dr. Ronald Herberman, who

was an esteemed leader and researcher in the

field of oncology, immunology, and was also

familiar with MENK and LDN. After their

first meeting, Noreen made it her goal to not

only involve Dr. Herberman in TNIB, but to

make him Chief Medical Officer and Senior

Vice President of Research & Development.

Dr. Herberman accepted the position

and quickly went to work, assembling a

research and development dream team that

included: Dr. Angus Dalgleish, Fellow of the

Royal College of Physicians of the UK and

Australia, Royal College of Pathologists and

the Academy of Medical Scientists; Joseph

M. Fortunak, former Director and Head of

Global Chemical Development at Abbott

Laboratories Corporation; Annie Foster, for-

mer Senior Manager of regulatory affairs at

Emergent BioSolutions and Cindy Douglas,

former Regulatory Associate and Operations

Manager at Intrexon Corporation. Sadly, Dr.

Herberman passed away suddenly in June

2013, but the remaining team has persisted

under the leadership of Dr. Dalgleish and

Dr. Fortunak.

To date, the executive and medical teams

at TNI BioTech have worked tirelessly to

acquire 25 patents, various INDs, and sub-

stantial clinical data surrounding LDN and

MENK. TNI BioTech’s patent portfolio has

the potential to treat a variety of indica-

tions and conditions, including Crohn’s dis-

ease, inflammatory and ulcerative diseases

of the bowel, malignant lymphoma, pancre-

atic cancer, Parkinson’s disease, Hodgkin’s

lymphoma, and non-Hodgkin’s lymphoma,

chronic herpes virus infections, chronic

infections due to the Epstein-Barr virus and

a treatment method for humans infected

with HIV/AIDS virus.

TNI BioTech, Inc. recently held a Type

C meeting with the U.S. Food & Drug

Administration (FDA) and presented its

briefing package for Phase III trials for adult

and pediatric Crohn’s disease using nal-

trexone. The Company intends to submit

final protocols to the FDA by the end of

September 2013, and expects trials to begin

the first quarter of 2014. In addition to Phase

III trials with Crohn’s disease, the Company

is preparing an end of Phase II meeting with

the FDA for pancreatic cancer and hopes

to obtain approval to begin Phase III trials

with MENK for this indication in the first

quarter of 2014. Additionally the Company

is preparing to start the process with the

FDA for trials involving multiple sclerosis,

fibromyalgia and liver cancer during the last

quarter of 2014.

a self-funDing bioTech?

With the research and development team

moving forward with product development,

it was time to look at near-term capitaliza-

tion of the acquired patents and therapies.

Over the past 12 months, TNI BioTech has

focused on being able to generate near-

term revenue as a method to offset clini-

cal development expenses, while seeking

to make its therapies available in emerging

nations. The Company has entered distribu-

tion agreements for its now branded immu-

notherapies: IRT-101 (MENK therapy) and

Lodonal™ (LDN therapy also referred to as

IRT - 103) throughout emerging markets in

Africa, with expansion into the Caribbean,

and Central & South America.

In keeping with its business strategy, TNIB

has sought local regulatory governmental

approval for the importation of Lodonal™

and IRT-101 into a number of African

nations, thereby providing exclusive protec-

tion for its therapies. There are a number

of advantages to Lodonal™ in Africa: it is

a safe, non-toxic treatment with a one-year

shelf life requiring no refrigeration, which is

a significant advantage as it can be delivered

to remote villages without the need for spe-

cific storage requirements. TNIB is working

with the Republic of Malawi, the Republic

of Equatorial Guinea, and the Republic

of Nigeria, and plans an initial launch of

15,000 daily doses of Lodonal™ beginning in

September 2013, increasing to 25,000 doses a

day by January 2014, and then expanding to

over 500,000 doses a day within 24 months.

TNI BioTech understands when calculat-

ing clinical development costs into its break-

even analysis, it appears it should charge

more than $1.00 per dose for Lodonal™.

However, the Company was able to forego

development costs because it acquired the

intellectual property significantly below


typical development costs. This allows TNI

BioTech to achieve its vision of making

Lodonal™ affordable to everyone. TNIB will

still have available cash flow from Lodonal™

sales of approximately $.40 cents a dose to

help offset additional clinical trial develop-

ment in the U.S., thereby allowing it to avoid

debt and dilution of the Company’s stock.

In February 2013, TNI entered into a

manufacturing agreement with Hubei

Qianjiang Pharmaceutical Co. Ltd. (Hubei

Qianjiang) using their cGMP certified facil-

ity. TNI and Hubei Quianjian are currently

working on obtaining a certificate of free

sale. In addition to the manufacturing agree-

ment, TNI BioTech has a signed frame-

work agreement wherein Hubei Qianjiang

will fund TNIB pancreatic cancer trials in

exchange for exclusive marketing rights to

IRT-101 in China with TNI BioTech receiv-

ing a 6% royalty.

manufacTuring

In order to fulfill the near-term demand for

IRT-101 and Lodonal™, TNIB will rely on

a Ramos Laboratory manufacturing facility

in Nicaragua for Lodonal™ distribution to

African and South American countries. The

facility meets cGMP standards and is able to

meet the Company’s needs for delivery. The

facility is capable of producing 40,000 pills

an hour.

fuTure

TNI BioTech is implementing a growth

strategy aimed at achieving a number of

corporate goals over the next 6 to 24 months

including:

Entering into distributor agreement to

market distribute its products in many coun-

tries across Africa, the Caribbean, and South

America.

Continuing ongoing clinical trials and

drug development efforts, while seeking

future FDA or other regulatory approvals.

Requesting approval to begin phase III

trials for pancreatic cancer trials by the first

quarter of 2014 in conjunction with TNIB’s

Chinese partners at the end of Phase II meet-

ing with the FDA.

Beginning a phase III study of LDN for

use in Crohn’s disease (adult and pediatric)

in 2014.

Submitting an application to up list to the

NASDAQ.

Bringing additional biotech management

into the Company, including new board

members and a new Chief Financial Officer

with extensive biotech experience.

Beginning work on drug development

plans for MS and Liver cancer in the third or

fourth quarter of 2014.

TNI BioTech, Inc. is proud of the goals

it has accomplished this year through the

passionate commitment of the doctors and

scientists surrounding TNIB; especially the

late Dr. Herberman, Dr. Plotnikoff, Professor

Shan, Jacqueline Young on behalf of Dr.

Bihari, Dr. Ian Zagon, Dr. Angus Dalgleish,

Dr. Jill Smith, Dr. Patricia McLaughlin, and

countless others. Many of these individuals

licensed or sold their work and patents to

TNI BioTech with the single goal of obtain-

ing FDA approval for the specific indica-

tions. According to Noreen Griffin, “This is

not something that could have been accom-

plished by one person, it took a team of

dedicated researchers, scientists, and doctors

as well as the TNIB research & development

and executive teams to have us where we are

today. Never in my life have I had the honor

to work with so many dedicated scientists

and doctors, and I am thankful every day

to be a part of what so many great people

started.” n

goals by caTegory

Crohn’s Disease

2014 Initiate Phase III clinical trial evaluating LDN as a treatment for pediatric patients with Crohn’s disease

2014 Initiate Phase III clinical trial evaluating LDN in adult Crohn’s disease

2016 Complete Phase III study with LDN in pediatric Crohn’s disease

2016 Complete Phase III study with LDN in adult Crohn’s disease

2017 FDA Approval of LDN for pediatric Crohn’s disease

2017 FDA Approval of LDN for adult Crohn’s disease

Multiple Sclerosis (MS)

2014 Initial Phase II clinical trial evaluating LDN as a treatment for patients with SPMS

2015 Complete Phase II study with LDN in patients with SPMS

2016 Initiate Phase III clinical trial evaluating LDN in SPMS

2018 Complete Phase III study with LDN in patients with SPMS

2018 FDA approval of LDN as an adjunct therapy for patients with SPMS

Cancer

2014 Initiate Phase II clinical trial evaluating MENK in cancer patients

2016 Complete Phase II study with MENK in cancer and selection for Phase III evaluation

2017 Initiate Phase III clinical trial evaluating MENK in a selected oncology indi-cation

2019 Complete Phase III study with MENK in a selected oncology indication

2019 FDA approval of MENK in a selected oncology indication

Note: SPMS (secondary-progressive multiple sclerosis)

Now we’re using our expertise to help Newtown, Boston, First Responders, Wounded Warriors and Families of the Fallen.

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Investing in ChinaHas the Perfect Storm Passed?U.S. AND CHINESE REGULATORS FORGE ENFORCEMENT COOPERATION AGREEMENT


tory dispute involving the audits of U.S.-

listed Chinese companies. While positioned

as a cooperative agreement toward address-

ing transparency issues, many are question-

ing whether the agreement is enough to

satisfy investor concerns going forward.

whaT haPPeneD?

The highly publicized accounting frauds at

a number of Chinese companies are the

number one reason for the collapse of this

market. Investor confidence is at a low point.

Unfortunately, companies that had noth-

ing to do with the scandals and actually

The investor market for U.S.-listed

Chinese companies is in a tailspin.

A perfect financial storm has hit

China. Allegations of fraud, a slo w-down of

the Chinese economy and a general reluc-

tance by Chinese companies to embrace

an investor-friendly demeanor have con-

verged—leaving shareholders of Chinese

companies in an investment quandary.

A recently announced agreement between

the U.S. Public Company Accounting

Oversight Board (PCAOB) and the China

Securities Regulatory Commission (CSRC)

and its Ministry of Finance, however, appears

to be a first step towards solving the regula-

n BY cOREY FIScHER, cPa, MANAGING PARTNER, WEINBERG

& COMPANY PA


complied with all the U.S. regulatory and

reporting requirements were painted with

the same broad brush. The scandals have cast

suspicion on the accounting practices and

financial statements of all Chinese reporting

companies.

Investors have good reason to be weary

of fraud when one of the major safeguards

inherent in the U.S. financial reporting sys-

tem is often missing with Chinese compa-

nies. U.S. accounting firms that audit public

companies are subject to review and over-

sight by the PCAOB - but not the account-

ing firms operating out of China and Hong

Kong.

Interestingly, the PCAOB was itself created

by the U.S. Congress as part of the Sarbanes

Oxley Act of 2002 in the aftermath of a

U.S. accounting fraud and scandal involv-

ing the Enron Corporation. The PCAOB is

a regulatory organization that works under

the authority of the Securities and Exchange

Commission (SEC). It is charged with over-

seeing the quality and standards of account-

ing firms that audit public companies. Its

strongest tool in fulfilling its oversight

responsibility is its power to conduct inspec-

tions of its member accounting firms.

Many Chinese accounting firms have reg-

istered with the PCAOB allowing them to

conduct, or participate on audits of Chinese

companies listed on U.S. exchanges. However,

as many investors now know, the Chinese

government does not allow the PCAOB to

conduct inspections of the Chinese-based

accounting firms that do Chinese company

audits. It is hard for an investor to swallow

the concept that there are allegations of

fraud and faulty audits going on in these

companies, while also knowing that the

accounting firms conducting those audits

are not subject to the same PCAOB oversight

as non-Chinese registrants.

The refusal of the Chinese authorities to

allow the PCAOB to conduct inspections has

other significant repercussions. Under the

rules of the SEC, a registrant must be audited

by a firm registered with the PCAOB. If the

PCAOB cannot conduct inspections of those

audit firms, the PCAOB may de-certify them

from performing future audits. If this were

to happen, it is possible that all U.S. exchange

listed Chinese companies could be de-listed

as they would no longer have an auditor

and thus could not meet public company

audit requirements. Further, not only are

the listings of these particular companies in

question, the audits of large multi-national

companies that have significant operations

in China may also be in jeopardy.

whaT everyone alreaDy

knows

The U.S. knows that without verifiable

audits, U.S. investor capital is at risk. The

Chinese know that U.S. investors represent a

large and important source of foreign capital

for its emerging companies and are essential

for the growth of its private sector. Moreover,

everyone knows that investor dollars will not

be returning to China until some degree of

faith and confidence can be re-established.

a PosiTive sTeP

The recently announced agreement between

the PCAOB and China regulators may be a

first step in the right direction.

In their Memorandum of Understanding

(MOU) on enforcement cooperation, the

parties established a cooperative framework

for the production and exchange of audit

documents relevant to investigations in both

countries’ respective jurisdictions. While a

positive step, some issues remain, including:

• Under the MOU, some documents can

still be withheld if China declares them state

secrets.

• No agreement was reached that would

allow regulatory inspections, which are the

most important function of the PCAOB, to

verify the performance and compliance with

accounting rules.

Unfortunately, the MOU does not address

many of the concerns of the SEC. Several SEC

lawsuits alleging fraud are pending against

U.S. traded Chinese-based companies. Also,

late last year the SEC filed legal action

against the Chinese affiliates of five major

U.S. accounting firms demanding they com-

ply with U.S. regulations. Those account-

ing firms assert that to do so would violate

Chinese law and subject their employees to

jail. An SEC Administrative Judge will rule

on that matter later this year, which should

bring greater clarity to the issue.

conclusion

Although this new U.S./China agreement

falls short, it is a positive signal of coop-

eration. As such it might mitigate the SEC’s

threat to de-list all non-compliant China-

based companies.

The U.S.-China relationship is complex

but financial interests have a habit of trump-

ing ideological differences. If so, both sides

will continue to move toward greater coop-

eration and that would be a positive develop-

ment toward restoring investor confidence

in China-based companies.

Will the sun once again shine on Chinese

companies after this perfect financial storm

passes? Too soon to predict, but it appears

the clouds are parting—if ever so slightly.

Corey Fischer, CPA, is the Managing Partner

of U.S.-based public accounting firm

Weinberg & Company P.A. An early pioneer

in the China market, the firm maintains

Pacific Rim offices in Shanghai and Hong

Kong. With over 25 years of public com-

pany accounting experience and more than

a decade focused on China, Mr. Fischer is an

expert on the cultural, accounting and busi-

ness issues unique to the region.

Corey Fischer, CPA, Managing Partner

Weinberg & Company, P.A.

Telephone: 310-601-2200

E-mail: [email protected] n

StockWord PuzzleTM

Across 2. APO 3. PIPE 8. CVSL CEO10. A 10Q is filed how many times a year?11. The quote between bid and ask is called?13. Steven Shelton15. Required investor for PPMs17. The higher quality of common or preferred stock is?18. Russell C. Weigel, III professional21. This issue’s commodity22. Key component regarding individuals in general solicitation25. Now companies can advertise for ____________33. Who’s your Edgar Agent?34. Financial Paradox or________ written by Rabbi Robbins35. Which company in this issue is a project generator?37. Wesley Ramjeet is the consumate C-suite executive38. Topic of Corey Fische’s article

46 Dark

47. Bonds pay __________49. Thorson Insurance51. Sarbanes Oxley acronym?52. Color of sheets on OTC54. Oil & Gas sector56. Profit Planners Management symbol58. Every investor wants to sell high and _____ _____.59. Long term options are called?63. Editorial discusses this type of stock market64. SNN Chief Operating Officer is65. Opposite of debt67. QuoteMedia data69. What do you call a stock under $5.00 per share?70. Leslie Richardson discusses __ ___ stock market71. Pet-Vivo CEO72. CNSX stands for this Canadian Stock Exchange73. StockNewsNow.com74. Drasko writes about which markets?

Down 1. Investor consultants 2. Brett Goetschius 4. Soltoro 5. Rare Earth ________ 6. Bridging Bionics Amanda _______ 7. Reg D 8. John Hornick Esq. writes about hard money lending in what investment area? 9. Preferred Stocks pay ________10. What does short squeeze mean?12. IR stands for?14. Tuesday Children’s honors16. APO stands for?19. The Original Soupman symbol20. Youngevity stock symbol21. Chris Lahiji23. What is David Alsup’s article about?24. Bio Maryland26. Debra Fuhr’s expertise27. The micro-cap exchange28. Opposite of long

29. ChoiceTrade online30. New retail way of investing in private companies31. Favorite financial comic strip32. David Drake36. Site of Growth Capital Expo April 29 - May 1, 201439. Buy on rumor, sell on _______40 .What hotel is the Growth Capital Expo?41. Non-recourse42. Invictus IPO43. Janet Zand article about your _____ _____44. What a company is before its IPO45. Have you read Caveat ________?48. TNI Biotech symbol50. Jack Leslie53. Micro-Cap stocks have less than this in capitalization55. Malone Bailey specializes in _________57. World Wide Stock60. 144 Opinions does what service?61. David Morgan62. The trend is your ________66. Strangulation by ________68. Gold, Silver, Copper etc.

Answers in the classifieds

StockWord Puzzle StockWord Puzzle StockWord Puzzle


Life-Science TechnologiesThe IncubatorUpping the Odds of Commercial Success

T H E I N c U B aTO R

significantly improving healthcare costs and

outcomes to be received with indifference –

sometimes hostility – from clinicians who

don’t find enough incentive in the novel

devices to change their diagnostic or treat-

ment protocols.

Complicating matters, we’re in a funding

winter for early-stage biomedical devices.

While plenty of capital from angel net-

works and venture-capital firms is flowing

into healthcare enterprise software and con-

sumer healthcare and wellness apps, there is

a serious shortage of equity capital to fund

the early stages of biomedical devices. This

downward trend started a few years ago,

with very few venture-capital firms now

interested in early-stage biomedical ventures

having shifted their attention to later stages

when risk profiles are more favorable.

Commercialization grants – such as

those given by the National Institutes of

Health, the National Science Foundation, the n BY RIcHaRD kOFFLER,

CEO, GREENWINGS BIOMEDICAL

Years before a biomedical hardware or

software device is ready for commercial dis-

tribution, it must transform itself from idea

to prototype to release candidate, and then

enter the FDA approval process, which can

take months to years.

Hardware and software products that the

FDA doesn’t currently consider to be bio-

medical devices – such as certain consumer

smartphone apps and electronic medical

records systems – will be inevitably swept

into its regulatory definition of “devices”,

requiring approval before they can be com-

mercialized.

Developers of biomedical devices must

thoroughly validate safety and clinical effi-

cacy not only to satisfy the FDA but to

accumulate compelling evidence that will

hopefully persuade clinicians and purchas-

ing decision-makers that the devices are

worth buying and using. It is not uncom-

mon for devices with strong evidence of

Fact: Many biomedical innovations don’t do well in the market even when they get that far because the path to

commercial success is arduous and expensive.


Department of Defense, and the Wallace H.

Coulter Foundation – are valuable in jump-

starting research-based innovations from lab

to market, but they unfortunately satisfy a

tiny fraction of the demand for capital from

biomedical inventors and entrepreneurs.

It is too soon to know how helpful the

crowdfunding and general-solicitation pro-

visions of the JOBS Act will be because the

SEC’s regulations might make compliance

too onerous to be practical for most ven-

tures.

But as Economics 101 tells us, capital

vacuums in promising markets don’t go

unfilled for long.

Traditional venture-capital firms are being

replaced by the venture arms of companies

like GE, Johnson & Johnson and Qualcomm

looking to seed what might become future

acquisitions; “super angels” with keen, edu-

cated interests in biomedical opportuni-

ties; and institutional and individual foreign

investors primarily from Asia looking to get

a foothold in the U.S. biomedical and health-

care markets.

Capital, however, is necessary but not

sufficient to ensure commercial success.

Execution is more important. A well-funded,

brilliant idea that is poorly executed usually

equates to failure, while a not-as-well fund-

ed, more mundane idea that is well-executed

has a reasonable chance of success.

The importance of combining promis-

ing ideas with effective execution underlies

the growing popularity of biomedical and

healthcare incubators and accelerators.

Generally speaking, incubators are the

entrepreneurs by identifying market oppor-

tunities, raising capital, developing innova-

tions from research ideas to commercial-

grade products, and launching ventures

to commercialize the developed products.

Examples of incubators include The Foundry

in Palo Alto, Incept in Boston, my own

Greenwings Biomedical in Los Angeles, and

the just-announced collaboration between

Children’s Hospital of Philadelphia and

Osage University Partners.

Incubator projects typically involve bio-

medical devices based on strong scientific

research that will require a few years of dis-

covery, product development and validation.

The intellectual property is licensed from

research institutions like universities, is from

independent inventors or is conceived inter-

nally. Capital comes from either the incuba-

tor’s balance sheet or third-party investors.

For instance, The Foundry has close working

relationships with venture-capital firms Split

Rock Ventures and Morgenthaler Ventures.

An incubator’s “magic sauce” is its highly

talented, experienced and motivated team

working hands-on across a handful of active

projects, each supplemented by specialized

scientific and engineering professionals.

Accelerators support up to dozens of new

projects every year, each conceived and oper-

ated by entrepreneurs looking for modest

amounts of seed capital and a few weeks

of education, guidance and office space to

move their ideas toward working prototypes.

Typical projects are smartphone apps and

enterprise software that do not require much

if any scientific research. Each venture sinks

or swims primarily by the skill of its entre-

preneurial team because the accelerators’

crew barely gets involved in execution.

Examples of accelerators are

StartUpHealth, which recently inked a three-

year collaboration with GE Ventures; Rock

Health, which has a relationship with ven-

ture-capital firm Kleiner Perkins Caufield &

Byers; and Healthbox, launched by venture-

capital firm Sandbox Industries.

Notwithstanding their differences, incu-

bators and accelerators share the goal of

upping the odds of commercial success for

biomedical, healthcare and wellness innova-

tion.

Richard Koffler is CEO of Greenwings Biomedical, a Los Angeles-based incubator of biomedical ventures. He also chairs LAVA Healthcare, an interest group of the Los Angeles Venture Association, a 29-year-old organization that helps early-stage ventures in Southern California find financing strategies to fuel their growth. n

Traditional venture-capital firms are being replaced

by the venture arms of companies like GE, Johnson

& Johnson and Qualcomm looking to seed what

might become future acquisitions; “super angels”

with keen, educated interests in biomedical oppor-

tunities; and institutional and individual foreign

investors primarily from Asia looking to get a foot-

hold in the U.S. biomedical and healthcare markets.


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


rebounded to HK$5.39, yet it still trades

4.1% below its IPO price as of September

18. Sinopec Engineering, the refining and

petrochemical-engineering unit of Chinese

oil giant China Petrochemical Corp and the

largest IPO in Hong Kong in the first half

of 2013, hired 13 banks to work on its deal

yet, was unable to generate the same level

of investor enthusiasm as Galaxy. The com-

pany which raised US$1.8 billion in its IPO

launch on May 23rd closed down 0.4% from

its listing price of HK$10.50 in first day of

trading and is 7.7% below its IPO price as of

September 18.

During the 2nd quarter the market started

to get really shaky on weak data from China

and an indication from the U.S. Federal

Reserve that it may phase out quantitative n BY LESLIE RIcHaRDSON

The year began with high hopes of a bounce

back from the low deal volume in 2012 based

on forecasts of a revived China economy,

strong IPO pipeline and improved market

sentiments. The high hopes were dashed as

the market turned into the worst perform-

ing in Asia and the Hang Seng Index (HIS)

fell 16% from May 20 through June 24.

However, the HSI made a sharp turnaround

from its June 24th low and is currently the

beating every market in Asia on signs the

Chinese economy is strengthening.

The leaders of the pick-up in IPOs for

the year were to be China Galaxy Securities

Co. (HK: 6881) and Sinopec Engineering

(HK: 2386), which raised a total of US$3.6

billion. On May 15th, Beijing-based China

Galaxy Securities Co. raised $1.1 billion and

was the first deal to cross the billion-dollar

mark in Hong Kong for the year. The com-

pany hired a record 21 bankers to market its

deal and generate strong investor interest.

The effort seemed to have paid off as the

company soared 11% on its first day of trad-

ing. However, investors’ zeal quickly waned

and the stock dropped 20.6% to a low of

HK$4.02 on September 9th. The stock has

The Hong Kong Stock Exchange (HKSE), once the world’s biggest IPO market by the amount of money raised, has

been experiencing a dramatic year of ups and downs.


easing which softened investors’ appetite for

new listings. The week following Sinopec’s

IPO, Langham Hospitality Investments Ltd.

(HK: 1270) launched its IPO in Hong Kong

raising $548 million. The company closed

9.2% below the HK$5.00 IPO price on its

first day of trading giving the company the

dubious honor of staging the worst debut

for an IPO bigger than $500 million glob-

ally this year, according to Dealogic data.

Prior to that, the record was held by anoth-

er Hong Kong-listed company, Chinalco

Mining Corp. International (HK: 3668), a

copper-mining unit of Aluminum Corp.

of Chinalco, which raised US$397 million

in January and fell as much as 11.4% on

its debut. Furthermore, hotel casino opera-

tor Macau Legend Development Ltd (HK:

1680) had to slash its July 4th offering

to US$360 million after increasing it from

US$600 to US$780 million amid increasing

market concerns. The company intends to

use the funds for property redevelopment as

the Macau’s gaming industry is experiencing

record growth. In 2012, gaming revenues

reached a record US$38 billion, surpassing

the entire U.S. gaming market of US$35.6

billion.

As the market recovery was losing steam

and investors became weary of IPOs, several

companies moved to postponed their list-

ings. Mando China Holdings was the first

company in 2013 to postpone its US$270

million IPO citing adverse market condi-

tions. A few weeks later, Hopewell Hong

Kong Properties announced its decision to

postpone its IPO stating market weakness.

The company planned to set its price on

June 12th but was unable to generate enough

demand for the transaction. Hopewell Hong

Kong Properties Ltd is a unit of Hopewell

Holdings Ltd and intended to raise up to

US$780 million for new property develop-

ment in Hong Kong’s market. New World

Development Co. (0017.HK) cancelled its

plans to raise up to US$1 billion through a

hotel trust listing in an offering set for June

24th and US- based, Nexteer Automotive

was forced to postpone its listing to raise

up to HK$325 million which was set to be

priced on June 26. In total, nearly US$1.8

billion worth of listings were postponed in

June.

However, investors’ appetite for IPO’s did

not retreat for long as China’s economy is

beginning to strengthen and Hong Kong

remains the best place to put money to work

in China. Eight companies are seeking to

raise US$14 billion from investors in the

4th quarter, more than double the amount

raised so far this year. With renewed inter-

est in the IPO market, many listing candi-

dates are recording huge subscriptions from

retail investors. Food and beverage maker,

Tenwow International Holdings Ltd’s (HKG:

1219), which raised $202 million in its ini-

tial public offering, was oversubscribed 55

times making it the most well-received IPO

in four months. International Houseware

Retail Co. which operates the Japan Home

Center stores in Hong Kong and other Asian

countries, raised US$78 million after shares

in the retail allotment were more than 100

times oversubscribed. CT Environmental

Group finished its IPO book building on

September 17th attracting HK$490 million

worth of orders from retail investors, for an

oversubscription of six times. Other high-

profile deals for the rest of the year include

China Huishan Dairy Holdings Co., which

is expected to raise up to US$1.3 billion in

September while state-owned China Cinda

Asset Management Co. is expected to raise

around $2 billion in November. Nexteer

Automotive Group Ltd has also indicated

plans to kick off its listing plan again, raising

about $251.46 million. In total, 80 compa-

nies are expected to raise up to HK $150

billion this year in Hong Kong, which will

make it the world’s third largest initial public

offering market in 2013.

As for the most widely speculated IPO

of the year, it is increasingly unlikely that

Chinese e-commerce giant Alibaba will

make a 4th quarter listing as it is running

out of time to meet the 2013 submission

deadline. It was hoped that Alibaba would

be the largest IPO of the year raising up

$15 billion on an estimated value between

US$60 - $100 billion. Currently, Alibaba is

lobbying the Hong Kong exchange and local

regulators to allow it to keep the partnership

structure despite the fact that the market has

previously resisted the efforts of companies

to treat any shareholders differently. If the

parties can’t reach an agreement, there is the

possibility that founder Jack Ma may decide

to take the IPO to New York which would be

a major hit to Hong Kong’s reputation as a

global financial hub capable of attracting the

world’s largest companies. n

Eight companies are seeking to raise US$14 billion

from investors in the 4th quarter, more than double

the amount raised so far this year. With renewed

interest in the IPO market, many listing candidates

are recording huge subscriptions from retail inves-

tors.


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


where IS The golD?

More ominous is the possibility – some say

likelihood - that the collapse got underway

because very large bullion houses and banks

simply did not have the physical metal on

hand to meet the demands of customers,

who just naturally assumed their metal was

indeed available to them, should they decide

to take delivery.

When Germany requested repatriation

of a portion of its gold, supposedly being

held for them by the U.S. Federal Reserve,

and were told it would be returned to them

They saw the spot or cash price, which closely

reflected what they could expect to pay, plus

an additional, fairly predictable premium.

During the 2008 global financial melt-

down, which took virtually every asset class

on a near-vertical ride toward the bot-

tom, this relationship became sorely tested.

Silver’s quoted ‘paper price’ low that year was

around $9, yet someone who wished to actu-

ally purchase the metal was hard-pressed to

find it for less than $12-$15 per ounce for

any retail product. Indeed silver could be

taken off the exchange in thousand ounce

bar form, but the average investor was stuck

paying huge premiums.

In time, this paper-physical pricing rela-

tionship returned to a more normal bias

– until the spring of 2013. On Friday April

12 and Monday April 15, gold and silver

dropped through technical support levels

of around $1550 and $26 respectively. Gold

cratered to around $1,325 and silver declined

into the $22 area. The best guess so far is that

a combination of hedge fund liquidation,

central bank-inspired selling, and brokerage

house margin calls precipitated the event.

Until a few years ago, investors who wanted to buy physi-cal metals looked to the futures market to determine the

“correct” price for gold and silver.

n BY DaVID MORGaN, THE SILVER GURU


– within about 7 years - we can be excused

for wondering just how much physical metal

really backs the contractual agreements cus-

tomers have with other central banks, com-

mercial banks and brokerage houses.

In the case of gold, the recent decline was

shocking to market participants, but in the

context of retracements, it seems so far –

even if we see gold and silver drop below

the April panic lows – to be along the scale

of a second major correction in a gold bull

market which has been rising for an almost

unprecedented 12 consecutive years!

What took place next, on a global basis,

was a spontaneous, virtual run by inves-

tors to acquire physical gold and silver.

Dealers in locations as diverse

as China, India, Viet Nam,

Great Britain, Australia,

Canada and the U.S.

reported ‘lines around

the block’ as individ-

uals tried to buy any

and all available sup-

plies. The U.S. Mint

reported record sales

of American Silver and

Gold Eagles, coming on

the back of three previous

monthly order records for Silver

Eagles – now averaging well over 3 million

per month (April U.S. Mint sales of Silver

eagles exceeded 4 million, with Gold Eagles

selling 3 times faster than last year’s pace.)

Central governments around the globe

keep pumping out paper currency (a.k.a.

‘money’) with reckless abandon. They right-

ly fear rising gold and silver prices, because

these historic sources of real money are true

barometers indicating the health or lack

thereof of a country’s currency. But now,

much more so than in the 2008 meltdown

– the Cat is Out of the Bag. By attempting

to drag down the ‘paper price’ of the met-

als, and thereby discredit their value in the

eyes of the public, market manipulators

have instead literally ripped the lid off the

Pandora’s Box of ills which fiscal misman-

agement, asset bubbles, deficit spending and

naked short-selling have unleashed upon

hapless citizens.

Many theories abound on “why” the sell-

off occurred and one prime theme could

be to discredit gold and silver (the ultimate

monies) from safe haven status. Since the

fundamentals have only strengthened since

the 2008 financial crisis the psychological

warfare of making gold and silver seem risky

may indeed be the main motive.

cyPress has crosseD a

financial rubicon

Now Cypress has decided to dismantle

depositors’ accounts in excess of 100,000

Euros – reportedly con-

verting 37.5% of bal-

ances into Class

A shares, with

22.5% held

for possible

future con-

versions, and

another 30%

“ t e m p o r a r -

ily” frozen and

held as a deposit.

Sprott Asset’s David

Franklin notes, “A finan-

cial Rubicon has (thus) been crossed”. Of

course this could not happen in other

European countries, Canada, or even the

U.S., right? When asked this very question,

Federal Reserve Chairman Ben Bernanke

responded that it would be “extremely

unlikely”. So… do you feel lucky today?

It looks like a new paradigm is being

formed. All of us will have to learn a few

different rules in order to succeed moving

forward. But it’s looking like a safe bet that

owning physical metals, plus holding profit-

able producers, is going to be a requirement

for those who hope to protect a portion of

their wealth from the corrosive effects of

inflation (hidden taxation), not to mention

outright theft by banking and other financial

interests.

The recent paper price collapse in gold

and silver weighed heavily on mining stocks

as well. But then mining shares – from the

best and most profitable producers, to pie in

the sky exploration plays - had already been

declining for almost two years. So now this

group, in comparison to the metals’ price, is

trading at over two standard deviations from

the norm – a mathematic improbability of

around 97%.

golD (silver anD

PallaDium) are for saving

Jim “Mr. Gold” Sinclair had this to say:

“Gold is for saving. Gold producers with low

cost and low overhead are the only holders of

the new supply of physical gold. The price of

gold will not only reach our original target

of $3,500, but it will greatly exceed that level

as the fires that are burning in the financial

world turn now into an inferno, but physical

gold will allow you to survive the massive blaze

and financial destruction.”

Given that silver movement demonstrates

a 90% + correlation to the price direction of

gold…what do you think is likely to happen

to the price of silver – not to mention those

who produce it – going forward? Yes, when,

not if that extension moves back toward the

norm, well-run producers (and sharehold-

ers) are going to profit handsomely. The

chart below illustrates beautifully just how

disconnected the price of mining shares

have become from their normal price rela-

tionship to the underlying price of the met-

als themselves. This spread could certainly

widen a bit more. But when the share price

of the most profitable and growing produc-

ers – especially in the junior and royalty/

streamer space - starts reverting from this

historic extreme, you can be sure that the

transition will be unexpected, violent…and

long-lasting.

People from all walks of life, from ‘average

Joes’ to high net worth individuals, and now

retirement and hedge fund managers, are

coming to understand what others across


cultures and time periods for thousands of

years have felt at a visceral level. Gold and sil-

ver have enduring value, which unlike paper

currency, can never decline to zero. The

supply of precious metal – also unlike paper

currency – will always be finite. History

teaches us that when metal and paper collide

- as they are now doing - paper always loses.

2013 will be The TransiTion

year for The Precious

meTals

I said at the beginning of 2013 that this

would be the transition year for the precious

metals. What’s taken place during the last

few months supports this view and adds

clarity for those who closely follow world

events. This sea change– which again I’ve

written and spoken about on many occa-

sions since the very beginning of the current

precious metals bull market – is now fully

underway. The transition is simply this…the

physical market is taking center stage, mak-

ing the paper price of metals less relevant

in the marketplace as the days, weeks and

months go by.

buyers arounD The globe

are asking These ques-

Tions:

“What difference does a quoted paper price

make if I cannot buy physical metal at that

price? What good is having a precious metals

account, if when I try to claim my gold and

silver, I am instead given a paper currency

check? If I cannot see and touch my metals

holdings - even in supposedly “allocated”

accounts, is that metal even really there?”

If your goal is to position yourself in

order to take maximum advantage of what

I believe is going to become the most out-

standing opportunity we will see during this

entire bull-run, then I humbly suggest that

you give serious consideration to becoming

a subscriber to The Morgan Report. You will

have immediate access to our Silver-Investor.

com site with its deep layers of content-rich

information designed to help you make the

most of your time and capital. Our analysis

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silverguru n


Do You Know Beans About (Soy)beans?

c O M M O D I T Y c O R N E R

exporting and weather. As noted in Table

1, the United States is one of the largest

producers and exporters of soybeans. They

are planted and grown annually. Because of

the annual planting farmers may be more

flexible to increase or decrease their plant-

ings based on current levels of supply and

demand. There is a tendency for farmers to

plant more when the price is high and plant

less when the price is low.

As noted in Chart 1, the U.S. was the lead-

ing exporter of soybeans with 94% of the

market share in 1984. Soybean meal and

soybean oil at 48% and 35% respectively. As

the volume of production and exports has

increased since 1984, the U.S. global export

market share has decreased. As of 2009 soy-

bean, soybean meal and soybean oil were

43%, 16% and 12% respectively of market

share.

The two primary factors reducing the U.S.

export market share3: 1) Increase of foreign

According to the USDA, processed soybeans

are the largest source of animal protein feed

in the world and the second largest source

in the world for vegetable oil.1 An estimated

90% of oilseeds produced in the U.S. are

soybeans. The remaining 10% include cot-

tonseed, sunflowerseed, canola, rapeseed and

peanuts.

Soybeans are only second to corn as

the most planted field crop in the U.S. As

Midwest farmers tend to produce a higher

soybean yield and lower cash cost than

In our previous article we introduced the commodity mar-kets. Moving forward we will discuss more specific edu-

cational topics about commodities and futures. This article discusses some of the fundamentals of the soybean market.

n BY MaRk SHORE

Southern or Eastern farmers, over 80% of

soybean production occurs in the upper

Midwest of the United States.

Soybean futures contracts are one of the

most liquid of the commodity futures mar-

kets. Soybean futures were introduced in

1936. The soybean complex (soybean meal

and soybean oil) was introduced as futures

contracts in the 1950s.2 There are seven

standard expiration months for soybean

futures; January, March, May, July, August,

September, November. Soybean meal and

soybean oil futures contracts also include the

months of October and December.

The full size contracts are 5,000 bushels

per contract. The CME Group also trades

mini-sized contracts of 1,000 bushels per

contract. Soybeans are priced at cents per

bushel. Soybean meal is priced at dollars per

short ton. Soybean oil is quoted at cents per

pound.

Two major pricing factors of soybeans are


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

Ranked by Production

1000 Metric Tons

Ranked by Exporting

1000 Metric Tons

Ranked by Importing

1000 Metric Tons

United States 92,261 Brazil 41,500 China 69,000

Brazil 85,000 United States 39,463 EU-27 12,100

Argentina 54,500 Argentina 12,000 Mexico 3,550

China 12,000 Paraguay 5,000 Japan 2,760

India 12,000 Canada 3,200 Taiwan 2,500

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

soybean production. Specifically Brazil and

Argentina have become the largest com-

petitors to the U.S. soybean market due to

a lower acreage cost, decreasing marketing

and transportation costs and eliminating

or reducing the soybean export tax. The

depreciation of the Argentina Peso assists

soybeans to be less expensive for importing

countries to purchase. (For more discus-

sion of the relationship of commodities to

currencies see Currencies in your Future

Portfolio? ).

2) Increase exports of U.S. meat products

caused a higher domestic utilization of soy-

bean meal for feed, thus reducing the supply

available for export.

In the United States, soybeans are planted

in the spring, grown in the summer and

harvested in the fall. Too much rain in the

spring could impede the ability to plant due

to fields flooding. Not enough rain during

the summer could cause drought-like condi-

tions. Either case may cause a decrease of

supply at harvest time. The summer months

tend to experience price volatility as produc-

tion uncertainty increases and weather pat-

terns change. These factors also increase the

market’s probability for quick “spike” moves.

Commercials (hedgers) and speculators

may hedge the volatility by going long or

short soybean futures contracts. The market

tends to be less volatile once the harvest is

known until the next planting season the

following spring.

The soybean complex allows for spread-

ing between soybeans, soybean meal and

soybean oil. A common processing spread

is the crush spread. This involves being long

(buy) soybean futures and short (sold) soy-

bean meal futures and soybean oil futures

simultaneously. A processor will utilize this

spread to hedge the future purchase price of

soybeans and the future sale of the soybean

products of meal and oil. “Crushing” is the

conversion process of soybeans into soybean

byproducts of oil and meal.

The crushing process will convert a 60

pound bushel of soybeans into about 11

pounds of soybean oil and 44 pounds of

soybean meal.4

There is an old adage “beans in the teens”.

Historically when the soybean market rallies,

a move above $10 per bushel was consid-

ered a large move. As seen in Chart 2, the

market tested $10 a few times prior to 2005.

The summer of 1988 the U.S. experienced a

drought summer and pushed the beans into

the teens.

Since 2011 soybeans have averaged in the

lower to mid teen price range. The increasing

wealth of emerging nations is a major fac-

tor for sustained soybean prices. As nations

become wealthier they tend to increase their

consumption of meat, thus increasing the

demand for cooking oils such as soybean oil

and soybeans for feed.

China is a well known example of an

emerging nation’s increased wealth and

increased consumption of commodities. A

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

Source: http://www.ers.usda.gov/topics/crops/soybeans-oil-crops/trade.aspx#US


lesser discussed country may be Mexico.

The North American Free Trade Agreement

(NAFTA) caused Mexico to eliminate their

soybean and canola tariff by 2003 and

reform their agricultural policies. This lead

to the U.S. supplying most of Mexico’s soy-

bean imports.5

Every commodity market has its spe-

cific players and natural nuances. The more

someone understands the background, foun-

dation and details of a market, the greater

the ability to understand the personality and

profile of a market and what impact that

may have going forward.

(Endnotes)1 http://www.ers.usda.gov/topics/crops/soybeans-

oil-crops.aspx#.UZ-j7NjfKSo2 Self Study Guide to Hedging with Grain and

Oilseed Futures and Options. CME Group P.43 Schnepf, R Dolman, E. and Bolling, C, (2001)

Agriculture in Brazil and Argentina: Developments and Prospects for Major Field Crops, USDA Chapter 5

4 Chicago Board of Trade Soybean Crush Reference Guide (2006)

5 http://www.ers.usda.gov/topics/crops/soybeans-

oil-crops/trade.aspx#US

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

Source: www.barchart.com

Copyright ©2013 Mark Shore. Contact

the author for permission for republication

at [email protected] Mark Shore

has more than 25 years of experience in

the futures markets and managed futures,

publishes research, consults on alternative

investments and conducts educational work-

shops. His research is found at www.shore-

capmgmt.com

Mr. Shore is also an Adjunct Professor

at DePaul University’s Kellstadt Graduate

School of Business where he teaches a gradu-

ate level managed futures/ global macro

course and a frequent speaker at alterna-

tive investment events. He is a contribut-

ing writer for the Eurex Exchange, Reuters

HedgeWorld, and the CBOE Futures

Exchange.

Prior to founding Shore Capital, Mr.

Shore was Head of Risk for Octane Research

Inc ($1.1 billion AUM) in NYC, where he

was responsible for quantitative risk man-

agement analysis and due diligence of Fund

of Funds. He chaired the Risk Management

Committee and was a voting member of the

Investment Committee.

Prior to joining Octane, he was the Chief

Operating Officer of VK Capital Inc, a whol-

ly owned Commodity Trading Advisor unit

($250 million AUM) of Morgan Stanley. Mr.

Shore provided research and risk manage-

ment expertise on portfolio construction,

product development and business strategy.

Mr. Shore graduated from DePaul University

with a degree in Finance. He received his

MBA from the University of Chicago.

Past performance is not necessar-

ily indicative of future results. There is

risk of loss when investing in futures and

options. Futures can be a volatile and risky

investment; only use appropriate risk capital;

this investment is not for everyone. The

opinions expressed are solely those of the

author and are only for educational pur-

poses. Please talk to your financial advisor

before making any investment decisions. n

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a comic book for rare Diseases

eleven Diseases exPlaineD

The story, written by Orphanbiotec’s

Founder and Director, Dr. Frank Grossmann,

explores all diseases in pictorial language and

explanatory texts. Each animal character-

izes and represents a disease and explains its

symptoms in a colorful and child-friendly

manner. While the aim is to improve the vis-

ibility of orphan diseases, “Special Like You

and Me” also facilitates easier access to this

topic for children and should go towards

creating acceptance in society.

The book will be available first in three

languages throughout Europe, North and

South America and even India. After the edi-

tions in German, English and Spanish, addi-

tional languages (French, Japanese, Italian)

will follow.

a founDaTion wiTh hearT

Zurich-based Foundation Orphanbiotec was

founded in 2009 and takes a stand for the

development of orphan drugs, spreads infor-

mation to affected people and key players

and creates a unique network of mobilized

patients and key stakeholders. The goal of

the international non-profit organization

is to fill the gap between costly research

and the relatively small number of patients

Comic books have always been a

great way for transmitting knowl-

edge to children, as well as help-

ing them to develop their imagination and

excitement about reading. The charitable

Swiss Foundation Orphanbiotec uses this

channel and created a comic book spe-

cifically for children, explaining rare diseases

through fun adventures, lively friendships,

and educational and warm hearted content.

Taking a new aPProach

Foundation Orphanbiotec is in its final

phase of completing their latest project – the

first children’s book on the market about

multiple rare diseases. Through storytell-

ing of 11 different diseases, the illustrated

book “Special Like You and Me” builds a

bridge between the available knowledge on

this topic with the understanding of and for

children. Millions of children and families

suffer from the consequences of rare diseases

and are too often left alone and isolated with

their own thoughts and fears. The book will

give children and other readers the feeling of

trust, understanding and bonding.

n BY DR. FRaNk GROSSMaN

spread across 7000 rare diseases. Through

fundraising this goal can be reached and the

sustainable business model of Orphanbiotec

can continue to develop – a business model

for which the Foundation was awarded 1st

prize with the Swiss Social Entrepreneurship

Start-Up Award in 2011 and received a part-

ner nomination for the prestigious De Vigier

Award in 2013.

how To suPPorT The comic

book for rare Diseases

In order to realize the comic book’s first

edition language, USD 40,000 are needed

for the final funding. This amount includes

all of the production costs and allows the

distribution of the book at a very low price

ensuring families from all around the world

are able to afford it. Any sponsor interested in

supporting the next step of this project, which

consists of further translations, the distri-

bution and the extended number of printed

copies, can become a donor and get in touch

with the Foundation Orphanbiotec anytime

at: [email protected] n



12 Mo Total of New Firms:

113 firms↓

12 Mo Total Shuttered: 264 firms↓

12 Mo Net Loss:

151 firms↓

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

New BD Formations & BD Withdrawal Summary 15 July 2013, as of 30 June compiled by DAVID ALSUP

June: 9 New Formations… and 15* Withdrawals. (The three-‐year average is now 12.3 New Formations and 24.5↓* Closures per month.)

NOTE: New Private Placement Formations are now net Positive!

9 New Firms were admitted. • FIVE Firms admitted will trade equities. • TWO firms admitted are Private Placement Firms. • (ONE is a Real Estate Issuer) • ONE firm is a Mutual Fund Sponsor. • ONE firm is "Other"

• EIGHT firms trading EQUITIES closed. (Net loss of three equities firms)

• ONE Institutional equities firm closed. • FOUR Private Placement firms also went out of business. (Net LOSS of TWO Private Placement firms)

• ELEVEN firms had less than 6 reps. • ONE firm was involved in a CONSOLIDATION.

This 15 month chart shows the types of firms admitted.

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

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

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

David Alsup 949-468-0111 [email protected] A Detailed analysis (or Customized) is available by Subscription.

0 2 4 6 8

10 12

11 6 10 10 11 2 12 13 8 11 11 9 6 11 9

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

Pvt Placements

Mut F, Variables

Other

EquiRes

0 10 20 30 40

23 25 19 24 14 19 29 33 21 26 32 20 16 15 15

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

EquiRes Clearing

Mut F, Variables

Other

Pvt Placement

n


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


requirements for a company to take advan-

tage of Rule 506(c). First, companies may

only use the general solicitation afforded

by Rule 506(c) when selling securities to

accredited investors. This does not mean

that companies must have actual knowledge

that an investor is accredited. Rather, the

company, after taking reasonable steps to

verify accredited investor status (see below),

must have a reasonable belief that the inves-

tor is accredited.

Second, companies also must take rea-

sonable steps to verify that purchasers are

accredited investors. Whether the steps

taken by the company to verify the investor’s

accredited status are “reasonable,” will be

determined based on the facts and circum-

stances of each sale. Importantly, companies

may no longer rely on investor representa-

tions in subscription documents, so having

the investor simply check a box in an investor

questionnaire is no longer sufficient.

whaT are “reasonable

sTePs”

The SEC has been unwilling at this time to

articulate exactly what constitute “reasonable

steps” to verify an investors’ accredited sta-

tus, but noted in its adopting release various

methods for verifying investor status, includ-

ing a so-called “principle based” method and

four other non-exclusive methods.

Under the “principle based” method, com-

panies should consider, among others, the

The Securities and Exchange

Commission (“SEC”) has finally

adopted Rule 506(c) of Regulation

D, which is the regulation used by most com-

panies, both private and public, for Private

Placement Offerings. Rule 506(c) repeals

the absolute ban on general solicitation in

private securities offerings. So mark your

calendar for effective September 23, 2013,

companies will be able to use general solici-

n BY MITcH GOLDSMITH, caMILLa MERRIck, aND NaNcY caSS

tation and advertising to offer their securities

in private placements to investors, subject to

the limitations set forth in the rule. Certain

specifics cannot be overlooked, such as the

requirements that all purchasers must be

Accredited Investors and the issuer company

must document that it has taken reason-

able steps to verify the investors’ accredited

status. The significance of the lifting of this

ban cannot be overstated. In effect, the SEC

has created an entirely new form of public

offering not subject to registration under

the Securities Act of 1933. Although offer-

ings made under Rule 506(c) are technically

considered a private placement, by lifting the

ban on general solicitation and advertising,

companies now can widely advertise their

506(c) securities offerings across all kinds

of media – on television, in newspapers,

and, most importantly, over the internet.

Proponents believe Rule 506(c) will make

it easier for companies to raise money since

they can contact a broader range and larger

pool of investors. In this article, we take

a closer look at what the new Rule 506(c)

means for securities offerings and, more

specifically, what companies need to con-

sider when deciding whether to proceed

under Rule 506(c), the steps for complying

with the rule and opportunities afforded for

advertising.

comPly wiTh The rule

As noted above, there are two important


nature of the purchaser, the nature and scope

of information the company has about the

purchaser and the nature of the offering.

The extent of the investigation required to

verify the purchasers’ status will depend on

these factors. For example, if the purchaser

is able to meet a high minimum investment

threshold and the company confirms that

the purchase is being made in cash and not

financed by a third-party, that may be suf-

ficient in and of itself to satisfy the company

that the investor is accredited. Likewise, if

the company has access to publicly available

information on the purchaser in regulatory

filings, such as a proxy filing disclosing the

investor’s salary, that also may be sufficient.

On the other hand, if the company solic-

its investors through a newspaper adver-

tisement or through a widely disseminated

email, the company should take additional

steps to verify accredited investor status.

The SEC intends for the four non-exclu-

sive methods to provide greater certainty for

companies that they satisfy the verification

requirement. These are specific verification

methods of natural persons and include the

income test, the net worth test, third party

confirmation and existing investor certifica-

tion. Under the income test, companies may

rely on certain IRS forms reporting income

along with a written representation from

the investor that he or she has reasonable

expectations of reaching the income level

necessary to qualify as accredited inves-

tor during the current year. Under the net

worth test, companies may rely on certain

documents disclosing assets and liabilities.

These documents include any of the follow-

ing – for assets – bank statements, brokerage

statements and other statements of securities

holdings, certificates of deposits, tax assess-

ments and appraisal reports by independent

third parties – and for liabilities – a con-

sumer report and a written report from the

investor that all liabilities necessary to make

a determination of net worth have been dis-

closed. With respect to third party confirma-

tions, companies may rely on written con-

firmations from certain third parties such

as registered broker-dealers, SEC-registered

investment advisers or licensed attorneys

that such party has taken reasonable steps

verifying that the purchaser’s accredited

investor status and determined that such

purchasers is an accredited investor. Lastly,

in certain limited circumstances, an already

existing investor of the company may satisfy

the verification requirement by certifying

that he or she is an accredited investor at the

time of the sale.

Regardless of which method(s) a com-

pany uses, the company must be able to

demonstrate that its offering qualifies for

the Rule 506(c) exemption. Therefore, com-

panies conducting 506(c) offerings should

retain adequate records of the steps taken to

verify the investors’ accredited status. These

records should be easily accessible and stored

in a secure place.

know your Team--baD

acTor DisqualificaTion.

To reduce the risk of fraud, the SEC also

adopted the bad actor disqualification for

Rule 506(c) offerings. In most cases, the bad

actor disqualifier will preclude companies

from relying on Rule 506(c) if the com-

pany or other relevant persons assisting the

company (such as underwriters, placement

agents, directors, officers, control persons

and significant shareholders of the com-

pany) have been convicted of, or sanctioned

for, securities fraud or other violations of

certain specified laws. Such disqualifying

events include criminal convictions relat-

ed to issuance or sale of securities, court

injunctions and restraining orders related

to securities, commodities or other financial

regulation violations, certain SEC disciplin-

ary, cease and desist and stop orders; sus-

pension or expulsion from membership in

a self-regulatory organization and US Postal

Service false representation orders. The loss

of exemption only applies to events occur-

ring after September 23, 2013, the effective

date of the rule. However, a company must

furnish to each purchaser, prior to sale, a

disclosure in writing of any matters that

would have triggered disqualification, but

pre-dated the rule’s effective date. Failure to

provide such written notice may cause the

company to lose the availability of the Rule

506(c) exemption. Accordingly, a company

contemplating conducting a 506(c) offering

will need to know and should have paper-

work on the background of these persons.

A third party background check as well as a

questionnaire can easily address this require-

ment.

keeP uP wiTh sec

rulemaking

It is not only important that companies sell-

ing securities in reliance upon the 506(c)

conditions comply with these requirements,

but also that they also keep up with the SEC’s

proposed rules. A securities attorney or

FINRA broker-dealer will assist the company

with sorting through proposed rules appli-

cable to your company and staying compliant

over the long term. When the SEC lifted the

ban on the general solicitation prohibition,

it proposed several additional rules that, if

adopted, may greatly impact Rule 506(c)

offerings. Accordingly, expect changes and

fine tuning of the rules. These proposed rules

include concepts such as advance filing and

updating of Form D, penalties for failure to

file form D and general solicitation materials

requirements. In light of the investor pro-

tection concerns raised in connection with

general solicitation, the SEC will likely adopt

these proposed rules in the near future.

One such proposed rule would require

companies intending to engage in general

solicitation to pre-file an initial Form D at

least 15 days in advance of commencing

a Rule 506(c) offering. Subsequently, the

company would have to amend the pre-filed

Form D within 15 days of the first sale of

securities. Not only is the SEC proposing

pre-filing of Form D, but until the company

files an amendment to the Form D termi-

nating the offering, the offering would be

deemed ongoing and the company would be


subject to certain continuous filing obliga-

tions. While failure to comply with these

filing requirements (subject to a 30-day cure

period) would not disqualify the company

from claiming a Rule 506 exemption for that

offering, the proposed rule provides that such

failure would disqualify the company from

claiming a Rule 506 exemption in any new

offering for a period of five years. This is a

far reaching penalty compared to the costs of

compliance.

Further, while the SEC did not adopt any

rules governing the content and manner

of advertising and solicitation for 506(c)

offerings at this time, it has proposed a rule

that would require companies to include

certain legends and other disclosures in the

written general solicitation materials and

require companies to submit their general

solicitation materials to the SEC. These leg-

ends are intended to better inform potential

investors as to whether they are qualified to

participate in the offering, provide informa-

tion about the type of offering conducted

and disclose certain risks associated with the

offering. Similar to the penalties for failure

to file Form D as required, the failure to

comply with the legend requirement would

not preclude the company from relying on

the 506(c) exemption in the current offering,

but the company could be disqualified from

relying on Rule 506 in subsequent offerings.

Again, including your bankers and attorneys

in the offering process to ensure your com-

pliance is a logical step given the potential

far reaching penalty. Even when working

with a good media outlet, reasonable com-

pliance efforts are essential to limiting the

company’s liability exposure.

In addition to keeping up with SEC

proposed rules, you should be mindful of

other existing and proposed federal and

state securities laws, and FINRA regulations.

Companies conducting 506(c) offerings are

still subject to the securities laws’ antifraud

rules and, therefore, their general solicitation

materials cannot contain any misrepresenta-

tion of any material fact. Further, companies

have an obligation to furnish any material

information that may be necessary to make

any information, given or required under the

securities laws, not misleading. Companies

should fully and fairly disclose all material

terms and risks. Companies targeting high

net worth investors often provide private

placement memorandums prepared by legal

counsel. Further, companies and broker-

dealers will need to be mindful of blue sky

issues in connection with advertising the

506(c) offering. Advertising 506(c) offerings

may trigger blue sky notice filings require-

ments for companies and state registra-

tion requirements for broker-dealers. Also,

FINRA now requests copies of all documents

provided to investors in connection with the

capital raising process if a commission is

paid to anyone licensed. FINRA expects to

release guidelines related to 506(c) this fall.

Because of special issues that may arise for

public companies conducting private place-

ment, we strongly recommend that they

seek legal counsel prior to commencing and

advertising a private placement.

meDia anD exPanDeD

markeT oPTions

Companies will now be able to advertise

in print, over the internet and using other

previously-prohibited methods of solicita-

tion. However, the means through which the

company solicits purchasers may be relevant

when determining the reasonableness of

the steps taken to verify accredited investor

status. For example, a website posting to an

unscreened audience may have to undertake

more steps to verify that the investors are

accredited. Existing financial publishers and

platforms are already adding programs to

address this and assist companies in their

offering.

Further, the internet has dramatically

expanded companies’ ability to reach inter-

national markets and thereby increased their

ability to raise capital. Companies that

solicit and sell to international investors

must be prepared to comply with foreign

securities laws.

geT in The game

Rule 506(c) presents companies with an

unprecedented opportunity to raise new

capital by soliciting a broader range and

larger pool of investors. However, Rule

506(c) also introduces new and additional

compliance requirements and burdens on

companies. Although it is a truly landmark

opportunity created by Rule 506(c), a com-

pliance failure could easily torpedo any great

company and management team. Further,

the SEC’s additional proposed rules cur-

rently under consideration are complex and

evolving. Your best bet is to seek advice from

experts in the securities field to guide you

through a securities offering. So get in the

game, but know the rules!

Mitch Goldsmith is a shareholder with Shefsky & Froelich Ltd. and advises numerous issuers domesti-cally and abroad in a broad array of industries with respect to their private offering and general corpo-rate activities.

Camilla Merrick is an associate with Shefsky & Froelich Ltd. and counsels domestic and foreign cli-ents on securities offerings, securities regulation and general corporate matters.

Nancy Cass is a co-founder of MerchantCass Advisors, LLC an investment banking and global business advisory firm headquartered outside of Atlanta, Georgia. MerchantCass acts as a financial advisor, placement agent and global strategic part-ner for its clients. Ms. Cass is also an experienced securities attorney licensed in multiple jurisdic-tions. MerchantCass executes securities transactions through StillPoint Capital, Member FINRA/SPIC.

Mitchell D. Goldsmith, Esq., ShareholderShefsky & Froelich Ltd.111 East Wacker Drive Suite 2800Chicago, IL 60601Telephone: 312-836-4006Mobile: 312-320-4657E-Mail: [email protected]

Camilla Rykke Merrick, Esq., AssociateShefsky & Froelich Ltd.111 East Wacker Drive Suite 2800Chicago, IL 60601Telephone: 312-836-4041E-Mail: [email protected]

Nancy Cass, Esq.MerchantCass Advisorswww.merchantcass.comTelephone: 561-889-5210E-Mail: [email protected] n


What I’m BuyingF E aT U R E D a R T I c L E

“gaming” market. In this case, video games.

What is truly unique to us is the ten-year

chart of the company. It has a “rolling”

effect that becomes very easy to notice. If

you delve in a little bit closer, you’ll notice

that the chart correlates with the releases

of new gaming consoles. In the next year or

so, the Sony Playstation, Microsoft XBOX,

and Nintendo are going to be launching

their latest and greatest equipment. When

that happens, consumers need to purchase

new accessories for them. Hence, Mad Catz

(MCZ).

As of now, we look at it as more of a

trade than anything else, but the company is

improving its balance sheet, reducing debt,

and increasing gross margins. I own shares

around .50 cents and do not play video

games anymore. Right now, the market is

frothy. We expect a correction and a return to

reality. Stay cautious and be intelligent about

your investment choices whatever they may

be. Above all, remember this line by Gary

Player. “The more I practice, the luckier I

get.”

LD Micro researches and invests in companies most traditional investors wouldn’t. That makes us, for a lack of a better word, crazy. LD Micro is pleased to announce its sixth annual conference on December 3rd, 4th, and 5th, 2013. For more information, please go to www.ldmicro.com. n

n BY cHRIS LaHIJI

I’ll buy small positions in a lot of companies.

For the sake of this article, let’s call them

“gambles”. That is why, like most gamblers, I

am practically broke :-) We then track them.

Closely. The ones that ultimately pass the

“sniff” test go on to become “core” hold-

ings. Here are a couple new positions I have

recently purchased for my own accounts.

Paid Inc (PAYD): We met management at

the B. Riley conference and were impressed

by the fact that they have cut costs sig-

nificantly in their existing business, which

focuses on music promotion. The one thing

we really find interesting is their patent

portfolio. Basically, any online retailer that

sells things over the Internet is infringing.

Yes, its a very broad patent, but one that can

be worth more than the current market cap

of the company. We have been involved in

many patent plays over the years. The one

thing we have learned is either you make a

lot, or lose it all.

It is worth a look, and the CEO of the

company is the largest shareholder. He also

bought most of his shares at a much high-

er valuation – from my understanding, at

around .30 cents a share. I like guys that put

their money where their mouth is. Our aver-

age cost has been approximately .10

Mad Catz (MCZ): This is a company we

have owned from time to time over the years.

They are based out of San Diego, California

and focus on providing accessories for the

To me, investing in micro-cap companies is a lot like play-ing poker. You win some hands, you lose some hands,

and sometimes, you bet big. My approach is similar.


E D G A R A G E N T S

Who’s Your Edgar Agent?


Companies need an agency that will ensure

their documents get filed accurately and on

time, while remaining compliant. Long term

experience in the financial industry, particu-

larly in Edgar/XBRL filing, guarantees your

documents will be SEC compliant because

veterans on staff are more likely to spot any

red flags while formatting the document.

They can, in turn, alert you of any discrepan-

cies should this be the case.

Getting the job done accurately, concisely

and on time is challenging enough without

last minute changes, however last minute

changes are inevitable in this industry. To

incorporate all edits before pencils down

requires creativity and proven strategies that

only experienced filers would know how to

do. Having at least one senior person man-

aging the department and communicating

with clients, while junior professionals work

on projects, is ideal for an efficient Edgar/

However, finding the right partner to take

care of your Edgar and XBRL filings is not

an easy feat. Below are some tips to consider

when searching for an Edgar/XBRL filer.

The cost of Edgar/XBRL conversions has

been quoted at an annual rate of about

$4,000 to $100,000, higher in some cases,

but shopping around, comparing prices, and

most importantly, comparing filing strategies

could result in some major cost savings, states

Bennet P. Tchaikovsky, chief financial officer

of VLOV Inc, in his article titled “Take It

from This CFO: How to Cut Your Corporate

Filing Costs.” Nevertheless, some companies

are only interested in filing agents that pro-

mote “free” services, but are then blindsighted

when asked to sign up and pay for additional

features not useful for their cause. Companies

should instead consider other alternatives

such as discounted yearly contracts that

include all the necessary services.

The best way to acquire experienced personnel, minus the large salaries, is to hire an outsourcing company to

handle certain jobs. Many agree that outsourcing your XBRL and Edgar jobs to seasoned professionals will give you the best results and industry perspective at a much lower rate than an in-house alternative.


XBRL department to run properly. This is

also the type of staff you would want work-

ing for you.

One tested and proven strategy is to work

simultaneously on both Edgar and XBRL

drafts to significantly cut the time it takes to

turn projects around. Some filing agencies

expect their clients to wait until the Edgar

draft has been approved by the auditor

before starting with the XBRL version. This

method is dated, slow and will cause unnec-

essary strain on everyone involved during

crunch time. It also leaves lots of room for

error. Also, take into account that although

an agency may have an experienced staff,

their company methodology might be out-

dated and thus counterproductive.

Nevertheless, if a filing agency lacks indus-

try experience its quality assurance depart-

ment might pick up the slack. Therefore,

when choosing an Edgar/XBRL partner, be

sure to also ask about their quality assurance

methods and experience. If an agency has

proofreaders fresh out college, chances are

their learning curve will work against your

time-sensitive needs. A more experienced

reviewer is trained to spot details as well

as the overall picture. Be aware that not all

seasoned proofreaders need to be industry

trained either. Many times an experienced

reviewer from another industry will bring

fresh ideas that improve accuracy and speed.

Choosing a filing agent with a staff that is

experienced in other fields, such as account-

ing for XBRL, is also a huge advantage.

Former accountants familiar with financial

statements will know which information to

tag in XBRL and can speak knowledgeably

with clients about financial statements and

SEC mandates. A filer who has an accoun-

tant running its XBRL department has an

edge over other agencies who typically hire

and train someone with no financial back-

ground.

In addition to XBRL, a knowledge-

able staff in every department is extremely

advantageous, especially when a client is

only paying a fraction of the price it would

have cost to hire each professional individu-

ally. It is also advantageous to have access to

software support on hand should something

go awry during heavy filing periods, for

instance. Licensing and support alone could

run at about $6,000 a year, not to mention

additional costs per hiccup.

Although it is good to outsource specific

jobs for your business, you don’t ever want

to hire an Edgar/XBRL provider who doesn’t

own every aspect of its filing process. You

want a filer that has its own in-house filing

agents, reviewers and programmers taking

care of your documents. By owning the

entire process, a provider has no overhead

that will trickle into your final bill and

can guarantee specific client requests, like

shorter timelines.

Regardless, not all filers follow this phi-

losophy and therefore can’t always deliver.

Also, not all filers can promise 24 hour, seven

day a week service, but you should definitely

be on the lookout for one that does. Find one

that provides all your financial needs such as

printing, typesetting and newswires. With

these strategies in place, you should be a lot

more confident knowing your documents

are in good hands.

Edgar Agents, LLC.

Providing Edgar/XBRL customized filing

solutions for SEC compliance since 2002

Edgar Agents, LLC, is a full service SEC filing

agent specializing in Edgar,XBRL and typ-

setting conversions with practical Edgar

conversion experience since 1997. The

company officially incorporated in 2002

under TP Electronic Filing Services Corp.

and sold its assets to Edgar Agents, LLC in

2008. The company has since expanded

its portfolio of products and services for

the financial industry including finan-

cial printing such as: Annual Reports,

Proxies and IPOs. Other services include:

secure online Section 16 and Form D fil-

ings directly with the SEC; and Newswire

services. Edgar Agents LLC promulgates

and informs it’s clients on the latest SEC

guidelines and mandates through high

quality customer service and is recognized

for accuracy and swift turn-around times,

24 hours a day, seven days a week. n

www.edgaragents.com

Average Cost Savings to Outsource Edgar/XBRL

This chart shows the average salary for each position necessary for an in-house Edgar/XBRL department.

Senior Edgar/XBRL Specialist $60,000Proofreader $40,000Third party licensing and software support $6,000

Source: Salary.com, dbistaffing.com, and Indeed.com, using New York City as the search location.


marketing healthcare in india & asiaThe Opportunity, The Challenge, The Answer

benchmark healthcare Partnersgetting your company in the Picture

The oPPorTuniTy:

For many companies, Asia represents the

most significant opportunity for increased

revenue and global market share. With

Asia’s estimated 4.3 billion inhabitants, even

a single distribution channel for your com-

pany’s products and services can produce

immediate, profound financial implications,

as well as a tectonic shift in a company’s

growth trajectory.

The core engines of the Asian opportunity

are India and China. Global rating agency

Standard and Poor’s expects India’s economy

to grow by 6.5 per cent during 2013, while

Credit Suisse recently increased its forecast

for China’s 2013 growth from 7.4 to 7.6 per-

cent. Expanding middle classes are a major

consequence of this growth. The Indian

middle class alone has grown to an excess

of 300 million people—comparable to the

entire population of the United States. In

China, the middle class is an estimated 500

million.

An expanding middle class with increas-

ing disposable income usually means a sharp

increase in demand for what families often

care about most: healthcare.

Express Healthcare has reported that

the Indian healthcare industry is poised to

double from US $60 billion to US $120 bil-

This will make it the biggest market globally

by 2020 after the U.S., which in 2009 spent

$2.5 trillion, or 17.6 percent of its GDP, on

healthcare, said the consulting company.

The challenge:

The appeal of Asia is nothing new: CEOs

began saying years ago, “We need to be

there.” Unfortunately, the challenge of oper-

ating successfully in Asian markets is as sig-

nificant as the opportunity itself.

Determining a reasonable path given lim-

ited time and resources is a daunting process.

Who do you speak to? What regulations are

relevant? How does a company navigate

foreign healthcare systems, regulatory bodies

and cultures? How do you initiate dialogue

when you are unsure who to trust and wheth-


n BY BaRNETT SUSkINDCEO BENCHMARK HEALTHCARE

PARTNERS LLC

lion by 2015, growing at a 15 percent CAGR.

Public spending in the sector is likely to be

limited to approximately 20 percent of total

annual healthcare spending, meaning that

most of the expansion will be propelled by

organized private players, such as hospi-

tals. What makes this growth story unprec-

edented is not just the speed of the growth,

but the transformations in allied sectors like

pharmaceutical, wellness, medical technol-

ogy, medical tourism, medical education,

and health insurance. These transformations

will be fuelled largely by innovation in tech-

nology and delivery mechanisms.

Similarly, China will spend more on drugs,

medical devices and hospital treatments as it

lifts healthcare spending to 7 percent of gross

domestic product, from 5.5 percent, or $350

billion, in 2010, McKinsey said yesterday.


er the investments in time, money, and energy

will be, in the end, effective at all? After

all, companies can spend months and even

years trying to navigate these waters, only to

find themselves in duplicitous dialogues that

finally lead to the water’s edge, where the sea

that was promised is found to be dry.

Of course, problems are limited to the

engagement and execution phases. Even

assuming that you are successful in forming

a partnership with a distributor or end user,

will that partner represent your enterprise

in a manner consistent with the ethos of

your corporate mission and result in a stable

revenue stream?

Understandably, these difficulties result in

thousands of companies steering clear of these

markets and focusing on what they know.

The answer:

My intimate awareness of this problem is a

result of my own experiences and initiatives

in China and India over a period of 15+

years. Benchmark Healthcare Partners was

created to offer its clients streamlined mar-

ket penetration, including a sales contract

with one of the largest hospital groups and

distributors of healthcare and health prod-

ucts in Asia.

Benchmark’s mission is to provide solu-

tions that advance the delivery and qual-

ity of healthcare to the vast populations in

the region. Our reach extends deeply and

directly into India, with its 1.2 billion peo-

ple, and indirectly into markets into China,

Bangladesh, and northern Africa.

Through our expertise and that of our

partners in the hospitals, Benchmark will

guide you through any regulatory issues

associated with marketing your products or

services, and provide direct communication

with the decision-makers to expedite the

process of positioning your company for

revenue. All of this is provided to you at no

upfront cost, so that your only risk is the

minimal time spent working with us.

Sound too good to be true? I can under-

stand that sentiment. But this methodology

comes out of the experiences I have had

bringing my companies to China and to India

to expand distribution and enhance revenue.

Having spent roughly 5 years working with

hospitals in India and working with the most

prestigious hospital group in the country,

Benchmark personnel have developed rela-

tionships and a methodology that allows us

to provide your company the opportunity to

present your solutions (products, services,

technologies, etc.) directly to thought leaders

and decision makers. Through our relation-

ships with the largest hospital group in India,

and with our additional potential reach into

China, Bangladesh, and parts of Africa, we

have the ability and leadership to guide you

through the regulatory complexities, as well

as provide appropriate points of distribution

for your products and services.

The benchmark Process is

surPrisingly simPle:

Under strict confidentiality, through infor-

mation about your products and finan-

cials that you provide about your com-

pany, Benchmark becomes familiar with

your solutions and how they enhance the

delivery of healthcare. Typically, we have a

conversation with the CEO and/or head of

science, etc., to understand any nuance asso-

ciated with your solutions. Subsequently,

and only with your permission, we share

this information directly to the appropriate

decision-maker. For example, if you make

an orthopedic product, we will speak to the

heads of the orthopedic department and/or

procurement personnel.

Assuming that the end-users see a need for

this product or an opportunity to improve

the delivery of healthcare through your

product, and have agreed that this is some-

thing they would like to have access to, only

then do we agree to represent you and your

company. In effect, we have prequalified

your offering and have received agreement

and assurance that yours is a solution that

would be desired by the group and would

be anticipated to succeed in the market. In

other words, we have high confidence of

your acceptance before you have done any-

thing! Upon your agreement to advance the

dialogue, we set up direct meetings with the

thought leaders and decision makers.

After you have received a favorable response

with an indication of intent, Benchmark for-

malizes our engagement through a contract

and set up meetings to guide you through any

potential trip to India or the appropriate juris-

diction. At the culmination of the meetings,

you can anticipate receiving a Memorandum

of Understanding that articulates what to

expect in terms of national distribution,

placement, sales etc. Within a month or two

of the Memorandum of Understanding, a

formal contract for distribution and sales will

be generated for your company.

You have spent nothing (except poten-

tially the cost of some plane tickets), yet

you have new market access, developed per-

sonal relationships with practitioners, and

even received a firm contract for a defined

amount of sales. Benchmark is rewarded for

its services with a small commission on the

sales of your products only after the com-

pany has been successful in selling and has

received revenues from those sales.

By participating in Benchmark’s process,

your company is approaching distribution in

Asia in the most efficient, economical, and safe

way possible, and it is joining the truly inspira-

tional efforts all across the continent to provide

the most cutting edge healthcare products and

services for millions of those who are gaining

access to such care for the first time.

auThor’s bio:

Barnett Suskind: 25+ years entrepreneurial expe-rience: Investment Banking: ITF Global Partners Chairman and Managing Partner, Private Equity: The Investors Fund -Managing Partner, Biotech: The Institute for Regenerative Medicine/CEO, Stem Cell Research Therapeutics Inc. Chairman/CEO, GenaCell BioPharma Founder/ CEO, Benchmark Healthcare Partners LLC , CEO

email: [email protected] telephone: 212-618-1374

Main Offices 14 Wall Street, 20th floor New York City, NY 10005

web: www. benchmarkHCP.com n


Worldwide Stock TransferHow to choose the best Transfer Agent?


reduced combined with accurate answers

and the “personal touch” follow through.

Most every company knows who their trans-

fer agent is, if not, it’s a big problem. The

company’s Transfer Agent can make life

very easy or very difficult for a small micro-

cap public company. The right Transfer

Agent can help give guidance to a com-

pany issuer and provide them with tools, like

online access, custody and escrow services.

At WST, our technology provides company

access 24/7 with ability to retrieve share-

holder information, and flexibility to provide

reports for or any amount of needed data,

on demand. WST provides DRS/DWAC/

FAST for both companies and shareholders

enabling the receipt of shares in the quickest

and most efficient way for those companies

on the WST system.

SK: How does Worldwide Stock Transfer

help a company navigate through all the

FINRA and SEC rules and compliance issues?

WST: Navigating the FINRA and SEC

rules are extremely complicated. We have a

vast network of securities attorneys, auditors,

broker dealers and market makers, which

we strategically partner with to help guide

clients appropriately. The valuable introduc-

tions we make between these service provid-

ers and the issuing companies are especially

important in helping microcap companies

file form 211 and the myriad of other forms

who is your Transfer

agenT?

As one of our readers, subscribers, service

providers, or a C-Suite public or private

company executive, you have most likely had

to do business with a transfer agent directly

or indirectly. Without transfer agents, the

stock market would be chaos. Working with

the best transfer agent possible to meet your

company’s needs will solve existing problems

and prevent future problems for both your

company and its investors.

What should you look for when choos-

ing a Transfer Agent? How do you choose

the right transfer agent for your company?

Micro-Cap Publisher, Shelly Kraft, conducts

a Q&A with the Worldwide Stock Transfer

management team of Jonathan Gellis and

Yonah Kopstick.

Shelly Kraft (SK): As publisher of the

Micro-Cap Review magazine and CEO of

SNN Incorporated, I have heard the follow-

ing questions many times from both public

and private company CEOs.

What should management look for when

hiring a stock transfer agent?

Worldwide Stock Transfer (WST): An

agent that knows how to provide outstand-

ing customer service. It all starts right there.

In a world of instantaneous fulfillment of

need, it is important to have response times

and applications they are required to file to

be regulation compliant.

SK: Why do Micro-cap companies have

the most difficult time with Transfer Agents?

WST: Micro-cap companies are besieged

with many different regulatory require-

ments. We recognize this and have earned

our reputation for being a “micro-cap

friendly agent.” For example, micro-cap

companies often face financial difficulties

and are occasionally unable to meet monthly

financial obligations. WST cooperates and

works with micro-cap clients to ensure the

company will not have complications trans-

ferring shares or issuing new shares if their

account goes briefly into arrears, as long as

payment is received within a given quarter.

WST recognizes the unique needs of micro-

cap management and understand that a flex-

ible payment structure coupled with expert

advice will enable our clients to successfully

manage their business.

SK: How do your fees compare to those of

your competitors?

WST: At WST we charge a monthly flat

fee. We feel that one of the biggest prob-

lems in the stock transfer business is what

we call, “the envelope fear factor” - the fear

a company gets when the bill arrives from

their transfer agent. They fear the variable

nature of their monthly charges. WST has

established an all inclusive flat rate fee which

allows our client’s management team to

focus on its core business and not worry

about budgeting for unexpected / unknown

transfer agency fees. I know it sounds repeti-

tive but I cannot emphasize this enough, a

micro cap company’s business relationship

with their transfer agent should not be dif-

ficult, stressful or a cost leader.

SK: How can you afford to provide a flat

fee while others charge a la carte?

WST: Our flat free pricing model is based

on building a long-term relationship with

each individual issuer we service. Our busi-

ness model aims to simplify company pay-

ments to WST and maintain them as a client

for many years. We are willing to sacrifice the

short-term profitability an a la carte model

might provide in exchange for building a

long lasting, mutually successful, multi- year

or even multi- decade client relationship. In

our opinion, this philosophy is crucial to

maintaining customer loyalty. It is our expe-

rience that most issuer companies, especially

micro-cap companies, struggle with unex-

pected costs. While our short –term profit-

ability might suffer as a result of our more

affordable fee structure, a viable long-term

client is more valuable to us.

SK: Please tell me more about DTC eli-

gible and DTC ineligible stocks.

WST: This is a new phenomenon in the

Transfer and Clearing service industry.

Over the last few years, Depository Trust

Company, DTC, has defined different classes

of companies: those DTC eligible and DTC

ineligible. Majority of public companies are

eligible for DTC Processing upon submitting

their application. At times, DTC will take an

eligible issuer and deem them “chilled” for

certificate deposits and withdraws, thereby

making it DTC ineligible. These chills have

created a huge headache for companies and

investors, with a new requirement that paper

certificates be delivered from broker to bro-

ker in order to settle trades. This can cause

long delays in settlements and inhibit invest-

ments into the company. In order to rectify

the ineligibility, an issuer will rely on the

Transfer Agent and their record keeping to

work with DTC to remediate the chill. In the

mean time, WST will process all transfers

directly with the brokers and bypass DTC.

WST will receive the issuer’s shares and

work diligently to process them as quickly as

possible so the issuer and brokers realize no

negative effects from the DTC ineligibility.

WST responds in a timely manner to turn all

transactions around the same day in order to

prevent any negative impact on the client.

SK: What do I have to do to move my

transfer business to WST?

WST: That’s the easy part and can be done

in three simple steps:

1. Get a board resolution approving the

move.

2. Terminate present agreement with the

current agent. That means paying any out-

standing balance and usually a small termi-

nation fee

3. Sign a contract with WST.

This can usually be accomplished within

10 days.

SK: When is the best time to begin work-

ing with WST if I am a private company

going public?

WST: The best time to engage WST is

before you begin issuing shares. Establishing

a system for accurate record keeping and

shareholder database will prevent difficulties

at a later date and properly provide the issuer

with an organized system to track sharehold-

ers. WST offers new clients large discounts

during the time the company is private and

considering going public, making it afford-

able for any micro-cap company to engage

WST while still private.

Worldwide Stock Transfer is located in Hackensack NJ and has a great reputation for being Micro-cap friendly. For more information please contact their offices at [email protected] n


What does this act mean to the Brokerage community? Initial concerns about adver-

tising and the elimination of FINRA approval has been met with mixed feelings. All too

often the barn door is closed after the horses escape. In an attempt to make raising capi-

tal easier, the inmates may actually be running the asylum. An idea was initiated twenty

years ago. It was called a SCOR (Small Company Offering Registration) registration.

The SCOR concept resulted in very few entities actually completing the initial process

of registration and even fewer raised the needed capital. Ultimately, various issues arose

which made the registration less attractive. Basically the idea was to help small compa-

nies raise capital without using a Broker Dealer although they could use one if necessary.

The capital maximum raise limitation limit was $1,000,000 dollars per annum. The State

of Washington however had a registration requirement in the state. It is always recom-

mended to contact each state of interest for their current requirements. Washington

State was active in assisting small companies to understand the uses of SCOR.

For small companies there were many advantages to seeking registration of a securities

offering through a SCOR registration. Firstly, the SCOR registration was designed to mini-

mize costs for small businesses seeking to raise capital through a securities offering. The

question and answer disclosure document utilized in a SCOR offering was designed so that

it may be completed without the expertise of securities attorneys and accountants. The

form is electronic and easily reproduced on an office copier and is used as a prospectus for

soliciting investors. A SCOR registration can be done as a Regulation D 504 or Regulation

A filing. A Regulation 506 can be done for amounts larger than the limitation $1,000,000

of the Regulation D 504. Investors in a Regulation D 506 are limited to 35 unaccredited as

compared to the SCOR which accredited or non-accredited investors may invest.

Although an Issuer can use classified ads placed in media or use promotional shares

and sell the offering themselves, the success rate has not been good. The Internet is a

permitted medium to sell a “DPO” (Direct Public Offering). I raise this point to bring

additional awareness because the Jobs Act does have limitations as to whom they can sell

to and how much anyone can purchase of the offering. Regardless of Federal legal provi-

sions or SCOR provisions, anyone can purchase the offering and there is no a limit per

person. The main issue with either offering is the individual state regulatory restrictions

of whom Issuers are soliciting their offering for sale in.

The state regulators can halt the offering and will if their rules are violated. An Issuer

should engage a reliable Broker Dealer, and agree to a fee, to make certain the offering

is appropriate. Additionally, outside due diligence would be advised. An Issuer may save

money short term but lose out in the end if the hired attorney is not familiar with indi-

vidual state rules and regulations in the market sought by the offering entity. The “look

before you leap” phrase is good advice. Do your homework before you proceed to take

the offering process too far.

In an uncertain environment the costs to raise capital may end up creating indigence

for the company. Use common sense and determine how much you need to raise and

the most appropriate path to take. n

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would not consider as catastrophe-exposed.

Insurers have also been altering their defini-

tions of covered losses in property policies.

Workers Compensation— Large com-

mercial states such as California, New York,

New Jersey, Connecticut, Pennsylvania and

Florida have undergone at least a 4% rate

hike for the second consecutive year. A siz-

able kick considering work comp usually

makes up a rather large portion of a com-

pany’s overall insurance expense.

a 360o view of risk

Each company requires a bespoke portfolio

of coverages based on a multitude of factors.

For that reason, a comprehensive risk assess-

ment should be executed to determine the

efficiency of a company’s insurance portfolio

and risk management strategy. In the most

basic terms, a risk assessment should feature

the following:

• An examination of historical, existing

and expected risk exposures

• A review of all current insurance cov-

erages and risk management strategies to

determine if they are best suited for a com-

inTro

As insurance rates continue to increase

across a broad spectrum of coverages, com-

prehensive and continuous risk assessments

provide invaluable insights that help corpo-

rate executives design sound business strate-

gies. Instead of simply making insurance

rate projections for the coming year, this

article will examine some of the causes for

these rate increases, as well as demonstrate

how a proper risk assessment can help

develop proactive solutions to mitigate the

rising cost of insurance.

INSURaNcE

Thorson insurance servicesraTe increases you care

abouT

Directors & Officers (D&O)– An increase

in claims due to regulatory activity and

investigations coupled with inadequate loss

reserves amongst insurers has resulted in a

rise in price for this coverage with the biggest

in Professional and Financial Service com-

panies. A pricing survey conducted by the

National Alliance for Insurance Education

and Research revealed an average 5% rate

increase from March to June while some

companies experienced as much as a 15%

increase for their D&O coverage.

Professional E&O/Cyber Liability- Driven

primarily by an increase in frequency and

severity of claims, rates began trending

upward in 2013. Rates for both lines are up

5% for the year and are expected to continue

to soar in the fourth quarter.

Property & Casualty – The recent abun-

dance of natural disasters and the severity of

them exemplified by Superstorm Sandy has

left insurers with a large bill. Substantial loss-

es this year are forcing underwriters to seek

rate increases in regions they traditionally

n BY MILES J. THORSON


pany’s size, liquidity and risk appetite

• An evaluation of all standard market

options and solutions that achieve maxi-

mum cost and coverage efficiency

•A recommendation of any pertinent spe-

cialty programs or alternative risk transfer

options with the potential for even greater

cost and coverage efficiency

Unfortunately, some brokerages and car-

riers divide this process amongst differ-

ent departments and specialists. While a

team of experts is undoubtedly necessary to

deliver an exceptional service, it is imperative

that one insurance professional manage this

entire process. This way, the overall vision

of a successful risk management strategy

remains intact without being corrupted by

other, self-interested parties.

Risk assessments are an essential insurance

service and should be conducted frequently.

Gaps in coverage or excessive insurance

premiums are usually a result of neglect,

not incompetence. The process allows both

insurer and insured to be on the same page

and gives everyone an opportunity to proac-

tively address any issues.

soluTions ThaT make a

Difference

Once a thorough risk assessment has been

completed, a tangible and quantifiable plan

should be implemented. As mentioned

before, this plan should provide a tailored

solution to fit a company’s financial goals,

growth plans and core needs. A huge area

of concern for many businesses right now

is D&O for example. In today’s heightened

regulatory climate, it is essential that cli-

ents have coverage that extends to expenses

incurred during investigations from regula-

tory agencies like the SEC or even internal

investigations.

Having an insurance expert with access

to unique or alternative solutions will also

bring value to a business by more completely

addressing their insurance needs with a full

suite of industry-leading products. Every

successful business should at least be made

aware of the potential for risk transfer and

coverage solutions through non-standard

insurance vehicles such as captives and spe-

cialty programs. These solutions allow a

business to take advantage of tax shelters

or even lay off particular risks. Sometimes

the loss experience of the market is not

reflective of your company’s which means

that you shouldn’t be forced to pay a rate

increase despite a good claims history. An

experienced insurance professional will offer

expertise and guidance on these additional

opportunities that exist in order to deliver

pricing and coverage that make sense for

your business.

Continuous services that compliment

your company’s new insurance structure

are also important to its efficiency and per-

formance. One of the biggest costs a busi-

ness faces today is the rate of their worker’s

compensation coverage. The right insurance

expert can keep this from getting out of

hand. Frequent risk management services

like implementing proper employee safety

guidelines and effective claims handling are

vital to a company. Managing the experi-

ence modification of a company is a time

consuming service yet necessary because it

directly affects their coverage rate. Oddly

enough, there are plenty of brokers out there

that do not adequately provide these services

despite their importance.

The only way to truly deliver the right

insurance structure and the highest level of

service is for an insurance expert to have the

extensive industry relationships, expertise in

creating comprehensive solutions and new

insurance products, and quality partner-

ships. Be sure to partner with an insurance

expert that has these attributes. The business

climate is incredibly competitive in today’s

world. Make your insurance program be a

valuable asset of security and protection for

your business and not just an expense.

abouT Thorson

Thorson Insurance Services is a nationwide

insurance brokerage and program manag-

er. Established in 1984 by David C. Thorson,

our company has gone on to build an impec-

cably curated collection of products and ser-

vices for a discerning clientele. At Thorson,

we believe in doing the right thing. We

achieve this by empowering our network of

friends, contacts, and partners so that they

can make confident insurance decisions.

We frequently combine the diverse experi-

ence and knowledge existing within our

network to create successful products and

services. By collaborating with individuals

that share the same goals, ideas, interests and

values we are able to consistently deliver a

unique client experience. n

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Page 34

Micro-Cap Review Magazine Fall/Winter 2013

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