Micro-Cap Review Magazine

MICRO-CAP REVIEW$5.00

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Made in America EditionFeaturingAsk Mr. Wallstreet

Born in the USAby Ilene Chunko and Avik Roy [6]

Winning Micro-CapStrategies Using ETFsby C Michael Carty [14]

Life Insurancefor Investmentby Jeff Keller [23]

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EDITORIAL

www.microcapreview.com


Micro-cap ReviewP.O. Box 4216

Metuchen, NJ 08840-1848T 732-603-1250F 212-202-6020

SNN Incorporated23705 Vanowen St # 333

West Hills, Ca. 91307

PUBLISHERWesley Ramjeet

[email protected]

EDITORRonald Stone

[email protected]

WRITERSC. Michael Carty

Ilene ChunkoJohn Faessel

Steven GreenfieldChet Hebert

Jeff KellerJordan Kimmel

Sheldon KraftJack LeslieLarry May

Daniel R. MurphyM.C. Elvis Oxley

Avik Roy

ACCOUNTINGJennifer Anglade

[email protected]

ADVERTISINGVong Bui

[email protected]

BUSINESS DEVELOPMENTRon Stone

[email protected]

CIRCULATIONJackie Peters

[email protected]

Suki [email protected]

GRAPHIC PRODUCTIONTony Vibhakar

[email protected]

WEBMASTERKelvin Chen

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Micro-Cap Review Magazine is published Quarterly, Spring, Summer, Fall, Winter POSTMASTER send ad-dress Changes to Micro-Cap Review Corporate Offices. © Copyright 2009 by Micro-Cap Review Inc. All Rights Reserved. Reproduction without permission of the Pub-lisher 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 Maga-zine or any of its staff or authors is responsible for omis-sions or information that is inaccurate or misrepresented to the magazine.

If we put 2009 in a time capsule and go di-rectly from 2008 to 2010, just think what we would have missed in 2009. The highlights of 2009 should really begin with the lowlights. In fact, the lowlights of 2009 were multi-faceted. They appeared across the financial landscape similar to weather patterns leading up to a perfect storm. In this perfect storm, the hous-ing market bubble reached its pinnacle and dropped like a stone. The torrent of losses fell largely on Wall Street, washing away years of profits from the purchase of subprime loans. The tide of losses kept rising until the finan-cial industry was shaken at its foundation. Legendary names like Lehman Brothers, Bear Stearns, and AIG drowned under a tsunami of debt. The banking system was a ship that was sinking fast until the federal government came to the rescue. The Federal Reserve did what it had to do, pouring billions of dollars into the banking system. The stock market, led by the Dow Jones Industrial Average and other financial indexes went down like the Ti-tanic. Both Main Street and Wall Street alike were left stunned by the bad news, losses, and bankruptcies. People everywhere were asking, “How could this have happened?”

Perfect storms take time to develop, happen quickly, and in their aftermath leave a trail of destruction. The perfect storm left many people homeless and jobless, while causing the federal debt to swell. The loss of jobs will take longer to rebuild than New Orleans af-ter Hurricane Katrina. General Motors stock has no value, and Chrysler is a penny stock. The year 2009 will also be remembered like the movie, The Day the Earth Stood Still. The money froze like Ted Williams. There was no movement, except redemptions and internal calculations of losses. IPOs went MIA.

The buzz words of 2009 became “stimulus” and “bailout” and all the money that the gov-ernment could print. The micro-cap stock market became an orphanage where all adoptions were cancelled and at best post-poned. They say money talks, but the micro-cap market became empty like the streets of Anchorage, Alaska on a January evening. The disappearance of investment capital created a very lonely atmosphere in which lenders and funders vanished.

Somehow we remain standing, shaky perhaps and teetering on the abyss. Many of us are wet, some drenched, and some washed out. Incredibly the spirit gauge is turning higher for the better. Although 2009 has been a horrible year for most, the worst appears to have been averted. The perfect storm is ending, although there are still some lingering clouds ahead. There are many silver linings including gold.

Thankfully you made it through the storm! We welcome the opportunity to share many of these positive stories with you on our future pages.

Wesley RamjeetPublisher

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/deal-ers. This magazine contains forward-looking statements within the meaning of Section 21E of the Securi-ties and Exchange Act of 1934 relating to companies’ future operating results that are subject to certain risks that could cause results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements. This publication undertakes no obligation to update these forward-looking statements. Micro-Cap Review Magazine, its owners, employees, their families and associates may have investments in companies featured within this publication and may elect to sell these investments or purchase additional investments in these companies at any time. However, the policy of our editorial staff is to avoid any pre-publication trading of featured stocks or sales until the release date of the magazine. In order to be in full compliance with the Securities Act of 1933, Section 17(b), where the publisher has received payment for advertisement/advertorial of a security, the amount and type of consideration will be fully disclosed. All information about the Company contained within an advertisement/advertorial has been furnished by the respective Company and the publisher has not made any independent verifications of such information and makes no implied or express warranties on the information provided. Readers should perform their own due diligence before investing in any securities mentioned. Investing in securities is specu-lative 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

Wesley Ramjeet

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BUSINESS AND MARKETS


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TABLE OF CONTENTS

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BUSINESS & MARKETS

Born in the USAby Ilene Chunko and Avik Roy 6

Broker Dealer Updateby Jack Leslie 22

Life Insurance for Investmentby Jeff Keller 23

Micro-cap Capitol News from Washington, D.C.by M.C. Oxley & Murphy 35

Compliance Cornerby Chet Hebert 48

FINANCE & INVESTMENTS

Concentrate on the Best Micro-Cap Companies-The Magnet® Method of Investingby Jordan Kimmel 12

Winning Micro-cap Strategies Using ETFsby C Michael Carty 14

Ask Mr.Wallstreet Where Have All the IPOs Gone?by Sheldon Kraft 17

Stock Research: Sionix (SINX)by Steven Greenfield 24

On The Market: Reading International (RDI)by Dr. John Faessel 39

Industry News: Obituaries, Retirements and Change of Firm 50

PROFILED COMPANIES

Bagger Dave’s (OTCBB:DFRH) 8

AngioGenex (OTC:AGGX) 19

Veritec (OTC:VRTC) 27

US Preventive Medicine 31

Stanton Chase International 36

Viper Motorcycle 41

Reuven Enterprises 44

Laser Energetics (OTC:LNGT) 45

LIFESTYLES

Vitamin Complexitiesby Dr. Larry May 28

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When we use the phrase “Born in the USA,” we are not using it in the way that rock singer, Bruce Springsteen, had in mind. Rather, we use the phrase to mean the spirit of innovation and entrepreneurship that is at the heart of American business. In fact, this spirit is very much alive and well, despite current market conditions. Exciting new companies continue to be created, even as bad economic news remains widespread. While financing is very difficult for most new ventures today, companies continue to survive, and some even thrive.

Entrepreneurship drives economic growth. In America, people become entrepreneurs for two reasons. They do it because that is the best path available - “necessity entrepreneurship,” or they do it because they want to make money and create economic value - “opportunity entrepreneurship.” Whereas necessity entrepreneurship has no meaningful effect on the economy, opportunity entrepreneurship has a significant ef-fect on economic growth. In this article we will focus largely on opportunity entrepreneurship in the United States.

Entrepreneurship During Recessions

During recessions, there is a noticeable uptick in accidental entrepreneurs, unintended entrepreneurs, or forced entre-preneurs, all signs of necessity entrepreneurship ratcheting up. That’s understandable. And it’s true that a few of these necessity entrepreneurs will surprise themselves and others with big successes. But what happens to opportunity entre-preneurship during downturns? The overall number of start-ups tends to remain roughly constant during good times and bad. During economic winters, high-income potential start-ups decline while low-income potential start-ups increase. That suggests the increase in the number of necessity en-trepreneurs is actually offset by a decrease in the number of opportunity entrepreneurs.

Why should we care about how many and what kind of com-panies are born in the United States during this downturn? Primarily because it will determine what kind of growth we can expect when this economic storm ends. That is not only a widely held view among Americans today, but is based on empirical research. We could return to the high growth of the post-1995 decade. Or we could find ourselves in the midst of a sustained period of sluggish growth, like the early 1970s through the mid-1990s. Since a third of all new jobs – in good times and bad – are created by start-ups, the quantity,

quality, and speed of job creation through entrepreneurial ac-tivity will be critical to determine how we exit from the current recession.

Recessions – A Challenge or an Opportunity?

Opportunity entrepreneurs face daunting challenges when U.S. markets turn south. Outside capital dries up, valuations get depressed, exit options disappear, and strategies shrink. Most importantly, many consumers and businesses are finan-cially strapped and, as a result, reduce or eliminate spending. Additionally, investing in innovation, marketing, operations, or capacity carries higher risk. Finally, in an unforgiving mar-ketplace, there is almost zero margin of error for even small mistakes in business strategy or execution.

So is it all gloom and doom for those with entrepreneurial aspirations? Does a recession spell the end for motivated founders? Do bad times create a cohort of businesses with lesser potential? The answer to these questions is a re-sounding “no.”

Opportunity entrepreneurs enjoy significant advantages dur-ing tough times. According to the Kauffman Foundation, a non-profit organization that focuses on entrepreneurship, “Good things grow even in the darkest times.” Dark times bring together two powerful concepts, Schumpeter’s creative destruction and Darwin’s survival of the fittest, in a smolder-ing cauldron of opportunity and risk. Disruptions to the pre-recession status-quo create new opportunities for discerning entrepreneurs.

The winners among the recessionary start-ups – the com-panies that succeed – often tend to win big. The prize to the winners is bigger than you would expect, considering the challenging economic conditions that accompany their birth and infancy. In 2008 just under half of the Inc. 500 and a majority of the U.S. Fortune 500 were started during reces-sions or bear markets. Our economy has contracted a total of 556 months over the course of the past 152 years (through 2007). That is, the U.S. economy has been in a downturn 30.5 percent of the time. A whopping 57 percent of U.S. Fortune 500 companies founded during the last 152 years were born in the midst of those difficult times.

Entrepreneurs benefit from some striking advantages during recessions. First, key start-up costs tend to fall, such as rent,

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equipment, and labor. Second, founders are forced to bootstrap more effectively, given financing is scarce. Investors and lenders are more risk-averse, so only the most promising ideas will at-tract capital. Third, newly born companies hatched during reces-sions often have more time to set up the business right before they launch. These start-ups also experience the business at a measured pace before volume ramps up. Fourth, some badly run businesses get wiped out during downturns, offering related newbies a chance to swoop in and fill the void. Finally, loyalties loosen and customers are more open to cheaper alternatives to replace more pricey vendors.

Announcements of Recent Births

During this recession, entrepreneurs are busy creating new op-portunities and doing deals that create viable businesses with robust prospects for growth and profitability. A combination of necessity, aspiration, ambition, and desperation is driving bright, energetic, and resourceful individuals to create new ventures. Are there certain types of businesses that are more popular? Past recessions show that only a handful of technologies remain the focus of most start-up activity. Information technology is still big, but specific areas that help cut costs and increase productivity, like e-learning or virtual collaboration, are attracting entrepreneur-ial attention. In addition, healthcare is generally a magnet for new ventures at all times. Alternative energy and clean technology, fuelled by government largess, continues to be popular. There is a somewhat heavier emphasis than in the past on ventures that view the government as a primary customer. There are some businesses that are recessionary staples - household products, food, personal services, telecommunications, transportation, and the vices (e.g., alcohol, tobacco, and gambling).

Some examples of recent entrepreneurial activity in the NY/NJ area reflect these patterns.

C-MAIL, a New York-based start-up, has created a platform that prioritizes e-mails (within Microsoft Outlook / Exchange) and captures business intelligence across the enterprise. The tech-nology integrates with existing enterprise systems and provides productivity, workflow, and collaboration features to end users, managers, and IT departments. C-MAIL’s technology is used by a small but growing user base, ranging from Fortune 100 compa-nies to small businesses and government agencies. According to CEO, Manish Sood, “Our value proposition of increased produc-tivity and collaboration, cost savings and innovation is even more appealing to companies in these trying economic conditions.”

MySkin is another New York-based start-up. It was created by current CEO, Rahul Mehendale. Mehendale, a Harvard MBA graduate, was unhappily toiling away at a large consulting firm when he decided to do something more interesting. He got to-gether with another Harvard MBA graduate, a leading physician, and one of the world’s eminent biophysicists, to create a com-pany that helps individual customers identify specific skin care products best suited for them. At MySkin’s Web site, visitors are escorted through a series of questions that leads to a personal-ized profile of their skin. MySkin’s technology engine then helps visitors identify skin products that work best for them. It is almost like a personal clinical test designed for the customer. To keep the recommendations unbiased, the Web site has no advertisements from skincare manufacturers.

-neur Bert Glaser, M.D., founded retinal diagnostics company, Ocular Proteomics LLC, in April 2009. Ocular Proteonics was founded to improve eye health care for millions of people suffer-ing from wet Macular Degeneration (wet AMD), the leading cause of blindness in adults over age 50. Lorraine Marchand, the CEO of the company, is clear about the benefits of what others would consider poor timing, “The recession conveyed certain advantag-es in our situation. Research and development, and operating ex-penses had declined; companies were eager to partner and ven-dors were eager for work; and high quality talent was abundant at fair market prices. We were fortunate because we had cash to sustain us for 12 months, so raising capital was not an immediate concern.” With unshakeable conviction that the potential market was robust, Dr. Glaser committed personal funds to take the busi-ness to the next stage. Connecting her company’s path to suc-cess with other companies born in a recession, Lorraine claims, “Surviving a recession and emerging as a sustainable company strengthens the credibility of start-ups, making them that much more attractive to investors looking for their next opportunity as the market starts to swing back.”

-neurship. He once said, “If you can’t find a job, buy one.” With an SBA loan, he not only bought one, but two companies. Both companies provide separate but related technology services. McDonnell uses both companies as a platform to develop more sophisticated products and services. With the base business, he can evaluate different growth strategies, including expanding product offerings, services, and geographic coverage. He can do all of this and have a core business to fund the expansion. While both companies are not early-stage start-ups, they are start-ups nonetheless.

a former division president of a major energy utility as the head of their venture? Steve Morgan retired from a senior leadership role before moving into the challenging world of start-ups. While he has been forced to dramatically change his thinking and the scale for how he operates day-to-day, he has not downsized his vision for the new venture. Backed by commercial real estate investors and founders, this little venture has the potential to change the way we think about clean energy.

Looking Beyond the Downturn

There are some indications that the United States may be on the brink of an entrepreneurial boom. Contrary to popularly held beliefs, entrepreneurship is being driven by the most unexpect-ed demographic trend–the aging population. According to Carl Schramm, CEO of the Kauffman Foundation, “Over the past de-cade or so, the highest rate of entrepreneurial activity occurs in the 55- to 64-year-old age group. The 20–34 age bracket has the lowest rate.” Part of the reason is the significant decline in long-term employment among people between the ages of 35 and 64.

Bruce Springsteen wrote “Born in the USA” as a tribute to patri-otic American soldiers who returned home from Vietnam only to be greeted by a hostile public. Likewise, we see American en-trepreneurs being resilient, fighting their own battles despite the downturn in the economy. And while it may be surprising that this battle is mostly fought by seasoned professionals, most of these daring entrepreneurs hail from Springsteen’s own generation.


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PROFILED COMPANIES


It all started in 1996, when Michael Ansley and a college buddy explored franchising opportunities. After research-ing the options, they decided to open a Buffalo Wild Wings franchise. They were in their mid-20s and had no prior res-taurant experience. With that sort of background, no bank

wanted to lend them money. Determined to move ahead, they found help from their fami-lies and opened their first Buffalo Wild Wings® restaurant in Michigan in 1996.

After a slow start and two years of losses, Michael and his partner finally realized a small profit in the third year. By then, Michael had learned some hard lessons of running a busi-ness and decided to go out on his own. He sold his interest in the franchise to his partner and opened his first Buffalo Wild Wings restaurant in Sterling Heights, Michigan in 1999.

Reinventing the Wheel and Making It Better – The Full-Service Model

You would think that most franchisees would be content with a company that had a strong brand, a superior product, a high growth rate, and a record of profitability. But it was not so with Michael. He saw an opportunity to improve the model. Michael’s hands-on approach and innovative thinking had made him particularly sensitive to what his customers wanted in their dining experience. “I realized that the demo-graphics were changing. Many of our guests had been former loyal college customers. Many were now employed, married with children, and were living in the suburbs. When dining out with young children, customers preferred not having to get up from their tables for food and beverages.”

His answer: a hybrid, full-service model coupled with coun-ter service at his restaurant in Novi, Michigan. He did this against the advice of the corporate office and fellow franchi-sees, which were still wedded to the successful self-service model. In the first year of operations, the Novi store recorded the highest sales in the Buffalo Wild Wings system and con-tinued to increase sales until it reached the $4 million mark in its third year of operation.

Michael was one of the first to offer full service to his guests. By the end of 2003, the Novi location had recorded the high-est sales in the franchise.

The full-service model was successful because of its diverse and enhanced customer appeal; profits increased on two lev-els:

percent to 11.2 percent of sales, and

sell more menu items.

Between 2004 and 2005, Buffalo Wild Wings’ corporate lead-ership embraced the full-service model. Today this model is now available nationwide.

Even before transforming the Novi restaurant into a full-ser-vice operation, Michael was already considered a rising star in the franchise, having been awarded Operator of the Year in 2000 by the Buffalo Wild Wings’ corporate office for the outstanding performance of his Sterling Heights and Fenton restaurants.

The full-service restaurant in Novi collected numerous awards:

2005, and 2006

of the Year –2007

Today, Diversified Restaurant Holdings, Inc. is one of the larg-est and most successful franchisees of Buffalo Wild Wings, Inc. and the only franchisee that is public (OTCBB: DFRH). Diversified Restaurant Holdings currently owns and oper-ates 16 Buffalo Wild Wings restaurants, 5 in Florida and 11 in Michigan. In August 2010, the company expects to acquire the nine Buffalo Wild Wings restaurants it currently manages, increasing annual sales by $24.8 million.

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Going After Bigger Game… The Massive Burger Market

According to the Library of Congress, Connecticut is home to the first hamburger restaurant in the United States. Louis Lassen of Louis’ Lunch, a small luncheonette in New Haven, sold the first hamburger in 1895. According to New York magazine, “The dish actually had no name until some rowdy sailors from Hamburg, Germany named the meat on a bun after themselves years later.” The rest, as they say, is history; the lowly hamburger has become a multi-billion dollar icon of American food culture.

In 2006, Ansley started looking at opportunities in the fast-casual segment of the hamburger market where his Buffalo Wild Wings experience could give him an edge. The one niche that jumped out was the mid-range price market that existed between Wendy’s on the low end and Red Robin on the high end. This segment was still relatively underdevel-oped. It had a loyal family-oriented customer base and ap-pealed to people during difficult times. New startups in this sector showed significant growth.

Finding the Local Hook

“I felt that a niche opportunity lay in creating a restaurant that combined all the cost efficiencies and consistent product quality of a franchise restaurant with the traditional feel and community loyalty of an English Pub. Put those two concepts together and you have a potent advantage.”

“The inspiration for the restaurant’s design came from a wa-tering hole that I found in Cincinnati. The 80-year-old pub was a classic. It had dark wood paneling and a copper-plated bar. To reinforce the timeless theme, we christened the bar, Bagger Dave’s Legendary Burgers and Fries®. We used nostalgic images gathered from local museums and histori-cal societies to connect with the neighborhood. We even built an electric train railway running the length of the pub to add to the fun.”

Bagger Dave’s was launched in January 2008 in Berkley, Michigan. The second store opened in Ann Arbor in August 2008. Marketing focused on grassroots programs that sup-ported neighborhood non-profits and other events to under-score the company’s connection to the community.

The Launch

The menu featured freshly made burgers (never frozen) accompanied by more than 30 toppings, fresh-cut fries, a selection of wines and beers, and hand-dipped milk-shakes. Signature items included Sloppy Dave’s BBQ®, the Train Wreck Burger® (shown at left), and Bagger Dave’s Amaz-

ingly Delicious Turkey Black Bean Chili.

“Hello there! We just wanted to quickly write and tell you that we are head over heels for Bagger Dave’s after trying it for the first time last weekend. The burgers taste amazing. They are juicy and tender, the sauces are great (Chipotle BBQ, hello!), the veggies are crunchy and large, and those Belgian fries are original and tasty. We went last week and then again yester-day, and we plan to go again this week, even though we live an hour away in Adrian. Thank you for delivering such great food in a great atmosphere.”

—Benjamin Ray and Jessica Klein

PROFILED COMPANIES

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On the public relations front, Bagger Dave’s scored fourth in the National 2009 March Burger Madness contest. The head-line of the tongue-in-cheek press release reads:

Bagger Dave’s® Upsets Top Seeded McDonalds— Rolls into Final Four of the March Burger Madness Tour-nament

Defeated perennial champion with their fresh and fast deliv-ery

This brainchild of BurgerBusiness.com was publisher Scott Hume. Hume simulated the excitement of the NCAA Basket-ball Championship Tournament by substituting various burger chains for the college teams. He renamed the traditional four regional brackets: the Kroc (named for McDonald’s entre-preneur Ray Kroc), McLamore (for Burger King founder Jim McLamore), Thomas (for Wendy’s founder R. David Thomas), and Karcher (for Carl’s Jr. founder Carl Karcher). Burger fans could follow the games by going to www.burgerbusiness.com and clicking on the “Burgerbrack-et1 link to see all the teams and their rankings.”

BurgerBusiness.com also selected Bagger Dave’s as a can-didate for the Top Five Burger Menus.

Future Expansion Plans

“For the Company as a whole, we are on track with an ag-gressive expansion program,” said Michael Ansley, which will include:

Wild Wings affiliated restaurants, increasing overall sales by an estimated $24.8 million;

five Bagger Dave’s restaurants over the next three years.

This expansion will lay the groundwork for projected revenues of $60 million by the end of 2011, with an estimated EBITDA margin of 13.8 percent.

Additionally, the board of directors of Diversified Restaurant Holdings recently agreed to evaluate the benefits of franchis-ing the Bagger Dave’s concept.

For more information on Diversified Restaurant Holdings, please visit www.diversifiedrestaurantholdings.com.

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The financial markets have become so emotionally driven over the last few years that even seasoned investors have lost their way. Media discussions have dumbed down the issue into a debate of whether we are in a bull market or whether the dramatic rise since the market low on March 9, 2009 is a bear market rally. If investors are to make money in the stock market, they need to tune out the day-to-day media nonsense and remember that all companies are not created equal. This law applies to people, animals, and public com-panies.

The stock market is a lot like sports. The games remain vir-tually the same, but the names of the best players change. Once investors realize this, they can better invest and man-age portfolios. In sports, a player rarely shows up in the pros without first being a superstar in high school. For a company to be added to the S&P 500, it usually gets added first to the smaller market cap indexes. Our Magnet® Method of invest-ing has been developed to capture and identify these fast performing companies as they begin to generate profits and accumulate cash.

In my new book, , I try to help investors relate two well known scientific concepts to the stock market, the bell curve and the S-curve. Below are two excerpts that highlight these two powerful realities.

Interestingly, the indexes continue to go higher because the components that make up the index keep changing. So, al-though long-term investing in indexes has proven profitable, investing in the individual companies making up the index has not. Many former index companies, such as Pan Ameri-can World Airways (Pan Am) and Bethlehem Steel have gone bankrupt. The index creators simply replaced these names with new companies to help the indexes go higher. Although several names that were removed from the index had been involved in mergers or acquisitions, the majority of the names were removed due to underperformance. New industries continue to emerge, and new market leaders show up unan-nounced. Individual investors have to find a way to identify these industries and companies. Also, investors need to re-member that the leaders of past bull markets will often not be the leaders of the next bull market.

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It amuses me when so-called experts cite the lack of growth in the United States and highlight the problems of General Motors as proof. Back in the 1800’s, a filibuster pressured Congress to close the U.S. Patent Office. The argument was, “Now that everything has already been invented, why are we wasting taxpayers’ money?” On the contrary, with the ad-vances in communications and technology, new discoveries are accelerating today. Interestingly, these breakthroughs usually do not come from larger companies, which are gen-erally too set in their ways. Instead, breakthroughs are usually found in smaller, more innovative companies. Initially, small, niche companies create the new, enabling industries: Micro-soft in 1987–2000, America Online (AOL) in 1992–2000, or Google in 2000–2008. In the beginning of the twentieth cen-tury, Ford and Radio Corporation of America (RCA) were the Magnets of their day, but they eventually lost their leadership role.

Perhaps Charlie Munger said it best in the August 2008 issue of

You’ve got to remember that it’s in the nature of things that most small businesses will never be big businesses. It’s also in the nature of things that most big businesses eventually fall into mediocrity or worse. So it’s a tough game out there. In addition, the players of the game all have to die. Those are the rules of the game—and you have to get used to it.

When I was in high school, I used to take the subway train from Manhattan to the Bronx High School of Science. One stop along the way was Yankee Stadium. As we passed the stadium, I would think about Babe Ruth, Lou Gehrig, and Mickey Mantle. I often thought how many kids grew up and wanted to play in the major leagues. How many made it? How many ever batted .350 for a season or hit 40 home runs in a year? You were talking about the cream of the crop. In track and field, how many athletes ever ran the 100 meters in under 10 seconds? In basketball, how many players ever scored 40 points in an NBA game? I would often tell myself that investors needed to think about public companies in the same way as well.

By nature, there can be only a few superlatives in anything, publicly traded companies included. The stock market fol-lows the natural order of things. When I was a college student studying finance and investments, I sat in class looking at a chart of the bell curve and asked myself a couple of life-changing questions. Understanding that only five percent of companies can be truly superlative, why would anyone rec-ommend buying the whole list? Why would anyone accept the premise of investing in all 500 companies in the S&P or in all 2,000 companies in the Russell small-cap index, unless the investor was willing to accept only an “average return”?

My next thought turned to finding a quantitative way to isolate and measure the superlative companies for investment. This became my quest over the next 20 years and remained the

backbone of the Magnet® Stock Selection System. Under this method, I focus on finding the up and coming companies of the day, and the knowledge that is needed to find a few companies at any given time. And that keeps me searching for the best micro-cap stocks.

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The Magnet Method of Investing

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Exchange-traded funds (ETFs) are perhaps the greatest in-vestment innovation in the last 15 years. Growing at a tor-rid 60 percent rate since its inception in 1993, ETFs have amassed assets of $590 billion. There are now 725 ETFs, and the reason is clear: ETFs provide investors with a low cost, diversified means of investing across a wide variety of asset classes in portfolios benchmarked to outperform most ac-tively managed separate accounts and mutual funds.

Exchange-traded funds are particularly attractive to people who invest in asset classes that are difficult to manage in terms of time and resources. Successful micro-cap invest-ing requires extensive research to determine suitable invest-ments. Investors need to digest a great deal of information about many areas: a company’s business model, product or service potential, management team, financial resources, productive capacity, resource endowments, proprietary tech-nology or process, patents, and regulatory and environmen-tal restrictions.

Given the time and financial costs, individual investors often don’t do enough work to reach a profitable decision. Even if they did, it is unlikely that they could successfully populate a fully diversified portfolio without professional help.

Enter micro-cap ETFs. Compared with other micro-cap in-vestment choices (e.g., mutual funds, closed-end funds, unit investment trusts, futures, and options), ETFs have very real advantages:

-aged funds. Micro-cap ETFs are indexed to popular micro-cap benchmarks, such as the Dow Jones Select MicroCap, Russell Microcap, and Zacks Micro Cap Indexes. Experience has shown that passively managed index funds typically outperform actively managed funds by virtue of their lower expenses, reduced turnover, fewer transactions, and lower management fees.

cap stocks. Each fund has different rules of index construc-tion, stock selection, rebalancing, and number of holdings. Consequently, the funds can provide investors with different risk/return choices.

weightings are published on sponsors’ Web sites and updat-ed daily to reflect any changes. The funds’ holdings are also

published on listing exchanges’ Web sites, which permits in-vestors to track their holdings and purchases.

each fund required to meet Regulated Investment Company Compliance standards imposed by the Internal Revenue Ser-vice.

throughout the trading day, which allows investors to choose their entry and exit prices. Mutual funds trade only once a day at NAV after the close.

closed-end funds, or separately managed accounts. More of a fund’s gross performance is given to shareholders, and less to management fees and other expenses.

transactions between authorized market makers and the fund to be “in-kind,” using baskets of securities in proportion to those in the portfolio. Since in-kind transfers involve no cash, no taxable event occurs. Long-term ETF shareholders are not normally subject to the year-end capital gains distribu-tions made to most mutual fund shareholders. Fewer capital gains distributions mean lower capital gains taxes.

than with mutual funds or individual stocks. Micro-cap inves-tors wishing to use leverage should consider using ETFs.

People invest in micro-cap stocks mainly to profit from capi-tal gains, recognizing that these investments have above-av-erage risk. It is therefore advisable to mitigate risk by diver-sifying away as much specific risk associated with individual stocks as possible. Micro-cap ETFs are ideally suited to this task, because they hold a sufficiently large number of com-panies; losses in any one holding will not significantly com-promise the portfolio as a whole.

Currently, there are three seasoned micro-cap ETFs avail-able: iShares’ Russell Microcap Index Fund (NYSE/Arca: IWC), PowerShares’ Zacks Micro Cap Portfolio (NYSE/Arca: PZI), and First Trust’s Dow Jones Select Microcap Index Fund (NYSE/Arca: FDM). These three funds have a similar history and were all created in August/September 2005. Statistically, they are a unique asset class due to the close correlation of their monthly returns, ranging from 0.97 to 0.99. More impor-

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tantly, they can also be considered as an asset class distinct from the broad market represented by the S&P 500, since their cor-relations to that index range from 0.90 to 0.92. The distinction is evidence that they can be a valuable means of diversifying broad market-based portfolios.

As illustrated in Table 1, these ETFs also have similar volatilities as measured by their annualized standard deviations, ranging from 23.0 percent to 23.4 percent over the period from October 2005 to July 2009. Not surprisingly, these correlations are significantly higher than the S&P 500 figure of 17.5 percent.

Table 1. Risk/Return Characteristics of Micro-cap ETFs vs. the S&P 500

* Performance statistics computed from October 2005 to July 2009.

The market trend during the October 2005 to July 2009 period is atypical from its historic long-term trend of rising stock prices. In the nearly four years since these funds have existed, the S&P lost 3.5 percent annually versus the funds’ losses of between 5.9 percent and 11.6 percent.

This recent decline is not expected to continue indefinitely; mi-cro-cap stocks are likely to once again become a preferred asset class for investors seeking extraordinary capital gains. While each of these funds represents a logical means of participating in a future long-term trend of rising prices, one or another might be more suitable in meeting a particular investor’s risk/return prefer-ences. To decide which ETF is the most suitable, investors must understand the specific characteristics of each fund.

The iShares’ Russell Microcap Index Fund is the largest of the three funds. As of June 30, 2009, it had $286 million in assets and an expense ratio of 0.60 percent. Its annual return of -8.3 percent positions it midway between the other two funds. The iShares fund tries to achieve results that correspond to the Russell Mi-crocap Index, before fees and expenses. The iShares fund uses a consistent methodology that selects the 1,000 smallest stocks in the Russell 2000 Index, includes only U.S. companies trading on national exchanges, and excludes any listed on the OTC Bulletin

Board or Pink Sheets. The fund is rebalanced annually to include only companies that meet its size criteria–none too large or too small. Despite annual rebalancing, its turnover rate is 21 percent, the lowest of the three funds. The PowerShares’ Zacks Micro Cap Portfolio has assets of $47.4 million and an expense ratio of 0.70 percent, the highest of the funds. It also has the lowest annual return of -11.6 percent and the greatest volatility. This fund normally invests at least 90 percent of its assets in stocks that comprise the Zacks Micro Cap Index. A proprietary model selects micro-cap stocks with the greatest potential to outperform relevant benchmarks and other actively managed micro-cap portfolios. This semi-active strategy has produced an annual turnover of 54 percent, or 2½ times that of iShares’ Russell Microcap Index Fund.

First Trust’s Dow Jones Select MicroCap Index Fund is the small-est of the three funds in size, with assets of $14.4 million, and an expense ratio of 0.60 percent. It has the smallest annual loss of the funds, -5.9 percent, and the lowest volatility. The First Trust fund seeks to achieve the price and yield performance of the Dow Jones Select MicroCap Index, before fees and expenses.

The Dow Jones Select MicroCap Index comprises comparatively liquid stocks with strong fundamentals relative to other micro-cap stocks listed on the NYSE, NYSE Amex, and NASDAQ. These stocks have market capitalizations falling within the bottom two deciles of NYSE stocks. The First Trust index screens stocks based on market capitalization, trading volume, trailing price/earnings and price/sales ratios, quarterly EPS change, operating margin, and six-month total return. This apparently semi-active or enhanced strategy produced an annual turnover in the fund of 85 percent, four times greater than the iShares fund and 1½ times the PowerShares fund.

As with any investment, a final word of caution is in order. A pru-dent investor should investigate further, check each fund’s updat-ed performance and holdings, and research other relevant data by visiting their Web sites:

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Where have all the IPOs gone is a great question. Here is a test, name the last initial public offering (IPO) that you can remember. Okay, for me it is Google. The Google IPO is special in that it was also a self underwritten IPO. Do you remember in what year Google went public? Well, according to my Google search, it was April 2004 and their first quarterly filing as a public company was on October 22, 2004. Don’t look now but that was almost five long years ago. I miss IPOs. They were absolutely fun to buy, fun to trade, and folks could make real money, if they were able to get their hands on IPO stock. So what happened?

I look back with treasured memories, having been an underwriter of IPOs in the day and having experienced their growth. It was a time when the market was just getting popular outside of the inner circle of stock market professionals. It was the early 1980s when stocks were only found on the Pink Sheets (actual quote sheets printed on pink paper) before quote machines, Bloomberg terminals, and the Internet. Michael Bloomberg was still at Mer-rill Lynch Pierce Fenner and Smith and was struggling to get his first boxes out into the street. New broker dealer boutiques were sprouting up every day, and civilians and would-be brokers were finding their way to Security Training School at 17 Battery Place in

New York City to be schooled in passing the Series 7 and 63 tests to become registered with the National Association of Securities Dealers (NASD).

From all walks of life, many people changed their careers to try at making more money than they ever could have imagined. From used car salesmen to college graduates, from the garment center and the teaching profession, people were flocking to 17 Battery Place like it was a big magnet.

This spurt in activity would in no way endanger the wire houses, the New York Stock Exchange, and the American Stock Exchange, which were pinnacles of integrity and tradition in the capital mar-kets. Sure, the exchanges had their IPOs, but suddenly this new emerging growth market was growing from tadpole to frog and from the Pink Sheets to electronic trading. The advent of the quotron machine wired Wall Street and created the transparent market with Level 3 machines (computerized, real-time trading system of NASDAQ), which aided the growth of the world’s larg-est trading firms like Speer, Leeds, and Kellogg; Herzog, Heine, and Geduld (owned by Merrill Lynch); Troster Singer (owned by Spear Leeds); Nash Weiss (owned by Quick & Riley); and many

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others. This technological breakthrough ultimately was the market making system that turned NASDAQ into what it is today– a billion dollar public company (NSDQ). The ultimate benefit of this market making business was the creation of unlimited liquidity, the single most important ingredient for a robust market. Beside creating a new place to buy and sell, the new system was fast, vast, and trackable.

The market making system created liquidity as each new market maker could trade the same listing with others and compete for orders based on order size and posted price. Market making was thoroughly different from its forbears at the exchanges. The ex-changes only had one specialist making the “book” on a stock, whereas NASDAQ had several market makers, each having its own book. The creation of the market making system single-handedly created an industry of its own within the financial community.

Initial public offerings began very quickly. New retail brokerage firms started to build branch offices in great numbers and needed to give hungry new registered stock brokers something to sell. Fur-ther, the growing number of traders needed something to trade. Securities trading was a business that needed inventory, and what is a better way to gain inventory than to create your own? Thus, was born the great IPO market that never looked back. The NAS-DAQ flourished, the SEC needed more help and created the Na-tional Association of Securities Dealers (NASD), and the ranks of stockbrokers and traders grew exponentially. The US stock mar-kets had spawned a capital base like no other in the world.

An amazing number of new companies was created and funded, including Microsoft, Oracle, Intel, Apple, Sun Microsystems, and Yahoo, until the dot-com boom market took companies like AOL to more than $400 per share. Rational valuations and revenue and earnings guidelines were good for the old line stocks of the NYSE, but not for many of the new stocks. Trillions upon trillions of dol-lars of net worth were accrued. Oh yes, it was the days of trading stocks in fractions before the five percent markup rule, and before trading stocks in penny decimals removed the spreads. Let’s just say the NASDAQ had become the Wild Wild West and everybody, including his or her mother, was going public. Financial reporting became an obscenity, and unscrupulous characters pervaded the once pristine integrity-filled world of the New York stock markets.

New issue whores became rampant, new issue hedge funds in-vaded unsuspecting underwriters, and the criminal underworld invaded the market and took no prisoners. Eventually scandals, public outcry, political candidates promising reform, media cover-age, major arrests and prosecutions led to heavy regulatory inter-vention and enforcement. Finally, new rules including Rule FD (full disclosure) and Sarbanes-Oxley became law.

So what happened to this once flourishing IPO marketplace? In short, it came to a crashing end almost as quickly as it began. The dot-com bust and the buildings that went down on September 11, 2001 in New York City practically put the financial markets out of business. One by one, NASD members started dropping like flies. Wall Street literally cleared out, abandoning the Wall Street vicin-ity and moving uptown, across the river, or out of business. Bro-kers whose client books had incinerated in value went on to new careers. Liquidity dried up, stocks didn’t trade, and new money stopped flowing in. Additionally, the government clamped down and justifiably over-regulated the stock market. Focus switched from the easy pickings of new issues that flew upwards in the af-ter-market to the salvage of whatever money was available.

Many IPOs had difficulty staying afloat. Prices dropped, capital dried up, and those that remained suffered major market cap set-backs. Many companies diminished in size and lost their listing on the small-cap or national market system (NMS). Created in 1995, the OTC Bulletin Board, received countless fallen angels and left-over public companies. Eventually the Pink Sheets became the last bastion of listing for non-reporting and struggling stocks. During this time many individual investors unfortunately got destroyed.

The resilience of Wall Street was to be proven again as the pri-vate investment in public equity (PIPE) and reverse merger busi-ness emerged from the ruins of the dot-com bust. Remember all of those failed new issues and useless stocks? Well, they became public shell companies of the previous new issue market. These shell companies suddenly had a use from a cadre of companies that wanted to go public without an underwriting.

My next article will depict the PIPE and reverse merger market and the rebirth of the new issue market using old public shells.

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How AngioGenex Inc. is leading the way for early stage biophar-maceutical firms in a downturn economy!

Introduction

AngioGenex, Inc., is a fully reporting public company (AGGX:OB) that was established on world-class research of Dr. Robert Benezra at the Memorial Sloan-Kettering Cancer Center in New York City. Dr. Benezra’s discovered the Id (inhibitor of differentia-tion) genes and the Id proteins that play a critical role in caus-ing cancer in humans. He defined the role of these Id agents as a final common pathway for the induction of new blood vessel formation by modulating other factors such as VEGF, the tar-get for AvastinTM, Roche/Genentech’s enormously successful monoclonal antibody for the treatment of cancer. Normally, the Id genes are activated during development of the fetal embryo and then are turned off at birth. Dr. Benezra demonstrated that the Id genes are activated and Id proteins expressed in the blood ves-sels of all tumors examined to date. These new, tumor-associated blood vessels are required to support the growth and spread of the cancer. Dr. Benezra also demonstrated that mice without the Id gene do not display tumor-associated new blood formation when implanted with human tumors and are resistant to growth of all cancers studied to date. With regard to extrapolating find-ings in mouse models of human cancer to treatment of cancer patients, an important observation is that the Id genes and pro-teins in mouse and man are virtually identical.

Internal Scrutiny of AngioGenex

Strengths. The company’s anti-Id small molecule and anti-sense products have been fully validated using in vivo animal studies. The results represent a significant commercial opportunity, if the findings are validated in human clinical trials. In addition, the ther-apeutic targets of the company’s drugs (Id genes and Id proteins) are found only in fetal or cancerous tissue, suggesting a signifi-cant safety benefit for a therapeutic agent that targets these moi-eties. The company also enjoys the support of highly respected researchers in the Id field and has experienced management with extensive commercial expertise in the development of this type of product. The company has filed five patents, one of which has been approved and the remaining patents are pending approval. Finally, the company has developed a highly sensitive analysis for Id in blood that can be used as a diagnostic test to support cost-effective and efficient use of its therapeutic products (per-sonalized medicine).

Weaknesses. The main weakness of the company is chronic under-capitalization. This has delayed many activities required to advance the company’s promising drugs, including filing inves-tigational new drug (IND) applications and commencing human clinical trials.

Opportunities. If successful, the AngioGenex technology will ful-fill a significant unmet medical need, thereby providing a major market opportunity.

Threats. The main threat to the company is that continued under capitalization will delay progress of its candidate products and will allow other companies time to develop and commercialize competing products.

Assessment of the Current Environment for AngioGenex

Strengths. The public increasingly recognizes that progress made against cancer has been only marginal, despite enormous investments over decades of private and public research. In ad-dition, the significant limitations with respect to efficacy (minimal), adverse events (life-threatening) and cost (extremely high) of the existing prototype approach to mitigate tumor associated new blood vessel formation (Avastin) are now obvious and well report-ed. Hopefully, recognition of these realities will increase interest in new approaches, such as the AngioGenex anti-Id technology. With respect to cost, the lead AngioGenex anti-Id therapeutic drug is a small molecule that is relatively inexpensive to manu-facture. This savings will likely increase in significance as both private and government medical care payers try to reduce cost.

Weaknesses. Problematic for a number of years, the investment environment for early-stage companies has become decidedly grimmer with the recent economic decline. In addition, the U.S. Food and Drug Administration (FDA) has become even more ag-gressive in auditing and evaluating data submitted by sponsors.

Opportunities. Historically, the efficacy hurdles for a product like the AngioGenex anti-Id agents have been quite low, given that even a modest survival benefit can form the basis for an NDA approval. In addition, there is a high probability that the FDA will grant priority review for a product of this type, further expedit-ing the commercialization process. Recently, Johnson & John-son acquired a company with a similar background, Cougar Bio-tech (NASDAQ:CGRB), at a significant premium in a deal worth $1 billion. AngioGenex has the potential to participate in such a transaction once its technology has been clinically validated (proof-of-concept achieved). Finally, the market for a success-ful anti-cancer agent remains very large, potentially in the multi-billion dollar range.

Threats. Many companies currently are competing for funds in the early-stage oncology space. Also, this type of development program lacks predictive value, since human clinical trials often do not validate the technology’s earlier in vivo results in animal tests.

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AngioGenex Strategies

AngioGenex has formulated a number of strategies to exploit the advantages and minimize the disadvantages and risks listed above.

Strategy 1. Continue to attract non-institutional investors. This was accomplished by performing a reverse merger to place An-gioGenex in a public market so that individual investors can have liquidity with their investment and immediate upside on news of company advancements.

Strategy 2. Focus development of the anti-Id drugs on their synergy with taxanes like TaxolTM instead of exploring the sin-gle agent activity in multiple tumor types and stages of tumor development. The synergy of an anti-Id approach with Taxol has been demonstrated in both in-house studies conducted at a re-spected contract research organization and in studies reported in the scientific literature. Using the anti-Id as an adjuvant to Taxol also provides a relatively straightforward, easy to imple-ment, lower cost and lower risk clinical trial design for the Phase One study with the agent. As part of this strategy, the lead small molecule anti-Id protein molecule will be developed initially and the lead anti-Id gene antisense oligonucleotide studied only as a back-up to the small molecule to conserve resources.

Strategy 3. Build the company for sale or partnership after proof of concept is achieved in a Phase Two clinical trial. This will be done because the optimum upside for early investors appears to be achieving proof of concept but before the enormous in-vestments needed to bring the product through registration and product launch. This strategy requires reliance on contract re-search organizations for most R&D activities (minimal infrastruc-ture, low internal overhead, only performing studies needed for proof of concept and to affect a smooth technical handoff to a buyer or partner). The contract research organizations selected for the activities will need to have a successful past experience with FDA audits.

Strategy 4. Continue to optimize and evaluate the diagnostic test. Availability of such a test would greatly increase the value of the project to potential buyers or partners. In particular, medi-cal insurance companies are more likely to accept requests for reimbursements for treatment, if the decision to use the agent is based on a pretreatment diagnostic that detects Id proteins in blood or tumor.

Strategy 5. Perform research, as opposed to drug development, only to expand and protect Id-related intellectual property and to provide supporting data for the use of anti-Id drugs to treat ocular conditions, such as age-related macular degeneration or diabetic retinopathy. The intention is to partner these early to provide funding for the oncology effort.

Summary

The financial reward for developing successful new oncology products appears to be greater than ever. However, obtaining and carefully spending investment funds, not technical or regu-latory obstacles, is now the greatest challenge to achieving suc-cess in developing new therapeutic modalities for the oncology market. The current reality demands that AngioGenex adopts

new strategies that minimize cost and maximize the chance of clinical success for new agents.

Find Out More

To find out more about AngioGenex, please visit the company’s Web site at www.angiogenex.com or send an e-mail to [email protected]. AngioGenex is currently seeking $5 million to bring its first therapeutic through completion of Phase One clinical development. Please contact William Watson at [email protected] for details.

Footnotes:

1 Lewis T, Chasing a cure, Medical Marketing and Media, October 2008.2 Perk J et al. Id family of helix-loop-helix proteins in cancer. Nature Reviews Cancer 2005; 5: 603-614.3 Parkinson DR, Ziegler J, Educating for personalized medicine: a perspective from oncology, Clin Pharmacol Ther. 2009; 86:23-5. 4 Kolata G, Altman LK, Forty Years’ War; Weighing Hope and Reality in a Cancer Battle, Published August 28, 2009.5 Kolata G, Pollack A, The Evidence Gap: Costly Cancer Drug Offers Hope, but Also a Dilemma, New York Times; Published: July 6, 2008.6 Shaked Y, Henke E, Roodhart JM, Mancuso P, Langenberg MH, Colleoni M, Daenen LG, Man S, Xu P, Emmenegger U, Tang T, Zhu Z, Witte L, Strieter RM, Bertolini F, Voest EE, Benezra R, Kerbel RS, Rapid chemotherapy-induced acute endothelial progenit or cell mobilization: implications for antiangiogenic drugs as chemosensitizing agents. Cancer Cell. 2008; 14: 263-73.

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This initial column will address the duties of the Financial Indus-try Regulatory Authority (FINRA). The FINRA Web site states the following:

“Created in July 2007, FINRA is the leading non-governmental regulator for all securities firms doing business with the U.S. public—nearly 4,800 firms employing nearly 647,000 registered representatives. Our chief role is to protect investors by main-taining the fairness of the U.S. capital markets. We carry it out by writing and enforcing rules, examining firms for compliance with the rules, informing and educating investors, helping firms pre-empt risk and stay in compliance, and providing trade reporting and other industry utilities.”

(www.finra.org/AboutFINRA/Leadership/index.htm)

When someone has concerns over their interaction with FINRA they need to contact the Office of the Ombudsman. This office is in place to provide a private and impartial forum for any entity, which interacts with FINRA. I urge you to utilize their services more frequently. Listed below is the purpose of the office and the contact information.

“The Ombudsman’s Office provides a neutral and confidential forum for member firms and their employees, public investors, and any other business or individual who interacts with FINRA to voice their concerns about operations, enforcement, or oth-er FINRA activities or staff. Individuals who are unsure of the proper channel for addressing a concern or feel that the issue cannot be resolved through other channels should contact the Ombudsman’s Office. Upon receiving a concern, the Ombudsman’s Office conducts an independent review of the situation and works toward the identification and evaluation of positive solutions for all parties involved. Please note that the Office of the Ombudsman is not meant to replace other channels—such as the Investor Complaint Center, the Office of the Whistleblower or BrokerCheck—for addressing issues related to other organizations. Rather, the Ombudsman’s Office can help resolve concerns about FINRA or its staff in a fair, impartial and confidential manner. If staff from the Ombuds-man’s Office is unable to assist you with your concern, we will gladly direct you to FINRA personnel who can help you.”

Contact the Ombudsman:Call toll-free at (888) 700-0028, weekdays from 9 a.m. to 5 p.m., EST.

Write to: FINRA Ombudsman P.O. Box 9492 Gaithersburg, MD 20898-9492

(www.finra.org/AboutFINRA/Ombudsman/index.htm)

“FINRA is establishing a consolidated FINRA rulebook that will consist solely of FINRA Rules. Until the completion of the rule-book consolidation process, the FINRA rulebook includes NASD Rules and Incorporated NYSE Rules (together referred to as the ‘Transitional Rulebook’), in addition to the new consolidated FINRA Rules. As the FINRA Rules are approved and become effective, the rules in the Transitional Rulebook that address the same matter of regulation will be eliminated. When the consoli-dated rulebook is completed, the Transitional Rulebook will have been eliminated in its entirety.

While the NASD Rules generally apply to all FINRA members, the Incorporated NYSE Rules apply only to those members of FINRA that are also members of the NYSE. FINRA Rules apply to all members, unless such rules have a more limited applica-tion by their terms.

All FINRA members are subject to the FINRA By-Laws and Schedules to the By-Laws.”

(www.finra.org/Industry/Regulation/FINRARules/index.htm)

Fifty-eight rule filings have been initiated so far this year. Over 53 notices have been listed through August 31, 2009. There is a short time window allowed for members, investors, and the general public to comment on the proposed FINRA rules and regulatory notices. FINRA members should be more proactive in commenting on the proposed rules that govern FINRA member firms.

Navigating this maze of filings and notices can be overwhelm-ing. This column will help guide the broker dealer community through these complex corridors and direct firms to the appro-priate resource that can help them find what they need.

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I was never good at selling life insurance. This was because I couldn’t honestly tell clients that they would ever make a penny from a policy. Despite the “returns” and tax savings touted in glossy marketing materials, I couldn’t look clients in the face and tell them that the returns would accrue only after they were dead. And when this happened, the death benefits would go to someone else–their heirs. What kind of investment was that? And besides, I had been more of an investment guy than an estate planner, so I avoided life insurance pretty much across the board. Then I learned about the life insurance settlements market, or simply life settlements market.

I learned that seniors could actually sell their policies to inves-tors who would hold and pay for the policy until the eventual death claim was paid. This changed everything for me. What if seniors could activate a policy, and later sell it at a profit? There was a time when there was no question that this could be done. These days doing so may not be that easy, but the point is that a living person has a way to get out of a policy that he/she no longer wants. In fact, policy holders can often make a profit, or at least recover a portion of their investment. For seniors, life insurance is no longer a dead-end street where they are left with an unwanted policy that faced lapse after years of premium pay-ments. Now there is liquidity where once there was none.

I also learned that banks owned tons of life insurance policies on executives who worked at the bank in the past. Large corpora-tions also took out policies on their key employees. After the key employees retired, some retained the policies and others sold them to investors. Warren Buffet is one such investor in these types of policies.

The life settlements market is a large market in which insurance policies are bought and sold every day. We used to say that this market was not correlated to the stock, bond, and real estate markets. Last fall many investors realized that when liquidity evaporated to such a point, all assets dropped in value, regard-less of past correlation.

The life settlements market has been knocked around by the credit crunch in recent years, but the market seems to be re-covering. From a practical standpoint, there appears to be no correlation between how long an individual will live and what is happening in the stock market. This is one of the primary driv-ers behind the growth of the life settlements market. People simply want easy-to-understand investments whose value will not evaporate overnight. I view this market as one of the key areas without any real correlation to other asset classes where investors can get solid returns.

The basic premise is simple – you buy a dollar for a dime and you pay a nickel each year until the dollar matures at some un-known date. My oversimplification is meant to explain that this investment involves buying a contract at a steep discount, with an annual carry cost that is also low. There is, however, no cer-tain maturity date, so the risk is that the insured person lives too long and wipes out any gains you may expect. You can imagine that buying an insurance policy on an 80 year-old male for a dime and paying a nickel each year to continue the policy seems like a safe and profitable investment. Continuing our example, if our 80 year-old male lives to 90, the cost basis is only 60 cents on the dollar.

I recently spoke with a few investment officers of large European pension funds. The investment managers expressed interest in the market, but said that the market would have to grow sub-stantially before they could invest. This surprised me because the market was estimated to be $12 billion or so annually. The problem was that these pension fund managers were managing VERY large funds. A direct allocation (one-half percent of assets under management) would equate to roughly $12 billion and soak up an entire year’s worth of policy sales! This market was clearly not ready for such large investors. Investment manag-ers admitted that they had invested in smaller hedge funds that currently have exposure to the market. The reaction by pension fund managers was an indication that we were moving in the right direction, but that we were not quite there yet.

In recent years, some analysts claimed that we could have a $100 billion market in the next decade or so. This means that in the next few years the same pension managers may seri-ously consider the life settlements market. The growth rate of this market has been around 20 percent annually. Last year’s growth, however, did not keep up with projections, so we will have to see what the future holds.

All in all, I would say that the market is maturing and has ad-justed to the problems in the past 12 months. Clearly there is some correlation between the life settlements market to other markets, but overall the correlation is minor. The life settlements market looks to have a promising future. After we resolve some outstanding tax and regulatory issues, the market should do very well.

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Sionix Corporation is a water company with a unique product and a promising future. The company has done much to perfect its patented water treatment technology. Research and devel-opment success in recent years has translated into commercial deals. Because Sionix’s water purification technology has dis-tinctive advantages, the company stands to capture significant market share in the global water infrastructure and purification market. To better appreciate Sionix’s value, investors will need to understand the global water purification market, the compa-ny’s Elixir water treatment system, and the company’s growth plans.

Although the majority of the earth’s surface is covered by water, only three percent of it is freshwater. And of this three percent, only a fraction is available for use. Today close to one billion people lack adequate access to clean drinking water. Accord-ing to the World Bank, 88 percent of all diseases are caused by unsafe drinking water, inadequate sanitation, and poor hy-giene. About half of the world’s hospital beds are occupied by patients suffering from waterborne diseases. Besides the de-veloping world, the United States has an urgency to upgrade its water infrastructure to keep drinking water safe. According to the U.S. Environmental Protection Agency (“EPA”), the United States will need to spend $334 billion over the next 20 years to maintain and improve the country’s public water infrastructure and to comply with the Safe Drinking Water Act. Of this amount, approximately $60 billion will be needed to upgrade thousands

of water systems that serve fewer than 3,300 people. At any given time, thousands of such water systems do not meet EPA standards.

In addition to the water utilities market, the Elixir water treat-ment system is also ideal for industrial wastewater purification, onsite hotel water purification services, sewage treatment, and water purification needs that arise from emergencies and natural disasters. Further, developing countries have an urgent and criti-cal demand for cost-effective water purification systems.

U.S. federal laws require many industrial companies that pro-duce waste water to clean and process polluted water before disposing of it. Companies subject to such regulations include oil and gas companies, hog and poultry operations, meat pro-cessing plants, and dairy farms. As will be discussed, Sionix has already delivered its Elixir system to an oil and gas customer.

Sediment-based or “slow sand” filtration is the most commonly used water purification method in the United States. This sys-tem, however, has many drawbacks. The method uses filtration beds with very large concrete structures that require large tracts of land, often hundreds of feet long. In addition, the filtration process is time consuming. Filters often become clogged and must be back-flushed with water, which in turn produces ad-ditional waste water. Besides the higher operating costs and greater land use, sediment-based filtration does not protect

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against many harmful pathogens that are too small to be removed by slow sand filtration. To kill these pathogens, water utilities have to use large amounts of disinfectants. Disinfectants can react with organic matters in the water to create harmful by-products, such as Trihalomethanes, a cancer-causing compound.

Sionix’s Elixir water treatment system uses patented dissolved air floatation (“DAF”) technology with the following benefits.

in the water (as well as over 90 percent of dissolved iron and man-ganese), and provides a barrier against microbial contaminants, thereby greatly reducing the need for disinfectants, such as chlo-rine.

back flushing. -

ventional slow sand filtration methods. The Elixir system can treat higher volumes of water with a much smaller physical plant.

40-foot ISO containers that can be easily transported by truck, train, or plane. A customized Elixir system can be delivered to a customer within 12 weeks of the order.

drinkable water, each tiny unit is secure from outside contamina-tion–both deliberate and natural.

-cies and humanitarian missions around the globe.

A single Elixir water treatment system can produce up to 325,000 gallons of water per day, or enough water for 2,400 people or 500-600 homes in the United States. Thus, a single Elixir system can provide the water purification needs for a small community while meeting EPA requirements. In the developing world, where per capita water consumption is much less, a single unit could provide water treatment to a community 10 to 20 times larger. In addition, multiple units can be grouped together for increased capacity.

Perhaps the greatest attraction of Sionix’s Elixir system is its cost. A Sionix water treatment plant costs about three to five times less to construct than conventional plants. Since the DAF system re-moves 99.5 percent of organic matter, fewer disinfectants and back flush processes are needed, which translates into lower operating costs. Chemical disinfectant costs of a Sionix system are up to 20 percent less than those of conventional sedimentation systems.

In 2007, Sionix signed an agreement with the Serrano Water Dis-trict in Orange County, California to install an Elixir treatment sys-tem at the Villa Park Dam to treat runoff water. The company has used this project to continually test, evaluate, and improve the Elixir system. The company has achieved promising results and intends to market the Elixir system to municipalities that want to comply with EPA regulations at a fraction of the cost of conven-tional methods.

In June 2009, Sionix delivered an Elixir water treatment unit to In-novated Water Equipment, an oil and gas services company. The

unit will be used to process contaminated water produced by nat-ural gas wells. Because the Elixir system can be easily shipped onsite, the customer avoids the high costs of shipping the con-taminated water to a treatment plant or landfill. This project could represent a significant opportunity for Sionix, given there are thou-sands of natural gas and oil wells in the United States.

During a recent conference call, Mr. John Pavia, Sionix’s chairman of the board, spoke of the company’s significant growth potential due to the many markets that the Elixir system could serve. He referenced several deals currently being negotiated that will likely be signed by year end. Specifically the company is in the process of signing two multi-unit deals, one with an overseas customer.

Before 2009, Sionix focused on research and development. The company recently began to shift focus from research to marketing and sales. The efforts are bearing fruit, as the company is about to enter into agreements with customers in multiple industries and markets. As the world’s demand for clean water continues to grow, Sionix’s water purification market share will increase. If the world will beat a path to one’s door for a better mouse trap, imagine what they will do for clean water.

Readers with questions about this article should send an e-mail to Steven Greenfield at [email protected] or call 516-300-4070. More information about Sionix Corporation can be found at www.sionix.com.

Footnotes:

1. The remainder is locked in icecaps and glaciers.2. See the EPA’s

3. Of this amount, $75 billion will be for water purification and treatment.

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Veritec, Inc. is an emerging star in the market for mobile financial cards, biometric identification (ID) cards, and the convergence of these technologies into a single universal card. Headquartered in Golden Valley, Minnesota, the company was founded in 1982 by a NASA scientist who invented the original VeriCode® (2-D barcode) to mark and track space shuttle system components. At the time, this data storage technology was considered too complex to be used for human identification. The VeriCode technology, however, helped spawn an industry of public domain 2-D bar codes that are widely used today.

Veritec’s technology is now ready for human identification ap-plications. The company appears headed for great success af-ter integrating its mobile banking software platform with its data processing center and Visa’s third party card transaction services. Veritec’s target markets include prepaid and debit cards and citi-zen identification cards that can be used for secure EBT payment transactions. These electronic cards can be readily linked to the rapidly evolving mobile and Internet communications markets. Veritec operates in a high growth niche. The company’s technol-ogy is available worldwide at low cost. Further, the technology is highly secure and provides unmatched storage capacity and mas-sively scalable data processing.

Using proprietary bar coding technology, Veritec’s Bio-ID card can securely and accurately verify each cardholder’s identity. Veritec’s codes can be printed on inexpensive media, such as plastic cards and paper, using off-the-shelf printers. The technology allows for high security and exceptionally large data storage. These advan-tages allow card issuers to enroll citizens using the Bio-ID card with a complementary suite of software and readers. Veritec is a small company, but its technology and products are robust. With an experienced management team, the company cooperates with strategic partners globally to provide the necessary supporting hardware and system integration. And perhaps most importantly, customers can deploy Veritec’s technology using limited staffing and overhead support. Veritec’s MTC™ mobile prepaid cards have special security and convenient features that surpass those of other financial cards in the industry. Using their mobile phone or the Internet, cardholders can literally turn the card on and off at will, at any time. Money can be transferred instantly to and from the card by electronic funds transfer, check, another card, or using the Visa Ready-link net-

work. The card can be used for payroll, money transfer, and money management in real-time and cost-effectively. Cardholders will no longer need to buy a money order, use a check, or go to the bank or money transfer location. They can simply use the prepaid cards with the Internet or a phone.

To complement its MTC cards, Veritec also offers a state-of-the-art product called PhoneCodes™. It allows merchants and mobile phone carriers to send or receive an electronic ticket, coupon, gift certificate, or a receipt instantly via a text message to a cell phone. For example, when the cardholder uses the Veritec MTC card to purchase products over the Internet, the cardholder can request an electronic receipt to the cell phone. The cardholder can also use the MTC card to receive credit from store coupons or rewards programs as well.

In summary, Veritec is a technology company that has spent over $20 million during the last 10 years to develop its specialized tech-nologies. Its research and development effort has resulted in a suite of great products that are tested and ready for the marketplace. Veritec is a publically traded company (OTC:VRTC.PK). Additional information on the company is available at www.veritecinc.com or www.vtfs.com, or by contacting Jeff Hattara, president and chief executive officer, at (763) 253-2670 or [email protected].

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People take vitamins and mineral supple-ments for various reasons. The most obvi-ous reason is to stay healthy and avoid dis-eases. Few people, however, understand how vitamins and mineral supplements actually work. Even scientists aren’t quite sure either. Knowledge of this area is very much a work in progress. One thing for sure is that current studies have disproved vitamins as a magic bullet to prevent an as-sortment of diseases. Taking a multivitamin is a recommended form of nutritional insur-ance, but you must choose wisely to avoid doing more harm than good.

My fascination with vitamins and supple-ments began when I was a kid. Like many people, I would often read the US Depart-ment of Agriculture (USDA) label on cereal boxes and tried to make sense of what the nutrition and recommended daily allowance (RDA) information meant. My thinking has evolved since then. As a physician, I start-ed dismissing the idea that vitamin supple-ments were essential because of America’s great bounty of foods. Amazingly, conclu-sions about vitamins have changed little.

It’s important for people to keep the follow-ing points in mind:

1) The best source of vitamins and minerals is food.2) Natural supplements are better than syn-thetic ones.3) The belief that more is better is incorrect.4) Vitamins should be taken with meals to maximize benefits.5) Availability is better when the same amount is consumed in a divided dose.6) Scientific research and medical judgment is essential to choosing the right form and dose as research evolves.

Taking multivitamins/minerals is an acceptable option under cer-tain conditions. The devil is in the details. The following discus-sion is designed to help you evaluate the facts and make the best judgment.

Vitamin A is more stick than carrot

Vitamin A is a retinoid compound, which is closely related to car-otenoids. Prominent carotenoids include Lycopene, lutein, and zeaxanthin. Vitamin A is an antioxidant that helps maintain good

vision, a strong immune system, proper bone metabolism, and healthy skin.

People mistakenly believe that vitamin A can protect against can-cer. A disturbing study found that vitamin A actually increased the rates of lung cancer and death in smokers. Another concerning study showed that taking high doses of vitamin A can increase the risk of osteoporosis. A nurse health study of 72,000 postmeno-pausal women found that consuming higher levels of vitamin A significantly increased the risk of hip fractures.

People often take too much vitamin A and in the wrong form. Vi-tamin A is best ingested as food and taken in a limited amount as a retinol, along with beta carotene and mixed carotenoids. Total vitamin A should not exceed 3,000 units per day.

Vitamin B is strong, happy and alert

The B vitamins are water soluble. They are critical cofactors in bio-logic processes that generate energy, support mood and cogni-

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tion. Many people consume B complex vitamins to increase ener-gy and alertness. It has been a popular practice among physicians to administer vitamin B12 as a treatment for fatigue.

As people age, absorption of B vitamins decreases. Medications, such as diuretics, deplete nutrients, notably thiamine B1. Thiamine B1 deficiency can lead to a condition called Beriberi. Alcoholics suffer from a variety of serious problems as a result of extreme thi-amine B1 deficiency, including amnesia and cognitive impairment known as Wernicke-Korsakoff syndrome. An amount of thiamine in excess of the recommended daily allowance is good insurance. Riboflavin B2 participates in a variety of reactions in metabolism that generates energy. The USDA recommended daily allowance is around 1 mg, which is easily obtained from food. Higher amounts in B-complex preparations are safe. A 400 mg dose of riboflavin has been used for prevention of migraine headaches. Niacin, known as nicotinic acid or vitamin B3, is an essential nutri-ent. Niacin deficiency can lead to diarrhea, dermatitis, and de-mentia. It occurs in situations of extreme poverty, malnutrition, or chronic alcoholism. In doses of 500 mg to several grams, niacin becomes an effective drug to improve lipid profiles, lowering cho-lesterol and triglycerides, and raising the good HDL cholesterol. Flushing is a common side effect but the popular “flush free” inosi-tol Hexa-nicotinate does not improve cholesterol profiles. Pantothenic acid or vitamin B5 participates in energy production within the cell. The daily required dose is about 5 mg but more is not harmful. A derivative of vitamin B5, pantethine has been shown to improve lipid profiles in 600 mg and 900 mg doses, but the re-search is preliminary. Biotin or vitamin B7 is important for maintaining healthy hair, skin, and nails. Although the recommended daily allowance is only 30 mcg, up to 300 mcg in a multivitamin is suggested. High levels of homocysteine are associated with vascular disease, both of the arteries and the veins. It is associated with impaired circulation and osteoporosis. Several studies confirm that three B vitamins–pyridoxine B6, folate B9, and cyanocobalamin B12–significantly reduce homocysteine, but the impact on the disease was modest at best. Women who are going to become pregnant should consume folic acid to prevent neural tube defects. Some studies suggest folic acid reduces the incidence of colon cancer while another study found folic acid increased the incidence of prostate cancer.

Pyridoxine or vitamin B6 has been advocated as a treatment for carpal tunnel syndrome while higher doses may cause nerve dam-age.

Despite conflicting data, generous quantities of folic acid, vitamin B6, and vitamin B12 are recommended to support a healthy, nor-mal level of homocysteine.

Vitamin C – less may be more

Vitamin C is an essential nutrient for humans and has been pro-moted for the prevention of the common cold and treatment of cancer. Vitamin C is an antioxidant with biological effects on hair, skin, and immunity. The disease scurvy is cured by the ingestion of food containing vitamin C. The British slang term, Limey, refers to the consumption of limes by British sailors to prevent scurvy.Research has yet to prove conclusively that vitamin C is effective in preventing or treating respiratory infections, despite the popu-lar sales of commercial preparations. Current studies of vitamin C alone or in combination with vitamin E have failed to show that it prevents vascular disease, cancer, or intellectual decline. A quan-tity in excess of 200 mg of vitamin C is minimally absorbed and those who take excessive quantities are enriching their toilet wa-ter.

There is no evidence to support high dose of vitamin C for its cu-rative powers. The recommended daily intake is 90 mg, but twice that amount would be fine. Natural sources are preferred without proof of superiority.

Vitamin D achieves honor grades

Vitamin D is the current superhero vitamin. It is essential to the absorption and use of calcium. Vitamin D deficiency has been as-sociated with a variety of diseases, including osteoporosis, cancer, and heart disease. There is tentative evidence that vitamin D may prevent conditions as diverse as multiple sclerosis and prostate cancer. Scientists are currently studying the role of vitamin D in the prevention and management of breast cancer.

The active vitamin D3 or cholecalciferol is manufactured in the skin with the help of sunlight, a natural form of vitamin D. Vitamin D deficiency is more common in climates where sunshine is rare and in people with dark skin. Rickets, a disease caused by vitamin D deficiency, has all but disappeared in developed countries, but de-ficiency in children has been associated with a variety of diseases in later life.

Vitamin D can be supplemented in amounts higher than the 400 units previously recommended. It appears that 800 to 1000 units are appropriate for anyone and can be increased for people with osteopenia or osteoporosis.

Vitamin E no longer stands for excellent

Vitamin E is a popular supplement with an interesting history. It was promoted as a sex tonic based on faulty logic. People be-lieved that because vitamin E deficiency caused degeneration of the sexual organs and function, supplementation would make one super sexual. This is no longer considered as a reason to take vitamin E.

Vitamin E is an antioxidant that many people believe will prevent diseases, notably vascular disease and prostate cancer. Several studies have disputed such claims. Recent studies have shown that taking vitamin E (up to 400 IU) does not postpone or prevent heart problems and may actually do harm. Part of the problem can

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be attributed to the massive supplementation with the synthetic d-alpha-tocopherol acetate rather than the eight natural forms. The recommended daily intake is 30 IU yet 400 IU of d-alpha-to-copherol acetate were most commonly consumed. The adverse results from excessive supplementation of vitamin A and vitamin E may reflect that the single form saturates the receptors blocking the benefits from the other carotenoids and tocopherols. A more natural and better alternative would be to use mixed tocopherols; taking mixed tocopherols in amounts up to a little more than 3O IU per day is probably best.

Vitamin K is for clotting

The K factor derives from the German spelling of coagulation and most people recognize the association of vitamin K with clotting cascade. It has also been shown to reduce hip fractures and may have other benefits. There are at least five forms: vitamin K1 to K5. Vitamin K2 is becoming the darling of the nutrition industry. Vitamin K supplementation is beneficial in a multivitamin and in preparations designed to reduce the progression of osteopenia and osteoporosis. Vitamin K2 may be beneficial for cardiovascular health, but the high cost does not justify the tantalizing benefits touted by emerging data.

Vitamins are most often provided in combination with minerals, calcium, magnesium, zinc, copper, selenium, and others. There are well-known interactions within tablets: vitamin-to-vitamin, vitamin-to-mineral, and mineral-to-mineral. It is best to provide vitamins in two tablets, separating those known to interact and dividing the daily doses of others to enhance absorption and the biologic availability.

The science of optimal supplementation is evolving but you now have the facts for making the best judgment based on current sci-ence.

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Best Doctors in America.

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Three days after Chris Fey’s first birthday, a tragedy occurred that set the stage for what would become his life’s purpose. His 29-year-old father died of colon cancer. Fey had no memory of him–only the direct experience of how disease and death leaves an imprint on those left behind.

A second experience is still vivid in his mind. On a carefree Sunday afternoon, Fey and several members of the family were boating on the Intracoastal Waterway near Jacksonville, Florida. The 46-foot luxury boat was one of the tangible rewards of a successful career in building HMOs and nothing made Fey happier than to be be-hind the wheel.

“Jim, my brother-in-law, was standing right beside me,” Fey said. “Suddenly, with no warning, he suffered a mas-sive stroke. He was only 39 years old. He survived, but he’ll never be the same.”

That event shook Fey and he started digging deeper into how such a calamity could have occurred. Jim had ac-cess to excellent medical care and had played by the rules. Despite having spent his entire career in health care, what Fey learned sur-prised even him.

“Essentially, the medical system is designed to care for the sick, not to prevent those in good health from getting sick. I knew the system was not geared toward prevention, but I had no idea how difficult it was for employers, government agencies, and other organizations to steer individuals toward a sound prevention pro-gram.”

Fey immediately founded HealthScreen America, Inc., a retail center offering consumers their choice of blood tests and di-agnostic screenings, such as ultrasounds and CT scans of the heart, lungs, and colon. It wasn’t until the 2004 creation of U.S. Preventive Medicine, Inc., however, that all of the components of a cohesive prevention solution began to come together.

The timing could not have been better as the nation continues to reel from escalating health care costs. Preventable illnesses, such as heart disease and diabetes, account for eight of the nine leading causes of death in the United States and contribute to 75 percent of all healthcare spending. That amounts to $2.26 trillion or $7,439 per person every year, according to the American Col-lege of Preventive Medicine.

“These health care costs are usually driven by situations – such as hospitalizations, emergency room visits, poor medication

compliance, deviations from treat-ment plans – that can be prevent-ed when the appropriate steps are taken at the right time,” said Fey. “The problem is in knowing where to turn for a trusted advocate to help navigate these key compo-nents of prevention. The solution is getting the right care at the right time and at the right price…as we help our members do.”

The Milken Institute study, “An Unhealthy America: The Econom-ic Burden of Chronic Disease,” points to three critical solutions that would save the U.S. $1 trillion annually and chart, as the study’s subtitle suggests, “A New Course to Save Lives and Increase Pro-ductivity and Economic Growth.”

“Those three solutions, it turns out, are exactly the business we are in. Milken, which is a nonparti-san think tank, says the keys to getting health care costs under control are prevention, early detection, and chronic condition management,” said Fey, who serves as the company’s chairman and CEO.

The company has bundled the clinical practice of primary, sec-ondary, and tertiary prevention into a health benefit plan, much like a vision or dental plan, and named it The Prevention Plan™. Fey said this suite of intensive wellness, chronic care manage-ment and early disease detection programs were specifically de-signed to improve health outcomes while reducing health care costs. While the company does not take risk or pay claims, it does stratify the risks of each member and uses Web 2.0 tech-nology to push customized content, action plans, services, and care coordination to each member.

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“Quite frankly, we continue to have an amazing reception in the marketplace. From car dealerships to health system medical de-partments to the world’s top benefit consultant firms, employers are implementing The Prevention Plan because they can see that it works,” said Dan Tillotson, CEO of The Prevention Plan. “We educate individuals about their health risks, teach them what to do, when to do it, and provide them with all the assistance they need each step of the way.”

It’s an investment employers are realizing they must make.

“Why would an employer pay for a health management program like this? Double digit increases in health insurance costs year over year give them little choice,” Tillotson said, “A comprehen-sive program like The Prevention Plan ultimately puts payors in charge of their health care costs. Employees get ahead of the curve by getting the knowledge and support to stay healthy or to better manage their health risks, which translates into a long-term savings over time. There is plenty of evidence that supports the premise that prevention provides a return on investment. That’s why we back our program with a guarantee.”

INNOVATIVE PRODUCTS:

The Prevention Plan

This groundbreaking program enables individuals to determine their top health risks and receive a customized plan and coaching from nurses to lower those risks. The key is the expert coaches and registered nurses who provide members with encouragement every step of the way. If members need health and prevention information, they can call a registered nurse any time of the day or night.

Members also receive a “one-stop,” personalized Web site to store medical information, complete educational health programs, receive reminders about needed screenings, track personal prog-ress, and learn about work-related preventive benefits and incen-tives.

One of the most innovative elements of The Prevention Plan is the Prevention Score, which tracks an individual’s preventive actions over time. The Prevention Score allows employers to track and reward an employee’s individual prevention efforts throughout the year, while still protecting their privacy. It works in three ways:

indicators, such as cholesterol level, blood pressure, smoking status, and body measurements over time;

recommended prevention steps during the year, such as annual screenings and participating in online action plans;

and reward healthy behavior based on the prevention level that the employee achieves.

In addition, The Prevention Plan offers challenges and prize draw-ings throughout the year that employees can participate in for ad-ditional motivation and rewards.

Employers and sponsors are not forgotten. They receive in-depth reports about the employee population at regular intervals. These opportunity reports are invaluable in understanding the health and lifestyle risks of their population, so wellness and care manage-ment programs can be directed most effectively to reduce those risks. The report provides an aggregate analysis of information that includes:

education, division, location, health plan, etc.;

pre-condition risks, diagnosed and projected chronic conditions;

The Prevention Plan CM™

The Prevention Plan CM™ brings intensive disease management resources to individuals with costly chronic conditions. By under-standing the barriers that impede better health and working close-ly with each person and associated health care providers —either by phone or in the home and workplace— registered nurses in The Prevention Plan work to limit the progression of an existing condition and detect other potential issues before they can cause harm. The program focuses on intensive personalized care to in-dividuals to help them comply with their physician’s care plan, manage their condition more effectively, and improve their overall health and productivity. Components include:

resources, family members, and others;

engage the member in lasting, lifestyle changes;

conditions, including asthma, CAD/PVD, chronic obstructive pulmonary disease, diabetes, HIV/AIDS, high risk pregnancy and maternity, obesity, and mental health issues.

The Prevention Plan Premium

This concierge program, designed especially for busy individu-als, offers the most extensive assessment of an individual’s overall health. The program includes all of the benefits of The Prevention Plan, plus:

with a direct telephone number;

scheduling, and HRA completion;

convenience – home, office, or lab facility;

coaching, education, and support;

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Program or Advanced Preventive Diagnostic service through the Global Prevention Network affiliate of choice;

The Prevention Plan Prime

By closely collaborating with the medical staff at senior living communities, RN Advocates provide PrimeSM members with thorough, long-term preventive services, such as health risk as-sessments, personal coaching, and resource coordination. Life-style improvements related to safety, diet, and exercise also are addressed. The RN Advocate even serves as a personal liaison with family and communities services when needed.

REMAINING AT THE FOREFRONT

Each of these proprietary advancements is positioning U.S. Pre-ventive Medicine as the “game changer” with first mover advan-tage in the business-as-usual health care market. Other U.S. Preventive Medicine innovations include the ROI Calculator, which integrates comprehensive national data analytics with a company’s specific information to predict how much the com-pany can save over time with U.S. Preventive Medicine products. The ROI Guarantee offers clients the reassurance that defined goals will be realized.

The Prevention Plan is available now throughout the U.S. via the national broker distribution channel, which includes Aon (The Prevention Plan’s largest customer) and other top tier firms. Net-work relationships include Mayo Clinic, Mt. Sinai Medical Center in New York, Massachusetts General, American Hospital in Paris, Parkway Health in Singapore (largest health system in Southeast Asia) and many other top U.S. and global firms.

The company has a seasoned management team and approxi-mately 125 employees with corporate offices in Dallas, Texas; an operations/member care center in Jacksonville, Florida; and satellite offices in Chicago, Los Angeles, and London. Nurses and other staff also work directly “on the ground” with members in their communities throughout the country. In 2008 the interna-tional enterprise was launched in London and full development is underway.

Tommy Thompson, former U.S. Health and Human Services Secretary and four-term Governor of Wisconsin, is helping the company achieve its goals. As the company’s national policy advisor, Thompson is assisting the company in mobilizing em-ployers, government entities, and health care providers to focus on prevention as the solution to the health care crisis facing the nation. The company’s distinguished National Advisory Board is co-chaired by Ron Loeppke, M.D., MPH, along with David Nash, M.D. Dr. Nash is the Dr. Raymond C. and Doris N. Grandon Pro-fessor of Health Policy and Medicine at Jefferson Medical Col-lege of Thomas Jefferson University in Philadelphia, while Dr. Loeppke is the former chief strategic officer and executive vice president of Matria Healthcare, Inc. Both physicians are highly regarded and are active in defining and establishing measure-

ment criteria for research on the frontlines of the health and pro-ductivity arena.

Make no mistake–Chris Fey’s original mission has not changed. He intends for U.S. Preventive Medicine to become the next powerhouse in health care.

“Throughout history there are innovations that change the course of history, whether it was fire, the wheel, the automobile, or the computer,” Fey said. “Prevention is a dynamic concept whose time has finally arrived. By providing individuals and employers with a comprehensive suite of tools across the entire health care continuum, U.S. Preventive Medicine can help them save money and increase productivity. More importantly, we can change be-havior to help people live longer, healthier lives.”

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If history is any indication, our current recession will come to an end thanks largely to job creation. When people are working they are being productive, earning wages, spending, saving and hence causing growth.

The secret to long-term job creation, however, lies with small companies. And the success of small companies depends on having access to capital. Unfortunately, the current economic distress in the United States has hit emerging growth companies the hardest. Over 14 percent of small companies have had to lay off employees.

When business is good, investment capital and innovation spawn new companies with new sources of revenue, which in turn drive mergers and acquisitions, job growth, and government tax receipts. When business ebbs, capital and innovation shrink at a rate faster than more established companies. This is why it becomes important to take steps to encourage private equity to invest in the U.S. economy.

To the country’s credit, the U. S. economy is the most entrepre-neurial in the world. Contrarily this strength is not being tapped to its fullest potential. Since the 1980’s the U.S. government has backed big businesses almost exclusively. This began with the repeal of the Glass-Steagall Act, which allowed banks, insurance companies, savings and loans, stock brokerage firms, and other financial institutions to merge. At one point these firms became so big that there was little room for small entrepreneurs and emerging growth companies.

Paying attention to the U.S. Congress and the White House is one of the best ways for companies to remain profitable and competitive. Companies that received government favors have seen dramatic results to their bottom line.

The University of Kansas released a study in April 2009 that quantified the value of lobbying efforts in Congress. In one ex-ample, 93 pharmaceutical companies spent a combined $282.7 million on lobbying for a tax repatriation holiday. Their effort to change the law saved the companies $62.5 billion, equating to a 22,000 percent return on their investment. Companies that are just now harnessing the critical power center in Washington, D.C. may be able to save their business. Those that choose to ignore Washington may fail.

This column offers an inside view of the nation’s capital and will try to help answer some of the following questions:

company anticipate in this legislative session?

the ever aggressive White House or a progressively splintered Congress?

help a micro-cap company?

As fellow entrepreneurs, we understand the trials and tribulations of running a business. Like many of our readers, we look forward to the return of emerging companies.

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How many times have readers come across an obituary about a start-up company? After nine months of operating in the red, the company is slapped with eviction notices, the company cars have been repossessed, the phones have been cut off, and the credit cards have been maxed out.

And yet the serial entrepreneur with unbridled enthusiasm, gravi-tas, and an iconic work ethic remains unfazed and continues to see the glass half full. He sees the global meltdown in capital mar-kets as an aberration and the siege that has affected so many of our businesses since the fall of 2008 as a bump along the road to eventual prosperity. He views threats to the basic underpinnings of the free market system as “threatportunities.”

Micro-cap leaders have the vision, rapier focus, and DNA of a modern day Sherpa, carefully navigating the precipices of Mount Everest while moving companies to new frontiers and battle-grounds. Leaders see new opportunities around the corner where technology and innovation can change market economics.

Some serial entrepreneurs have a ready-fire-aim orientation and are searching for a solution for which there may not be a problem. At Stanton Chase, we believe that the real growth and transfor-mational breakthroughs will emanate from early stage companies that embrace innovation, quality, and continuous improvement.

Success depends on these entrepreneurial, unheralded folk he-

roes who have a sixth sense in achieving peak performance. They are willing to bet on their own success against all odds from mar-ket turbulence and global competition. We are reminded of Peter Drucker’s quote, “Most American companies are over-managed and under-lead.” Drucker was referring to some of the large mul-tinationals that have become muscle bound and caught up in ad-ministrative inertia, companies that have lost their edge, purpose, and values.

At Stanton Chase, we are looking for executives who can make a difference. We look for people with a proven track record in mov-ing companies from good to great. These executives have vision-ary leadership qualities and are committed to excellence.

Stanton Chase Leadership Solutions for Micro-cap Growth Companies

Stanton Chase International is a talent management company with 69 offices in 41 countries. It is considered a leadership capital consulting firm focused on C-suite recruiting for venture backed, micro-cap, and Inc. 500 firms, as well as multinational companies around the world. We believe that the best way to build share-holder value is by helping clients win the “war for talent.” Building the leadership annuity within growth companies is a tricky deliver-able because of the changes in executive leadership skills that are required at different stages of the corporate life cycle.

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More importantly, we recognize that the race to success is not a marathon but a relay. We pride ourselves in trying to preserve the vision and cultural ethos of the founders, as well as the market differentiators that enable the micro-cap company to become a leader. We also recognize that entrepreneurial leaders may not al-ways have the skill, bandwidth, or experience to take the company to the next level. We are constantly managing the expectations of key stakeholders. When asked to seemingly do the impossible, we sometimes respond by saying that we believe in miracles but hate to schedule them! Founded in 1989 with a handful of offices in Europe and the United States, Stanton Chase not only has the strategic resources of a large global search firm, but also the ex-pertise to provide local insight, knowledge, and experience that only a local boutique firm can provide. We are in effect “glocal” in our style and outreach.

We have a proven track record of attracting, developing, and sus-taining leadership talent across a wide range of industries and ge-ographies. Stanton Chase has completed more than 1,000 search-es for C-suite micro-cap or emerging growth companies. We have worked with more than 80 investment groups, ranging from ac-celerators, incubators, and angel funds to traditional venture capi-tal and private equity firms, hedge funds, investment banks, and leveraged-buyout firms. We have frequently been equity investors in our clients, along with board members, accountants, lawyers, and other key financial advisors.

We pride ourselves for being smaller than some of our competitors to avoid potential conflicts of interests that may be inherent within larger firms. Our goal is to vertically integrate more value-added recruiting solutions to a smaller group of clients wherein we have developed a preferred provider relationship. Our service offering includes psychological profiling, benchmarking, and competitive analysis. We also offer an effective on boarding program that fo-cuses on the cultural assimilation of our placements, as well as business performance metrics and deliverables. Given the malaise that many companies face in evaluating or assimilating executive talent, Stanton Chase has become a pioneer in top-grading talent and benchmarking the competition by providing an a la carte menu of talent acquisition services on a project fee or time and materials basis. In our traditional executive searches for early stage compa-nies, we use unique milestone billing beyond the initial retainer and search guarantees that is at or beyond standards set forth by the Association of Executive Search Consultants.

Stanton Chase has been successful in developing special relation-ships with various affinity groups that focus on micro-cap compa-nies. These groups include leading venture forums, the Associa-tion for Corporate Growth, the National Association of Corporate Directors (NACD), the American Institute of Certified Public Ac-countants (AICPA), and the Financial Executives Institute (FEI). A number of Stanton Chase partners have served as board members of early stage companies and have also been leaders or members of international networking groups, such as Vistage International, Young Presidents’ Organization, World Presidents’ Organization, Chief Executives Organization, and Entrepreneurs Organization.

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RDI, the Most Undervalued StoryNow, what’s a better American pastime than going to the mov-ies?

Reading International, Inc. (RDI) $4.03, NASDAQMarket capitalization – $81 million

Billionaire Mark Cuban Discloses Additional Purchases of RDI Stock on June 9, 2009

With $28 million in cash plus a solid balance sheet, RDI is a top value and growth story:

Year Revenues2008 $191 million2007 $119 million2006 $106 million

RDI develops and owns single-screen and multiplex cinemas, live theater sites, and real estate properties. The value of the cin-ema and real estate assets is very compelling, especially when you project the impact of revenues from the developed real es-tate properties.

RDI has 468 cinemas in the United States and overseas. If we conservatively value each cinema at $400,000, the worth of all cinema properties is $187 million. New cinema screens may cost $1 million and big operators get value at about $500,000 to a $1 million.

About 70 percent of RDI’s assets are related to real estate ac-tivities. The real estate assets are undervalued with book value of $188 million and current estimated value of $344 million. A significant amount of Reading’s owned real estate is booked at acquisition cost from the mid-1990s. The properties are cur-rently being converted into higher value uses for cash flow or gain on sale.

RDI holds a significant amount of land for development in Aus-tralia and New Zealand, including a 53-acres property deemed a “major activity centre” in the Burwood area of Melbourne, a three-acres site located in the Moonee Ponds area of Mel-bourne, a two-acres site in the Auburn area of Sydney, and a one-acre site in downtown Wellington, New Zealand. The Bur-wood, Melbourne property alone costs $500 million and has a terminal value of over $1 billion. RDI has this property on the books at $24 million.

If we add the movie screen value of $187 million to the $344 million estimated value of the real estate holdings, we have a total market value of $531 million. Based on the math, you can see the value play here when we consider that the stock market capitalization of RDI is only $81 million.

The upside going forward is that RDI’s prime real-estate devel-opments in Australia and New Zealand around the multiplexes will be completed within the next few years. These properties will generate significant cash flow. Subtract debt service from the cash flow and big net numbers fall to the bottom line.

RDI has a terrific shareholder list and a very conservative and experienced management team. About 27 institutions and mu-tual funds own in aggregate 30 percent of the shares.

In my opinion, RDI’s stock is undervalued.

* In a Form 4 filing made with the SEC on June 23, 2009, billionaire Mark Cuban disclosed1. An initial purchase at $4.51/share of 500,000 shares or 2.4 percent of Reading’s Class A stock (A-RDI); and 2. An incremental purchase at $6.84/share of 50,100 shares of Reading International Class B stock (A-RDI/B), increasing his investment to 207,511 or 13.9 percent of Reading’s Class B shares; on June 8, 2009, Mr. Cuban disclosed a 10.5 percent stake in RDI voting shares. Recent News:

Despite the strength of the Australian and New Zealand curren-cies over the last several years, Reading’s total revenues and EBITDA increased by 1.2 percent and 76 percent, respectively. The results reflect another quarter of strong box office results. In local currency, Reading’s Australia and New Zealand businesses enjoyed strong cinema revenue growth of 33 percent and 15.5 percent, respectively. Global box office releases for the remain-der of 2009 continue to look appealing.

The segment summary for the quarter ended June 30, 2009 is as follows:

- Cinema segment revenue (90 percent of Reading’s total rev-enue) and EBITDA growth of 3.5 percent and 81.5 percent, re-spectively, was strong despite the gains in the Australian and New Zealand currencies that mask strong local results. This growth was driven by box office success and operational im-provements at Reading’s Consolidated Entertainment cinema subsidiary in Hawaii and California where operating income im-proved by 70 percent from the prior year.- Real Estate segment revenue (10 percent of Reading’s total

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revenue) fell 6.6 percent, while segment EBITDA grew 0.9 percent, reflecting year over year Australian and New Zealand currency headwinds. Reading’s Indooroopilly office property in Brisbane, Australia completed construction near the end of the quarter and will begin contributing to Reading’s real estate operations in the third quarter of 2009 (see discussion below).

Other items of note:

RDI retired $22.9 million of its 9.2 percent Trust Preferred Securi-ties (sub-debt) acquired in a prior quarter and recognized a siz-able net gain of $10.8 million. Readers should note that while cash interest costs will decline by $2.1 million per year from this debt retirement, going forward interest expense declines will be offset by cash interest costs (that didn’t change). The interest costs will now be expensed on properties newly classified as “held for de-velopment” that were previously capitalized and classified as “un-der development” under GAAP.

Recent zoning developments near Reading’s Auburn shopping center (ETRC) in Sydney, Australia will enhance the future pros-pects and property value. The zoning improvements should help mitigate the fallout from losing a sale agreement on this decade-long holding.

Reading’s cash flow improved during the past quarter. Cash in-creased to $22.1 million and debt declined to $224.8 million when compared to the prior quarter. Reading also renewed and ex-tended the term of its New Zealand credit facility from November 2010 to March 2012. At June 30, 2009 Reading has $23.1 million of combined undrawn credit on its Australian and New Zealand credit facilities.

Based on the profits and gains in the Australian and New Zealand currencies, Reading’s shareholder equity rose 48 percent sequen-tially to $93.8 million at June 30, 2009. Currency values continue to move higher during the third quarter 2009 but at a slower pace.

Important subsequent events are as follows:

Reading re-listed both classes of its common stock from AMEX to NASDAQ. The company maintained the RDI symbol and adopted the RDIB symbol for the Class B voting stock.

Reading finalized a sale and legal settlement with its partner, Ma-lulani Investments and affiliates. The agreement will allow Read-ing to recoup its investment and years of legal expenses with an upfront $2.5 million cash payment and a $6.75 million, three-year secured note, along with a ten-year “tail interest” in Malulani and its parent company. Reading’s arrangement with its partner calls for Reading to receive the first part of this $9.25 million settlement until Reading has recouped its initial investment and all costs ad-

vanced by Reading with respect to the litigation.

At the end of July, Reading’s new six-story Indooroopilly office building was completely leased to the city of Brisbane under a three-year lease with options for extension. The construction loan on this building was also paid off from Reading’s operations.

It’s also worth noting that I own shares in RDI.

To obtain a Knobius research report that provides a wrap-up of RDI, please send me an e-mail at [email protected]. More information on RDI can be found at the company’s Web site at www.readingrdi.com.

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On the Market-

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Viper Powersports (VPWI.OB) has introduced the 2010 Diamond-back, the first of its line of Super Cruiser motorcycles. After seven years of engineering development, two severe recessions, and $30 million of product development costs, “We believe we have created the finest high performance, Super Cruiser motorcycle in the world,” commented John Silseth, CEO and founder of the company.

What sets Viper apart from competitors is the design specifications and engine technology. The company brought in a group of world-class design engineers that worked on the original Victory Motorcycle team. The bike was designed using a computer aided design (CAD) system that allowed it to be built from the ground up. “This is not a custom bike. This is a precision, high performance vehicle. It has negligible high frequency vibration at higher speeds. It corners and accelerates like a cheetah,” smiles Silseth. “We use a lot of 6160 grade aluminum billet on the bike, which is a lot lighter and looks beautiful.”

The engine on the Viper Dia-mondback is an all aluminum billet, 152 cubic inch, 120 horse-power, air cooled, V-twin that generates up to 144 ft lbs of torque from 1,800 all the way to 4,000 RPM. That compares to an anemic 86 ft lbs of torque from the most powerful Harley David-son engine used on the newest generation of bike, the V-Rod. “The important thing to measure is torque, not the horsepower,” said Silseth.

Viper entered into an engine development agreement with one of the most respected en-gine designers in the world, Al Melling. Melling is among the “Who’s Who” of Formula One racing, and has designed en-gines for Jaguar, Ferrari, Lam-borghini, TVR, and Dodge (Viper V-10). The engine he built for the Jaguar won the 24 Hours of Lemans three times in a row in the mid 1990’s. Viper’s engine was designed to fit into every Harley Davidson built since 1992. According to Silseth, “We wanted to make sure that our bike would be recognized as one of the top motorcycles in the world, and if you didn’t want to buy our bike, you could ‘Viper-ize’ your Harley and double its power. With about four million Harleys on the road since 1992, we really wanted to sell into that market, giving us two swings of the bat at success.”

Viper’s investment banker for the past two and a half years has been William H. Watson, III who once headed up Brookstreet Securities Venture Finance Group. He recently became vice president of invest-

ment banking for Choice Investments, Inc. of Austin, Texas. “Bill’s pretty unusual for an investment banker,” said Silseth. “He invests in most of the companies that he takes on as an investment banker. When we were looking at bankers, we really needed someone who not only could see where we were at the time, but who could see the company’s potential if we could pull off our EPA approvals and start to commercialize the products. Bill’s father was a very successful dirt track stock car driver in the Midwest in the 1960s and 1970s, so Bill really was a bit of a speed junkie.” Silseth found out through the grapevine that Watson and his group had completed 21 transactions in a row, and had raised about $250 million within four years. The company invited him to Minneapolis to visit the plant. Watson took one of the motorcycles out for about a 30-minute ride. When he rolled back into the plant, all he could

do was grin from ear to ear. He told Silseth, “You guys are going to make a fortune on this deal, and I want in!” Watson agreed to take on the deal, bought the second mo-torcycle that Viper built with the new engine, and made a six-figure invest-ment into the company. “The Viper Diamondback is incredible,” said Wat-son. “This is an amazing piece of engineering. The bike weighs 200 pounds less than a Harley David-son, is twice as powerful, and looks like a piece of jewelry. Wherever I park the bike, crowds would form as they try to fig-ure out what kind of mo-torcycle it is. John and the team built a piece of rolling art with a budget

of $30 million where Har-ley spent $175 million to launch the V-Rod, and Victory spent even more. The Viper kills every cruiser or custom bike on the market in every category. It has the style and comfort of a long haul cruiser and speed and acceleration of a sport bike. I think it will be recognized as being in a category all of its own.”

“With a retail price of $37,000, it’s a bit pricey. It’s about six to ten thousand dollars higher than the Harleys, but at the same time it’s about 20 to 30 thousand dollars less than the custom bikes that ride awful. I’d rather spend the extra ten grand for something this unique and special. After I went back home to California, I went for a ride on one of my buddies’ Harleys. After about 10 minutes, I really under-

VIPER POWERSPORTSLaunches Sales Effort

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stood why they called it a HOG,” laughed Watson. “I couldn’t wait un-til Viper delivered my bike. The best comparison of a Viper to a Harley Davidson is comparing a Ferrari to your grandpa’s Packard. They both roll on two wheels, but that’s about where the similarities end.”

After Watson’s firm was engaged in the project, Silseth held the com-pany together in a difficult environment. Harley’s sales were deterio-rating, as were most high end luxury items. Viper’s major competitors, which were both selling 5,000 units per year, were getting hammered. American Iron Horse from Dallas closed its doors, and Big Dog was on a respirator. The typical flooring financiers like GE Capital and Textron pulled in their horns and left the market for a while. “We could see that

we needed to bring in enough money to keep the lights on until Viper got its EPA and state emissions approval and downsized its overhead and manufacturing facilities. Fortunately, John and his team pulled it off in spades. The key to longevity in any business is survival,” said Watson. In this difficult economic environment, Silseth and his team cut their overhead by 70 percent and now can survive by selling only six to seven motorcycles per month.

Silseth then recruited a couple of franchise players to join his man-agement team. After seven years of watching the development of the company as a board member, Terry Nesbitt joined the team as president in December 2008. Nesbitt had brought 30 years of industry experience to the table. He was previously national sales manager of Polaris and helped build it into the largest all terrain vehicle (ATV) man-ufacturer in the world. He also wrote the original feasibility study for Victory Motorcycle, and grew it from launch to about 6,000 units per year. “He has more long term relationships with the dealer network in the motorcycle industry than about anyone else we could have found. In fact, since he joined the board, he has been waiting to help us build the national sales network. It’s a dream job for him. We couldn’t have selected anyone better to fill this role. In the past three months since Terry took over as president, we have added over 20 dealers and have several dozen more that want to sell our products once we can deliver in bigger volumes,” said Silseth.

Six months after hiring Nesbitt, Silseth brought in Andrew Broadley who joined the Viper team as technical director and manufacturing operations manager. Broadley had been involved in the Viper project for several years, and Silseth felt the timing was right to bring him in to oversee the product manufacturing roll out. Broadley had brought over 25 years of experience designing race cars, streetcars, and mo-torcycles. He had been the chief technical officer and senior director of engineering for Indian Motorcycles, chief technical officer of GT40 North America, and had spent 18 years with his father Eric Broadley, the founder of one of the most prestigious race car manufacturers in the world, Lola Cars Ltd., U.K. Broadley was responsible for the de-sign of many successful hand-built Formula One and sports race cars and contributed to the company’s impressive growth during the late 1980s and early 1990s. Silseth remarked about Broadley, “You can’t find a better industry pedigree.”

Broadley has been the key in formalizing Viper’s ongoing engine de-velopment and engine assembly agreement with the leading high performance engine company in the world, Roger Penske’s Ilmor Engineering (www.ilmor.com). Ilmor has designed and manufactured high-performance racing engines for automotive, marine, and other motorsports racing clients, as well as non-racing engines for upscale products, such as the Dodge Viper sports car.

Ilmor engines have had phenomenal success in racing for over 20 years. The company has to its credit 15 Indy 500 wins, 206 Indy Car wins, 187 Indy Car pole positions, 11 Indy Car drivers championships, and 6 Indy Car team championships. Ilmor also builds engines for NASCAR, Formula One, Mopar Midget, Kart, and Baha desert off-road vehicles, as well as marine racing engines for Donzi and Eliminator.

“We truly believe that we have assembled a dream team to launch this company. Our next goal is to finish building out our dealer network and to significantly increase production to satisfy demand. Our exist-ing manufacturing plant can handle up to 1,000 units per year. If you like the Diamondback model, just wait till you see our next model, the Mamba. It’s a bit longer, has an extended rake, and the gas tank looks like a woman’s rib cage. It looks like the kind of bike that Arnold Schwarzenegger should have ridden in the movie, . We think it’s going to knock the industry off its feet,” said Silseth.

The public can see the prototype of the Viper on the company’s Web site in a video that was shot at an air show with the U.S. Air Force Thunderbirds. Terry Nesbitt was brave enough to race an F-15 jet for a half a mile on the runway in a time trial. Riding on the Viper Mamba, Nesbitt turned the half-mile in 16.33 seconds, beating the jet by 3 sec-onds. He hit a top speed of about 168 mph. “I will not be doing that again,” exclaimed Nesbitt. “I’ve got too many gray hairs and I’m way too smart to try it a second time!”

Each motorcycle company shares some common keys to its success. For Viper, the final and most important key to its success may be the ignition key!

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Considered as one of the top financial advisors in the United States, Mr. Yaron “Ron” Reuven is president and CEO of Reuven Enterprises. Mr. Reuven brings extensive management, financial, and investment experience to the company. With an expertise in financial model and theory analysis, business valuations, and financial industry compliance, Mr. Reuven has been a valuable asset to many business owners and C-Level executives in more ways than just managing their liquid assets. He began his Ameri-can dream at the age of 10 when his family emigrated from Israel to the United States. He became involved in business early on and has been exposed to a variety of industries and business models. This experience has cemented his unique investment and business philosophy. He established his FINRA member broker/dealer when he was only 26 years old, making him one of the youngest individuals to ever independently open a FINRA member firm.

Mr. Reuven began his career in the securities business in the New York City branch of First Union in 1999. At First Union, he began developing his own research and investment philosophy, while learning more about the operational side of the financial services industry. In June of 2001, he was recruited by Raymond James Financial, one of the largest financial firms in the coun-try. At Raymond James, he built his own clientele and grew the business by implementing his own investment philosophy. Even during one of the most difficult market environments in history, Mr. Reuven continued to build his business and became the third largest producing broker in the United States for Raymond James in 2003.

In March of 2003, Mr. Reuven decided to build a “True Full Ser-vice Boutique Financial Firm” by launching Reuven Enterprises, Inc. He first made a leap that year into the independent broker-age business by joining an independent broker/dealer firm based in Florida. After building his own team of brokers and analysts, Mr. Reuven’s progression culminated with the founding of his own FINRA member broker/dealer, Reuven Enterprises Securi-ties Division (RESD), in November 2006.

Reuven Enterprises is now considered one of the top boutique financial services firms on Wall Street. The firm offers financial planning, investment advice, insurance and many other services to high and ultra high net-worth individuals, corporations, and pensions.

Mr. Reuven now oversees his growing firm. He maintains a culti-vated book of business and manages his own shareholder activ-ist hedge fund. His personal clientele is comprised of business owners, C-Level executives, as well as other high profile clients. Mr. Reuven is also a NFL Players Association Registered Player Financial Advisor, and is involved with several charitable orga-nizations. His unique philosophy, proven track record, and inci-sive financial commentary have been recognized by Bloomberg, CNBC, and the Wall Street community.

Mr. Reuven holds the following securities licenses:

Wall Street…the way it was meant to be!

REUVEN ENTERPRISES SECURITIES DIVISION, LLC — Mem-ber FINRA/SIPC/MSRB 100 Wall Street 6th Floor, New York, NY 10005 is a fully owned subsidiary of Reuven Enterprises, Inc. www.ReuvenEnterprises.com

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Law enforcement and military personnel today increasingly find themselves in situations that require them to put down a threat without taking someone’s life. As a result, the demand for non-lethal weapons has never been greater. Located in Mercerville, NJ (near Princeton), Laser Energetics (OTC Pink Sheets: LNGT) is now changing the game with a new category of non-lethal – less violent weapons called Dazer Laser™ - Light Fighting Technolo-gies. These new Non Lethal- Less ViolentTM weapons incorpo-rate a visible laser beam that can be operated safely at all ranges, and is used to control the threats encountered by military, law enforcement, and others.

According to the founder, president and CEO, Robert Battis, “What we are doing here is giving law enforcement and military person-nel an option to engage a threat from much greater distances in a safer manner to both themselves and the threat. Depending on the model these compact, light weight, laser-based weapons can be operated safely and control the threat at distances from just 1 meter all the way to 2,400 meters (that’s a mile and a half!) .

This allows our law enforcement and military personnel to incor-porate game-changing tactics and strategies to deal with ever increasing threat scenarios with one weapon at a multitude of distance ranges. Our Non-Lethal, Less-Violent weapons are ef-fective at controlling a threat and can help to avoid the some-times lethal consequences that we have all heard about from other technologies.”

The Dazer Laser™ operates by using laser light to overwhelm the optic nerve in the eye. The effects are devastating to the threat. The threat, once dazed, will suffer from temporary vision impairment, loss or disruption of equilibrium and awareness, fol-lowed by intense nausea. The Dazer Laser™ is very effective at reducing or eliminating the threat of the bad guys. The duration of the effects varies by individual, but for most people, vision is impaired for at least 15 seconds. If the threat looks back at the enforcer, the person will be whacked again, and the process can be repeated without any cumulative effects. The other effects last for longer periods of time – some upwards of several hours. The “dazing effect” gives the enforcer time to apprehend the threat in a safe and controlled manner. The enforcer does not have to resort to closer proximity non-lethal, more violent weapons, such as high voltage darts, mace, pepper spray, rubber bullets, or night sticks, which can put the officer unnecessarily at risk of injury or death.

The Dazer Laser™ has many advantages over other technolo-gies.

The officer can engage the threat from a longer, safer distance. He can handle several threats at one time by simply widening the beam or passing over several subjects, such as in a crowd control situation. And he never has to reload his weapon. He can literally “daze” thousands of threats with Beams not BulletsTM .

The Dazer Laser™ can be used in various applications, including 1) the military, 2) law enforcement, 3) private security, 4) the Coast Guard, 5) ship captains, 6) crowd control, and 7) personal safety. “We believe that the Dazer Lasers™ will help make the world a safer place,” exclaimed Battis.

Laser Energetics founder, Robert Battis, was motivated to improve upon the non-lethal weapons currently used today. His vision was to employ effective and non-lethal, less violent weapons, as op-posed to close proximity non-lethal, more violent weapons that are commonly used. “Anyone who watches the news lately is aware that an officer’s use of ‘non-lethal’ weapons has too often been found to have the unintended consequence of death,” said Battis. “We are trying to let the world know that there is a safer and better alternative.”

Laser Energetics promoted its non-lethal technology by appear-ing as a sponsor at the Emmy Awards in September 2009. The company has realized that America and the world are ready to embrace a safer technology. To support its mission, the company has created the “Have a Heart Save a Life™ Fund.” A portion of sales will go toward supporting the families of police officers and the U.S. military personnel killed in the line of duty. The net pro-ceeds from the sales of Have a Heart T-shirts, hats, coffee mugs, etc. will go to the “Have a Save a Life™ Fund. In addition, $25 from the sale of every Dazer Laser™ Defender and $15 from the sale of every Dazer Laser™ Guardian will also go to the fund. Laser Energetics wants to help.

“We feel that the world is ready for an improved product, one that can control a combatant safely and effectively without the need to escalate to deadly force. We are also looking forward to be able to make donations to these families of the fallen in the hundreds of thousands of dollars in the very near future,” stated Battis.

Battis founded Laser Energetics in 1992 to improve people’s 45

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PROFILED COMPANIES


Proudly Made in the USA!

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PROFILED COMPANIES


lives using advanced laser technology. “You would be surprised at how many benefits lasers have and will have in our lives. Laser Energetics holds many patents for different lasers and laser ap-plications and I’m proud to say that several will literally help save human lives,” said Battis. Some of the patented or patent pending technologies include the BrightStar™ Alexandrite lasers for use in remote sensing, laser marking, laser materials processing, den-tistry, and medical applications, such as photo acoustic imaging for early breast and prostate cancer detection, hair removal, tattoo removal, photo dynamic therapy, etc.

“Every one of our products will be made in the USA,” stated Battis who also founded Big Bang Entertainment Company and the Star Spangled Americans Society, a 501(c)(3) company that is based on “Ignore Politics and Embrace Patriotism®.” This society tries to unite Americans for a better way of life. According to Battis, “America and her closest allies deserve the very best technology. What gets me up in the morning is that I know I can make a posi-tive impact for this country. By bringing together great people, we can accomplish a lot.” Battis is known to have loathed the old say-ing, “Nice guys finish last.” Instead, he has come up with his own saying, “Good guys that stick together –win together™.”

Laser Energetics has applied recently for five patents on technolo-gies found in the Dazer LaserTM. These patents are very crucial to allow this technology to be deployed by governments around the world. This gives the Dazer LaserTM (model dependent) the unprecedented ability to be operated “eye safe” at all ranges from 1 to 2,400 meters, unlike other current technologies.

“We are gearing up to close on some very large orders,” stated Bat-tis. “Laser Energetics will certainly be doing its part to grow jobs in the United States. There are many reasons our products will all be manufactured in the United States. Security is an obvious one, but we feel we can only put out the highest quality product with the help of the most productive workers found in America.”

“The company is very excited about its prospects and opportu-nities as we currently have more than $400 million in proposals for our Dazer LaserTM products. But I have to tell you a funny story. Recently, a long-time friend remarked that Laser Energetics was ready to become the next great American overnight success, I replied, “Yes. An overnight success alright, it just took eighteen years to do it,” laughed Battis.

“Some of Laser Energetics’ investors have supported the com-pany for many years. To these investors, I would just like to say ‘Thank you!’ Our many loyal investors have seen the potential in lasers in general and of Laser Energetics in particular and have stuck with us all this time. I look forward for us to win together as we begin to turn our very large proposals into very large orders,” reiterated Battis.

With technical know-how as our foundation, enthusiasm as our fuel, experience as our guide, and clarity of objectives to meet our goals, the Laser Energetics Team is achieving World Class Suc-cess™!

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A lot has happened since our last Compliance Corner article. With all the regulatory changes, trying to hang the “biggest issue” on a single topic is near impossible these days. Each individual or firm deals with issues in a different way. One thing is certain, however. Our regulatory agencies have a renewed sense of importance and destiny. And that fact alone could be the biggest issue. I will not try to educate you on why that has happened, except that it has and that we should deal with it.

Schapiro Issues Warning to Broker-Dealer CEOs

SEC Chairman Mary L. Schapiro has sent a warning to broker-dealers who are using large bonuses, enhanced commissions, and other financial perks to land top producers. Schapiro issued a let-ter telling broker-dealer executives that they need to make sure such financial inducements don’t lead to bad sales practices.

“Some types of enhanced compensation practices may lead reg-istered representatives to believe that they must sell securities at a sufficiently high level to justify special arrangements that they have been given,” Schapiro wrote. “Those pressures may in time create incentives to engage in conduct that may violate obligations to investors.”

In one example, she wrote that registered representatives who re-ceive enhanced compensation for hitting increased commission targets may be motivated to churn customer accounts and recom-mend unsuitable investment products to clients.

“I therefore encourage broker-dealer firm CEOs and their fellow supervisors to be particularly vigilant in ensuring that sales prac-tices are closely monitored and that investor interests are carefully considered in the sale of any security or other investment prod-uct,” she wrote.

Schapiro stated that the warning was issued in reaction to reports that some firms are offering “substantial inducements” to recruit registered representatives.

SEC Approves Amendments Relating to Recordkeeping and the Unsolicited Customer Order Exception of SEA Rule 15c2-11

As of September 21, 2009, broker-dealers must have contempora-neous records of certain customer and order information. Records must demonstrate eligibility for the unsolicited customer order ex-ception of SEA Rule 15c2-11, if a firm is relying on such exception. (See Regulatory Notice 09-51) Fair and Accurate Credit Transactions Act

Effective November 1, 2009, the Federal Trade Commission (FTC) will enforce its Fair and Accurate Credit Transactions Act of 2003 (FACT Act) Red Flags Rule. Firms subject to this rule—which in-clude most broker-dealers—must have a written program to iden-tify, detect, and respond to patterns, practices, or specific activi-ties that could indicate identity theft. This rule has teeth!

SEC Approves Amendments to Modernize and Simplify NASD Rule 2720 Relating to Public Offerings in Which a Member Firm With a Conflict of Interest Participates

As of September 14, 2009, firms must comply with the require-ments of new NASD Rule 2720 (Public Offerings of Securities with Conflicts of Interest). The rule governs public offerings of securities in which a member firm may have a potential conflict of interest. The new rule amends and replaces the previous NASD Rule 2720. Conflicts of interest may include associated persons of the mem-ber firm. SEC Approves Amendments to FINRA Trade Reporting Rules on OTC Equity Transactions Executed Outside Normal Market Hours

Effective January 11, 2010, firms that execute OTC trades in equity securities outside normal hours (i.e. when a FINRA trade reporting facility is closed) must report the trade within 15 minutes of the opening of the facility the following day—i.e., by 8:15 a.m., EST.

Additionally, effective January 11, 2010, the FINRA/NASDAQ Trade Reporting Facility and the OTC Reporting Facility will allow firms to submit during normal market hours trade reports with a modi-fier designating the trade as one executed outside normal market hours.

(This amendment may have some inherent difficulties and firms should plan ahead with personnel and back-up personnel respon-sible for reporting by the 8:15 a.m., EST requirement. As of now, there are no exceptions.)

FINRA Has Increased Margin Requirements for Leveraged Exchange-Traded Funds and Associated Uncovered Options

As of December 1, 2009, FINRA will implement increased custom-er margin requirements for leveraged Exchange Traded Funds and uncovered options overlying leveraged Exchange Traded Funds, in accordance with NASD Rule 2520 and Incorporated NYSE Rule 431.

In our last visit, we discussed the idea of risk. As our regulatory bodies go forth with new found enthusiasm, this idea of risk will become much more important. A registered representative or firm will have to embrace this idea of risk and incorporate risk analysis with each decision taken. Some have already begun this practice. Risk is far more complex than compliance. Risk or the lack of risk management can be a very expensive proposition. We’ll discuss this issue for some time to come.

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Obituaries, Retirements, and Change of Firm

Ben Lichtenberg (1954-2009) tragically passed away on May 24, 2009. Mr. Lichten-berg was the managing director of Noble Financial Group in Boca Raton, Florida. He had over 20 years of experience in the field of investment banking. He had served as vice chairman of First Colonial Securities Group and had worked with the Philadelphia based firm of Butcher & Singer. During Mr. Lich-tenberg’s career, he had served as director or advisor to the boards of numerous pub-lic companies. He had extensive experience working with IPO’s, secondary offerings, pri-vate placements, mergers and acquisitions, and company valuations. Many people in the financial industry had the privilege to work with him and came to know him as a brother. His integrity, humor, dedication, and passion for life will continue to guide the personal and professional lives of people around him. Mr. Lichtenberg was a certified public accountant and a graduate of the Wharton School of the University of Pennsylvania.

Robert “Bob” Rader (1935-2009), widely considered the wise old sage in Oklahoma City’s business community, passed away July 15, 2009 after a brief battle with cancer. He was 74. Mr. Rader was executive vice presi-dent of corporate finance for Capital West Se-curities in Oklahoma City, having helped start the company in 1995. An Oklahoma State University alum, he was an industry veteran with more than 45 years in the securities in-dustry and experience working on Wall Street. Mr. Rader was also an arbitrator for the Finan-cial Industry Regulatory Authority (FINRA). He was an active member of the Oklahoma Ven-ture Forum and National Investment Bank-ing Association (NIBA). Known for his down-to-earth and friendly personality, he was the ideal diplomat and ambassador for the state of Oklahoma wherever he traveled. Accord-ing to a colleague, “He went out of his way to attract visitors, speakers, conferences and conventions to Oklahoma City.” Mr. Rader was instrumental in bringing the NIBA 111th Capital Conference to Oklahoma City in Sep-tember 2009. He and his wife, Judy, had three children and two grandchildren.

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