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The recession continues. Business moves
on, although many companies are downsiz-
ing and are struggling to maintain their mar-
ket share. Businesses that survive in this
economy must understand where they stand
and plan for the future. For companies to
fourish, management must set up Iormal pro-
cedures to monitor performance.
The most important step to monitor the com-
panys performance is preparing a 13-week
rolling cash fow. This cash fow shows the
sources and uses of funds weekly. With this
report, the company can identify problems
before they occur and can anticipate cash
needs quickly. The cash fow report not only
helps senior management, but also helps rank
and fle workers to identiIy problems early.
Early identifcation can be the diIIerence be-
tween a small problem and a big one.
After the company has completed a 13-week
cash fow and realizes that it needs additional
cash, the company has three options: increase
revenues, reduce expenses, or raise addition-
al cash from an outside source. Since we are
now nine months into the current recession,
the possibility of increasing revenues or re-
ducing expenses at this point may be prob-
lematic.
There may still be opportunities to reduce
expenses that were previously not identifed.
Reducing expenses may be accomplished by
combining two similar public companies.
Both have expenses for compliance, SOX,
directors fees, etc. It may not be viable for
either company to survive separately; but if
two companies merged, they may become
stronger and healthier. Another option may
be to investigate ways to share resources,
such as technology and staIfng, with another
company to reduce expenses. For example,
one biotech company we know has combined
forces with a second biotech company to re-
duce the oversight of its phase two testing.
The technologies remained with each com-
pany, but both companies realized signifcant
cost savings.
If cost saving is not an option, then the com-
pany will have to generate cash by raising
debt or selling equity. In an economy where
capital and credit seem to have dried up,
creative minds have come up with new and
innovative ways to meet the needs of com-
panies. Necessity is the mother of invention.
These methods include selling equity based
on market volume and shared equity lending,
to name a few.
Good luck in weathering the remainder of
this recession. We hope that you take advan-
tage of the creative techniques presented in
this issue to help you not only to survive this
recession, but also to come out stronger and
be in a position to act when opportunities
present themselves.
WELCOME
Ronald Stone
Editor
PAGE ( 4 ) 2ND QUARTER 2009
PAGE ( 5 ) 2ND QUARTER 2009
Business & Markets
15 Concentric M&A Strategy
by Alex Parsinia
20 Carve-outs
by Patrick Martin and Mark Coleman
23 Never Seen a Stock Market Like This
Before
by Sheldon Kraft
27 Opportunity Knocks During
Recession
by Mark Fowler
Finance & Investments
6 Looking for It and Not Finding?
by Victor Nowicki
8 Let Our Magnet Find You the Best
Micro-cap Stocks in Any Market
by Jordan Kimmel
11 Capital Alternatives: Ten Things
to Know Before Merging with a SPAC
by Karl Douglas
13 Ask Mr. Wallstreet
by Sheldon Kraft
Legal, Tax, & Accounting
36 Ask the Tax Guys: ESOP
by Alex Hart and Michael Kessel
38 Compliance Corner
by Chet Hebert
40 Dealing with the Surprise
Government Interview
David Roseneld and James Moss
Travel & Entertainment
50 Dovetail Restaurant Review
Heidi Picone
Proled Companies
30 Entrex
44 Allied Energy
47 Ivanhoe Energy
35 Announced Transactions
www.microcapreview.com
vO|ME 4 lSSE 1 2ND OARTER 2009
PAGE ( 6 ) 2ND QUARTER 2009
Executives often ask me the question, Have you found
it yet? That question is obviously asked by potential cli-
ents with reIerence to fnding capital Ior them. While it is
never easy to fnd Iunding sources Ior small businesses, it
is certainly harder now than ever before. So, the clients
urgency to have that question answered in the aIfrmative is
greater than ever too. Yet, they rarely stop to ask two funda-
mental questions.
(1) Why is it so hard to fnd Iunding?
(2) What can I do to optimize the chances of
funding success?
Generally, I receive a call from potential clients after theyve
already spent four to six months looking for funding from
easy-to-reach sources, such as their local bankers or from
family and friends. Sometimes they have other contingency
business brokers in on the action. A call to me is another at-
tempt to engage. A failed search at this stage indicates that
something is missing, something has not been done right, or
something is wrong with the risk/return relationship.
Let me illustrate. A while back I got a call from a frustrated
developer of an internet-based social networking platform.
He had exhausted his own capital in a 24-month effort and
urgently needed a third party investor to keep the develop-
ment going. He appeared to have the right people, the right
connections, and the right idea. He was trying to fnd ad-
ditional capital for about a year. He also appeared to be well
connected and had solicited many high net worth individu-
als with no success.
Now, it is not my job to question anyones motivations or
past efforts. I got the call. I picked up the phone. I patiently
listened to the story. It did make some sense. This was a
start-up. Then I asked for a business plan.
Surprisingly, what I got was a 45-page document. More
correctly, I got a heavily edited draft of a business plan
with Microsoft Word track changes option turned on. The
document was written with grammatical errors, incomplete
paragraphs, and mistakes in word usage. The fow oI the
document was non-existent. The business argument was
diIfcult to understand. The plan oI action was missing. The
fnancial projections consisted oI one line revenue and ex-
pense items and a big hockey stick.
After reading the document and actually checking out the
prototype of the system with my colleagues, I called to ask
as to who and why this document was produced. It turned
out that it was written by a consultant hired by the client. In
its current form, the business plan was used to support the
client`s objectives and fnancing needs. Furthermore, when
asked about the physical and logical state of the document,
the client did not appear to see anything wrong with it. Well,
what can I say?
Unfortunately, this is more or less typical of about 50 to 70
percent of new business funding initiatives coming my way
involving smaller companies. More, because sometimes I
get calls that are backed by incomplete business documen-
tation. And less, because even when the documentation
is produced, it is often incomplete, out-of-date (how long
were you shopping this deal?), fawed in terms oI market or
fnancial analysis, or simply lacking coherence. As a capital
advisor with no prior knowledge of the client or his business
proposal, my frst question is the same as that oI the ulti-
mate investor. Is the proposed business sound and saleable?
The investor wants to know this to get an assessment of his
Looking for It, and Not Finding?
Victor Nowicki
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PAGE ( 7 ) 2ND QUARTER 2009
return. I want to know this to see if the deal is placeable. In
other words, will I ever make money on this?
So, what do clients need to do to improve the chances of
obtaining funding?
First, before heading out to the market, clients must under-
stand the importance of communication. A business plan, an
investment memorandum, a private placement memorandum,
or simply a pitch that is being provided to investors must (1)
be readable; (2) have a comprehensive investment logic; and
(3) be presentable, clean, and error-free. As with any mar-
keting material this document is all about grabbing and hold-
ing the readers attention. The document also speaks about
the owners character, management ability, and competency.
Sloppy work spoils that crucial frst impression, raises unnec-
essary questions, and increases the risk of a failed connection.
So why go there?
Second, clients should reach out and fnd someone they can
work with to develop the highest-impact product. Retain and,
oh, yes, work with them! I am not suggesting hiring Goldman
Sachs or even a second tier player. Their fee structures are not
suitable for small-cap and micro-cap companies. However,
there are many independents (myself included) that can work
with you to get the job done, and get it done well. The fees are
reasonable and well worth the investment. The retainer struc-
ture aligns everyone`s objectives and commitment to the best
possible product.
Third, clients should choose an advisor who has broad indus-
try experience relevant to the business being presented. That
industry knowledge enhances the logic and credibility of the
material being presented. Also, an industry-specifc advisor is
likely to have a good relationship with investors in that indus-
try, thus enabling a more focused funding search.
Fourth, clients should hire someone with preferably a 'buy-
side experience. A 'buy-sider should have either worked as
an underwriter of deals or has a direct investment experience.
A 'buy-sider will know what his/her counterparts at funding
sources will look for and will address any gaps. He/she will
have greater analytical sense of what`s required and will pres-
ent the information in a way that makes sense. In contrast,
all too often I see pitches that are high on 'gloss and low
on content generated by independent 'sell-side investment
bankers. Their game is to increase the probability of a 'look
by funding sources. This is a good thing for the investment
banker, but not always for the client. The approach requires
time and commitment to respond to each look, with no clear
commitment from either side.
Lastly, clients should stop and listen to investor and market
feedback! If you are a client, review your materials, under-
stand why people have problems, and adjust the information
being presented. Engage your advisor in the process. Remem-
ber that he/she is on your side and wants the deal done. Are
you not getting a response? That is a very powerful message.
Something is wrong with what you are proposing. Generally,
no one will tell you why, so try to infer from the response, or
the lack thereof. Are you being told that the investment is too
early stage? You are probably targeting the wrong investors.
Are you being told that the minimum EBITDA threshold is
not reached? Well, most likely your plan is too aggressive or
too leveraged, so the risk/return balance is not right. Are you
being asked a number of times about the resumes of your man-
agement team? Well, maybe you do not have the right team.
Are you being asked about your balance sheet and that '24
percent note to a related party buried in your liabilities? Per-
haps it is time to consider fnancial restructuring to enhance
the attractiveness of your plan.
Strangely enough, these are obvious and logical points - aren`t
they? So, why do so many companies plunge ahead and fail?
Well, the cost of retaining a professional advisor is one key
consideration. The typical lines I get include the following:
We do not have money.
What? I have to pay for this?
Isn`t the advisor supposed to do this for free?
Why should I pay for this at all?
Why don`t you have the investor pay
for this? (the best line)
These points are perhaps understandable, but largely irrele-
vant. The only thing that matters is fnding and securing fund-
ing. How much is that worth to a company looking for capital
to get the business up and running? I bet a lot more than the
$30,000 to $50,000 that is paid to the advisor.
P.S. The guy who was looking for capital to buila his internet
platform nearly six months later is still looking, probably
with the same pitch!
Victor Nowicki is a principal of Jitron Capital (www.vitron-
capital.com). The hrm proviaes business ana capital aavisory
services to small and medium-sized companies and business
start-ups.
PAGE ( 8 ) 2ND QUARTER 2009
Jordan Kimmels The MAGNET Method of Investing:
Find, Trade, and Prot from ExceptionaI Stocks is
an amazingly detailed and intuitive book. I especially
enjoyed Jordan's insights into diversifcation, the inef-
fcient market and identifying stocks that are in their
sweet spot. Jordans writing style is also very straight
forward and refreshing. He succeeds in taking com-
plicated subjects and explaining them in a straight for-
ward and insightful way. This is simply an incredible
book that is a must read for both beginning and serious
investors.
--Louis G. Navellier, chairman and founder of Navellier
& Associates, Inc., and author of The LittIe Book That
Makes You Rich
Every bull market has its share of leading companies
that are new to the spotlight. Traditional investors who
proft by timing the market may end up Irustrated, un-
less they can identify the new market leaders. Rarely do
fallen leaders of the last bull market regain their strength
when the next upswing takes place. While experienced,
market-savvy traders proft Irom stock market trends,
there is nothing more proftable than identiIying the
best individual stocks at the right time.
Too many investors continue to focus on the economy
or the market, rather than trying to isolate the best
companies. Whether it is the economic number of the
day or a policy speech by a government oIfcial, too
many investors focus on the wrong things. The reality
is that nobody can or should predict the future. Doing
so is not required to generate profts in the stock mar-
ket. Legendary investor, Peter Lynch, once said, If you
spent an hour per year thinking about the economy, you
probably wasted 59 minutes. Instead of mulling over
the economy`s fuctuations, Lynch tried to fnd his 'ten
baggers. These are companies that win market share
and spin oII Iree cash fow, and ultimately appreciate in
value by ten times.
Every environment has a handful of companies that
dominate their niche market and are great stocks to
own. The diIfculty Ior investors is to fnd the best com-
panies that have yet to become household names. Be-
cause of the sheer size, most mutual funds will look
at a company only after there has been a huge run up
in prices, or when the company has had several years
of continued expansion and stock splits. This actually
puts individual investors at an advantage, if they can
fnd and invest in the best companies beIore the institu-
tional investors do. Over a lifetime, an individual needs
only to identify a few small companies that will end up
blossoming to accumulate real wealth.
I am not one to encourage the public by saying that it is
easy to make money in the stock market. Investing in
small-cap companies is certainly not easy. The market
is never lacking of great sounding stories, and it is easy
to get caught up in ideas that never materialize. Even
when there are sound ideas and good management,
many things can and do go wrong. This is not to say
that I am negative or discouraging people from invest-
ing in the stock market. As with any truths in life, there
can only be a few true superlatives. By isolating the best
stocks to own and focusing your energy on those select
companies, you can make money in the stock market.
By choosing diversifcation, you are assured to gener-
ate only average returns. Remember though, if you are
willing to focus your capital on only a few companies,
you better have a sound methodology to identify the
right ones!
In my new book, The Magnet Method of Investing, I ex-
amine the beliefs and strategies of the greatest investors
oI our era and how they infuenced Magnet. The book
walks you through the process of identifying the best
Let Our Magnet