Management, Management,….Hey, Wait A Minute

Ian Cassel Blog, Educational Leave a Comment

By Marc Robins

When investing in MicroCap equities, several factors are at the top of the list as to importance regarding warning posts, priorities, missions and objectives as well as the ever-important numerous characteristics.  For those with scars of a long-time professional, success, we’ve learned, requires that the quality and caliber of management is paramount.

Bill Hambrecht, of the venerable technology brokerage firm bearing his name, and I had a heated discussion about this topic in 1994.  He believed that exciting and expanding industries and the ‘take-off’ of new secular trends ranked highest and even above management. I countered that that those attributes were necessary but management still topped the scale: My logic arose from the idea that savvy investors wouldn’t necessarily seek-out dying trades or bet in the face of collapsing macro-economic events and then look for individual “plays” within those maelstroms.  That either they would consider companies or industries experiencing cyclical “bumps in the road” or entities transitioning from one technology or specialty to another but still the ultimate success would hinge on management’s ability to lead, envision the best and most appropriate strategies and pathway alternatives, and inspire the most dedication and output from employees.  Anyway strong macro-trends should be a top-ranked item and laid as foundations for building one’s portfolio.)   Bill then went on and tried to “steal” a majority position in my firm….there were more than a few things we didn’t agree on.  But his advice and friendship was always a plus.

Anyway as I was saying (writing), those of us who have “earned our strips” investing in micro-cap stocks know that a good manager and top-flight executive office team certainly out-weighs a number of other factors a company may enjoy and might express as indications of a great company.  Indeed, the right “guy” can often overcome many of the operating, financial and market shortfalls that a business may have to over-come just to succeed.

How does one know that a company has “great” management?  That’s a far more difficult question to answer, or task to decipher, than it is to easily state the platitude for their importance.  Indeed, what I can relay regarding how to measure a manager or team really requires a few chapters by themselves. (“Ebenezer Ian” wants just a comment on “what if a great manager or team doesn’t communicate to the Street in a fashion they desire.” Hey, it’s coming. I just have to warm-up to the specific topic.)  As I was saying, what I can tell you when dealing with miniscule public issues is that the demeanor, leadership and output of a single officer or the small collection of the “C” team of people bears far greater weight on that operation’s success than the heads of mega-ventures where the CEO is surrounded by support staff and executive decision makers and functionaries.

Think about Jack Welch.  I apologize. I do love to use Mr. Welch as an exemplary specimen for this discussion, not because I don’t think the man was either capable or his successes at GE were due to just luck.  No, he led a huge operation for many years and did so extraordinarily well.  But realistic investors (without the help of the bleating, TV business news sycophants) have to realize that Jack’s achievements were bolstered on practically centuries of life-altering inventions, stellar technology, advanced business structures and financial wherewithal.  In addition, one also has to understand that the man’s remarkable results were burnished and perfected for the press due to the floors (probably more like buildings) of executives and functionaries that followed the CEO’s bidding and these legions of worker-bees included a PR staff that worked overtime to make sure every positive nuance and trivial success was caught and broadly reported on by the media.  No, I pick on Jack because … Well, compare the different job duties that Mr. Welch performed versus a Ray Kubacki, CEO of Psychemedics today, a Jonah Schacknai of Medicis of the late 1990’s and first decade of this century or Kim Edwards of IOmega of the early 1990’s.  I submit that all of these fellows have had a much tougher job to perform yet succeeded as well, if not better, than a Jack Welch…..Jack just had the benefit of supporting roles by “his sisters, and his cousins and his aunts!”

What about those situations where management seems spectacular but their communications with the Street is lacking?  This makes for an “un-fun” reality but doesn’t mean that the CEO isn’t capable or willing to perform his job well or that the investment doesn’t work spectacularly. Indeed, it makes for a less friendly holding. These situations make for unusual opportunities (Think: substantial rewards) yet still wholly unpleasant experiences.  I can think of three real-life experiences where CEOs, or whole operating teams, were as uncommunicative as the Sphinx of Giza on a cold day but their operations, story and stock relayed a message of startling progress.

One story that meets the “Yea/Boo!” qualification of huge equity appreciation successes returns us to the early 1980’s when the US economy was in another-one of its “Worse Recessions Since the Depression!” downdrafts (and it was actually worse than the current malaise but not as long) and before equities began their 20-year advance during the 1980’s and 1990s.

I was searching for values that also expressed opportunistic characteristics….cheap, undiscovered stocks that also were experiencing above average growth.  But because things in the USA proper were in such a “blue funk”, I glommed onto companies based or serving Alaska because, like North Dakota today, oil had been discovered on the North Slope and construction on the oil pipeline was finishing-up.  Because of the harsh weather conditions and the extraordinarily limited infrastructure the entire 49th State was a veritable boomtown from boarder to boarder.  The best part was because of its distance from the lower-48, few knew the stories.

I picked up the local phone monopoly, the airline that bears the State’s name, a couple of banks and then I happened upon a transportation company that was the best and smartest choice of the whole lot.  Lynden Transportation, predominately a family-owned multi-modal, freight-hauling operation, was a small-scale, lynchpin, supplier of EVERYTHING throughout a State that imports EVERYTHING.  People who live in the ‘lower-48’ pre-Prudhoe Bay didn’t realize at the time that Alaska was predominately a US Military base poised to respond against advances by Russians or Chinese and not really much else.  Yea, there was some fish exported, and lumber or logs…occasionally gold makes as appearance but there really wasn’t much more than a couple of bases, some Native Indians and a whole lot of wilderness.

Then oil was struck!  If you wanted anything other than fish, whale fat, logs and mean hungry critters, it had to be shipped-in.  Want oil rigs and drilling equipment?  It has to be hauled in from a hell of a long way….at the very best Seattle.  Want supplies to feed the roughnecks or shelter them….Ditto!  People became accustomed to “Frosted Flakes”, there was a dire need for beer (and less than savory, but extraordinarily good-looking women), “snow machines”, gas for the snow machines and everything else plus telephone and satellite TV and radio communications….Everything!!!

You can’t haul a lot of goods in a 727 or 737, the flying workhorses that the airline depended on.  There were a few tugboat operators out of Seattle that attached barges on underutilized boats.  But Lynden transformed itself from local contractor and milk hauler to a critical supplier of transportation.  They bought roll-on/roll-off barges, trucks, bulk transport barges, expanded their milk-runs in the lower-48 and operated one of the very few gravel pits in the entire State.  (You may wonder why a gravel pit?  Well, Alaska has miles of coastline and tundra, which is spongy and icky in the summer or frozen solid the rest of the year.  For new airstrips, drill sites, roads or any infrastructure project, you need gravel and there were very few suppliers and particularly suppliers who could/would haul “said” gravel. It was a monopoly in the most extreme conditions.  Indeed, nothing had changed since my great-grandfather worked the Yukon.)

I got involved in the story just as the shares ‘kind of’ woke-up.  The stock had essentially languished for most of the oil boom and the contrecoup, oil pipeline boomlet that followed because of its small size and far-off activity. Finally, it became noticed by the street to some small degree.  Management was also in the throes of deciding “if there are too many shares and a reverse-split was in order” to increase the individual share price and attract more attention.  (Does this all sound familiar?!  Remember, it happened 35 years ago.)

They reversed the stock, one share for three, but at the same time management also reported just outstanding financial results.  (Lynden Transportation stands as the perfect example of “anticipating change!” that I often speak and write about.  Investors and analysts don’t really analyze and predict {they are more worried about being within the “official range of estimates.”  The difference between analysts and reporters are that the former is supposed to anticipate change (mostly improvements) in operating returns and multiple expansions but market professionals end-up being “reporters” that just relay history.) I lucked-out and expected an increase in the rate of growth (I was studying for my first or second level test for the CFA and had come upon the expanded DuPont equation….I think the guy at Goldman Sachs whose work I gleaned was too.)  The estimate that I rendered was certainly positive but Lyndon blew me out of the water with just remarkable results.  They benefited from very high asset turnover while depending on an unbelievably low level of assets that they owned as well as charging almost usurious transportation rates.

Now, why Lynden is included in this paper….  Management had a very unpleasant way of NOT SPEAKING about the quarter they were currently in.  So, out came the numbers that I mentioned and we learned about how wonderful every little item in the Company operated (past tense).  When the presentation turned to the future, or even the specific quarter we were all in, management would hush-up.  It was their way of protecting themselves and this was long before Sar-Box, but it also happened to chase away many of the potential analysts (I mean reporters) that would have liked to follow the story.

What was interesting was an analyst from Bear Stearns who decided to write-up a report on the Company: This guy ‘anticipated change’ for sure: he literally “made-up” a lot of the projected operating figures out of thin air. (He wasn’t studying the expanded DuPont equation: If he had, he would have known the figures were bogus.  We know he wasn’t speaking with management!)  Well, the stock moved but was far more volatile after that episode.   As I remember, I recommended the shares at $4.00 but the reverse split made them $12.  When LYND shares started to move, it ran to the low 30’s.  I was still very happy and looked smarter than I was.

American Stores, Inc. is another Company whose history is now totally lost from “knowledge” but the CEOs strategy and the equity performance story is well worth repeating.

About 1982, I was introduced to ASC by one of the local money managers.  Essentially, my boss who was a great friend of the manager came into my office and said, “You have to see what ASC is doing because Dick owns a ton of it and has the CEO’s account for a client.”  OK, No need for any more incentive than “go to it kid.”  So, I went to Salt Lake City and visited with the CFO.  Now I believe that to really understand a story, one has to know the CEO….This is the #1 advantage of owning Microcaps as an equity alternative and  why I don’t look at terribly large operations.   Because you need to look directly into the eyes of the guy who’s at the top to get a reading on his/her soul, Microcaps more frequently allow individual investors, and lauded analysts, this opportunity.   Large B/D analysts may get a chance to “visit” with a major CEO, but it’s usually en masse or the meetings are of very short duration….they are so important and busy, don’t you know.  This need for the penetrating examination is also the reason I eschew conferences….what can you really learn about the soul of a business in 20 minutes or “speed-dating”, one-on-ones.

Anyway, Sam Skaggs was at the top of American Stores.  Yet, he was a total recluse.  I don’t think it was hubris (a sure sign of a finished story) but just plain shyness.  I say this because as he become wealthier, he gave away a lot of net worth and never placed his name on any of the bequests granted.  This was a guy who was very shy, modest and just plain retiring.

Ok, to the story.  Sam had operated (and inherited) a modestly successful, drug retailer called Skaggs Companies.  The initial move was actually before my official ‘start’ following Sam’s “Conquer and (in)Corporate” doings because in 1972 his little family drug operations Skaggs Stores bought the much larger Katz Drugs… It was literally the “fish that ate the whale” kind of acquisition   (By the way, read the book of the same name by Rich Cohen….just a GREAT story but it’s about bananas not drugs.)  Skaggs with about $100 million of annual sales bought out (with substantial leverage) Katz that had a $1 billion top-line. Some very serious years of right-sizing occurred between ’72 and ’82, but Skaggs came out of it’s a much trimmer, and profitable, operation.

Then 1982, Sam performed the same routine all over again.  But this time it was Skaggs with $1 billion in sales that purchased American Stores with $7 billion in sales.  The combined ASC (of 1982) became the fifth largest public retailer in the States with 1,122 retail stores in 28 states.  It owned 363 Acme Markets, 332 Alpha-Beta stores, 193 Skaggs Drugs 142 Rea and Derrick drug stores and a bunch of combination food/drug stores.  Again after some serious “right-sizing”, sales on a go-forward basis were about $7.1 billion for the year Jan., 1982.   Sure enough though, the Company didn’t get much in the way of market value because Wall Street had a devil of a time figuring out what Sam was really doing and to top it off insiders were closed-mouthed about how the combination and turn-around proceeded.  One of the most difficult business processes that can occur, or led by management, is a turn-around.  There are way too many moving parts, employees are scared about being fired (so they steal and aren’t as productive), old stores are closed because they don’t “fit” and new stores are opened to remain competitive, and there is the inevitable dismissal of half of the combined entity’s management staff, etc.

As I got involved, I learned two very important lessons on how to figure-out a company that provided the least communication between management and an analyst.  First, I was told by one insider, “We run things here at ASC a lot differently than do many other retailers or operations for that matter.  You see, we have to consider with every step we do or decision we make that $1 out of every $4 belongs to the guy who signs our paychecks!  It puts a wholly different spin on how we as management run things.”  Hmmm.  Sam did own 25+% of the public entity.  You can be sure it was run entirely with his very keen eye and tight leadership.  More on that in a minute.

The other factor that I learned was about operating leverage.  At the time, I followed a raft of retailers that operated throughout the West….Nordstrom, Albertsons, Fred Meyer Stores, Grand Central, Pay ‘N Pak, PayLess Drug, Pay ‘N Save…..and many more.  Some were the best retailers in their class in the country.  Some, not so much.

What stood out was that ASC had .91% after-tax, Net Margin while a composite of industry leaders and local competitors had net margins ranging from 1.5% to 1.65% at that time.  Fred Meyer was in the 2+% and Nordstrom was roughly 7%

I wrote the story up at $25 ½ per share knowing that ASC was a value and hoping that the actual achievement of a turn-around would be soon!

Literally, as I was walking the finished and proofed story to the printers (we mailed things like this before the internet), ASC came out with fourth quarter operating results….EPS was up 84% to $2.94 per share for their fourth quarter meaning my estimates were way low and the stock started a two decade-long advance.  In fact, my original estimate of $6.75 was boosted after the release to $7.55 and once more again before the end of that year.  ASC shares moved to $60.

Indeed, ASC played the acquisition game two more times according to my recollection: In 1985, Sam bought Jewel Companies with about $7.5 billion making a $15 billion.  Later in the decade, he moved again and bought Lucky Stores boosting revenues again into the low $20 billion range (I think).

My two “take-aways” were this: 1) Don’t be too afraid of (in fact, search-out) companies where insiders have a large ownership position (of shares bought, not granted is always best); and 2) operating leverage (not debt leverage) combined with the grip of strong leadership (and ownership power) can be exceedingly profitable.  The thing that was so unusual about ASC was that Sam Skaggs, being such a significant owner, was as quiet and un-promotional as he was.  Typically, guys with that much power, wealth and confidence would be intolerable as a person. Truly, the “Harry Hubris” CEO is exactly the kind of individual that you’d NOT want to invest in.  Interestingly, his very quiet and measured demeanor was what made the stock a success.

Now it’s been a long time since I really ever thought or even considered how successful the investment in ASC was but when I first wrote the story in 1982, the market cap was about $250 million based on 9.95 million shares.  I know I owned it though my money management days (July of 1993), but my last actual report record (Sept., 1985) and before it was acquired, ASC had a $2.3 billion market cap (three-for-one split joined with tremendous increases of revenues to $16 billion…roughly a 10-banger return.  Not bad.

My third example of a CEO or Management that really didn’t “talk” and the difficulties that arose from the “quirkiness” of the CEO, foundation of the business and the difficulties brought on by short-sellers, Medicis Pharmaceutical (MRX) was a different animal in 1996 when we (at the Red Chip Review) first picked-up coverage.

I’m not going into too much detail because the meat of the story, with all the “gory” details, is way too good not to be included in an article and needs to be included in my up-coming book about the real “Red Chip” days.  But let’s leave it at the fact that Jonah Schacknai made a revelation-ary appearance at one of our Dog ‘N Pony presentation Thursdays and it was one of the best days for investment insight that I can recall.

Schacknai was essentially “run” out of Manhattan.  His plan for Medicis had taken way too long for Wall Street investors endure, his need for capital boundless, his certainly different approach as a CEO turned-off a lot of investors and given the resultant lack of success, turned his name to mud.  I was told by some Big Apple investors that if “tar and feathering” was still in vogue, Jonah would be next in line.  Me? I liked the guy…a lot.  His quirkiness was nothing more than just one more distinctive chapter in the voluminous book of quirkdom!

Anyway, he ended up in Portland desperately seeking research.  The story goes like this: Here is a dermatology/cosmeceutical upstart that had two products…a heavy-weight, hand-cream for very, very dry skin and a “ripped-off”, oral antibiotic for acne that also just happened to compete with the cornerstone derm product of (at the time) the nation’s 6th largest pharmaceutical operation…American Home Products.  The MRX pitch was that Schacknai’s more professional and service-oriented representative sales force would be able to dislodge, by concentrated service and sampling, older products with MRX’s new cosmeceuticals.  It was a “ballsy” premise but being a doctor’s kid (and the beneficiary of a lot of samples, neat models of human anatomy and toy-like tchothkies) who certainly understood the power of detail selling within the medical arena circa 1960s.

We heard the story and liked the potential gross margins.  One of the star analysts, (who went on with his career to become a Wall Street pharmaceutical analyst,) decided to pick up the name for official Red Chip coverage.  Without prowling though the archives, I’m pretty sure that the price was $6 to $8 a share and the market cap of MRX was $60 million.

The Company grew its detail team, gained access to more Dermatologists, turned-over more product and actually added a few more creams and ointments, gross margin continued to expand, costs were tightly reigned and the bottom line showed real profits.  As goes success and the stock, so does a company’s attraction to the short-sellers.

I first want to state that as we became more familiar with Medicis and management, our conversations with the top team were more frequent and lengthy.  Indeed, the analyst and I became quite close with the CEO.  Jonah would talk about big picture items, the market, the participants in the industry, little nuances about how things worked…He never spoke a word about “how things were going” during any financial period after the quarterly conference call discussion.

Then tragedy and agony struck.  The stock had subsequently moved to the low $30s, which was great!!!  But then rumors about the oral antibiotic started bouncing off of money manager trading desks and shareholders phone message systems.  Nonsense about how the oral antibiotic was displaying allergic reactions in teens; that Canada had pulled the drug from drug store shelves; and eventually that it caused three deaths in the US.  The bad thing was that the story sounded convincing and was well enough orchestrated that it “rang” true.  The good news is that every person I knew, aged 38 to 50 at the time, had taken the original form of the drug (tetracycline) in the 1960’s as teenagers and survived with few problems.  It had to be balderdash.

As anyone familiar with investing in the 1990’s knows, the stock really turned sick.  It had been a great holding from the day we wrote the story up and for practically 14-18 months later.  Then, wack!  MRX shares retraced a goodly part of their advance back to $23.

My guy, like all the analysts at the Red Chip then, was a younger fellow and certainly scared and tired of the phone calls received about the sell-off.  He began to panic, and like all analysts called the CEO to get clarification.  Guess what?! Did he get a warm and cozy feeling by chatting with Jonah.  No, Schacknai, as it should have been, was even more circumspect that normal.

The analyst turned to me.  Now, I remember the day and situation vividly.  The young man wasn’t accustomed to making mistakes, was very thorough in everything he did, and was more scared that logical.  My approach was, “Hey Ken, how long have we known Jonah?  Has he ever misguided us or given us any reason not to believe in him, the strategy, or the Company? Do you think, give how careful he’s been with prior periods for commentary, he’s ever going to open up, good or bad, about what is “really” happening?  Ease-up!  The truth will out and we’ll get through the storm!”

Sure enough, it wasn’t a week later or some very close date to the chat the analyst and I had, an earnings call was made and the numbers proved that everything with the company was on track.  Jonah wasn’t a “scumbag” and indeed, the shares continues to advance—although in a more jerky and halting manner—into the $40 and $50s until we at the Red Chip could no longer make a significant difference with the story.

This may not follow exactly the theme of the assignment Ian’s given me to write-on but it’s certainly apropos to the topic and probably some of the best examples to learn from.  Markets have become so “fast”…so fidgety…so reactionary, that investors (not traders) miss the chance to seize the benefits that spawn from the actual investment experience.  Within the microcap arena, small companies find that their business is “lumpy”, but when orders come, they come in freight car loads; that markets have no patience and are so quick the magic of compounding, let alone the quantum benefits of leverage, are just not experienced.  The wonder of “discovery” and the resultant process of P/E multiple expansions is lost.  Even the wondrous advent of the internet and on-line information provides no benefit and is actually a hindrance thereby taking an even longer time for the dissemination of “good” news or fortune to the broadest investment audience.

That is why “knowing your CEO” or management team is an even more important factor in the art of buying microcaps.  One has to not only understand what it means to be an investor but really empathize with the boss’ strategy and almost predict his responses to many business conditions.  To know management means meeting, conversing, drinking with, befriending to the point of experiencing what that guy with operating power is really like.  That’s being an investor.

About Marc Robins: Mr. Marc Robins is a Managing Partner and Founder of Catalyst Financial Resources, LLC. He is also employed as a Preisdent and Director of Research at The Robins Group, LLC. Prior to these positions, Mr. Robins was the Founder, Editor-in-Chief at the RedChip Companies, Inc.. Mr. Robins resigned from this other post as of November 22, 2002 and has since moved to full-time positions at Catalyst Financial Resources, Crown Capital, LLC, The Robins Group, LLC and Crown Point Group, Ltd. Prior to founding the RedChip Companies, he was co-manager of the WestCap Small-Cap Portfolio for Capital Consultants, Inc. in Portland Oregon. Mr. Robins has previously held positions of portfolio manager, and directors of research at several Portland, Oregon-based investment firms. Mr. Robins was the President of the Portland Society of Financial Analysts. He served as a Director of FreeRealTime.com Inc. since August 2000.

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CATALYST FINANCIAL RESOURCES, LLC, RESEARCH RATINGS:

Catalyst Financial Resources, LLC (”Catalyst”) uses the following rating system:

Buy Immediate purchase is recommended. The security expected to outperform the market over the next 12 to 18 months.

Accumulate Purchase of the stock is recommended for above average appreciation over the next 12 to 18 months, but the buyer may havean opportunity to acquire the stock within a 10% trading range.

Hold Holding the stock is recommended because the share price has moved above the specific “Buy” range and, therefore, appreciation potential is less than or equal to the market.

Sell The stock has reached the target price objective and/or conditions have changed sufficiently to alter the outlook for the stock

EQUITY RISK SYSTEM:

High The security is more volatile than the market and/or the company is more leveraged than its peer group.

Moderate The security has about the same volatility as the market and/or the company carries a level of leverage in line with its peer group.

Low The security is less volatile than the market and/or the company is less leveraged than its peer group.

Catalyst’s Current Rating Distribution: 

Buy – 2 of Companies, 100% 
Accumulate – none of Companies, 0% 
Hold – none of Companies, 0% 
Sell – none of Companies, 0% 

Monarch Bay Securities (“Monarch”) Investment Banking Clients

Buy – none of Companies, 0% 
Accumulate – none of Companies, 0% 
Hold – none of Companies, 0% 
Sell – none of Companies, 0%

Monarch Bay Securities, LLC (“Monarch”) disseminates research provided by Catalyst Financial Resources, LLC. Monarch disclaims editorial control of this report as it does not the ability to influence, determine, or direct the content and investment opinions expressed herein.

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Although none of the securities in the above commentary are recommended and therefore are not rated according to any system or part of any rating distribution, the charts on the only publically traded shares mentioned (the others have been bought or have gone private), are Psychemedics Corp and General Electric have been provided or reader edification.  Marc Robins in LONG Psychemedics (PMD).

OTHER IMPORTANT DISCLOSURES:

This report has been prepared by Catalyst Financial Resources, LLC (“Catalyst”). Marcus W. Robins.

(“Robins”) is the majority member of Catalyst. Scott D. Butler is a registered representative of Monarch, and a member/independent contractor of Catalyst. No member or employee of Monarch is a member of Catalyst.

Robins is also a Registered Representative of Monarch Bay Securities, LLC (“Monarch”) which distributes this report to its clients.

Monarch seeks to do business with companies covered in Catalyst Research reports. Monarch may receive fees from issuers of securities that are the subject of research reports prepared by Catalyst.

Additionally, Mr. Robins and Mr. Butler are eligible to receive commissions from Monarch based on sales and trading activity in the securities of companies covered in Catalyst’s reports as well as abonus based on the general revenues of Monarch. Mr. Robins and Mr.Butler are specifically excluded from the investment banking activities of Monarch.

Please note the following requirements of Monarch to which its registered representatives, their outside business activities (including, but not limited to, Catalyst Financial Resources, Robins LLC,and etc.), third party research providers, those independent contractors who prepare research reports on such entities’ behalf, and other key associated persons of such outside business activities/third party research providers are subject:

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o Purchase or receive any securities before the issuer’s initial public offering if the issuer is principally engaged in the same types of business as companies for whom the independent contractor prepares research reports. (NB 2711 (g)(1))

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o Purchase or sell any security of a subject company, or any option or derivative of such a security in a manner inconsistent with the research analyst’s recommendation as reflected in the most recent research report published by the applicable outside business activity controlled by the registered member. (NB 2711 (g)(3))

o Whether the Registered Representative, third party research provider, or any independent contractor thereof responsible for preparation of this report is/is not aware of any other actual, material conflict of interest at the time of publication with respect to the securities that are the subject of this report.

o Whether the Registered Representative, third party research provider, or any independent contractor thereof responsible for preparation of this report has/has not received compensation or reimbursement of expense from any issuer of subject securities mentioned in this report.

 Notwithstanding the foregoing, independent contractors who prepare research reports on behalf of an outside business activity owned by any Monarch registered representative are required to affirm and attest to the foregoing before each such report is issued. Consequently, investors should be aware Catalyst, Robins, Butler, andMonarch may each have conflicts of interest that could affect the objectivity of this report.

For more information about Catalyst Financial Resources, LLC please consult Marc Robins @ 503-445-2850

Disclaimer
The information contained in this report has been obtained from Catalyst Financial Resources, LLC (“Catalyst”) by Monarch Bay Securities, LLC (“Monarch”) as third party research. Monarch accepts Catalyst’s attestation that this report was derived by Catalyst from sources believed to be reliable, but no representation or warranty, express or implied, is made by Monarch, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report constitute Catalyst’s judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur.

The independent contractor or member of Catalyst responsible for preparation of this report holds/does not hold a financial interest in the securities of the company that is the subject of this report (2711 (h)(1)(A)(B)). Neither the independent contractor nor member of Catalyst responsible for preparation of this report, nor any member of his/her household, serves as an officer, director or advisory board member of the company which is the subject of this report (2711(h)(3)). The independent contractor or member of Catalyst responsible for preparation of this report is/is not aware of any other actual, material conflict of interest at the time of publication with respect to the securities that are the subject of this report. (2711 (h)(1)(C). The independent contractor or member of Catalyst responsible for preparation of this report, or an affiliate, has/has not, at any time, received compensation that is based on investment banking revenues or the views expressed in this report (2711(h)(2)). The views, content, and investment opinions of the independent contractor or member of Catalyst responsible for preparation of this report have been accurately expressed, and they have affirmatively attested to the same, and as to all other declarations in this paragraph, at the time this report was issued.

Catalyst may receive fees from issuers that are the subject of research reports it prepares for investor and public relations and other marketing-related services provided to such issuers. The independent contractor who prepared research this research report, behalf, did/did not receive fees and expense reimbursement indirectly from issuers for the provision of the immediately aforesaid services.
As of the end of the month immediately preceding the date of this report, neither Catalyst nor Monarch nor any of their affiliates beneficially owned more than 1% of the issued and outstanding shares of any class of the securities of the company which is the subject of this report.

Neither Monarch nor any of its affiliates have managed or co-managed a public offering of securities for the company which is the subject of this report. During the past 12 months, Monarch has not received compensation for investment banking services from the company which is the subject of this report. Monarch does not have imminent plans to provide investment banking services for this Company in the next three months.

To U.S. Residents:

This publication has been approved by Monarch Bay Securities, LLC (member FINRA, SIPC), which is a U.S. registered broker-dealer andwhich accepts responsibility for this report and its dissemination to its clients in the United States. Any U.S. recipient of this report that is not a registered broker-dealer or a bank acting in a broker or dealer capacity and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report, should contact and place orders with Monarch Bay Securities, LLC.

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