ACCREDITED INVESTOR — Institutional or individual investors who meet SEC criteria regarding financial sophistication or net worth. In general, this is a million dollar net worth, or an income of $200,000 a year for the last and current year, and an expectation of $200,000 in income for the upcoming year. Generally, such investors are ‘transparent’ to securities regulations and are offered no protection other than the anti fraud provisions of those regulations. Marketing to accredited investors usually means the issuers have to obey few, if any, securities regulations on the underlying assumption that accredited investors are supposed to be sophisticated enough to do their own due diligence.

AFFINITY SCAMS — The SEC has issued warnings about affinity scams. These are where investments are designed to be marketed to specific portions of the populations, such as church groups, cultural subcategories and so on.

AGENT OF ISSUER — A person selling private placements in a company and therefore does not have to be registered for securities sales. According to securities regulations his person works for the company on salary, does not receive a commission for the sales, has other duties within the company. The number of Agents of Issuer is limited to four.

ALL OR NONE OFFERING — A "best-efforts" offering, in which the underwriter completes the offering only if the entire issue of securities is sold.

ANALYST — A specialist, often employed by an investment banking firm who researches and follows one or more companies or industries, their financial statements and reports with the purpose of providing investment advice and recommendations.

ARMS LENGTH — Refers to business transactions where neither the buyer nor seller is influenced by the other. In a non-arm’s length transaction a seller may some assets of the business at a low price to a buyer for the purposed of moving assets out of the business. In most private placements the negotiations are non-arms length.

ASSETS — The physical or financial ownership of a company.

ASSET BASED LENDERS — Individuals or companies who lend to companies where the loan is secured, or collateralized, by the assets of that company.

BANK GUARANTEE — Where a bank guarantees the repayment of a loan or other investments. Since this is in effect asking a bank to ‘co-sign’ a loan or an investment a bank guarantee is rarely, if ever, seen, especially in the United States where banking regulators frown on it.

BENCHMARK GOAL — A stage of development that must be met by the company that signifies usually the completion of a task, or the reaching of a financial or business objective. The attainment of benchmark goals can signify the obtaining of initial financing or additional financing as a result of a partnership agreement, joint venture or venture capital funding agreement.

BEST EFFORTS OFFERING — A securities offering in which the underwriter does not guarantee the sale of the securities offered, but uses his best efforts to sell the securities. The underwriters' do not commit to purchase any unsold shares.

BLIND POOL — A company that goes public by filing with the SEC a registration statement, and raises money without having a specific company business. Blind pools are usually created as vehicles to merge with privately held companies that want to be public, and have access to raising capital. (Also called a blank check company).

BLUE SKY LAWS — Regulations enacted by individual states that regulate the sale of securities to residents of the state.

BLUE SKY MEMORANDUM — A memorandum, usually prepared by underwriters' counsel for an offering stating the requirements, restrictions and provisions governing the sale of ad particular issue of securities in a particular state.

BOARD OF DIRECTORS — Individuals elected by shareholders to represent them, set policy, and control the corporation for the shareholders benefit. Management is hired by and responsible to the Board of Directors.

BONDS AS A GUARANTEE OR FOR A PRIVATE PLACEMENT — Some private placement offer government bonds to secure a private placement in case the private placement fails. Such bonds are usually ‘zero coupon’ bonds with 15-30 year maturities. The firms offering the bonds have to raise additional money to purchase the bonds, which is something the investor could do on his own. From investing experiences in most cases the firms offering these bonds as guarantees don’t even purchase them.

BOILER PLATE — Boilerplate paragraphs are the standard paragraphs outlining disclosure terms to investors. Disclosure must go beyond the boilerplate paragraphs.

BRIDGE LOANS — An interim or short-term loan used between long-term financing, or prior to the obtaining of a usually larger debt or equity financing. Such bridge loans tend to be ‘hard money’ loans with high interest rates.

BROKER/DEALER — A brokerage firm that buys securities for its inventory from individuals, investors and other brokerage firms, and sells securities to individuals, investors and other brokerage firms. The firm and all its personnel must be licensed and registered with the SEC or NASD and report it’s status to the appropriate regulatory agency on an ongoing basis.

BURN CAPITAL — See ‘Infrastructure Costs’

BUSINESS PLAN — This is the ‘game plan’ on a projected business and approach to the accomplishment of that business that any legitimate company puts together for the purposes of assessing the viability of the planned business.

CALIFORNIA 25012 EXEMPTION — This is a State of California securities offering exempt from securities registration. All investors must be accredited and the issue can only be sold in the State of California.

CAPITALIZATION — The amount of money that a company has.

CASH ON CASH — The return on investment expressed in actual dollar terms, excluding tax breaks and other indirect benefits.

COLD CALLS — Made by registered brokers or other salespersons to the investing public in order to solicit interest in a specific investment. In the case of private placements such cold calls are specifically prohibited.

COLLATERAL — Physical assets of a company pledged as security for a loan.

COMMISSIONS — The commission paid to salesmen for selling the financial product. In private placements issued by registered broker/dealers, regulations limit commissions to 10% of the dollar amount of money raised from investors. Although usually disclosed in a prominent location, please note that commissions, while a component of ‘front loads’, are not the entire front load amount, which is usually disclosed deeper in the memorandum.

COMMON STOCK — The physical representation of a pro rated ownership in a company, with full voting rights in the running of that company. It may be public stock bought and sold on a stock market exchange, or private stock that is non-liquid and can only be sold to other private parties, usually requiring the permission of the company issuing the stock.

COMPENSATING BALANCE — The average balance agreed to, that a borrower must keep on deposit with a bank, usually agreed to as a result of a financing or loan agreement, or as a requirement for the bank to "hold" credit available, such as in the case of a revolving credit line.

COMPLIANCE — In general refers to the obeying of all rules and regulations involving broker/dealers and the sale of securities. Each broker dealer has a specifically licensed ‘compliance officer’ responsible for making sure the firm and salespersons obey the securities regulations.

CONSENT — For a registration statement, the consent of auditors or other experts allowing their financial statements or other reports to be included in a registration statement.

CONVERTIBLE — When a stock or bond is convertible to another stock or bond under certain specified conditions and times.

COOKING THE BOOKS — When the CEO and/or the CFO of a company over report earnings for the purposes of keeping the stock price high. This is usually so the officers of the company can sell their own stock before the truth comes out. This is against SEC regulations and a fraudulent activity.

COOLING OFF PERIOD — In a securities offering where most of the registration work has been completed and everything stops to see is any objections or defaults will come to light. Participants are not to suppose to discuss the offering during this period.

COUNTER TRADE — The exchange between companies located in different countries of a commodity or product.

DEBENTURE — Generic terms for a bond, note or other interest bearing security.

DEBT SERVICE — Primary or secondary businesses that collect and distribute the debt payments from debentures or loans.

DEFAULT — the issued of a debenture is unable to pay the interest and/or principal to the debt holders.

DEPARTMENT OF CORPORATIONS — With different names in different states these state regulatory agencies are responsible for governing corporations.

DILUTION — Either the percentage reduction of ownership in a company resulting from the sale of additional shares of stock, or in the difference between the price paid by investors in either a private-placement or public financing, and the tangible book value per share prior to the offering.

DIRECT ISSUERS — Companies that are able to sell commercial paper directly to investors, rather than have to sell commercial paper through commercial paper brokers.

DIRECT PLACEMENT OFFERING (DPO) — Many companies having been balking at paying the fees required by Wall Street firms to market their securities offerings. Consequently some have used mechanisms like the Internet to directly place their offerings into investor hands. The only thing that allows this to work is that only accredited investors are allow to view the information, and or purchase the offerings.

DISCLOSURE — See Full Disclosure.

DISGORGEMENT — An SEC term used to mean a repayment of monies obtained through a violation of SEC regulations or fraudulent activities.

DISTRIBUTION — In private placements these are the rights to a percentage of a net profit from a business activity, purchased with investment funds. The distribution ‘stream’ is all that is purchased and there is no lump sum repayment of principal as in the ‘yield’ on a debenture.

DIVIDENDS — A portion of company earnings that are authorized by the company's board of directors to be paid to the holders of the various classes of its shares, based on the class of the security. While it is usually paid in cash, it can also be paid in the form of stock, or scrip.

DOWNSIDE — In a due diligence analysis this refers to the worst case scenario should the activity of the company go completely wrong.

DUE DATE — See Maturity Date.

DUE DILIGENCE — The investigation of company information including any disclosure documents including private placement memorandum, registration statement, or proposed prospectus by attorneys, investment bankers, and accountants to ensure that no material facts are omitted, and the information is accurate. Also, a general term relating to any investigation by venture capital firms and other investors of the company, its business and financial plans prior to proceeding with an investment.

EFFECTIVE DATE — The date the registration statement becomes "effective" and the securities can be sold to the public.

EQUITY OWNERSHIP — An equity ownership position in the company that is ‘sold’ to a funding source, for example, investors in public or private stock or a venture capital firm. The common stock of a company is the physical representation of that ownership. Equity is frequently used as additional compensation additional compensation for providing management consulting, financing or miscellaneous services. In general venture capital firms use the following criteria. If the venture capital firm is providing 100% of the capitalization they require 60-80% equity ownership. If they are providing 50% of the capitalization, the require 30-40% equity ownership in the company.

ESCROW ACCOUNT — In a security offering this is an account where investment funds collect until certain specified escrow instructions are met. While widely promoted as a ‘safety mechanism’ proving the investment is legitimate, an escrow is of little practical value. The amounts necessary to release the escrow funds to the issuer are usually low enough that little is gained in protection.

ESTABLISHED RELATIONSHIP — Private placements can only be shown and sold by an issuer to a person or persons with whom the issuer has an established relationship. While difficult to define this term is intended to imply a deeper business or personal relationship, many fringe brokerage houses use the criteria of having call an individual once before as an established relationship. This is why so many cold calls start with ‘someone from my firm talked to you eight months ago…."

EXIT STRATEGY — Since private placements are private, cashing out of them prior to a public offering can be difficult. Most private placements outline ‘exit strategies’ or how the investor can cash out of the private placement under certain specified conditions.

FACTORING — Purchasing debt from the original debt holders at a substantial discount, then servicing or collecting the debt.

FEASIBILITY STUDY — A study, usually prepared by an independent party that provides detailed information regarding the potential for the success of a product, technology or business/corporate relationship. The study usually includes, as applicable, an analysis of design, financing opportunities, research & development, pricing, market demand and market information, company strength, analysis of break-even thresholds, also both revenue and potential profit projections.

FINANCIAL STATEMENT — A complete financial record of the company showing asset, liabilities, income, expenses, equity ownership and so on. Financial statements are the most reliable method of judging the health and growth of a company. Such statements can be ‘audited’ by a Certified Public Accountant, or ‘unaudited’, produced by a company or another general accountant. Audited statements are more reliable.

401K — The financial information document issued by partnerships for tax purposes.

FRONT LOAD — Fees paid to broker/dealers and others that are intended to cover the cost of raising money for specific investments. In general these are any costs that do not go into building an infrastructure for a start up company, or directly into the profit making activity of that company. In equity, or stock, investments the front load represents a dilution to the stockholders. In debenture, or income, investments the front load means additional debt has to be issued by the company and is an additional debt load. Front loads may be disclosed as to specific amounts, or undisclosed which allows a greater abuse of the Use of Proceeds.

FULL DISCLOSURE — The full and complete detailing or every detail of an investment that may be or relevance to the decision of an investor whether or not to invest in a company. Lack of disclosure can constitute securities violations and possibly be construed as fraud. The most prevalent term used by the SEC in censuring or shutting down companies is a ‘material misrepresentation or omission or fact as an inducement to purchase.’

GENERAL PARTNER — The ‘managing partner’ of a Limited Partnership, who exercises control over the partnership in behalf of the limited partnership, and who has a greater liability than the limited partners.

GENERAL PARTNERSHIP — A partnership where all the partners have control and liability for the acts of that partnership. General Partnerships have not been considered securities, so many issuers use general partnerships in the belief that a general partnership is not a ‘security’, and therefore exempt from the reporting and disclosure and sales regulations governing securities. The test of a general partnership is if all the general partners are knowledgeable in that particular business and truly participate in the management of the business of the company the partnership is formed to manage.

GENERALLY ACCEPTED ACCOUNTING PRINCIPALS (GAAP) — Accounting standards and practices established by recognized standard setting bodies, or through general practice.

GRACE PERIOD — The specified time period allowed to correct any default.

GREEN SHOE — An amount exceeding the stated amount of money to be raised on an offering to allow for insufficient record keeping.

GUARANTEE — It is specifically against securities regulations for securities to promote a securities offering as ‘guaranteed’ to show a profit. Each securities issue is, as a matter of course, ‘guaranteed’ by that issuer, but this is of dubious value, for the simple reason that if the company defaults the guarantee is worthless. The government, bank, or insurance companies, very seldom guarantee securities issues other than their own, and all such claims should be proven by the supplying or original documentation to that effect, then directly checked with the guarantor. When available such guarantees are usually a performance bond or other type of insurance contract used to guarantee the repayment of debt and interest, or only debt of a financing transaction.

HORIZON ANALYSIS — An analysis of the performance of a business or company under certain specific conditions. Such analyses are usually best case, worst case, and most probable circumstances.

INCOME/EXPENSE STATEMENT — A statement showing all revenues and all expenses of a company, exclusive of assets.

INCOME PARTNERSHIPS — Usually a limited partnership or joint venture structure that is normally used for certain types of real estate, oil and gas or equipment leasing financing. Potential tax benefits are usually not a key feature of income partnerships, and the motivation of investors to invest is the desire for an income stream.

INDEPENDENT SALES OFFICES (ISO’S) — These are sales offices that specifically market private placements to the clients where they have an established relationship (see above). ISO’s can only offer ‘non’ securities private placements, and recent SEC definitions make nearly every offering a securities offering. Even with securities exemption registration, there are only two legal ways to show a private placement. Either through an NASD registered broker dealer, or through an ‘agent of issuer’ (see above) that works for the company issuing the private placement.

INFRASTRUCTURE COSTS — Separate from ‘front load’ infrastructure costs are the costs involved in setting up and staffing a company. Among these costs are office expenses, salaries, hardware, and so on. It is important for a company to raise enough funds to build the infrastructure, and also engage in a profit making activity. Failure to do so would be equivalent to building a car and not being able to afford the gasoline.

INITIAL PUBLIC OFFERING (IPO) — An offering of usually common stock in a company so that the company becomes ‘publicly traded’ on a recognized stock exchange. The issuance of an IPO is usually for the purposes of obtaining additional capitalization for the company. The purchasers of stock in a publicly trading company become pro rated owners of that company which is said to be publicly-held, and must report it’s financial status regularly to the SEC.

INSIDER TRADING — Trading in a company's securities by company insiders, including officers, directors and principal shareholders, or others with access to non-public information regarding the company. This is illegal and the SEC regularly prosecutes those who act on such information, requiring at least a disgorgement of the profits gained from insider trading.

INTERIM (OR INITIAL) MANAGING PARTNER — A temporary General Partner in a partnership.

INTERNET INVESTMENT CHAT ROOMS — Securities regulators estimate that 70% of the stock ‘tips’ on chat rooms are fraudulent. The ‘tips’ have often been anonymously placed by the company itself, or a marginal brokerage firm with a position in the stock they wish to sell. The tips create a rise in the stock price which the brokerage firm or company use to sell their own stock at a higher price. One example was a company named Comparator, which set a record for the largest one-day stock price rise in history, fueled solely by false rumors of a new company ‘product’ and contracts. The stock rose from a few cents to $3.00 a share. It later collapsed to 1 cent, and those who purchased stock from the chat room tips lost nearly all of their investment money.

INVESTMENT BANKERS — Specialist firms who advise companies on available sources, structures, and timing of offerings. Investment bankers often act as underwriters of public offerings, or placement agents for private offerings.

IPO — See "Initial Public Offering".

INVESTMENT COMPANY ACT OF 1940 — Regulations governing investment companies. An investment company is one that has more than 30% of its assets invested in other companies.

IRA (INDIVIDUAL RETIREMENT ACCOUNT) — Each IRA company is a separate fee based business created to manage retirement funds. The government allows individuals to use money before it is taxed. This is to encourage savings by individuals. Each IRA has a set of criteria for the kind of investments they ‘approve’, based on government regulations governing IRA’s. Many private placements are marketed as being approved by an IRA. But while an IRA reviews the paperwork of an investment to see if the paperwork complies with the regulations governing IRA’s, but since the IRA does not directly investigate the companies, this ‘approval’ does not expressly or indirectly imply that the offering will be profitable or is even legitimate.

ISSUER — Usually the company that ‘issues’ securities offerings to investors.

K-1 — Reporting documents on private placements issued by partnerships.

LEAD UNDERWRITER — The underwriter who manages a securities offering. Also sometimes called a Managing Underwriter.

LEGAL SCAM — A term used exclusively at Investor Data Exchange. This refers to a private placement memorandum where full disclosure is provided, and where this disclosure outlines the intent of the issuer to spend an unreasonable amount of investor funds to covered the costs of raising the funds, or other non profit making activities. The net effect is that the marketing firm has ‘purchased’ an investment, then marked it up for resale to investors. A 50% front load, which is a 100% markup, is common, and at IDE we have seen mark ups as high as 60,000% (this is not a typo). The investor signs a ‘sub doc’ or other contractual obligation admitting he has read, understands, and agrees to these terms.

LETTER OF CREDIT — A financial instrument, often used in international trade or business that is issued by a bank. It guarantees the payment of up to a maximum amount of money, for a specified period of time and subject to certain terms and conditions. Such Letters of Credit and Stand by Letters of Credit are key most usually to facilitate payment on overseas shipping transactions.

LETTER OF INTENT — A preliminary ‘pre’ agreement usually between an underwriter and a company stating the terms and conditions that will be contained in the underwriting agreement. An LOI is less than a contract and more than a handshake, but is usually written in terms that allow both parties to opt out of an agreement.

LEVERAGE BUY-OUT — An acquisition of a business using mostly debt and a small amount of equity. The debt is secured by the assets of the business.

LICENSED BROKER — The NASD registers salespersons. There are grades of registration. For example a Series 7 is a fully licensed broker, a Series 6 can sell anything but stocks, and a series 22 can only sell private placements. There are other licenses for administration, accounting compliance, sales supervisors and so on. The firm itself must be licensed, and the firm and all licensed individuals have an identifying CRD (Central Registry Deposit) numbers.

LIMITED LIABILITY CORPORATION — A corporation formed with ‘flow through’ taxes and liability, very similar to a Limited Partnership.

LIMITED LIABILITY PARTNERSHIP — A partnership very similar in intent and structure to a General Partnership.

LIMITED OFFERING — An offering of securities that is exempt from registration pursuant to certain exemptions limiting the number of purchasers or the size of the offering.

LIMITED PARTNERSHIP — A form of business organization that offers limited liability to the investors who become limited partners. The word limited refers to the limited control and liability each partner has over the business of the partnership. In general partnership tax liabilities ‘flow through’ to the partnership and the limited partners are often referred to as ‘passive’ investors. Expenses are deducted prior to profit distributions to the Limited Partners, and these expenses should be monitored by the Limited Partners like any ‘net’ investment should be. Losses in a passive investment must be deducted from passive gains. The excess losses may be written off in the amount of $3,000 a year, but may be carried forward to subsequent years. Limited partnerships are often used for research and development, real estate and oil and gas investments. The General Partner must supply the name of the other Limited Partners to any Limited Partner who requests the list.

MASTER LIMITED PARTNERSHIP — Limited partnerships that are fully registered with the Securities and Exchange Commission (SEC) and publicly traded. They are usually oil and gas or real estate partnerships that are "spun-off" by the sponsoring company either to existing shareholders, or sold as a result of a public offering to obtain cash.

MATURITY DATE — The date on which the principal amount of a debt instrument or bond is due and payable.

MEDIUM TERM NOTE TRADING PROGRAMS — See Overseas Bank Securities Trading Program.

MEMORANDUM — Similar to a prospectus. However a memorandum refers to the offering paperwork issued by private placements, and a prospectus is the same paperwork issued by publicly traded companies.

MEMORANDUM OF UNDERSTANDING (MOU) — Similar to a Letter of Intent.

MEZZANINE FINANCING — A financing that is provided, usually by private investors or venture capital firms prior to a company going public, or initiating its next stage of financing.

MIN-MAX — In a private placement the ‘Min- max line’ is the minimum amount of money raised from investors necessary to allow the offering to be activated and the money forward from an escrow to the company. Failure to achieve the minimum amount usually means a return or funds to investors. As a practical matter the min-max line is usually low enough so that a return or funds is seldom seen.

NATIONAL ASSOCIATION OR SECURITIES DEALERS (NASD) — A regulatory arm of the Securities and Exchange Commission. The NASD licenses all securities firms, administrative personnel and sales persons, and is responsible for compliance of all licensed entities to securities regulations.

NET MOVIE DEAL — Like any other sharing of ‘net’ profits, the investors returns is directly controlled by the expenses of a company. The higher the expenses the lower the investor profits. Movie investing is notorious for ‘double entry bookkeeping’ where expenses are kept very high. It is a running joke in Hollywood that the accountants have proved that ‘Gone With the Wind’ has yet to show a net profit.

NET REVENUE INTEREST — A fraction of the working revenue of a well, net of royalty interest, taxes and other expenses.

NON ACCREDITED INVESTOR — The opposite of Accredited Investor, where the investor has less than a million dollar net worth or less than $200,000 a year income. Generally in private placements only 35 non accredited investors are allowed to participate in the offering.

NON RECOURSE LOAN — A loan where there is no collateral or other avenue or repayment in the event of an issuer default.

OFFERING CIRCULAR — A general term for a disclosure document prepared usually for a private placement offering.

OIL AND GAS WELLS (COSTS) — While the actual costs can rise due to unforeseen drilling difficulties, as a rule of thumb it’s safe to calculate drilling costs at approximately $50 a foot. Completion costs in the event of a successful well seldom adds more than 50% to those costs. Therefore a typical oil well can be drilled for a raw cost of $500-$600 thousand.

ONE FORTY FOUR STOCK — See Restricted Shares.

OPTION — The right given, or sold, to anyone to buy stock in a company at a certain time and specified price.

OTHER PEOPLES MONEY (OPM) INVESTMENT — A term widely disseminated in the 1980’s, referring to companies financed completely with investor funds, with no financial risk taken by the originators of the company. In effect, an OPM investment is an ‘experiment’ with investor funds. Venture capital firms avoid these investments as it is felt that management, with no money at stake, might lack the commitment necessary to make the company succeed. Even with the best of intent this can lead to ill researched business ventures. And in extreme cases there may be no serious intent to make the company succeed. Then the ‘front load’ fees and management salaries, paid from investors funds, have become the sole reason for the creation of the company. With Scams and Legal Scams, OPM investments comprise the majority of private placement investments.

OVER-THE-COUNTER — Securities of companies that do not trade on an exchange, but instead on either the "pink sheet" market, or on NASDAQ. Most companies that "go public" start trading on the over-the-counter market.

OVERRIDING ROYALTY INTEREST — A fraction of the working interest from an oil or gas well, entitling the owner to a prorated percentage of the gross income from the well (less taxes).

OVERSEAS BANK SECURITIES TRADING PROGRAM — A general name for programs whereby European banks issue bank debt, which is non-securitized. Third parties pay for the bank paper allowing it to be securitized and resold to buyers who can only purchase securitized bank debt. Since the paper can now be sold at a higher price the third party is supposed to receive all or part of the difference in price, with the same capital pool of funds financing, or rolling, over a transaction after transaction. The practice is illegal in the United States, and all such transactions occur in ‘non-reporting’ countries away from U.S. bank regulations. The SEC and all U.S. regulatory authorities say these programs are non existent, and even those who believe they exist admit that 90% plus of the purported programs are fraudulent.

OVERSUBSCRIBED — Refers to an initial public offering where the underwriter has the ability to sell more shares than it has agreed to purchase in a firm commitment offering. Underwriters try to achieve this condition, and then exercise the over allotment option ("green shoe") to fill those orders. This results in additional profits for the underwriter, and additional proceeds from the offering for the company. Typically an oversubscribed offering will trade at a premium in the after market.

PASSIVE INVESTOR — Refers to investors in partnerships who are not in an active management roll in the partnership.

PERFORMANCE BOND — A surety bond that provides protection against non-performance. Traditionally, performance bonds have been required by small issuers or commercial paper. Recently performance bonds have become increasingly used by small and medium sized companies as credit enhancers in a variety of traditional and non-traditional financing transactions.

PRE-EXPORT FINANCING — Includes a variety of debt financing including short-term commercial credit, term loan commercial credit, working capital guarantees, and letters of credit used normally to enable a company to finance the manufacture of a product for export.

PREFERRED STOCK — Preferred stock is a class of capital stock that is usually junior to the company's debt obligations that are paid first in the event of liquidation. There can be many classes of preferred stock with different conditions. In general preferred stock pays dividends at a specific rate, and has preference over common stock in the payment of dividends and in the event of a company bankruptcy. Preferred shares can carry voting rights, or special voting rights.

PRICE/EARNINGS RATIO — The earnings per share, or net profit of a company, multiplied by a market selected number or years, with that number divided by the number of shares of common stock outstanding.

PRIME BANK — A term for the top 50 or 100 European banks used mostly by scam artists, as these banks have no such official designation for themselves.

PRIMARY OFFERING — An offering by a company of previously unissued securities.

PRIVATE PLACEMENTS — These are offerings raising money from companies that are privately owned, and not ‘public’ (traded on a public stock market) but still allowed to raise funds on a securities exemption. The intent of the exemption was for individuals to be able to start a business without the burden of a fully registered securities offering. Such private offerings are to be shown to and sold only to individuals or entities where there is an established relationship, and are not intended to be used to raise money from the general investing public.

Even while private, most private placements that are defined as ‘securities’ must be filed with the SEC as exempt from securities registration, except in the case of a Regulation D, 504 exemption which must be filed with each state and in accordance with the states securities regulations of each state in which money is being raised.

While there has been much debate as to what defines a securities issue, the general rule of them is if a company is offering equity ownership in that company, or income through a debt instrument of that company, it is a securities offering. For practical purposes it is best for the investor to assume that sooner or later a private placement will be ruled as a securities offerings and to ascertain that the private placement securities exemption regulations are being complied with, especially as the compliance is mostly concerned with risk disclosures.

The rules governing such private placements are many, and in many cases potentially conflicting. But in general there are three main categories to be aware of. 1) Such placements are intended to be ‘private’, and cannot be ‘cold-called’, advertised or otherwise solicited to the general public. (See Established Relationship). 2) Disclosure – All relevant factors concerning the risk of the investment must be disclosed, including the management, structure of the investment, business plan and risk factors. 3) Securities exemptions – The offerings should comply with all relevant private placement regulations governing securities exemptions.

PROFIT MAKING ACTIVITY — The actual business of the company, where a product is produced for X costs, and resold at X plus a profit. The product can be an actual physical commodity, or a resale of intangible information.

PROFIT PROJECTIONS — What kind of profit a new company thinks it’s going to achieve. Useful if based on market studies. Of almost no value if based on the over all size of a specific market and an assumed percentage penetration of that market place, with smoothly increasing annual profits.

PROSPECTUS — A disclosure document prepared to provide potential investors with detailed information regarding the purchase of securities including debt offering, equity offerings or limited partnership offerings. The purpose is to raise funds for a company already trading on a stock market exchange.

PROXY — shareholder's written authorization for another person to vote and represent him at a shareholders' meeting.

PROXY STATEMENT — The information provided to shareholders pursuant to SEC regulations by those soliciting shareholder proxies.

PUMP AND DUMP — Less than an accredited investor, a qualified investor only has to have a $250,000 net worth, or make $60,000 a year in income. Generally this is a meaningless term as such investors are still non accredited investors.

QUALIFIED INVESTOR — See Full Disclosure.

RATE OF RETURN — The return on a company's common stock or equity, or the dividend yield (the dividend divided by the purchase price of the shares). For bonds and preferred stock, the current yield, which is determined by dividing the coupon rate by the price paid for the bond.

RECOURSE LOAN — A loan or debt transaction that provides that the guarantor or other party agrees to provide payment if the borrower defaults.

RECOVERY ROOM — A firm specializing in recovering money for investors in scam investments. This is seldom, if every, possible. Such recovery rooms that work on a cash advance are likely to be scams themselves. If they work on a percentage basis of the recovery of any funds there is a higher percentage possibility of the recovery room being legitimate.

RED HERRING — A preliminary copy of the prospectus used for due diligence purposes prior to the effective date of the offering. The red herring, or preliminary prospectus has red printing on its cover indicating that it is not a final prospectus. The red herring is also utilized to interest potential investors and brokerage firms with participating in the offering of securities.

REGISTERED OFFERING — See "Public Offering".

REGISTERED PARTNERSHIPS — Limited partnership offerings that are "registered" with the US Securities and Exchange Commission, and usually with the state securities commissions so that a "public offering" of the limited partnership interests can be made.

REGISTRATION — The process of filing a registration statement with the Securities and Exchange Commission, in accordance with the 1933 Securities Act usually either prior to a company "going public", or as a result of a new issuance of securities.

REGISTRATION STATEMENT — The disclosure document filed with the SEC in accordance with the registration requirements of the federal securities laws. The registration includes the prospectus and other information including exhibits.

REGULATION A — SEC rules providing exemptions from registration of certain public offerings of up to $5 million. Regulation A offerings can be publicly traded on exchanges establishing a price for the stock should the company issue and IPO.

REGULATION C — Rules that prescribe the procedures to be followed in preparing and filing registration statements, paper size, number of copies, etc.

REGULATION D — SEC rules that govern the exemption from registration for private placements and limited offerings. Subcategories are 504, 505 and 506, which determine how much money can be raised. 504 is for $1 million, 505 is for $1 million to $5 million, 506 is for $5 million or more. The registration requirements become more stringent the larger amount raised.

REGULATION S-B — SEC rules and regulations governing financial and non-financial statement disclosures in both registration statements and periodic reports filed by "small business issuers.

REGULATION S-X — SEC rules and regulations governing the form, content and periods to be covered in financial statements including in registration statements, and periodic reports for companies other than "small business issuers."

RESTRICTED SHARES — Shares of a company's stock that cannot be sold to the public without either registration, or pursuant to Rule 144. These shares are usually either held by insiders including officers, directors or principal shareholders, or by investors who acquired the shares through a private-placement. With some exceptions, the restriction is for one year.

REVERSE MERGER — This is when a private company with assets merges into a publicly traded company with little or no assets. The assets of the public company have to be entrusted, but now the owners of the stock of the private company can now sell their stock. This shortens the time normally needed for a public stock registration.

REVOLVING CREDIT — Also called a revolving line of credit, line of credit, or open-ended credit. The agreement, usually with a bank, provides a maximum amount that can be borrowed over a specific period of time. If the full-amount is "borrowed down" or the line of credit is "drawn against," as repayments are made, additional borrowings can then be made.

ROLL PROGRAM — See Overseas Bank Securities Trading Program.

SEC — See "Securities and Exchange Commission".

SECONDARY OFFERING — An offering of securities, usually shares of common stock after the company is already public. The secondary offering can consist of shares owned by officers, directors and principal shareholders, new shares issued by the company, or a combination of both.

SECURITIES — A broad definition that covers stocks, bonds and any other instrument issued to show debt or equity ownership issued by a government, agency, company or individual for the purposes of obtaining capitalization for a business effort. Securities, by U.S. law are under the governance of various regulatory agencies whose job is to regulate the issuance and compliance to securities laws are promulgated by various acts of Congress.

SECURITIES ACT OF 1933 (1933 Act) — An act passed by Congress and which has been amended which generally requires that public offerings of securities be registered with the SEC before they can be sold.

SECURITIES AND EXCHANGE COMMISSION (SEC) — The US governmental agency that regulates the securities industry and is responsible for administration of US securities laws, including the 1933 Act and the 1934 Act.

SECURITIES AND EXCHANGE ACT OF 1933 (1933 Act) — An act passed by Congress, which has been amended, that regulates securities exchanges and the over-the-counter markets. It also, generally requires publicly held companies to file periodic reports with the SEC.

SECURITIES EXEMPTION — Stock and Bonds are an essential acknowledgment of debt. The form of the repayment of that debt determines what the debt instrument is called. Not all debts so issued are, or should be, subject to expensive and time consuming registration with securities regulatory agencies. The laws provide exemptions to this registration under specific circumstances outlined under private placement regulations.

SECURITIES REGISTRATION — The filing of a securities offering with the SEC. This can apply to private as well as public offerings. In the even of a private offering, the SEC merely files the information, and does not review it for accuracy to approve or disapprove of the offering. The only securities exemption that does not have to be filed with the SEC is a Regulation D, 504 exemption, which has to be filed with each state, individually.

SENIOR SECURITY — A bond or stock that has a "prior claim" in the event of the liquidation of the company. Senior security obligations are paid first, prior to any claims of subordinated debt, or prior to any moneys paid to shareholders of the company. In the event of a bankruptcy, the parties to be paid from the surviving assets are in order: tax obligations, employees, vendors, bondholders, and preferred stock, with common stock last.

SINKING FUND — Funds that are diverted from company in a predetermined plant to accumulate funds in a separate account to "pay off" company debt or redeem preferred stock.

SIPC (Securities Investment Protection Corp.) — This is insurance required by each NASD registered broker dealer. This insurance covers investors funds against malfeasance by the brokerage firm up to $200,000. However this insurance only covered cash and securities that have a market value. It does not cover private placements.

SPIN-OFF — A form of reorganization that results in either part or all of existing company operations being distributed to shareholders in the form a separate company, which, in many cases, becomes a publicly-held company. Spin-offs can be most effective in obtaining financing for new technologies, or for expansion.

SPREAD — In stock markets, this refers to the difference between the bid, or price you may sell a stock, and the ask, or the price you will have to pay to purchase the same stock. In venture capital, this refers to the percentage difference, or the difference in dollars between the current market price of a company's stock, and the anticipated value upon the completion of a reorganization, or acquisition.

STOCK (BOOK VALUE) — Book value is an arbitrary value placed on a stock when the company is originally incorporated. This value is arbitrary and usually kept as low as possible. One tenth to one hundredth of a cent per share is common.

STOCKBROKER, SERIES 7 — A fully registered stockbroker licensed by the NASD, a regulatory arm of the SEC, to sell any investment. Each broker, whatever his ‘series’, and each brokerage firm has an identifying CRD (Central Registry Deposit) number.

STOCKBROKER, SERIES 6 — Registered stockbroker licensed to sell any investment, except stock.

STOCKBROKER, SERIES 24 — A securities principal licensed to manage brokerage firms and other brokers.

STOCKBROKER, SERIES 22 — A broker registered to sell private placements.

STOCKBROKER, SERIES 27 — The accounting principal for a brokerage firm responsible for accounting compliance of the firm.

STOCKBROKER, SERIES 63 — State registration required by all brokers.

STOCK PRICES OF PRIVATE PLACEMENTS — Since private placements are usually start up companies with no assets or income, there is no way to calculate what the stock price should be. Therefore, companies arbitrarily assign a purchase value to the stock that bears no relation to reality. Raising the price of a private stock is justified if the company is producing enough income, or has enough asset growth to be able to calculate a new price. But frequently, these companies will raise the price of the stock just as arbitrarily, and this is normally a sales tactic designed to get investors who are on the fence, to invest in the company. The good effect for the company is that they have to issue less stock to achieve the same funds inflow from investors, thereby diluting the company through stock issuance less than if they stock were at a lower price.

STOCK SPLIT (REVERSE) — This is when, for example, two shares of a stock are ‘called’ by the company and one share is issued in lieu of the two shares. This cuts the amount of stock outstanding in half, and doubles the price of the remaining shares. This is normally done when a company desires to have a higher price for its stock for accounting or merger reasons, or to qualify the stock for a more prestigious exchange. As a rule of thumb, a reverse split is done to mitigate the effects of a declining stock price, and is not, therefore, a good sign in regards to the health of the company.

STOCK SPLIT (FORWARD) — An example of this is when a company issues two shares for every share outstanding. This would double the amount of shares outstanding and cut the price of the stock in half. This is usually done when a stock price has been steadily climbing, and rather than have an extremely expensive stock no one wishes to purchase, the price per share is then brought down to levels attractive to the average stock purchasers. As a rule of thumb, this is a very good sign for the company and the stock price usually quickly climbs back up again. While a two for one split is the most common, the amount can be three for one, or any combination that has the desired.

STRATEGIC PARTNERSHIP — A collaboration of a company with usually a larger, financially stronger company that can provide resources to achieve corporate, economic and strategic goals. Also known as a strategic alliance or a corporate venture.

STRUCTURE — In venture capital terms the type of financing that is used to finance a small business.

SUBSIDIARY — A ‘child’ of a ‘parent’ company. Partially or wholly owned by the parent, the subsidiary is organized and financed separately, in the event that a business failure of the subsidiary will not affect the parent company’s finances.

SYNDICATION — Where a number of brokerage firms, or venture capital firms, will finance a securities offering or new business so that no one firm assumes all the risk.

SUBSCRIPTION — An agreement to purchase debt or equity securities of a company.

TAX WRITE OFFS FOR PASSIVE INVESTORS — Passive investors can only write off passive losses against passive gains. If the losses exceed the gains the losses can be written off in the amount of $3,000 a year. Any excess may be rolled over into subsequent years.

TELEMARKETING LAWS OF 1992 — There are specific regulations governing the format, disclosure and behavior of telephone solicitors. If the proper form is not followed, the recipient of the calls can sue telemarketers in small claims court. While the laws are too complex to go into on this list, IDE members are supplied a copy of the most frequently violated provisions of the regulations.

TOTAL RATE OF RETURN — The dividend plus any appreciation in a company's stock, divided by the purchase price of the stock.

TURNKEY — In oil and gas, a contract with an operator to drill a well for a fixed cost. Since the operator is liable for cost overruns, there is a practical tendency to ‘pad’ the turnkey cost.

UNDERWRITER — A brokerage firm, securities dealer or investment banking firm that sells company securities to investors and to other brokerage firms, securities dealers and investment banking firms. This can occur either through a private placement offering or public offering.

UNDERWRITING AGREEMENT — The underwriting agreement contains the details of the company's arrangements with the underwriters, including the type of offering (best efforts or firm commitment), the underwriters' compensation, the offering price and the number of shares or securities offered.

UNDISCLOSED LOADS — Where front loads are referred to, but no expressly stated in numbers or percentages, leaving no limit to the amount of these expense factors. Undisclosed loads are an equivalent to a ‘blank check’ allowing the company to use investor funds in any manner the company sees fit.

UNIT — An offering of securities of a company, which usually consists of one or more shares of common stock, and one or more common stock purchase warrants that provide for the purchase of an additional share or shares at a specific price during a specific time period.

UNIT INVESTMENT TRUST — Another private placement mechanism where a trust is formed, and investors become participants in the trust by purchasing units in the trust.

UPSIDE — The most optimistic projections of an intended investment.

USE OF PROCEEDS — A listing of the intended uses of money raised from a private or public placement offering. Much can be determined about the business expertise and the legitimacy of the offering by a careful study of the Use of Proceeds.

VENTURE CAPITAL — Typically high-risk financing, generally in the form of preferred stock convertible into common stock or common stock, or debentures convertible into common stock, often provided to companies not qualifying for other types of financing. The venture capital investor typically requires a high potential of returns, and will structure the investment so that it can be liquidated through an initial public offering, or in some other manner within a three to seven year period.

WARRANT — A security that provides for the purchase of usually a share or shares of stock of a company at a specific price, during a specific time period.

WHEN AND IF ISSUED — A method of determining the buying appetite of a specific securities issue, which is sold when and if issued.

WORKING INTEREST — In oil and gas, a working interest is the exclusive right to drill for oil or gas on a lease, paying 100% of the cost and receiving the revenue (less the royalty interest agreed to with the owner of the lease). The holder of the working interest can subdivide revenue interests from his working interest and transfer or sell them.

YIELD — The return on an investor's investment dollar expressed in an annualized basis. Usually referring to debt instruments or debentures. The yield is often referred to as the interest, or coupon rate. Yield assumes a principal repayment of the investment at a specified future maturity date.