Garage Shares

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Garage Shares

This site is dedicated to the entrepreneur -- whether high school student or senior citizen -- who has a fledgling business in need of a boost; garage capital has made every effort to keep these pages current and correct, but cannot warranty them for correctness or suitability to the viewer's circumstances; securities lawyer comments welcome...

INTRODUCTION

This document is written for the garage inventor to get a plain-talking review of some popular ideas, with an eye toward reducing fear of them. Why this site? Exodus 20: 12 -- "Honor thy father and mother: that thy days may be long upon the land which the Lord thy God giveth thee." If I reduce your fear -- of the unknown, of rules and fees that may not apply to us anyway, of approaching others for money -- I may experience more liberation in my daily walk. If you haven't been told of the power of "giving forward," now is a good time.

In the Funding section, Funding Garage Inventions , the preferred capital-raising methods for small businesses -- those which are used most commonly according to some sources -- are outlined. Non-profit contests and government grants allow the greatest productivity and some of the best odds for successful capitalization. In my experience, after doing charitable activities for quite some time, I discovered that a casual friend was a "finder." A "finder" or "intermediary" or "purchaser's representative" is someone who is rewarded for being a friend. There are state laws which limit how one can reward a friend; essentially, one needs to be able to prove that all parties are completely satisfied before a "finder's fee" may be paid. Approaching rich strangers can be done without worry of regulations, and in my experience, has been worthwhile.

Some common-sense ways to mentally optimize capital raising are also reviewed. If one has a philanthropic product, then one can act from a basis of principle rather than personality, and one can make friends who may help on other projects, and even explore the many dimensions of tax deductible projects. One should have sufficient proof to oneself that the project is doable, or one's body language will be at odds with one's words. Complete honesty is essential, both because the rules against fraud are strict and because dishonesty tends to be reflected.

In the same section, it was suggested that an inventor can do the most for the unfolding of a great ambition by stacking the deck in favor of the investor and the customer. This deliberately-losing-at-cards strategy can be taken too far, but it helps set your body language, dress, voice, tact, and communications correctly. If the person you are with becomes ungrateful, one generally should leave -- a gentle rebuke.

This section contains information about what it means to offer public shares, and how to do it. It is not written by a securities lawyer or even someone whose friends have gone public. Would you want to have a piano teacher tell you how to fix a tire? It is based on available web documents, which may be helping make the process easier and more affordable.

Do you think it would be fun to issue stock in a half-serious way to anyone with two sawbucks in hand? There is even a short section on doing this: click here.

It is worth emphasizing that public stock is a highly charitable approach to raising capital, and commendable when there is minimal risk to the investor.

Finally, at the end of this essay, there is a short comedic piece about promoting stock: "13 Ideas to Promote Stock" based on the logic that if you can't join them, beat them.

HOW IT WORKS FOR BUYERS

If you want to buy some stock, you usually mail a discount broker a check for $2,000 or so. $2,000 is a federally mandated minimum for so-called "margin" investing (which one sometimes does automatically with mutual funds) in which the investor buys twice the amount of stock for a given price by borrowing the difference, and paying a low interest rate. (They then extract further value by offering the shares for "option" as well.) This is only possible for often-traded stocks like NYSE and many NASDAQ stocks, which are aptly termed "marginable" stocks. The $2,000 figure is very common. The leverage of margin is not available to: mutual fund purchases, including stock index mutual funds, DRIP's, IPO's and so-called "penny stocks" found on the OTC and OTCBB.

I have seen online brokerages advertizing no minimum -- for instance, http://www.aftrader.com -- but I haven't yet used them. A questionnaire is usually part of the account-opening process, in which one describes one's wealth and/or investing experience/expertise. Either way, the check usually comes before the first transaction. If you buy certain stocks, there will probably be warnings that have been offered over the years. Unmarginable stocks are more risky. From what I gather from certain regulatory press releases, a much freer rein is allowed e-traders today than investors have had in the past, when the only access to markets was via the newspapers and phone. At that time, in order to buy an obscure "OTC" stock, one might have to get the name of a different stockbroker.

The OTC: BB or OTCBB is a listing available from NASDAQ through not only the special consoles provided stockbrokers, but also the majority of Internet Service Providers like America Online and Netzero. Let's repeat that for emphasis: the OTC: BB or OTCBB is a listing available through not only the special consoles provided stockbrokers, but also the majority of Internet Service Providers like America Online and Netzero. Using the example of Showscan Entertainment, one types the symbol SHOW into the stock symbol search engine on the main screen, and receives, on some systems, a graph of the price over the year, current prices, and access to news items like quarterly or annual reports. (One other note: the OTCBB is sometimes called the NNOTC, or non-NASDAQ OTC.)

The OTCBB or NNOTC is not the only small business public stock game in town, but it practically is. Some quotation services also provide prices and news for stocks from other countries, but only one service that I know of offers quotes from companies that are not selling their stock over NASDAQ equipment. The NNOTC is a convention established by the former non-profit corporation NASDAQ that most broker-dealer-banks are configured for.

When you place an order for an OTCBB stock, you hopefully will not be asked to buy a very large amount of stock. A 10 cent stock's minimum size to quote over the NASDAQ computer system is 5000 shares. This "round lot" price is theoretically used only by the market maker when making a "firm offer" over the NASDAQ computer system; market makers can also list themselves by name only, without a price bid and negotiate the price by phone. This is a common practice for OTCBB stocks, and can lead to higher fees for an OTCBB purchase. The investor can also try to buy directly from the company, or from another stockholder. The company can sometimes help put the investor in touch with a broker-dealer with lower fees.

The kinds of profits that can be made from OTC stocks, both OTCBB and other OTC shares, are a matter of public record. An obscure company catches the eye of a broker while its technology is still on the workbench; the broker gathers hundreds of investors, each buying a few hundred shares at a few dollars per share. (From my friend's description, the so-called $5.00 minimum price rule is simply wrong -- he almost always invests in "cheap stock," so raising the price is closing the door to investors like him.) They are not interested in an IPO, they are looking for a merger or buyout from a company that has cash but needs competitive products and satisfied customers. They expect that this will result in their stock being converted to the new-company's stock, or possibly even the company "going private" since the number of investors is small.

Apparently, many people who can afford it are buying these stocks. If I happened to start a company with the modest goal of a safe liquid nitrogen-powered truck, the OTC would seem to be a perfect venue. An investor who invests in the "OTC" or NNNNOTC (the non-NASDAQ non-NASDAQ OTC, or those shares which are approved for "secondary trading" by the NASD, but which are not carried over the NNOTC which is NASDAQ hardware and software) is comparable to the early satellite dish TV viewers. They are looking for stocks that are otherwise pretty hard to find.

The only electronic quotation medium other than the OTCBB that I know of is called the National Quotation Bureau "Electronic Quotation Service." It is accessible only to those broker-dealers who enter and retrieve information using the service at a cost of approximately $149 per month, or individuals who order the $149 quote service. Services which offer free quotes provided by NASDAQ appear to be able to display a daily quote for certain defunct OTCBB symbols now listed on the "EQS," but they tend to also show incorrect chart information. Over 700 stockbrokers subscribe to the NQB "EQS" at this draft's writing.

HOW TO BECOME OTC OR OTCBB

"Over the Counter" used to mean "NASDAQ," back when NASDAQ was a non-profit corporation. If there were not computers sitting on 100,000,000 desks and laps throughout the world, there would be reason to rebuke the idea of cutting off some companies from access to the computer system that is used by broker-dealers, who have been required by law to be NASD members for years.

Currently, "OTC" seems to mean those stocks which want to be publicly traded and which want stockbrokers to sell them, and it seems to imply a symbol. When NASDAQ added a special rule and started cutting off access to its computer system for OTC stocks, it may have also complicated symbols somewhat. An "OTC" symbol may be either an NQB-assigned group of letters or a NASDAQ-assigned group of letters, hopefully not with some overlaps (?) . I have made some casual inquiries, and it appears that OTC trades are still reported to NASDAQ since market makers are making the transactions (more about DRIPs and SCOR elsewhere), but that NASDAQ reports these to services like the NQB only.

Can a company be publicly traded and not be sellable by stockbrokers? Many small business companies exercise their ability to raise money by selling stock, and this stock is sometimes immediately tradeable, which is to say, it can be sold to someone else. Technically, a stockbroker is a member of the NASD and the investment would have to be approved by a NASD broker-dealer before being sold, but generically, a stockbroker can be an investment advisor, who can sell a multitude of investments without NASD overhead, but who generally must have a high net worth as a protection for investors.

The majority of stock is not even "OTC," but much of it probably could be freely traded, if the various owners of car dealerships and boat builders and paint stores wanted to complicate their finances and use investment advisors and other "finders" to sell their stock.

The first step for a business wanting to become an OTCBB or OTC stock is probably to exist. As a young man, I earnestly wanted this not to be so. I wanted to get a few pieces of paper together and see my symbol on the TV a few weeks later. I could have been somebody...

I say "probably" to exist because there is also the hypothetical example of a loving entrepreneur who shows a three page executive summary around, and has a prototype sub-freezing coolant system using microscopic springs and a flashlight battery. The public stock medium is believed to be superior to other kinds of friend-making because it is a national public record that is non-discriminatory. The actual incorporation, patenting or licensing papers may wait while one or two other funding venues are explored. If public stock is chosen as the most reasonable step, then accountants, patent, tax and securities attorneys may be contacted about using stock as payment. And the business becomes incorporated.

He or she may want to patent their work after going public, for whatever reasons. The reason could be that the smaller a company is when it begins the process of a public offering, the easier it should be to casually "audit" for the purposes of both incorporation, and filing with the OTCBB. Filing incorporation papers is discussed in the Funding Garage Inventions section, and in California, is currently much more affordable than it has been in the 1990's due to the removal of some minimum business taxes as of January 1, 2000. There is an appearance that some of these fee waivers may be temporary, so one is encouraged to visit the Secretary of State's link http://www.ss.ca.gov or in the Links To Capital section.

Periodic reporting should be ruthlessly honest and unimaginative. Where a sliding scale of long term contracts, carried forward for purposes of averaging, might be standard operating procedure for certain types of business -- this doesn't pass muster with the SEC.

There are many little details that may accompany filing incorporation papers. A lease in an appropriate industrial park or office space traded for securities from an investor could be procured, or one could make one's publicly traded corporation a home-business. A selling permit and other permitting issues are covered lightly in Funding Garage Inventions .

At this point, one is probably receiving money from an investor and recording it in a ledger. This money could be recorded a number of ways. As long as no investors are from another state, there isn't a need to file a federal document yet, and the state forms are very loosely mandated -- one may file certain forms long after a transaction is made without a penalty in most cases. Again, this information is found in the Funding Garage Inventions section.

At the point of incorporation, one may elect to get a CUSIP ID number. The CUSIP (for Committee on Uniform Securitieis Identification Procedures) is often NOT necessary. The CUSIP "uniform" ID is a concept sponsored by the American Bankers Association and operated by "Standard & Poor's" that makes it possible to keep track of every investment made in the United States. There is a one time base fee of $105, with every issuer added being $8. There are no annual maintenance fees. State and federal regulators often make mention of the CUSIP in documents, but "Standard & Poor's" is not REQUIRED to give them to whoever requests one. They prefer not to provide CUSIPs to private placements unless an insurance agency is buying them, or to SCOR stock or other "local" issues, according to their web page.

The next step is filling out an offering form like "Regulation A." This form is easily recognized by OTCBB broker-dealers; it makes it possible to "go public" without conventional expensive auditing; and it satisfies the OTCBB requirement for a prospectus. Information about the "Regulation A" form for a public offering is available in the Regulation A section, along with links to the SEC and copies of the forms.

These days, many filings made to the SEC are being made in HTML -- hypertext mark-up language -- the same word-processing format as this web page. The program called "Front Page Express" buit-into Windows98 may thus be used to prepare one's eventual "periodic" SEC filing, such as Form 10-KSB, but the so-called "electronic filing" according to "Regulation S-T" does not apply to Regulation A. Regulation A is currently required to be a paper filing, along with Regulation D. These documents also do not generally need to be filed until money is being accepted.

The Securities and Exchange Commission has mandated the use of "electronic filing," of quarterly and annual reports, and forms like Form SB-1 in HTML form, and, at this writing, has begun to transition to e-mail. Some of this information may not be current, contact www.edgar.gov for current information. If one chose to file a "Regulation S-B" or other mandated form, one would first file a Form ID on paper to obtain permission to send a 3" diskette, and then the SEC would send one contact codes and passwords, etc. The diskette containing the Regulation S-B or Form 10KSB would include a "transmittal" form called Form ET . The many particulars of the new system -- which does not seem very difficult at all, and appears to be primarily aimed at reducing paper storage and waste -- are described in the somewhat lengthy Regulation S-T . This link at the SEC is a superior way to review their resources and obtain the forms directly: http://www.sec.gov/smbus/forms/formssb.htm .

If a "financing round" is going to be made, the Regulation A will be presented to investors as a "private placement" before it is filed with the SEC. The advantage of this offering is that it will be expected by accredited investors and others like venture capital firms and a few mutual funds that will look at thinly traded new stock. It is not as important as the idea, the management team, or the initial two page "executive summary" and/or Power Point and/or web page, and if very sophistiacted investors become involved, it may be substantially altered before it is filed. The financing round can also be superior to a "public offering" in that it is efficient and allows things like videotaped presentations for financial experts, as discussed in the Funding Garage Inventions section. It is not morally superior to the OTCBB offering, though, because it will not be being publicly reported and will lack a tracking convention like a computer search for undervalued stocks of a certain profile, and it may not be available for most stockbrokers and e-traders to sell.

The next step is going to be approaching the NASD broker-dealer known as a "market maker." Before doing this, a company will want to get all of its affairs in order and in a form ready to show a broker-dealer. If I were to approach a market maker, I would want to bring a compelling sample of the product above all. The "Regulation A" circular should already include many of the elements to convince the market maker of one's good intention by keeping the stock collateralized and undervalued: long salary commitments, "restricted" stock for insiders, a minimum of discounted "private placement" stock, warrants incentives and stock options for key personnel and others, outright assignment to the corporation of patents or copyrights, contests and other forms of consumer and industry outreach, employee incentives for non-key personnel, partial involvement of a public company able to "pool interest" in the future, limited risk exposure, the highest quality assistance one can afford, subcontracting, actively pursuing non-profit and government grants, little or no debt. A list of NASD OTCBB market makers may be found here: http://www.otcbb.com/static/symbol.stm , click on "All OTCBB MPIDs." One expects the majority to have web pages, as well. This is possibly not a list of all NASD market makers, another list should be available from http://www.nqb.com specifically for OTC stocks, if it is made available, or from http://www.nasd.org .

In order to become an OTC stock, a company issuer or intermediary needs to bring the company's Regulation A or other prospectus, and a "reporting" document like a SEC 10KSB, to a broker-dealer that is a "market maker" and request that the market maker file a "Form 211." Here is a link to "Form 211" in Adobe Acrobat: http://www.otcbb.com/marketmakerservices/forms/formsindex.stm .

The "market maker" will be responsible for placing a quote for the stock on its books, and recording any orders that it receives. NASD broker-dealers who provide "market making" are currently the gate-keepers of OTC public stock. If they do not approve one's stock, for instance, because they think the prospectus is fraudulent, it will not be OTC. Such a stock will be as valid as the car dealership stock for public trading, but it will probably be relatively hard to find, along with other SCOR/ULOR offerings and Regulation A offerings that may have never intended to "go public."

There are two ways for such companies to become more visible at this time. One is to look for an entity comparable to the NQB (which also offers a limited partnership listing area that does not require market maker "gate-keeping"), as one appears. So far, the kinds of "markets" that are emerging for Regulation A companies (that do not apply for the OTC) allow the companies to make public presentations, and include groups of investors who they may contact, but seem to keep the entities and groups discreet. They are glorified "links pages." In the case of Direct Stock Market, Inc., http://www.dsm.com , the investor list is 2,000 strong. They seem to have a strong respectable presence, and to be functioning primarily as an online "investor relations" public relations firm.

These non-OTC stocks may also improve their visibility for investors by electing to be "publicly reporting" and filing forms like the SEC "Form 10KSB," which will create an annual or quarterly presence on the SEC's EDGAR computer system, and make a public record of the company's outstanding stock, its liquidation value and price support, if any.

Having NASD broker-dealers, who are increasingly owned by large banks, provide a gate-keeping service relating to capital-raising, is very new -- as of 1999. It is probably as unconstitutional as the Securities Act of 1933.

The NASD market maker can approve one's prospectus for OTC trading, or approve one's stock for OTCBB trading. Approving the prospectus for OTC trading may require having a way of "clearing" stock with the broker-dealer, and some other details, but the stock will be for all intensive purposes "in." I've noted a few words about "clearing" here -- CLEARING . The broker-dealer burden for the OTC issue is high for the commissions gained, but this is the current system. The OTC stock has overcome the major hurdle, and now must find some way to be seen. As has been mentioned before, there are few services currently listing OTC stocks, some possibly on a free basis, and the "EQS" for $149 monthly. The NASDAQ Rules at one time explicitly required both "Pink Sheet' (EQS) and OTCBB sales to be reported to the NASDAQ system. Although the "delisting" phenomenon suggests that this is no longer the case, it also seems likely that OTC stocks will be recorded somewhere besides the "blotter" of the market maker, even if this information is not shared with the 100,000,000 computers.

In one case, a NASDAQ stock was observed becoming OTCBB, then "disappearing" to the OTC, then filing the required periodic paperwork and re-emerging on the OTCBB. "EDGAR" records were available for the stock throughout this period.

As for the "symbol" and the comparative ease of having one's stock's value clustered with like companies, the "CUSIP" may be used for identification purposes, and is in some ways the symbol for the new millennium. It should probably also be mentioned that wherever a public company puts its symbol into a document like an advertisement or press release, an OTC stock company should be able to put a few words to the effect of its name and "an OTC stock, www.otcstocks.com " or "an OTC stock, www.edgar.gov ," since this is the equivalent of the symbol. (EDGAR is a service provided by the SEC for accessing public reporting documents submitted to the SEC.) This wanders into the "no advertizing" rule discussed in the Funding Garage Inventions section, but since the company is looking for talent as well as financing, and this area is somewhat gray, it is worth mentioning. It may also be more honest to use one's company's name over a symbol, since one does not want to "steal" the cachet of a "market." The NASDAQ wants to be the gourmet grocery store; the OTCBB and OTC want to be the 99c store. A company's stock should have its own lure of intrinsic value, and for this reason, I expect the majority of new issues will debut on the OTCBB without having to build a following on the OTC. It is unfortunate that the "CUSIP" Board is electing to filter issuers, or it would become the alternate OTC.

It should also be mentioned that federal securities law allows for non-OTC stocks like the boat builder who tries his hand at submarines and has a lot of friends. He can sell his stock among up to 500 friends and be careful so that all of the stock can be sold among the buyers, and to others. When he nears 500 shareholders, the SEC mandates filing regular financial records (the "10K" or other forms) with them. Going to the NASD broker-dealer gate-keeper is not required though, and he can continue to sell his stock to thousands more if he so desires, functioning like a Dividend Re-Investment Plan or DRIP issuer. But he must make annual reports and comply with "insider trading" rules (that probably won't apply to him anyway). Can he include some indication that he is selling stock like those companies which have passed the NASD market maker gate-keeper and are being followed on millions of computer screens? This is the difference between publicly-reporting publicly-trading stock and NASD-approved stock, as far as I can tell. Complying with SEC rules without reaching out to the thousands of NASD members probably can be done; for instance, having words to the effect of "a publicly reporting company, www.edgar.gov " in private documents.

The submarine builder will need to ask a NASD market maker to review his "10Q" and the information he has provided for the "Form 211." The NASD market maker can "gate-keep" the submarine builder out, refusing to allow them to even be "listed" as "OTC." This forces the submarine builder to contact other NASD market makers. One wonders why a non-fraudulent business would be refused a symbol on the OTC -- not the OTCBB which is a NASDAQ subset of the OTC only available through NASDAQ machinery. The market maker is obligated by the NASD to keep records for the OTC stocks approved, but these expenses should be relatively small, for granting the issuer the privilege of relative oblivion.

All three methods -- OTC, OTCBB and EDGAR -- require some measure of gate-keeping. EDGAR gate-keeping depends on the degree of accounting expertise applied to preparing 10KSB or 10QSB documents. I have not reviewed periodic reporting requirements, but I believe a CPA is required. Regulation A companies listing with a "Direct Stock Market" kind of service, which is essentially for sophisticated investors, represent the fringe of the possible at this time. It is still not hard to imagine a service charting all EDGAR businesses, bethey car parts manufacturers or paperboys.

There is a state form in California called the "Nonissuer Transaction" form for registering new issues for "secondary trading" which costs approximately $100 and covers details like capitalization, salaries of officers, etc. The majority of OTC "micro cap" trades will be exempt from public stock trading rules, however, due to reliance on rules for private placements which may be applied to secondary trading. Financial professionals, people who have consulted with financial professionals or experts about their decision, accredited investors and others are able to buy OTC stocks without special state registration. To my knowledge, a stock does not need to be "blue skied" by measures like incorporation in Delaware as long as it is not being sold to unprotected public investors. Plus, most investors now have easy access to financial expertise, and will not "stray" into the OTC now that it has been cut away from the NASDAQ, unless by choice.

The OTCBB stock is approved in the same way as the OTC by filing the "Form 211," but then becomes listed on the NASDAQ equipment. The market maker may also ask the company issuing stock to conform to the system they use for accounting and clearing. The OTC market maker cannot ask a company issuer for money; this is a NASD (not a NASDAQ) rule. In fact, the OTCBB market maker is supposed to pay the NASDAQ $6.00 per month per issuer.

THE INITIAL PUBLIC OFFERING

What is the difference between filing a "Form 211" and telling investors about one's OTC EQS stock; and conducting an initial public offering?

Some small companies, and even large companies with employee stock option plans that will create a large number of shareholders and prospective clients for market makers, do not conduct big IPO launches. If the public stock already has 500 owners and a relatively small block is being made available by the Company, the IPO may become "over subscribed," selling all of the available shares and requesting additional stock from the Company.

An IPO is almost the opposite of an "undervalued" or highly-valued business investment, exploiting the great liquidity of a public market of millions of buyers to its fullest. Key insiders are often not able to sell their stock during the IPO, according to SEC rules, in order to protect public investors, and consequently, marketing can have a great effect on the small amount of public stock available.

This site does not go into the "media event" IPO process in any depth, except to say that for the amount of money typically raised, it may be a great bargain. Since capital raising may occur after a "Form 211" filing, as well as before it in many forms, including casual loans and private placements; it is worthwhile to focus on one's business, especially if the business is conservatively "launching" on the OTC. OTC and OTCBB stocks are also not expected to promote themselves aggressively, for fear of the spectre of fraud.

So, OTC and OTCBB IPO's are okay (they're just not covered here). Not having true IPO's is okay too though. Since underpromoted IPO's typically are not "over-subscribed," the stock will continue to be sold by the market maker for some time, possibly years. During that time, the only way to tell IPO from ordinary stock will be that IPO stock does not ordinarily have a commission -- the commission is collected directly from the company issuer.

There are many other web sites with good information about the IPO process.

THUMBNAIL PENNY STOCK RULES

Do you have a sophomoric compulsion to issue stock in a multimedia mirage of your making for five cents a share? 100 shares for $3.99? I salute you! If you keep accurate books, why not?

In this article, a small section is provided which reviews some of the peripheral law of making loans to friends of friends, which hopefully will keep you out of jail. This information is also presented in the "Funding Garage Inventions" section. One can issue contractual "Scrip" for "Experiential Media Experiments" for instance, which may then be redeemed with video CD's of the actual production created with the $3.99 worth of stock (stock is non-taxable). Do not be surprised if your shareholders prefer NOT to redeem their shares, especially when they see the attention you've devoted to the certificates' attractive design.

The law allows for these little transactions of love. They have to be frivolous and casual if one expects the Courts and regulators to share one's incredulity when someone who gave you fifteen dollars complains to the SEC that the video tape they received of "EME 22" wasn't rewound.

And when a major motion picture is based on "Experiential Media Experhereiment #37?" We should all have such problems.

One can advertize to one's friends -- it's not really advertizing -- and one should keep a careful ledger of all one's expenses and receipts if embarking on such a frolic. Enjoy yourself. If you get a call from a regulator, you may want to turn on the camcorder and make that conversation "Experiential Media Experiment #38." A sample certificate is linked to: Sample Certificate . If you are trusting and extremely honest, you won't be choked with fear.

Another bonus of these frivolous activities is that if one needs to overcome butterflies, this method can be right up there with "Toastmasters"tm meetings, for boosting confidence and a sense of charity, which one should already have if one's project structure is well-thought-through.

Calling a "receipt" for an ordered product "Stock," which does not become "Stock" unless the person ordering the product refuses the product, is an interesting way to create a pool of investors. I have approached one kind of investor in particular with this kind of deal -- the investor who is irrationally uncompassionate. There is nothing to lose by selling them two hundred shares for twenty dollars, and giving them the royalty for a project for a year ot two.

With some added paperwork, one can have an EDGAR-listed, freely trading, publicly-reporting pre-incorporation scrip-stock without having to trivialize the worlds of regulators or stockbrokers. If one wants this stock to be OTC "listed," these regulators will need to become involved, as well as an accountant. This process is cursorily described above for the somewhat more studied, if no less zealous.

"13 Ideas to Promote Stock"

Since composing this short list of ideas to promote stock, I have grown a great deal in my understanding of raising capital for good-intentioned projects. Two key points are more metaphysical than financial: you already know wealthy people who you may courteously contact, either as friends or friends of friends of friends six times removed; and the nurturing that you give to others will come back to you. The Golden Rule. Make good news, and receive good news and share good news, and see what happens.

I also recommend this little essay because it covers some sticky points that haven't been treated elsewhere.

1) Start a hobby organization with membership certificates and a mailing list, or find a club with substantially the same interest as your Company to connect with. Give the Hobby group some shares in your company to share with its members. It also wouldn't hurt to become known among those hobbyists in their newsletter. The advantage of starting the hobby group is that it can become a corporation directly too. One can go to an industry group trade show and ditribute free shares of stock there too. The Companies that have been the sorriest to visit have done the least networking with the immense talent pool around them. This has also convinced me that we live in a spiritual universe.

2) Obtain a list of penny stock purchasers -- sort of cheap, and usually pretty old, from list provider services -- and give them shares for nothing. One cannot SELL to these people, but one can establish a relationship with them via gifts. Variations of this idea include a "Stock of the Month" Club and minority business investment club. While on the subject of "list services," the public e-mail mailing list built into most home e-mail systems, also known as the "address book" is a resource that can be used and is being used in many ways. Plus, there are many public lists of investors that can be found online. Try this link: http://www.neosoft.com/internet/paml/ .

3) Obtain a better list cheaper using escrow records, and give all of those people stock. Some escrow records are available online. RESIST the temptation to rifle the mail boxes of nice homes to get their names! Consider what is being done here. New friends are being made! One is actually not allowed to mail an individual an advertisement to buy stock in California without a $600 fee, if I read the law correctly. One way to comply is to LOVE. It is also worth mentioning that there are organizations like the "Stockbroker's Society" which charge a fee for disseminating info to brokers and their friends. In this way, unless one cares to do this oneself via the phone book or other resources, one can get in touch with a great number of finance-minded individuals PDQ. In my experience, "accredited investor" lists available from list services have been composed of addresses of wealthy-looking neighborhoods. This is like cold-calling the Beverly Hills phone book, which I have also done, on a dare.

4) Print up coupons that can be redeemed for products or stock, with an expiration date. Coupons are an interesting subject because they are like money. I once typed a little essay about coupons, and the next day, somebody tried to sell me a coupon for a boat ride. Spirituality, I love it! Coupons for free stock are probably more common than actual shares because of the expenses of mailing annual reports to folks who may not want them, but who you are required to contact as a publicly reporting company once you reach over 500 shareholders. It doesn't hurt to do a little research on the way coupons are typically created either. So-called "e-shares" or "netshares" number in the tens if not the hundreds online. I was unaware of them when I began this essay. The main care one should take is not to issue so many shares that the stock begins to become overvalued. And why not business card stock certificates: more free stock certificates. It sure does encourage MAKING FRIENDS, doesn't it? Since learning the role finder's fees can have in raising capital, I think a business card might better read: "I am considering giving 10% finder's fees to people helping ___________" and listing the project.

5) Fan Club of customers who like your business? Establish a fan club with free membership, and then ask them to buy stock, or stock and a free t-shirt. Incidentally, here is where the $5 rule which is still holding on in some quarters, to my way of thinking, did the most damage, since customers might much rather pop for 100 shares of a $1.00 doggie chew toy stock and not worry about it, than invest in a $5 per share round lot. One broker-dealer I worked for was adamant about the low price barrier. In fairness, it makes undervalued companies really stand-out. I complain a lot, I have to watch it. If one takes the investment and immediately puts it to work one can be proud of, does it matter if it is ten dollars or ten thousand? Sometimes it is easier to give the stock away WHILE selling something of value. Free warrant with every CD you buy. This is in the spirit of the CD that one buys for $5, which includes a rebate for $5.00, not so much because the seller is trying to unload an obsolete product, as that they want to establish a relationship with an interested customer base. Who better to make your friend than someone who likes your products?

6) There are apparently a number of states which allow mailing "testing the waters" materials directly to investors. Alaska, Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah and Washington. An issuer is limited in how this advertisement is made, the information is described in the blurb which is primarily intended for newspaper ads. (Yeah, they must move a lot of stock through the "Penny Saver"tm NASD SIPC.) I was initially upset to learn "testing the waters" is prohibited in many states, but one must bear in mind that a misunderstanding can flow from this. "Testing the waters" was probably the codification of something that can in no way be obstructed -- calling up someone to ask them a few questions for a survey, or to ask them if they looked at investments of a certain type. It is like asking someone to let you talk to them. Advertizing new securities is prohibited, asking to talk to people is not. "Testing the waters" describes both radio and newspaper advertizing new issues, and all kinds of mail, e-mail and banner advertizing, and to some degree phone calls, but cannot prohibit free speech or the good intention of loving communication. If one focusses on the letter of the law, then phrasing a letter very generally in order to establish a relationship, and possibly offering a premium, is the dictated course, by implication. Have you ever subscribed to the "Bull and Bear?" Do you have an e-mail address where you receive coupons for free offers? Don't let it get you down. I have also received mailings from so-called "national" "periodicals" composed primarily of ads for already-registered micro-cap OTCBB stocks. The advantage of the "public" company is that it may be referred to by a radio announcer or investment advisor newsletter, but the ethical corporation probably wants to keep their stock undervalued and doesn't seek them out.

7)Warrant-buyers mailing list. It may not be very easy to track the owners of penny stocks, but it may be possible through SEC EDGAR disclosures to track some of the warrant purchasers and other key players in the emergence of new and dynamic companies. This, again, is assuming the issuer has built an advanced material prosthetic arm that uses ear muscle cues to mimick full range motion, or a broadband tachyon maser for watching outer space tv. The old way of doing this was to get in contact with Company principals through the Billion Dollar Directory or other list services of corporation principals. Send a package to the corporation's main address and cross your fingers. This was how I initially found a delightful sight: http://www.garage.com . This kind of a mailing -- asking corporation officers to look at an investment relationship -- is probably not so much using the "private offering" exception to the securities laws, so much as it is using the business communications exceptions.

8) Merger. Why not? You send a certified letter to a company you like telling them that you will be merging with them in a "reverse tender offer." You xerox a bunch of beautiful stock certificates, a few reams, then run them through the computer, to add numbers. Then you mail the box of stock to the company with a price, COD, and see if they refuse them. Hey, you tried. (Yes, this implies it is a joke.)

9) There actually is a method of "spinning off" a company by having one corporation give out stock to another corporation as a "dividend." It seems to be actually more expensive and difficult than a "Form 211" filing with an NASD broker-dealer, though at one time, it may have been preferred as a short-cut. One advantage is that if the stockholders have any affinity with the spin-off company product, the spin-off and its stock benefit. Another "short-cut" called a "shell" is a way of rescuing the stockholders of a failed company, by taking over their stock. It may also be a long-cut, but sounds very charitable to the shell-ee. In fairness, if a person wanted to go public TOMORROW, the "shell" method would be the only way to go, by buying a BIG place on a corporation's Board of Directors.

10) Icelandic stock market anyone? There are several stock services providing quotes, often for free, to the 100,000,000 computer monitors out there. Yes, there actually is an Icelandic Stock Market out there, and there are foreign company quotation services which display the many Canadian and other market quotes. Going this route may not be necessary, because a domestic DRIP market quote service for small (and large) companies may develop soon enough, if it hasn't already. When regulations and fees get in the way of common sense, the smart people who run public companies weigh the value of cachet -- which is theirs to start off with -- against a better "bottom line" for their public stock investors. Try to remember that "cachet" should be yours to start with before approaching capital markets or investors. God provides ideas, we just think we think. We will all hear about the better stock market deal as it appears.

11) Unseen security subscription club; not a bad idea, especially if it is selling 100 shares for $5.00, that is, for 5 cents apiece. Here, I would like to get serious again for a moment. Why not a group of 1,000 or 10,000 investors each committing to contributing $100 to a minority micro cap fund? Each one is required to give $100 yearly to one of however many companies apply for money to the Micro Cap group. The minimum investment is $5, but if an investment doesn't sound good, you don't have to participate in it. 10,000 investors giving $5 for a good idea sounds like a lot more good for the world. I honestly believe such a club should be non-profit and completely tax-deductible.

12) Warrants. A recent example I came across was a famous entrepreneur who was sold 1,500,000 warrants for a company for 15 cents apiece. The warrants were tiered at something like 200%, 300% and 500% of the company's current value for a relatively short warrant period of a few years. This "name" was also elected to the Board of the Company. Is it right for a start up? Warrants put brakes on explosive growth. They are worth mentioning as a "win-win" example, though, since the company gets over $200,000, and the entrepreneur gets negotiable contracts that can be sold to other investors or exercised. They have to be publicly disclosed. By the way, the stock did go up.

13) Issue your own money. This method has the advantage that it is the equivalent of stock but is not regulated (that I know of). From time to time, a company store or municipality has issued its own barter scrip. There is no difference between barter scrip and stock in the sense that it can either gain or lose value, except that scrip is attached to the concept of a store with floating prices, and which may go out of business at some time, while stock is attached to the store itself. What if business were very good, and you wanted to call back your "scrip?" You could send scrip-holders a catalog showing how that a 50 cent scrip can now purchase a lawnmower or clock radio,... Fairly crazy ideas like "scrip" require two things: maturity of the business-owner and investor, which is the ability to enter into a long contract which has escape clauses and virtually no protections for either party, confident that the other party will exercise good judgment and compassion, and willing to bear the burden in any event; and intention, since the intention of working "around" ideas like a minimum stock price or relatively inexpensive "offering" process needs to be purer (more loving) than the law, which is society's mortal mandated method of purification. "This is a valueless piece of paper which _______________ presented me on __/__/____ when I coincidentally gave him $______ because I like him; it has nothing to do with his philanthropic project of ___________________ . It is not a marker, contract, receipt, IOU, or any kind of security, by any definition of those words."

8 Garage Capital 1999, 2000