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net: We’ve spoken before, but tell us of some recent developments at Southridge since we were last with you? Stephen Hicks: In addition to the organic growth Southridge has experienced, we recently acquired the Double Alpha Group which is a well-known quantitative trading hedge fund in New York.

HFN: What was the benefit to Southridge in making this acquisition? SH: It gave us an opportunity to offer different products to both our existing and expanding investor base. Volatility and activity in the overall equity markets have been at their lowest levels in a decade and we are expecting a continuing reversal from that period of inactivity. Interest rate uncertainty and geopolitical instability, among other reasons, are creating great opportunities in the marketplace as we continually seek out and exploit anomalies.

HFN: What separates Double Alpha from other quantitative hedge funds? SH: We identify five key differentiators: The first is experience. Double Alpha has been in existence since 1994 and the portfolio manager, Dante D’Orazio, has been with the firm since 1997. Dante has successfully navigated a wide range of market conditions during his tenure. Secondly, we’ve created different offerings to accommodate differing risk tolerances. We are offering a standard levered fund which trades three to four times leverage as well as an enhanced levered fund which trades at eight to 10 times leverage for those who are more risk oriented. Both of these funds have a Japanese market portfolio embedded within them, and we offer a Japanonly product.

Reprinted from, September 2006 © 2006 by Channel Capital Group Inc. Channel Capital Group Inc | 420 Lexington Avenue, Suite 2510 | New York, NY 10170 | (212) 888-1805

In addition. NY 10170 | (212) 888-1805 -2- . HFN: How do Southridge and Double Alpha work together? SH: We are similar in nature in that we are trying to achieve outsized returns without taking outsized risk within a hedged environment. September 2006 © 2006 by Channel Capital Group Inc. In addition. Suite 2510 | New York. growth and various sector analyses to track investment styles. sectors and other factors. Double Alpha is different in that it is fully liquid and market neutral whereas the Southridge portfolio is not designed to be 100% liquid or market neutral at all times. The fifth area we discuss is the ability of the trading strategy to work in any liquid and developed market. Further. We attempt to keep the largest positions capped between 3% and 5%. in addition to the U. Double Alpha fits well within the Southridge philosophy for that reason and generally fits with the goals of our investor base. These include fundamental factors such as market capitalization. A fourth area of differentiation is our mix of proprietary investment factors. value. Southridge’s portfolio is made up more of individual positions. industry. Southridge is a different trading strategy in that is seeks to provide the necessary financing to predominantly small public companies globally.HedgeFund. we have developed a Japanese portfolio. Southridge’s structured products protect its investors while giving the client company the necessary growth financing that they need to continue to prosecute their business plans. HFN: How do you manage risk of the portfolio? SH: Several different ways.S. Dante maintains daily direct oversight of all the movements within the portfolio. Additionally. statistical and factor trend standpoints. some of which are restricted in nature. We subjectively eliminate story and event-driven names in the portfolio on a real time basis. Reprinted from www. volatility and uncertainty tend to work in our favor as opportunities increase with even minor market dislocations. We target zero dollar and zero beta exposure. HFN: What kind of diversification does the fund offer? SH: The portfolio is diversified across company names. We keep the exposure to fundamental themes in check and maintain a position limit cap. statistical factors account for securities historical return behavior by tracking correlated groups. we usually hold between 250 and 300 short positions.. Channel Capital Group Inc | 420 Lexington Avenue. We generally hold between 250 and 300 long positions. Similarly. The model that we employ re-estimates variables regularly. HFN: What are some of the advantages a market neutral fund can offer today? SH: The Double Alpha strategy is uncorrelated to market indices.The third area we identify is the dynamic modeling capabilities of the program itself. As I said before. We employ multiple sub-models which work to evaluate securities from fundamental. We are currently conducting research into other markets in the world and hope to add countries to the portfolio as conditions warrant. which is advantageous given today’s uncertain environment where it is difficult to make money by picking stocks or predicting

We believe this environment will continue to benefit our strategy and our ever expanding investor base.HFN: What do you think the future holds for Southridge and Double Alpha? SH: The equity markets have come more in line with what Double Alpha has experienced during its long and successful 12-year history. Reprinted from www. Channel Capital Group Inc | 420 Lexington Suite 2510 | New York. September 2006 © 2006 by Channel Capital Group Inc.HedgeFund. NY 10170 | (212) 888-1805 -3- .

Suite 2510 | New York.HFN: What sets Southridge Partners apart from other PIPE funds? Stephen Hicks: We believe that there are several key differentiators between ourselves and other funds which engage in private placements. if an investor tenders a redemption notice. Secondly. We attempt to maintain a majority of our funds in cash and marketable securities at all times. Specifically. Long Term Capital Management in 1998 and the collapse of the NASDAQ. Therefore. and c) Our incentive fees are paid on realized profits on net new highs. The lessons we have learned during those times have served us very well in structuring transactions today. Specifically. October 2005 © 2005 by Channel Capital Group Inc. As such. Channel Capital Group Inc | 420 Lexington Avenue. each fund investor is given his own class of shares in the fund. in our opinion. are the most conservative available. Should an investor desire to redeem his position. The third way that we differentiate ourselves is in the valuation of the portfolio. We have managed through two particularly bad market cycles. Reprinted from www. We engage in the following practices which. the investor gets paid out as each security in that class is liquidated. there is not a collective pool of funds. he is entitled to the cash that currently exists in his account plus his share of transactions that have yet to be monetized. b) Warrants are assigned a zero value in the portfolio. The majority of our competitors do not have as long or as deep a pedigree. We have placed approximately $1 billion during our nine and one half years of operations. which limits the negative impact of sudden market based pro-rata upon the amount of capital contributed to the transaction from that investor’s account. our funds are structured to limit downside risk in adverse conditions and to treat each fund investor fairly. In addition. Any gains associated with warrants are booked when realized. commencing in March 2000. each fund investor’s account holds an allocated percentage of the transactions in which that investor participates. our policies include the following: a) We value restricted securities at the lower of cost or market.HedgeFund. NY 10170 | (212) 888-1805 . The experience of our team is the first point.

HFN: How do you handle the difficult issue of fund accounting for PIPEs? SH: In the '90s as the funds grew and given the structure of the fund (where each investor has his/her own class of shares). we will structure a transaction that we feel adequately rewards our investors for the risk Contact: Gabrielle E. Channel Capital Group Inc | 420 Lexington Avenue. we then proceed to legal documentation and completing the transaction. HFN: How are investor concerns about liquidity addressed? SH: Liquidity issues have been of great concern to all hedge fund investors. Again. We have endeavored to spend more time with Management to assist in helping them grow their businesses. we will generally perform a background check on the candidate and its management.S. based upon the vast experience of our team. October 2005 © 2005 by Channel Capital Group Inc. Due Diligence. but we've opened a European office in London. Valuation. we discuss a wide range of issues including business plans. and Global Reach. CT and New York City). we then have a conference call with Senior Management. If we feel an opportunity is worth pursuing based upon this initial review. Fund Structure/Transparency. HFN: How closely do you work with the management of companies you invest in? SH: Throughout the '90s. HFN: Where is most of your business today? SH: Most of our business is still in the U. and we're looking to expand there as well. projected performance and Financial Statement review. Business Development & Marketing gguttman@southridgecapital. If we decide to continue. our class structure coupled with our in-house systems provides a truly fair platform for investors which is unique in the industry. We try to develop a longlasting relationship with Issuers and their management 212-994-9878 Reprinted from www. NY 10170 | (212) 888-1805 -2- . HFN: Why Southridge Capital Management LLC? SH: In summary. During this call. If the Company agrees. We’re reasonably sure that no one else has that. (with offices in Ridgefield. Investors always have access to cash in their accounts as each has his own class of shares. Lastly.HFN: How do you handle due diligence? SH: We perform extensive due diligence before entering into a position. and in some cases that didn't serve us particularly well when the NASDAQ fell apart.HedgeFund. there are five key differentiators: Experience. Suite 2510 | New York. press releases and web sites to ascertain a preliminary understanding of the business model and examine the SEC registration record. liquidity history and stock ownership to discern likely patterns of trading. we were only considered as “the money”. we found it necessary to develop our own proprietary accounting database system. We review a candidate’s SEC filings. We address them by keeping a majority of the funds in cash or securities that may be readily converted into cash. Guttman Vice President.