Page 1 • $5.00

The Official Magazine of the MicroCap Stock Market Since 2006

sprIng 2018

Drone Delivery Canada Corp. Page

Marrone Bio Innovations, Inc. Page

TSX-V: FLT, OTCQB: TAKOF Tony Di Benedetto, CEO and Director


DPW Holdings, Inc. Page

NYSE American: DPW Milton “Todd” Ault III, Chairman & CEO


NASDAQ CM: MBII Pam Marrone, CEO and President


MJ Holdings, Inc. Page

PINK: MJNE Paris Balouras, President, CEO & Director


FEATURED ARTICLES 26 Microcaps’ Current Trend is Your Friend but

it will END! Steven M. Shelton, MS, MBA, CFP , CLU, CHFC, TEP, CIMA , CMT ®


34 Investor Relations FAQ - Q&A

Jeffrey Goldberger, Rob Fink, and Ted J. Haberfield

38 Beltway Corner

Dina Ellis Rochkind, Esq. and Casey Miller, Esq.

the Light, The Case for Nuclear 42 Seeing

Power in the 21st Century Scott L. Montgomery and Thomas Graham Jr.

44 Mastering the Mekong Region’s MicroCap Companies Peter Pham

46 Derivatives are 15 Times World GDP Egon Von Greyerz

50 Can Cord Shaving Save Cable Companies from Cord Cutting? Jason Gurwin

56 Crosswinds for the Cannabis Industry Alan Brochstein

58 Family Offices Karl Douglas

Delicious Flickr Income Michael E. Lewitt 62 Fixed 64 Exploration Insights Brent Cook at the Table Ralph Garcea 72 Canada Facebook MySpace 77 Investing in Australian Small and

Microcap Companies John Kimber

Strong Points for SME Markets 80 Three Slash Dot Mixx Cromwell Coulson

82 Trading Cryptocurrencies

Retweet a New Trend Early? 84 Looking to Catch


Follow the Canucks Brady Fletcher

90 Welcome to Blockchain

Alexandra StumbleUpon

Levin DiggKramer, Esq. and Marina Fyrigou-Koulouri, Esq.

98 How Macroeconomic News Impacts Skype

MicroCap Stocks: Interview with Technorati Charles V. Payne

Mark Shore, MBA Reddit




see arTICle page 8

Page 24

E D I T O R I A L In Loving Memory of Our Precious Daughter, and Sister, Sammi Kane Kraft Published Since 2006 Follow us: @StockNewsNow SNN Inc. 5839 Green Valley Circle Suite 205 Culver City, Ca. 90230 PUBLISHER Shelly Kraft SNN Chairman/Founder/CEO Lynda Lou “Lulu” Kraft SNN President EXECUTIVE EDITOR Robert Kane Kraft SNN Chief Operating Officer Wesley Ramjeet SNN Chief Financial Officer ASIAN PACIFIC CORRESPONDENT Leslie Richardson SNN COMPLIANCE AND DUE DILIGENCE ADMINISTRATION Jack Leslie CHAIRMAN OF SNN ADVISORY BOARD Dr. Leonard Makowka ADVERTISING and SALES 424-227-9018 GRAPHIC PRODUCTION Unitron Media Corp SNN CONFERENCES 424-227-9018

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all Street’s big board has seen historical moves over the last 18 months. This isn’t just abnormal, but rather extreme. The bullish trend fueled by Washington tax cuts, increasing corporate expansion, positive earnings and greater cash flow, along with an overall growth in the economy, has turned the bullish market sentiment into a frenzy. The increase in investor profits and capital gains has led to abundant discretionary income in retirement accounts, trading accounts, broker accounts and bank accounts. Investor buying is creating new highs on most indices as both retail investors and institutional investors are committing more capital to new investment ideas benefiting emerging growth opportunities. In the past I have referenced the “trickle down effect” of profit taking by investors, which feeds new investment in the microcap market. The microcap ecosystem is in full spring bloom, especially emerging growth companies looking to raise capital. More investment capital available means more opportunities and new listings for investors. There is a rush to market while investors are flush. The new issues through Reg A+, Reg CF, and the return of S-1s, SPACs, M&A deals, ATMs and RDs, investment bankers, lawyers, CPAs and related service providers haven’t been this busy in many years. Companies are getting funded and in select sectors stocks are performing well in the aftermarket. Market gyrations, increased volatility, tariff wars, higher interest rates and “politics” notwithstanding, the economy is booming and fueling the microcap public and private emerging growth companies. This issue highlights 9 profiled companies, including, on the front cover: Marine Bio Innovations, Inc., MBII: NASDAQ CM, transforming pest management with

biopesticides. Drone Delivery Canada Corp., FLT.V: TSX.V, TAKOF: OTC MARKETS, using technology to create and commercialize new and innovative logistics platforms for retailers and government agencies. DPW Holdings, Inc., DPW: NYSE, a diverse holding company acquiring undervalued assets, disruptive technologies, and sustainable and impactful ventures to develop for long-term growth. MJ Holdings, Inc., MJNE: PINK is a diversified holding company, providing turnkey solutions and services to the regulated cannabis industry and has a two page centerfold layout. On the inside front cover is SRAX: NASDAQ CM, an Internet advertising and platform technology company. The inside back cover is SPYR, Inc., SPYR: PINK, a mobile games publisher. Here are the remaining profiled companies: MagneGas Corporation, MNGA: NASDAQ CM, a green tech renewable technology company, CanAlaska Uranium Ltd., CVV.V: TSX.V, CVVUF: OTC MARKETS, a Uranium exploration company, and Cel-Sci, an immunotherapy drug company treating head and neck cancer. We have covered many sectors in this issue and provided extra focus on blockchain, cryptocurrencies and ICOs. Thank you to this issue’s contributors and to our loyal subscribers, readers and followers. Please visit our website and subscribe to receive this magazine in its electronic format as we move to become a green company. Shelly Kraft, Publisher n

This publication and its contents are not to be construed, under any circumstances, as an offer to sell or a solicitation to buy or effect transactions in any securities. No investment advice is provided or should be construed to be provided herein. MicroCap Review Magazine and its owners, employees and affiliates are not, nor do any of them claim to be, registered broker-dealers or registered investment advisors. This publication may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Such forward-looking statements of or concerning the companies mentioned herein are subject to numerous uncertainties and risk factors, including uncertainties and risk factors that may not be set forth herein, which could cause actual results to differ materially from those stated herein. Accordingly, readers are cautioned not to place undue reliance on such forward-looking statements. This publication undertakes no obligation to update any forward-looking statements that may be contained herein. MicroCap Review Magazine, its owners, employees, affiliates and their families may have investments in companies featured in this publication, may purchase securities of companies featured in this publication and may sell securities of companies featured in this publication, at any time and from time to time. However, it is the general policy of this publication that such persons will refrain from engaging in any pre-publication transactions in securities of companies featured in this publication until two trading days following the publication date. This publication may contain company advertisements/advertorials indicated as such. Information about a company contained in an advertisement/advertorial has been furnished by the company, the publisher has not made any independent investigation of the accuracy of any such information and no warranty of the accuracy of any such information is provided by this publication, its owners, employees and affiliates. Pursuant to Section 17(b) of the Securities Act of 1933, as amended, in situations where the publisher has received consideration for the advertisement/advertorial of a company or security, the amount and nature of such consideration will be disclosed in print. Readers should always conduct their own due diligence before making any investment decision regarding the companies and securities mentioned in this publication. Investment in securities generally, and many of the companies and securities mentioned in this publication from time to time, are speculative and carry a high degree of risk. The disclaimers set forth at - disclaimer are incorporated herein by this reference.

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CONTENTS F E AT U R E D A RT I C L E S 26 Microcaps’ Current Trend is Your Friend but it will END! By Steven M. Shelton, MS, MBA, CFP®, CLU, CHFC, TEP, CIMA®, CMT


60 Reverse Mergers with Crypto Companies–A Craze or Crazy! By John Lowy, Esq.

40 On the Market By Dr. John L. Faessel

67 Continental Stock Transfer By Robert “Bobby” Kraft with Steven Nelson

42 Seeing the Light, The Case for Nuclear Power in the 21st Century By Scott L. Montgomery and Thomas Graham Jr.

72 Canada at the Table – From Poker and Sportsbook, to Slots/Casinos, Bingo and Lotteries – Place Your Bets By Ralph Garcea

44 Mastering the Mekong Region’s MicroCap Companies By Peter Pham

88 Zinc Could Be Set to Zoom in Electric Vehicle Era By Max Porterfield

46 Derivatives are 15 Times World GDP By Egon Von Greyerz

90 Welcome to Blockchain By Alexandra Levin Kramer, Esq. and Marina Fyrigou-Koulouri, Esq.

52 Giants Back Machine Learning For Energy Pipelines By Sean Peasgood 58 Family Offices By Karl Douglas

Accounting Corner

23 The Auditor’s Report Gets a Makeover By John Lucas, CPA

Legal Corner

25 What Did I Just Invest In? By Louis A. Bevilacqua, Esq.

96 Oil Market 2018, What to Look For? By Frederic Scheer 98 How Macroeconomic News Impacts MicroCap Stocks: Interview with Charles V. Payne

Australia Corner

77 Investing in Australian Small and Microcap Companies By John Kimber

Commodities Corner

82 Trading Cryptocurrencies By Mark Shore, MBA

Beltway Corner

38 The Buzz in Washington about Initial Coin Offerings By Dina Ellis Rochkind, Esq. and Casey Miller, Esq.

Cannabis Corner

56 Crosswinds for the Cannabis Industry By Alan Brochstein

Fixed Income Corner

62 Fixed Income By Michael E. Lewitt

Resources Corner

64 Exploration Insights By Brent Cook

Asia Corner

70 Hong Kong A Top Market Performer In Global Bull Market By Leslie Richardson


34 Investor Relations FAQ - Q&A By Jeffrey Goldberger, Rob Fink, and Ted J. Haberfield 50 Can Cord Shaving Save Cable Companies from Cord Cutting? By Jason Gurwin 75 Stock Promotion Commentary From OTC Markets Group By Liz Heese 80 Three Strong Points for SME Markets By Cromwell Coulson 84 Looking to Catch a New Trend Early? Follow the Canucks By Brady Fletcher

Profiled Companies 8 SRAX NASDAQ CM: SRAX 12 Drone Delivery Canada Corp. TSX-V: FLT, OTCQB: TAKOF 16 Marrone Bio Innovations, Inc. NASDAQ CM: MBII 20 DPW Holdings, Inc. NYSE AMERICAN: DPW 24 CEL-SCI Corporation NYSE: CVM 30 MagneGas Corporation NASDAQ CM: MNGA 48 MJ Holdings, Inc. PINK: MJNE 55 CanAlaska Uranium Ltd. OTCQB: CVVUF, TSX-V: CVV 106 SPYR PINK: SPYR

Comic Strip

104 WallStreet Chicken - Episode 17 Cleaning Up on Wall Street MicroCap Review Magazine



nasDaq Cm: sraX


Providing the toolsProviding to unlock the value of data the tools to unlock the value of data across marketing channels. across marketing channels.


The growth in consumer data collection and analysishehas revolutionized growth in consumer the data way colleccompanies approach advertising. Since its tion and analysis has revolutionized inception in the 2010, SRAX has been at the way companies approach adverforefront of this burgeoning creattising. Since its inceptionmarket, in 2010, SRAX ing and delivering multiple revenue-genhas been at the forefront of this burgeonerating products in and advertising and ing market, creating delivering multiple consumer dataerating targeting for in marketers revenue-gen products advertising and online content owners. and consumer data targeting for marketers


SRAX Gross Margin Providing the tools to

across marketing chan

56% 41%



and online content owners. The company has thrived, in part a The company has thrived, in through part through focusaon developing high-margin revenue, focus on developing high-margin revenue, reducing operations costs and strengthenreducing operations costs and strengthening salesforce. force.This This strategyhas hascontribcontribing itsitssales strategy to expanded gross margin, improved uted uted to expanded gross margin, improved 1 1 and ananenhanced posiAdjusted EBITDA and enhanced Adjusted EBITDA tionas as aa leading leading digital and data position digitalmarketing marketing and management platform. data management platform.

Q3 2016

Q4 2016

Q1 2017


The growth in consumer data collection and analysis has revolutionized the way companies approach advertising. Since its inception in 2010, SRAX has been at the forefront of this burgeoning market, creat ing and delivering multiple revenue-gen erating products in advertising and consumer data targeting for marketers Q2 2017 Q3 2017 and online content owners.

The company has thrived, in part through a *Guidance provided in the November 14, 2017 press release

As a digital marketing and data management platform company working extensively on all sides of the advertising market, SRAX Delivering New Blockchain Solution has experienced firsthand the inefficiencies SRAX’s greatest strength is in identifying issues and inaccuracies that that can be solved with unique technology. challenge corporations working with conchallenge working with SRAX’s greatest strength is in identifying Today, this expertise is the basis for an excit- sumer data.corporations Marketers depend on access and data. data, Marketers issuesingthat can be solvedthewith unique of consumer new avenue of growth: development usage of verified yet, due todepend silos, this on is technology. Today, this expertise is the access and usage of verified data, yet, due cutting-edge blockchain technology designed restricted and available only at a premium. thishas is restricted and aavailable only basis tofor antheexciting new avenue disrupt digital advertising market. of to silos, SRAX also developed deep undergrowth: the development of cutting-edge at standing a premium. of the limited awareness, choice, and blockchain technology designed to compensation consumers face when it comes SRAX has also developed a deep disrupt the digital advertising market. to the data they produce online. Theunderdata standing of the limited choice, market derives most of awareness, its value from concompensation consumers when As a digital marketing and data manage- and sumers, yet,it offers them little valueface in return. ment platform company working exten- it comes the data they This to dissatisfaction has produce created aonline. spilldata market derives most of its sively on all sides of the advertising The over effect on other connected markets.value For market, SRAX has experienced firsthand from consumers, yet,it offers little example, it has developed into them a growing demand for ad blocking products. value in return. the inefficiencies and inaccuracies that

DelIverIng new bloCkChaIn soluTIon

focus on developing high-margin revenue reducing operations costs and strengthen ing its sales force. This strategy has contrib Technology and systems designed to uted to expanded gross margin, improved resolve the core challenges by 1consumand an enhanced Adjusted faced EBITDA ers and corporations standastoa take a signifiposition leading digital marketing and management cant portion of thedata digital data andplatform. business

analytics market, currently valued at over 2 $150.8 billion. Delivering New Blockchain Sol This dissatisfaction Meeting the threat has of created consumera spillover and effect ondissatisfaction other connected markets. corporate immediately and For example, hasSRAX’s developed into a growing decisively notit only will remove friction greatestthe strength is in identifying demand for ad blocking products. issues that can be digital solved with unique inhibiting continued expansion of the Today, this expertise is the advertising market,technology. but also will reveal new basis for an exciting new avenue o Technology and systems designed to avenues of growth. growth: the development of cutting-edge resolve the core challenges faceddesigned by This fall, SRAX unveiled the BIG platform, blockchain technology to corporations to take disrupt the digital advertising market. itsconsumers Blockchain and Identification Graphstand technola significant portion the digital data and ogy. Through its whollyofowned subsidiary As a digital marketing and data manage businessInc., analytics valued BIGtoken, SRAX market, intends tocurrently be the first ment platform company working exten 2 at over $150.8 billion. company to deliver sively a consum platform on er all data sides of the advertising that enables a transpar entSRAX data has relationship market, experienced firsthand the inefficiencies and inaccuracies that through a secure blockchain platform, token

Adjusted EBITDA is defined as earnings before interest, taxes, depreciation 1 Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization and certain additional one-time expense.

1 Adjusted EBITDA is defined as earnings before interest,

andPlease amortization and certain see the 10-Q or the quarter-end results press rele additional one-time expense. Please see the 10-Q or the quarter-end results press release for the GAAP to Please see the 10-Q or the quarter-end results press release for the GAAP to Non-GAAP reconciliation. 2 International Data Corporation, 14 March 2017. Non-GAAP reconciliation. 1

2 International Data Corporation, 14 March 2017. Chris Miglino, CEO


MicroCap Review Magazine


International Data Corporation, 14 March 2017.

tors have heard of cryptocurrencies, such as Bitcoin, many are not yet owners. In 2017, 211 ICOs (Initial Coin Offerings) raised over

billion U.S. dollars Revenue Revenue in billion in U.S. dollars

Revenue in billion U.S. dollars Revenue in billion U.S. dollars

Meeting the threat of consumer and corporate dissatisfaction immediately and reward,not andonly open will source governance structure. decisively remove the friction Revenue from big data and business analytics worldwide Meeting the threat of consumer and The platform is being expansion built for threeof corethe coninhibiting continued from 2015 to2020 (in billion U.S. dollars) corporate dissatisfaction immediately and stituents: 1) consumers whobut produce digital advertising market, also digital will decisively not only will remove the friction Revenue from big data and business analytics worldwide data andavenues 2) developers who build consumer reveal new of growth. inhibiting continued expansion of the from 2015 to2020 (in billion U.S. dollars) applications and commercial advertising data 250 digital advertising market, but also will 3) media buyers agencies. Thistools fall, along SRAXwith unveiled the BIG and platform, reveal new avenues of growth. SRAX’s new product takes advantage its Blockchain Identification Graph of 203 200250 the big data and digital advertising market 181 technology. Through its wholly owned This fall, SRAX unveiled the BIG platform, 162 opportunities to propose a model for sustainsubsidiary BIGtoken, Inc., SRAX intends to its Blockchain Identification Graph 145 203 150 200 ablefirst andcompany exponential growth.aSRAX COO 130.1 be the to deliver consum181 technology. Through its wholly owned 122 162 Kristoffer Nelson er data platform thatstated, enables aparticipating, transparsubsidiary BIGtoken, Inc.,“By SRAX intends to 145 100 150 consumers be rewarded with a digital ent be data through a asecure 130.1 the relationship first will company to deliver consum122 token, for sharing and blockchain platform,that token reward, and er dataBIGtoken™, platform enables a verifying transpar50100 their data. Develop ers andthrough media companies open source governance structure. ent data relationship a The secure will beisable to build webtoken destinations, social platform being built for three core blockchain platform, reward, and 0 50 networks, and utilities on top of the BIG constituents: 1) consumers who produce open source governance structure. The 2015 2016* 2017* 2018* 2019* 2020* platform toisfacilitate data orthree purchases digital data and 2) developers build platform being builtsales forwho core 0 with theapplications complete awareness of consumers. consumer and commercial Source: IDC, March 2017 constituents: 1) consumers who produce 2015 2016* 2017* 2018* 2019* 2020* We believe weand are 2) solving awith commercial and digital data developers build advertising data tools along 3)who media consumer problem, and ourand BIGtoken™ gives $3 billion,with December being the most The SRAX team’s knowledge and consumer applications commercial Source:extensive IDC, March 2017 buyers and agencies. greater validity blockchain technology advertising data to tools along with 3) media active month for funding, according to experience in digital advertising technology, buyers agencies. and theand token market.” While most inves- Out of those categories, software development, and consumer targetcommerce and advertising represented a notable share of the market and has demonstrated potential for growth.

ing data puts the company in an outstanding position to address this new opportunity in a dynamic market.

Consumer in Ecosystem Consumer in Ecosystem Website 1


Data Market


Website 1 Website 2

id id

Data Market

DSP/Exchange DSP/Exchange

Data stored in BIG Data stored in BIG BIG

BIG Consumer based on earns consumer opt in on BIGtoken Consumer based earns consumer BIGtoken opt in

Media Buyer

Website 2 Website 3 Website 3

Data app collection Data app collection

Media Buyer

Website Ad Website Ad

BIGosg determines use cases and BIGosg integrations determines use cases and integrations

Data is bought in exchange and paired Data iswith bought media and inad exchange paired with ad media

Consumer shares in data purchase Consumer shares in data purchase

MicroCap Review Magazine


SRAX’s new product takes advantage of With more than 16 years of experience the big data and digital advertising market in digital advertising and media, SRAX opportunities to propose a model for Co-Founder, Chairman and CEO Christosustainable and exponential growth. pher Miglino has immersed himself in the SRAX COO Kristoffer Nelson stated, "By cryptocurrency market and appeared as participating, consumers will be rewarded a guest expert on Fox Business’ Making with a digital token, BIGtoken™, for Money and Countdown to the Closing Bell, sharing and verifying their data. Developsharing how the decentralization of control ers and media companies will be able to of the monetary system is changing the dynamics of business. Nelson has also brought his extensive professional experience in operations and sales in the media and technology industries to

build web destinations, social networks, tising. SRAXmd’s ability to positively impact and utilities on top of the BIG platform to patient outcomes through Non-Personal facilitate data sales or purchases with the Promotion is tremendous and continues to complete awareness of consumers. We evolve at a more rapid rate than traditional believe we are solving a commercial and marketing and advertising. consumer problem, and our BIGtoken™ Other verticals focus on CPG (Consumer gives greater validity to blockchain Packaged Goods), auto and sports. SRAXtechnology and the token market." fan targets sports fans at home, the stadium While most investors have heard of or out-of-home gathering locations during live sporting events with products including; StadiumTRAX, which delivers location-targeted ads to mobile devices in or around stadiums and other sporting venues;

cryptocurrencies, such as Bitcoin, many sTraTegIC founDaTIon forare not yet owners. In 2017, 211 ICOs ConTInueD growTh (Initial Coin Offerings) raised over $3 billion,with December being the most The launch of SRAXfan in November and active month for funding, according to the BIG white paper in December Out of those categostrate SRAX’s continued commitment to a ries, commerce and advertising representgrowth strategy focused on identifying value ed a notable share of the market and has in each of its business units and launching demonstrated potential for growth. technology that meets unique market needs. The promise of the company was recently recognized by its inclusion on Deloitte’s 2017 Technology Fast 500. SRAX ranked number 123 of the 500 fastest growing technology,

ICOs by Month in 2017 Total: $3,880,018,203


Total Number of ICOs: 211


Top TEN ICOs of 2017


Position 1 2 3 4 5 6 7 8 9 10

$800,000,000 $600,000,000 $400,000,000 $200,000,000 $0 Jan











Project Hdac Filecoin EOS Stage 1 Paragon Bancor Status BANKEX TenX Nebulas MobileGO

Total Raised $258,000,000 $257,000,000 $185,000,000 $183,000,000 $153,000,000 $90,000,000 $70,000,000 $64,000,000 $60,000,000 $53,069,235



the blockchain sector and is a current member of the Interactive Advertising Bureau’s Blockchain Working Group. The SRAX team’s extensive knowledge SRAX CTO Dustin Suchter, has a deep and experience in digital advertising background and knowledge of all levels of technology, software development, and internet technology and business strategy, consumer targeting data puts the compaincluding blockchain’s game-changing techny in an outstanding position to address nology, and is poised to lead the BIG platthis new opportunity in a dynamic market. form’s technical operations.

With more than 16 years of experience in CaTegory-speCIfIC digital advertising and media, SRAX eXpansIon Co-Founder, Chairman and CEO Christopher Miglino has immersed himself in the An additional avenue for growth is reprecryptocurrency market and appeared as a sented by SRAX’s vertical strategy. guest expert on Fox Business’ Making SRAXmd works with healthcare and pharMoney and Countdown to the Closing maceutical companies and their agencies to Bell, sharing how the decentralization of engage healthcare professionals, patients and control of the monetary system is changcaregivers through digital and mobile advering the dynamics of business. 10

FanTRAX, which combines sports interest and behavior data to identify sports fanatics; and SportsViewTRAX, which reaches sports Nelson has also brought his extensive fans in out-of-home viewing locations such professional experience in operations and as bars, restaurants, and universities. sales in the media and technology indusThe SRAXmd product has delivered a tries to the blockchain sector and is a prescription for success that SRAX is actively current member of the Interactive Adverapplying across its business. “Brands and tising Bureau’s Blockchain Working Group. agencies have experienced tremendous results with SRAXmd,” stated Miglino. “We SRAX CTO Dustin Suchter, has a deep believe there is a significant opportunity to background and knowledge of all levels of replicate that success through an array of internet technology and business strategy, vertical products. SRAXfan represents the including blockchain’s game-changing first in a series of category-specific tools for technology, and is poised to lead the BIG buy-side digital marketers.” platform’s technical operations. In October, the company announced it would explore strategic alternatives for the SRAXmd business to maximize shareholder value.

media, telecommunications, life sciences and energy tech companies in North America. Over the past year, SRAX has implemented strategic initiatives to expand its opportunities and leverage its data management platform. This significant transformation has produced a sound foundation for growth in 2018, while the development of the BIG platform presents an exciting opportunity for disruption in the consumer data market. n SRAX: The article may contain forward-looking statements about SRAX. See SRAX’s periodic filings with the Securities and Exchange Commission for more complete information.

The company paid consideration to SNN or its affiliates for this article.

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TsX-v: flT, oTCqb: Takof

Drone Delivery Canada Corp.


Tony Di Benedetto, CEO & Director


MicroCap Review Magazine

ommercial drones; increasingly used for the mapping, photography, the inspection of utility and energy infrastructure, etc., fall into the category of a disruptive technology. A small company named Drone Delivery Canada (TSX.V: FLT / OTC: TAKOF), is trying to tap into this market from the far less competitive, but incredibly important software side. Drone Delivery Canada (“DDC”) is poised to become a significant beneficiary of this disruptive technology by facilitating the inevitable revolution in autonomous commercial drone delivery logistics. CEO Tony Di Benedetto describes this unique opportunity, “We have developed a highly sophisticated software platform that will allow our owned & operated autonomous commercial delivery drones to operate safely & efficiently  in Canada.  We will be a trusted, outsourced drone logistics provider, with the entire operation seamless to our customers.” Earlier this month DDC announced that Transport Canada had granted the Company a Compliant UAV Operator Special Flight Operations Certificate (“SFOC”). This milestone is both essential and necessary for any UAV operator wanting to conduct Beyond Visual Line-of-Sight operations; and for the specific purpose of drone delivery services. Mark Wuennenberg, VP of Regulatory Affairs commented, “The Company has been working around the clock to achieve compliant status and is both grateful and appreciative of being recognized as a professional and safe operator of unmanned aircraft (UAS) by Transport Canada.”

This is a huge step for the Company, 4 years in the making. Drone Delivery Canada (“DDC”) is pioneering a game-changing technology that will enable commercial drones to perform autonomous deliveries of goods & services.   First in remote areas of Canada, (DDC  has identified up to 1,000 remote northern communities) then in more populated areas, then in the U.S. and other countries.  In very remote locations, running a routine errand can take hours, involve multiple modes of transportation, while polluting the environment along the way.   Nearby drone delivery pick-up/drop-off points would be a win-win-win for the consumer, retailer & community.  Regarding these sparsely populated areas, President Richard Buzbuzian told me, “A key customer for us could be postal agencies.  It stands to save a tremendous amount of money by switching (where applicable) from trucks, vans, planes, boats & helicopters; to autonomous commercial drones.” According to CEO Tony Di Benedetto, “We are on the cutting-edge of commercial drone technology, one of the hottest technologies in the world, one that’s ushering in a paradigm shift in how goods & services are

delivered. The commercial drone logistics revolution is poised to change the world in ways we can’t even imagine, and it’s happening this decade, not in 10 or 20 years.” Think of DDC as an “air traffic control” for a fleet of commercial smart drones that it will own & operate on behalf of blue-chip customers that are integrated onto DDC’s highly-specialized software platform. It all starts with DDC’s network platform for commercial drones– a railway in the sky.  There can be no commercial delivery drone industry without companies like DDC.   The Company is on the cutting-edge of a paradigm shift, a must-have technology for a number of industries.  Once companies start delivering products by drone, all companies will want that capability.  The ones who gain it will thrive, those who don’t could flounder.   The overall supply / fulfillment chain— including savings in manufacturing, shipping & warehousing—with drone logistical networks, will be one of the largest margin capture opportunities of the next decade for retailers.   On the drone logistics / software side of the commercial drone business, barriers to entry are high because, unlike on the hardware side, software teams have to deal with the really hard stuff; regulation, compliance, legality, safety, privacy.   In an environment like this, a “first mover” advantage makes a huge difference.   DDC has over C$20 M in cash, comfortably funding the Company for the next 12 months.  It has received substantial interest from a number of multi-national corporations including

Staples, and interested parties from around the world. “The benefits to the customer will be spectacular improvements in delivery time, cost & reliability. Because DDC will be working with remote communities in northern Canada, where delivery costs can be quite high, savings should be substantial.   In some cases, from hundred(s) of dollars to under five or ten dollars, delivery times cut from several days to just a few hours.” Early-stage, high-tech companies are risky, especially before revenues start to flow.  Cash burn is usually high, with operating losses as far as the eye can see.  DDC has made giant strides over the past 4 years in de-risking its business model and positioning itself for robust, profitable operations. Commercial revenue is expected to start in the second half of this year, and really pick up in 2019.  

Is Drone DelIvery CanaDa a Takeover TargeT? If one thinks about what companies might want to own a potential leader in the future of commercial drone logistics– the number and variety of potential suitors is staggering. Companies such as FedEx, UPS & DHL are monitoring companies at the forefront of this sea change.   In addition, trucking companies like; YRC Worldwide  &  J.B. Hunt Transportation, retailers; Best Buy, Walmart & Staples, drug stores;  CVS,  Walgreen, supermarkets, auto parts stores, pharmacies, hospital/labs, schools, etc. are eyeing industry movers.

key members of managemenT Team & boarD Tony Di Benedetto, CEO & Director, has been actively involved in the Canadian tech-

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The overall supply / fulfillment chain— including savings in manufacturing, shipping & warehousing— with drone logistical networks, will be one of the largest margin capture opportunities of the next decade for retailers. nology services sectors since the early 1990’s and has built a number of tech companies including; internet hosting providers, managed service providers, wireless broadband networks and data center facilities.   Tony is active in a number of other ventures which includes; Data Centre Realty and Di Benedetto Group.  Tony brings over 17 years of IT entrepreneurship, technology M&A and capital markets experience to Drone Delivery Canada’s management team. He received his degree at York University. Richard Buzbuzian President & Director, is a capital markets executive with over 20 years of experience in the technology and the resource sectors. Mr. Buzbuzian was responsible for the Company’s public offering process. He is now responsible for corporate finance matters, investor relations, and all day to day finance actives. Mr. Buzbuzian is also director of CT Developers and President & CEO of Oriana Resources Corp., a Canadian capital pool company. Paul Di Benedetto, Chief Technology Officer, is responsible for overseeing DDC’s R&D, engineering, and technical operations.  Along with his brother Tony, Paul has cofounded a number of high successful technology enterprises in the Canadian marketplace and has always led the technology oversight roles in all these entities.  Paul is instrumental in implementing technology structures which maximize organizational growth to achieve maximum return on investments for all stakeholders.     Paul brings over 15 years of technology architecture and engineering experience to the DDC’s management team. Mark Wuennenberg, VP of Regulatory


Affairs, is an expert in UAS with vast domestic & international experience in the regulatory, operational, airspace access & training aspects of UAS. Most recently, he was a Civil Aviation Inspector with Transport Canada as an expert responsible for the development of the proposed UAS regulatory framework and the creation & implementation of numerous key UAS initiatives. As a 33-year veteran of the Royal Canadian Air Force he accumulated over 4,300 hours in numerous aircraft and held staff/instructor positions in National Defense Headquarters NORAD, U.S. Space Command, the Canadian Forces Instrument Check Pilot School, and the U.S. Air Force’s Flight Standards Agency. While not flying he was very active in regulatory development (both manned and unmanned aviation), operational airworthiness and classroom instruction. He has also served on numerous international UAV committees/working groups within ICAO, NATO, and the U.S. Department of Defense. Michael Della Fortuna, Director, is the CEO of Nexeya Canada – a provider of mission critical products and solutions for space, aviation and  transportation applications.  Prior to joining Nexeya Michael held VP  and Director level roles in engineering, operations and sales &  marketing for General Electric, SPAR Aerospace, Husky Injection Molding and Mircom.   Michael was also a partner in nCompass Capital which launched and  supported a number of ventures including PowerSure Techonologies,  Platinum Coachworks, ShipForLess and EnviroBlue / ZipBinz.  A licensed Professional Engineer and

Accredited Risk Manager Michael received his  degree from the Royal Military College of Canada in Kingston, Ontario  and served in the Royal Canadian Air Force as an Aerospace Engineering Officer. Conclusion As a first mover in Canada, with high barriers to entry protecting it, DDC is a leader embracing one of a handful of paradigm shifts engulfing the world.  As such, DDC is among just a small handful of commercial drone companies (on the software side) leading the way forward in drone delivery systems.   Not just in Canada, but a global leader with 4 years’ experience in Canada. Canada is among the top countries leading the charge in delivery drones, not the hardware, the drones themselves, the software that will make it all work. Different jurisdictions are moving at different speeds, that’s why DDC’s first mover advantage is so valuable and why other companies and government entities are playing close attention to DDC’s progress. Company website: Tickers: (TSX.V:FLT  OTC:TAKOF) n Drone Delivery Canada Corp.: The article may contain forward-looking statements about Drone Delivery Canada Corp. See Drone Delivery Canada Corp.’s periodic filings with SEDAR and the Securities and Exchange Commission for more complete information.

The company paid consideration to SNN or its affiliates for this article.

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nasDaq Cm: mbII


marrone bio Innovations, Inc. Transforming Pest Management with Biopesticides


hese days, consumers are increasingly concerned about the environment, their health, and food safety. The world needs effective,

sustainable pest management solutions that are both safe for human consumption and protect the earth’s natural resources. Dr. Pamela Marrone, CEO of Marrone Bio Innovations (NASDAQ: MBII), understood these challenges and founded MBII in 2006 to discover and develop effective, sustainable, biologically-based products for pest management and plant health. MBII has proven to be very efficient at discovering, developing, and commercializing naturally derived pest management and plant health solutions, and has created an industry-leading product portfolio.

The company’s products, which are used in agricultural, turf and ornamental, and water treatment applications, help customers around the globe control pests, improve plant health, and increase crop yields. Equally impressive, MBII’s products reduce the environmental pesticide load, decreasing chemical residues in foods and preventing the development of pest resistance. Marrone Bio Innovations’ natural products, commonly called biologicals, are cre-

Dr. Pamela Marrone, President & CFO

Above: Marrone Bio Innovations Founder & CEO, Dr. Pamela Marrone, and President & CFO, Jim Boyd, in MBII’s greenhouse


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ated from plant extracts and microorganisms isolated from samples collected from unique niches and habitats worldwide, such as flowers, insects, soil, and compost. The company’s proprietary technology enables them to isolate and screen naturally occurring microorganisms and plant extracts in a highly efficient manner and to identify those that may have novel, effective, and safe pest management or plant health promoting characteristics. MBII’s proprietary product development process includes two important components: (1) a manufacturing process that increases the active natural compounds produced by the product candidate microorganism or in the plant extract and 2) formulations that stabilize the natural compounds. Through these improvements, MBII’s R&D group works to continuously drive gross margins up. MBII’s thorough understanding of natural product chemistry leads to the development of product formulations that are tailored to meet customers’ needs and possess enhanced performance characteristics, such as effectiveness, shelf life, compatibility with other pesticides, and ease of use. The company’s portfolio of commercially available products includes insecticides to manage insects and mites (e.g. Grandevoâ and Venerateâ), fungicides to control disease (e.g. Regaliaâ, StargusTM, AmplitudeTM, Jet-Agâ and Bio-Tamâ 2.0), nematicides to eliminate roundworms that feed on the roots of plants (e.g. Majesteneâ), and a molluscicide to control invasive zebra and quagga mussels (e.g. Zequanoxâ). MBII’s first nonpesticidal product, Havenâ, is derived from coconut oil, and works as a sun protectant for numerous crops, reducing sun stress, sun burn and scalding. The company also has seven product candidates in various stages of its rapid development pipeline, including an advanced herbicide that controls glyphosateresistant pigweeds. MBII’s products are all biologicallybased and fall into two categories under the umbrella of biologicals: biopesticides

Above: Research Scientist for Marrone Bio Innovations, conducts an experiment

for crop protection and biostimulants for crop enhancement. Growers, regardless of whether they are organic, transitioning to organic, or conventional, will benefit from implementing biologicals as part of their integrated pest management and crop production programs. In fact, conventional farmers who use synthetic chemicals account for around 70% of the company’s sales. “The benefits are significant,” explained Pam Marrone. MBII’s CEO. “First, by implementing biologicals as part of integrated pest management and crop production programs, growers can improve their yields and quality of their crops, creating a higher return on investment. A notable example was in strawberries, where one trial implementing MBII’s products resulted in a $1,400/acre increase in revenues, or a >9x ROI on the investment. Higher ROIs have been demonstrated on many crops, including potatoes, tomatoes, almonds, rice, alfalfa, corn, soybeans, and wheat. Pest resistance, a common problem with synthetic chemicals, is reduced or eliminated through the use of our products, again increasing return on investment. Our products also do not harm

the beneficials, such as bees.” “Second, our products are biodegradable,” she continued, “offering environmentally friendly protection. Biologicals are generally safe for field workers to handle, so farmers can manage their labor more efficiently, as work crews can enter the field much more quickly after spraying, reducing downtime. Biologicals don’t leave residues to worry about like synthetic chemicals do, which is particularly important for branded food, retail, and export markets with very strict maximum residue level standards.” Aside from the significant benefits to growers, which result in a near 100% conversion from “on-farm demo” to sale, there are also major benefits to the company in producing these biological products. MBII’s technology and science-based approach has led the way to main-streaming biologicals. Biologicals cost less than $10 million to develop and take only about 4 years to enter the market. As a comparison, synthetic chemicals cost, on average, close to $300 million to develop and take about 12 years to enter the market. This means biological products can be better positioned to answer the rapidly changing needs of growers. “Our strategy is to uniquely take advantage of a capital-light model. Given our experience, it takes us less than five years and less than $10 million to get a new product to the U.S. market,” shared Ms. Marrone. “We get into the market quickly with early adopter growers. The growers give us feedback that in turn helps us develop consecutive versions, which can develop new uses for our products, as well as crop and label expansion. This in turn expands our market opportunity.” This agile, innovative model provides valuable early insight from customers, which in turn gets fed back into R&D for the next generation product, allowing rapid and continuous innovation. This is important given the size and growth of the biologicals market. The global pesticide market is huge, totaling over $50 billion, and is growing at a MicroCap Review Magazine


Above: Marrone Bio Innovations recognized by NASDAQ for the EPA Approval of Stargus in October 2017

compound annual growth rate of about 2%. While the newly emerging biopesticide market is much smaller, $3-4 billion, it is growing at a compound annual growth rate between 10% and 20%. The biostimulant market, which MBII entered in 2017 with their new product, Haven, is growing about 10% to 15% annually. MBII’s growth is significantly outpacing both the traditional pesticide market and the biologicals market. The company experienced 31% YoY revenue growth in the first nine months of 2017, reaching $14.8 million. The company is well positioned to take advantage of the significant market opportunity. MBII has six EPA-approved biopesticide products and one bio-stimulant

product on the market, in addition to a growing pipeline of new products, all protected by a very robust patent portfolio of over 400 issued and pending patents covering microorganisms, natural product chemistry, mixtures, formulations, new uses, and new pests. Having discovered and commercialized seven highly effective new products in 11 years is an unprecedented accomplishment in the ag industry. An area of growth and opportunity for the company is the rapidly growing cannabis industry. MBII’s products are impacting cannabis production through the reduction of toxic chemicals and pesticide residues that are harmful to both the environment and to consumers. Additionally, the resource inten-

An area of growth and opportunity for the company is the rapidly growing cannabis industry. MBII’s products are impacting cannabis production through the reduction of toxic chemicals and pesticide residues that are harmful to both the environment and to consumers. 18

sity of cannabis production requires heavier use of inputs relative to traditional agriculture, increasing the urgency for growers to switch from toxic chemicals to biologicals. To provide some scale of the market opportunity, a study from the UC Davis Graduate School of Management estimated the current cannabis inputs market in just Colorado, Oregon, and Washington to be $91 million. The study estimates this pesticide and fertilizer inputs market, including California due to recent changes in California legislation, will grow to $1.4 billion within the next five years. As volumes increase, vertical integration is a key focus for MBII. In 2012, the company purchased its own manufacturing facility, and has since brought several products in house, with plans to bring additional production in house in the future. Key benefits to in-house manufacturing include flexible and faster scale-up times, better margins, cost controls, and controlled intellectual property. Noteworthy catalysts the company experienced in 2017 include launch of Haven for reducing yield robbing crop sunburn, successful market entry of one of our insecticide/nematicide microorganisms in MBI’s partner’s cotton, soybean and corn seed treatment, EPA approval of a novel biofungicide, several new international distribution agreements with regionally significant firms and continued positive field trial results across the company’s product portfolio, including in the largest pesticide markets in the world like Brazil. MBII has made significant progress in meeting unmet market needs by launching new products and growing in the U.S. and abroad, and is well positioned to continue to gain market share in the crop protection and plant health market. n Marrone Bio Innovations, Inc.: The article may contain forward-looking statements about Marrone Bio Innovations, Inc. See Marrone Bio Innovations, Inc.’s periodic filings with the Securities and Exchange Commission for more complete information. The company paid consideration to SNN or its affiliates for this article.

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nyse amerICan: Dpw


Dpw holdings, Inc. A Phoenix Rising; Evolving from Analog to FinTech


Milton “Todd” Ault III, Chairman & CEO

PW Holdings, Inc. (NYSE AMERICAN: DPW), (“DPW”), (, formerly known as Digital Power Corporation, was on the verge of being delisted by the NYSE American after 10 years of declining sales when Milton “Todd” Ault, III led the effort that resulted in the change in control of the company and culminated with Mr. Ault joining DPW’s Board of Directors in September 2016. Mr. Ault’s vision focused on leveraging DPW’s 48 years of advanced power supply manufacturing experience, bringing it to new markets not yet served and expanded its customer base with those who are dependent on rugged and efficient power solutions. Upon Mr. Ault’s first visit to the Company’s subsidiary, Digital Power, Ltd. in Great Britain, the Company saw the opportunity to make a strategic investment in MTIX (www.mtixinternational.

com). This company has the potential to solve the second largest source of pollution in the world by manufacturing innovative machines for the textile industry. It’s easy to overlook the prevalence and pervasiveness of textiles in our everyday lives. This technology will drastically alter the landscape of how textile-based products are made, eliminating harmful chemical runoff in the environment. The designer of these unique machines, MTIX, Ltd. ( created a patented process that combines plasma and lasers to treat fabrics by transforming their surfaces to be fire retardant, waterproof, and color absorbent from a longer list of attributes. Not only does this process eliminate the harsh chemicals previously necessary to treat the fabric, the fabric performs better than when it is treated with the old standard method. The everyday quality of life could improve. Imagine the day when a new standard for

Digital Power Lending


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textiles in the home and in hospitals could ( Super reign from consumer demand that weren’t Crypto Mining is now on track to have over dismissed as cost prohibitive. Products 10,000 mining machines by the end of 2018, ranging from blankets to clothing to car- making it one of the largest U.S. domestic pet and upholstery could be fire retardant, mining companies. anti-microbial, water repellent and stain not only mines the top ten cryptocurrencies resistant. For over 100 years, the but also offers cloud-hosted mining worldwide textile industry has contracts to retail customers who experienced little change in its want to take part in the mining toxic processes. MTIX’s propriexperience without the hassle of setetary Multiplex Laser Surface ting up and maintaining complex Enhancement (MLSE®) techmining equipment. Super Crypto nology is disruptive and poised Miner Quickly rising from the ashes of to become the textile industry the old Digital Power Corporation standard fabric treatment process. DPW’s is now a fast-growing diversified holdsubsidiary, Coolisys Technologies, Inc. is ing company with its sights on acquirresponsible to fulfill the $50 ing and creating high growth million purchase order to subsidiaries. Digital Power manufacture MTIX’s patented Corporation changed its name MLSE® machines. to DPW Holdings, Inc. on Starting just days after the December 29, 2017 to reflect change in control of DPW, its new vision. Mr. Ault had its President, DPW’s strategy is to seek Super Crypto Power Amos Kohn, work with a Supply aggressive growth through team to explore the developacquisitions and the creation ment of alternative power supplies. The of new divisions that enhance its existing team identified natural synergies in their businesses. DPW anticipates the Company’s area of expertise and the need for more gross consolidated revenues for 2018 will efficient power supplies for the mining of range from $44 to $49 million, marking a cryptocurrency. For those familiar with the substantial increase over the consolidated mining of cryptocurrency such as Bitcoin gross revenues estimated for 2017. and Ethereum, it is known that power is an integral aspect and usually the most significant cost consideration other than one’s mining equipment. The cost of power always effects an operator’s bottom line. With DPW’s long history of designing and developing power solutions, it was destined that the area crypto-mining power supplies would be ripe for DPW’s disruption. Through the creation of its new division, Super Crypto Power, (“SCP”) and SCP’s work with Coolisys Technologies that DPW intends to deliver world-class products and services to this rapidly growing sector. The sales success of the cryptocurrency mining power supplies led Mr. Ault into creating a cryptocurrency mining division aptly named Super Crypto Mining, (“SCM”), Super Crypto - Data Center

MLSE Machine

subsIDIarIes Digital Power Lending LLC, (“DPL”), (www., operating under California Finance Lender License #60DBO77905, is engaged in providing commercial loans to growth companies. DPL has announced that it will develop a network of cryptocurrency ATMs starting in California anticipating expansion over time nationwide. Digital Power Limited dba Gresham Power Ltd., (, designs and manufactures power conversion and distribution equipment focusing on solutions for the Naval sector. Gresham also provides high density and customized power solutions for commercial markets and is based in Salisbury, UK; Microphase Corporation,, found-

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ed in 1955, designs, develops, and manufactures state-of-the-art RF, microwave components, devices, subsystems and integrated modules for wireless, defense, aerospace, satellite, and homeland/global security markets. Its headquarters is in Shelton, CT (1-203-866-8000). Power-Plus Technical Distributors, www., a wholesale distributor is a value-added authorized technical distributor for a large number of power supply lines, components and accessories including UPS systems, fans, filters, line cords, and other power-related components. The subsidiary is based in Sonora, CA (1-800963-0066).

aCquIsITIons 2018 Coolisys Technologies, Inc., anticipates completing its acquisition of Enertec Systems 2001 Ltd. (“Enertec”), the Israeli-based defense/aerospace electronics manufacturer supplying advance power solutions and systems during the first half of 2018. DPW has entered into an agreement to acquire the operations of Flexisphere,, an IT managed services provider that will work with Super Crypto Mining, DPW’s wholly owned subsidiary, to leverage its curated blockchain and cloud mining technology and expertise. Flexisphere will provide a host of services including supporting Super Crypto Mining’s development of an online cloud mining platform for consumers interested in purchasing hash-rate at a very competitive rate. The cloud mining platform will feature a comprehensive dashboard readily providing historical and real-time operational data to its subscribers. Upon the completion of the acquisition of Flexisphere, the new subsidiary will be focused on developing blockchain technology-based service solutions and exploit the distributed open nature of blockchain and its other intrinsic attributes to deliver a more efficient and reliable suite of services.


DPW Microchip

managemenT: mIlTon “ToDD” aulT, III, aCTIvIsT InvesTor anD vIsIonary

($120,000,000). As observed, Mr. Ault is a leader in identifying undervalued assets and operations.

Milton “Todd” Ault, III is a seasoned business professional, entrepreneur and experienced investor who has spent more than 27 years identifying value in financial markets and searching for the latest in disruptive technology and innovative processes. Mr. Ault has a proven track record as a seasoned activist and visionary. Mr. Ault is a leader in identifying innovative and disruptive technologies as exemplified by his activist takeover of Franklin Capital Corp which consequently changed its name to Patient Safety Technologies, Inc. (OTCQB: PSTX) (“PST”) purchasing SurgiCount Medical, Inc., the developer of the SafetySponge® System; a bar coding technology for inventory control that aims to detect and prevent the incidence of foreign objects left in the body after surgery. Stryker Corporation (NYSE:SYK) acquired PST at the beginning of 2014 in a deal valued at one hundred twenty million dollars

an evolvIng growTh Company DPW in 2018 plans to complete its transition from being a supplier of advanced power products and solutions to the new business model as a diverse holding company. The Company’s growth strategy is acquiring undervalued assets, disruptive technologies, and sustainable and impactful ventures to develop for long-term growth. DPW Holdings, Inc.’s headquarters is located at 48430 Lakeview Blvd., Fremont, California, 94538; 1-877-634-0982. For Investor inquiries: or 1-888-753-2235. n DPW Holdings, Inc.: The article may contain forward-looking statements about DPW Holdings, Inc. See DPW Holdings, Inc.’s periodic filings with the Securities and Exchange Commission for more complete information. The company paid consideration to SNN or its affiliates for this article.

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The Auditor’s Report Gets a Makeover


irtually unchanged for nearly 70 years, the auditor’s report has just received a major makeover. Late last year, the SEC unanimously approved the Public Company Accounting Oversight Board’s new auditor’s reporting standard. The most significant change requires that auditors augment their traditional pass/fail opinion with a discussion of “critical audit matters” (CAMs). The PCAOB says that the new format is a direct response to investors asking for an expansion of the auditor’s report “to include information about the difficult parts of the audit.” A CAM is defined as any matter that is required to be communicated to the audit committee that relates to accounts or disclosures that are material to the financial statements and involve especially challenging, subjective or complex auditor judgment. Essentially, CAMs are the kind of things that keep auditors up at night. Matters required to be communicated to the audit committee that may result in a CAM includes, among other things: significant risks identified by the auditor; matters regarding the company’s accounting policies, practices, and estimates; significant unusual transactions; certain matters regarding related parties; and other matters arising from the audit that are significant to the oversight of the company’s financial reporting process.


“Essentially, CAMs are the kind of things that keep auditors up at night.” A CAM could also be the company’s evaluation of goodwill impairment if goodwill is material, as well as the evaluation of the company’s ability to continue as a going concern. Other factors in establishing a CAM could involve the difficulty of obtaining adequate audit evidence or matters that required outside consultation. Looking at a simple financial statement, a CAM could include matters related to revenue recognition, management override of controls, receivables, inventories, intangibles, covenants, investment valuations, derivatives, fixed assets, lease accounting, pension accounting, expenses, reserves, and related parties, just to name a few. Indeed, it is a long list from which the PCAOB expects most audits to render at least one CAM. The change to audit reports has already occurred in many other areas of the world. In its December 31, 2013 audit report on Rolls-Royce, auditors at KPMG identified 18 key matters. Many within the accounting community have pointed to that particular audit report as a good example of additional information that can be disseminated by an auditor. Some observers however, including the United States Chamber of Commerce, have criticized CAM disclosure requirements arguing that disclosure of such communications could increase the potential liability for issuers and auditors, in addition to disclosing sensitive company information to the public. The PCAOB has acknowledged the con-

cern that it could provide the basis for legal claims, leading to increased litigation costs and audit fees. The PCAOB said it intends to monitor the results of implementation of the new standard, including consideration of any unintended consequences. The new auditor’s report, which involves such things as auditor independence and auditor tenure, became effective for all audits for fiscal years ending on or after December 15, 2017. However, communication of CAMs will be phased in. Accelerated filers will need to comply on audits relating to fiscal years ending on or after June 30, 2019. All other companies will need to comply on audits relating to fiscal years ending on or after December 15, 2020. Though CAM requirements generally apply to all audit reports filed with the SEC, including by foreign private issuers, it will not apply to emerging growth companies, certain brokers and dealers, investment companies other than business development companies and benefit plans. n John Lucas is Director of Assurance & Audit Practice at Weinberg & Company, a multi-office, PCAOB and CPAB-Registered firm specializing in the audit, assurance and tax needs of micro and small cap companies. John has over 25 years of experience in public accounting with extensive experience in auditing SEC reporting companies in manufacturing and distribution, real estate, high technology, and other industries throughout the U.S., Europe and Asia, with a particular expertise in China. John also has experience in due diligence, valuation, expert witness and restructuring engagements. Email John at johnl@ or contact him at 310-601-2200.

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nyse: Cvm

Cel-sCI Corporation A New Immunotherapy to Treat Head and Neck Cancer is on the Path Towards FDA Approval


oosting the body’s immune system against cancer before the body is ravaged by chemotherapy, radiation and surgery – this is the strategy CELSCI Corporation (NYSE:CVM) is effectively deploying against head and neck cancer. CEL-SCI has fully enrolled the world’s largest clinical trial in head and neck cancer, a global, pivotal Phase 3 study in over 90 of the world’s leading hospitals. If the primary endpoint of the study is met, this could lead to marketing approval for Multikine, CELSCI’s immunotherapy, in some of the largest markets in the world, including the U.S.

heaD anD neCk CanCer: In neeD of effeCTIve TreaTmenT The 6th leading cancer worldwide, head and neck cancer incidence is about 600,000 per year, causing 300,000 deaths annually. It is an indication in dire need of a new and effective treatment. Over 60 years have passed since the FDA approved a new therapy for advanced primary head and neck cancer.

pIvoTal phase 3 CompleTeD CEL-SCI completed its pivotal Phase 3 clinical trial by enrolling 928 patients with newly


diagnosed head and neck cancer. All patients have completed treatment and are now being monitored for overall survival, per the Phase 3 study’s protocol. The primary endpoint of the study is a 10% improvement in overall survival for patients treated with Multikine plus the Standard of Care (SOC) vs. patients treated with SOC alone. SOC involves surgery to remove the tumor, followed by radiation or radiation and chemotherapy combined. The primary endpoint of the Phase 3 study can be determined when a total of 298 patient deaths have occurred. A 33% increase in overall survival was reported, as compared to patient survival reported in the scientific literature, in CELSCI’s prior Phase 2 study that used the same treatment regimen as the pivotal Phase 3 study. These Phase 2 results are a very encouraging data point.

suCCess Through boosTIng The Immune sysTem whIle IT Is sTIll InTaCT “When it comes to cancer immunotherapy, CEL-SCI believes it is most logical to boost the immune system while it is still intact in order to have the greatest possible impact on survival,” says CEL-SCI CEO Geert Kersten. “Multikine

is given as a first line treatment before surgery, radiation or concurrent radio-chemotherapy because that is when the immune system is thought to be the strongest. The goal is to help the intact immune response detect and kill the tumor and micro metastases that usually cause recurrence of cancer.” CEL-SCI’s approach is unique because most other cancer immunotherapies are used only after conventional therapies have been tried or failed.

In ConClusIon CEL-SCI is close to finding out results from its pivotal Phase 3 trial. If the primary endpoint is successfully achieved, then the company plans to file for regulatory approval not only in the U.S., but worldwide. The global trial spanned 24 countries, in North America, Europe and Asia. For more information please visit n CEL-SCI Corporation: The article may contain forward-looking statements about CEL-SCI Corporation. See CEL-SCI Corporation’s periodic filings with the Securities and Exchange Commission for more complete information.

The company paid consideration to SNN or its affiliates for this article.

MicroCap Review Magazine


What Did I Just Invest In? Investors around the globe are excited about opportunities to invest in initial coin offerings, or ICOs, and the opportunities are increasing because companies are equally excited about raising capital through ICOs. In fact, many of my clients, whose companies currently have nothing to do with blockchain technology, are working hard at figuring out how to tokenize their products or services and launch compliant ICOs. If you are planning to invest in an ICO, then you don’t want to find yourself asking the following question, “What did I just invest in?” In the famous words of legendary investor Warren Buffet, “Never invest in a business you can’t understand.”

whaT Is an ICo? The majority of ICOs by early stage companies attempt to raise money to build new technology platforms that will enable them to create their own digital currencies, or tokens. Tokens can be used for a variety of purposes and can be classified as security or utility tokens (see below). An example in the Ethereum ecosystem is the Ethereum token which is a smart contract built on the Ethereum blockchain. Tokens are typically issued to the public in exchange for cash, Bitcoin, Ether or other cryptocurrencies and the proceeds may be used to develop a platform upon which token holders can buy goods or services from the token issuer. In 2017, there were many successful ICOs. For example, Filecoin, a data storage and retrieval service, raised $257 million ($135 million in the first hour); Tezos, the creator of


a new decentralized blockchain, raised $232 million; and Sirin Labs, the developer of an open source blockchain smartphone, raised $157 million.

why are InvesTors so eXCITeD abouT Tokens? Think about it. Most token issuers are early stage companies who intend to successfully build companies and platforms. However, these token issuers have no track record of performance, minimal or zero assets and plan to rely on ICO proceeds to build the companies and platforms that will work with the issued token. In most cases, the issued token merely represent the potential future right to buy a good or service on a platform that does not yet exist. Furthermore, the issued token does not represent an equity interest in the company that is issuing them. This means that even if a company successfully builds a platform and sells its products or services on the platform in the future, the token investor will not participate in the upside in value of the company itself. Despite this, the tokens may appreciate and, hopefully, the investor will be able to sell his tokens at a premium.

whaT are you really buyIng? As you consider purchasing tokens in an ICO, ask yourself what you are buying. Remember that there are two separate pools of value. One pool of value is associated with the token and the platform itself. Do you know what that is worth? The token will only have value if people want to buy the product or service that will be represented by the token in the future. The other pool of value is represented by the value of the company itself. How will you estimate the value of the company? In most cases, as a token investor, you will not participate in this second pool of value. You would only participate in this second pool of value if you

A Closer Look At Investing In ICOs

purchased equity (e.g., common or preferred stock) in the token issuer’s company or if the token itself represented an equity interest in the token issuer, which is possible, but presently not as common in ICOs.

InCreaseD regulaTory sCruTIny of ICos The U.S. Securities and Exchange Commission (SEC) created a Cyber Unit in 2017 to target misconduct involving ICOs. In many cases where the SEC has investigated or halted an ICO, it has taken the position that the tokens sold were security tokens rather than utility tokens. The sale of security tokens must be registered, exempt or they are in violation of the federal securities laws. The SEC often relies on the multi-pronged Howey test to determine whether a token should be classified as a security or utility token. In simple terms, if the token purchaser expects the token value to increase solely due to the efforts of others, then it would be safe to assume it is a security token. Many token issuers have unsuccessfully tried to take the position that their tokens were utilities and not securities. Future token issuers should be careful about taking this position given SEC Chairman Jay Clayton’s statement during a U.S. Senate hearing “I believe every ICO I’ve seen is a security.” If you want to know how to issue and sell your token in a regulatory compliant manner, give me a call and I will be happy to assist. n Mr. Bevilacqua is the founding member of Bevilacqua PLLC (, a boutique transactional corporate and securities law firm. Mr. Bevilacqua counsels companies of every size ranging from entrepreneurs with just an idea to established companies whose securities trade on the NYSE or NASDAQ. He has broad experience representing issuers in public offerings and private placements of securities (including private placements under Rule 506(c) of the Securities Act, crowdfunding offerings under Title III of the JOBS Act, and Regulation A+ offerings), Exchange Act compliance, angel and venture capital financings, other areas of equity and debt financing and mergers and acquisitions. MicroCap Review Magazine



Microcaps’ Current Trend is Your Friend but it will END! CORNERSTONE GLOBAL GROUP “T-REPORT”

In brIef Major Takeaways • The Russell Microcap® Index breaking out of a six month near sideways consolidation led to an impulsive bullish move up to the current testing of its upper trend line. It remains in a confirmed uptrend but is subject to downward corrections, as it moves toward its end of trend, a anticipated historic crest or at least a “truncated” crest • Select technical indicators, stock market cycles, Elliott Wave analysis, Prof. Wheeler’s cycle analysis, Benner cycle analysis and more are suggesting a near term short term top, followed by a corrective decline into early 2018 and a major top ideally in mid2018 but no later than end of 2018, with a potential crash 2018-2019



MicroCap Review Magazine

Given the historic extreme sentiment and momentum and perhaps the potential for new global monetary or fiscal stimulation attempts, a major crest may be delayed but the market will have its way in due season. Global governments and central banks have proven they can distort, extend and delay but cannot ultimately prevent economic “resets”, which are so evident and necessary for healthy growing global economies, even those who are centrally controlled. With the topping of the 250 revolutionary cycle that began in the late 1700s, a declining 500 year cycle and the impact of other shorter term cycles, the “exact” timing of a major crest may be in question but not the “eventual” event. However, as events unfold, timing will become more reliable, based upon market and intermarket internal construction and not fundamentals, which will “show” up and take associated credit for the critical event As anticipated in the DJIA, S&P 500, NASDAQ Composite, and Russel 2000, a major Microcap crest will probably result in a high volatility “ratcheting” downward trend leading to a long term bottom, with a probable low in 2020 to 2023. If history rhymes, microcap and small cap indices will diverge and decline before the large cap indices top Until more definitive index market action takes place that allows for calling a high probability end of the

2009 “cyclical” bull market trend and a lasting crest, a decisive breakdown form its lower 2009 trend line and 200 week moving average, will strongly indicate a trend change. A decisive move under the February 2016 low will confirm the long term trend is down. Until it is technically confirmed, the trend is up.

To well establish these takeaways, this Cornerstone Global Group (CGG) “T Report” will comment on the economic and general market outlook, as well as, the Russell Microcap® Index weekly chart and conclusions:

eConomIC anD markeT CommenTary From a long term historical perspective, most USA equity markets continue to reflect the LONG TERM “topping process” of a 250 year cycle that began during the time of the American and French Revolution, the late 1780s: • The new historic highs in microcaps, small caps and large caps, reflect historic “exuberance” of extreme optimism, resulting in historic extreme complacency. In fact, the VIX, a CBOE Market Volatility Index created in 1993 and nicknamed the “fear gauge”, reached its lowest recorded level of compliancy among market participants in November 2017. Thus, the herd’s assumption that market do indeed grow to the moon, has returned! So pervasive is this “over

Weekly Russell Microcap® Index chart

the moon” mentality, 24 hour trading is now available from TD Ameritrade. That is eerily similar to the pre-market trading and limited post close trading, initiated in the late 1990s. We know how that all ended with an 84% decline in the NASDAQ 100 from 24 March 2000 to 11 October 2002, approximately 19 month! Such euphoria is in do in part to years of central bank accommodation of low rates, increased money supply and yet a declining money velocity of M1 and M2, as well as, the Trump election’s strong emotional appeal to “Make America Great Again”, the long awaited income tax law changes and corporate buy backs, which all combined with market participant behavioral factors to create a parabolic melt up. Going on unnoticed is the ever increasing national debt of $20,617,584 360,644 or $170,000 per every taxpayer or a gross national debt of 107% to GDP. That ranks the USA just behind Jamaica at 116%, Bhutan 122.1%, Cape Verde 122.2%, Portugal 127.3%, Eritrea 127.5%, Italy 132%, Lebanon 147% and finally, Japan leading at 250%!! Additionally, there are the ongoing financial crises regarding states, cities, pensions, student loans, sub-

prime car loans and personal debt. This does not even include the lack of sufficient assets for many retiring Americans and fewer workers to support a shrinking tax base and rates to pay the entitlement programs for the large number of baby boomers retiring each year. All of these and more factual reasons are a logical basis for a grand global reset, as the parabolic melt-up reverts to a significant meltdown. Historically, there has been an ongoing upward bias in USA equity markets but they have always been “punctuated” by minor and major resets in excessive optimism and an attitude that ultimately leads to financially destructive behavior in governments, companies and households, which ultimately results in a painful reset. That dreaded but necessary period of rebasing the economy is cyclically dead ahead. When it “eventually” occurs, naturally reoccurring self-cleansing cycles will reduce excess debt and excessive capacity to more optimal levels, which ultimately results in a new “spring season of economic renewal”, as well as, a new secular equity bull market, typically accompanied by slowly rising interest rates and inflation

As for when the great and final reset might begin and end, Elliott Wave interpretation, Long Wave Cycle analysis, Prof. Raymond H Wheeler’s cycle research, Benner cycle research and other technical considerations, merge to project a major crest in 2018, a potential panic in 2019 and a major bottom range of 2020-2023

analysIs anD CommenTs: •

The above weekly Index chart clearly indicates the Index is above both its 200 week and 50 week Simple Moving Averages, confirming the current long term trend is up As of date, the index is in the window for a 23 week crest, therefore, a crest is very much a near term potential but whether it’s a minor or major crest will be determined by index market action Currently, a reliable technical indicator, Relative Strength Indicator (RSI), is exhibiting bearish negative divergence in both the daily, weekly and monthly charts When such is noted on a daily chart, a decline of some magnitude is in the making sooner than later When such is noted on a monthly chart, it is indicative of a major decline but given its a monthly reflecMicroCap Review Magazine


• •

tion the decline can be months out Additionally, the Index is overbought basis the daily, weekly and monthly charts, at least a signal of an eventual decline, at least a downward correction followed by a move back up (Preferred Scenario) or the beginning of a major change of trend (Alternate Scenario) As a side note, the RSI of the DJIA is at its highest over bought reading ever, dating back to the 1880s In essence, all indications are that the microcap index is headed for an eventual major top and substantial decline, which requires “vigilance” as to timing of a trend change However, be aware that technical indicators may “hang in place” until the “Greater Fool” hits the final bid and then the index falls, while the indicators reflect the decline NOTE: the Russell 2000 small cap index has much more market history and such history has noted that after each market rise from 1998 to 2000 and 2002 to 2007, the index has returned to its origin; that would suggest a potential decline of the Russell Microcap® Index to around 130-150 for a major low Historically market crashes tend not occur at the top of the market but come later in an already established downtrend, just as the DJIA and S&P 500 did in 1987, 2000, 2007 Lastly, recall from history, markets top on GOOD news, not bad news! Caveat Emptor

ConClusIon • •


Currently, the long term trend of the Russel MicroCap® is still UP! It often said that history “rhymes” and I do believe it is “rhyming” loud and clear, with a market topping process that no one alive has seen, a 250 cycle year top! MicroCap Review Magazine

End of trends and major TOPS are inevitable in USA equity indices and that includes the Russell Microcap® Index The exact timing is always an unknown but as a farmer knows, when storm clouds appear, there is a very real “potential” for a storm and its wisdom to be prepared. The markets are quite similar, as there are technical indicators that are alerting those aware and vigilant of a “potential” historic top and decline, as well as, a call to have an action plan ready for an unemotional implementation The great news is that the potential occurrence for such a top and decline is a once in a lifetime opportunity to profit from the change in a trend to down. That may include profiting from the decline itself and to consider taking advantage of deeply discounted assets at the next major low, as well as, to protect current wealth for retirement and the next generation! n

Steven Shelton is a Financial Services veteran of more than 30 years, having served in senior management in both the insurance and broker/dealer community, on and off shore. He has expertise in economics, financial market analysis, wealth management, traditional and alternative investments, financial planning, marketing, insurance, sales and consulting as well as an international speaking regarding global economics and financial markets. This is evidenced by advanced degrees in business administration and economics as well as six professional designations to include, Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant, Certified Investment Management Analyst, Tax and Estate Practitioner and Chartered Market Technician. He is the Managing Member of Cornerstone Global Group LLC, an institutional consultancy and financial services publishing entity as well as Managing Partner of Shelton Farms and Enterprises LLC. He is a personal affiliate of Weild & Co., member FINRA/ SIPC, an institutional Broker/Dealer focused on investment banking.

DISCLAIMER: Broker/Dealer services and investments are offered by Steven M. Shelton, independent contractor and FINRA Registered Representative, through Weild & Co.,, a Member of FINRA and SIPC, Cornerstone Global Group LLC is not affiliated with Weild & Co.; Cornerstone Global Group LLC does not offer securities nor securities advice and is not a member of FINRA/SIPC. Cornerstone Global Group LLC, 3240 North Lake Shore Drive, Suite 11-D, Chicago Illinois 60657, may provide institutional Non-FINRA related consultancy on farming as well as marketing, distribution and product/service development to and for institutional use only, without contact with any of the individual clients of the consulted firms. Cornerstone Global Group LLC is also a financial literacy newsletter publisher of the CGG Global Market Technical Report and CGG Technical Research Notes, all of which are general informational services regarding Global Macro Economics and Market Technical Analysis. Cornerstone Global Group LLC’s independent contractor consultants are not investment advisers. At no time may a reader, caller, viewer or consultancy client be justified in inferring that any advice from Cornerstone Global Group or its Non-FINRA registered consultants is intended as investment advice or as investment recommendations directed to any particular person or in view of the particular circumstances of any particular person. Investing carries risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and traders can lose more than their initial margin funds.  Before investing consult with your investment advisor. Cornerstone Global Group LLC does not render tax, accounting or legal advice and the information contained in this communication should not be regarded as such. Information provided by Cornerstone Global Group is expressed in good faith but is not guaranteed in any way.

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nasDaq Cm: mnga


magnegas Corporation Powerful, Renewable Technology: From its humble start in Tampa, Florida (US), MagneGas® Corporation has steadily grown into a green tech company at the forefront of the industrial gas sector –and offers the only renewable acetylene replacement fuel available on the market today, called MagneGas2®. With its third-generation production systems, this gas can be economically produced closer to, or even at, the point of use and offers many environmental benefits to the producer. Since the early 2000s the company has been developing its patented Submerged Plasma Arc Gasification system, which produces MagneGas2®, a metal cutting gas from renewable feedstocks. This renewable fuel is comparable, and in many ways superior to acetylene, a legacy gas that is inherently unstable and environmentally damaging to produce. With this renewable fuel, MagneGas is steadily penetrating the industrial gas industry and the acety-

lene replacement market. MagneGas fuel is quickly emerging as the only renewable and vastly safer alternative to acetylene as a metal cutting fuel. Safer: As a hydrogen based fuel, it has many advantages over acetylene, which has been the legacy cutting fuel of choice for over a century. Years of safety testing have indicated that MagneGas is a fundamentally more stable than acetylene and safety and purchasing directors are taking note of a product that can help provide their workers with a safer working environment while offering a superior and no compromise renewable cutting fuel. MagneGas2® visibly burns cleaner than acetylene and has a significantly higher flame temperature reducing or eliminating rework such as grinding which is an additional health and safety risk factor. In fact, MagneGas 2® has been independently certified at 10,500ºF / 5,800ºC; it can cut faster and cleaner, with

MagneGas has been adopted by many world class clients, including several of the world’s largest automotive manufacturers.


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The MagneGas gasification technology is highly modular. The unit shown can be towed by standard pickup truck, delivering clean fuel almost anywhere.

little to no slag, and uses one third less oxygen than acetylene. More specifically, it can cut a two-inch carbon steel plate at a rate of over 18 inches/45cm per minute – a full 38% faster than acetylene, with some customers reporting they are experiencing double the cutting speed of acetylene. Clean, Efficient Production: The MagneGas gasification technology has been in continuous operation since 2007 and is produced with a simple gasification unit whose reaction chamber fits inside the space half the size of a standard 55-gallon drum. The system transforms a renewable feedstock resulting in a significantly smaller environmental impact than acetylene production methods. The average turnkey MagneGas system occupies less than 6,500 sq. feet or 604 sq. meters which is 70% less than comparable acetylene systems. In terms of production it produces approx. 240,000 ft3 or 6,796m3 per four-week period approximately more than 30% of a comparable acetylene system. Additionally, since MagneGas2® is a compressed fuel, costly and time-consuming requirements associated with acetylene production such as long cylinder fill times and costly cooling is eliminated. The unit is also easily operated. A standard production team includes two

tions and one foreman. MagneGas has five units in operation in the US, Europe and Australia today. Environmentally Friendly: This system consumes less raw material and has very few waste streams, requiring only electricity, electrodes and a renewable liquid feedstock which is a dramatic departure from acetylene systems. For example, a comparable acetylene system consumes 30,000 gallons

of water in a four-week period while the MagneGas system consumes no water in the process. In respect to raw material, a comparable acetylene system consumes approximate 38,000 lbs while the MagneGas system consumes less than 7,000 lbs of a renewable feedstock. One of the most significant environmental factors is the complete elimination of slurry pits required in acetylene production. MagneGas gasification systems are modular, scalable and can be shipped turnkey ready to gas producers, industrial gas distributors and large job sites around the globe for permanent and/ or mobile installation. The combination of much smaller footprint, significantly less raw material consumption, elimination of water usage and elimination of slurry pits make these gasification systems very attractive to the industry. The renewability of MagneGas 2® fuel offers industry a completely new opportunity to be environmentally conscious by opening their industrial gas consumption to green alternatives which were never available. Global Appeal: Additionally, carbon credits may be available in some markets for the transformation of a renewable feedstock into MagneGas, and in certain cases our system can transform a customer’s liquid waste

The MagneGas fully patented gasification unit shown here can easily fit in single industrial garage bay. The unit emits no odors, no harmful waste streams, and has a minimal environmental foot print. MicroCap Review Magazine


MagneGas now has location in five states (shown in red), with nine locations highlights as stars on the US map above.

stream into a usable gas providing additional cost savings and environmental benefits. The industrial gas sector spends a significant amount of costs on warehousing and logistics. MagneGas gasification systems with their much smaller and safer footprint can be placed closer to point of use, significantly reducing these costs and increasing cylinder asset turnover which in turn have further financial and environmental impacts. Our smaller MagneGas gasification systems offer gas distributors the ability to produce their own acetylene replacement fuel on site offering them a new strategic advantage previously unavailable. There is, then, little doubting the positive attributes that MagneGas2® as a cutting fuel and the MagneGas production methods offers in productivity, safety and renewability while opening completely new capabilities to industrial gas distributors. Financial Impact: MagneGas has articulated a clear vision to become a leader in the largest industrial gas and metal cutting markets in the US, and the results so far have been compelling. Revenues are already projected to grow more than 500% in 2018, and there is potential for even fast growth with the current pipeline of acquisitions. Europe and Beyond: Recently, MagneGas signed a Letter of Intent (LOI) in January to


acquire up to a 70% stake in Infinite Fuels, a German-based bio fuels technology company. Infinite Fuels has shown significant promise in the European market, winning a $7 million grant for clean fuel solutions from the European Commission in February of 2018. MagneGas and Infinite Fuels are planning to launch combined operations, including the sale of MagneGas2® into the major shipping hubs of northern and western Europe beginning as early as the Q2 2018. This joint venture will help solidify MagneGas’ presence on the continent and open up an entirely new market for expansion. CEO Ermanno Santilli: Reflecting on these critical breakthroughs for the company and the product’s ability to rival the stronghold that acetylene has long held over the cutting fuels market, CEO Ermanno Santilli commented, “Our plan is to succeed in Europe as we are in the Americas. The industrial gas industry has not only been looking for a replacement for acetylene as a fuel, it has also been looking for a replacement for acetylene production itself due its inherent high instability and unfavorable environmental impact which is becoming more stringently regulated .” “MagneGas2® is truly the first, and only,

no compromise renewable alternative fuel to acetylene available on the market today. Since it’s discovery in the 1800s there has really been no viable alternative to acetylene until MagneGas. Today MagneGas Corp. proudly supplies our acetylene replacement gas to the US armed forces, fire departments, fabricators, scrap yards, energy companies and automobile manufacturers. While our approach has been measured, we have seen a tremendous response to our fuel and its ever-growing demand.” The Future: So, what is the ultimate potential for MagneGas2® fuel and production systems? “Quite simply we will become the new standard in the industrial gas sector and just as acetylene was the legacy fuel of choice for over a century, we are confident that we will occupy a similar position for the next century. With its renewability, much smaller footprint and simpler, safer operation, our MagneGas gasification systems will one day become the standard of the industry.” n MagneGas Corporation: The article may contain forward-looking statements about MagneGas Corporation. See MagneGas Corporation’s periodic filings with the Securities and Exchange Commission for more complete information.

The company paid consideration to SNN or its affiliates for this article.

MicroCap Review Magazine

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Investor Relations FAQ - Q&A keting to effectively communicate the proper investment message to the capital markets Investor Relations is the communica- and investor community at large. A successful tions life blood of MicroCap companies. investor relations program requires a coheCorporate communications are the outreach sive unit typically made up of the corporate from companies to investors, shareholders, management team, an IR professional or professionals, media, institutions, and the an IR team and SEC legal counsel. Specific financial community. We asked three top objectives for this program are as follows: IR firms each the same four questions to • Implement best IR practices provide their expert advice and opinions Successfully map, benchmark, develto C level executives of public and private op and support the execution of the companies for our curious readers. Company’s positioning towards value creation for shareholders. This includes 1. whaT Is InvesTor a quarterly and annual schedule with relaTIons? milestones, the review and update of all communication pieces to investors. Hayden: Investor Relations involves deploy• Assist management in developing a ing best practices to effectively and consiscohesive investment story and cortently communicate with appropriate invesporate strategy that flows through all tors to maximize the exposure of news, investor communications and posimanage expectations, and navigate chaltions the Company as a credible, high lenges, with the ultimate goal of achievquality investment. ing a fair valuation. A strategic IR pro• Conduct targeted and effective comgram involves the careful coordination of munications activities to enhance the financial communications (press releases), Company’s profile in the investment regulatory filings with the SEC and other community by strengthening valuregulatory agencies, quarterly earnings calls, able relationships with shareholders, meetings and calls with targeted investors, investors, analysts, and other key the corporate website, analyst engagement constituents. This will include finanand conference presentations. cial media. o   Direct outreach and conference calls MZ: Investor Relations  incorporates knowlo      Non-deal roadshows in muledge of finance, communications and martiple geographic markets o   Investor conference participation o      Internet marketing and financial media • Assist senior management and the board in obtaining in-depth feedback and intelligence as to how the Company is perceived in the capital markets and accurately addressing JEFFREY ROB FINK, TED J. GOLDBERGER, HAYDEN IR HABERFIELD, information gaps that can impact KCSA MZ NORTH trading and valuation.

why Ir?



MicroCap Review Magazine

A successful investor relations program will create significant shareholder value by: • Accelerating market recognition • Reducing the cost of raising capital for future expansion • Exposing management to critical perception feedback • Diversifying shareholder base and improving the forward looking valuation KCSA: Investor Relations is a practice of communicating directly with the investment community through various means including press releases, conference calls, presentations, etc. Companies use investor relations to tell their story, achieve proper valuation and access the markets for capital. Ultimately, investor relations allow companies to provide information to assist investors make a buy, sell or hold investment decision.

2. shoulD CompanIes have an Ir fIrm, someone InTernal, boTh anD/or noThIng aT all? Hayden: Larger companies with coverage from several analysts can certainly benefit from an in-house IR program. Most companies seeking to achieve or maintain a fair valuation can benefit significantly from outsourced IR firm. Micro-cap and small-cap companies, in particular, will benefit from a strategic, ethical and focused outsourced IR relationship. Smaller companies face tremendous competition for attention from a relatively small audience of potential investors, and challenges such as volatility, illiquidity, and a lack of research coverage heavily impact the potential audience for these organizations. A good IR firm that has strong buy- and sell-side relationships, a track record of implementing best practice IR efforts for companies with similar profiles can help smaller companies reach

appropriate investors who have the interest and the ability to build a meaningful position in a company at every step of its evolution. Hayden IR has had great success working with clients that have an in-house IR team and we have added significant incremental value to enhance and expand existing efforts. We have found these arrangements to be wellorganized and efficient, organizing analysts, non-deal road shows, internal communications and conference presentations. However, it is important to note that the CEO and CFO must be actively involved in any successful IR effort, and usually, the Board of Directors must play a role in driving a successful campaign. MZ: Larger companies with coverage from several analysts can certainly benefit from an in-house IR program. Most companies seeking to achieve or maintain a fair valuation can benefit significantly from outsourced IR firm. Microcap and small cap companies, in particular, benefit from a strategic, ethical and focused outsourced IR relationship. Smaller companies face tremendous competition for attention from a relatively small audience of potential investors, and challenges such as volatility, illiquidity, and a lack of research coverage heavily impact the potential audience for these organizations. A good IR firm that has strong buy- and sell-side relationships, a track record of implementing best practice IR efforts for companies with similar profiles can help smaller companies reach appropriate investors who have the interest and the ability to build a meaningful position in a company at every step of its evolution. Hayden IR has had great success working with clients that have an in-house IR team and we have added significant incremental value to enhance and expand existing efforts. We have found these arrangements to be wellorganized and efficient, organizing analysts, non-deal road shows, internal communications and conference presentations. However, it is important to note that the CEO and CFO must be actively involved in any successful IR effort, and usually, the Board of Directors must play a role in driving a successful campaign.

KCSA: The need for investor relations departments increased with the passing of the Sarbanes Oxley Act, which required increased corporate governance and regulatory compliance for public companies. While most companies whose market caps range from mid to mega-cap have internal investor relations departments, it is often not economical for companies of smaller size to absorb this expense and therefore opt to work with external agency investor relations firms. All public companies that report to the SEC should have an internal employee dedicated to investor relations, but depending on the degree of services required, an issuer may find it vital to hire an investor relations agency to implement a successful investor relations program.

3. whaT Is gooD Ir sTraTegy, CompareD To maybe baD Ir sTraTegy you›ve seen ouT There? Hayden: Most good IR strategies are factbased and maintain a long-term perspective. Most failed IR strategies seek short-term benefits that are not sustainable usually because the underlying performance does not support the thesis. No IR program can overcome poor operational and financial performance indefinitely. Ultimately, performance determines valuation. A strategic and professionally executed IR program can accelerate value creation. The best IR programs seek to communicate a clear, fact and data-based, long-term investment thesis to as wide and broadbased an audience of appropriate investors as possible, with the goal of creating an attentive audience of retail investors, smaller institutions, larger institutions, the media and analysts. As the thesis comes together, a wide audience will include early adopters. As the company develops further, the early adopters will take profits, giving way to longer-term focused investors who will gradually embrace the story. Ultimately, this will lead to research and media coverage and an efficient market as the company grows. The two most common scenarios in a failed

IR strategy include a focus exclusively on the short-term, and mismanagement of expectations. Often, these two failures coincide. If a single event is overhyped, or described with hyperbolic projections, it can indeed attract short-term investors. However, companies find that when the promises don’t materialize, or progress takes longer than expected, these investors quickly exit. The result is an overhang of disgruntled shareholders who are looking to “get out” as soon as the price returns to their entry point. It can take companies months of strong financial results to overcome this self-inflicted wound. Hayden IR counsels its clients to carefully manage expectations, and communicate based on facts, not hopes. It is important to convey the potential, but expectations must be clear and achievable. Our belief is that Satisfaction equals performance, minus expectations, plus perception. All too often, companies discover that strong performance does not lead to price appreciation, because the expectations of investors was for even stronger performance. Another component that determines success in IR is transparency. Companies which fail to provide investors with metrics by which to track progress find that either investors are disinterested, or learn that investors will select their own metrics, and these mile markers may be inaccurate, incomplete or optimistic. Conversely, companies that provide transparency that turns out to be inaccurate will pay a stiff penalty. The challenge is to hone forecasting and provide detail with confidence. Hayden IR works with its clients to determine the appropriate metrics, which may not be traditional revenue and earnings per share projections, to help investors understand management’s expectations and long-term goals. MZ: A successful investor relations program is built on consistency and clarity from corporate management down to the investor relations officer in charge of communicating with the buy and sell side on a daily basis. Messaging in press releases, investor marketing materials and in all investor focused mediums should be consistent as should communications with all buy-side MicroCap Review Magazine


investment professionals and sell-side research analysts to ensure compliance with Regulation Fair Disclosure. Maintaining a regular dialogue with the capital markets whether through press releases, earnings calls or investment conferences is the cornerstone of any successful investor relations program. Unsuccessful IR efforts normally center around not setting expectations with the investment community by setting identifiable milestones that can be tracked to gauge the progress of a company. An issue that often arises in the small and micro-cap community is overstating the potential effect of a corporate development in the hopes of increasing the stock price where there is no fundamental value actually being created. Over time this misleading information is often discovered and negatively impacts the value of the company; more often known as a pump and dump and therefore it is important for young companies to partner with reputable investor relations firms that have a positive history with the investment community. KCSA: The worst type of IR strategy is not having an IR strategy. While this is less of an issue than it was 10 years ago, some companies continue to believe that their only job is to effectively run the company and deliver strong results. While true in theory, the reality is that maintaining an active investor relations program allows a company to control its narrative – what people think about the company. It has been proven that companies that maintain an active, transparent IR program, tend to achieve a higher valuation over the long-term, as they are viewed as shareholder friendly.

4. shoulD CompanIes gIve guIDanCe? Hayden: Management should strive to provide transparency, and help the investment community gauge progress and understand the longterm opportunity. If visibility is sufficient to provide specific guidance, then guidance makes sense. However, the punishment for missing guidance, both immediate and longer term in the form of lost credibility, is significant. However, if revenue and earnings is not


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predictable, there are other ways companies can help guide investors and provide milestones for investors to gauge progress. For example, management can provide metrics about increasing the size or reach of the sales force, about the number of new products launched, about shifts in revenue mix or improvements in gross or operating margin. In this way, you are helping investors understand some of the levers that impact and drive the business. Investors can utilize this information to create models. These data points or milestones also help an investor measure management’s ability to perform against its stated goals. The more insight an investor can have into your business, the better they can understand it, increasing an investors’ ability to become a shareholder. MZ: Guidance can be presented in both quantitative and qualitative forms, but before an issuer provides guidance to the street it should ask several questions: a) Will the company be able to maintain guidance in the future? b) Will the guidance being considered have a material effect on the company? c) Can the company provide a clear timeline to achieve the guidance? d) Does the company feel comfortable answering potential questions that the guidance might cause? If the answer to any of these questions is “No” then the company should reconsider issuing guidance. KCSA: Starting with the dot-com bust, through the recent financial crisis, the trend of companies, big and small, is to reduce or eliminate guidance. For those reducing guidance, the trend is to shift from annual guidance (with quarterly updates) to quarterly guidance. The rationale is that being held accountable to quarterly guidance is a very difficult way to manage a business and may cause management to make business decisions simply to meet guidance. At the other end of the spectrum, many companies used the dot-com bust and financial crisis to completely eliminate guidance, indicating

that they no longer have the insight necessary to provide accurate guidance. While I could argue either way in terms of which is better, I typically advise my clients to provide guidance only if they are confident that they have strong visibility into their business and are committed over the long-term to issuing guidance. Once you start providing guidance, it is expected that you maintain this practice. n Jeffrey is a Managing Partner at KCSA who oversees the firm’s integrated communications service offering as well as the financial/business services and energy practice areas. For 21 years Jeffrey has provided strategic counsel to private and publicly-traded micro/small-cap companies. His experience includes strategic counsel, proactive institutional outreach and transactional (IPO, secondary and M&A) communications support. He holds a bachelor’s degree in communications from the University of Wisconsin-Madison. Jeffrey actively participates in triathlons and was a finisher of Ironman Wisconsin in 2005 and Ironman Switzerland in 2010. He hopes to compete in an Ironman again in 2015 and every five years after that. Rob Fink is a Partner of Hayden IR and Managing Director of the firms New York office. Rob has more than 10 years of experience consulting public companies on best practice investor relations strategies that enable executive teams to reach, attract, and retain sophisticated investors and more effectively enhance value for their shareholders. Previously, Rob was a small-cap portfolio manager at RBC Capital Markets. He also worked as a trader for Goldman Sachs and on the floor of the New York Stock Exchange as a market maker for Spear Leeds and Kellogg Specialists. Rob has spent much of his career focused on the capital markets and has a track record of identifying undervalued and underfollowed public companies. Rob maintains a strong network of fundamental investors at hedge funds, mutual funds, banks and family offices that focus on value and growth investing in the micro-and small-cap market Ted J. Haberfield is President of MZ North America. Ted Haberfield provides strategic management consulting to public companies through integrated investor relations by combining finance, marketing, and compliance. Prior to joining MZ in 2007, Ted spent over thirteen years as a financial advisor serving the investment needs of high-net-worth individuals and institutional investors, including non-profit organizations and sovereign governments. He served as Second Vice President of Wealth Management at Smith Barney and as Second Vice President of Investments at Morgan Stanley Dean Witter. Ted has been a speaker on financial related topics at the National Congress of American Indians (NCAI), First Nation’s Development Institute, Guatemala Prospera and other national level associations. He graduated from California Polytechnic State University – San Luis Obispo in 1993 with a B.A. in Business and major in Financial Management. He currently resides in San Diego with his wife Danielle and his four children Layla, London, Van, Curren.

Contract CFO

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The Buzz in Washington about Initial Coin Offerings


s public interest and activity with cryptocurrencies and initial coin offerings (ICOs) increases around the globe, lawmakers and regulators in Washington are coming to realize that they need to respond to the booming industry.

Over the past few months, we have seen a spur of activity in the form of statements by lawmakers, hearings on Capitol Hill, and guidance and statements made by officials at regulating agencies. This article gives a glimpse of the action that we’re seeing on the Hill and at the agencies, and what we can expect to see going foward.

on CapITol hIll Though most Congressional staff on Capitol Hill are still learning what an ICO is, some members have been paying attention to the market and trends. Mainstream media coverage of ICO activity is helping some staffers to understand the industry. Even more promising, some Members of Congress, such

as Reps. Bill Foster (D-IL), Patrick McHenry (R-NC), and Ed Perlmutter (D-CO), and Senator Thom Tillis (R-NC) have asked questions about ICOs at Congressional hearings. Some Members of Congress have shown strong interest in acting to regulate the industry. On January 9, at a hearing on money laundering, Senate Banking Committee Member Mark Warner (D-VA) said that “we are about to be overwhelmed by bitcoin, other kinds of cryptocurrencies.” He continued that he would hope “we would be able to get ahead of it rather than chasing it after the fact.” Many Members are concerned about national security and money laundering, as well as investor fraud. Others, on the other hand, are concerned about overregulating and quashing a nascent industry with the potential to raise capital. Some industry stakeholders are concerned that large enforcement actions by the Securities and Exchange Commission may cause an overreaction by Congress and result in regulatory overreach.

aT The seCurITIes anD eXChange CommIssIon (seC)




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The SEC started paying attention to ICOs last year, with its first major action last July, and has been focusing increasing attention on the industry since. On July 25, 2017, the

SEC issued an investor Bulletin on ICOs. The investigative report issued cautioned market participants that offers and sales of digital assets (such as ICOs) by virtual organizations are subject to the requirements of federal securities laws. A couple months later, speaking on risks created, SEC Chairman Jay Clayton said that he thinks that ICOS may expose buyers to possible fraud and could be susceptible to abuse from “pump and dump” schemes.1 The SEC has also shown its willingness to crack down on industry marketing. In November, the agency issued a notice to celebrities in connection with their use of social media networks to encourage the public to purchase stocks and other investments, including ICOs. The SEC stated that “these endorsements may be unlawful if they do not disclose the nature, source, and amount of any compensation paid, directly or indirectly, by the company in exchange for the endorsement. A week later, SEC Chairman Jay Clayton spoke at an event and said that there is a “distinct lack of information about many online platforms that list and trade virtual coins or tokens offered and sold in Initial Coin Offerings . . . trading of tokens on these platforms appears to be susceptible to price 1 A “pump and dump” scheme occurs when an individual encourages investors to buy shares in a company in order to inflate the price artificially, and then sells their own shares while the price is high.

manipulation and other fraudulent trading practices.” He also said that he has he has “yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security.” Chairman Clayton made further statements toward the end of the year, saying that he “caution[s] those who operate systems and platforms that effect or facilitate transactions in [virtual currencies] that they may be operating unregistered exchanges or brokerdealers that are in violation.” He referred interested parties to “closely read” the DAO report released earlier that year, and said that “excessive touting in thinly traded and volatile markets can be an indicator of ‘scalping,’ ‘pump and dump,’ and other manipulations and frauds. The SEC has brought three enforcement actions since issuing the DAO report in July 2017. Some industry stakeholders are concerned that increasing enforcement actions and the potential for litigation may have chilling effect on offerings.

aT The CommoDITy fuTures TraDIng CommIssIon (CfTC) The CFTC has determined that Bitcoin and other virtual currencies are indeed commodities. This is significant because under federal law, there are certain activities that are prohibited under commodity trading, including: price manipulation of a virtual currency, wash trading in an exchangetraded virtual currency swap or derivatives contract, trades in virtual currency futures or options on exchanges that are not properly registered with the CFTC, and counter margin trades with entities not registered with the CFTC. Early December 2017, the CFTC announced that three exchanges (CME Group, Cboe Global Markets, and the Cantor Exchange) will be allowed to self-certify new bitcoin trading products. Trading began on Cboe Global Markets on December 10, and CME Group started trading on December 17. Later that month, on December 15, the agency announced a Proposed Interpretation

concerning its authority over retail commodity transactions involving virtual currency. The Proposed Interpretation sets out the CFTC’s view regarding the “actual delivery” exception that may apply to virtual currency transactions.

lookIng forwarD The CFTC and SEC will continue their enforcement efforts, along with the Plaintiffs’ Bar. The SEC and CFTC don’t want to quash an innovative way to raise capital, but need to balance that with investor protection. The agencies would like to get this issue resolved, and more specifically, one of SEC Chairman Jay Clayton’s first statements was that he wanted to make it easier to raise capital. The ICO craze that we are seeing today has a lot to do with the fact that we haven’t changed our securities laws since the post-depression era. The JOBS Act was the first crack at attempting to do that, but there is recognition that more needs to be done to enhance capital formation. The greater danger to ICOs and cryptocurrency comes from the law enforcement community, which is concerned about money laundering and terrorist financing. Secretary Mnuchin and Under Secretary Sigal Mandelker have made various comments expressing concern about this industry. Both the House and Senate are working on anti-money laundering legislation that has a good chance of being signed into law. Our fear is that this legislation will include provisions that shut down or effectively shut down the use of cryptocurrency in the U.S. Interest groups, including technologists, should be engaging with Capitol Hill and the Administration to make sure that lawmakers and regulators understand that blockchain technology can be used as a tool to prevent money laundering. Currently, their approach is to advocate that they be excluded from anti-money laundering laws. This is a mistake. They need to participate in the process rather than trying to exclude themselves from it.

Dina Ellis Rochkind is Of Counsel in the Paul Hastings Government Affairs practice and is based in the firm’s Washington, D.C. office. Her practice focuses on representing clients before Members of Congress on Capitol Hill and the Executive Branch. Ms. Rochkind represents clients in matters involving regulatory initiatives, policymaking and legislation, and enforcement actions. Ms. Rochkind has over 20 years of experience on Capitol Hill, lobbying, and working for the Executive Branch. Prior to joining Paul Hastings, she served as Washington Director in the office of Rep. Mike Coffman (R-CO). Other Capitol Hill experience includes serving as senior staff for various Congressional Committees and for Senator Pat Toomey (R-PA). Ms. Rochkind also served in the George W. Bush Administration as Deputy Assistant Secretary at the Treasury Department. She has been involved in drafting major pieces of legislation over the last two decades, including: the 2005 bankruptcy reform legislation, the FACT Act, E-Sign, Check 21, Federal Deposit Insurance Reform Act, GrammLeach-Bliley Act, and, most recently, the comprehensive and bipartisan JOBS Act, for which she was the lead staffer in the Senate. Ms. Rochkind has worked across party lines on both sides of the aisle to achieve key legislative successes and has a reputation for “getting things done” in Washington. She is also experienced in crisis management. During the auto industry crisis, Ms. Rochkind led the lobby to rescue Chrysler and handled the consequences and fallout from its bankruptcy. She has led legislative advocacy on behalf of major corporate entities and advised congressional leaders on issues such as banking, bankruptcy, insurance, other financial services, and economic development. Prior to leading Rep. Coffman’s office, Ms. Rochkind served as Vice President of Federal Government Affairs for a leading mortgage lending company. n Casey Miller  is an associate in the Corporate Department  and is based in the firm’s Washington, D.C. office Her practice focuses on  securitization and structured finance,  with a particular emphasis on  representing investment banks, asset managers, issuers, and investors in collateralized loan obligation transactions. In addition to her work  in structured finance, Ms. Miller works with the Government Affairs practice in representing clients before Members of Congress on matters involving regulatory initiatives, policymaking and legislation, and enforcement actions. Previously, Ms. Miller worked on Capitol Hill as a Senior Legislative Assistant to U.S. Representative Marcia L. Fudge. In Congresswoman Fudge’s office, Ms. Miller managed important legislative initiatives, including handling the Congresswoman’s healthcare portfolio. Additionally, Ms. Miller handled all of the Congresswoman’s work with the Committee on Science, Space, and Technology and related issues. She has experience navigating the legislative process and moving legislation through the U.S. House of Representatives. Ms. Miller graduated with high honors from The George Washington University Law School in 2015, where she served on the school’s Law Review. She earned a Bachelor of Science degree in Mechanical Engineering from The Pennsylvania State University in 2009. MicroCap Review Magazine



On the Market Commentary and Insights The next generation space age ‘element’ that will disrupt the status quo regarding metals used in the aerospace and automotive markets sCanDIum meTal wIll revoluTIonIze The alumInum InDusTry Clean TeQ* owns the world’s largest and highest-grade scandium resource. Scandium is revolutionary in how it will transform aluminum for the aerospace, automotive, marine, and rail transport industries. The change is still a bit out in time; however, the major users of aluminum in the world are now deeply involved in developing applications for scandium-enhanced aluminum. Let’s imagine a world where you get all the scandium you want and at a lower cost than you’ve been able to get it historically. That day is near. Scandium is one of the most plentiful yet hard to extract elements there is: it’s ‘held’ in minute amounts in many substrates, occurring in trace quantities in over 800 minerals. Now the ‘no supply / high cost’ dynamic is on the threshold of change as chemical solutions are developing that will release the astonish-



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ing metal for a multiplicity of uses. Notably, Clean TeQ owns one of these processes, which is highly efficient in the extraction and purification of a range of valuable strategic metals from slurries, tailings and solutions with yield recoveries near 99%. Notably, Clean TeQ has sold one of these scandium recovery plants to a major Japanese company. Adding a tiny amount of scandium (0.15% to 0.20%) to aluminum creates this next generation alloyed metal that is corrosion resistant, weldable (20 X faster than riveting & with no loss of strength at the weld), 3D printable, able to significantly enhance castings, ‘superplastic’ (can be fabricated to form more complex shapes), stronger and harder. Thus, the alloy can be formulated to be much lighter on a comparative basis than standard aluminum. Pondering the above one can fairly say that, in effect, a new and astonishing metal has been born. The problem—the production impasse—has been that there is so very little scandium available. Besides occurring naturally in very low concentrations, scandium is very difficult to separate from ore and reduce to its elemental state. These reasons drive the cost of scandium to US $270 per gram—that’s US $122,500 per pound. By comparison, gold is US $18,687 per pound. And as mentioned, only about 15 tonnes of scandium are produced globally per year. It is claimed that using aluminum-scandium alloys could reduce the weight of a large aircraft by an enormous 10% to 15%. There is obviously a clear and direct relationship between the weight of an aircraft, the amount of fuel that it uses, and the efficiency of its performance. Simply put, weight is money in aircraft; the heavier a plane is the more fuel it takes to drive it through the air.

Russian MIG-29 Fighter: A faster, lighter, and a more fuel-efficient Soviet / Russian military aircraft using a tiny amount of scandium (Sc 21) allows the fuselage to be welded (no rivets), making it 15% lighter.

* Clean TeQ Holdings Limited (ASX:CLQ) is the owner of a unique nickel / cobalt / scandium mineral resource New South Wales, Australia. Prominently, mining mogul Robert Friedland is a major investor and Co-Chairman of the company and he increased his shareholding in the open market last year. Last October Clean TeQ updated its scandium resource estimate by 63%, meaning that it increases the contained scandium metal in the resource to 19,222 tonnes. As mentioned, only about 15 tonnes of scandium is produced globally each year. So using a minimum scandium price of $1,500 per kilogram, this means that there could be over $28 billion of the metal in the ground. In addition, there’s additional gobs of way-more $ billions worth of cobalt, nickel, and platinum in the very same near-surface resource. Send request for my expanded

aIrCrafT applICaTIons In March 2015, CleanTeQ announced a collaboration agreement with AIRBUS APWorks, and later announced additional collaboration agreements with alloy

facturer KBM Affilips in March 2015 and December 2016. Link here and here. Critically, using scandium-modified aluminum as a body skin, the aircraft fuselage may not need to be clad or painted—which would further reduce it weight and lead to significantly reduced maintenance costs. Aluminum-scandium alloys can also be used in the aircraft sector for the production of welded gas tanks, structures for dashboard panels and compartments, and large stamped and welded structures. Analysis by specialty metals experts finds that scandium-aluminum alloys can deliver in the range of $9 million in net-present value savings for every mid-body airliner because of the metal’s light weight and ability to reduce or eliminate the use of rivets, reducing fuel consumption. (The weight of rivets in an AirBUS 380 is thought to be about 10 tonnes.) Incorporating aluminum-scandium alloys will allow aircraft manufacturers to boost annual revenue by hundreds of millions of dollars per year through lower materials costs, lower direct manufacturing costs, and higher manufacturing throughput. In addition, I’ve read that casting the scandium-modified aluminum can reduce the number of steps for AIRBUS to build a plane’s body from 22 down to 9, significantly reducing both build time and again, cost.

auTomoTIve applICaTIons

The image is showing the following:

Clean TeQ Sunrise Project Location

• •

Clean TeQ is fast-tracking the development of scandium applications for the automotive industry and is in discussions with key alloy producers currently providing products to the industry to establish programs utilizing scandium-containing alloys for applications such as high-strength extrusions of body frame skeletons, bumpers, etc. Additionally, casting of automotive parts that require complex geometries, ranging from body nodes to wheels will make possible the reduction of the number of parts necessary to assemble a complete vehicle. Clean TeQ has initiated precompetitive development work with a North American consortium where a successful outcome will open a whole new set of attractive component markets for aluminum-scandium. The automotive sector is substantially increasing its use of aluminum, with 50% growth forecasted by 2020. Clearly, a revolutionary change in the auto industry is at hand.

key eluCIDaTIon re sCanDIum: Big picture—scandium is the most industrially disruptive metal there is. It has all the lightweight characteristics of aluminum and the strength of scale of titanium. Its corrosion resistance and weldability are key characteristics.

What has been created is an alloy / metal that does not appear on the periodic table, but this aluminum-scandium alloy has qualities that far surpass other metals out there. Titanium is very expensive and very heavy compared to aluminum; steel is heavy and has issues with corrosion that need scrupulous and exacting management. The use of scandium-modified aluminum solves both of these dilemmas. Researchers claim that scandium provides the highest increment of tensile strength per atomic percent than any other alloying element when added to aluminum. In addition, scandium exhibits very good electrical conductivity and excellent heat stabilization qualities. n Dr. John L. Faessel is a seasoned and respected Wall Street professional with industry-wide recognition for expertise in market strategy and analysis. He is widely recognized for his insights in public companies. For over 25-years Dr. Faessel’s ON THE MARKET reports have been widely distributed to a throughout the world to an extensive list of financial institutions, brokers, foundations, mutual funds, hedge funds and private high net worth investors. Contact at Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. The author has bought shares in the open market and owns shares before or at its publishing. The author has not been compensated to write this article. Disclosure: The author has bought shares of Clean TeQ on the open market.

Proposed Clean TeQ Sunrise Project location and supporting infrastructure (rail, roads, local communities) Forbes, Fifield, Parkes etc are all local towns Sunrise is not in production yet, but has a resource of : 101Mt @ 0.59% Ni and 0.13% Co. Ore Reserve of 96Mt @ 0.65%Ni and 0.10% Co. Cadia, Northparkes and Cowal are other mines in the area (not owned by Clean TeQ)

Clean TeQ website: http://www.Clean The company paid consideration to SNN or its affiliates for map placement.

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Seeing the Light, The Case for Nuclear Power in the 21st Century


uclear power is not an option for the future, but an absolute necessity.

“Seeing the Light: The Case for Nuclear Power in the 21st Century,” by the UW’s Scott L. Montgomery with Thomas Graham Jr., was published in September by Cambridge University Press.




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The global threats of climate change and lethal air pollution, killing millions each year, make it clear that nuclear power together with renewable energy must work together as non-carbon sources of energy to overcome these most serious threats. Fortunately, though not yet in the West, a nuclear renaissance underway in developing nations, to combat one of the biggest threats of our time. Seeing the Light explains how, why, and where the new nuclear era is happening. In addition, this book offers a great deal more: a social and political history of nuclear power and concerns and fears about it; a detailed discussion of the Chernobyl and Fukushima accidents and their meaning; an in-depth look at the myths about nuclear power; a simple and clear introduction to the basic technology of nuclear energy, weapons, and reactors; and a pragmatic discussion of radiation and it effects. Such an array of topics help make this book the best single work on this key subject yet available for students, the general public and anyone interested in the future of energy production and, thus, the future of humanity on planet Earth. Human civilization on this planet faces a growing existential crisis. This risk is beyond denial, confirmed many times by scientific

work, and is now fully evident in the climatic changes that people are witnessing and, increasingly suffering from in their own experience, from the poles to the equator. Science is conservative in embracing new truths. The requirements for evidence are prodigious and the place of doubt and debate central. Climate change, however, has not only moved well past these stages of validation. It has repeatedly exceeded every forecast for its advance. To achieve what is needed to meet this crisis, a huge reduction in carbon emissions must be achieved. This will be a colossal undertaking which will take time, effort, and enormous amounts of money and will require every means that nations can employ to produce energy from noncarbon sources. Fortunately modern society has created sources of this kind that can now be expanded and advanced to address the challenge. However, simply choosing a few options, because they seem the “greenest” and are backed by wishful computer models, will never be enough. The task is too real, grave, vast, and demanding for diversions that treat it as an opportunity for ideological preferences on one side of the political spectrum. Yet climate change, for all its risks, is only part of the existential crisis today. There is

another type of threat, once thought to be quelled but that has returned with a vengeance according to new research, which looms over large parts of humanity and whose impacts are now known to be spectacularly lethal. Nearly 18,000 people lose their lives every day due to toxic material in the air they breathe. This amounts to 6.5 million deaths annually, which the World Health Organization (WHO) emphasizes is significantly greater than combined fatalities from HIV/AIDS, tuberculosis, and traffic accidents. As with the climate crisis, energy production is the main contributor to this global threat by utilizing fossil fuels, particularly coal. Above all because of the burning of fossil fuels millions of people live in cities today whose air cannot be called fit to breathe. A new civilization – modern civilization – unlike anything that had gone before has been created and built on fossil fuels: coal, oil, and natural gas, extremely rich sources of energy. And in the twentieth century these three sources based on carbon spread throughout the world. Human life has been revolutionized because of this, and will continue to be altered by it, becoming both more prosperous and at the same time more threatened. It wasn’t until the 1970s that some scientists came to understand the Faustian bargain. Means were available to hugely increase the quality of life but if overused could eventually make large parts of the planet much less livable for human beings. This was because the burning of these fuels releases over time vast amounts of carbon, largely in the form of CO2 gas, into the atmosphere, absorbing and reradiating the sun’s heat, raising the temperature of the lower atmosphere and the oceans. Climate change is many threats to many nations – political, social, cultural, economic, and even military. It is a direct challenge to the world’s stability, not only because of its impact, but because of the changes that it requires to be made by civilization. The core of these changes lies in the realm of

energy, which must be moved toward a more noncarbon basis. This means nuclear power and renewables, the only real options that exist today. Neither one of these can achieve what is necessary by itself; to choose one and abandon the other is to amputate an arm from the effort that is needed. One must recognize, however, that more money has been invested in renewables in the last ten years then has been expended on all nuclear power plants ever built and currently under construction with little effect on decarbonization. Renewables have a difficult time producing power at a nuclear scale. For example, the Diablo Canyon Reactor, the last remaining nuclear plant in California, which the state intends to close, produces 14 times as much power as the Topaz solar farm, which requires 500 times as much land. The Topaz facility was completed in 2011 in San Luis Obispo County, California, and is one of the world’s largest solar farms.1 Importantly, carbon emissions in California have increased 35% since the closure of the San Onofre nuclear plant in 2012.2 Thus, nuclear power is an absolutely essential part of the mix if humanity is to prevail against climate change. The Paris Climate Agreement of December 2015 brought 190 nations to a consensus that they would work to reduce carbon emissions such that the world’s average temperature would not reach 2°C above preindustrial norms, the point interpreted by the scientific community as defining when the most severe impacts will begin in force. These would not just be droughts, storms and higher seas, but effects in the oceans less often described, like more acidic waters reducing the abundance of phytoplankton, a form of life at the base of the marine food chain that also produces half of the world’s oxygen. No small amount of talk at the Paris meetings was devoted to 2015 being the warmest year

on record. In the decades ahead, it is safe to say that planet Earth will be fine. It is the life that lives upon it that will suffer, indeed that is already enduring difficulties. On December 7, 2015, seventy-one Nobel Laureate scientists spoke in one voice to the climate negotiations in Paris. The document they signed, known as the Mainau Declaration, was a forceful call to action for all the world’s nations. The threat faced by humanity from a warming climate, it stated, was greater than any that had ever existed, with only one possible exception. The Mainau Declaration makes the point in terms as clear as we might wish. They are terms with a particular resonance, given the history behind them: “Nearly 60 years ago, here on Mainau, a similar gathering of Nobel Laureates in science issued a declaration of the dangers inherent in the newly found technology of nuclear weapons ... So far we have avoided nuclear war though the threat remains. We believe that our world today faces another threat of comparable magnitude... [T]he world must make rapid progress toward lowering current and future greenhouse gas emissions to minimize the substantial risks of climate ... Failure to act will subject future generations of humanity to unconscionable and unacceptable risk.” With these words in mind, it can only be a major step forward that a new age of nuclear power has actually begun. It is to help support and advance this new era, to quicken an understanding of it and why it is much needed, that this book Seeing the Light has been written. n

1 Porter, Eduardo, “Wind and Solar Power Advance, but Carbon Refuses to Retreat,” New York Times, November 7, 2017, p. B-1. 2 Nuclear Matters® http://www.nuclearmatters. com/climate

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Mastering the Mekong Region’s MicroCap Companies F

or thousands of years, the word ‘loot’ was used by the people living in the isolated plains of northern India to describe what plunderers did when they came into a village. But in the late 18th century, the private army-corporation known as the East India Company suddenly took the word global. Bursting into the Mughal King’s territory with plunder on their minds, they returned back to Britain with foreign treasures and words. And some never made it back at all. Luckily for both sides, the dangers of doing business in Asia don’t usually involve violence and war anymore. But they are still there. And the Mekong Region is still something of a rocky frontier zone for western investors.

whITe waTer InvesTIng

transparency and shaky free market credentials, the region holds promise. Most firms on the stock exchanges in the region would be classified as ‘micro’ or ‘small cap’ in the west, with the vast majority of them worth far less than a billion USD and operating largely under the radar of most analysts’ reports. In fact, there are only 23 listed companies that have a cap of over US$1 billion in Vietnam, just 1 in Laos, and none in Cambodia. But a booming manufacturing sector, flirtations with services and high rates of GDP growth are providing new spaces for expansion and potential. Getting financially involved here is both risky and rewarding, like taking a raft

Despite a delayed entrance to the wonderful world of financial markets, less-than-stellar


The East India Company’s ‘forced privatization’ of the Mughal Kingdom sealed the domination of Britain capital over India. Source: Wikipedia Commons


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through one of the mighty Mekong’s more turbulent courses. So there are a few things to consider before taking the plunge into the financial markets of ‘the wild southeast’ and making off like a rich bandit on the modern Silk Road (which we’ll explain how to do at the tail end of this article). The first is how capital markets have evolved in the area.

aCD – The seCreT asIan blueprInT The Asian Capital Development (ACD) model, also known as state-sponsored capitalism, is a key concept to grasp for understanding the debt cycle to profit off Asian stock markets. In the ACD model, governments tend to grow their economies by picking ‘key sectors’ to support through cheap credit and other benefits. That facilitates big projects that slowly drive the economy from agriculture to manufacturing and through to services. This is not necessarily always a problem, if the industries manage to become profitable and globally competitive. But because of a range of different historical and political factors, Southeast Asia’s (relatively big) micro

The Khone Falls between Laos and Cambodia boast the largest volume of water flow in the world. Navigating the Mekong Region’s micro cap investment opportunities can be just as beautiful, and dangerous. Source: Wikipedia Commons

cap companies are not all able to do that.

The rooTs of DevelopmenT (anD ITs problems) The 1960s, 70s and 80s saw war devastate large parts of the Vietnamese, Laotian and Cambodia countryside, severely crippling these countries’ capacity for agricultural sustainability, let alone surpluses. Things are very different now, and investments in manufacturing capacity, coupled with privatization and land reform, has been taking place over the last few decades. But industry needs infrascture and hard cash in order to start working. And this has led to a relatively predictable cycle of debt, with governments in the area constantly subsidizing or channeling cheap credit to sectors they view as important (but not necessarily always profitable).

InvesTIng In vIeTnam usIng The DebT CyCle sTraTegy Through years of studying this investment ecosystem – and using the impressive analytics at our disposal at One Road Research – we’ve developed an investment strategy that gives our readers the power to ‘rob’ the banks

here (legally, of course). In the graph above, we back-tested an investment strategy in the Vietnamese stock market during the time frame of 2011 - 2017. We screened and invested in the stocks that witnessed annual debt growth, had effective borrowing interest rates lower than their sector average, and demonstrated high returns on invested capital. We stayed loyal to the strategy during the specified time by reshuffling the target portfolio annually. In other words, we removed the stocks that didn’t satisfy our listed criteria and then added the stocks that did. As a result, we earned a total return of more than 600% by the end of 2017 - outperforming the VN Index return of 180% during the same time. At this point, an investor can jump back onto their pirate ship and sail away on the high seas laughing, while the debt-munching banks pick up the bill.

keep ThIngs movIng So, in summary, a solid investment strategy for making use of the debt cycle to profit off micro cap companies in Vietnam or another emerging Southeast Asian market would go something like this: + Track down the “hot spots” in the debt cycle by picking the stocks witnessing an increased level of cheap credit influxes and demonstrating high efficiency on invested capital use. + Reshuffle the portfolio annually. Exclude the stocks that no longer satisfy listed criteria – especially the stocks that cease showing great efficiency on invested capital. Below are the list of stocks that (1) belong to VN30 Equal Weight; (2) demonstrated debt growth in 2016; (3) owned the effective interest rate relatively cheaper than the sector average and (4) had high efficiency on invested capital utilization.

Vietnam is rising.

Source: Wikipedia Commons

But remember, the marginal productivity of debt plays the key role in determining the target stocks, and this can change fast. Of course, this is only the tip of the iceberg of opportunities in this hot and emerging region. If you want to find out more, get in touch with us or check out our site One Road Research for Asian investment insights you won’t find anywhere else. n Peter Pham is an author, researcher and investor. Pham’s book, The Big Trade: Simple Strategies for Maximum Market Returns, was published in 2013 by John Wiley and Sons. Pham has contributed investment advice on different media platforms, including Seeking Alpha, CNN Money Trading Markets and Forbes. He is the creator and editor of “One Road Research”, a website focused on decoding Asia for international investors. He also presents a podcast that was launched on iTunes in 2014, which has featured guest appearances from experts such as Ron Paul, Jim Rogers, Robert Kiyosaki, Marc Faber, John Perkins, and Kevin Kelly, to name a few. Pham is currently the managing director and principal fund manager of the award winning Phoenix Capital Group and serves on the board of Wisdom and Founder Girls. Under Pham’s management, Phoenix Capital created the VN30 Equal Weight Index, which tracks the total performance of the top 30 large-cap, liquid stocks listed on the Ho Chi Minh City Stock Exchange. All index constituents are equal-weighted, helping investors with foreign ownership, liquidity, and state-owned enterprise issues in Vietnam. The index is the first index in Vietnam to be affiliated with S&P Dow Jones Indices for updates and calculations. Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. The author does not own shares or any equity or debt interest in any companies mentioned in this article before or at its publishing.

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Derivatives are 15 Times World GDP European Central Bank and the Bank of Japan are actively pushing these markets up.

Stock investors are rejoicing about stock markets making new highs in many countries, totally oblivious of the risks or the reasons. It seems that this is an unstoppable rally in a “new normal” market paradigm. No major increase is expected in the inflation rate or the historically low interest rates. The present rally has lasted 8 years since the 2009 low. There is virtually no fear in markets so investors see no reason why this favourable climate would not continue for another 8 years at least. Yes, of course it could. All that is needed is that governments worldwide print another $20-50 trillion at least and that global debt goes up by another $200-500 trillion.

The Italian referendum which took place on December 4 had a similar significance. The Brexit vote in which Britain decided to divorce from the EU started the breakup of the artificial construction of 500 million people being ruled by an unelected and unaccountable elite in Brussels. Even worse is an artificial paper currency, the Euro, which is used by 19 out of the 28 EU countries. All paper currencies are of course artificial constructions that eventually become worthless but to have a currency for 19 countries with different cultures, different growth rates and productivity and vastly different inflation rates is a total disaster. This is why Italy, Greece, Spain, Portugal and many more EU countries are totally bankrupt. These countries have been forced to use a currency which has made them completely uncompetitive and unable to export or function. At the same time, Germany has benefited from a weak Euro which has made their export industries very successful.

as europe’s fInanCIal sysTem faIls, golD wIll rIse

buy a house for 2.6 oz of golD

wIll prInTIng half a quaDrIllIon Dollars save us?

The biggest percentage of investments today are virtual or derivatives. This means that there are no underlying real assets but just pieces of paper that are likely to mature worthless in coming years. In addition to most ETFs, which are synthetic, there are $1.1 quadrillion to $1.5 quadrillion of derivatives outstanding. Most of these are only virtual, which means that they have no real value and are likely to mature worthless. But it is not only ETFs and derivative markets that are virtual. Both stock markets and bond markets have less and less to do with reality because governments worldwide are now issuing unlimited amounts of worthless debt in order to support asset markets, including stocks and bonds. Whilst investors in many countries are pulling out of stock markets, governments are buying increasing amounts of stocks and bonds. Both the



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An average house in the US costs around $265,000 today. Not that you get much for $265,000 but that is the average. Measured in gold that becomes 7 kilos or 225 ounces. A 75% fall in house prices is very realistic

“The Die is Cast” for Europe and the EU. This is what Caesar said when he crossed the Rubicon in 49 BC marching towards Rome, leading to a major change in Europe’s history.

and a likely minimum fall. At that level with gold at $10,000 a house doesn’t cost 7 kg or 225 oz but 0.2 kg or 7 oz. So in gold the price is now down 97% and costing 3% of what it cost in 2016. This sounds totally unrealistic but it has been the experience in countries with a hyperinflationary depression like the Weimar Republic. Let’s also look at a fall in house prices of 90%. Even more unrealistic many would say. But let’s just remember that an average house in 1916 was under 1% of what it costs today at $2,000 against $265,000 now. So in a credit collapse combined with interest rates at 15-20%, high unemployment and substantial economic contraction, a 90% fall could easily happen.

For someone who believes that this scenario is a possibility, which of course will be very few, he would be able to buy a house for 1%, in say 2021, of what he would pay today, if he held his money in gold. It sounds unreal but the risk is such that buying a house today is likely to be a very costly and perhaps ruining experience.

physICal golD – The only pensIon funD To survIve Most people in the world don’t have a pension so they won’t be concerned. But for the ones who are covered by pensions, they won’t be much better off. Most pension funds are massively underfunded and the amount they are underfunded by is absolutely astounding. We are looking at a staggering $400 trillion gap by 2050 according

to the World Economic Forum. The biggest gap is of course the US with $137 trillion. The 2015 US deficit was “only” $28 trillion which is 150% of GDP. PENSION DEFICITS – There will be no pensions for anyone The reasons are quite straightforward; an ageing population, inadequate savings and low expected returns. These calculations don’t take into account the coming collapse of all the assets that pension funds invest in such as stock, bonds and property. It is a virtually certain prediction that there will be no conventional pensions paid out in any country over the next 5 to 10 years and longer. The consequences are clearly catastrophic. 

wealTh preservaTIon anD InsuranCe ouTsIDe The bankIng sysTem Gold will continue to be the only currency to survive in history just as it has for almost 5,000 years. Physical gold and silver is the ultimate form of wealth preservation as well as insurance against the economic and financial calamities that the world will experience in coming years. The time to think of wealth preservation and to buy insurance is of course today when physical gold and silver can be found at very low prices. At some point, the gold and silver price rises will dwarf the current surge of Bitcoin. Thus, the decision is really easy. The risk of holding bubble assets like stocks, bonds and property is now at a historical extreme. The easy and correct contrarian investment is to hold gold (and some silver). This will not only save investors from total wealth destruction but also create incredible opportunities to buy bombed out assets with the gold at 3 cents the dollar. So I advise investors to buy their insurance and then just be patient. The outcome of the failed 100 year experiment in money creation is guaranteed to be catastrophic for the world. There is no reason to wish for it

to happen quickly. Because when it happens everyone will suffer even if the financial pain is likely to be slightly less if you own gold. n BIOGRAPHY EGON VON GREYERZ FOUNDER & MANAGING PARTNER MATTERHORN ASSET MANAGEMENT Egon started Matterhorn Asset Management (MAM) in 1999 as a private investment company. From the very beginning, wealth preservation was an important cornerstone of the company. Already back in early 2002, we were of the opinion that financial and economic risk in the world was getting uncomfortably high. So that year we made substantial investments in the physical gold market at $300 average. We recommended to our clients/partners to invest at least 25% and up to 50% of financial assets into physical gold. With global risk considerably higher today, we believe that an important exposure to physical gold is critical. As gold started to rise in the early 2000s, demand for physical gold increased and in 2005 we set up a regulated company in Zurich - Matterhorn Asset Management AG. A couple of years later we formed GoldSwitzerland which is the precious metals division of MAM. EARLY LIFE AND EDUCATION Born with dual Swiss/Swedish citizenship, Egon’s education was mainly in Sweden. He started his working life in Geneva as a banker and thereafter spent 17 years as Finance Director and Executive Vice-Chairman of Dixons Group Plc. During that time, Dixons expanded from a small photographic retailer to a FTSE 100 company and the largest consumer electronics retailer in the UK. Since the 1990s Egon has been actively involved with financial investment activities including mergers and acquisitions and asset allocation consultancy for private family funds. This led to the creation of MAM an asset management company based on wealth preservation principles. MAM is now the World’s leading company for physical gold and silver outside the banking system, directly owned by the investor. Our four vaults include the biggest and safest gold vault in the world, located in the Swiss Alps. Clients are High Net Worth Individuals, Family Offices, Pension Funds, Investment Funds and Trusts in over 52 countries. Egon makes regular media appearances and speaks at investment conferences around the world. He also publishes articles on precious metals, the world economy and wealth preservation. Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

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TURNKEY SOLUTIONS: • Construction Services – Sales, Design and Project Management • Cultivation and Production Management • Distribution, Consulting and Operating Services • License Acquisition


MJ Holdings Inc (PINK: MJNE) is a diversified holding company, providing turnkey solutions and services to the regulated cannabis industry. Through our subsidiaries, we provide cultivation, production and management services, and infrastructure sales and development. Our cultivation operations include management within a 37 acre cultivation co-operative located in Nye County, Nevada. MJ Holdings Inc owns a Nevada state issued cul tivation license for a 17,000+ sq. ft. agritourism destination; the Highland Show Grow. MJ Holdings Inc currently manages a Nevada state issued cannabis production license and

MJ Holdings, Inc. (PINK: MJNE)

expect to provide manufacturing and production facilities and resources to third party manufacturers as part of our 100,000 sq. ft. campus, currently under development; where third party brands will be able to develop and market their products through our license, and distri bution program.

MJ Holdings, Inc. 3275 South Jones Blvd. Suite 104, Las Vegas, NV, 89146

MJ Holdings Inc provides management services for distribution and consulting services for access to state licensed dispensaries. We operate a Nevada licensed general contractor, through which we provide complete turn-key infrastructure and construction services, including greenhouse design, sales, and installation.

MJ Holdings, Inc.: The article may contain forward-looking statements about MJ Holdings, Inc. See MJ Holdings, Inc.’s periodic filings with the Securities and Exchange Commission for more complete information.

MJ Holdings, Inc. (PINK: MJNE) The company paid consideration to SNN or its affiliates for this article.


Can Cord Shaving Save Cable Companies from Cord Cutting?


here is a trend that has put fear in every media executive — cord cutting. According to eMarketer, 22.2

million consumers cut the cord by the end of 2017, up 33% from the year before. While there are some viewers are comfortable with just local channels via an antenna and a Netflix subscription, over 4 million consumers have opted for “cord shaving” (a skinny bundle of a subset of major cable channels). Since Sling (a Echostar company) first introduced “the skinny bundle” in 2015, there has been a wave of companies that have introduced similar services. From incumbents like DIRECTV and their

DIRECTV NOW service to digital services going upstream — PlayStation Vue (Sony), YouTube TV (Alphabet) and Hulu Live TV (Disney). These services include many of the same live channels like ESPN, HGTV, Bravo that you would get in your cable bundle, but without long-term contracts, an expensive cable box to rent, and removes many of the channels you’ll probably never watch. Best of all, if you can get a competitive rate on



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your internet service, you can save almost $1,000/year. Almost every one of the services are an offshoot of an existing mega media company that is trying to disrupt themselves before they get disrupted. For instance, DIRECTV had major losses of 207,000 subscribers just last quarter. Fortunately for them, they were able to add 368,000 new ones to their streaming alternative — DIRECTV NOW.

enTer The newbIes If major cable companies are going to survive this consumer shift, not only are they going to have to get consumers to become cord shavers instead of cord cutters — they will have to fend off a new generation of “cable companies” nipping at their heels ones that they never had to compete with before. Two of those—Philo (privately owned, with backing from A+E, AMC, Discovery, Scripps, and Viacom) and fuboTV (privately owned, with $75.6MM from NorthZone, 21st Century Fox, and Sky) are approaching this market very differently. Philo has focused on creating a low-cost $16/mo service that includes the bare minimum of cable networks, entertainment only with no sports or locals. fuboTV ($45/mo.) is more similar to the other services — fully featured, sports heavy, but leaving out expensive networks from Disney and the ESPN-family of networks. Our consumer review company FOMOPOP tested all the major live streaming services from channel selection to stream quality to additional features like DVR, On Demand, and access to the different channels apps. What we found is that for the most part, the services biggest differentiators are the channels they offer and their monthly price. There are slight variations. Some have better interfaces than others. Some stream channels at a higher frame rate. Some give you access to additional content — like YouTube Originals or Hulu’s Streaming

Library. Some include an unlimited Cloud DVR. But when it comes down to it, they are all fighting the same battle — offering the largest number of top cable channels, locals, and sports for the lowest price. For most people, DIRECTV NOW wins this battle hands down — including 34 of the top 35 cable channels for just $35/month. While they don’t include Regional Sports Network on their entry-level pack, some have said this aggressive pricing operating at single-digit margins is a desperate move to keep people from giving up a live TV subscription completely.

how wIll DavID beaT golIaTh? If DIRECTV NOW can compete at singledigit gross margins, what does that mean for the newcomers? Philo has differentiated itself by offering the skinniest of bundles - fewer channels, no sports, but at the lowest cost package of any of services. This will attract the cost-sensitive millennial, who is used to their $10 Netflix subscription, or those with an antenna that want to add a very basic set of cable channels. fuboTV has focused on having sportscentric bundle while differentiating their bundle with channels targeting soccer fans (beIn and Fox Soccer Plus) and hard to get RSNs (MSG & NESN). While the service works as well as any, a sports-centric service without ESPN just can’t be competitive at any-level — especially at premium prices. Going forward though, this might not be enough. In our research comparing the bundles of the different providers, you can get a similar package from Sling (Sling Blue + “Sports Extra”) for $10 less per month or a stronger one from PlayStation Vue for the same price (that includes ESPN and MLB Network, without beIn). It is not going to get any easier, as Telco’s like T-Mobile (with their Layer3 acquisition) begin to offer live TV as part of their wireless bundle and the content providers go direct

to consumer. For instance, ESPN recently announced their plans for their ESPN+ service which will launch later this year. While it won’t include ESPN core channels, it will include content not already airing on TV. This could include the out-of-market NHL and MLB games they acquired as part of Disney’s acquisition of BAM. In order for the small guys to win, they need to compete where the major companies can’t. Instead of owning the entire bundle, they need to own a niche in areas where people will not give up live TV - like events (news, award ceremonies), sports (major networks, league channels, and regional sports networks), and reality TV.  Otherwise, you’re just stuck being nothing more than a cable company over the internet, competing with deep pocketed competitors like DIRECTV or ultimately losing to services like Netflix that have broader libraries, better content, and at a cheaper price. n Jason Gurwin is currently Co-Founder & CEO of FOMOPOP, a consumer review site that  helps  millennials find the best services online. Previously, he co-founded a digital grocery coupon company called Pushpins (acquired by Ebates in 2012) and created and led the Ebates mobile business from 2012-2015 (acquired by Rakuten in 2014). He holds an MBA from Harvard Business School and a Bachelor’s from Wharton. Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. The author does not own shares or any equity or debt interest in any companies mentioned in this article before or at its publishing.

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Giants Back Machine Learning For Energy Pipelines


here are 2.7 million miles

of pipelines that cross the United States. Although this energy transportation infrastructure is considered safer and more efficient than trucks or trains, pipeline failures are typically more destructive and generate far more attention due to the deaths, injuries, and environmental clean-up. In response,


n BY SEAN PEASGOOD Exhibit 1. Summary of Significant U.S. Pipeline Incidents.


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Source: PHMSA, Sophic Capital

Exhibit 2. U.S. Energy Consumption Through 2040.


In response, activists want lawmakers to transition America’s energy consumption from hydrocarbons to renewables. U.S. Energy Information Administration (“EIA”) data shows that demand for renewables should consume all renewable production (Exhibits 2 and 3). However, these Exhibits also show that America won’t be renewable independent for the foreseeable future, with natural gas and crude oil filling the void for at least the next 20 years. This means that reliance on energy pipelines will continue. And if this is the case, it’s incumbent upon the industry to ensure that that pipeline infrastructure is sound, something that has proven difficult with current pipeline integrity analysis methods.

hIgh-TeCh measuremenT; slow-TeCh analysIs Inspecting pipeline exteriors is straightforward, but understanding what’s occurring inside the pipes is difficult. Engineers deploy high-tech devices called PIGs (“pipeline intervention gadgets”) that move through the pipeline, “listening” for leaks.

pIpelIne DaTa analysIs

Exhibit 3. U.S. Energy Production Through 2040.

America’s pipeline regulatory authority PHMSA (“Pipeline and Hazardous Materials Safety Administration”) and industry organizations have responded with a goal of zero pipeline incidents. Although this goal is noble and well-meaning, I believe that current pipeline analysis methods make it unachievable. However, a machine learning (“ML”) solution introduced at last year’s Pipeline Pigging and Integrity Management (“PPIM”) industry conference has the potential to significantly reduce if not eliminate pipeline incidents. Two Fortune 500 operators


seem to have agreed and have adopted it.

oIl anD gas aren’T goIng away A pipeline incident occurs almost daily in the U.S. (Exhibit 1). In 2016, there were 298 incidents in the U.S. – 298 across 2.7 million miles of pipeline, or 1 incident per 9,000 miles. This means that ruptures are low-probability events but have high visibility: companies suffer intense criticism, reputational damage, and incur clean-up costs and fines that average over $1.3 million per incident.

This is where the industry falls flat. PIG data is stored in spreadsheets. Engineers will print several years of PIG data from the same section of pipe and manually compare spreadsheet cells for anomalies that could indicate weakened sections of pipe. The work is tedious, expensive, and prone to errors. For example, an industry expert told us that pipeline operators conduct about 6,500 PIG runs annually with each measuring and costing, on average, 30 miles of pipe and $250,000. This means that the industry scrutinizes about 200,000 of the 2.7 million miles of pipeline infrastructure annually with a process laden with human error. But one company aims to reduce error, costs, and time. The amount of pipe that an operator can analyze is only limited by the number of PIG logs it wants to process.

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mICrosofT azure’s value prop for The pIpelIne InDusTry OneSoft Solutions (OSS:TSXV, OSSIF:OTC), a Sophic Capital client, has a ML solution that analyzes oil and gas pipeline integrity that increases safety, saves time, reduces costs, and provides greater accuracy. OneSoft’s solution, Cognitive Integrity Management (“CIM™”) can ingest decades of data and provide accurate, actionable intelligence within hours regarding where and when pipelines may fail. No more human error; no more expensive engineers; only accurate actionable information available within minutes instead of months. Microsoft (MSFT:NASDAQ) backs OneSoft’s vision and is using OneSoft’s CIM™ as the value proposition to transition pipeline operators to Azure cloud services. At PPIM 2018, Microsoft and OneSoft shared a booth to promote how CIM™ can help achieve the industry’s zero pipeline incident goal. OneSoft is also a Microsoft Accelerator Alumni member and receives ongoing benefits of Microsoft’s technology, sales and marketing resources, with emphasis and collaboration with Microsoft’s specialized oil and gas teams to sell CIM™ into this global industry. As far as we know, there are no competi-


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tive ML solutions. We spoke with industry experts who claimed that a leading, Fortune 50 artificial intelligence company tried to do what CIM™ achieves. This company has enormous financial resources and human capital but lacked pipeline knowledge things like modeling valve functionality and shuttered the project. At PPIM 2017, some industry experts shared how they tried and failed to develop their own ML solutions – not surprising since ML development is not necessarily the expertise of energy companies. OneSoft’s management has ML and energy industry expertise. In fact, management, had a prior successful exit in the pipeline industry – they invested $30,000 and 18 months later were acquired for $7.6 million. Insiders currently own almost 41% of OneSoft.

Inspection and analysis are critical to pipeline safety, and EIA data suggests that pipelines are here to stay. Safety is a serious concern across the industry, as ruptures kill workers, pollute the environment, and create negative goodwill. And although ruptures are low-probability events, incidents have high visibility. Pipeline integrity data continues to evolve with the latest technology, but analysis of that data is laborious and outdated. OneSoft Solutions (OSS:TSXV, OSSIF:OTC) is well positioned with Microsoft to address the issue of pipeline integrity. OneSoft’s CIM™ ML solution reduces operating costs, improves safety and potentially eliminates pipeline failures. Two major pipeline operators, including Phillips 66, have licensed CIM™, and Phillips is working with OneSoft’s subsidiary to develop a new cloud solution. With CIM™, I believe the industry’s goal of zero pipeline incidents is no longer a pipe dream. n Disclosures Sean Peasgood, Sophic Capital, and Sophic Capital’s employees own common shares of OneSoft Solutions Inc. OneSoft Solutions Inc. has contracted Sophic Capital for investor relations services. Here is a link to Sophic Capital Disclosures and Disclaimers:

InDusTry gIanTs aDopTIng onesofT’s ml soluTIon Phillips 66 (PSX:NYSE) licensed OneSoft’s CIM™ and so did another Fortune 500 energy operator. OneSoft’s subsidiary OneBridge and Phillips 66 also announced a technology license and joint development agreement that will migrate Phillips 66’s internal pipeline data management system to a new, cloud, SaaS solution.


oTCqb: Cvvuf, TsX-v: Cvv

Canalaska uranium ltd. CanAlaska Exploring for Uranium to Fuel Nuclear Renaissance Leading Uranium Explorer in World’s Richest Uranium District


anAlaska Uranium Ltd. (TSX-V: CVV; OTCQB: CVVUF; Frankfurt: DH7N) is one of the largest landholders in the Athabasca Basin (approximately 375,000 acres), dubbed the “Saudi Arabia of Uranium”, due to the region’s vast, highgrade uranium deposits. No place on the planet matches the number of mega-rich uranium deposits found in the basin, located in mining-friendly Saskatchewan, Canada. CanAlaska’s strategic holdings have attracted joint ventures with major international mining companies including past partnerships with Mitsubishi and Korean Resources Corporation. CanAlaska is currently working with Cameco and Denison at two of the Company’s properties in the Eastern Athabasca. The Company also holds properties prospective for nickel, copper, gold and diamonds – all in Canada. CanAlaska is well leveraged to discoveries through strong partnerships on its projects with major and junior mining companies.

maJor uranIum program funDeD by CameCo 18,000 foot drilling program underway to expand discovery Summer 2017 drilling by Cameco, Canada’s largest uranium miner, discovered uranium on CanAlaska’s West McArthur project in the

driven by the world’s rising energy needs. Global surging energy usage is expected to create unprecedented growth in nuclear energy, especially in China where nuclear power is required to not only meet the country’s rapidly rising energy needs, but to reduce pollution which in many urban areas has become a significant health and environmental problem. basin. West McArthur is just 10 miles west of Cameco’s McArthur River uranium mine, one of the world’s richest uranium deposits. Following fault structures west of McArthur River, Cameco found high-grade uranium at their Fox Lake project. The structures and conductors trend onto CanAlaska’s West McArthur property that Cameco is now drilling to followup their discovery drill holes.

uranIum DemanD foreCasT To soar Analysts see rising demand amid dwindling supplies Increasing demand for uranium in China, India, Russia and elsewhere, is expected to create a substantial near-term supply deficit for uranium. Many analysts believe that it’s only a matter of time until uranium prices increase significantly, ahead of the looming supply shortfall. The growth in uranium demand is being

key managemenT Peter Dasler President and CEO CanAlaska is led by Peter Dasler. Mr. Dasler possesses a comprehensive mineral exploration and public company management background, having worked for over 30 years in Canada as an executive and consulting geologist. Dr. Karl Schimann Vice President, Exploration and Director Dr. Schimann has participated in significant discoveries for uranium and base metals during his 40 years as an exploration geologist. He was a key member of the team that discovered and developed the massive Cigar Lake uranium mine in the Athabasca Basin. Dr. Jules Lajoie Senior Geophysicist Dr. Lajoie has over 40 years as a geoscientist. He previously was Head Geophysicist for major Canadian mining company Teck Resources. For further information on CanAlaska Uranium visit n CanAlaska Uranium Ltd.: The article may contain forward-looking statements about CanAlaska Uranium Ltd. See CanAlaska Uranium Ltd.’s periodic filings with SEDAR and the Securities and Exchange Commission for more complete information. The company paid consideration to SNN or its affiliates for this article.

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Crosswinds for the Cannabis Industry D

espite some tremendous challenges, the publicly-traded U.S. cannabis market is thriving. Excitement over the legalization in California helped boost prices in Q4 and into the new year, though the market was hit with a big surprise on January 4th: Attorney General Jeff Sessions tossed federal guidance from 2013, the Cole Memo, which had provided states with state-legal cannabis and businesses operating within them eight principles to follow such that they would not be prosecuted for breaking federal laws (the Controlled Substance Act). The new policy is to allow U.S. attorneys to prosecute at their own discretion, replacing rules with potential chaos, which is never good for business. It’s still not clear what the ultimate effects of this policy change will be, and, in the near-term, this makes an annual rider in the budget very important. The Rohrabacher-

Blumenauer amendment has provided protections to medical cannabis businesses and patients since the FY15 federal budget, but it’s not clear that they will be extended for the FY18 budget, which at the time of writing remains in negotiations. At the same time, it’s possible that the language could be amended to extend protections to all cannabis business and consumers rather than just medical ones. Additionally, there are several pieces of legislation pending in Congress that could provide some relief, but these don’t yet have a lot of traction. Even with the potential headwinds from the federal government, which have definitely chilled private investors, public investors can’t get enough. A new ETF, the first NYSE-listed fund of its nature, the ETFMG



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Even with the potential headwinds from the federal government, which have definitely chilled private investors, public investors can’t get enough. Alternative Harvest ETF (MJX) debuted on December 26th with just $6 million in assets and reported $400 million by the end of January. The fund is poorly structured and actually faces a risk of losing its trustee, Wells Fargo, which is in that role solely because it served as trustee for the previous incarnation of the fund, the Tierra XP Latin American Real Estate ETF. Ironically, the fund has almost nothing to do with the U.S. cannabis market. Another interesting development is the successful NASDAQ IPO of blank-check company MTech Acquisition (MTECU), which raised $50 million by selling shares at $10 with warrants at $11.50. The company is shopping for an acquisition in the ancillary cannabis space, like media or software. Additionally, while Innovative Industrial Properties (IIPR) suffered for a full year below its November 2016 NYSE IPO price of $20, the cannabis REIT was able to sell shares at $26 in January and has begun to scale up its operations significantly. Finally, we are seeing more interest from private companies intending to go public, whether in Canada or in the United States on the OTC. One thing that encourages me is that we are seeing an increasing number of companies generating substantial revenue in the United States as well as in Canada. We detail these at New Cannabis Ventures at the Public Cannabis Company Revenue Tracker, which includes 15 companies. Ultimately its revenues, profits and cash flow that will attract real investment dollars into the industry. While the U.S. market faces some uncertainty, I want to remind readers that the Canadian market continues to offer investors fantastic long-term opportunities given its federally legal medical cannabis that will soon be expanded to permit sale to any

adult. In the last edition of this magazine, I was bullish: The “Big 4” in Canada, Aphria (TSX: APH) (OTC: APHQF), Aurora Cannabis (TSXV: ACB) (OTC: ACBFF), Canopy Growth (TSX: WEED) (OTC: TWMJF) and MedReleaf (TSX: LEAF) (OTC: MEDFF) are all particularly well positioned and have pulled back as the sector has consolidated big gains. The combined market cap of these companies is about $3.8 billion, and they trade very liquidly. The performance since then has been nothing short of spectacular. The Canadian Cannabis LP Index, which includes not only these four leading companies but 24 others as well, moved from 350.46 on June 30th to 1182.63 on January 31st, representing a gain of 237%. While the fundamentals appear strong, the big run-up and high valuations suggest a consolidation is likely ahead. The catalyst for the sharp rise in prices was the announcement on October 30th that NYSE-listed Constellation Brands, the alcohol brand warehouse, was acquiring a stake in Canopy Growth for C$245 million as part of a strategic deal to develop cannabis-based beverages in the future. Constellation Brands also acquired warrants that will allow it to double its stake at the same price. Another interesting trend has been the pick up in M&A. Aurora Cannabis launched a hostile bid for CanniMed Therapeutics in October, with the two TSX-listed companies battling ferociously until striking a negotiated deal. There have been other deals as well. Anyone who cares to invest in the global cannabis industry must pay attention to these Canadian companies, which operate in a much better environment than companies in the United States, which not only must contend with federal illegality but also

onerous federal taxation. So, while the U.S. stocks may look “cheap” relatively speaking, they have higher risk as well. Over time, federal policies will likely become more constructive for cannabis, and those companies that are able to build brands and franchises between now and then despite the challenges will be able to better compete on the global stage. n Editor’s Note: Alan Brochstein, CFA, began his career as a bond trader in NYC in 1986 with Kidder, Peabody and worked with CS First Boston and Criterion investments until transitioning to equities as an analyst/portfolio manager in 2000.  In 2007, he began AB Analytical Services, where he provided research and consulting to several investment advisors while also becoming one of the most popular contributors at Seeking Alpha.  In 2013, Alan launched 420 Investor, an online community focused on publicly-traded companies in the cannabis sector, and, more recently, he began New Cannabis Ventures, a news & information platform that highlights the most promising companies and influential investors in the cannabis industry. For disclosure, I own no stocks mentioned. Aurora Cannabis and Canopy Growth are clients of mine at New Cannabis Ventures

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Family Offices What You Need to Know


icrocap companies have a voracious appetite for capital. It is incumbent upon the management teams to know how to raise capital efficiently. Yet the fastest growing segment of the investment community is frequently overlooked. What’s the fastest growing segment in terms of assets? If you’re thinking ICOs, hedge funds or private equity, you’d be wrong! Over the last 10 years, a relatively new class of investor has emerged with an insatiable thirst for deals. If you guessed family offices, you’re correct! Family offices are indeed the fastest growing segment of the capital markets. They are very private, so accurate data is hard to obtain. But the latest estimates are that family offices controlled between $3 and $4 Trillion in 2017, according to Bloomberg. And that number is growing significantly as UNHWIs or ultra high net worth individuals are minted in fast-growing economies such as China, Vietnam, and Indonesia.


Cosimo di Medici

would put many modern-day institutions to shame. The first well-documented example of the family office in Europe, was the Medici family, founded in 1169. Known as the Medici Bank, the Medici family were the wealthiest family in Europe, and in addition to financing trade, financed whole governments. 19th century Europe produced the Rothschild Family, and in the U.S., The House of Morgan, followed shortly by the Rockefeller Family and others. Today there are over 2500 family offices worldwide.

Family offices come in all shapes and sizes ranging from $100M on the low end to several billion on the high end. Some follow very disciplined low-risk investment models, such as multi-family residential housing only, but most diversify their risk across strategies ranging from venture capital to public markets. I was talking to a colleague a few months back, who told me I’m wasting my time with family offices because “they only invest in real estate”. Nothing is further from the truth. Where it is accurate that many Single Family Offices have real estate strategies, their holdings can be quite diverse. Consider TPG Capital founder David Bonderman’s family office, Wildcat Capital Management. According to, AUA (assets under administration) of Wildcat, are now more than $2.3B. And according to public filings, Wildcat has made a significant number of public company investments. The number of family offices is growing fastest in Asia. This is a result of the tremendous economic success in China, Korea, Vietnam, India and Indonesia.

The family office concept dates as far back as the 8th century in Europe, and even further back in China, where dynastic families controlled vast wealth and property, with accounting and reporting procedures that



MicroCap Review Magazine

sTreamlIneD DeCIsIon makIng One of the most attractive aspects of the single-family office is SFOs manage their own capital. Decisions are usually fast, and are not laden with the layers of committees which are often typical of major institutional investors. SFOs offer many advantages over other investors such as hedge funds. In most cases when presenting a deal, you’re sitting across from not only the decisionmaker, but the owner. Many companies often make the mistake of assuming that when presenting to a manager at a hedge fund or private equity company, they are sitting across from “the money”, while in reality they are presenting to an analyst designed to evaluate the your deal. You are rarely pitching “the money”, so SFOs represent one of the few chances. But be on your game, you’re sitting in front of the intellectual horsepower that created the family office in the first place. They understand a thing or two about business. In many ways, family offices are nirvana for the microcap CEO looking for an anchor investor. So why aren’t most management teams focusing efforts on family offices? The first reason is the sector is so private that it’s off the capital raising radar. In fact, most SFOs do not have people on staff to market the availability of capital like a hedge fund. So SFOs usually see less than 5% of the activity in a sector. Secondly, the family office ecosystem has its own protocols and language. Understanding the various terms and protocols is critical to success. For example, there are SFO’s (single family offices) and MFOs (multi-family offices). We’ve explained the clear benefit of the SFO, but it gets more complicated with the multi-family office structure. MFO can mean a lot of things. For example, (a.)are they actually managing the SFO funds with discretion to invest? Or (b.) are they recommending deals to the SFO subject to the SFO approval. You can achieve closure with either structure, but obviously the discretionary account is best. There’s a “c” scenario in which some MFOs are purely service providers for legal,

regulatory and administrative services, and leave investment alone. They may refer your deal to a client as a favor, but it’s unlikely the client is relying on their recommendation. So understanding the type of MFO, a, b or c, can save a lot of time. Entering the family office universe can be difficult. Where most institutional funds have origination platforms that encourage inbound inquiries, and are equipped to manage the process, most SFOs do not have this infrastructure. Deals that come in “unsolicited” go into a pile. And there’s no guarantee anyone will ever review the deal. So the best way to approach an SFO is to approach through a trusted advisor. Usually, that’s an accountant or a lawyer for the family. Accountants, in particular, are always willing to review a deal because they have the skills to understand the fundamentals. If they think its sound, they are happy to refer, because referring a good deal is considered “value add” for them. Purchasing a family office list and cold calling or even worse, mailing unsolicited teasers is a waste of time. The family office ecosystem is one based on multi-year trusted relationships. Do your research and learn who the advisors are for the SFO. Look at deals they worked on in the past and find a common tangent. That’s difficult and time-consuming! Hack the marketing: Remember that family offices want great deals! They don’t see enough and routinely go to conferences in search of transactions. Last year I ran into several

family offices at the Planet Microcap conference. I expect their presence to become more common as they reach out to more venues in search of deals. There are several regional and national family office associations that hold conferences. The Wilson Family Office Club offers services ranging from capital raising boot camps to presentation opportunities. Conferences consolidate buyers and offer the most efficient way to meet family offices. Many of these conferences are full of accountants and lawyers offering their services. Optimize their presence by asking “do you work for any family offices”. If the answer is yes, then you may be able to leverage their relationship. And they’ll be happy to help in the interest of getting your business. n

About the author: Karl B. Douglas is a Managing Director at PPMT Capital Advisors, Ltd.., a multi family office advisory firm. Mr. Douglas has a career that spans over 30 years investing in private and public companies. PPMT Capital invests in private equity and debt investments of $15M to $100M in Energy, Mining, Industrials and Real Estate. For further information contact: 800-401-9017 Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. The author does not own shares or any equity or debt interest in any companies mentioned in this article before or at its publishing.

MicroCap Review Magazine



Reverse Mergers with Crypto Companies–A Craze or Crazy!


he latest investor fad—which comes shortly after the excitement about cannabis deals—is about cryptocurrencies/blockchain deals. So, should a public company do a reverse merger with a privately-owned “Crypto Company”? And conversely, should a privatelyowned Crypto Company go public via reverse merging with a U.S. publicly-held company? Currently, I am representing one publiclyheld SEC-reporting issuer whose principal acquired control of the public company before the public company embarked on its crypto business plan. Also, I am working with other private companies which may elect to go public via a reverse merger. I am also aware of a Regulation A offering of an equity token, and an S-1 for an Initial Coin Offering (“ICO”), as well as several private “SAFT “(Simple Agreement for Future Tokens) offerings.  For purposes of this article, I have assumed that almost all ICOs and SAFTs would be considered to be “securities” by the SEC; and therefore, when the public company reverse merges with a crypto company, its future offerings of ICOs and SAFTs, if any, would have to be registered with the SEC or legally exempt from registration. I’m also assuming that the crypto company has an ongoing business of its own, as opposed to predominantly investing in other crypto currencies, which might require registering under the Investment Company Act of 1940. However, neither the reverse merger itself, nor ordinary trading in shares of the reverse-merged public company, would be considered a new offering of securities. When considering a reverse merger between a public company and a private crypto company,



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probably the most important consideration is that the SEC is carefully reviewing all filings and press releases related to any company in the blockchain/ crypto business. So, there needs to be appropriate and continuing disclosure about the company’s business, management’s experience, and how they actually intend to build or have built a viable business.  Another important consideration is the selection of the PCAOB-registered auditor; many accounting firms are reticent to audit crypto companies, because, among other issues, it may be difficult to value the tokens. The SEC is especially watching for company’s trying to ride the wave and hype with no experience or viable business plan. The smartest thing to do is to include a lot of risk factors in the Super 8-K and both quarterly reports on Form 10-Q and the Annual Report on Form 10-K about the technology and area in general, and to reference them and/or provide links to the risk factors in other public disclosures, such as press releases, blogs, the company’s website, etc. Specifically, those risk factors should include the SEC’s scrutiny of the sector, the risk that then entire cryptocurrency industry could either collapse or be regulated out of existence, potential problems in opening bank accounts, etc. It’s quite conceivable that a reverse-merged crypto company could receive a lot more publicity, sometimes not favorable, and might trade actively, simply by being in this sector; for example, look at the trading volume and notoriety about Riot Blockchain, (symbol RIOT). So, to state the obvious, (a) publish continual and—above all—accurate—information about the company, (b) file all SEC reports on a timely basis, (c) avoid the “pump” part of pump and dump, and (d) don’t even think about being involved with the “dump” part of pump and dump—that’s a quick ticket to Camp Fed. I also recommend that another way to cope with any unusual market activity, which is likely to occur in the crypto sector, is to hire experienced Investor Relations people, both in-house and outhouse (oops, I mean independent), to provide and review the ongoing IR program. The independent IR firm should

be reputable, and have experience with crypto companies. All public announcements should be reviewed by outside counsel, and, if appropriate, by the company’s auditor. One of the main reasons why private companies go public is to have better access to capital. In my view, it is far more advisable for a private crypto company that wants to raise capital to do a reverse merger and then raise capital via a Rule 506(b) or 506(c) offering, as opposed to attempting an ICO, which would—in my opinion—take a very long time to be declared effective. So, if a crypto company wants to become publicly traded by reverse merging, is it part of the craze, or is it crazy? For me, the bottom line is that if the public company is looking for a good private company with which to reverse merge, and assuming that the private crypto company has a viable business—not just an unsupported story—experienced management, a reputable PCAOB-registered auditor, and observes the do’s and don’ts noted in this article (and probably others), then the newlypublic crypto company should be on the way toward being a successful public company. n Many thanks to Laura Anthony, Esq., for her contribution and insights. John Lowy is the founder (in 1993) and CEO of Olympic Capital Group, Inc. (, and is the principal of his law firm John B. Lowy P.C. (www., founded in 1990, both based in New York City. John is a highly-respected and acknowledged expert in reverse mergers, capital formation, financial consulting and initial public listings of all types. As an attorney, an advisor and principal, John has led or participated in more than 200 such transactions, creating market value in excess of $5 billion. He has been instrumental in leading the process by which these companies have raised capital or reverse merged, and achieved listings on the NASDAQ or the AMEX, or were sold to larger companies. In addition to the U.S., John has completed transactions for clients based in at least 15 foreign countries. The sectors in which his clients are engaged range from low tech to high tech, cryptocurrency/blockchain, real estate, pharmaceuticals, medical devices, biotech, oil and gas, mining, renewable energy, entertainment, food, agriculture, education and retail, among others. He received his B.A. from Tufts University and graduated from the University of Pennsylvania Law School, and is a licensed attorney in New York and New Jersey. He is a frequent contributor to MicroCap Review. THE MOST ACCURATE REPRESENTATION OF MICROCAP STOCKS IN NORTH AMERICA

MICROCAP INDEX The LDMi, a “true” microcap index. Market cap weighted, $50-300m, North American listed. Rebalanced semi-annually

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MICROCAP NEWS All of the press releases in microcap, covering over 11,000 equities, including Sector and Market Cap filters

SCREENER Covering North American stocks from $0-400m. Screen by sector, market cap, p/e, exchange, etc.




Fixed Income F

ixed income investing may sound like something out of the Stone Age in markets driven by computers and dominated by talk of cryptocurrencies and self-driving electric cars, but earning a steady return on your capital is essential to building and preserving wealth over long periods of time.



MicroCap Review Magazine

The path to riches may lie in venture capital, private equity and other investments that produce capital gains, but the road to staying rich lies in compounding money in low risk fixed income investments once you’ve earned it. Today, that is particularly challenging because interest rates are low and are going to rise, which makes investing in fixed income less appealing than it has been in years. The first thing to understand is that fixed income investing is designed to maintain your spending power. That means it should at least keep up with inflation if not beat it. That is no easy feat with inflation-adjusted short-term interest rates set below the “official” inflation rate but it can be done with a little sweat and elbow grease. You won’t get rich, but at least you can prevent your wealth from being eroded by inflation. In today’s market, the most important consideration is avoiding buying long-term bonds. Long term bonds are the most vulnerable to rising rates; once you own them, you will be stuck in them because their value will drop as rates rise (unless you want to sell them at a loss). If you limit your investments to short maturities and short durations (duration measures the sensitivity of

bonds to changes in interest rates), you will keep your head above water The other important consideration is evaluating the risk/reward offering of different investment alternatives. There are all kinds of bonds – government bonds (also known as sovereign bonds), corporate bonds, municipal bonds, mortgage and other types of asset backed bonds, etc. Each type of bond offers both credit risk (i.e. the risk that the borrower will be unable to repay you) and interest rate risk (i.e. the risk that the value of the bond will decline before maturity due to rising interest rates). Successful fixed income investment requires a careful evaluation of these risks versus the return offered by each type of bond. There is always a trade-off between risk and reward which in the fixed income world means a trade-off between credit risk and yield; the higher the yield, the higher the risk and vice versa. We can start with a little good news – you can actually earn more than zero on your cash for the first time in years. These yields aren’t eye-popping, but in the kingdom of the blind, the one-eyed man is king. There are a number of ways you can earn 1.5% or more on your cash for the first time in years while taking very little risk because they invest

in high quality, short-term bonds. One way is to buy Treasuries with maturities of 6-months to 2-years, which pay between 1.62.1%. If you can park your cash for that long, this is the lowest risk way to earn that return on your money. There are also a number of money market ETFs and funds that provide similar returns that you can buy and sell on a daily basis:

SPDR Barclays Short Term High Yield ETF (SINK) Indicated Yield 5.52%, OptionAdjusted Duration 2.15 years, 85% invested in B+-rated industrial credits

iShares Floating Rate Bond ETF (FLOT) Indicated Yield 1.62%

There are also closed end mutual funds that provide higher yields that invest in corporate bonds with short durations:

PIMCO Enchanced Short Maturity ETF (MINT) Indicated Yield 1.69% iShares Short Maturity Bond Fund ETF (NEAR) Indicated Yield 1.68% SPDR Portfolio Short Term Corporate Bond ETF (SPSB) Indicated Yield 1.95% iShares 1-3 Year Credit Bond ETF (CSJ) Indicated Yield 1.74% Vanguard Short Term Bond Fund (BSV) Indicated Yield 1.68% Vanguard Short Term Corporate Bond Fund (VCSH) Indicated Yield 2.31% For investors willing to take more risk, there are funds that invest in short-term bonds that are rated below investment grade. These are familiarly known as junk bonds or high yield bonds. While the high yield bond market is currently priced for perfection, with many highly leveraged companies taking advantage of low interest rates to stay alive, a widely diversified portfolio of shortterm corporate high yield bonds should do relatively well unless the economy enters a severe recession, which is unlikely for the next 2-3 years. There are two ETFs that invest this way that are worth a look:

iShares 0-5 Year High Yield Corporate Bond ETF (SHYG) Indicated Yield 5.54% OptionAdjusted Duration 2.15 Years, Tracks Market iBoxx USD Liquid High Yield 0-5 Index

Blackrock Defined Opportunity Credit Trust (PHD) Indicated Yield 6.28%, OptionAdjusted Duration 0.37 Years.B+ Credits, 53% industrial Prudential Short Duration High Yield Fund (ISD) Indicated Yield 7.51%, OptionAdjusted Duration 1.66 years, 72% in B+ industrial credit Prudential Global Short Duration High Yield Fund (GHY) Indicated Yield 7.53%, Blackrock Limited Duration Income Trust (BLW) Indicated Yield 6.02%, OptionAdjusted Duration 1.76 years, 83% in B+ industrial credit Blackrock Limited Duration Trust (BLW), Indicated Yield 6.02%, Option-Adjusted Yield 2.84%, 65% BB- Industrials, 17.5% BBB- Financial Institutions

As you can see, despite the fact that interest rates are still low and likely to rise, there are still many opportunities to earn a decent return on your cash without taking much risk. All of the recommended funds are very well diversified which means that even if rates rise or borrowers start experiencing credit problems, the risks of losing money are very small. And all of these funds are very liquid and can be sold very quickly if conditions start deteriorating so you can move back into cash or buy short-term Treasuries. It’s going to be a while before we return to the old days when bonds provided strong risk-adjusted, inflation-adjusted returns on a broad basis. But as you can see, there are still plenty of ways to preserve and slowly compound your wealth without taking undue risk. n Michael Lewitt is the Manager of The Third Friday  Total Return Fund, L.P., a topperforming options hedge fund with a 10+ year track record that has never experienced a losing year (including during the financial crisis in 2008) (www.  He is also the editor of The Credit Strategist  (, a widely read financial newsletter and of two books,  The Death of Capital  (2010) and  The Committee to Destroy the World (2016).  Mr. Lewitt was one of the few people to predict the 2001-2 credit crisis and the 2008-9 financial crisis. Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. The author does not own shares or any equity or debt interest in any companies mentioned in this article before or at its publishing.

As an alternative to bond funds, you can also invest in floating rate bank loans that eliminate the risk of rising interest rates because the loans are priced off LIBOR, which is adjusted usually every three months as interest rates move. One of the best ways to do this is to buy the PowerShares Senior Loan Portfolio ETF (BKLN) which yields 3.5% and invests in the 100 most liquid loans in the market, which are primarily large loans extended to private equity-owned companies. LIBOR has been rising so the yield on this ETF should also rise over time. MicroCap Review Magazine



Exploration Insights M

icroCap Review posed the following questions to Brent Cook of Exploration Insights:

quesTIon #1: Precious metals and base metals junior exploration companies are gaining popularity with US investors. Why? The discovery of an economic mineral deposit is a rare event that can increase a microcap company’s share price over tenfold in a matter of weeks. The mining and exploration sector has been languishing for years now, as the “hot” money played in the cannabis and crypto-block chain stocks, and



MicroCap Review Magazine

the major markets continued their ascent. We think the speculative money is beginning to recognize that there is not only real value to be had in the exploration and mining space but that the potential returns on positive exploration programs are significant. Basically, the risk to reward is much better in the mining sector than all other high-risk speculations. Add to that the fact that gold and base metal prices are rising and are forecasted to continue, thereby providing an ideal setup for success.  

quesTIon #2: As investors search for good companies in the resource sector what are some basic dos and don’ts?

ity to advance its program. Mining and exploration are cost intensive endeavors that continually require cash infusions. A company’s management must not only understand the geologic parameters of a project, but also the funding requirements; and then structure future financings based on positive news flow and marketing skills.

quesTIon #3: Base metals junior exploration companies such as zinc, copper, cobalt, lithium and scandium etc. appear to be appreciating in price at an accelerated pace. Is this based on the electric vehicle need for raw materials only or is there more to it?

Certainly the accelerating EV and battery In microcap mining and exploration compa- markets are impacting copper, cobalt and nies, management’s relevant experience and lithium pricing. However, there is more to honesty are key. Once you have established the increase in most metal prices than electhe management’s credibility it is all about tric vehicles and green energy. The world is the exploration project’s ability to produce consuming more metal than it is finding, a a metal discovery. Therefore, the mineral situation that has been going on for years. property must demonstrate the geologic Zinc inventory is at extremely low levels and potential to host an economic gold/copper/ copper is forecast to fall into deficit a few silver, etc., deposit. years out. Too many companies are exploring To put this in perspective, consider that ground that, even if successful, couldn’t host current copper mine supply is about 19 a mineral deposit that warrants the initial million tonnes a year—the equivalent of risk. An investor, therefore, must evaluate the massive Bingham Copper mine in Utah exploration results in the context of the pro- being exhausted every year. Likewise, gold posed mineral target. When the results don’t production is about 90 million ounces a meet or exceed expectations it is critical to year, the equivalent of all the gold produced sell. All too often we see investors continue from Nevada’s Carlin trend since discovery. to hold, hoping for a better outcome next The industry is not nearly finding and puttime. We have made good money on proj- ting into production that amount of metal. ects that eventually failed by selling once the Additionally, large projects typically take 7 to results don’t confirm our investment thesis.    20 years to move from discovery to producProbably the third leg to the “investment tion; therefore, anything found today does basics” stool is the company’s financial abil- not solve the current global metal shortage.

quesTIon #4 Are precious metals junior exploration companies tied to the price of gold, silver, or platinum or tied to resource, grade, land packages, location and whether they are explorers, developers or producers? In general, mining and exploration stocks move with the metal prices almost on a daily basis. This is patently absurd; when investing in this sector one is speculating on an outcome far in the future. This short sightedness provides today’s serious investors in the sector the opportunity to buy at reasonable prices, and then to wait for the sector to turn or, the market to recognize a discovery. Another point many speculators fail to see is that regardless of the day’s gold or copper price, major mining companies must replace their mineral reserves with new deposits if they are to stay in business. Mining is a depleting business—mining companies recognize this and are always willing buyers of economic deposits regardless of short-term prices.

quesTIon #5 When building a portfolio of junior exploration companies, is it beneficial to own project generators with many different built in opportunities or best to pick and choose special situations? At Exploration Insights Joe Mazumdar and I invest in both project generators and special situations. The advantages of the project generator business model is that companies employing this strategy bring in joint venture partners to spend the high risk dollars required to test their conceptual ideas, thereby preserving their own working capital and share structure. Given the overall low odds of an individual property ever producing an economic metal deposit this makes good business sense. It provides the investor with more kicks at the can, albeit with a lower percentage of the prize. This strategy

The world is consuming more metal than it is finding, a situation that has been going on for years. Zinc inventory is at extremely low levels and copper is forecast to fall into deficit a few years out. can work very well, an example being our investment in Reservoir Minerals, in joint venture with Freeport, which returned an 870% gain on a 25% project interest; and our investment in Mariana Resources, which returned 352% from its 30% interest in a discovery in Turkey. With regards to special situations, due diligence is key. Joe and I spend an inordinate amount of time researching the company and its project, often traveling to site. We build geologic and resource models, and plug these into rough financial models. More often than not, the project eventually encounters a fatal flaw; however, by that time a company’s share price has often appreciated and we can still turn a profit. It’s all about knowing what it takes to make a project into an economic mineral deposit— ahead of the crowd.

quesTIons #6 Brent, I know you have been doing what you do a long long time. What’s your sense for the metals markets for the rest of 2018? I think that overall, metal prices have bottomed and are on the uptrend. Global growth is positive, some metals are in deficit, and most are forecast to be in deficit two to five years out. The junior mining sector has been languishing; it now offers a contrarian play with solid underlying demand fundamentals. I expect 2018 will be selectively good to the mining sector, and 2019, better. n

Disclaimer This letter/article is not intended to meet your specific individual investment needs, and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be--either implied or otherwise--investment advice. This letter/ article reflects the personal views and opinions of Brent Cook and Joe Mazumdar, and that is all it purports to be. While the information herein is believed to be accurate and reliable, it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Research that was commissioned and paid for by private, institutional clients is deemed to be outside the scope of the newsletter, and certain companies that may be discussed in the newsletter could have been the subject of such private research projects done on behalf of private institutional clients. Neither Brent Cook, nor Joe Mazumdar, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in this letter/article. The information contained herein is subject to change without notice, may become outdated, and may not be updated. The opinions are both time and market sensitive. Brent Cook, Joe Mazumdar, and the entities that they control, family, friends, employees, associates, and others, may have positions in securities mentioned, or discussed, in this letter/article. While every attempt is made to avoid conflicts of interest, such conflicts do arise from time to time. Whenever a conflict of interest arises, every attempt is made to resolve such conflict in the best possible interest of all parties, but you should not assume that your interest would be placed ahead of anyone else’s interest in the event of a conflict of interest. No part of this letter/article may be reproduced, copied, emailed, faxed, or distributed (in any form) without the express written permission of Brent Cook or Joe Mazumdar. Everything contained herein is subject to international copyright protection.

MicroCap Review Magazine


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Continental Stock Transfer


his interview originated as an SNN Live CEO video interview and then it was transcribed for inclusion in this issue. Steven Nelson is President and Chairman of Continental Stock Transfer & Trust Company. This interview provides a historical and current perspective on the nuances facing companies when navigating the intricacies of public company compliance. Steven Nelson: Continental Stock Transfer & Trust Company was formed in 1964 by my father to compete with banks that dominated the stock transfer industry at the time. My father, a tax specialist, never worked in the business himself. He had the idea and we’ve been growing ever since. We are a limited purpose trust company with a New York State banking charter and we are also a registered transfer agent with the SEC. Continental services 1,100 public and private issuers and 2.5M shareholders. We have grown dramatically over the last 50 years both organically and through acquisition as we’ve acquired other stock transfer businesses more than half a dozen times over that period. Robert Kraft: What is a stock transfer company? SN: We issue stock positions for shareholders and maintain shareholder records.




We also provide the issuer with ancillary services including mailing out proxies for annual meetings, tabulating proxies, and attending the meeting as Inspector of Election to support the most important corporate event of the year for public issuers. In addition, we offer dividend paying services, administration of reinvestment plans, and we manage mergers/acquisition services. As the business has evolved over the years, we’ve moved away from physical stock certificates to issuing book entry stock positions. And, we manage electronic transmission of shares mostly through DTCC’s automated FAST system which allows for almost instantaneous electronic transfer of shares. RK: What should an issuer look for when selecting a transfer agent? SN: You should be looking for a transfer agent that has a history, that has proven management, and that has a cost structure that meets your needs. The agent should have all of the services that your company currently needs but also services that you require throughout your corporate history. Many of our companies come to us as initial public offerings “IPOs” and then grow requiring more complex services. RK: And what differentiates Continental? SN: The universe of stock transfer agents, when I started in the business out of law practice in 1983, was well over a hundred agents, mostly banks. Now, there are five major agents of which Continental is one. All of the banks that used to dominate the industry have gone out of the business. In looking for a stock transfer agent, you have to understand the universe. There are five major agents of which Continental is the fourth largest based on number of customers. In addition, the three larger agents

have a number of what I would call “mega accounts”. A mega account is usually over 100,000 shareholders of record up to millions of shareholders of record. What differentiates us from the competition is we have a singular focus on mid-sized and growth issuers. Even though we’ve been approached by large issuers, it’s my view that you can’t service all of your customers with best-in-class service if you’re going to force shareholders to stand in queue behind the mega issuers. We’ve been a leader for service in the industry-wide surveys, and for value, for many years. RK: Are there niche markets that you also target? SN: There is a particular niche in the IPO market called SPACs, which are specialpurpose acquisition companies which we started managing in 2003. SPACs are conceptually large blind pools where sponsor groups raise a certain amount of money, they go look for a target, the shareholders vote at the end of the period to approve or disapprove of the acquisition of the target, and those shareholders can get their money back if they choose not to go into the deal. These companies raise millions of dollars and place the funds in trust with the transfer agent and trustee. Those deals have now matured so that there have been three $1 billion plus SPACs that we’ve handled and the average size of the deals that we’re now handling is $200 to $300 million per. We have handled more than 200 of those deals since 2003 and we have a 95% market share as agent/trustee. This is an industry niche we have dominated based on our expertise and a unique proprietary platform that only we possess. We’re pretty happy about our position in the SPAC market. In addition, we handle corporate actions MicroCap Review Magazine


for our own customers when they’re being acquired, or more likely acquiring other companies. We also handle 200 deals a year for companies which are not our ongoing customers. We provide corporate action services for large multinational banks clients, including Deutsche Bank and Citibank. We have a special expertise in those, whether they’re public-private acquisitions, privateprivate, public-public, tender offers or Dutch auctions, we can handle anything. We have more experience in doing those corporate actions than our competitors. So whether it’s Amazon, Verizon, Intel, Ebay or Time Inc., many of the largest companies that you will have heard of, who are not our ongoing customers, they use Continental operationally because of our special expertise and our platform. M&A has expanding rapidly and a major part of our business. RK: Are there any other business lines that Continental is also looking at? SN: Reg A+ deals are very interesting. Congress mandated, and the SEC passed rules, which allowed for Reg A+ deals to raise up to $50 million. This market is still in its early stages, but we were pleased to close a recent deal, Chicken Soup for the Soul. We have others in the pipeline and this is an emerging trend in the IPO market, and we’re pretty excited about our involvement. And, since Bitcoin is the watchword of the day, we were the agent for the first Bitcoin trust. Since that time, we’ve been involved in Ethereum and Grayscale that followed after Bitcoin. We’re very much involved with block chain technology and where it’s going, and we’ve been actively involved on the issuer side for the Bitcoin-Ethereum continuum. RK: What’s your background? SN: I am what I characterize as a recovering lawyer. I started at Simpson Thacher & Bartlett which is a large white-shoe firm on Wall Street. Then I was a federal prosecutor in the U.S. Attorney’s Office in New York. In 1983, I had tried enough cases, particularly


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on the criminal side, so I decided to accept an offer I couldn’t refuse from my family business; and I’ve been running Continental since 1983. The business has grown dramatically. We have adapted to the times because the transfer agent industry has undergone a rapid and significant change. This dramatic change has worked well for our company and we’re pleased with our progress and our growth.

surprisingly our building was flooded. We were out of our building for ten weeks in our disaster recovery site and we functioned perfectly. Our regulators were amazed that our customers in many cases did not even know on a day-to-day basis that there was any change in the services that we could perform. There were no other major agents that were out as we were, and DTC which was downtown near us had major problems.

RK: From a regulatory perspective, how have things changed? SN: I think the biggest change relates to registered shareholders - that individuals holding a stock certificate - represented 80% of the ownership of public company shares. Now it’s completely flipped. Now 20% of shares are held directly by shareholders and 80% are held by banks and brokers on behalf of those beneficial owners. So that’s been a dramatic change. Obviously there have been dramatic technology changes. As an example, transactions used to settle on a T+5 basis. We recently moved to T+2 turnaround after having moved to T+3 many years ago. This is all a function of electronic platforms in our business and the growth of DTCC, which handles the clearinghouse duties for all of the beneficial holders held by banks and brokers. As well, the major players have had to adapt to cyber security rules, privacy rules, and tax reporting rules for cost basis. There are literally significant regulatory changes every year or two that we’ve been required to adapt to. This succession of rapid regulation change I think suggests in part why the competition has disappeared. There’s a risk/ reward scenario and only players that are truly committed to this industry and have the know-how and the staying power can survive in a highly regulated scenario. So right now, in the news every day is a new hack, a new privacy problem, a cyber threat and these are things that regulators require us to adapt to and plan for. In the case of super storm Sandy, we were at the tip of Manhattan Island and not

RK: What is the future of the transfer agent business? SN: The future is now. The market has consolidated down amazingly. Three largest competitors have been bought by overseas entities, so that Continental is now the largest U.S. owned stock transfer agency in the country, which is something my father would have never imagined when he had the idea and hundreds of banks in the United States dominated the industry. I think for us the future is bright. We’ve just moved into our new best-in-class offices at One State Street, overlooking the harbor. We’ve updated and refreshed our platform with a new top-notch software provider. All of our records are kept on Amazon’s Cloud storage facility. So things have changed, but for us they’ve changed in an exciting way as we’ve refreshed our offices and we’ve refreshed our operations. n

Trusted Solutions. Tailored to your unique needs. THE PERFECT PARTNERSHIP. Our unmatched expertise and exceptional execution free you to focus on growing your business. Continental was founded on a specific vision – to fully support private, emerging and mid-size companies with superior client responsiveness and uniquely tailored business solutions. And we will earn your trust each and every day. As your partner, we will bring you brilliant innovative solutions. Our individualized customer service will ease your mind. Corporate actions, IPOs, public and private recordkeeping, escrows, dividend disbursement or plan administration – we’re proven leaders in each of these areas.

CONTINENTAL – OUR NAME SAYS TRUST. Contact Karri Van Dell 212.845.3224

Continental Stock Transfer & Trust | | 1 State Street Plaza, 30th Floor | New York, NY 10004

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Hong Kong A Top Market Performer In Global Bull Market

Technology Companies Changing Hong Kong Exchange


he Hang Seng Index was the world’s second best performer of the 2017 global bull market rising 36 percent on booming corporate earnings and southbound flows from China which averaged HK$10 bilHong Kong’s rally continues in the new year nated by financial and real estate companies lion a week.



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with the Hang Seng Index up 10 per cent in January as it reached a new all-time high of 33,000 led by China’s internet giant, Tencent Holdings Ltd (HK:0700) and Hong Kong Exchanges and Clearing (HK:0388) as well as southbound flows almost doubling to HK$19.5 billion. Representing 10% of the Hong Kong Exchange market value, Tencent fueled the exchange’s stellar performance with a 116 percent increase in 2017. By the end of the year, Tencent joined US giants Apple, Alphabet, Facebook and Microsoft when it became the first Asian company to surpass US$500 billion in market value. While Hong Kong equities soared in 2017, its IPO market lost its crown as it dropped to third place in the global IPO ranking raising $16.3 billion, as New York took over the top spot and Shanghai surpassed Hong Kong for the first time. Still, Hong Kong had a record-breaking 174 new listings in 2017, of which 80 were Main Board listings, mostly comprised of industrial companies followed by retail, consumer goods & services companies, according to PwC. Hong Kong is domi-

which together account for over 60% of the total market value compared to technology companies which account for only 2% as of the exchange end of 2017. However, Hong Kong Exchange is making great stride towards diversifying its role from being the preferred listing destination for blue-chips and large Chinese business or state-owned enterprises, to attracting high-growth local and international small and medium enterprises. During the year, Hong Kong saw an emergence of technology and internet stock IPOs with five of its 10 largest IPOs by companies operating in the new economy. ZhongAn Online P&C Insurance (HK:6060), was Hong Kong’s first fintech IPO and China Literature (HK:0772), China’s largest online publishing and e-book website, was the hottest listing in a decade as it attracted overwhelming investor demand. For the year, technology IPOs jumped to 20 per cent from just 3.4 per cent in 2016 and the momentum for emerging tech companies is poised to continue in 2018. Additionally, with new listings up 80% from 2016, the

GEM (Growth Enterprise Market) Board broke its record number of listing companies with a total of 80 companies listed in 2017, according to PwC. PwC also predicts Hong Kong will once again be the world’s largest IPO market in 2018, with an expected total fundraising between HK$200 to 250 billion (US$25.6 - $28.14 billion) by 80 IPOs. With a growing pipeline of big Chinese technology and internet companies, Hong Kong is strengthening its competitiveness as it battles with New York to attract mainland Chinese high growth companies by overhauling its IPO rules. The Hong Kong Exchange is making the biggest overhaul to its listing rules and procedures in thirty years which will take effect in mid-2018. The amendments to the Main Board Listing Rules include allowing companies with dualclass share system to issue different types of shares that correspond with different voting rights, pre-revenue biotech companies valued at more than HK$1.5 billion (US$192 million) and overseas listed companies from emerging and innovative sectors that are seeking a secondary listing on the Main Board. The first companies with dual-class stock structures are expected to go public in the second half of this year. Highly anticipated blockbuster IPOs for the year includes Tencent’s Music streaming service which could raise up to US$1 billion. The streaming and downloading service has twice as many paying customers as Spotify and is currently valued at $10 billion. Furthermore, digital-music sales in mainland China are expected to increase 88% within four years according to PwC. Another high profile Chinese company expected to list in the second half of the year is Xiaomi. The privately owned Chinese smartphone maker could be valued up to US$100 billion which if listed in Hong Kong would make it the sixth largest company on the stock exchange by market capitalization. Known as “China’s answer to Apple,” the company offers the same advanced features in its devices as western brands but at a lower price point and through online stores.

Kuaishou, a Chinese live-video streaming start-up backed by Tencent, plans to list as soon as the second half of 2018. The company is China’s most popular short video streaming application with over 20 percent market share. The live streaming sector which barely existed in China three years ago, generated revenues of more than 30 billion yuan ($4.74 billion) in 2016 and is expected to triple by 2020, according to China Renaissance Securities. Biel Crystal Manufactory, the dominant producer of touch-sensitive smartphone screens is planning a US$1.5 billion initial public offer for the third quarter. The company produces the material for smartphones, smart watches, tablet computers and notebooks and is used in two of every three of Apple’s iPhones sold in the world as well as Samsung and Sony products. The momentum for Chinese fintech firms continues with China’s largest online wealth management platform  Shanghai Lujiazui International Financial Asset Exchange, or Lufax, seeking to raise up to US$9 billion for a valuation of $60 billion in a planned Hong Kong IPO in April. Lufax was set up by Ping An Insurance Group (HK:2318) and with a $13 billion valuation could be the second largest fintech offering in Hong Kong. Chinese online lending platform Dianrong is also considering a Hong Kong listing to raise least US$500 million. The company is often called the Lendingclub of China because it’s founded by Soul Htite, co-founder of U.S.based LendingClub and shares a similar business model  with the U.S. company. Hong Kong’s first online finance lending platform WeLab, could raise approximately US$500 million. WeLab operates across the Greater China region with lending platform Wolaidai and WeLend services which have 25 million users and have processed $28 billion of loans. The startup offers loans through a fully automated process that takes minutes and can be completed on a mobile device using its ability to analyze unstructured mobile big data within seconds to make credit decisions for individual borrowers.

Looking forward, China is transforming from being the world’s factory into a new science and technology powerhouse fueled by government support and venture capital funding. China’s technology companies are experiencing a surge in investor interest as companies break new ground in the real-world application of facial recognition, mobile payments, electronic commerce and artificial intelligence. Last year, the Chinese government stated its goal is to become a leader in advanced technologies including leading in artificial intelligence (AI) capabilities by 2030. Investment in Chinese artificial intelligence firms reached US$2.76 billion in 2017. One of the leaders among Chinese AI start-ups, SenseTime Group, valued at more than $2 billion, is planning an IPO in the next year or two. SenseTime provides applications for facial recognition, video analysis and other areas including autonomous driving. The company has stated its target is to become a ‘platform company’ that dominates with its original core technology like Google and Facebook.n Ms. Leslie Richardson has over 20 years of investment management and equity research experience. She operates a boutique investor relations firm in Hong Kong for Asian companies listed in the U.S. and Hong Kong. She also assists private companies develop investment material and build an investor following in preparation for a public listing. Additionally, she is the Asian Correspondent for Micro-Cap Review,, a financial magazine focused on mirco-cap companies. Previously, she worked for CCG Elite in assisting Asian-based, U.S. listed clients formulate key communication strategies. Ms. Richardson began her investment career at U.S. Trust Company then went on to join Odyssey Advisors as a portfolio manager and Director of Research. Ms. Richardson specialized in high growth sectors such as bio-tech, alternative energy, IT and telecommunications. She earned her M.B.A. from the University of Southern California. Ms. Richardson is based in Hong Kong. Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. The author does not own shares or any equity or debt interest in any companies mentioned in this article before or at its publishing.

MicroCap Review Magazine



Canada at the Table – From Poker and Sportsbook, to Slots/Casinos, Bingo and Lotteries – Place Your Bets W

e are initiating coverage on the Online Gambling/Lotteries sector. A $75B+ Market by 2025: According to gaming industry consultants, H2 Gambling Capital (“H2GC”), the global online gambling industry’s (including online poker, casino, sports betting, bingo, lotteries and



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skill-based, and other games) gross gaming revenues (“GGR”) has grown from ~US$8.2B in 2003 to US$44.3B in 2016. GGR is defined as rakes plus bonuses, promotions, overlays and loyalty rewards, less prizes or winnings. We estimate that the combined global online gambling GGR could grow to ~US$75B by 2025 for a compounded annual growth rate (“CAGR”) of ~6.1%. The overall global gambling market (including land-based and tribal casinos) is expected to exceed $600B by 2025. We estimate that online gambling should go from ~8% of overall GGR in 2010 to ~20% by 2025; and that mobile should go from ~12% of online GGR in 2010 to 55%+ by 2025. Poker is Sexy, but Sportsbook and Casino is Where the Money’s at: H2GC estimates that for 2016 alone, the GGR splits by segment were: sports betting (49%), casino (26%), state lotteries (9%), poker (6%), skill and other gaming and commercial lotteries (5%), and bingo (4%). Bingo is the Least Volatile: Long-term structural growth in online gaming is mainly driven by: (1) increasing mobile penetration; (2) demographics/social change; and (3) the ongoing shift from brick and mortar to online. We believe online bingo has attractive fundamentals compared to sports betting and poker, namely, a sticky customer base with stable margins and a niche focus on the female demographic. We note that the UK is the largest market in the Online Bingo segment with ~11% of the global market. Lotteries Just Scratching the Surface: For 2015, the World Lottery Association

estimates that sales across the four game categories of draw-based games (55.9%), instant games (25.2%), sports games (parimutuel, 7.2%), and sports games (fixed odds, 11.7%) were US$260.9B, up 2.7% y/y. Global lottery sales by region were as follows: EMEA (32.8%), Asia/Pacific (38%), North America/ Caribbean (26.2%), Latin America (2.6%), and Africa (0.4%). A Blockchain / ICO Can Revolutionize the Industry: Evidence has shown that a high number of gaming and gambling companies have used blockchain technology to raise money and fund startups. In total, more than US$4B has been raised via ICOs, according to Autonomous NEXT. Business Insider reported a $500M ICO to build a floating cryptocurrency casino in Macau. Gambling with cryptocurrencies – as opposed to fiat money – can currently be conducted without the need to provide identification documents, or in some cases, without the need to create an account. Free-to-Play Social is Growing Too: Online Social Casino gaming is broadly defined as “free-to-play” online Poker, Slots, Bingo, and Table Games on desktop and mobile devices. Eilers & Krejcik Gaming (“EKG”) estimates that the global social casino gaming market reached $4.3B in 2017 (+11.5% y/y), and should grow at a CAGR of 5.5% to reach $5.3B by 2021. Valuation: The Canadian Gambling/ Lottery sector trades at a C2018E EV/Sales of 3.3x and EV/EBITDA of 10.2x versus its Global Gaming comparables at an average of 3.2x and 11.0x, respectively.

Stars Group Inc (TSGI-T/TSG-US, BUY, $40 PT): The Stars Group has a stranglehold on the global poker marketplace, which comprises only 6% of total iGGR, and is continuing to roll out its BetStars product and PokerStars Casino offering, with the former in its infancy stage. We expect TSGI to continue organically and inorganically investing in its sportsbook product as it looks for the right catalyst to grow the business. Jackpotjoy (ITX-T/JPJ-LON, BUY, $20 PT): Jackpotjoy should grow to £225M+ in 2018, with Vera&John adding £75M+. Approximately 80% of revenues come from regulated jurisdictions with the UK and Nordics representing ~80% of total revenue. JPJ is primarily a bingo focused company, with ~66% of revenues represented from this gaming vertical, with casino representing 28% of its revenues. Growth in mobile has been impressive and now represents roughly half of total revenue and more than half of new customer acquisitions. Pollard Banknote (PBL-T, BUY, $24 PT): According to La Fleur’s, the worldwide instant ticket sales market comprises over 60% of total lottery sales in the US. Pollard has grown into a leading supplier that competes head-to-head with two large global competitors – IGT and Scientific Games. PBL’s revenue is derived from longterm contracts (typically 3 to 5 years) with renewal extensions of several years. Online lottery offerings (known as “iLottery”) will be an important pillar for future growth, particularly in the US where only a handful of jurisdictions sell lottery products online. PBL’s acquisition of Innova Gaming Group closed in August 2017, and PBL recently announced the acquisition of International Gamco. Online Gambling Status in the US: The Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA”) “prohibits gambling businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law.”

UIGEA specifically excluded fantasy sports that meet certain requirements, skill-games and legal intrastate and intertribal gaming. Currently, out of the 50 states and 5 inhabited overseas territories, only 8 have legalized some form of online gambling – Nevada, New Jersey, Delaware, Pennsylvania, US Virgin Islands, Georgia, Illinois, and New York. Sports Betting Update: The U.S. Supreme Court (“SCOTUS”) heard oral arguments in early December 2017, and is set to rule by June 2018 on the legality of sports betting in the US outside of Nevada (and Delaware, Oregon, Montana). The State of New Jersey challenged the validity of the 1992 Professional and Amateur Sports Protection Act (“PASPA”) prohibiting betting on sports, and the upcoming SCOTUS ruling could provide the catalyst to introduce sports betting on a state-by-state basis. Industry Consolidation: We have seen plenty of M&A activity across both the online gambling (Paddy Power/Betfair, Ladbrokes/Coral, GVC/BWIN) and lottery (IGT (IGT-US, NR)/GTECH, Pollard/ Innova) sectors. We expect this activity to continue as companies look to fill platform and geographic gaps in their offerings. Most recently, Ladbrokes agreed to a £4B takeover by GVC (GVC-LON, NR) – which would yield a fast-growing, diversified, international online and retail sports betting led gaming group with over 90% of net revenues generated from locally regulated/taxed markets. From a Canadian perspective, the notable consolidation in 2017 was that of NYX Gaming Group by Scientific Games for $500M. In 2016, NYX acquired the leading B2B sportsbook operator in OpenBet in a deal valued at $383M. Average takeout multiples in the gaming sector in recent years have ranged around ~3x revenue and ~11x EBITDA. We believe the global gaming industry is still very much fragmented, and with a challenging regulatory environment, further consolidation is the only logical solution forward. n

abouT ralph garCea Mr. Garcea joined Echelon in January 2017 and has more than 21 years’ experience in senior positions at major domestic and international firms (Scotia, Credit Suisse and Cantor Fitzgerald), as well as boutiques (Haywood, NCP and GMCI).  He is a top-ranked research analyst, well regarded for the depth and breadth of knowledge he brings to bear on his coverage of Canadian technology, gaming and industrial companies across a broad range of market capitalizations. Over the years, he has received top three rankings from Brendan Woods, Greenwich, Starmine and Thomson Reuters surveys. Before becoming a sell-side analyst, he was a research engineer for Bombardier Aerospace, using computer-aided engineering (CAE) tools for the optimization of noise and vibration control in aircraft (worked on the Dash 8-Q Series). Ralph subsequently joined Belgium-based LMS International (acquired by Siemens in November 2012 for ~€680M), a developer of CAE tools, as a business unit manager for Michigan-based LMS North America to manage sales, marketing, and services efforts. Mr. Garcea holds a Bachelor’s degree (Honours) in Engineering Science (Aerospace) from the University of Toronto and an M.B.A. (Honours) from the Schulich School of Business at York University. He is a member of the Professional Engineers of Ontario (PEO), the American Institute of Aeronautics and Astronautics (AIAA), and the Society of Automotive Engineers (SAE).

eChelon wealTh parTners InC. Echelon Wealth Partners Inc. is a Canadian independent wealth management and capital markets firm known for its client-centred approach and innovative, entrepreneurial spirit. The company has Advisors and Portfolio Managers comprising approximately 70 teams with over  $4 billion in assets under administration and management. Echelon offers a wide range of financial services for individuals, households, institutions and corporate clients from its offices in Toronto, Oakville, Ottawa, London, Montreal, Saskatoon, Calgary, Edmonton, Vancouver, Victoria and Tokyo. Echelon Wealth Partners is a member firm of the Investment Industry Regulatory Organization of Canada (IIROC) and a member of the Canadian Investor Protection Fund (CIPF). www. Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. The author does not own shares or any equity or debt interest in any companies mentioned in this article before or at its publishing.

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Stock Promotion Commentary From OTC Markets Group


he increased proliferation of digital platforms, social media and online investment newsletters offer today’s public companies and investor relations professionals more immediate access to engage with a broader universe of potential investors. However, this technology-driven environment can also create additional channels for abuse by anonymous market manipulators. Fraudulent stock promotion is an industrywide problem. Deceitful promotion campaigns mislead investors, harm market dynamics, impede the capital formation process and tarnish the reputation of small companies.  It is incumbent upon regulators and those of us who operate financial markets to take a closer look at fraud and manipulation as it relates to stock promotion, trading and investments.  Last year, Regulators took a proactive step when the SEC’s Office of Investor Education and Advocacy issued an Investor Alert: Beware of Stock Recommendations on Investment Research Websites to “warn investors that seemingly independent commentary on investment research websites may in fact be part of paid stock promotion campaigns.”  Perhaps we’ll see the SEC shift toward increased regulatory intervention, led by new Chairman Jay Clayton. In testimony  before the Senate Committee on Banking, Housing and Urban Affairs, Mr. Clayton cited a focus on protecting all investors among the SEC’s key initiatives. OTC Markets Group recognizes our leadership role in maintaining the integrity of our public markets, establishing market standards and educating issuers and investors about


the risks associated with manipulative stock promotion. Our Issuer Compliance team has published a stock promotion policy  to describe how we identify potentially fraudulent promotion and outlines the steps taken to alert the community. We’ve also established best practices for public companies, to help mitigate the risk of fraudulent promotion and ensure adequate disclosures in companysponsored investor relations materials. Combating manipulative stock promotion and preventing disruption of our public markets requires a concerted effort. The stock promotion policy and best practices provide a framework that reinforces OTC Markets Group’s disclosure-based philosophy and the OTCQX Rules U.S., International,  Banks) and OTCQB  Standards. They clarify the obligations and responsibilities of reputable public companies to make adequate current information available and provide timely disclosure of any news or information that might reasonably be expected to materially affect the market for their securities. Our  policy  discusses the common characteristics of fraudulent promotion, ways in which death-spiral financings use stock promotion campaigns, and more, including: • Identifying Fraudulent Promotional Campaigns • Responsibilities of Companies with Promoted Securities • Impact on OTCQX or OTCQB Designation • Caveat Emptor Policy and Stock Promotion • Regulatory Referrals • Best Practices for Issuers OTC Markets Group uses market designations to identify which issuers are making adequate current disclosures available to the public.  Our Caveat Emptor flag warns investors of public interest concerns, including fraudulent promotion.   Distinguishing our issuers through the creation of market tiers

and the addition of Caveat Emptor designations are widely-accepted in the industry, with many brokers now using our designations as a basis for making compliance determinations. Furthering efforts to enhance market transparency and investor protection, OTC Markets Group will soon implement a new “promotion risk flag” designation to, as well as our market data feeds, to publicly identify securities that are the subject of an active stock promotion campaign. OTC Markets Group believes the new policy and best practice guidelines, along with the promotion risk flag and caveat emptor designations, are valuable tools that will drive better disclosure and appropriately inform investors about potential risks.  We support regulators employing a thoughtful, constructive approach to addressing fraudulent promotion that lowers the barriers to small company public offerings, utilizes the vast amounts of available data to identify bad actors hiding among the private financing markets, and accelerates real-time enforcement and regulatory intervention. n Lisabeth Heese - Executive Vice President - Issuer and Information Services Lisabeth (Liz) Heese joined OTC Markets Group in 2004 and is the Executive Vice President of Issuer and Information Services. Since then she has built a team responsible for: collecting and maintaining market data for over 5,000 issuers; development, sales and support of issuer-related products and services; and, monitoring issuer compliance with Company policies and procedures. Prior to joining OTC Markets, Liz spent 11 years at NASDAQ, serving as a Product Manager in the Trading and Market Services Division. Liz received a BA degree from American University. About OTC Markets Group Inc. OTC Markets Group Inc. (OTCQX: OTCM) operates the OTCQX® Best Market, the OTCQB® Venture Market, and the Pink® Open Market for 10,000 U.S. and global securities.  Through OTC Link® ATS, we connect a diverse network of broker-dealers that provide liquidity and execution services.  We enable investors to easily trade through the broker of their choice and empower companies to improve the quality of information available for investors. To learn more about how we create better informed and more efficient markets, visit  www. OTC Link ATS is operated by OTC Link LLC, member FINRA/SIPC and SEC regulated ATS. Subscribe to the OTC Markets RSS Feed MicroCap Review Magazine



U.S. States


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International Countries


Investing in Australian Small and Microcap Companies


ext time you see a story about the massive profits made by Private Equity ask yourself why it is so difficult to get into good stocks on the ground floor. The answer is that equity investment in early stage small and microcap stocks in the USA has been made much more difficult, in fact, it has been made almost impossible without the structures put in place by Private Equity which effectively keeps out all but the most highly qualified investors. Difficult regulations like Sarbanes Oxley, and Private Equity financing ,has led to a dramatic drop in the numbers of stocks listed on US Exchanges, the availability of stock and intelligence about small and microcap stocks. The opposite is true in Australia where there is a flourishing market in genuine ground floor equities which are not swamped by regulations, costs and Private Equity, whose role in the financial markets is to be first in and first out at the expense of every other investor who wants to share in the gains.

We don’t see the strangulation of small cap equity investing in the USA changing soon as the major banks push harder and stronger towards getting more money under management in Exchange Traded Funds and managed money. Australia represents the New Frontier in investing at a time when one US Dollar buys about $1.30 of Australian stock. Australian small caps are always about equity, not debt, not private equity, nothing fancy just a minimum of 300, at least, ordinary shareholders putting their hard earned cash into a company that is ready to flourish. None of this is to say that small and microcap investing in Australian stocks, many of which have an ADR or OTC listing, is without its risks. Australian small caps are in mining, oil and gas, Pharma or tech. It is not well recognized that there are about 30 listed


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Australian oil and gas companies with ALL their assets in the USA. The opportunity is that assets in the USA are not well understood by Australian shareholders and are often not recognized by US Investors because they reside in the Australian listed entity. So where does the money come from to get these small caps started and listed in Australia ? The answer is from the Australian Superannuation system that mandates ten per cent of pre-tax incomes must be contributed towards a retirement account which is controlled by the owner. This is in direct contrast with the USA system where Social Security is controlled by the government. There are hundreds of thousands of Private Superannuation Funds that can invest in Australian listed small caps. And they do. Australia is as big as the USA by geographical size but with only 25 million people, less than California alone. Its biggest trading partner is China which is hungry for Australian mineral assets and agricultural products. There is a very strong defense connection with the USA with a marine base near Darwin in the Far north the closest landfall to Asia. Australia is a popular migration destination for Chinese which has led to some of the most expensive residential real estate in the world in the major capital cities. The hallmark of Australian small caps is that they are able to raise money from ordinary shareholders as straight equity not debt and without the structures put in place by Private Equity. Australian small caps are regulated by the Australian Stock Exchange and the Australian Securities Investment Commission ( like the SEC) at a much lower regulatory cost than will be incurred under Sarbanes Oxley. The key difference in the regulatory environment is that Australian securities laws are based on English law which means that the rules are generally non prescriptive. Companies and their promoters are told what they cannot do rather than what they


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must do which means that prospectuses are half the size and regulatory compliance is half the cost. Shareholders in Australia are used to continuous disclosure and to boards of directors who act as a governance check on executives. The cult of the CEO does not exist in Australian companies where independent boards tend to exercise much more control over executive decisions. A couple of good examples of US companies listing in Australia are Boart Longyear and One Page. Australians are looking for more opportunity to invest in overseas markets. Home bias is just as evident in Australia as in the USA. This means that ASX listed companies with offshore assets tend to attract a following simply because they have overseas assets and are regulated in Australia. The opportunity for US Investors is to identify those companies with US assets that are undervalued and for US small cap companies that would never be able to raise money in the USA to list on the ASX and tap into the Australian capital markets

CorporaTe bIo Independent Investment Research, “IIR”, is an independent investment research house based in Australia and the United States. IIR specializes in the analysis of high quality commissioned research for Brokers, Family Offices and Fund Managers. IIR distributes its research in Asia, United States and the Americas. IIR does not participate in any corporate or capital raising activity and therefore it does not have any inherent bias that may result from research that is linked to any corporate/ capital raising activity. IIR was established in 2004 under Aegis Equities Research Group of companies to provide investment research to a select group of retail and wholesale clients. Since March 2010, IIR (the Aegis Equities business was sold to Morningstar) has operated independently from Aegis by former Aegis senior executives/shareholders to provide clients with

unparalleled research that covers listed and unlisted managed investments, listed companies, structured products, and IPO’s. n John Kimber – Executive Director - Americas John Kimber is the Executive Director in North America of Independent Investment Research. After graduating in Economics from University of Sydney John spent several years at Coopers and Lybrand (now Pwc) as an accountant and then changed career and was employed as a financial journalist and economics correspondent in South Africa and London for the Financial Times and finally with Reuters Economic Services. He then changed his career path again and commenced work as a research analyst and later became a full Member of the Sydney Futures Exchange. John was employed for many years in Sydney with Prudential Bache Securities, BT Alex Brown (Bankers Trust) and then with Ord Minnett (JP Morgan) where he specialized in offshore investments and the local subsidiaries of foreign corporations in Australia. He is married to an American from Denver and located there in October 2012 to further pursue his career with IIR He maintains close links with the Colorado mining industry and with the biotechnology and medical device industry in Colorado. John takes an active interest in all aspects of Denver business, sporting and cultural life. He is an active member of the Denver Athletic Club, The Colorado Mining Association, the Society for Mining and Exploration, the Denver Petroleum Club and the Colorado Bio Science Association and attends most of their meetings. He is an active participant with graduates from the Colorado School of Mines. John is a regular attendee at the PDAC conference in Toronto and maintains close links with the Australian Stock Exchange, Bank of New York, various brokerages and investment institutions, and the various Exchanges in the United States which provide listing facilities for Australian companies. Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. The author does not own shares or any equity or debt interest in any companies mentioned in this article before or at its publishing.

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866.446.1009 MicroCap Review Magazine 79


Three Strong Points for SME Markets


arlier in 2017, The World Federation of Exchanges (WFE) released their report highlighting major barriers of entry to equity market financing for Small and Medium Enterprises (SMEs).



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In conjunction with a survey infrastructure supported by the Milken Institute, the WFE made three key recommendations to securities market regulators and exchanges: 1. The complexity, cost and scale of listing, and maintaining a listing, should be reduced, to incentivize the use of equity markets by SMEs. 2. The quality, not the quantity, of information available about SMEs should be enhanced. This includes information that SMEs disclose for regulatory compliance as well as that from third-parties. 3. Mechanisms should be introduced to enhance secondary market liquidity in SME stocks and on SME markets, such as: dedicated market makers; expanding and diversifying the investor base; and exploring alternative secondary market trading models such as a quote-driven market. When I read the WFE report, I couldn’t help but draw parallels between these findings and the unique public market framework we have built at OTC Markets Group to help smaller public companies succeed. So, what exactly are we doing? 1. Require Fewer Resources to be a Public Company. We have streamlined and simplified requirements that lower the com-

plexity and cost for SME listing and compliance We work hard to make being public less painful. A study from the IPO Task Force cited that the average cost for smaller companies to go public on a national exchange is $2.5 million. And with ever growing management burdens and continually rising costs to maintain an exchange listing (legal, accounting, advisory and compliance costs) averaging $1.5 million per year, listing has become a big-ticket time and capital commitment for any company. Fortunately, a costly exchange IPO isn’t the only means by which small companies can participate in capital creation and access public markets. OTC Markets strongly supports alternative methods such as Reverse mergers, Slow PO’s and Regulation A+ which provide a more efficient, less expensive and less burdensome path to the public markets. Our “information first” market model empowers U.S. and Global companies to improve the quality of information available and allows investors to decide on the merits of an investment.  We strive to help alleviate the burden of unnecessarily complex and duplicative regulatory and disclosure requirements.  For example, we recognize several disclosure standards for providing adequate current information to the investing public.


The tiered market structure incentivizes public companies to provide higher quality disclosure, while highlighting less transparent and riskier securities for brokers to restrict access to.

Empower Investors and Brokers with Information. We focus on quality not quantity of data available to investors We believe that data is key to helping investors to decide the merits of investments and take responsibility as they analyze, value and trade securities. In our disclosure and data-driven markets, investors can see realtime prices, access market data and up-todate company information through multiple less complex, scaled listing process with channels, including Bloomberg, Thomson improved information quality. Reuters, and other leading market data proWe understand that a broker-dealer netviders.   Investors are well serviced by a work is a critical component of market qualwide selection of online and institutional ity for small-cap stocks, which often lack the brokers.  Our OTC Compliance Data File deep order books and natural share liquidity provides broker-dealers and compliance/risk of larger cap stocks.  While the exchanges mitigation teams with critical data points on operate high frequency matching engines, OTCQX, OTCQB, Pink and Grey securi- designed for the largest listed companies, ties.  The tiered market structure incentiv- broker-dealer markets on OTC Link® ATS, izes public companies to provide higher our quote-driven, SEC regulated Alternative quality disclosure, while highlighting less Trading System, treat liquidity as a resource transparent and riskier securities for brokers that needs to be provided by diverse market to restrict access to. participants.  This open platform enables And, as a result, the high-quality market investors to buy and sell securities through data and information we make available the institutional, retail, or online brokeron our website,  http://www.otcmarkets. dealer of their choice, enlisting market makcom, is helping companies demonstrate ers to provide competitive trading, so public timely disclosure and financial standards companies can create a more diversified for State Blue Sky regulatory compli- investor base. ance. This September, we reached a pivOTC Markets Group believes in connectotal halfway mark with the majority of ed, data-driven and transparent markets. states that now recognize our OTCQX Best Among the diverse and competitive landMarket for the purposes of their “Blue Sky scape, our goal remains the same– continue Manual Exemption” for secondary trading.  to provide choice markets for the public Coupled together, these unique features companies of today on our OTCQX Best increase the level of transparency neces- Market and OTCQB Venture Market who sary to create more efficient markets, while will support the growth of the public comnot needlessly wasting resources for public panies of tomorrow. n companies. 3. A Quote Driven Market that Offers R. Cromwell Coulson, President, Chief Executive Officer and Director Fair Competition Between Brokers R. Cromwell Coulson is President, Chief Executive and Dealers.  We deliver mechanisms Officer and Director of OTC Markets Group, Inc. (OTCQX: OTCM), operator of the OTCQX, OTCQB to connect secondary market liquid- and Pink markets. Since acquiring OTC Markets’ ity and execution providers, allowing predecessor business, Cromwell has led the transinvestors to trade through the broker formation of the OTC markets from an opaque and inefficient phone-based market into a fully modern, of their choice                                          electronic               and       transparent                 financial market for U.S. and global companies. Today, OTC Markets Group Most gratifying is the reports’ validation is a publicly-traded company that operates three that quote driven markets provide an effec- public markets for 10,000 securities that trade nearly tive solution that delivers a cost-effective, $200 billion in dollar volume annually. A recognized

raising, Cromwell is a strong advocate of making investor information more accessible and alleviating the cost and regulatory complexity associated with being a public company. Cromwell is a champion of efficient public markets and trading transparency, supporting a diverse ecosystem of broker-dealers connecting consumers and suppliers of liquidity. He has testified before Congress and spoken on these and other issues at numerous industry conferences. Prior to OTC Markets, Cromwell was an institutional trader and portfolio manager at Carr Securities Corporation. He holds an OPM from Harvard Business School and received his BBA from Southern Methodist University. Cromwell is Chairman of the FINRA Market Regulation Committee that advises FINRA on rulemaking and trading issues. He is also a non-Executive Director of the S. W. Mitchell European Fund LP, and its feeder funds, managed by S. W. Mitchell Capital, a specialist European equities investment boutique based in London. About OTC Markets Group Inc. OTC Markets Group Inc. (OTCQX: OTCM) operates the OTCQX® Best Market, the OTCQB® Venture Market, and the Pink® Open Market for 10,000 U.S. and global securities. Through OTC Link® ATS, we connect a diverse network of broker-dealers that provide liquidity and execution services.  We enable investors to easily trade through the broker of their choice and empower companies to improve the quality of information available for investors. To learn more about how we create better informed and more efficient markets, visit  www. OTC Link ATS is operated by OTC Link LLC, member FINRA/SIPC and SEC regulated ATS. Subscribe to the OTC Markets RSS Feed

proponent of Reg A+ and small company capital

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Trading Cryptocurrencies Two Sides of the Coin


n 2017 the talk of the town was cryptocurrencies and Bitcoin. Unless you’ve spent the last year on a deserted island, it’s hard not to hear about crytpocurrencies also known as cryptos. These terms found their way into our daily lexicon. This article is not intended to endorse cryptocurrencies, but to discuss what is occurring in the industry. Bitcoin was the first and most successful (to date) cryptocurrency. Some investors may be familiar with a few cryptos such as Ethereum, Ripple or Litecoin. However, would you be surprised to know there are over 1,000 cryptocurrencies? In September 2017, the list of cryptos trading just barely reached 1,000. As of this writing there are a little over 1,500 cryptos. Roughly 1/3 of the currently trading cryptos have been issued since September 2017. First, a little history on cryptos. Bitcoin was created by a person or group in 2008 under the name Satoshi Nakamoto and utilizes blockchain technology. Nakamoto (2008) discussed a peer-to-peer payment system circumventing the use of a financial intermediary by utilizing cryptography technology to verify the transactions. Bitcoin began in 2009. Cryptos are a decentralized currency, meaning no country controls it. Cryptos do not have a legal tender status in most, if not all countries. It utilizes peer-to-peer transactions because the transactions occur between two parties. Currently



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there are an estimated 16.9 million in circulation and a known maximum of 21 million to be circulated approximately the year 2140. It has an estimated market cap of 41.9% ($276.13 billion) of the cryptocurrency market’s $442.3 billion. The second largest market cap is Ethereum with about 18.5%. Followed by Bitcoin Cash at 4.7%. The top 10 cryptos equate to roughly 83% of the market cap. February 20th, Venezuela launched a sovereign backed crypto called petro, backed by oil. However, Dubai released the first sovereign backed crypto last October. Cambodia, Iran and Turkey are each discussing possible digital currencies. Russia and the UK have both talked about releasing their own digital currency. The U.S. regulators appear to be moving towards a regulatory environment. The SEC and the CFTC have set up departments within their agencies for crypto and fintech related issues. The SEC mentioned ICOs having the characteristics of securities, thus regulation is probably not far behind. ICOs are initial coin offerings. Many of the cryptos are issued by startup tech firms. Some crypto traders will say analyzing cryptos is similar to analyzing start up tech firms. Currently there are hundreds of cryptocurrency exchanges globally. Not all exchanges are created equal. An investor should research an exchange before deciding which one to use. As the excitement for cryptos expanded in 2017, it was reported in January 2018, the major crypto exchanges were adding more than 100,000 users per day. Hedge funds focusing on crypto trading increased from 37 at the beginning of 2017 to 55 funds in August to 110 in October to 226 in February 2018. As found in Chart 1, the market moved above $1,000 for the first time in November

2013. However, it gradually drifted back into a $200 to $300 trading range for the next several years. In 2017 the market breaks above $1,000. By December 2017 the arrival of Bitcoin futures arrived as the market briefly peaks above $19,000. Since December the market consolidated below $7,000 and is now in a trading range of roughly $9,000 to $11,000. The market peaked and consolidated over the past year as it found support and resistance around the 50 day, 100 day and 200 day moving averages as noted in Chart 2. Traders appear to utilize moving averages for Bitcoin, similar to their employment for stocks, futures and currencies. Other traditional technical trading methods such as candlestick charts are also used by crypto traders December 2017 was a race for the first Bitcoin futures contract. December 10th Cboe futures exchange began trading Bitcoin futures (XBT). The anticipation of the contract caused heavy traffic to Cboe’s website to crash on the first day of trading as visitors constantly checked for price updates. But their trading platform was fine. As noted by the Cboe: “On the first day of trading at Cboe in 1973 911 options traded. First day of VIX futures in 2004 saw 461 contracts traded. 3 hours into the first bitcoin futures session and volume is just over 1000 contracts.”

below Is a TImelIne for The bITCoIn DerIvaTIves markeTs10 1) Sept 2015 the CFTC defined cryptocurrencies as a commodity under the Commodity Exchanges Act.11 2) November 2016 the CME Group began CME CF Bitcoin Reference Rate for a once a day Bitcoin to USD price (based on four spot Bitcoin exchanges: Bitstamp, GDAX, itBit and Kraken) and CME CF Bitcoin Real Time Index.

3) July 2017 LedgerX announced CFTC approval to trade Bitcoin swaps and options. The exchange began trading October 2017. 4) Fall 2017, Cboe Futures, CME Group, and Nasdaq announced plans to offer Bitcoin futures. One futures contract = 5 bitcoin. The Cantor Exchange announced plans to offer Bitcoin binary options. 5) Nasdaq Stockholm began trading a Bitcoin ETN in May 2015 and an Ether ETN in October 2017.12 6) December 1, 2017 the CME Group announced their futures contract (BTC) for December 17th start. CME’s contract is based on the CME CF Bitcoin Reference Rate 13 7) On December 1st, 2017, the CFTC announced their involvement with the exchanges to prepare for these new contracts.14 8)December 4th, 2017 Cboe announced plans to start their Bitcoin futures contract December 10th.15 One futures contract = 1 bitcoin. The spot price is derived from the cryptocurrency exchange Gemini Trust Company, LLC.

Chart 1: Bitcoin spot price 7/19/2010 to 3/5/2018 Source: Bloomberg data

Chart 2: Bitcoin spot price 1/2/17 to 3/5/18

Most of Bitcoin’s move occurred in 2017. Can the trajectory curve of 2017 happen again, or will it settle into a more normal stream of returns found in the capital markets? There is an ongoing debate whether cryptos are a bubble or if they are here to stay. If the volatility dampens, will that cause traders to lose interest in the sector? Time will tell, stay tuned. n (Endnotes) 1 According to 2 documents/file/labcftc_primercurrencies100417. pdf 3 “Bitcoin a Peer-to-Peer Electronic Cash System” 4 as of 1/6/18 5 6 7 8 9

Source: Bloomberg data

html 10 December 2017 Coquest Managed Assets Newsletter 11 documents/file/labcftc_primercurrencies100417. pdf 12 jonathanponciano/2017/10/11/following-bitcoinether-tracking-notes-now-listed-on-nasdaqstockholm/#2b309cf567a5 13 oinfuturestolaunchdec18.html 14 pr7654-17 15 Mark Shore, Director of Educational Research at Coquest Advisors LLC, has more than 30 years of experience in alternative investments, publishes research, consults on alternative investments and conducts educational workshops. Mr. Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business where he teaches a managed futures / global macro course. He is a board member of the Arditti Center for Risk Management at DePaul University. Mr. Shore is a frequent speaker at alternative investment events. He is a contributing writer for the Eurex Exchange, Cboe, Swiss Derivatives Review, MicroCap Review and Seeking Alpha.

Prior to Coquest Advisors, Mr. Shore founded Shore Capital Research a research/ consulting firm for alternative investments. Prior to Shore Capital, Mr. Shore was Head of Risk for Octane Research Inc ($1.1 billion AUM), where he was responsible for quantitative risk management analysis and due diligence of Fund of Funds. He chaired the Risk Management Committee and was a voting member of the Investment Committee. Prior to joining Octane, he was the COO of VK Capital Inc, a wholly owned Commodity Trading Advisor unit ($300 million AUM) of Morgan Stanley. Mr. Shore provided research and risk management expertise on portfolio construction, product development and business strategy. He received his MBA from the University of Chicago and is currently a doctoral candidate at DePaul University. Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions. Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. The author does not own shares or any equity or debt interest in any companies and does not own cryptocurrencies mentioned in this article before or at its publishing. MicroCap Review Magazine



Looking to Catch a New Trend Early? Follow the Canucks


ilicon Valley is unmistakably home to some of the world’s largest, fastest growing, most disruptive technology companies, and the pools of capital that have built them. From Tesla’s autonomous, electric vehicles, to PayPal’s continued disruption of the payments space, to the growth of Alphabet, Facebook, and the area’s numerous social media players, the effects of Silicon Valley are powerful, and pervasive. However, for all the success the Valleybased unicorns enjoy, they have not grown nearly the breadth of industry as the Canadian capital markets. The two-tiered capital markets structure of the TSX and TSX Venture Exchange have developed a track record of identifying opportunities, defining success metrics, and listing businesses early in their lifecycle. These com-

panies can finance at sequentially higher levels through the public markets as they execute on their business plan. By bringing companies public early, retail investors get to participate alongside institutional capital, management, and the deal makers during the growth phases across a broad range of major industries.

whaT makes CanaDIan markeTs unIque? The risk appetite of the Canadian capital markets, combined with listing mechanisms such as a Reverse Take Over (“RTO”) or

Qualifying Transaction (“QT”)—the RTO of a Capital Pool Company—has enabled the development of major global industries, including mining exploration for precious metals, extraction of battery metals, and development of renewable energy projects. Most recently, this has translated in the growth of the blockchain, cryptocurrency, and cannabis industries north of the American border. Perhaps the most broadly adopted disclosure standard implemented in the Canadian capital markets is National Instrument 43-101 Standards of Disclosure for Mineral Projects which has enabled capital to finance



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the growth of approximately 5,700 mining projects globally through the TSX and TSXV. The 43-101 standards have also been the template for similar global standards, such as JORC compliance. Nobody believed that there were diamonds in Canada, until two geologists found evidence of diamond bearing kimberlite pipes north of Yellowknife in 1991—one of which was developed into Ekati, Canada’s first commercial diamond mine. Following this discovery, geologists used kimberlite pipes and indicator minerals to identify other exploration opportunities across Canada. These basic geological structures and metrics allowed entrepreneurs to explain their stories to the markets, finance their projects, and ultimately discover a dozen diamond mines across Canada. By 2016, Canada was the third largest diamond producing country in the world, recording over 13 million gem quality stones per year. In more recent years, with the proliferation of cell phones, laptops, and electric vehicles, the Canadian capital markets have established themselves as leaders in the exploration, development, and production of battery inputs. The Canadian capital markets identified the opportunity to supply these inputs, defined grades and extraction techniques, and financed the growth of these businesses. Through 2017, as the regulatory framework for medical cannabis became better understood, the markets again developed an investment framework, including thresholds for comparing companies, and financed the growth of industry leaders like Canopy Growth, which originally listed on the TSX Venture Exchange through an RTO of a Capital Pool Company.

The rTo aDvanTage The RTO mechanism has been used for decades by mining companies in Canada. However, it is only recently that technology and life sciences companies have really started to embrace its benefits. Five of the

Structured for Growth Number of CPCs listed (1987 - 2017)


Number of successful CPC Qualifying Transactions

2,153 (86%)

Number of TSXV CPCs that have graduated and are currently TSX listed

80 (number excludes any M&A)

Number of Reverse Take Overs (2005 - 2017)


Number of RTOs graduated to TSX


Number of RTOs companies acquired


first companies in the blockchain and cryptocurrency space recently have used this same RTO structure to list. Since completing their RTOs, these five companies are now worth over $1bn, and have raised in excess of $130m. For companies, the RTO structure provides two key benefits:a higher degree of confidence in the listing process and an ability to acquire the vehicle’s intrinsic value. That may include a supportive investor base, strong management and/or directors, or capital. Over the past 15 years, the RTO mechanism has built some of Canada’s largest companies. Unique to the TSX Venture Exchange is the Capital Pool Company structure, a publicly listed vehicle with a management team and pool of capital exclusively looking for an interesting project to purchase using its equity, or QT. One of the greatest QT success stories is Silver Wheaton, now a $12bn listed constituent of the TSX 60 index. The RTO structure, and its familiarity within the Canadian capital markets, is one of the reasons that the TSXV has successfully defined entire industries. For instance, the first cannabis company listed on the TSX Venture in 2014, and by the end of 2017 there were 29 listed cannabis companies representing over $20bn in market capitalization. The TSXV was the first North American exchange to go through a review process that allowed a cannabis company to list. In doing so, it created a unique ability for entrepreneurs to build their business in this growth industry by leveraging retail and institutional investor support. That sup-

port has ultimately established Canada as a leader in an industry that is now global in nature. Companies listed on the TSX and TSXV have the critical mass and access to capital to to be active globally, and established processes combined with science to defend their leadership positions. The combination of investment capital with a risk appetite for early stage companies, capital markets with a track record of identifying high growth sectors early, and structures that enable young companies to gain a public listing early has enabled the TSX Venture Exchange to develop global leaders in the mining, energy, diversified, technology, and life sciences sectors—often before the rest of the world took note. For investors looking to get in on the next big theme, it’s worth taking a look at what the Canucks are listing. n A Computer Engineer by background, Brady spent almost a decade in investment banking, primarily focused on financing and advising technology and diversified issuers through strategic transactions, before leaving to found Coastr. With Coastr, Brady successfully took a concept through ideation, building a development team, and launching the platform. We successfully sold a network of almost 30 venues locally while using customer feedback to drive iterative revisions to the app and back-end platform. Throughout his investment banking career, Brady has advised hundreds of companies on business strategy, capital raising, public and private markets, and exit strategies – having successfully executed over $500million in growth equity financings, secondary transactions, and sell-side advisory mandates. Brady joined TMX Group recently and is Managing Director of TSX Venture, the world’s leading public venture capital marketplace.

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Zinc Could Be Set to Zoom in Electric Vehicle Era T

hese are exciting times for the zinc industry. A dramatic cut in production by the largest worldwide producer, followed by an

equally dramatic run-up in price, have jolted the investment community over the past two years along with potential stakeholders in the business world.

At the same time, new mining activities globally are ensuring an available supply of the 30th element for novel applications. One of the most prominent of these is zinc’s potential role as the basis of a new generation of batteries in electric vehicles. Zinc is truly in the spotlight in 2018.

zInC’s forTunes surge



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In October 2015, Swiss-based Glencore, which is the world’s largest zinc producer, announced plans to cut a third of its production—representing 500,000 tons and 3.5 percent of global mine output— in a bold attempt to solve a supply glut and lift prices from a six-year low. This strategy has paid off handsomely, as the price of the metal used to galvanize steel rose 90 percent and touched its highest level in a decade by October 2017, and the gains continued at least through mid-January 2018 at the time of writing. Other factors also drove this result, including the loss of two big mines,

Century in Australia and Lisheen in Ireland, in late 2015, as well as Beijing’s desire to target zinc mining and refining in southwestern Sichuan province in a drive to clean up the environment. All in all, global zinc stockpiles fell in 2017 and now represent about six days of global consumption. Yet even in light of this, overall global zinc supply is set to increase with additional capacity coming online in Australia (MMG’s Dugald River project), South Africa (Vedanta’s Gamsberg mine)— which together are projected to produce around 775,000 tons of new supply. Glencore itself is widely expected to return its major zinc mines to full production, but the timing remains uncertain. By November 2017, the rapid increase in spot prices above futures prices had led to the condition known as backwardization, which signals strong demand and tightening supply. Proactive miners such as Zinc One, Hecla, Southern Copper, Teck and Vedanta were all taking steps to increase output and

take advantage of a favorable market. Some of the highlights of their strategies: Zinc One announced plans to revive the past-producing Bongará Zinc Mine project, which was discovered in 1973 and mined by a previous owner employing open-pit methods but subsequently shut down. Hecla has also announced an increase in production of the metal; its Greens Creek and Lucky Friday mines have reported large proven and probable zinc reserves. Teck produced 620,000 tons of zinc in 2016 and expected to ramp up production. Vedanta has also already started to increase output. Meanwhile, some analysts have voiced confidence that demand for zinc will increase over the coming year in the U.S. and Europe as industrial activities in both economies continue to gather pace. With zinc prices at a 10-year high, investors are awakening to the growth potential of key industry players. As demand continues to rise in a post-recession world, zinc seems more than likely to maintain its luster.

zInC baTTerIes on The roaD? Among those watching the industry’s fortunes are electric vehicle (EV) manufacturers. Morgan Stanley analysts expect global car sales to rise by 50 percent by 2050 to more than 130 million units a year, and estimates that EVs will account for at least 47 percent of that total. Traditional lithium-ion batteries, the current EV industry standard, have become notorious for safety incidents resulting from overheating, at times bursting into flames, and even exploding. Not only could rechargeable zinc-based batteries store as much energy as their lithium-ion counterparts; they could also be safer, cheaper, smaller and lighter, research reported in IEEE Spectrum finds. The results suggest zinc batteries could find use in EVs and hybrids. Zinc-based batteries do not pose the same fire risk linked to lithium-ion and could in principle match or surpass them in terms of

specific energy as well as energy density. One drawback has been the tendency of zinc batteries to grow conductive whiskers known as “dendrites” inside themselves, which can grow long enough to cause short-circuits. As such, the batteries typically die after several cycles—as few as 20—of discharging and recharging. However, researchers at the U.S. Naval Research Laboratory, in tandem with San Anselmo, CA-based energy technology firm EnZinc, have developed a zinc-based battery whose internal structure can suppress dendrite formation. The zinc anode has a porous, sponge-like architecture that helps charge move uniformly across the entire structure when the battery discharges and recharges. Zinc oxide forms on the outside skin of the sponge, but the inside walls of the sponge remain clean and carry current in a continuously wired structure. Pairing the zinc anode with a nickel cathode revealed the battery could withstand more than 50,000 brief cycles of discharging and recharging, similar to how lead-acid batteries are used in a start-stop manner in microhybrid vehicles. The experiments suggested that a rechargeable zinc battery could meet the 24 kilowatt-hour demands of the Nissan Leaf in a smaller, lighter package. According to EnZinc, a zinc-sponge battery would hold roughly 60 kilowatt-hours, weigh about 500 pounds and provide a range of some 200 miles. Whereas the lithium-ion battery for a Tesla Model 3 will cost around $15,000, the zinc battery may be priced as low as $10,000. According to The Guardian, this technology could be ready for market by about 2019, with another year to gear up production. It is believed that around 600,000 metric tons of zinc would be required to produce batteries for a million electric vehicles, an amount that can be easily accommodated given current production rates of the metal. For these exciting reasons and more, zinc remains a commodity to watch in 2018 and beyond. n

Max Porterfield is President and CEO of Callinex Mines Inc., which is advancing its portfolio of zincrich deposits located in established Canadian mining jurisdictions. Callinex Yahoo Finance Profile: https://finance. Company website:  Max Porterfield is the CEO of Vancouver based Callinex Mines Inc., which is focused on discovering and developing zinc-mines within prolific Canadian mining jurisdictions.   Callinex is actively exploring its Nash Creek and Superjack Projects in advance of an updated resource estimate and maiden PEA planned for Q2 2018. Additionally, Callinex is advancing its projects in the Flin Flon Mining District of Manitoba which include the Pine Bay and Big Island Projects. These projects are located within 25 km to an operating processing facility that requires additional ore within four years. Mr. Porterfield is a seasoned executive with more than a decade of experience within natural resources and financial markets. Also, at age 33, he is considered one of the youngest CEOs working in the mining sector today. Previously, Mr. Porterfield managed investor relations for two well-respected resource companies, Brazil Resources Inc. and Uranium Energy Corp. In addition, Mr. Porterfield was previously Vice President of Institutional Services at U.S. Global Investors, a boutique investment management firm with a longstanding history of expertise in precious metals and natural resources. He is a graduate of Texas Tech University with a bachelor’s degree in business administration. Note: Mr. Porterfield is President, CEO and a Director of Callinex Mines Inc. and a shareholder. The author does not own shares or equity or debt interest in any other companies mentioned in this article before or at its publishing.

MicroCap Review Magazine



Welcome to Blockchain


InTroDuCTIon On January 1, 2017, the price of bitcoin, a “virtual currency,”1 hovered at $963.66 and the total market cap of virtual currencies was approximately $17.7 billion. Fast forward just one year later and on January 1, 2018 the price of bitcoin jumped to $13,437.20 with a virtual currency market cap of $612.9 billion, an annual growth rate of 1294% and 3356%, respectively.2 Undoubtedly, the numbers are more than impressive. However, what is even more impressive is what is behind the numbers - blockchain technology (a.k.a. distributed ledger technology) and its potential to disrupt the global economy as we know it. To begin with, it is essential to make the basic distinction between bitcoin and blockchain. Bitcoin was developed in 2008 by someone using the pseudonym Satoshi Nakamoto, in his or her vision to create a purely peer-to-peer form of electronic cash. Although the concept of blockchain technology had been proposed and developed by others before Nakamoto,3 this innovation was the first application of blockchain in the 1 “FATF Report, Virtual Currencies, Key Definitions and Potential AML/CFT Risks” Financial Action Task Force. June 2014, http:// reports/Virtual-currency-key-definitions-andpotentialaml-cft-risks.pdf 2 and 3 Haber, S. & Stornetta, W.S. J. Cryptology (1991) 3: 99., Bayer D., Haber S., Stornetta W.S. (1993) Improving the Efficiency and Reliability of Digital TimeStamping. In: Capocelli R., De Santis A., Vaccaro U. (eds) Sequences II. Springer, New York, NY



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form of a digital-/virtual-/crypto-currency. While the general public is just starting to discover bitcoin, it fails to focus on or recognize the true revolutionary value of its underlying technology, blockchain. Indeed, blockchain is considered by many to be the technology likely to have the greatest impact globally in the near future, enabling the move from the internet of information to the internet of value. A blockchain is essentially a decentralized and distributed digital ledger that stores a registry of assets and transactions across a peer-to-peer network. The technology combines cryptography, data storage and peer-to-peer networks with consensus mechanisms creating secure, verifiable and immutable records in a “trustless” system that has eliminated the need for trusted third-party intermediaries. The first major example of blockchain disruption was in the financial sector with the development of a new form of crowd-funding for startups, mainly, through their issuance and sale of their own virtual or digital tokens, allowing for transactions without the presence of intermediaries such as banks. The first such token sale or initial coin offering (“ICO”) took place in 2013, in which the Mastercoin Foundation sold its tokens in exchange for 5,120 bitcoin (BTC), valued at $500,000 at the time.4 A year later, the Ethereum Foundation 4 Buterin, Vitalik, “Mastercoin: A SecondGeneration Protocol on the Bitcoin Blockchain” Bitcoin Magazine. November 4, 2013, https:// See also Hajdarbegovic, Nermin. “Mastercoin Foundation Lets Virtual Currencies use Bitcoin Protocol”. Coindesk. com. December 6, 2013, https://www.coindesk. com/mastercoin-foundation-virtual-currenciesbitcoin-protocol/

* The content in this article is offered only as a public service to the web community and does not constitute solicitation or provision of legal advice and does neither create nor constitute an attorney-client relationship. This article should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction. You should always consult a suitably qualified attorney regarding any specific legal problem or matter. You should consult your own tax, legal and accounting advisors before engaging in any transaction. The comments and opinions expressed in this article are of the individual authors and may not reflect the opinions of CKR Law LLP.

issued 7.4 million tokens, called ether (ETH), for 3,700 BTC or $2.3 million within the first 12 hours of its presale5 and a total of $18.4 million over 42 days6. However, the true disruption took place in 2017. In fact, during the first half of 2017, blockchain companies raised $327 million through token sales, exceeding the $295 million raised though venture capital funding during the same period.7 Recent reports indicate that in 2017, over $5.6 billion was raised through token sales, as well as an additional $1 billion invested directly in blockchain startups through more traditional methods, compared with $240 million raised by token sales in 2016.8 Whether or not this phenomenon will continue or will slow down thanks to increased regulation is up for debate. However, the innovative technology at the heart of this new industry cannot be ignored. Blockchain technology has the potential to disrupt every industry as it can be programmed to record virtually anything of value.9 Smart contracts, digital identity, tokenization, finance, healthcare, music, supply chains, real estate, government services, and nearly every aspect of daily life will be affected.

legal Challenge There is a common, misleading impression among both investors and developers that the blockchain industry is unregulated in the 5 Tanzarian, Armand, “Ethereum Raises 3,700 BTC in First 12 Hours of Ether Presale”. July 23, 2014, https:// 6 “15 insights on how Ethereum did its ICO in 2014”. July 7, 2017, https:// 7 8 Williams-Grut, Oscar, “Only 48% of ICOs Were Successful Last Year — But Startups Still Managed to Raise $5.6 Billion” businessinsider. com. January 31, 2018, http://www. 9 Tapscott, Don and Alex Tapscott, “What’s the Next-Generetion Internet? Surprise: It’s All About the Blockchain!” Blockchain Revolution. July 1, 2016, http://blockchain-revolution. com/2016/07/01/whats-next-generation-internetsurprise-blockchain-2/

United States. Blockchain is a technology and even if it is a new one, the types of actions, which are performed by using it, are not. As Alex Tapscott framed it, “blockchain technology is going to integrate itself into all the technology that we use today.”10 Therefore, while thinking about the regulatory and legal issues of blockchain technology, it is necessary to make a distinction, like the distinction between bitcoin and blockchain, between the actions performed and the underlying technology itself. The focus on virtual currencies such as bitcoin and ether, which have concerned some because of their potential use for criminal activity, much like any fiat (traditional) currency, has distracted the public from the transformative potential of the technology. The focus of regulation should be those actions, not the technology that is being used when performing those actions. In other words, specific actions performed on a blockchain should be regulated by the rules and laws similarly applicable for the identical actions performed off a blockchain. Conversely, if an activity off the blockchain is not currently regulated, it should not be regulated just because it is effectuated through a blockchain.11 Tax evasion, fraud or money-laundering, whether conducted on a blockchain or not, are still crimes and regulated as such. Under this functional approach, the legal challenge today is to determine what existing laws apply to the new technology in each practice area and how. For example, blockchain applications in the healthcare industry would need to look into existing, healthcare regulations, whereas, in cases where blockchain technology is used for the issuance of shares, relevant, existing corporate and 10 “Quick Guide to Blockchain: All You Need to Know – Expert Interview with Alex Tapscott.” YouTube, 17 Jan. 2017, watch?v=CsR2livCdAw 11 The Disrupter Series: Digital Currency and Blockchain Technology: Hearing before the Subcommittee on Commerce, Manufacturing, and Trade of the Committee on Energy and Commerce, House of Representatives, One Hundred Fourteenth Congress, second session, 1 (Washington, 2016), found at https://www.gpo. gov/fdsys/pkg/CHRG-114hhrg20322/pdf/CHRG114hhrg20322.pdf

securities law provisions for the issuance of shares must be considered. Application of existing laws In 2017, the blockchain market and regulators started to identify and determine, on a case-by-case basis, what and how existing regulations apply to this nascent technology.

seC - The Dao reporT12 The Securities and Exchange Commission (the “SEC”) had been relatively silent on virtual currencies and blockchain since 2014. On July 25, 2017, the SEC issued a “Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO”13 (the “DAO Report”) as well as an investor bulletin14 in which the SEC gave guidance on its treatment of blockchain tokens and ICOs under existing securities laws. The DAO Report “raised questions regarding the applicability of the U.S. federal securities laws to the offer and sale of DAO Tokens, including the threshold question whether DAO Tokens are securities.” Ultimately, the SEC found, based on a “facts and circumstances” analysis, that tokens issued by the DAO (decentralized autonomous organization) were investment contracts and thus securities under Section 2(a) (1) of the Securities Act of 1933, as amended (the “Securities Act”) and Section 3(a)(10) of the Exchange Act of 1934, as amended. The SEC stated that the DAO Tokens passed the Howey test, namely that “an investment contract is an (a) investment of money (b) in a common enterprise (c) with a reasonable expectation of profits (d) to be derived from the entrepreneurial or managerial efforts of

12 See also, “SEC Investigates the DAO on its Initial Coin Offering on Blockchain,” https://www.ckrlaw. com/our-voices/2017/08/08/sec-investigates-thedao-on-its-initial-coin-offering-on-blockchain/ 13 “Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO,” Release No. 81207/July 25, 2017, https:// 14 news-alerts/alerts-bulletins/investor-bulletininitial-coin-offerings MicroCap Review Magazine


others.”15 Accordingly, the SEC advised those who are planning to raise capital through blockchain-enabled means “to take appropriate steps to ensure compliance with the U.S. federal securities laws.”16 Notably, the SEC chose not to take further enforcement action against The DAO or its founders, In the DAO Report, the SEC found that specifically the DAO Tokens, not necessarily all tokens, were securities and concluded that federal securities laws “apply to those who offer and sell securities in the United States, regardless whether the issuing entity is a traditional company or a decentralized autonomous organization, regardless whether those securities are purchased using U.S. dollars or virtual currencies, and regardless whether they are distributed in certificated form or through distributed ledger technology.”17 In a later statement in November 2017, SEC Chairman Jay Clayton was quoted as saying “I have yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security,”18 though this should not imply that he has reviewed all ICOs or that all tokens are in fact securities. The DAO Report intentionally limited its review to the DAO tokens, and did not identify all tokens as securities. As a result, many startup founders hoped to fall into the illusive nonsecurity category of “utility” tokens, without having a clear vision from the SEC of exactly what such a utility token would look like. Hence, the position taken by the SEC in the DAO Report, in its first investigation of an ICO, as well as in its further enforcement actions and statements since, clearly indicates that the blockchain industry is regulated in the United States. How could a regulator enforce actions based on regulations if the practices are not regulated? Offerings and sales of secu15 SEC v. W.J. Howey Co., 328 U.S. 293, 301 (1946), as further developed in United Housing Found., Inc. v. Forman, 421 U.S. 837, 852-53 (1975) and SEC v. Edwards, 540 U.S. 389, 393 (2004).

rities are regulated and that is the case whether conducted traditionally or on a blockchain. Indeed, as it will be discussed further below, a number of legal actions were filed based on allegations of unregistered securities offerings. Among others, a noted case is the Munchee ICO, which was halted on its second day by the SEC after its determination, based on a “facts and circumstances” analysis, that the Munchee tokens constitute “investment contracts.”19 Again, the SEC chose to take no further action after the Munchee founders refunded all capital raised to the token purchasers. Following that case, SEC Chairman Clayton issued a statement clarifying that despite attempts by startups to avoid classification of their tokens as securities, “[m]erely calling a token a ‘utility’ token or structuring it to provide some utility does not prevent the token from being a security.”20 This position illustrates this functional regulatory approach, where tokens that incorporate functions of a security will be considered a security and, even if they can offer some utility as well, they will still be subject to securities regulations.

CfTC As early as 2015, the Commodity Futures Trading Commission (the “CFTC”) found that based on the Commodity Exchange Act’s (the “CEA”) broad definition of “commodity,” bitcoin and other virtual currencies are properly defined as commodities. As a result, the CFTC establishes its jurisdiction over derivative contracts of virtual currencies as well as cases of fraud or manipulation in virtual currency transactions as they are both regulated under CEA. 21 19 See also, “SEC Chairmain Issues Statement on Cryptocurrencies and SEC Halts Munchee Token Sale,”

In fact, from December 2017, the CFTC approved bitcoin futures trading for CFE and CME and bitcoin swaps for Cantor Exchange indicating the potential and viability of virtual currencies investments.22 Additionally, the CFTC proposed rules concerning the definition of “actual delivery” with respect to commodity transactions involving virtual currencies.23 Under the CEA, retail commodity transactions fall under the CFTC’s direct oversight authority “as if ” they were commodity futures. An exception exists for contracts that result in “actual delivery” within 28 days from the transaction.24 Thus, the CFTC set the boundaries of its own authority determining when virtual currency transactions fall under its oversight and when they don’t, thereby confirming that virtual currencies are regulated.

fInCen In 2013, The Treasury Department’s Financial Crimes Enforcement Network (the “FinCEN”) issued interpretive guidance clarifying the applicability of the Bank Secrecy Act (the “BSA”) “to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies.”25 As it states, “[t]he definition of a money transmitter does not differentiate between real currencies and convertible virtual currencies. Accepting and transmitting anything of value that substitutes for currency makes a person a money transmitter under the

22 See also, “Blockchain & the Law: 12/01/17 Update,” 23 See also, “Blockchain & the Law: 12/15/17 Update,”

17 Id. at 18.

20 “Statement on Cryptocurrencies and Initial Coin Offerings,”

24 “CFTC Issues Proposed Interpretation on Virtual Currency ‘Actual Delivery’ in Retail Transactions,” Release: pr7664-17/December 15, 2017, PressReleases/pr7664-17.

18 Michaels, Dave and Paul Vigna. “SEC Chief Fires Warning Shot Against Coin Offerings”. The Wall Street Journal November 9, 2017, https://

21 See also, “Virtual Currencies and Token Sales In The Eyes Of The Regulators, U.S.A.CFTC,”

25 “Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virutal Currencies,” statutes-regulations/guidance/applicationfincens-regulations-persons-administering.

16 Supra note 7, at 2.


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regulations implementing the BSA.”26 Once again, this position shows the applicability of already existing regulations based on the particular practice performed. Indeed, following up, on July 26, 2017, FinCEN assessed civil monetary penalties of $110,003,314 against Canton Business Corporation (BTC-e) and of $12,000,000 against Alexander Vinnik, for violations of the BSA and relevant regulations.27 Additionally, a 21-count indictment was issued against Vinnik, who was arrested in Greece.28 The indictment contained allegations of an international money laundering scheme, operation of an unlicensed money business and related crimes.29

sell, send, or receive) in any one year during the years 2013-2015. 31


a mulTIfaCeTeD regulaTIon

The tax treatment of virtual currencies is crucial as well. In 2014, the Internal Revenue Service (the “IRS”) issued a notice specifying that “[f]or federal tax purposes, virtual currency is treated as property.”30 This implies that if a virtual currency appreciates from the time of acquisition, the gain is taxable. However, despite the development of virtual currencies and the expansion of their use, the IRS did not offer more specific guidance but rather suggested its direction through its enforcement actions. For example, the IRS issued a John Doe summons against Coinbase, Inc., a major virtual currency exchange with over 10 million customers, seeking access to all user records for the period 2013-2015 in order to investigate suspected tax evasion on bitcoin related gains. Ultimately, the IRS was granted access to accounts with at least the equivalent of $20,000 in any one transaction type (buy,

There is no uniformity among U.S. regulators as to how to treat virtual currencies or ICO tokens. The SEC might treat, under certain facts and circumstances, some virtual currencies as securities, the CFTC considers them commodities and the IRS treats them as property. It should be noted that, based on each specific characterization, a certain agency will establish oversight authority. For example, as a commodity, the CFTC has jurisdiction in virtual currency future markets, but, where it is determined to be a security too, SEC rules will apply as well. This could create a conflict amongst different government bodies. However, the CFTC in its “CFTC Backgrounder on Oversight of and Approach to Virtual Currency Futures Markers,”32 published on January 4, 2108, established a “multifaceted, multi-regulatory approach.” Accordingly, as there is no direct, Federal

26 Ibid. 27 enforcement_action/2017-07-27/Assessment%20 for%20BTCeVinnik%20FINAL2.pdf. 28 fincen-fines-btc-e-virtual-currency-exchange110-million-facilitating-ransomware. 29 30

31 See also, “Minor Victory, Minor Defeat: IRS’s Attempt to Seek Identities of Taxpayers Engaged in Cryptocurrency Transactions,” https:// 32 “CFTC Backgrounder on Oversight of and Approach to Virtual Currency Futures Markets,” newsroom/documents/file/backgrounder_ virtualcurrency01.pdf. See also, “U.S.A. – Blockchain & the Law: 01/05/18 Update,” https:// usa-blockchain-law-jan5-2018/.

oversight for virtual currencies under the U.S. law, the different bodies work together and each one has oversight of specific areas based on the activity being investigated. Hence, the SEC focuses on ICOs, FinCEN on money transmission and laundering, the IRS on tax treatment, the CFTC monitoring derivative markets; all accompanied by individual State33 banking and securities regulators collaborating to frame U.S. regulation of virtual currencies.34 It should be expected, though, that, as the practices and functions performed with virtual currencies expand, other, relevant regulatory bodies may also join this regulatory scheme.

rIsks In 2017, the industry saw the dramatic rise of ICOs as well as the beginning of enforcement actions against them. On October 25, 2017, the first class action lawsuit was filed against Tezos, which is considered to be, at the moment, the second largest ICO having raised $232 million. The complaint alleged violations of securities laws by offering unregistered securities for sale as well as fraud, misrepresentations and violations of false advertising and unfair competition 33 It should be noted that several individual States, such as Wyoming, Delaware, Nevada, Arizona, Vermont and New Hampshire have taken the lead on legislating to support blockchain innovation. It remains to be seen what effect, if any, they shall have on Congress at the Federal level. 34 Ibid. MicroCap Review Magazine


laws.35 Since then, a number of private legal actions have been initiated against companies that have done ICOs alleging, for the most part, the unlawful offering and sale of unregistered securities, fraud and relevant misconduct. These numerous, and continuous actions indicate that participants in several ICOs may have been harmed by misconduct and intentional fraud. There is no doubt that an investment in virtual currencies and ICOs may be highly risky. Government officials globally often warn token buyers about the risks and advise caution. While one cannot argue that token sales are unregulated in the United States, it is true that there is an uncertainty concerning the regulatory regime and particularly the way that existing laws will be applied to the new technology. This creates challenges for both startup founders and software developers as well as for investors, token buyers as the former do not know exactly what provisions and requirements they need to fulfil and comply with while the latter cannot identify the compliant token sales nor understand their rights as token owners. The complexity of the technology and the ignorance around it make this even more difficult. Additionally, the 35 See also, “Tezos Faces Legal Action,” https:// tezos-faces-legal-action/.


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speculation and the extreme price volatility create a greater risk of losing all value in the case of investment. Moreover, the technology itself presents security and privacy risks. In fact, there have been cases, where errors by programmers in the code have permitted attackers to hack into ICOs and steal large amounts of assets and funds. Finally, as claimed in various lawsuits, the industry is vulnerable to fraudulent investment schemes and scams.

InvesTors’ eCosysTem These risks are somewhat ignored in the minds of many token buyers due to the bad aftertaste left behind by many individuals who suffered in the financial crisis of 2008, which crippled the confidence of sections of the public in the financial markets and their regulators as well as by others who feel that they have no real access to financial markets and investments. It is also possible, that due to the complexity of this new technology, few can actually comprehend and appreciate the real risks involved in investing in ICOs that are often led by a small team of software developers who may not have any experience in the underlying industry nor much of a viable business model. Millennials, who felt left behind by the old

system36 and were more capable of understanding the potential of the technology were the first who started investing in the blockchain industry. They flocked to participate in the evolution and popularity of this new model of capital raising bypassing traditional methods. Indeed, according to a Blockchain Capital survey in the fall of 2017, 30% of millennials prefer $1,000 of bitcoin over $1,000 of government bonds and 27% of them think that bitcoin is more trustworthy than big banks.37 As the industry developed, eventually high net worth individuals, family offices and multi-family offices began to slowly enter the space. Around 2016, the first hedge funds started including bitcoin in their portfolios and thus “crypto-funds” were launched. By the end of October 2017, according to the financial research firm Autonomous, more than 120 hedge funds, which had under their management about $2.3 billion in total assets, were investing in bitcoin and digital currencies.38 However, the high volatility and risks as well as the lack of operational history did not meet the strict requirements of more established institutions and, therefore, large mutual funds, pension plans, insurance companies and university endowments have not yet entered into crypto-investments. Currently, digital currency and blockchain enthusiasts are growing exponentially every day. 2018 is predicted to be the year when institutions enter the industry. In fact, taking into account the appreciation of the virtual currency market and the growing clarify of regulations, the market is becoming more mature creating an environment in which institutions are more likely to enter. Many institutions are more likely to 36 “Bitcoin latest: Third of millennials will be invested in the cryptocurrency in 2018,” http:// news/bitcoin-latest-news-millennialscryptocurrency-investment-2018-london-blockexchange-a8108106.html. 37 “Blockchain Capital Bitcoin Survey Fall 2017,”

38 “There are now more than 120 hedge funds focused solely on bitcoin, digital currencies,”

Currently, digital currency and blockchain enthusiasts are growing exponentially every day. 2018 is predicted to be the year when institutions enter the industry.

invest in a market of around $700 billion compared to one with just a few billion market cap. Additionally, the introduction of futures contracts at the end of 2017 signaled an increasing acceptance of virtual currencies making it easier for institutions to start investing.

Do noT forgeT The orIgInal purpose However, as the market develops, it seems that the technology has lost its way to a certain degree. The philosophy of blockchain and decentralization was intended to democratize the internet and empower everyone to participate in the markets. However, today the observed trend is quite the opposite. Taking for example the case of the ICO; there is an inherent conflict between the purpose of creating a shared economy for anyone to join versus the sovereign interest to protect the public. As has been discussed, there is an extremely high risk in participating in ICOs. In order to comply with US securities law, startups are either excluding all US Persons in their ICO or relying on exemptions from registration such as Regulations D of the Securities Act where token purchasers are limited to “accredited investors” (whose criteria is usually based on income or net worth, i.e. sophistication), thereby excluding individuals with lower incomes (as per the SEC’s agenda to protect “unsophisticated” investors), who may be more likely to make poor investment decisions and in turn incur financial losses, and therefore require the additional disclosure that full registration with the SEC, like an

IPO, would provide. However, in reality, the tokens are often sold at a discount during the early stages of the ICO and therefore, by limiting the ICO only to accredited investors, others who do not qualify as such lose the opportunity to participate in the early stage and benefit from lower prices. Thus the very people who the blockchain philosophy is meant to include and empower, are actually left behind because of regulation. In this context, the “Fair Investment Opportunity for Professional Experts Act” could have been a balanced solution. The goal of this bill was to require the SEC to amend Section 2(a)(15) of the Securities Act to revise the definition of “accredited investors”, specifically the criteria of natural persons as accredited investors, and expand the relevant definition by including persons who are “licensed or registered as a broker or investment adviser” as well as persons who have been determined “to have demonstrable education or job experience to qualify such person as having professional knowledge of a subject related to a particular investment, and whose education or job experience is verified.”39 The bill was introduced on April 30, 2015 and was passed by the House of Representatives on February 1, 2016. However, it died as it was never passed by the Senate.40 Alternatively, introducing some exemptions in securities laws for virtual currencies or tokens could also help balance this inher-

ent conflict. As has been discussed, securities laws will apply in ICOs where, in effect, the tokens function as securities. However, this does not prohibit the enactment of specific exceptions that would permit, for example, a larger number of non-accredited investors in the early stages of a token sale following the principles of a shared economy. Or Congress could adopt similar legislation as in the state of Wyoming where for the first time in the U.S., a clear definition of, and framework for, true utility tokens was recently signed into law.41 Undoubtedly, blockchain technology has the potential to change the world, creating a new era of a digital life. However, it is important to remember its founding principles of democratizing the system, distributing power and enabling everyone to participate. Because that is the way the change will work towards a better world with a true impact on society. n Alexandra Levin Kramer is the founding chair of the Blockchain Technology & Digital Currency practice group of CKR Law LLP, where Marina FyrigouKoulouri is an associate. CKR Law LLP is a global firm of experienced lawyers with diverse international practices. It has over 50 locations and 300 attorneys. CKR Law’s Blockchain Technology & Digital Currency practice group includes over 40 attorneys world-wide and provides clients with sophisticated and knowledgeable legal advice in underlying legal specialties such as securities, real estate, intellectual property, banking, finance, corporate, investment funds, employment and litigation. For more information, please visit or email questions to 41 Wolfson, Rachel. “U.S. State Of Wyoming Defines Cryptocurrency ‘Utility Tokens’ As New Asset Class.” Forbes March 13, 2018, https://www.

39 “H.R. 2187 (114th): Fair Investment Opportunities for Professional Experts Act,” TEXT, bills/114/hr2187/text. 40 “H.R. 2187 (114th): Fair Investment Opportunities for Professional Experts Act,” OVERVIEW, bills/114/hr2187 MicroCap Review Magazine



Oil Market 2018, What to Look For? 2

017 ended up on a positive note for the overall Oil industry and as we start the New Year all indexes are showing a continuation of an upward trend. Oil prices continued to climb to fresh threeyear highs these early days of 2018, boosted by declining U.S. crude stockpiles and ongoing geopolitical risk. Still, prices resumed their upward trajectory, as investors focused on a drop in the amount of oil at the main storage hub in Oklahoma and a decline in U.S. oil production. U.S. producers slowed down, cutting



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output by 290,000 barrels a day in the first week of January. Total stockpiles of commercial crude and petroleum fell 5.5 million barrels, dropping to the lowest level since June 2015. U.S. crude futures settled at $64.30 a barrel on the New York Mercantile Exchange. Brent at $69.87 a barrel on ICE Futures Europe. Prices have climbed more than 50% since June2017, and both benchmarks have posted gains for four straight weeks, propelled by geopolitical tensions, supply disruptions and production cuts by the Organization of the Petroleum Exporting Countries. More recently, prices have been boosted by extremely cold weather in the U.S. and China, along with questions about whether the Trump administration would reinstate some sanctions on Iran. The Administration to extend the nuclear deal but impose new Sanctions was well received by the Market and Oil continued to go up. Analysts who until now predicted a price in the low to mid $60 per barrel are now suggesting that U.S. crude prices could hit $70 a barrel soon and reach even higher, with few willing to stand in the way of relentlessly rising prices. A weaker U.S. dollar has also helped lift oil prices. The ICE Dollar Index sank to its lowest level in more than three years in early January driven by expectations of monetary-

policy tightening. A weaker U.S. currency makes dollar-traded oil less expensive for foreign buyers, and so its price tends to rise as the dollar falls. A confluence of events has contributed to the new year rally: a steadily expanding U.S. economy as many countries around the world are also growing, the expectation companies will continue to report big gains in earnings and the passage of a broad tax overhaul that is expected to bolster profits even further. Shares of energy firms were among the biggest movers so far with those companies in the S&P 500 climbing 2%. Energy stocks in the broad index have gained 6.2%— the best of any other sector—to start 2018, extending a late-year rally that has coincided with a rise in oil prices. The surge is a major reversal for energy stocks, which were the second-worst-performing sector of the S&P 500 last year. Chevron added $3.91, or 3%, to $132.57, putting it among the Dow’s biggest point contributors, while Hess rose 1.72, or 3.2%, to 54.72. Energy stocks could get an added boost in the coming weeks, as those companies in the S&P 500 are expected to more than double their fourth-quarter earnings from the yearearlier period, according to several estimates, the best of any other sector. In its monthly short-term energy outlook,

the EIA increased its estimate for world oil demand growth by 100,000 barrels a day while it boosted its forecast for supply outside the Organization of the Petroleum Exporting Countries by 300,000 barrels a day—mainly the result of U.S. shale production. The agency now expects U.S. crude production to increase to 10.3 million barrels a day this year, up from a previous estimate of 10 million barrels a day.

Energy stocks could get an added boost in the coming weeks, as those companies in the S&P 500 are expected to more than double their fourthquarter earnings from the year-earlier period, according to several estimates, the best of any other sector.

posITIve polITICal ClImaTe

on above $60 per barrel, at a time when US shale production is surging, and global crude inventories are expected to rise, testifies to Opec’s enduring clout. It has only been able to be this effective in its strategy of production restraint, however, because it has allies, above all Russia. The good understanding between Khalid al Falih and Alexander Novak, energy ministers of Saudi Arabia and Russia respectively, has been one of the more unlikely alliances of the year: their countries have long been strategic rivals. But in the face of the common threat from low oil prices, i.e US Shale producers, they have been remarkably effective in maintaining a more-or-less united front in assessing the problem in the market and agreeing the action needed to fix it. The relationship can be expected to become more difficult this year: Russian oil producers are eager to increase production. If the International Energy Agency is right about world oil production exceeding consumption in the first half of the year, as US output booms, there will be renewed questions about Opec’s strategy. For now, though, the cartel can look back on 2017 as an effective year. Another interesting development to watch in 2018 is the mega IPO being prepared by Aramco. It seems that the project is being pursued full speed as Saudi Arabia has recently changed the status of its national oil giant Saudi Aramco to a joint-stock company as of Jan. 1. This is a key step for an initial public offering planned for later this year. Analysts estimate the sale of up to 5 percent of Saudi Aramco, expected to go ahead in the

The Trump administration has proposed opening up nearly all the country’s offshore areas for oil and gas drilling, a move that would affect every coastal state, and has provoked fierce debate in the oil industry. Under the plan announced by Interior Secretary Ryan Zinke, the government would offer for sale the largest number of oil and gas leases in U.S. history starting late next year. The department also proposed reversing drilling-safety rules implemented after the 2010 Deepwater Horizon accident, which killed 11 workers on the drilling rig and caused a massive oil spill. The U.S. government hasn’t sold leases for oil drilling off of the Atlantic and Pacific coasts in more than 33 years, so the proposal is meeting broad opposition, including from environmental groups. Opponents fear a threat to economic activity, including tourism. In addition, the Tax Reform Act included the famous (or infamous) ANWAR legislation which allow Oil company to drill in the Artic region. Clearly the Administration has launched a very clear signal that it is pro-business and especially pro US Oil producers.

overseas, InDICaTors are green OPEC proved in 2017 that it can still exert some influence over the oil market, at least for a while. The fact that Brent is hanging

second half of 2018, could generate about $1 billion in fees for bankers and in excess of $100 billion for the Kingdom. 2018 will certainly bring us a lot of surprises, lets watch the month of April & May with a new formal Meeting of OPEC and the Trump Administration decision on the Iran deal. n I wrote this article myself in reviewing public disclosures, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Please be aware of the risks associated in investing in any of these stocks and this Article should not be considered as an invitation to purchase any of these stocks. Frederic Scheer is CEO of L6NRG, LLC & L6NRG MONTANA I, LP an oil and gas mineral and royalty Delaware limited partnership based in Bozeman, Montana. L6NRG MONTANA I, LP is managed by L6NRG, LLC. a Montana Limited Liability company, engaged in the business of oil and gas exploration and production of oil and natural gas properties primarily in the Bakken and Three Forks formations within the Williston Basin in North Dakota, Montana and in Wyoming. He is also the CEO of Libra6 Management, Corp, a small private equity company operating in new alternative technology, media and chemicals. Scheer was the Ceo of several public companies including Cereplast a biomaterial company, the Cannon Group, an entertainment company and Imperials Hotels a hotel management company. Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

MicroCap Review Magazine



How Macroeconomic News Impacts MicroCap Stocks Interview with Charles V. Payne Transcription of interview on the Planet MicroCap Podcast, Episode 62, with Robert Kraft



MicroCap Review Magazine

Robert Kraft: Here we go. This is Robert Kraft and I’m your host on the Planet MicroCap Podcast. And with me today is the host of “Making Money with Charles Payne.” Charles welcome to the Planet MicroCap Podcast. Charles Payne: Thank you very much. Nice to be here. Robert Kraft: It’s great to have you on and thank you so much for joining me. I know you are incredibly busy so, with that let’s get right to it. To start off as I do with all my interviews on here, you know, what is your background? Charles Payne: Well how far back you want me go? Robert Kraft: As far back as you want. Charles Payne: Well my background going all the way back is I was an army brat until I was 12 years old and then I lived in Harlem, USA. Which is where I initially got the idea I wanted to be in a stock market because we went from having everything to having nothing. And being the oldest I was motivated to, to go out and try to help the family out. So I equated wealth with Wall Street and the stock market, started reading a journal about my first mutual fund when I was 17. My mom co-signed and I bought my first stock when I was 18. So you can say I was hooked in an early age. I went to the airport so I can go to college and when I got out I started working at EF Hutton on the research side which I love, absolutely loved. The only problem is there was no money. So I went to the read to the brokerage side and the brokerage side

was interesting. It was tough. It was, but it wasn’t what I thought particularly back then. I always sort of romanticized it being, you know, you go home. You do a lot of work. You find great investments for your clients. But instead it was sort of, you know, you go to work and whatever this is the stock does your is that’s what you pitched to your client. So I was always sort of disenchanted with it. And at some point I decided to sort of merge both of them. My knowledge of the faulty research and on Wall Street and some of the, some of the real serious issues that have been addressed over the years to a degree, and my love for research and I started Wall Street Strategy. So we’re gone in about 30 years [00:02:00]. Robert Kraft: So what was it that really got you into the stock market? Because, you know, you think to yourself I’m going to make money and, you know, some people will go and get a job. But, you know, what about the stock market really drew you in? Charles Payne: Well we went from having a lot and living in a two-story house and had my own room, ride our bikes all day, never locked our doors, play all day, come home, make a peanut butter and jelly sandwich, and go back and play again, to moving to perhaps one of the most, well certainly was the poorest and most violent neighborhood in America in the early 1970s. So I never knew that you could actually live in a place that didn’t have heat or hot water. I didn’t know we could go through a whole winter without that. I didn’t know, I never knew about the kind of poverty that existed out there and

we landed smack dab in the middle of it. So I never thought about money a single day in my life and then I became obsessed with it. And I did whatever I had to do. I would clean windshields and stoplights with paper towel and Windex and shovel storefronts during wintertime. But that’s when I became intrigued by it. And then I became even more intrigued by the different individual stories, particularly start-up companies. My first stock I bought in fact was MCI and it was started by a guy who was using TV antennas off of people’s house, off the roofs of people’s houses and as his network. It was, he was going to go against AT&T with this thing. It was an amazing story, and it was an amazing stock for a long time. Robert Kraft: So I take it that your first real, you know, step in to the stock market was in microcaps then? Charles Payne: It was a low price stock. I’m not sure how much it was but it was certainly a startup. It wasn’t, it was a brand new company. I love the fact that the guy who started was a maverick and he was going against one of the biggest companies in the world. One of the most established and biggest companies in the world and he was making it happen. So I said I like this, you know. And like that was where I put my first thousand dollar investment. Robert Kraft: So you know another question that I had is, is what is your investing strategy, you know, when, when you’re considering a new potential investment? Charles Payne: I usually, I look, I’m usually [00:04:00] I began sort of with a high view you know you could call it 10,000 feet view of the world. And then I started to drill down and when I’m when I’m often looking at our conditions, overall economic conditions and drivers. So I’m researching things that a lot of people don’t, you know, like Class VIII truck orders or the, the utility rates for, to rent construction equipment, Caterpillars retail sales. And I’m looking at those kind of things all the time. And, and for ideas, not just on investing but the

I love the fact that the guy who started was a maverick and he was going against one of the biggest companies in the world. One of the most established and biggest companies in the world and he was making it happen.

all economy. Once I’ve determined what I like where I like it for instance a consumer discretionary I like a lot I think the death to the consumer was, was certainly exaggerated. We, we just had a period of 20 years where we built too many malls and while there will be some, you know, some different things happening with brick-andmortar. This is this sort of notion it was they were all dead. Created a lot of opportunities. So I looked from that area and then I drilled down into an industry from there I determined the valuation by doing peer to peer reviews. I look at maybe four or five names in that particular space. And what I like more than anything else is pricing power. Without, without giving up any sort of volume. The best example that would be Apple. Yeah, Apple, even in the last earnings support that was considered a disappointment saw the average price of their iPhones go up 100 bucks year-over-year. And while they don’t break out which phone sold how many, you know, units it was pretty obvious that their most expensive phone was selling like hotcakes. And they didn’t lose market share. That’s the ultimate one-two punch. From there you look at margins. I want to make sure companies aren’t scrimping up. It’s a tech company or medical company, I want to make sure they don’t hit the bottom line by cheating themselves on research and development. It was a retail company I want to look at the balance sheet. I want to make sure inventories I’m building. If it’s a home builder there’s almost every industry has its own little idiosyncrasies. So from, from a

broader view [00:06:00] I start at the top of the income statement, work my way down, and then I look at valuation, historical valuation and where the company is and I look at its peers. I love companies that are taking market share. And I love companies that are expanding their margin. So I always say if margins are expanding, you know, out sideways then a stock should go higher. Robert Kraft: So you brought up a key phrase also that we haven’t really covered yet on the podcast and that’s pricing power, you know. I feel like that’s a really key indicator that you’d want to look at, you know, for, for those who don’t know what, what exactly is that and where would they go and look for to see if a company has that advantage to it? Charles Payne: Well it’s hard. You got to do a lot of work and you can Google this stuff and get an article here, article there, but for me I just do old-fashioned number crunching calculator, I get it out and like I said, it’s almost every company will give you just a lot that you need with their filings, with their Securities and Exchange filings. And you get in there and you just sort of crunch the numbers and take the available information. Now some companies will tell you right in there, for instance, when they release their earnings, we took market share this quarter, that makes it easier. But, you know, for the most part you got to sort of do the work yourself. So you have four companies in a certain industry and three are growing at 20% but one is growing to 30%, you know, more than likely they are taking MicroCap Review Magazine


market share particularly if they haven’t discounted the product. So those kinds of things are reverse engineered also. Robert Kraft: When you have the time to do all this number crunching that? Charles Payne: All day long. That’s all I do all day. You should see what I did today. I did a, I’m working on a piece now on Trumponomics – and I’m working, looking at Ronald Reagan’s and Barack Obama. Because they both have to use a lot of deficit spending to try to correct the economies that they inherited. And in one economy, the one on the Reagan grew almost to 4% annually. The one under Obama only grew 2%. So there’s a distinction as to why this happened and because a big thing is [00:08:00] we’re going to have a new budget, I guess, eventually. Certainly a new form of governing for the next several years and I’m thinking Trumponomics is going to be close to what Reagan did. But with a few twists but will would be successful? Obviously I’m a fiscal conservative. I would love to see him cut spending. The political reality is that’s not going to happen for a long time. No one will touch Social Security, not even amend it or Medicare. So dealing in that reality, if we do have deficit spending, how can it be most effective? And, you know, one of the ways, of course, is cutting regulations and things like that. So but that’s, you know, I’ve got like four pages to go already on I mean I’ve already written four pages and crunched all the numbers on that. So day and night that’s all I’m doing is crunching numbers. Robert Kraft: I just want to make sure you’re properly caffeinated that’s all I could...

Charles Payne: My handy Espresso machine right there. Now I would offer you a cup but I don’t clean it too often so not a one get accused of you know but I’ve not got a lot of Espressos and but I’m always excited to it the work itself is pretty energizing. Robert Kraft: So another question I had too is regarding your work over Wall Street Strategies, you know. I think part of one of your offerings is that you help individuals with their portfolio construction, you know. Do you have any tips and tricks on the, on, you know, how you would construct your own portfolio? Charles Payne: Well yeah the bottom line is it goes back to sort of the macro view. So right now coming into 2018 I love consumer discretionary. So I would be overweight consumer discretionary. Let’s say I had 10,000 bucks. I would probably have 2000 of that in consumer discretionary, 2000 materials and 2000 in industrials. And then there and maybe 2000 in technology. So that doesn’t leave me a lot of money because I’m going to keep some in cash and then the rest might be in some other areas. So I again I construct a portfolio based on where I think the best opportunities in growth will be [00:10:00] generally over the next three to six months and try to balance it that way. Robert Kraft: So another question I had is, you know, with your show here at Fox you get to see how the news affects the market on a day-to-day minute-by-minute basis. In your opinion and I know we could do one podcast just on this question alone but, you know, how does macro news potentially affect the MicroCap space?

I think the news affects MicroCaps and I would add that the greater sphere of entrepreneurship in a sense is that it either casts a feeling of optimism or feeling of pessimism. 100

MicroCap Review Magazine

Charles Payne: I think the news affects MicroCaps and I would add that the greater sphere of entrepreneurship in a sense is that it either casts a feeling of optimism or feeling of pessimism. And unfortunately overall the news really, really goes so far into spreading pessimism. Now I know that they say that the, you know, the train wrecks and that’s what you put on a cover of a newspaper. But when a stock market goes up eight trillion dollars when it went into values enhanced 8 trillion dollars in a media never talks about it. But then it has a rough week and it’s number one story market and underscores what I mean. So now you’ve scared a whole lot of people out of perhaps being investors in the market. But never once encouraged them or at least pointed to the good things that were happening. Bad news sells, I know that. But I think it also does a major disservice to these areas where you need smaller, whether small cap companies, micro cap companies or even small would-be investors. Even the tinkerer, the person that may have the next great mousetrap you need an environment where they feel like okay I feel like it’s okay for me to quit my job and do this and give it a shot for a year. We don’t, we haven’t had that sort of environment. I’m hoping that we get it because I think the media is doing, doing America disservice overall. Robert Kraft: What would you say, you know, also from let’s say the retail microcap perspective. I’ve done a few interviews with, with people that say you know I don’t even watch the, you know, [00:12:00] what the Dow Jones does on a daily basis and, you know, I just try and pay attention to the fundamentals, you know. What would you tell a retail investor that focuses in that sense? Charles Payne: Well that’s good. That’s what I focus on the fundamentals. So if you can do that, good. If you can read the newspapers and, and know that how to eliminate the voice of the author or focus strictly on the facts that’s okay. Same thing with watching news. If you say to yourself, Hey I’ll watch different news and you probably

should, you know, look at different things and, and do a little channel surfing just for balance. But, but the fact is is that and you can do that if you can block out the noise I think that’s a great gift to be quite frank with you because it’s, it’s just going to have you, you know, it’s just going to drive you nuts day-to-day. And, and all of it all it does is create uncertainty and uncertainty is not the proper backdrop for the success of anything. Robert Kraft: So you know how have you seen the microcap space? Well you know what, I’m going to take a step back, you know. Have you seen the stock market change, you know, over the years since you’ve been doing all this? And, you know, in particular have you, have you ever seen a market like this? I know last week we had thousand, thousand down and then back up and then thousand down again, you know. How, how would you, how should younger investors be wary or potentially be aware of this volatility, you know, what they, what should they take from this? That’s a pretty loaded question, I know. Charles Payne: Yeah, yeah. But you got to know history that’s all. I mean that’s the most important thing. I think most people when they’re alive they think that you know that’s the most important period of time and things that they saw is the first time it’s ever happened right? That never happened before. Well it did, you know. I joke around on Elon Musk. Tesla had this new electronic truck and you know they are starting to get some orders. But there was a retail department store that ordered three electronic trucks in 1900. So it’s, you know, there’s very few things that are new under the sun, even the emotions of the stock market, certainly that’s not new. So I have seen these kind of wild you know [00:14:00] gyrations in the market. The numbers are just larger if you the Dow’s at 26,000, a 1000 points it’s not the same as when a Dow is say like at 9000 and it goes down even 300 points. So those are things you have to put in proper perspective, the percentages. And you know also I think, 2017 honestly in many ways one of

I joke around on Elon Musk. Tesla had this new electronic truck and you know they are starting to get some orders. But there was a retail department store that ordered three electronic trucks in 1900. So it’s, you know, there’s very few things that are new under the sun, even the emotions of the stock market, certainly that’s not new. the best years ever for the stock market. Not obviously there were better years in terms of percentage gains but percentage gains juxtaposed to lack of volatility, lack of any kind of fear. Almost every single day the market was up. Now it was somewhat deceiving because if you looked and saw wow the S&P is up X amount often there were more stocks down than up. But you had a handful of names just a half dozen tech names that carried the market almost three quarters of the way through. But nevertheless just from a calming point of view, there was no volatility. There was no way I could stay that way there was no way the Federal Reserve to stay at 0% interest rates. There’s no way yields on a ten-year bond are going to stay at two-and-a-half percent. There’s no way we are going to have to sort of tranquility, just idyllic backdrop of no volatility. It’s okay, it’s fine when it happens, you know. This gets back to that person you talked about who is investing fundamentally. You got to go back and look at the fundamentals to help you get through those periods. You don’t want to be part of the crowd and what offends me and what I’ve been talking about it’s not these professionals come on and they talk about the dumb money. Oh 100 billion came in January, that’s dumb money. The markets just shaking them out. Yeah, it’s, it’s pretty offensive and I and I caution people not to be that dumb money by letting somebody spook you out in the market because you,

you know a lot more than you think you know. Most, this is what I know for a fact. People who listened to this podcast know a lot more about investing or at least what’s hot. Then they give themselves credit for. But they’ve been intimidated by the process [00:16:00] and so don’t let these guys spook you out of this market. Robert Kraft: I’d really love that advice. I mean that that’s like kind of the whole point of everything that we want to talk about here at the podcast that, you know, it’s, it’s a lot simpler than it may seem, you know. It may seem intimidating when you go and open an SEC filing and look at an inc- or also go and look at an income statement or a balance sheet and really at the end of the day, you know, it’s very simple math. You just have to know exactly more or less what you’re doing. You know what, actually what would your advice be to those who may be looking at that SEC filing and those income statements and be like Oh Geez, I’ve never been good at math, what do I do now? Charles Payne: If the math itself is not really that hard, to be honest with you. Yeah, listen it could get more complicated. Certain industries are harder than others, you know. Financials are harder. I mean you have to understand cap ratios and, you know, the drug industry is tough because no one really knows what’s going to happen. You’ve got three phases and then you have the new MicroCap Review Magazine


And one of my own personal pet peeves is I try to always be a student of the market. I don’t ever want to be a market maven/master. I want to be a student in the market always. drug application and all that kind of stuff. So certain industries have their own particular metrics that are, that become more complicated but the actual math in and of itself isn’t that hard. It’s really the time to be honest with you and I think people need to set aside. The math part it will come easy and it’s just how much time do you want to set aside to protect and grow the money that you’ve worked hard for. And unfortunately people put more time into, you know, finding a good doghouse than they will for finding a good investment vehicle for all that money they’ve worked for. Robert Kraft: You know this is kind of outside the box question too, I think, you know. In your opinion why do you feel, because it seems like millennial, I mean part of the reason I started this podcast is because I felt that there, I wanted more of, you know, Millennials, people my age to get into the stock market. There’s a lot of opportunity. That’s a great place to build wealth, make money, you know. In your opinion why has it been a slow adoption amongst my generation? Charles Payne: Well I think in millennial saw back-to-back market stock market crashes in a housing crash. That tends to sort of [00:18:00] you know spook you a little bit but they have been reinvigorated reenergized and things that they feel like they understand marijuana stocks, cryptocurrency, e-trades last earnings report was through the roof and that was because in millennial investors. And those, those are the main two categories that they are investing in. I would like to see them brought in it out.


MicroCap Review Magazine

And not necessarily think that a railroad is a boring thing to have in their portfolio, you know. There’s a little bit of excitement in getting rich overnight thing that probably dovetails into their culture. You know the same culture where someone will rent an hour of a private plane not to go anywhere but to take pictures in front of it put on an Instagram thing or in the same culture where Balenciaga crocs sell for 150 bucks and sell out in an hour. So there’s some of that element too, you know. Some of that get-richquick element which is okay. But the notion that you can get rich, that your money can work for you is the first step. So I’m glad that millennials are starting to believe that. Robert Kraft: Cool. So another question I had for you is what experience do you draw upon the most that really helped shape your investing strategy? Charles Payne: Really, it’s a couple things. One I always found throughout my career when it was like very dark or I thought things were going to just not work out. They actually ended up being turning points for the better. In fact I wasn’t a broker long when the 87 crash happened and I’m thinking to myself, God like this is what I wanted to do forever. And I’m watching the market crash and I just left the office and went to a bar, had a couple of beers, and I’m walking back to the office, I see one of my buddies. I was like how much did we end up down? And he told me. I’m like, Oh it’s over. And I ended up opening a lot of new accounts that month, open more the next month, more the next month. It was just, it was amazing. So there are a lot of times when, when you

think, you know, it could, it’s over when you, you know, but it’s not. But you have to also be [00:20:00] willing to take those as learning experiences and, and implement them. There’s no perfect approach to this. Because short-term is emotionally driven and anything can move markets. Long-term I think it’s always going to be the fundamentals but those are the most important things I think. And for me just hard work. I don’t know any shortcuts. I wish I did, you know. But I just I just know I try to put the same amount of work in. And one of my own personal pet peeves is I try to always be a student of the market. I don’t ever want to be a market maven/master. I want to be a student in the market always. Robert Kraft: Speaking of that I had I have to ask because I know you’re an avid reader what’s your favorite investing book of all time? Charles Payne: Oh yeah, yeah. I know, I know I’m supposed to say like Benjamin Graham or Adam Smith. I tell you my favorite book that it’s not necessary pure investing book but Against the Gods. It’s a great book and it talks about man learning to take risk. And it’s really that’s, that’s probably the book I that I really liked the most with respect to the stock market and I like my own book Be Smart, Act Fast, Get Rich and I think that’s something that, its ten years old but I still think it’s about 95 percent relevant. Robert Kraft: I’ll definitely put a link to that in in this. And another question, you know, what’s your advice for any new microcap investors or any new investors looking at the stock market as a potential place to put their money? Charles Payne: Don’t make it a casino. How do you make it a casino? You take a shot. You buy one stock and see how it goes, give it a couple days or a couple of weeks, you know. Be committed to a long-term, that commitment means that it’s going to be something you do from now until let’s say you retire at least, maybe longer. That

you are going to commit money to it, and time to it, and you’ll build and manage [00:22:00] your portfolio. If you are going to give it a shot I just say I’d rather see you go to Vegas and have a good time and catch a couple of good shows. And unfortunately too many people come into the market and buy a stock that they heard about it the water cooler doesn’t work and they walk away from the greatest money-making machine ever known. Robert Kraft: So I have to close out on this one question because you are, you know, you, you see the news on a daily basis and I know you’re not an oracle by any means but you know what do you see happening in stock market for 2018? Charles Payne: In 2018, I see the Dow getting to 29,000. I see GDP growth about three-and-a-half percent for the year. I see employment and wages going up. I see the Federal Reserve hiking rates three times. I see more volatility. And I’m hoping to see and I believe we will, an uptick in entrepreneurship, business startups, particularly by native-born Americans. That number has slumped dramatically in the last ten years. It’s really interesting that people born outside this country see the opportunities more so than people born here. And I’m hoping that we make a dent in the opioid crisis and which is also an economic story as well. I’d like what I see so far in manufacturing, over 200,000 jobs created since last January. Again that’s middle America stuff. I like it. I think it’s going to continue. So I think this could be a really, could be a great year

economically for the stock market and the average American. Robert Kraft: And where can my audience go and find more information about you, go watch Making Money with Charles Payne, you know let’s do? Charles Payne: Making Money with Charles Payne every night Monday through Friday on Fox Business Network 6:00 PM Eastern, and you can go to my website www. I write every single day for that and it’s a free commentary. Robert Kraft: Can you actually give a little more overview actually on Wall Street Strategies. I don’t know if anybody knew that you have the service out there at least in my audience [00:24:00]? Charles Payne: Yeah, it’s a stock market research, independent stock market research. Been doing it for 30 years. It’s, after I did the, the research side make no money. I did the analytical side made money, but was very unhappy. I kind of merged those two and started this company. Initially I sold my research only to professionals and later I started selling to individuals, a subscription base. And I’ve developed different services over the years. If you’re a trader, if you’re buying and hold, if you are long-term, and I take the most pride in my daily commentary. I’ve put a lot of work into it every single day. It’s unique. It’s, you’re not going to read it in the journal or anywhere else. And I really try to educate people. I really try to go beneath the surface and crunch those numbers for them so that they understand.

Because it’s one thing to see the headlines, it’s another thing to know what’s driving those headlines. Robert Kraft: Well I think you definitely provided a little bit of illumination on that in this interview. So, Charles, thank you so much for your time today and I really do appreciate it. Charles Payne: Thanks a lot, Bobby, and congratulations. Robert Kraft: Thank you. n Charles V. Payne is the Founder & CEO of Wall Street Strategies. His stock selections reap sizable profits for his subscribers and viewers. Charles is featured on the Fox Business Network Monday-Friday  at  6 PM ET  on «Making Money with Charles Payne». He is a member and occasional host of «Varney & Co». In addition, he guest-hosts several shows including «Cavuto on Business» and «Your World».  Charles is not only widely recognized in the media sphere as a thought leader on stock markets and politics, but is also the best-selling author of «Be Smart, Act Fast, Get Rich». In his book, he helps the average investor demystify the stock market and profit from it, explained in a manner that only he could deliver.  When Charles is not in the media spotlight, he is routinely sought after for his market and political opinions by prestigious organizations, and is featured and available for seminars and speeches. Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

In 2018, I see the Dow getting to 29,000. I see GDP growth about three-and-a-half percent for the year. I see employment and wages going up. I see the Federal Reserve hiking rates three times. I see more volatility.

MicroCap Review Magazine


Episode 17 Cleaning Up on Wall Street A different kind of business gets done in the lavatories on Wall Street but when the business is the toilets an IPO is the end result

Where’s Mickey?

Hey, can somebody throw me a roll of toilet paper? #$@&%*!

Mickey and Flagowiz are coming

So Matt how are things at Flusher?

Richard they couldn’t be better. We are cleaning toilets across America for some of the largest fast food restaurants. Okay guys…this is Matt Flusher, from The Flusher Company

Would you believe there was no toilet paper in the mens room!

You know boss this is Wall Street the worst bathrooms on earth!

Wow you wear gloves. What does The Flusher Company do?


You’re kidding me. Where were you ten minutes ago?

Well Mickey, we clean America’s Toilets!

Really good to meet you both. Flusher cleans toilets, urinals, sinks and floors for the fast food industry.

He’s in the bathroom. Morning constitution.

Great name for a toilet bathroom cleaning company!

Matt, why don’t your customers clean up their own mess?

Matt Flusher is a great salesman, I mean who else could convince the Fast Food industry to hire Flusher to clean their toilets!

One man’s crap is another man’s gold believe me!

Fast food restaurant bathrooms don’t compare to Wall Street men’s rooms on their worst day. Right Mickey? Disgusting

Let me answer that like this. Do you clean the toilets in this office?

I noticed our bathroom has Flusher urinal mats. Great advertising.

Good point

Glad you were impressed. Let’s give Flusher the money to grow his business! I hope he doesn’t flush it down the toilet


No chance

He’s not like you, you need a blueprint to wipe your ass.

Flusher got their money and cleaned up on Wall Street, but not the bathrooms.

MicroCap Review Magazine Created by: Shelly Kraft & Lynda Lou Kraft / Developed by: Shelly Kraft / Written by: Shelly Kraft & Lynda Lou Kraft

MicroCap Review Magazine


pInk: spyr


spyr A Mobile Games Publisher with Big Aspirations Fueled by Licensed Content, Esports and Acquisitions


n late 2014, the mobile games industry was on the brink of propelling itself past console gaming to become the electronic games

industry’s most lucrative sector. Forecasts at the time showed that the mobile games segment was primed to do $25 Billion of revenue in 2014 and more than $40 Billion by 2017. At that time, customers knew SPYR as “Eat at Joe’s,” a restaurant operator owning a single American Diner-themed eatery in the Philadelphia airport. SPYR’s Chairman of the Board, however, had a vision that the company could take advantage of the insane growth and revenues in the world of technology, including the electronic games space. He also knew that to make it happen, he had to bring in a new management team and get the right pieces in place so that the company could successfully shift into the 21st century. In February of 2015, Jim Thompson took over as CEO and President. Jim’s more than 28 years of experience as a business attorney and extensive contacts in a plethora of industries gave him all of the tools he needed to transform the humble restaurant company, Eat at Joe’s, into a world-class electronic games company, SPYR. SPYR’s transition from hamburgers to pixels started off slowly. We ventured into a website advertising business before launching three small mobile games: Plucky, Plucky Rush and Rune Guardian. SPYR next published Retro Shot, a casual, retrostyle game developed by former employees of Finnish developer Supercell. The team


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at SPYR quickly learned that launching a game was easy, but monetizing a game was a whole other bag of burgers. SPYR’s management team, determined to create success in the games industry, connected with Lars Koschin, one of the most prominent early players in the German massively multiplayer online (MMO) games industry, and an individual who had also launched 25 MMOs in his career. Together with Lars and his team in Germany, SPYR published its flagship game, Pocket Starships. Unlike SPYR’s previous games, Pocket Starships is a real-time, truly cross-platform multiplayer game. It appeals to a hardcore gaming audience, as opposed to casual gamers. The multiplayer aspects of the game encourage competition, which, in turn, drives players to spend money on weapons, ship upgrades, and resources. The cross-platform, real-time aspects of the game mean that the game is playable on mobile devices, desktop, and laptop computers, with all players in the same universe. It provides a unique opportunity to market to players on all of these types of devices, playing from anywhere, on the same account, in the same game universe, simultaneously. Pocket Starships was a solid game, but it needed changes to succeed. The company implemented a strategy to make the game more appealing to players. SPYR would add

IP with a mass-market appeal to the game and prepare it for entry into the burgeoning world of esports.

usIng poCkeT sTarshIps To buIlD a general sTraTegy SPYR spent 2016 and 2017 expanding its team and working with Lars and his team doing extensive development work on Pocket Starships, always with an eye toward creating a game that would take full advantage of the billions of dollars being spent by gamers on a yearly basis. Part of the team expansion included adding Farshid Almassizadeh as a Strategic Advisor and Mike Turner as SPYR’s VP of Strategic Partnerships. Farshid has been honing his skills in video game production and management for the past 30 years with a long line of accolades behind him. Some of his accomplishments include acting as Senior Director of Product Development for The Simpsons and The Sims Console franchises, President of Operations at Age of Learning, Inc. and Vice President and Chief Operating Officer at Electronic Arts Interactive, which included EA Mobile, Pogo, Playfish and PopCap Studios. He developed the Sims Console Division in 2003 and was a founding member of the multiple award winning Presto Studios in the early 90’s. Mike is also

a games industry veteran who previously held leadership positions at companies like Wargaming America and FASA Studios at Microsoft. Mike brought and continues to bring to the table a wealth of knowledge about game monetization, advertising, and partnerships for expansion and acquisition opportunities. Based on guidance from Farshid and Mike, we regularly added new features to the game. We added a player vs. player (PvP) mode which allows players to compete directly against each other one-on-one (1v1), three-on-three (3v3) or five-on-five (5v5). We added a leaderboard system allowing players to see how they stack up against their friends and other players. These new features were designed to increase competition in the game. The second prong of the new strategy was to license IP with substantial market power for the game. SPYR engaged with CBS Consumer Products and, in mid-2017, was able to secure a license to add content from the Star Trek™ television series franchise, specifically Star Trek: The Next Generation, Star Trek: Deep Space Nine and Star Trek: Voyager, into Pocket Starships. Pocket Starships: Star Trek™ Borg Invasion is still in production and, when released, should attract an entirely new audience of Star Trek fans to the game, where they will be able to earn and buy ships from the Star Trek universe and add many favorite Star Trek crew members to those ships. Finally, SPYR focused on using the PvP system within the game to create a tournament mode in preparation for its entry to esports. Esports is a rapidly growing segment of the game industry, in which video games are played competitively for fans attending live arena events in the tens of thousands and watching online on Twitch and YouTube Gaming into the millions. Esports has established itself globally. There are professional teams from nearly every country. The dramatic increase in fan interest in esports is driving massive growth in salaries and prize money for this new cat-

egory of professional athlete. This growth is fueling increases in the participation of endemic and non-endemic sponsors, in ever-increasing numbers, and scale. Today, console and PC games dominate esports, but mobile games are gaining traction. From 2012 to 2015 alone, video game sales revenue increased by eight billion U.S. dollars. The growth of the gaming market continues to move aggressively. Statista, a statistics web portal assimilating data from tens of thousands of sources, estimates that PC and Massively Multiplayer Online games will grow at a compound annual growth rate of 3.6% through 2020, from a 2016 baseline of 26.7 billion USD. Mobile is unquestionably a key growth market for gaming. While PC and console revenues will remain strong, Statista data sources indicate that the worldwide value of mobile gaming will exceed 74 billion USD -- twice that reported in 2015. SPYR wants Pocket Starships and future games it publishes or acquires to be dominant players in the growing mobile esports market.

applyIng The sTraTegy To fuel growTh anD To make aCquIsITIons While still working to perfect the performance of Pocket Starships, SPYR is moving to incorporate the best elements of its Pocket Starships strategy into other games. First, SPYR will release a new game based entirely on a popular television program from Cartoon Network. The game is in one of the fastest growing game genres - the idle tapper genre - in which players tap to defeat enemies and in which a player’s progress in the game can continue even when he or she is not playing. SPYR will also innovate by adding competition with team play, leaderboards, and other exciting features. Cartoon Network’s Emmy-nominated Steven Universe revolves around Steven, the “little brother” to a team of magical aliens— the Crystal Gems—who defend the planet Earth. Steven is the son of the Crystal Gems’

late leader Rose Quartz and aging aspiring rockstar Mr. Universe. Steven belongs everywhere and nowhere: he has inherited his mother’s Gem and her magical powers, but also his father’s humanity and charm. The show is a slice-of-life action comedy that follows Steven as he attempts to bridge the gap between the sci-fi fantasy world of Gems and the cozy, funny, simple-yet-extraordinarilycomplicated world of human beings. Steven Universe is created by Emmy and Annie Award-nominated writer and New York Times bestselling author Rebecca Sugar, and produced by Cartoon Network Studios. Most exciting for the future of SPYR is its acquisition strategy. SPYR is diligently working to acquire games or companies that already have a significant footprint in the industry. SPYR is looking for games and companies with substantial user bases and unfulfilled potential. For example, SPYR’s could acquire an established PC game title that does not have a cross-platform or standalone mobile component and close that gap. Similarly, SPYR could acquire games that can be brought to new competitive platforms, like Steam, and new communities, such as esports, allowing the company to realize the product’s fullest value. Finally, the company will identify unique games with engaging gameplay, the marketability of which is extensible with the right IP, for discovery by players through their identification with the associated intellectual property. SPYR is using all of these strategies to improve its current game monetization and to grow through specific, high-value acquisitions, and the executives at the company think the future looks very bright. It’s a brave new world for the little ex- burger and cheesesteak restaurant company and the excitement has only just begun. n SPYR: The article may contain forward-looking statements about SRYR. See SPYR’s periodic filings with the Securities and Exchange Commission for more complete information.

The company paid consideration to SNN or its affiliates for this article.

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aCCounTIng Corner Column on page 69

see aCounTIng Corner page 23

Accounting Corner Column on Page 23

MicroCap Review Spring 2018  

MicroCap Review, The Official Magazine for the MicroCap Stock Market, is pleased to bring to you the Spring 2018 edition of the MicroCap Rev...

MicroCap Review Spring 2018  

MicroCap Review, The Official Magazine for the MicroCap Stock Market, is pleased to bring to you the Spring 2018 edition of the MicroCap Rev...