Microcap Review Fall 2017

www.stocknewsnow.com • $5.00

The Official Magazine of the MicroCap Stock Market Since 2006

FAll 2017

SRAX Page

14

NASDAQ CM: SRAX Christopher Miglino , Co-Founder, CEO www.srax.com

AzurRx BioPharma, Inc. Page

30

Delicious

RIWI Corp.

Page

28

CSE: RIW, OTC MARKETS: RWCRF Neil L. Seeman BA, J.D, MPH, Founder & CEO www.riwi.com

NASDAQ CM: AZRX Thijs Spoor, CEO www.azurrx.com

MariMed, Inc. Page Facebook

FEATURED ARTICLES

8

Slash Dot

Flickr

MySpace

Mixx

12 MicroCaps Trending Higher Into End of Trend

40 A Massive $Trillion Industry is Born

75 Impact of Trump Administration on the

34 Cannabis Investing – What Looks Interesting

52 What BioPharma Investors Need to Know

Exploration and Mining Public 78 Uranium Reddit FriendFeed

Steven M. Shelton, MS, MBA, CFP®, CLU, CHFC, TEP, CIMA®, CMT Dr. Lauren Chung

36 The Art of Value Investing

Sanjay Bakshi & Robert Kraft

with a Transfer Agent 39 Partnering www.stocknewsnow.com Steven Nelson

Dr. John L. Faessel

About Financial Disclosure Robert E. Fiorentino, CPA

56 Junior Resource Market:

2017 Mid-Year Review Rick Rule

66 Man Versus Machine? No! Man Plus Machine! Len Haussler, CFA

Twitter

Retweet

OTC MARKETS: MRMD Robert N. Fireman, Esq., CEO StumbleUpon Digg www. marimedadvisors.com

Skype

Technorati

YouTube

LinkedIn

Google

Google Talk

Oil Price Frederic Scheer Companies Mike Alkin

86 Will the Private Public Joint Venture “PPJV” Reinvent the PIPE Market?

Newsvine SlideShare Karl Douglas

91 Crowdfunding on the Verge of Mainstream Alon Goren

NASDAQ CM: FNJN Page 44 for Article Page 24

20 Years at the Center of Cybersecurity

Finjan Technology & Patent Licensing

Software & Hardware

Malicious Code Research Center

M86/ Trustwave Merger

www.finjan.com

Innovation Fund (JVP)

NASDAQ: FNJN

Finjan Mobile

investors@finjan.com

Cyberisk Advisory Services

O

In Loving Memory of Our Precious Daughter, and Sister, Sammi Kane Kraft Published Since 2006

www.stocknewsnow.com Follow us: @StockNewsNow SNN Inc. 5839 Green Valley Circle Suite 205 Culver City, Ca. 90230 www.StockNewsNow.com PUBLISHER Shelly Kraft SNN Chairman/Founder/CEO skraft@snnwire.com Lynda Lou “Lulu” Kraft SNN President EXECUTIVE EDITOR Robert Kane Kraft SNN Chief Operating Officer rkraft@snnwire.com Wesley Ramjeet SNN Chief Financial Officer info@snnwire.com ASIAN PACIFIC CORRESPONDENT Leslie Richardson SNN COMPLIANCE AND DUE DILIGENCE ADMINISTRATION Jack Leslie CHAIRMAN OF SNN ADVISORY BOARD Dr. Leonard Makowka ADVERTISING and SALES info@snnwire.com 424-227-9018 GRAPHIC PRODUCTION Unitron Media Corp info@unitronmedia.com SNN CONFERENCES info@snnwire.com 424-227-9018

Micro-Cap Review Magazine is published periodically. POSTMASTER send address Changes to Micro-Cap Review Corporate Offices. ©Copyright 2017

by Micro-Cap Review Inc. All Rights Reserved. Reproduction without permission of the Publisher is prohibited. The publishers and editors are Not responsible for unsolicited materials. Every effort has been made to assure that all Information presented in this issue is accurate and neither MicroCap Review Magazine or any of its staff or authors is responsible for omissions or information that is inaccurate or misrepresented to the magazine.

Micro-Cap Review is owned and operated by SNN Inc.

www.stocknewsnow.com

nce the DJIA blasted through 22,000, the market went from bullish to new daily records. As billions in reported profits continue to pour into the coffers of US and Canadian public companies, a stock market euphoria has overtaken us, which is a good thing for investors, shareholders and for many MicroCap companies. Here’s why: increasing revenue and corporate earnings are providing new cash and equity capital which companies can deploy in several ways such as: paying out or increasing dividends, debt reduction, new hires & expansion, repurchasing shares in the open market, capital expenditures for new facilities, or to purchase target microcap companies. Many microcap target companies are undervalued and ripe for the picking by those seeking to expand their businesses through partial or complete acquisitions.

The next phase of this incredible bull market could be most beneficial to companies we all follow, the microcaps, which are usually the last group to be bought in bull markets and the first to get sold in bear markets.

Many microcap companies are currently raising new capital or looking for corporate synergies as this magazine issue publishes.

This issue highlights 16 profiled companies including: On the front cover: MariMed, Inc., our first Cannabis industry front cover company, RIWI Corp., a digital intelligence provider technology company, SRAX, an Internet advertising and platform technology company and AzurRx BioPharma, Inc., a clinical development stage biopharmaceutical company.

On the inside front cover is Finjan Holdings, Inc., a cybersecurity technology company, the centerfold is Teranga Gold Corp., an exploration, development and production and sale of gold company, and the back inside cover is Lucara Diamond Corp., an exploration, development and diamond mining company.

Here are the remaining profiled companies: BNK Petroleum Inc., an acquisition, exploration and production of unconventional oil and gas resource company, INVO Bioscience, Inc., a medical device company, PharmaCyte Biotech, Inc., a clinical stage biotech company,

E D I T O R I A L Reign Sapphire Corporation, a direct-to-consumer, branded and custom jewelry company, Clean Teq Holdings Limited, a multi-faceted technology and resource company, Eskay Mining Corp., a natural resource, acquisition and exploration company, GoviEx Uranium Company, an exploration and development of uranium company, Emerald Health Therapeutics, Inc., produces and sells medical marijuana and cannabis oils in Canada, and American Gene Technologies International Inc., a private company, that is developing lentivirus therapies for the treatment of cancer and other chronic human diseases.

This issue includes thought leader opinions and columns from Len Haussler, Opus Capital Management, Lou Bevilacqua, Esq., Bevilacqua PLLC, Brady Fletcher, TSX Venture Exchange, Jason Paltrowitz, OTC Markets, Frederick Sheer, L6 Chemicals & Logistics, Corp., John Lowy, Esq., Olympic Capital, Mark Shore, MBA, Shore Capital Research LLC, Rick Rule, Sprott Global Resource Investments Ltd., Miguel Colon, Transfer.ly, Steven M. Shelton, Cornerstone Global Group, Steven Nelson, Esq. Continental Stock Transfer and Trust Company, Rob Fiorentino, CPA, Friedman LLP., Adam Selkin, SLee 3 Consulting, Karl Douglas, PPMT Group, Alon Goren, Crowd Invest Summit, Lauren Chung, WestPark Capital, and an excerpt from Robert Kraft’s podcast interview with Sanjay Bakshi.

MicroCap Review welcomes two first time columnists: Life Insurance Corner by Chris Orestis, GWG Holdings, Inc., a financial services company that purchases life insurance policies in the secondary market in the US, and Real Estate Corner by Perry Vieth of Ceres Farms LLC. We also welcome back Dr. John L. Faessel of ON THE MARKET reports.

Thank you to this issue’s contributors and to our loyal magazine subscribers, readers, followers and to all our friends & supporters in the microcap community.

—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 http://www.microcapreview.com/disclaimer/ - disclaimer are incorporated herein by this reference.

MicroCap Review Magazine

3

4

MicroCap Review Magazine

www.stocknewsnow.com

www.stocknewsnow.com

MicroCap Review Magazine

5

Your livelihood, empowered.

New York

New Jersey

Pennsylvania

Beijing

friedmanllp.com

Independent expertise provides assurance for life in the public eye.

Publicly held companies need specialized expertise with an emphasis on quality and timeliness.

Friedman helps companies across the business spectrum negotiate the maze of assurance, regulatory and transactional demands.

Robert Fiorentino CPA, Partner 973.929.3652 rfiorentino@friedmanllp.com Neil Levine CPA, Partner 212.842.7000 nlevine@friedmanllp.com

Follow Friedman

Justin Van Fleet CPA, Partner 856.830.1610 jvanfleet@friedmanllp.com

Š 2017 Friedman LLP. All rights reserved.

An Independent Member Firm of DFK with offices worldwide.

info@friedmanllp.com | 877.538.1670

CONTENTS F E AT U R E D A RT I C L E S 12 MicroCaps Trending Higher Into End of Trend!

By Steven M. Shelton, MS, MBA, CFP®, CLU, CHFC, TEP, CIMA®, CMT

STOCKNEWSNOW.COM FALL 2017

66 Man Versus Machine? No! Man Plus Machine!

By Len Haussler, CFA 72 5 Takeaways from Our Small-Cap IR Summit

By Jason Paltrowitz

34 Cannabis Investing – What Looks Interesting

By Dr. Lauren Chung 36 The Art of Value Investing By Robert “Bobby” Kraft

75 Impact of the Trump Administration on the Price of Oil By Frederic Scheer

40 A Massive $Trillion Industry is Born

By Dr. John L. Faessel

82 Reg A+ Status Report: A+ or B- ?

By Miguel Colon, MBA

56 Junior Resource Market: 2017 Mid-Year Review

By Rick Rule

86 Will the Private Public Joint Venture “PPJV” Reinvent the PIPE Market?

By Karl B. Douglas

58 The Current Status of the Reverse Merger Market

By John Lowy, Esq.

91 Crowdfunding on the Verge of Mainstream

By Alon Goren

59 Why List on TSX Venture Exchange?

Q&A with Brady Fletcher

Profiled Companies 8 MariMed, Inc. OTC MARKETS: MRMD

26 INVO Bioscience, Inc. OTC MARKETS: IVOB

44 Finjan Holdings, Inc. NASDAQ CM: FNJN

14 SRAX NASDAQ CM: SRAX

27 PharmaCyte Biotech, Inc. OTC MARKETS: PMCB

48 Teranga Gold Corporation TSX: TGZ, OTC MARKETS: TGCDF

28 RIWI Corp.

CSE: RIW & OTC MARKETS: RWCRF 50 Eskay Mining Corp.

TSX-V: ESK, 30 AzurRx BioPharma, Inc. OTC MARKETS: ESKYF NASDAQ CM: AZRX 24 Emerald Health Therapeutics, Inc. TSX-V: EMH, OTC MARKETS: 42 Clean TeQ Holdings Limited EMHTF OTC MARKETS: CTEQF, ASX: CLQ 18 Lucara Diamond Corp.

TSX, BSE, OMX: LUC, OTC MARKETS: LUCRF

Real Estate Corner

17 “Gold with a Coupon”…

By Perry Vieth

Opinion

22 Cannabis Q&A with Adam Selkin

By Shelly Kraft

Accounting Corner

23 New Financial Reporting Rules Will Simplify Accounting On Some Transactions

By Corey Fischer, CPA

Cannabis Corner

32 The Global Proliferation of Medical Cannabis

By Alan Brochstein

Opinion

39 Partnering with a Transfer Agent

By Steven Nelson www.stocknewsnow.com

Life Sciences Corner

52 What BioPharma Investors Need to Know About Financial Disclosure

By Robert E. Fiorentino, CPA

55 American Gene Technologies International Private Company 76 BNK Petroleum, Inc. TSX: BKX, OTC MARKETS: BNKPF 79 GoviEx Uranium Inc. TSX-V: GXU, OTC MARKETS: GVXXF 84 Reign Sapphire Corp.

OTC MARKETS: RGNP

Opinion

78 Uranium Exploration and Mining Public Companies

By Mike Alkin

Life Insurance Corner

Commodities Corner

80 NAIC Sees Life Insurance as a Viable Solution to LongTerm Care Costs

By Chris Orestis

Asia Corner

90 WallStreet Chicken - Episode 16 IPO: They Can’t All Be Winners?

60 VSTOXX® / VIX Volatility Spread Behavior During Recent Volatility Events

By Mark Shore, MBA 64 Hong Kong Equity Market Robust 20 Years After Handover

By Leslie Richardson

Legal Corner

Comic Strip

94

New Formations

By David Alsup

69 What is an ICO?

By Louis A. Bevilacqua, Esq.

MicroCap Review Magazine

7

otc MArkets: MrMd

P R O F I L E D C O M PA N Y

MariMed well Positioned to capture the rapid Growth of the legal cannabis industry nationally Massachusetts based Cannabis Management Company building a National Footprint in Multiple States Across Country

W

hen eastern states ballot referendums were forcing states to implement medical marijuana programs, Robert Fireman and Jon Levine formed MariMed Advisors to capitalize on the opportunity. Their vision was to bring professional management, standard operating procedures, and “Best Practices”

Robert N. Fireman, Esq., CEO

8

MicroCap Review Magazine

to the “hodge-podge” cannabis industry.

They believed a more grounded “eastern approach” would be a foundation for a successful company that could compete with the cannabis companies coming from the wild-west.

“MariMed believes cannabis may be one of the most important medicinal plants on earth and has the power to transform human health and wellness. Our business practice is to preserve cannabis’ valuable essence and future promise through strict operational management of the entire legal seed2-consumer experience”, explained Robert Fireman, MariMed’s CEO. The Managed Services practice of MariMed includes multi-dimensional advisory services from real estate location selection through full business operations including; licensing, compliance, security, systems integration, day-to-day operations, technology, and human capital. Secondly, the company offers real estate and equipment investment capital to fast-track canna-

bis cultivation, production, and distribution.

Lastly, the company’s licensed and branded products under the name Kalm Fusion, as well as retail design experiences providing a full range of expertise.

The legal cannabis market is poised to grow beyond $21.8 billion by 2020, at a CAGR of 25%. *(New Frontier). 29 states have some form of legalized cannabis; 16 states have laws that allow for CBD use; and 7 states have fully legalized cannabis for adults.

The public markets are supporting cannabis companies in both the United States and Canada. Cannabis programs are now beginning in countries such as Germany, France, Netherlands, Israel, Australia, Uruguay, Columbia and more.

ProFessionAl exPerienced MAnAGeMent teAM “While industry insiders see a continued skyrocketing pace for expanding the medical cannabis market, it’s worth watching where leaders have emerged to get a good sense of what is to come.” * (New Frontier) The key to capturing a meaningful share of the growing legal cannabis market will fall to skilled executive management teams with a proven and diverse cross-section of business disciplines that provide meaningful accountability and operational expertise.

MariMed’s team consists of senior executives in law, finance, real estate, agriculture, www.stocknewsnow.com

and three dispensaries 2016: Awarded Maryland Provisional Medical License for Kind Therapeutics USA for cultivation, production, and dispensary • 2017: Under MariMed’s management First State was awarded its second license and has recently opened a dispensary in Lewes, DE “We have succeeded where many others have failed”, said Jon Levine CFO. “Winning a license and then obtaining all the subsequent needed approvals -- establishing financial order, and maintaining a compliant organization are essential for a legal cannabis operator’s success”.

•

Thrive Anna Dispensary, Illinois

security, management, product development, sales, marketing, and merchandising.

Several members of the team provide vast experience in cannabis and the universal subculture that is still at the roots of this movement.

Robert Fireman, MariMed’s CEO, entrepreneur and attorney envisions the MariMed platform as a total solution for the development and operation of state regulated, compliant cannabis facilities. Jon Levine, Marimed CFO manages all financial operations including; contracts, license compliance and security, human resources, capital, banking, real estate services, and MariMed’s public reporting.

Timothy Shaw, Marimed COO is the logistics guru across all operating systems and partnerships, integrated cultivation efficiency’s, safety, production systems, product development, vendor management, product satisfaction, and operating compliances.

Best Practices to Design, Develop, and Operate Cannabis Facilities.

In 2012, the medical cannabis industry was still fighting the widespread fog of stoner culture and stigma. To combat this perception, the team utilized tried and true business experience and practices creating strict protocols, extensive training, and efficient operations.

“We made smart decisions early and continue to execute our vision”, stated Robert Fireman MariMed’s CEO. www.stocknewsnow.com

The MariMed team developed the Thomas C. Slater Compassion Center in Providence Rhode Island in 2012. It is viewed as a model of excellence for other cannabis facilities throughout the country. Following a defined business plan this 50,000 sq. ft seed-to-sale facility presently services over 17,000 medical cannabis patients. Following MariMed’s playbook, its processes, procedures, and protocols are replicable and scalable. MariMed adheres to strict disciplines and processes considered proprietary for how it manages cultivation and production at its clients state regulated facilities. “Managing the yield and operations of large commercial cultivation facilities takes an extraordinary amount of agriculture business operations experience”, stated Timothy Shaw Marimed’s COO. MariMed has been most successful writing winning applications and developing successful cannabis businesses for its clients. Examples include; • 2015: The First State Compassion Center, another 50,000 sq. ft. seed-tosale facility in Wilmington • 2016: Opened Thrive Anna Dispensary in Illinois • 2016: Opened Thrive Harrisburg Dispensary in Illinois • 2016: Awarded Massachusetts Provision Medical license for ARL Healthcare for cultivation, production

At the Forefront of Medical Research MariMed, is committed to developing products steeped in the latest medical research and clinical studies, and is always looking to produce and deliver safe cannabis to the thousands of patients with debilitation illnesses. MariMed team members support efforts to provide CBD medicine to parents of epileptic children under the care of their pediatric doctors. MariMed also supports implementation of state sponsored cannabis trials that may positively affect veterans with PTSD, patients suffering from pain, MS, Parkinson’s and other diseases.

“MariMed’s philosophy is to provide the highest quality products, service, and expertise that insure the integrity of a pesticide free and organic cannabis product that is reliable, predictable, and dosage specific”, said Timothy Shaw, MariMed’s COO. “Developing the infrastructure required to deliver consistency for legal cannabis medical products is something the company takes seriously and where MariMed leads”.

MariMed has a strategic agreement with Tikun Olam, USA, to market Tikun’s proprietary genetic cannabis strains, backed by over 10 years of clinical trials and research from Israel for expansion into multiple legal cannabis states. “We believe Tikum Olam’s MicroCap Review Magazine

9

Innovative, all-natural Kalm Fusion products

clinical trial data, patients, and proprietary genetic cannabis strains provide MariMed with the most advantageous product offering with proven efficacy the market has to offer” said Robert Fireman CEO.

include California, Illinois, Nevada, Oregon, Washington, Massachusetts, Arizona, and Maryland. The Company expects to have distribution access for Kalm Fusion products in over 5000 dispensaries.

kAlM Fusion—All-nAturAl ForMulAtions driVe Growth

the work And business Model Are showinG results

Launched in 2016, Kalm Fusion was created to provide patients with an all-natural line of cannabis products. With zero artificial or synthetic ingredients, Kalm Fusion provides an array of easy-to-carry, low dose products in both THC and CBD formulations. These include; Mari-Melts sublingual strips, MariMints, Kalm-Corn a microwave popcorn, and Kalm FIZZion effervescent tablets.

The Company has an aggressive research and development program to expand the Kalm Fusion brand. One exciting new product under development utilizes a patented trans-dermal technology allowing THC or CBD actives to be transmitted directly through the skin.

Since cannabis cannot be transported over state line, MariMed is forming strategic relationships on a state-by-state basis, with licensed companies that are trained to follow MariMed’s protocols and practices to manufacture and distribute Kalm Fusion Products. These states

10

Over the last five years, MariMed has quietly won state marijuana licenses in Rhode Island, Delaware, Massachusetts, Illinois, Nevada, and Maryland.

The Company enjoyed revenue growth of 180% year-over-year reaching $3.5 million during 2015 and 2016. Real estate revenue and management fees increased from $1.270M to $3.564M during this term. Revenues for the six months ended June 30, 2017 more than doubled from the same period in 2016 , from $1,261,896to $2,771,776.. This significant increase was primarily due to MariMed’s

medical cannabis clients posting a strong 89% increase in revenues., MariMed expects its revenue to continue to increase this year from its existing facilities in addition to the opening of its Nevada cultivation center. New revenue will be generated from the expansion of Kalm Fusion product licensing as the Company looks to adding more states to its program. MariMed anticipates opening the Maryland and Massachusetts businesses in 2018, which will likely have a significant positive impact on MariMed’s revenue and profit.

In June 2017, the company completed a capital raise of $5,150,000. These funds were used to fund the construction of a second dispensary in Delaware, the completion of the cultivation facility in Nevada, and the ongoing development of new integrated medical cannabis facilities in Maryland.

MariMed is in the process of filing an S1 Registration to continue to raise capital to support its continued growth. These new funds will be used to acquire real estate for developing additional cannabis facilities in both Maryland and Massachusetts along with strategic marketing programs across the entire MariMed ecosystem. With expected higher revenue, and profit, plus hard real estate assets the company goal is to be up-list to NASDAQ by 2019.

For more information: www.marimedadvisors.com info@marimedadvisors.com Stock Ticker: MRMD n

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

MicroCap Review Magazine

www.stocknewsnow.com

VE A S

TH

E

TE A D

April 24–26, 2018 Planet Hollywood Resort & Casino, Las Vegas

Presenting Company Benefits Reach Present your company to the most active fundamental investors in pre-IPO and MicroCap companies including Institutional Investors, Venture Capitalists, Sophisticated High Net Worth Private Investors, Private Equity Firms, Registered Reps, RIAs, Business Development Executives, Family Offices, Wealth Managers, Buy-Side and Sell-Side Analysts, Mutual Funds, Hedge Funds and Investment Bankers.

Access Face-to-face meetings with the market’s top investment bankers, fund managers and dealmakers during three days of networking opportunities over breakfast, lunch & cocktails, nightly receptions and social events.

Meetings Pre-arranged and spontaneous one-on-one meetings with investors, C level management and professionals.

Education Build your skills at choosing board members and advisors, negotiating with investors, managing your market messaging, and improving your corporate governance at the pre-conference workshop designed specifically for executive managers of pre-IPO and MicroCap public companies.

Video Interview Extend your message to investors worldwide with an exclusive CEO video interview filmed onsite and hosted by StockNewsNow.com.

To learn more about sponsoring Planet MicroCap Showcase 2018, please contact

Robert Kraft: 424 227 9018 / info@snnwire.com

www.planetmicrocapshowcase.com www.stocknewsnow.com

@StockNewsNow / info@snnwire.com MicroCap Review Magazine 424–227–9018

11

F E AT U R E D A R T I C L E

MicroCaps Trending Higher Into End of Trend!

CORNERSTONE GLOBAL GROUP “T-REPORT” in brieF Major Takeaways • Russell Microcap® Index has recently broken out of a six month near sideways consolidation, made a new alltime high and remains in a confirmed uptrend but is subject to corrections, as it moves on its own time table toward an anticipated historic crest • Select technical indicators, stock market cycles and Elliott Wave analysis are suggesting a short term top in July/early August 2017, followed by a decline into September/early October and a major top later in October/November 2017 • There is always that possibility of new monetary or fiscal manipulation that could postpone the top until no later than mid-2018 but the market will have its way in due season – remember, the global markets are bigger and more powerful than any central bank or government • Given this is a USA 250 year equity cycle topping process, more specific time line and Index objective updates will be forthcoming as market action becomes more definitive • As anticipated in the DJIA, S&P 500

•

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

12

MicroCap Review Magazine

•

•

econoMic And MArket coMMentAry From a long term historical perspective, most USA equity markets continue to reflect a LONG TERM “topping process” of a 250 year cycle: •

•

n BY STEVEN M. SHELTON, MS, MBA, CFP®, CLU, CHFC, TEP, CIMA®, CMT

and NASDAQ, 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 or so Until more definitive index market action takes place that allows for calling a high probability end of the 2009 bull trend and a lasting crest, a move under the February 2016 low will confirm the long term trend to down; until then the trend is up

The new historic highs in microcaps, small caps and large caps reflect historic exuberance of extreme optimism, resulting in extreme complacency among market participants, thus greed is perceived as eternally profitable, while risk/fear is and shall remain nonexistent!

This collective investor attitude or mood is due in part to historic low rates, brought on by an accommodating central bank and lenders in general, exasperated by few investment alternatives, all of which are fueling fiscal irresponsibility, leading to a rising USA national debt of $19,848,342,893,093 as of 13 July 17

•

as well as financial crises regarding states, cities, pensions, student loans, car loans, individual debt, and more, a reflection of extreme optimism among bankers, thus greed is perceived as eternally profitable, while risk/fear is and shall remain nonexistent!

Extreme and historic optimism is typically evidenced in markets that are perceived to be “trending” to the moon, only to find out that markets really do not grow nor trend to the moon – financial gravity pulls them back to reality!

Indeed in recorded history, there has been an upward bias in USA equity markets but they have always been “punctuated” by minor and major resets in excessive optimism and attitude that ultimately leads to financially destructive behavior in governments, companies and households, ultimately resulting in a painful reset The “good news” is the cyclical reoccurring resets reduces excess debt and capacity, which brings forth a new spring season of economic renewal as well as a new secular equity bull market, along with slowly rising rates and inflation

AnAlysis And coMMents: •

•

•

•

The above weekly Index chart clearly indicates Index is above both its 200 week and 50 week Simple Moving Averages, thus the trend is up Anticipating a short term top in July – early August; such a top may be imminent if Index does not make new highs while the DJIA and S&P 500 are BTW, that is happening today, 14 July 2017 but one day does not denote a change in trend Beware that a very reliable technical www.stocknewsnow.com

Weekly Russell Microcap® Index chart

•

•

•

•

•

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 monthly, the decline can be months out In essence, all indications are that the microcap index is headed for an eventual major top and substantial decline, which suggests vigilance as to timing of a trend change 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 Lastly, 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

www.stocknewsnow.com

Conclusion •

•

•

Historic tops are coming to USA equity indices, to include the Russell Microcap® Index The exact timing is always an unknown but just as storm clouds appear before a “potential” thunderstorm, so will there will be technical indicators that will alert those aware and vigilant of a “potential” historic top and decline The great news is that such a top and decline is a once in a lifetime opportunity to profit from such action as well as to protect 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 finan-

cial services publishing entity and Managing Partner of Shelton Farms and Enterprises LLC DISCLAIMER: Cornerstone Global Group LLC, 3240 North Lake Shore Drive, Suite 11-D, Chicago Illinois 60657, provides institutional consultancy on financial services marketing, distribution and product/service development to and for institutional use only.

Cornerstone Global Group LLC is also the newsletter publisher of the CGG Global Market Technical Report, CGG Technical Research Notes and other publications, all of which are informational services and may include opinions as to buying, selling, holding various securities, asset allocation and strategies.

However, Cornerstone Global Group LLC, it’s owners, employees and consultants are not investment advisers. At no time may a reader, caller, viewer or consultancy client be justified in inferring that any advice 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. Additionally, 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.

MicroCap Review Magazine

13

P R O F I L E D C O M PA N Y

nAsdAQ cM: srAx

srAx

Providing the tools to automate digital marketers and content owners’ campaigns across channels, platforms and publishers.

E

Christopher Miglino, Co-Founder, CEO

14

MicroCap Review Magazine

ver since the Internet advertising market began to surge, programmatic and real-time bidding (RTB) technologies have become the main drivers of continued and exponential growth in the sector. Yet over the past few years, the marketing landscape has transformed in ways that were previously unimaginable.

The ability to buy digital media instantly, the stratospheric rise of social media, and the power to analyze and use unprecedented amounts of digital data have all contributed to this seismic shift.

To succeed in this booming but competitive landscape, companies must have the perfect combination of technologies and data strategies. Focused on delivering tools that automate data-driven marketing campaigns, SRAX is an advertising technology company positioned to seize the massive opportunities offered by the digital shift.

CEO Christopher Miglino has been in the advertising technology landscape for decades. In March 2010, he co-founded SRAX (then Social Reality, Inc.) with a vision to monetize the growing social media advertising market for both app developers and Fortune 500 brands.

Since then, Miglino has moved the company forward, thanks in large part to his ability to assess and capture the rapidly growing, fragmented RTB and social media market.

In October 2016, SRAX began trading

on the Nasdaq under the symbol “SRAX.�

Following this achievement, the company further strengthened its leadership team with the appointment of J.P. Hannan as CFO. Hannan has served public companies in a financial capacity for more than 20 years, most recently as Vice President, Treasurer and CFO of Cumulus Media, Inc., the second-largest radio station operator in the U.S. First the company drove significant revenue growth, increasing from $5 million in 2013 to $15 million in 2014, $30 million in 2015 and $36 million in 2016. In 2017, management has realigned the sales team to focus on high margin revenue, which improved margin from 32 percent for 2016 to 56 percent for the second quarter of 2017. www.stocknewsnow.com

Solutions for a Growing Multi-Vertical Market With proprietary machine-learning software that maximizes performance and profits for brands and content owners, SRAX has a solid footing in a market valued at approaching $32 billion. In fact, programmatic digital display ad spend is set to grow exponentially, reaching 82 percent of total digital display ad spend by 2018, according to eMarketer.

SRAX thrives in this environment by engaging a diverse customer base developed from both sides of the programmatic market: marketers (buy-side) and content owners (sell-side).

For brands, agencies and buy-side partners, SRAX maximizes returns on digital inventory across devices in real time. For website and mobile application owners, influencers and other sell-side partners, SRAX’s programmatic technology amplifies content monetization and overall digital marketing performance.

“We designed our tools to improve performance across all digital channels for brands in any vertical,” says Miglino. This solid foothold with prominent agencies serving various verticals – healthcare, auto, consumer goods and sports represents a significant opportunity for the company in the digital space since each could evolve into a standalone business.

The company’s vertical-forward strategy is exemplified by the success of its SRAXmd product. In August 2014, The SRAXmd healthcare platform came to life to service a market need for true advertising automation

and innovation within the digital healthcare space.

SRAXmd’s core customers, pharmaceutical companies, didn’t have many options to choose from when it came to reaching their intended audience on desktop and mobile devices. The industry standard of reaching doctors by buying ads in specific medical journals or apps was limited in scale.

Recognizing the need to reach physicians with a timely deployment of ads triggered by an outside event (like a diagnosis, a potential relapsing patient or a rejected insurance claim, for example), SRAX’s Co-founder and CIO Erin DeRuggiero, developed a solution that goes beyond what most advertising agencies and tech companies are able to deliver.

“Our ability to deliver display and video ad messages directly to a healthcare provider’s handheld device has been pivotal to our success and continued growth. When you service clients who manufacture first and second-line cancer therapies, real-time

ad targeting at the point of care can impact patient outcomes in a meaningful way,” says DeRuggiero.

Her conversations with pharma-brand customers solidified that there’s a big gap between what they are trying to achieve through digital and mobile ad targeting and what’s available in the marketplace. “We set out to close that gap with our healthcare IT products, DOCTRAX™, DOCTRAX MATCH™, DOME™ and MOSEE™, to meet the needs that aren’t addressed by agencies and ad tech companies,” added DeRuggiero.

In this context, healthcare IT products are the most advanced verticals served by the SRAX digital media management platform.

Social Data and Programmatic Technology: The Winning Combination While most companies now use social media to gain customer insight and generate brand awareness, few have been able to marry this to the advantages offered by programmatic and RTB technologies.

Over the few years SRAX has succeeded in developing solutions that directly meet this need: SRAX Social, SRAX App and SRAX Reach The company has continued to build out recurring revenue streams on both sides of the business with ongoing development and enhancements to differentiated propri-

“This solid foothold with prominent agencies serving various verticals – healthcare, auto, consumer goods and sports represents a significant opportunity for the company in the digital space since each could evolve into a standalone business.” www.stocknewsnow.com

MicroCap Review Magazine

15

On June 28, 2017, SRAX announced the launch of a new social boosting tool for digital marketers and content owners to create posts and promote them beyond their Facebook Page communities. The tool is the first of numerous planned monetization opportunities developed and integrated into the SRAX Social platform. etary technology that enables its clients to unlock social data.

SRAX Social - SRAX Social is a social media management platform that uses programmatic technology and big data to share, schedule and automate social media content.

On June 28, 2017, SRAX announced the launch of a new social boosting tool for digital marketers and content owners to create posts and promote them beyond their Facebook Page communities. The tool is the first of numerous planned monetization opportunities developed and integrated into the SRAX Social platform.

SRAX App - Recognizing the potential of the growing mobile opportunity, Miglino guided the development of the company’s SRAX App product. With SRAX App, advertisers are able to automatically aggregate social media feeds and online content channels into an app. Using the product, they can target valuable interest-based niche audience

segments, for example, males ages 25 to 40, who live in the U.S. and have an interest in stock car auto racing. They can collect location data to deliver push notification messages and launch promotions and exclusive content – all to increase brand engagement and loyalty.

Very few companies have tackled the idea of fusing social and programmatic technology. And yet, SRAX is opening new doors for the advertising world – proving that it’s possible to develop products that meet clients’ needs today while anticipating the future of the industry.

16

SRAX Reach - SRAX Reach, is a custom ad unit that enables marketers to “buy beyond the banner,” says Miglino. SRAX Reach combines display ads with native premium advertising, imagery and story content to deliver a compelling brand experience in a single industry standard unit.

Marketers can even pull in existing content directly from their brand’s social channels.

Ad Technology Built for Today and Tomorrow’s Market Finally, marketers and content owners across verticals can do more with the data they already have. SRAX’s custom advertising programs are built to perform – utilizing core technologies and generating recurring revenue streams for each client.

The success of this approach is demonstrated by the company’s continued strategic growth. With a focus on targeted higher gross margin revenue, SRAX has significantly improved its bottom line. Management is also excited about the new product verticals – auto and sports – that it launched in the third quarter.

Very few companies have tackled the idea of fusing social and programmatic technology. And yet, SRAX is opening new doors for the advertising world – proving that it’s possible to develop products that meet clients’ needs today while anticipating the future of the industry. n On the web: www.srax.com

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

MicroCap Review Magazine

www.stocknewsnow.com

R E A L E S TAT E C O R N E R

“Gold with a Coupon”… “They’re not making more of

C

lichés perhaps, but they ring true for Farmland. Sophisticated investors hold farmland for a variety of reasons: as a bond alternative; as an inflation hedge; and as a truly uncorrelated asset that has held up through major drawdowns in the broader markets.

Farmland is a unique financial asset, providing equity-like returns with bond-like volatility. Since its inception in 1990, the NCREIF Commodity Cropland Index has reported average annual returns of 10.7% with standard deviation of just 5.2%, and in 26 years has never had a negative year. Farmland historically has derived 4%-5% of its total return from income and 6%-8% from appreciation.

It is important to note that when we speak of Farmland, we are specifically talking about U.S. row crop farmland which grows primarily corn, soybeans and wheat used in livestock and poultry feed. These are commodities for which global demand is growing nearly two times faster than productivity, but for which it is difficult and expensive to add new capacity (acreage). The result in most years is tight supplies and high prices. Row crops are distinct from (but often conflated with) permanent crops (almonds, vineyards, orchards) which have much greater volatility and include a host of different risks associated with owning a biological asset (trees and vines) vs. owning dirt.

why FArMlAnd now?

First, many investors are increasingly worried about the next recession and about valuations

n BY PERRY VIETH

in the equity market. Faced with the prospect of a bear market in equities, farmland has proven highly effective providing diversification during major drawdowns in the broader market. Farmland returns are driven by factors (crop prices, increased animal protein consumption in developing world, etc.) which do not affect other asset classes. In the last recession, when the S&P lost 46% from Q3 2007 to Q1 2009 and virtually all other asset classes drew down, Farmland gained 18%.

Second, interest rates are rising and the Fed is expected to continue to raise rates for the next 12-18 months at least. Farmland is an income generating asset but it does not trade on yield like commercial real estate or other institutionally held real assets. We estimate institutional investors comprise less than 5% of the purchases in the market.

The other 95% of the market is farmers, and farmers don’t trade farms on yield as investors do. Farmers trade farms based on the economics of growing crops, and the bullish impact of $5 corn would overwhelm any bearish impact of 5% treasuries.

Finally, and perhaps most compelling, in the face of high equities valuations and rising interest rates putting pressure on asset values, farmland is at the bottom of its cycle and is poised for recovery.

it.”

ceres FArMs llc intro: Ceres Farms acquires properties and leases them to local farmers who grow corn, soybeans, wheat or specialty crops such as vegetables on a scheduled rotation. Ceres is especially proud of the extensive network of experienced farmers that it has teamed up with to create a proven partnership where all parties benefit. Ceres currently owns over 300 farms consisting of 99,000 acres across ten states. At June 30, 2017 Ceres Farms had total assets of $611 million. Ceres Farms’ investment objectives are to provide income, and capital appreciation, with low volatility and low correlation to other asset classes. n Perry Vieth, is CEO of Ceres Partners that manages several agriculture focused funds including Ceres Farms, a diversified portfolio of U.S. farmland with over 300 farms and 99,000 acres in ten states. Formerly Perry served for ten years as Chief Investment Officer at PanAgora Asset Management in Boston, and he also served as a portfolio manager at Fleet Investment advisors, Fuji Securities and Chicago Research & Trading Group where he began his trading career at the Chicago Mercantile Exchange in 1986. From 1982 to 1986, Mr. Vieth practiced law in Chicago specializing in securities and corporate law.

He graduated from the University of Notre Dame Law School with a J.D. and obtained a B.S. in accounting from Marquette University. He is a Chartered Financial Analyst and member of the Boston Securities Analyst Society. Perry serves on the University of Notre Dame Law School’s Advisory Council and several charitable organizations’ Board of Directors. www.cerespartners.com The company paid consideration to SNN or its affiliates for this article.

www.stocknewsnow.com

MicroCap Review Magazine

17

P R O F I L E D C O M PA N Y

tsx, bse, oMx: luc, otc MArkets: lucrF

lucara diamond corp.

L

ucara Diamond Corp. is a Canadian diamond mining company with a producing mine and prospecting licenses in Botswana.

William Lamb, President & CEO

18

MicroCap Review Magazine

With its head office in Vancouver, Canada, Lucara is a member of the Lundin Group of Companies. Founded over forty years ago by mining magnate Adolf H. Lundin, and now headed by his son, Lukas H. Lundin the Group has garnered a reputation of being one of the most recognized and respected groups in today’s global resource industry.

The Group operates in over twenty counties worldwide and across a variety of commodities, with Lukas H. Lundin as the Chairman of many of the group companies, including that of Lucara Diamond Corp.

Lucara has a strong, highly experienced management team, lead by William Lamb, the Company’s President and CEO. William has over 23 years experience in mining and operations in Canada and several Southern African countries, including 13 years with De Beers working across their operations in Southern Africa and Canada focusing on heavy mineral concentration, project development and operational readiness. William joined Lucara in 2008 and was instrumental in the acquisition of the AK6 asset, and developing it into Lucara’s wholly owned, principle asset - The Karowe Mine.

Through its 100% owned subsidiary, Boteti Mining (Pty) Ltd., Lucara markets and sells rough diamonds from its sales office in Gaborone, Botswana through Regular and Exceptional Stone tenders to an international customer base in compliance with the Kimberley Process Certification Scheme.

inVestMent hiGhliGhts Producer of an extraordinary number of large gem quality Type IIa diamonds: • 131 diamonds have sold for > US$1 million each (Total value in excess of $520 million) • 21 diamonds for > US$5 million each • 7 diamonds for > US$10 million each • 93,499 carats of +10.8ct diamonds recovered as of end of Q1 2017 Recovery of approximately 20% of +300 carat stones ever recorded - including 2 of the world’s largest gem quality diamonds (position number 2, the 1,109 carat Lesedi La Rona diamond and position number 6, the 813 carat Constellation diamond) Average diamond value achieved in 2016 was US$824 per carat, four years into Karowe’s approximately 15-year mine life Revenue guidance for 2017 is $200 $220 million (exclusive of Lesedi La Rona) Progressive Annual Dividend of CDN$0.10 for 2017 (a 47% increase over 2015) due to strong cash flow generation and balance sheet Organic growth potential through expansion of resource, exploration of surrounding prospecting licenses and through M&A

www.stocknewsnow.com

Lesedi La Rona Diamond – 1,109 carat Type IIa

Although still in its infancy as a diamond producer, Lucara has been making history as one of the foremost producers of large, high value gem quality diamonds – accounting for approximately 20% of all +300 carat stones on record, and achieving some historical prices for its rough diamonds, including the sale of the 813 carat Constellation diamond for $63.1 million in May 2016 – the highest price per carat ever received for a rough diamond. (all dollar amounts are in US Dollars, unless otherwise stated).

Karowe has an annual production of approximately 300,000 carats, including large, high value gem quality diamonds, and generates approximately US$200 million in annual revenues - excluding the sale of any truly exceptional diamonds.

The Karowe Mine and Boteti Mining (Pty) Ltd. operate in the country of Botswana - one of Africa’s most stable mining jurisdictions and the continent’s longest continuous multi-party democracy. Botswana is one of the world’s largest producer of diamonds, with a history of diamond exploration dating back to 1954 – when De Beers began prospecting for diamonds in, the then British Colony, Bechuanaland Protectorate. www.stocknewsnow.com

Diamond mining and the trade of diamonds has transformed the country into a middleincome nation. In 2016, diamond sales and production represented approximately 33% of Botswana GDP (approximately US$3.3 billion).

Lucara’s Karowe Mine, then the AK6 Kimberlite, was discovered by the De Beers group of companies in 1969. After many years of sitting idle, advanced exploration was conducted on AK6 from December 2003 through May 2007 by Boteti Mining (Pty) Ltd. (then Boteti Exploration Pty), through joint venture partners De Beers Exploration and African Diamonds (“AFD”). This advanced exploration revealed that the AK6 Kimberlite was larger, and of higher grade than previously estimated. In 2009, Lucara acquired an initial 70% interest in Boteti from De Beers Exploration, then holder of a 100% interest in the AK6 Project, and in 2010 increased its interest to 100% through the acquisition of AFD. In 2010, Lucara completed a feasibility study on the AK6 kimberlite, indicating a 15-year life of mine, based on an open pit mine plan, to a depth of 324 m on the trilobate kimberlite pipe (North, Central and South lobes, respectively). The combination of advanced exploration and the completed feasibility study resulted in an NI 43-101 report, an indicated resource from surface to a depth of 400 m of 51 mt containing 8.2 million carats; and an Inferred resource from 400 m to 750 m of 21 mt containing 4 million carats. The mine plan was based on a Probable reserve from surface to a depth of 324 m of 36.2 mt containing 6.3 million carats. This led the Company to a construction decision. Construction of the Karowe Mine was completed in Q1 2012, with commissioning and ramp up to full operational capacity completed in Q3 2012.

MINING AND PLANT UPGRADES Subsequent to the commissioning of the Mine during 2012, the processing plant performed successfully. However, Lucara

recognized the requirement to address the production throughput risk identified in the feasibility study, that being hard and higher yielding (increased DMS load) kimberlite at depth. An additional risk that became apparent was the consistent recovery of very large and high value diamonds above the maximum size limit for which the process and recovery circuits were designed.

To mitigate these risks, a number of plant upgrades were initiated during 2014. The upgrades included the introduction of a large diamond recovery circuit, designed to recover large diamonds prior to major crushing of ore, additional crushers to liberate diamonds from the hard fresh kimberlite, and additional X-ray Transmission (“XRT”) technology to process the higher yield material at the desired throughput.

The plant upgrades allowed for an increase in diamond size recovery from 30mm to 90mm (approx. 2,500 carats).

In Q3 2015, immediately following the commissioning of the new plant and incorporating XRT technology, Lucara recovered what is currently the second largest gem quality diamond ever recorded – the 1109 ct Lesedi La Rona diamond – and within 24 hours of this historical recovery, Lucara recovered the sixth largest gem quality diamond every recovered – the 813ct Constellation Diamond – as well as a 374ct gem quality diamond.

In 2016, the Company undertook the decision to increase its recovery size capacity, and initiated another processing plant upgrade including a Mega Diamond Recovery circuit, its purpose being the recovery of value as early as possible in the process plant thus reducing the possibility of breaking large, extremely valuable diamonds. Using the highly successful XRT technology incorporated in the first process plant upgrade, the Mega Diamond Recovery system is intended to recover diamonds in excess of 90mm, and up to 120mm in size (approx. 5,000 carats). Commissioning of the Mega Diamond Recovery upgrade is anticipated to be complete in Q3 of 2017.

MicroCap Review Magazine

19

resource uPGrAde And exPAnsion Results from its early stage production, as well as the recoveries from the upgraded plant, led the Company to a decision to further test the AK6 Kimberlite at depth. In Q4 of 2016, the Company initiated a 10,000 m deep drill program with a goal to bring inferred mineral resources into the indicated category. The drill program, completed in Q1 2017, is designed to increase confidence in the geological model for the south lobe of the AK06 kimberlite and provide sufficient data and material for an updated resource to be utilized in an underground option study for the Karowe mine. The updated resource for the current inferred portion of the Karowe Mine is expected to be completed in Q4 2017.

In addition to a potential resource upgrade the Company is also involved in exploration activity. In 2014, the Company was awarded two precious stone prospecting licenses that are known to host the BK02, AK11 and AK12, AK13 and AK14 kimberlites. The prospecting licenses are located within a distance of 15 km and 30 km from the Karowe mine.

AK11 - During Q2 2017, the Company initiated a large diameter drilling (“LDD”) sampling program at the AK11 kimberlite. Drilling has commenced on the pilot drill-hole aspect of the program. Material recovered from the LDD samples will be processed at the Company’s Bulk Sample Plant located at the Karowe Mine.

AK13 - During Q2 2017 logging and sampling of AK13 was completed and microdiamond samples shipped for analysis. Results are expected during H2 2017.

AnnuAl diVidend PAyMents since iMPleMentAtion oF A ProGressiVe diVidend Policy, in 2014.

2014 CDN$0.04/share 2015 CDN$0.04/share Introduction of a progressive dividend policy 2016 CDN$0.06/share (a 50% increase from 2015); plus a special dividend of CDN$0.45/share 2017 CDN$0.10/share anticipated (YTD 2x quarterly payments of CDN$0.025 ea.)

favourable position of becoming the first Lundin Group Company to pay dividends to its shareholders. With its strong cash flow generation and strict investment criteria, Lucara has rewarded shareholders with its dividend, continues to advance its exploration program and resource expansion work at Karowe and retains the potential for M&A activity.

In the three years since implementing its progressive dividend policy Lucara has made approximately US$200 million in dividend payments to its shareholders - more than the total sum of equity ever raised by the Company.

These dividend payments equate to approximately 20% of its gross revenues to date, and have provided attractive dividend yields in comparison to its peers and the broader mining sector.

sociAlly resPonsibility lucArA PAys diVidends The revenues generated through Regular and Exceptional Stone tenders have generated strong cash flows and balance sheet for Lucara. Within its first two years of full production, Lucara found itself in the

20

and its Karowe Emerging Entrepreneurial Fund. Since 2012, Lucara has re-invested approximately 65% of its revenues back into Botswana through taxes, operating and project costs, procurement, and by employing 96% of its workforce from Botswana.

the diAMond MArket & lucArA Despite challenging Diamond Market conditions in 2016, Lucara generated record revenues of $295.5 million or $824 per carat, paid $149.7 million in dividends (including a CDN$0.45 per share special dividend in July 2016), and reached it’s US $1 Billion in diamond sales milestone.

The Company is confident that it has the production profile to withstand downturns in the general diamond market. The Karowe mine production differs from its peers due to the coarse nature of the diamond population and the consistent recovery of high quality Type IIa diamonds which have resulted in a strong client following.

Lucara recovers a significant number of +10.8 carat gem quality diamonds. Over the past 4.5 years of operations, and as mining has started to focus on the south lobe which constitutes the majority of mining in the years to come, greater than 65% of Lucara’s revenue has been derived from 5% of its production volume. This places Lucara in a relatively unique position in the diamond market, as the Karowe production is impacted less by downturns when compared to other production profiles.

For more information on Lucara Diamond Corp., contact Investor and Public Relations at: Email: info@lucaradiamond.com Tel: 604-689-7842: www.lucaradiamond.com n

Lucara not only pays dividends back to its shareholders, they re-invest in Botswana and their employees, making strong contributions in local communities through the payment of taxes and royalties and by developing businesses through the Lundin Foundation The company paid consideration to SNN or its affiliates for this article.

MicroCap Review Magazine

www.stocknewsnow.com

www.thecse.com

ÂŽ

info@thecse.com @CSE_News

THE EXCHANGE FOR CANNABIS SECTOR GROWTH COMPANIES The Canadian Securities Exchange (CSE) is a service-oriented exchange ideally suited for cannabis-related businesses across all industry sectors including cultivation & sale, life sciences, specialty finance, and technology.

The result? A progressive business environment offering the lowest cost of public capital supported by a robust secondary market. See several examples below of cannabis-related companies maximizing the benefits of listing on the CSE, including:

BE

AHG

BCC

CRZ

MARI

IAN

IN

LDS

ROBUST SECONDARY MARKET LIQUIDITY

KEY METRICS H1 2017

2.8B $1.1B

shares traded

value of shares traded

45+

www.stocknewsnow.com

Capital formation has been supported by a robust secondary market for Cannabis issues. Recent top volume traders include: TOP CANNABIS TRADERS BY VOLUME H1 2017 Monthly AVG

NAME

Cannabis companies trading on the CSE

Matica Enterprises Inc.

71,367,483

MYM Nutraceuticals Inc.

35,731,883

Nutritional High International Inc.

31,206,382

Umbral Energy Corp.

28,831,148

New Age Farm Inc.

28,387,034

MicroCap Review Magazine

21

OPINION

Cannabis Q&A with Adam Selkin

M

r. Selkin has 20+ years of experience in capital markets and banking with microcap companies. He has spent the last five years focused on the cannabis industry and built a cannabis practice. He has a vast network of cannabis relationships and has experience in investment banking, business development, and mergers and acquisitions.

Shelly Kraft: Whats your background?

Adam Selkin: I have been on Wall St. since 1996. I started off as a retail stockbroker at Oppenheimer, then Smith Barney until I went into Capital Markets and Institutional Sales and Banking at CE Unterberg Towbin in 2005. In 2008 my partners and I began the Special Equities Group, a division of Chardan Capital Markets where we were responsible for financing and marketing of microcap companies for the firm. We were consistently in the top 3 performers in the PIPE”s tables.

Shelly Kraft: How long have you been in the cannabis sector? and what is your experience?

Adam Selkin: Since the election cycle in 2012 I have been looking at the public cannabis sector. I have been in and around cannabis my entire adult life, have many friends that own and operate business in various states, and most of them actually began on the «black market». When I was in high school and college I traveled around with the Grateful Dead and Cannabis became a passion of mine forever. In about 2013, my analyst at Chardan suggested we make cannabis a focus at the firm as it became an emerging sector in the public markets because it seemed a change was coming in a progressive political environment out of Washington D.C. At that time, what my analyst did not know, is that my personal desire to understand much more about the industry was already brewing since my nephew suffers from epilepsy, and as a family we were searching out the possible benefits of treating him with cannabis. Chardon was the very first FINRA approved firm on Wall St. to write research and raise money for cannabis related businesses and companies.

Massroots was our first cannabis related deal and we raised them their first money in conjunction with becoming a public company.

Shelly Kraft: How has the sector transformed over the last several years?

Adam Selkin: The cannabis sector has started to transform into a true «emerging market». The cannabis companies in the public market have in a sense gone from

22

MicroCap Review Magazine

being completely obscure, working under the radar, and not having business models to becoming more focused on real cannabis opportunities in and around the industry, with real business models and quality management teams to execute. Today there are many established companies trading publicly within a huge ecosystem from agriculture, medical marijuana, edibles, infrastructure, social media, recreation, entertainment and vastly growing and diversified industries.

Shelly Kraft: How would you suggest an investor build a portfolio in cannabis stocks?

Adam Selkin: My opinion is of course to do extensive due diligence, seek professional advice, read trade reviews and newsletters and stay informed. I would diversify within the cannabis space. My suggestion would be to look at a couple of different «buckets»: Healthcare/Biotech, Technology, Retail & Cultivation and Products and Services to the industry.

Shelly Kraft: What are some downside risks to investing in cannabis stocks?

The cannabis stocks can have extreme volatility and struggle for financing. With news going back and forth on the legalization/ prohibition front, public cannabis companies tend to be very volatile in price/volume and trade on general industry news surrounding cannabis versus the fundamentals of their business.

For more information: Adam Selkin: www.slee3.com n

www.stocknewsnow.com

AC C O UN T IN G COR N ER

New Financial Reporting Rules Will Simplify Accounting On Some Transactions

A

fter what seemed an endless flow of new accounting rules that have made the audits of micro and small cap companies more complex and difficult, the Financial Accounting Standards Board (“FASB”) has updated two areas of accounting that may offer reporting relief for micro and small cap companies.

Recently, the FASB simplified accounting requirements for companies that issue equitylinked financial instruments (e.g. convertible debt or convertible preferred stock, or warrants) with down round features, which will substantially reduce the number of derivative liability instruments that have become commonplace on the balance sheet of small cap companies. The FASB also narrowed the definition of a business, providing a new framework for making reasonable judgments about whether a transaction involves an asset or a business. This is important because it should simplify the accounting for certain acquisitions that were formerly considered a “business”.

does not reflect the true economics of a down round feature, and that the volatility in earnings caused by the change in the fair value of derivatives is inconsequential to most readers.

The FASB update will allow companies to exclude a down round feature when determining if a financial instrument (or embedded conversion feature) should be recorded as a derivative. Companies will instead recognize the value of the down round feature when it is triggered (that is, when the strike price has been reduced). This is great news as it now will eliminate one of the most complicated, and some will say most distortive, aspect of accounting currently faced by companies.

While some of the analysis required under current accounting will be eliminated, preparers will still be required to perform detailed analysis to determine if instruments are to be classified as equity or liabilities (e.g. sufficient authorized shares, fundamental transaction clauses, etc.).

deterMininG deriVAtiVe liAbilities

deFinition oF A business clAriFied

Under current Generally Accepted Accounting Principles (“GAAP”), when an equity-linked financial instrument with down round features is issued, the embedded conversion feature is usually required to be separated and recognized as a derivative liability, with changes in the fair value of the derivative recorded in earnings each reporting period, making the measurement of these derivatives complex and costly. In addition, many users of financial statements have suggested that this accounting

This FASB change affects the definition of acquisitions, disposals, goodwill, and consolidation. Generally, in an acquisition of a business, assets and liabilities acquired are recorded at fair value and goodwill is recognized for any excess consideration. Assumed contingencies are typically recognized and measured at fair value. In an asset acquisition, the acquired asset is recorded at cost, goodwill is not recognized, and contingencies assumed are recorded only if probable.

In January 2017, the FASB narrowed the definition of a business and provided a new framework for making reasonable judgments about whether a transaction involves the acquisition of an asset or a business. FASB clarifies that when substantially all the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets,

n BY COREY FISCHER, CPA

www.stocknewsnow.com

the set is not a business. The new rule also requires that a set (of assets and activities) cannot be considered a business unless it includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output.

This change to the definition of a business is likely to result in more acquisitions being accounted for as asset acquisitions in all industries. This is extremely important as it makes the accounting for these types of transactions much simpler. It could also eliminate the costly expense of employing an outside valuation firm in assisting with the purchase price allocation in recording the initial purchase, and also could eliminate the need for continuing impairment testing of the acquired goodwill and intangibles going forward that is required under the old rules.

One potential issue worth noting is that the SEC definition of a business is not affected by the change in the FASB’s definition of a business. An asset purchase under GAAP that is deemed a business by the SEC may require the company making the acquisition to submit past audited financial statements of the “business” in a Form 8-K, whereas if it were an acquisition of an asset, audited financial statements may not be required. It remains to be seen if the SEC will adopt the same position as the FASB. If it does, this may significantly reduce the need for the costly presentation of prior year audited financial statements of the acquired asset.

Accounting and disclosure rules are complex, cumbersome and often difficult in application. Please consult experienced auditors or consultants before entering into transactions. n Corey Fischer, CPA, is Firm Managing Partner of Weinberg & Company, a multi-office, PCAOB and CPAB-Registered firm specializing in the audit, assurance and tax needs of micro and small cap companies.

He has more than 25 years of experience, having worked with the Big 4 accounting firms, and as an SEC reporting officer for a number of NASDAQ-listed companies.

Based Los Angeles, he is an expert in financial reporting, SEC compliance, raising debt and equity, mergers and acquisitions and structuring accounting operations.

E-mail: coreyf@weinbergla.com or 310-601-2200. www.weinbergla.com MicroCap Review Magazine

23

PROFILED COMPANY

tsx-V: eMh, otc MArkets: eMhtF

emerald health therapeutics, inc.

The Ultimate Cannabis Power Play: How Canada’s Emerald Health Therapeutics Can Become the World’s Largest Cannabis Cultivator

I

n the multi-billion dollar North American cannabis industry, this is surely the most ambitious power play of all.

Amazingly, it involves a low-key, publiclylisted Canadian company from laid-back British Columbia, rather than a deep-pocketed US corporate powerhouse.

Until recently, Emerald Health Therapeutics (TSX.V: EMH) (OTCQX: TBQBF) has been best known for being an R&D incubator of proprietary intellectual property in the race to innovate cannabisbased medicinal therapies.

Now this small Victoria-based cultivator of pharmaceutical-grade cannabis is throwing down the gauntlet to its much larger rivals.

Emerald Health has announced plans to become Canada’s most dominant cannabis grower. This involves a shrewd leveraging strategy. Indeed, it appears to be an optimal template for scaling-up production in a big way, which can be achieved at a relatively low-cost and on an expedited timeline.

More on this in a moment.

First, investors need to know what’s ultimately at stake.

24

MicroCap Review Magazine

the holy GrAil oF cAnnAbis is FinAlly within reAch Canada’s largest industrial-scale cannabis growers have lately been jostling for pole position in the race to capture the lion’s share of Canada’s looming legal recreational market.

Early-market entrants will have an unprecedented opportunity to earn brand loyalty among as many as an estimated eight million Canadians — approaching 25% of the population.

In fact, this mainstreaming of cannabis consumption is expected to be worth up to CDN $10 billion a year, according to investment industry analysts. And this new marketplace will open up as early as next summer.

So the small handful of big players among Canada’s industrial-scale growers are already trying to out-do one another in the run-up to the end of decades of prohibition.

They have each announced grandiose plans for growing vast amounts of pharmaceutical-grade cannabis in an assortment of www.stocknewsnow.com

new high-tech facilities. These operations will involve modular structures ranging in size from several hundred thousand feet to as much as one million square feet. The biggest of them will cover an area larger than 20 football fields.

What all these in-development facilities have in common is that they will each cost around CDN $100 million dollars (or even more) to build to full capacity. Also, each of them will take a year or longer to commission.

However, Emerald Health is taking a faster and less risky approach to scaling-up in a significant way.

Ultimately, this allows the company to develop value-added downstream products — namely cannabis oils — on a massive scale. Which is very shrewd because sales of cannabis oils in Canada are virtually doubling every 90 days.

In fact, investment industry analysts forecast that consumption of cannabis oils in Canada will expand exponentially for many years to come, especially with the advent of a recreational market.

Dr. Dhillon comments, “We’re already positioning ourselves to be a world-class leader in innovating value-added downstream products, such as cannabis oils. This is where the biggest profit margins are.”

Why Bigger is Better Emerald Health’s founder and Executive Chairman of the Board, Dr. Avtar Dhillon, is a former family physician. He is also part of a US-based family business that is one of California’s largest cultivators of fruit and vegetables. So he benefits from considerable expertise in the science and logistics of achieving impressive economies of scale.

In Canada, Dr. Dhillon’s apparent master stroke involves his company’s recently announced decision to team up with Village Farms International Inc. (TSX: VFF). Headquartered in Greater Vancouver, Village Farms had sales of around CDN $206 million in 2016. It is also North America’s largest technologically-advanced, low-cost grower of supermarket produce.

This strategic alliance means that an existing network of sophisticated greenhouse growing facilities will be re-purposed to produce recreational cannabis — a much more profitable venture.

Village Farms will initially contribute up to 1.1 million square feet of existing stateof-the-art greenhouse capacity to the 50/50 joint venture partnership.

All told, as much as 4.8 million square feet of greenhouse infrastructure can ultimately be retrofitted to cultivate cannabis via this arrangement. This could yield up to 300,000 kilograms of dried flower cannabis annually.

Targeting the Multi-Billion Dollar Pain Management Market Dr. Dhillon is determined to make Emerald Health a key player in Canada’s burgeoning big-dollar medical marijuana market.

Within months, his company intends to launch gel capsules with consistent dosage levels of cannabis oils that will meet Health Canada’s strict standards.

In particular, the company’s scientists are using advanced plant genetics to develop optimal cannabis strains and cannabis oils that can be dialled-in to treat specific types of pain and sleep disorders.

According to Dr. Dhillon, “By targeting the requirements of healthcare providers — consistent dose, quality manufacturing, oral delivery, and clinical evidence — we will engage the medical gatekeepers to support and expand the use of our medicinal products.”

This steadfastness to the company’s core competency can be seen in Emerald Health’s undertaking to develop 100,000 square feet of state-of-the-art, indoor growing facilities in Greater Vancouver. The new operation will also include a laboratory to incubate the company’s intellectual property, specifically plant genetics.

The company’s existing pilot growing

facility in Victoria will continue to focus on R&D, manufacturing oils and servicing medical patients.

Investment Synopsis Emerald Health’s joint venture partnership with Village Farms is a game-changing differentiator; it will allow them to capture significant market share in a multi-billiondollar recreational marketplace for cannabis.

To this point, Emerald Health is committed to becoming one of Canada’s lowest-cost producers, which promises to be an enormous competitive advantage. Additionally, a major driver for the company’s revenue growth will be the mass-production of highmargin cannabis oils.

Due to the fact that this business model can be rolled-out cost-effectively and with reduced execution risk, investors are presented with a compelling value proposition. www.emerald.care n

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

MicroCap Review Magazine

25

otc MArkets: iVob

PROFILED COMPANY

inVo bioscience, inc.

I

NVO Bioscience, Inc. offers the world’s newest reproductive technology to help millions of infertile couples receive treatment.

INVO Bioscience is a small public company (IVOB) that has developed a low cost, efficient alternative to In-Vitro Fertilization (IVF). The INVO procedure, using the INVOcell device, is a game changing, revolutionary process that is currently launching in the United States. It has demonstrated the same pregnancy rates and birth outcomes as traditional IVF at approximately half the cost of traditional IVF. The procedure, with the newly FDA cleared device, has begun penetrating the IVF market with more than 50 clinics now offering the procedure. Fertility procedures are generally not covered by health insurers, therefore they must be paid by the patient out of pocket. The huge cost of IVF has limited 88% of couples needing fertility care in the U.S. from obtaining pregnancy and having a baby. INVO Bioscience with its new technology is solving this problem.

Dr. Claude Ranoux and Kathleen Karloff, the current CEO, founded INVO Bioscience in 2007 to develop a device that could be utilized to commercially implement Dr. Ranoux’s discovery of Intra-Vaginal Culture (IVC). Dr. Ranoux, while practicing in his

26

MicroCap Review Magazine

homeland of France, lost electricity while doing an egg retrieval on a patient. Since his incubators were without power, he needed to find a way to keep the eggs and sperm from dying so he placed the eggs and sperm in a small cryo-preservation tube and inserted the tube in the female’s vaginal cavity to keep them at body temperature. Later when he removed the cryo-tube from his patient, he discovered that there were nicely formed embryos inside, hence discovering intravaginal culture (IVC) of gametes.

The company went public via a reverse merger in late 2008 to raise money to support the development, regulatory approvals and launch of the new medical device that could be user friendly for physicians for the IVC procedure. In early 2010, the Company’s stock was driven down to pennies by an original reverse merger investor. To prevent dilution by selling penny shares, the Company struggled to continue the development of the INVOcell and secure FDA clearance with little to no funds, paying vendors with restricted stock and taking no salaries for themselves.

Despite the lack of significant funding, the company received FDA approval in November 2015 through a DeNovo application inclusive of 450 clinical cycles proving the INVO process was equivalent in efficacy and safety to IVF. A limited product launch was initiated in 2016 with a few key physicians to assure the device procedure worked well in a commercial environment before a full launch was initiated. During this time, Kevin Doody, MD, who is currently the President of SART (Society of American

Reproductive Technologies) and a major U.S. thought leader, began offering INVO cycles along with a few additional early adopters.

The outcomes were excellent.

INVO Bioscience launched into the U.S. fertility market at the American Society of Reproductive Medicine (ASRM) Congress in October of 2016. The company, since this initial launch, has trained physicians and embryologists in over 50 IVF centers to offer the procedure at approximately half the cost of IVF. Currently, the Company is continuing the expansion of INVO across North America, despite limited resources. The company’s mission is to provide the INVO procedure to those that previously could not afford or had access to fertility care. In additional to selling the devices to physician, INVO Bioscience is looking at plans to partner with physicians to open INVO centers in area’s where the cost and availability of IVF makes it unattainable for most couples. This will even further grow the Company’s market share opportunity as well as serve patients who otherwise would not be treated. www.invobioscience.com n

www.stocknewsnow.com

otc MArkets: PMcb

PROFILED COMPANY

Pharmacyte biotech, inc.

P

harmaCyte Biotech, based in Laguna Hills, California, is a clinical stage biotechnology company focused on developing and preparing to commercialize unique, effective and safe treatments for cancer and diabetes using its proprietary cellulose-based live-cell encapsulation technology, “Cell-in-a-Box®.”

While the company has a number of cellular therapies in its product pipeline, including therapies for locally advanced, inoperable and non-metastatic pancreatic cancer (LAPC), type 1 and insulin-dependent type 2 diabetes, all abdominal cancers, and a cellular therapy using cannabinoids to treat cancers of the brain and other hard to treat solid tumors, it is the company’s therapy for pancreatic cancer that is PharmaCyte’s leading product candidate.

After meeting with the FDA in early 2017 to discuss its upcoming clinical trial in LAPC, PharmaCyte began preparation of an Investigational New Drug application to request a pivotal clinical trial be approved to address a critical unmet medical need in the pancreatic cancer community—a therapy for LAPC patients that no longer respond to the current standard of care, Abraxane® + gemcitabine. PharmaCyte’s Chief Executive Officer, Kenneth L. Waggoner, has surrounded the company’s technology with three of the leading oncologists in the world in developing therapies to treat pancreatic cancer - Dr. Daniel Von Hoff; Dr. Manuel Hidalgo; and Dr. Matthias Löhr. Together they designed the clinical trial to position

the company’s cellular therapy to address the unmet medical need.

PharmaCyte’s signature live-cell encapsulation technology, Cell-in-a-Box®, consists of different types of genetically modified living cells depending on the disease being treated. For its leading product candidate, pancreatic cancer, about 10,000 genetically modified live cells that produce an enzyme, which converts the chemotherapy prodrug ifosfamide into its cancer-killing form, are encapsulated in porous, pinhead-sized capsules. About 300 of these capsules are placed in the blood supply as close to the pancreatic tumor as possible, and then one-third the normal dose of the chemotherapy drug is given to the patient intravenously. The prodrug is normally activated in the patient’s liver. By activating the prodrug using the Cell-in-a-Box® capsules, PharmaCyte’s cellular therapy acts as a type of “artificial liver.” Using this “targeted chemotherapy,”, PharmaCyte is creating an environment that enables optimal concentrations of the “cancer-killing” form of ifosfamide at the site of the tumor. Because ifosfamide has such a short half-life, it results in little to no collateral damage to other organs in the body and significantly reduces tumor size with no treatment-related side effects.

The goal of PharmaCyte’s upcoming clinical trial in LAPC is to show that the company’s cellular therapy for pancreatic can-

cer can serve as a “consolidation therapy” with Celgene’s Abraxane® + gemcitabine and address the unmet medical need for these pancreatic cancer patients. PharmaCyte’s pivotal clinical trial will be a two-armed, 250-patient trial with 125 patients in each arm. The trial will be conducted in the U.S. and Europe by premiere oncology CRO, Translational Drug Development (TD2). The company has selected Dr. Manuel Hidalgo, the Clinical Director of the Rosenberg Clinical Cancer Center and Chief of the Division of Hematology Oncology at Beth Israel Deaconess Medical Center in Boston, to be the Principal Investigator. www.pharmacyte.com n

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

MicroCap Review Magazine

27

P R O F I L E D C O M PA N Y

cse: riw & otc MArkets: rwcrF

riwi and the next Generation of Global Applied Analytics

“E

ver since my graduate work at Harvard studying the misery after a pandemic or terrorist attack, I’ve been fixated on one problem: How do you obtain scientifically reliable, random and predictive data about people’s true fears, actions and behavior from anywhere in the world?” asks Neil Seeman, the founder and CEO of RIWI Corp. (CSE: RIW).

For example, how do you know whether people will see a public health safety message and then take a vaccine so they don’t spread a lethal virus? Will a video message campaign about the brutality of ISIS work to stamp out violent radicalization?

Until RIWI, the Internet has been unable to answer these questions.

Neil L. Seeman BA, J.D., MPH , Founder and CEO

28

MicroCap Review Magazine

Since the 1990s, the public has become accustomed to unreliable, unscientific opinion data from online panel surveys, where people earn rewards or cash in exchange for opinions about political candidates or products. By the mid-2000s, social media analysis was even less reliable than panels as a way to assess changing public sentiment.

Then, in 2006, Neil and his brother Bob were studying new advertising models of website domain addresses (like woma.com).

That’s when Neil’s business epiphany came.

“RIWI was born as an idea I sketched on my infant daughter’s erasable marker art easel in 2006,” Neil says. “My brother, an expert in website domain names, had been seeing erratic trends in website advertising revenues. Even though he owned great websites, we knew we weren’t going to become billionaires by selling ads online. So I showed him a crude algorithm on the art easel about how we could access millions of rotating websites in real-time from any country to intercept people randomly and in a scientifically representative fashion and get opinions from people who don’t post online or participate in survey panels. We did lots of cool stuff, including predicting the fall of Mubarak during the Arab Spring, which earned us immediate attention in the international security sector,” says Neil.

“Someone had to eat into the margins of the large polling and market research firms, so why not me?” Neil also felt there was a massive first-mover opportunity for mone-

tizing the enormous data the Company could obtain that had nothing to do with market research but with what is now called applied analytics, a $150 Billion annual market that enjoys the highest premium pricing in Big Data since it offers businesses continuous machine learning for the broadest possible range of insights. For example, the Company could uniquely help government agencies measure whether an operation in a war zone was meeting its objectives, or whether people were witnessing corruption among public officials. “Between me, my brother, and Alton Ing – the Chief Technology Officer in the research unit that I ran at a College – I couldn’t think of a trio who knew more about how to build out the technology for this amazing opportunity,” states Neil.

RIWI incorporated in 2009 and was at the side of his desk as ‘cool and disruptive’ but Neil says that he didn’t chase enterprise clients until mid-2012.

Even though the Company had solved the barrier-to-entry risk through strong intellectual property, building strong data and technology partnerships, and through proving out the technology in academic studies and in client use cases, it needed a strategic investment without turning to offers from dilutive Venture Capital.

So Neil pitched the idea to his founding shareholders, Robert Pirooz and Ross Beaty, the well-known entrepreneurs and investors of Pan American Silver fame (TSE: PAA), and they jumped on it. They hammered www.stocknewsnow.com

home the importance of keeping things lean.

The Company hired a small management team with proven expertise across four business lines: consumer research (with a focus on emerging markets); global development research (contracting in long-term agreements with governments and with prime contractors to G7 nations); international security; and global finance. “The Company discovered the best way to scale was through long-term agreements and monthly subscriptions,” Neil says.

“Our marketing, capital formation and business strategy then fell into place quickly.

We needed a business strategy that leveraged the financial benefits of long-term agreements and could capitalize on our marquee clients, such as the Bill & Melinda Gates Foundation, Harvard University, the United Nations, the World Bank, and the US State Department. Marketing in three of our four target sectors was relatively easy since clients in security, the development sector and finance work in tightly knit communities.”

The Company found marketing more challenging for consumer insights work.

Even the prestigious awards from the market research industry that the Company won could not raise the awareness it needed in that sector. RIWI is a five-time winner of the ‘Top 50 Most Innovative’ GRIT award, the 2013 IIeX Disruptive Innovation Award and is a winner of the coveted Next Generation Market Research Award. When the Company struck a sales partnership with the leading Japanese research firm Cross Marketing Inc. (TO: 3675) in Tokyo, marketing across Asia was easier. RIWI discovered it needed to focus mostly on long-term opinion trackers in the topic areas that the Company was the best in the world at, such as highly sensitive topics (e.g., hypertension prevalence, attitudes toward ISIS, or recreational marijuana use market sizing), or topics that required the opinions of huge numbers of Millennials, especially men under 35, a key demographic that online panels, telephone surveys and social media analytics increasingly couldn’t reach.

“Our technology won us increasing attention, and so did our prediction for finance clients of the election of President Donald Trump, as well as our research with Oxford and University of Manchester academics on the turnout model that would decide Brexit.

We were also the only Company to predict the stunning, precise margin of defeat for the Italian constitutional reforms in December 2016.”

“Capital formation needed to align with the Company’s business strategy and be as non-dilutive as possible,” Neil adds. “A public listing gave us flexibility: given that costs associated with increased sales in long-term agreements were low for RIWI, going public on the CSE without a raise made sense. RIWI is now a popular microcap with enormous scalability, great backers, strong governance, the opportunity to cross-list onto major US exchanges when ready, and to accept tactical private placements from hedge funds (which occurred in April 2016) and from strategic investors.”

RIWI has advanced its technology into an Information-as-a-Service (IaaS) and global applied analytics firm. It has engaged more than 1 billion people in the world to collect message testing data, behavioral reaction data, and survey data. The ongoing machine learning and data feeds provide clients, in customizable dashboards and in an extremely wide array of data file formats, continuous applied analytics, not just data dumps. RIWI is perfectly poised for explosive growth since it is only using a fraction of one percent of the Company’s processing capacity and its software scales horizontally to manage massive demand. RIWI’s big agenda is growth.

That means gaining more long-term agreements, more key accounts, and becoming more of a direct supplier to governments, in addition to being a sub-contractor to more major organizations such as Freedom House, for which RIWI is the sole digital data supplier in a consortium with a five-year agreement to the US Agency for International Development (USAID). Management aims to move rapidly such that a short contract

is one year, the average engagement is two years, with upper-level contracts of 5-15 years. It is expected that these contracts will range in size from $2MM to $30MM. “We aim to be the Booz Allen Hamilton (NYSE: BAH) of global applied analytics, serving government agencies and global consumer firms looking to understand product uptake, usage trends or geopolitical risk triggers in any part of the world,” says Neil.

The Company not only charges for its unique services in a highly cost-effective manner, but it also charges additional fees for the number of users on the RIWI platform. The applied analytics industry, under all the Company’s four business lines, is large and growing: it includes the evaluation budgets of roughly half of one percent of the GDP of every G7 nation; the roughly $45 Billion (est. 2.2% year-over-year growth) in the annual market research spend; the growing multi-trillion dollar efforts to combat terrorism globally; the growing number of quantitative-driven hedge funds devoted to better understanding changing geopolitical risk in all parts of the world; and growing return-on-investment analytics critical to the ever-rising (now more than $223 Billion) worldwide annual digital advertising spend.”

One final part of RIWI’s path forward is turning on its investor-relations engine so that more than just the Company’s tight investor base and people close to the data sector know about the Company’s growth trajectory and vision. “We’ve been under the radar from a capital markets perspective. That’s going to soon change,” says Neil.

“What will never change is our commitment to solving some of the hardest data challenges in the world to serve our customers with a vital, increasingly intelligent data and analytics stream that is otherwise unavailable in the global marketplace,” he adds. www.riwi.com n

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

MicroCap Review Magazine

29

nAsdAQ cM: Azrx

P R O F I L E D C O M PA N Y

Azurrx bioPharma, inc.

AzurRX BioPharma (Nasdaq CM: AZRX) is an emerging biotechnology company that’s at the forefront of developing the latest therapies for digestive orders through something unexpected: cheese. More specifically, through an aerobic yeast found in one cheese and other foods – Yarrowia lipolytica.

If this novel cutting-edge approach sounds unique, the results could be startling. Their innovative approach could re-shift current standards of care for chronic disease states into the 21st century, like how early insulin progressed from crude animal extracts, to synthetic recombinant preparations of today, potentially improving the quality of life for patients.

The company’s investigative treatment, MS1819, is a recombinantly-produced pancreatic lipase product -- an enzyme used in digesting and extracting energy from food, which is made by re-combining the cheese yeast’s DNA with synthetic DNA. This treatment is being evaluated for use in individuals who suffer from exocrine pancreatic insufficiency, or EPI. These patients cannot digest fat and typically have chronic pancreatitis (CP) or cystic fibrosis (CF).

Thijs Spoor, CEO

30

MicroCap Review Magazine

Figure 1: The Breakdown Mechanism of Macronutrients Source: Company reports.

understAndinG ePi EPI is a potentially life threatening gastrointestinal disease in which the pancreas does not produce enough enzymes to adequately digest food. The condition, often caused by CP or CF, can lead to the body’s inability to absorb fat and other essential vitamins and minerals and result in malnutrition, weight loss, blood clotting and bone disease.

Digestion of fat is critical for absorbing essential vitamins like D, E, A and K into the body. Pancreatic lipase (an enzyme that breaks down fat) is responsible for 90% of the fat digestion process so when the pancreas does not function, pancreatic exocrine replacement therapy (PERT) must be taken.

Chronic pancreatitis is the most common cause of EPI in adults, and is often caused

by a pancreatic inflammation, due to alcohol abuse, smoking, or genetic mutations. The estimated annual incidence rate of CP in industrialized countries is 5-12/100,000 people and the prevalence of CP is 50/100,000 people. Over time, the inflammation can lead to irreversible damage to the pancreas, including cells that secrete pancreatic digestive enzymes and the cells that produce insulin leading to diabetes.

For the approximately 30,000 people in the United States who have CF, EPI is caused by a mutated gene associated with viscous secretions that obstruct the pancreatic duct, leading to pancreatic ductal obstruction and pancreatitis, pancreatic fibrosis, and EPI. Only 10-15% of CF children have sufficient pancreatic function, leaving 85-95% with pancreatic insufficiency. By age one, www.stocknewsnow.com

Figure 2: Daily Dose MS1819 vs. Standard of Care PERT - Illustrating Expected Substantial Reduction in Pill Burden and Size Source: Company reports.

90% of children with CF may develop EPI, according to researchers at the University of Toronto. This is particularly dangerous as malnutrition may affect growth patterns.

CF patients often require 20 – 50% more fat-based caloric intake because of malabsorption.

Current Treatments and MS819 The current treatment for most patients with EPI, usually involves lifelong pancreatic exocrine replacement therapy, or PERT. The goal of PERT is to help manage patient malabsorption, by providing the patient with pancreatic enzymes derived from animals.

However, several challenges exist to treat EPI as currently available treatments offer limited effectiveness due to their instabil-

ity in acidic environments like the stomach; require a high number of pills be taken daily leading to non-adherence; and are derived from porcine, which carries a risk of transmission of pathogens and manufacturing inconsistency.

AzurRx BioPharma’s MS1819 Lipase is a non-systemic, yeast derived recombinant enzyme being studied for the treatment of EPI in patients with CP and CF that offers the potential to fulfill critical unmet needs for these patient populations. To date, early research shows superior stability for MS1819 lipase at relevant intestinal acidic pH ranges, favorable safety and efficacy profiles, and decreased daily pill burden compared to porcine pancreatic extract lipase.

Following regulatory approval in Australia and New Zealand in 2016 to conduct a Phase 2 multicenter

dose escalation study in CP and pancreatectomy, the company initiated the openlabel trial at four sites in Australia and New Zealand with a target enrollment of 12-15 patients. The primary efficacy endpoint is the change in the coefficient of fat absorption (CFA) from baseline and measured at the end of the open label treatment part of the trial (Phase C) on standardized high-fat meals and stool collection for 3 days (dye marker). The company is evaluating four escalating dose increments of MS1819, with the aim of finding the optimal treatment dose to be used in subsequent registration trials in EPI patients associated with CP and CF.

AzurRx BioPharma Pipeline AzurRx BioPharma’s other pipeline candidate is AZX1101 -- a recombinant-lactamase combination of bacterial origin aimed at prevention of hospital-acquired (nosocomial) infections by resistant bacterial strains induced by parenteral administration of β-lactam antibiotics as well as the prevention of antibiotic associated diarrhea. The U.S. Centers for Disease Control and Prevention (CDC) has estimated that roughly 1.7 million hospital-associated infections (~5% of hospitalized patients) cause or contribute to 99,000 deaths per annum in the U.S., with an annual cost of $4.5 – 11 billion. AZX1101 is in early preclinical testing and consists of a combination of two β-lactamases having complementary activity spectrum. The production processes of these two candidate proteins have been optimized and would be assessed for efficacy in minipigs. The animal efficacy and toxicology studies for AZX1101 are slated to start in the summer of 2017. www.azurrx.com n

Figure 3: AzurRx Product Pipeline Source: Company reports.

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

MicroCap Review Magazine

31

CANNABIS CORNER

The Global Proliferation of Medical Cannabis

A

fter an almost two-year bear market that followed a bubble in early 2014, cannabis stocks delivered great

returns in 2016, with the 420 Investor Cannabis Stock Index posting a gain of 88.8%.

As I mentioned in the last issue, the biggest driver of the stocks in 2017 is likely to be potential changes in the federal policy towards enforcement of the Controlled Substances Act. Under the Obama Administration, states which complied with the 8 tenets of the Cole Memorandum issued in 2013 were permitted to operate state-regulated cannabis programs. With the Trump

victory, the executive order that served as the foundation of the legal cannabis industry suddenly looked like quicksand.

Indeed, federal policy has been the biggest driver this year, with the sector peaking in late February after extending the gains of 2016 but then retreating after an off-the-cuff remark by Sean Spicer suggested a potential change in how the Trump Administration

n ALAN BROCHSTEIN

32

MicroCap Review Magazine

www.stocknewsnow.com

would handle cannabis. So far it has been nothing but saber-rattling, but, through June, the index was down 22.4% year-todate, falling to 57.19, which is still 81% above the bear-market lows in February 2016 but 42% below the peak in February 2017.

Despite some concerns about changes in federal policy that has weighed on investor sentiment., the cannabis industry is enjoying tremendous growth. Nevada made history with its speed in opening sales up to adults, with doors open to the public on July 1, less than 7 months after voters gave the nod to legalization. Nevada could develop into one of the world’s most attractive cannabis markets given its large tourist draw. There are a few publicly-traded companies with operations in Nevada. Several states are in the process of rolling out medical cannabis programs as well, and the growth outlook is very positive for the industry, with cannabis likely to compete increasingly with alcohol and pharmaceuticals as news standardized products are created that offer consumers consistency in formats that extend beyond smoking.

While I have been very cautious on cannabis stocks historically due to the sector being littered with hundreds of pump and dump penny stocks, the quality has improved dramatically. I mentioned the first cannabis NYSE IPO, REIT Innovative Industrial Properties (NYSE: IIPR), and it has encouraged some other real-estate focused companies to consider going public.

Institutional investors are very interested in acting as landlords to cannabis cultivators.

We are also starting to see the emergence of both public and private companies that are creating multi-state cannabis operations.

Interestingly, two of the public companies, Canadian Bioceutical Corporation (CSE: BCC) (OTC: CBICF) and iAnthus Capital Holdings (CSE: IAN) (OTC: ITHUF), are based in Canada and have demonstrated great access to capital. Finally, and perhaps most importantly, there is an increasing number of companies that are on track to generate annual revenue in excess of $10mm, www.stocknewsnow.com

Canada remains on track to fully legalize cannabis in 2018, and its medical cannabis program has been seeing explosive growth in patient enrollment. including both direct cannabis companies as well as those that serve cultivators, processors and retailers.

While the U.S. cannabis industry advances despite the overhang of Jeff Sessions, what’s going on beyond our borders is truly amazing. Canada remains on track to fully legalize cannabis in 2018, and its medical cannabis program has been seeing explosive growth in patient enrollment. There are now 19 publicly-traded licensed producers (LPs), several of which trade on the Toronto Stock Exchange. Our neighbor to the South, Mexico, has also decided to legalize medical cannabis, but the initial program will be highly restrictive. Several South American countries are in the process of rolling out their own programs too. A handful of countries in Europe are adopting medical cannabis, but the most significant one is Germany, which will soon issue licenses for production but is already allowing imports. This market will be tremendous based upon the large population, the insurance coverage and distribution through pharmacies, and several Canadian LPs are expected to play a major role in the market. Finally, Australia is another rapidly developing medical cannabis market that has seen several companies go public, the two largest of which have leading publicly-traded Canadian LPs as investors.

2016 was a great year for speculators in the cannabis sector, but 2017 looks to be the year that long-term investors can finally consider participating, though the market remains highly speculative. The rough first half for the index masks some big improvement in the industry fundamentals and the emergence of higher-quality companies. Those who are interested in capitalizing on legalization would be wise to focus on some of the revenue-generating companies, especially

those with good access to capital and with profitability or near-profitability in their operations. With all of the positive developments beyond our borders, those interested in the sector should also pay attention to companies able to capitalize on these opportunities, especially in Canada and Germany.

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. n 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 a 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.

I have no ownership in any of the companies mentioned. Aurora Cannabis, Canadian Bioceutical Corporation, Canopy Growth and iAnthus are advertising clients at New Cannabis Ventures. www.420investor.com

MicroCap Review Magazine

33

FEATURED ARTICLE

Cannabis Investing – What Looks Interesting W

hile the cannabis industry has enjoyed robust growth to date (According to the New Federalism Fund, the state-legal cannabis industry employs more than 100,000 people, generated $7 billion in 2016 sales, and by 2020, will support more than a quarter-million jobs. and grow to $20-25 billion not including the fully legalized sale), the nuances of the 100s of different cannabinoids and their corresponding effects and varied state regulations, are hard to predict and unlike biotech, the catalysts that drive valuation are harder to time.

Opioid crisis in the US has led to higher hopes for medical marijuana as a substitute, especially in cancer-related pain. The recent declaration of national emergency empowers the Trump administration to direct funds towards more research for non-opioid painkillers. More than 100M US adults suffer from some form of acute or chronic pain.1 Non-addictive, effective painkillers would give doctors a safer option for patients. The strong safety profile of cannabis products has been established though recreational and medical use as well as through research.2 Longer term opportunity in cannabis lies in its therapeutic and pharmaceutical applications. With anticipated DEA re-scheduling and FDA approvals, medical marijuana could steadily increase market share while decreasing opiate deaths.

1 Johannes CB et al. The prevalence of chronic pain in United States adults: results of an Internet-based survey. J Pain 2010;11:1230-1239

n BY DR. LAUREN CHUNG

34

MicroCap Review Magazine

2

Ware MA et al. Cannabis for the Management of Pain: Assessment of Safety Study (COMPASS). J Pain 2015:16:1233-1242.

There is no FDA approved plant-derived cannabis based drug right now, but GW pharma has by far the most advanced cannabis based therapeutics. GW Pharma’s Epidiolex (oral plant based CBD) is expected for FDA approval in 2018 for rare and severe forms of epilepsy. Not all companies have the financial resources like GW to spend $165M- $175M a year in R/D, regulatory, manufacturing and commercial preparations for Epidiolex.

Other companies actively pursuing clinical advances include INSYS Therapeutics (INSY), Zynerba Pharmaceuticals (ZYNE), InMed Pharmaceuticals (IMLFF), Therapix Biosciences (TRPX), Axim Biotechnologies (AXIM), Nemus Bioscience (NMUS), and Intec Pharma (NTEC) at various stages of development.

While GW still faces approval, capacity and reimbursement risks, GW’s drug is nonetheless the most clinically advanced, and it is assumed that it will be the first cannabis drug to be FDA approved. It is also assumed that the DEA schedule will change www.stocknewsnow.com

with approval. FDA approval is the only way the drug could ensure consistent dosing, potency, and availability across the country.

With scheduling change however, it is possible for all medical use of cannabis undergo FDA approval (albeit potentially via a less rigorous 505(b)(2) pathway), in which case, at a drastic level, medical dispensaries are at risk of closing. Though licenses are continuing to be granted now, the ultimate demise of medical dispensaries upon FDA approval of one or more cannabis drugs remains to be seen.

Invest in Canada Canadians have a constitutional right to medical cannabis, and are less likely to be impacted by the scheduling changes in the US. As such, medical marijuana seems to be protected in Canada. Also, the laws in Canada are more straight forward, ie, a draft guidance of legalization has been released and full enactment is expected mid2018.

While currently medical marijuana cannot make any claims, in the long run, it is possible for Health Canada to approve certain claims. In the meantime, it is important for the sponsors to commit to physician education. Meaning, further genetic testing could potentially expand the market more broadly, but in practical sense, hundreds of formulations linked to different symptoms may not be adopted if the physicians prescribing them are not aware or convinced. This problem is already faced in the recreational business; Stores with too many choices are confusing for consumers.

One risk of Canadian companies is that their business model is the same. Companies that are focusing on physician education may have more staying power and defensible brand. In addition, companies that have expansion overseas may have better competitive advantage, ie companies with finish fill facilities overseas may have endorsement of the govt of the country they are in especially if they are also providing employment in those countries. www.stocknewsnow.com

Canadians have a constitutional right to medical cannabis, and are less likely to be impacted by the scheduling changes in the US. As such, medical marijuana seems to be protected in Canada.

By contrast, the US market is vastly fragmented even though we have a much larger population. Considering the projected price drop of cannabis plant, vertically integrated cannabis businesses are key. Also, any businesses that counter the price drop by cost savings make agricultural technology very interesting: Increasing efficiency, reduce electrical use, reduce labor costs by automation, and reduce capex spending by increase in growing efficiency, ie more harvesting time per year (or yield per year) without losing terpene development. As such, what would be archaic going forward would be for a need to build massive acres of grow houses.

Because aggregate of these considerations is vast, one way to efficiently invest in the cannabis business in the US is via funds such as MedMen, or an investment vehicle such as iAnthus Capital (ITHUF), that directly invests in legal cannabis industry upon rigorous due diligence.

Other area of interest is cannabis diagnostics. As more cannabis drugs move into the clinic, and states legalize cannabis use, cannabis safety and testing will become increasingly important, and players in this area include privately held Steep Hill, SC labs, and a start-up CeresLabs, and publicly traded Digipath (DIGP), CannLabs (CANL), and Pazoo (PZOO). In addition, life sciences tools companies such as Shimadzu (TYO) and Sciex could represent a good opportunity in equipment sales. Lab testing guidelines and protocols are evolving, and as more regulations come onboard, diagnostics will be mandated and more testing would be required.

Where does this leave for hemp based

CBD companies? The likes of Charlottes Webb, and ETST? A lot of them just white label their own brands, and the extracts are purchased. These opportunities are too thinly spread, and if there are contractions in the space, the ones with strong brand staying power will survive but largely uncertain. n Dr. Lauren Chung Managing Director, Healthcare Research Dr. Lauren Chung serves as a Managing Director in Healthcare Research, and has more than 16 years of equity research and investment management experience in the biotechnology and healthcare space. Prior to joining WestPark Capital, Dr. Chung served as a Senior Equity Analyst at Maxim Group focused on healthcare companies. Previously, Dr. Chung provided consulting services related to healthcare investments and various strategic and operational planning for healthcare companies and investment firms.

Dr. Chung was a Co-Founder and Chief Operating Officer of Tokum Capital Management, a healthcare fund, which merged with Perella Weinberg Partners.

Prior to that, Dr. Chung was a Healthcare Portfolio Manager and Analyst at RBR Capital, Kingdon Capital, and Pequot Capital.

Contact Lauren: lchung@wpcapital.com (929) 387-3605 WestPark Capital, Inc. is a full service investment banking and securities brokerage firm which serves the needs of both private and public companies worldwide, as well as individual and institutional investors. We are committed to forging lasting partnerships with emerging growth companies and the investors who back them. Our simple approach is to provide customized financial solutions for virtually any need. A complete range of investment banking and brokerage services are available to our valued corporate and individual clients. www.wpcapital.com

MicroCap Review Magazine

35

F E AT U R E D A R T I C L E

The Art of Value Investing Excerpt from my interview with Sanjay Bakshi, Professor and Value Investor From Episode 41 of the Planet MicroCap Podcast

T

o date, my interview with Professor Bakshi has been the most downloaded and listened to Planet MicroCap Podcast episode. I think this is due to his huge popularity within the value investing community, as well as the wisdom he conveys within this interview, which are pearls that I’ll carry with me for the rest of my investing career. The interview is approximately 108 minutes long, and I thought I would share some of my favorite answers Professor Bakshi provided.

Here is an excerpt from our interview, where we discuss how Professor Bakshi defines Value Investing and what it means to him:

n BY ROBERT “BOBBY” KRAFT

36

MicroCap Review Magazine

Robert Kraft: How would you define value investing? What does it mean to you?

Professor Sanjay Bakshi: Well, it’s meant different things to me at different points of time. And I think it means different things to different people, and that’s okay by the way for me. I mean, to me, it has meant different things over time. Earlier…I started my career as a Graham and Dodd investor - I was telling you that I read that essay on special situations and I came back to India and started my career – building a track record in special situations and then I gradually transitioned into becoming a classic Graham and Dodd investor when I was buying stocks below liquidation value, below cash value, below net – networking capital something that we all know, it’s called Net-Net’s.

And of course buying businesses at low P/E multiples or high earnings yield as Graham used to call them, and of course that kind of investing required wide diversification and there wasn’t much emphasis on the quality of the business or the management.

In fact, Graham used to say that I don’t even need to know the name of the company; if I had the financial statements I will tell you if it is cheap or not. I mean the primary source of marginal safety was coming from a low price point. So, initially the whole of value investing to me was that it’s something that is cheap, you are buying something that is fundamentally cheap; that is ridiculously cheap and selling below liquidation value or below cash value or at a very low P/E multiple then you should buy that business.

But that definition changed over time now it means that I would like to buy into a business who’s value will grow over time, so that the expected return of holding it

over the long term, which is a minimum five year, but usually 10 years or even higher will be more than satisfactory. Now I think, over the years, I also started appreciating the distinction between the value investing and value traps.

Value investing is more than buying something cheap. I mean, the universal stocks that are cheap is much larger than the universal stocks that are cheap, but will not be cheap over the long term. Not everything that cheap will become fairly valued and a lot of value investors, some of my students – many of my students are actually unable to make that distinction because they read Graham and Dodd and think that if it is selling below cash, maybe I should buy it. But maybe it’s selling below cash for a reason and it’s probably a good reason. I mean, maybe the management is crooked and they don’t want to share the proceeds of the business with you and they control the company or the business is controlled by a family who thinks more about its own interest than about the minority stockholders, so that’s like a value trap because there is no possibility of the unlocking of value.

So I think it’s important to distinguish between what is cheap and what is likely to remain cheap or rather think in terms of probability that what will cause the gap between value and price to narrow and sometimes the probability of that happening is remote and I think those are situations, which we will classify as value traps.

I encourage you all to listen to the episode in full here: www.planetmicrocap.podbean.com n

www.stocknewsnow.com

www.stocknewsnow.com

MicroCap Review Magazine

37

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

38

Continental Stock Transfer & Trust | ContinentalStock.com | 1 State Street Plaza, 30th Floor | New York, NY 10004 MicroCap Review Magazine

www.stocknewsnow.com

OPINION

Partnering with a Transfer Agent

T

ransfer agents have been involved with public and private companies for over 100 years in the U.S. The role of a transfer agent has evolved significantly with most dramatic changes over the past 15 years. Banks emerged as the first transfer agent of note to support issuer stockholder recordkeeping when the New York Stock Exchange was formed. Today, virtually all U.S. bank transfer agents have either exited the industry or have been acquired by non-bank agents.

Continental Stock Transfer & Trust Company, a New York state charted trust company, is currently the 4th largest transfer agent serving over 1,000 clients and 2 million shareholders since 1964. Transfer agents are responsible for maintaining the public or private company’s stock or bond transactions.

Transfer agents are highly regulated by the SEC and comply with various government regulations including those of the IRS and treasury foreign asset control laws. When partnering with a transfer agent, the issuer gains expertise on compliance and governance, and peace of mind that your agent will continually review and comply with new regulations and requirements. They interact with brokers and financial institutions, including DTCC, to coordinate share movement for listed issuers or with the shareholder directly to manage registrations in certificate or book-entry form.

For companies that trade on an exchange, the role of The Depository Trust & Clearing Corporation “DTCC” is important to support electronic movement of shares. For over 40 years, DTCC has provided services to support the U.S. post trade transactions by

n BY STEVEN NELSON

www.stocknewsnow.com

providing settlement and clearing services to the financial markets. Continental Stock Transfer interacts with DTCC as a registered FAST agent to offer direct registration “DRS” service, a non-certificated transmission of shares to and from brokers. With the entire industry moving to a 2 day trade settlement “T+2” effective 9/5/2017, it is critical you have a partner that is prepared to manage shareholder transactions efficiently, accurately and timely.

Continental was founded on a specific vision – to support private, emerging and mid-size shareholder base companies with a suite of tailored services. Our product solutions include: IPO/SPAC Offerings Bank Conversion IPO Offerings Subscription Services Escrow/Custodian Services Reg A+ Services Reverse Mergers Crowdfunding Solutions Post-Bankruptcy Emergence Public to Private Transactions Tender/M&Q/Exchange Agency Dividend Disbursement DTCC – FAST, DWAC, DRS Restricted Stock/Legal Transactions Escheatment/Post Merger Services Investment/Employee Plan Administration Proxy/Annual Meeting Services Robust licensed technology Shareholder Care Center Global Partnerships / Co-Agent & Dual Agent Services Client & Shareholder online web-based transactional portal platforms With Continental Stock Transfer & Trust Company, you will have the following credentials behind the transfer agent relationship to ensure your company and its shareholders are represented and excellently cared for every day.

SEC Registered Transfer Agent 25M Blanket Bond New York State Chartered Trust Company SEC No-Action Letter for Escrow Services Industry change risk management and compliance Whether you are growing or reducing your shareholder base, or managing a significant corporate action or event, a trusted transfer agent partnership will provide day to day guidance and operational support to allow you to focus on building your business. n

continentAl stock trAnsFer & trust coMPAny Continental Stock Transfer & Trust is one of the 4th largest transfer agent in North America, handling more than 1,000 public & private issues and aggregating more than 2 million shareholders. For 53 years the Company has delivered to its client’s reliability, stability and premier service at an exceptional price. Continental offers a wide array of services, including public and private offering administration, issuance and transfer of shares, management of restricted transfers and option exercises, maintenance of shareholder stock ledgers, dividend disbursement and investment plan services, as well as corporate event administration and escrow services. In addition, the Company has a dominant position in the Special Purpose Acquisition Company “SPAC” / IPO business and has been routinely recognized as the leading North American Transfer Agent, delivering exceptional services and unmatched value to its customers.

Learn more at www.continentalstock.com Karri L. Van Dell, Vice President Director of Sales & Marketing kvandell@continentalstock.com Business Direct: 212.845.3224 Steven Nelson, President & Chairman With more than 30 years of industry experience, Steven is heavily involved in Continental Stock Transfer & Trust’s day-to-day organizational and administrative issues, and in the overall management of client initiatives. An attorney with a background in public as well as private practice, he is a member of the New York State and Federal Bars. He has practiced at Simpson Thacher & Bartlett, and as a federal prosecutor. Steven is a member of the Securities Transfer Association Board, and chairs its Legal Committee, which is active in promoting important changes within the industry. A magna cum laude graduate of Brandeis University, he received Law Review honors from NYU Law School.

MicroCap Review Magazine

39

F E AT U R E D A RT I C L E

A Massive $Trillion Industry is Born Commentary and Insights A MAssiVe $trillion industry is born • • •

Mired in airpollution the 44-story CCTV Headquarters in Beijing, China

•

• •

It began with the exhaust from the internal combustion engine.

Recognition of the air pollution created by the exhaust.

Public policy to curtail the air pollution The evolving technology to develop the new-age electric motor and battery to store the power to drive the vehicle / EV. Harnessing the minerals necessary to create the new-age EV battery pack.

And going forward, the massive multibillion dollar effort already underway to build the EV, replace the gas powered engine and develop the supply chain of the raw materials necessary with its innumerable ramifications.

The opportunity to find the winners of this play-out lives in the supply chain that will furnish and supply the raw materials of; copper, lithium, cobalt, vanadium, nickel and spherical graphite.

n BY DR. JOHN L. FAESSEL

40

MicroCap Review Magazine

The Problem in More Detail: What’s now accepted is that air pollution is the world’s largest single environmental health risk. The pollution kills 3 million a year, according to the World Health Organization last year.

Air pollution in Chinese cities ranks among the worst on the planet and less than 1 % of China’s top 500 cities meet the air quality standards set by the World Health Organization. The problem is nearly every-

where, especially in the worlds large urban centers.

Governments worldwide have awoken to the issue and are now attacking the problem with tough emission standards and even by banning diesel-powered vehicles.

The Solution The play-out here for society at large is the development and evolution of the electric vehicle, or EV—and even more critically, the progress in battery technology toward an increased capacity battery pack that’s stable, safe, and efficient.

And, it isn’t just Tesla: VW, BMW, DaimlerChrysler and Ford are building huge gigafactories that produce the next-generation batteries and some of these are over 2X times more powerful than what Tesla currently has on the road.

Copper, quite simply, is king when it comes to realizing a postgasoline world.

The conventional internal-combustionengined car of today contains about 45 pounds of copper. The average pure batterypowered EV requires about 175 pounds. The expansion of EVs will require 120-million tons of copper a year. Big picture, the mining industry is producing only about 16% of the copper required to meet projected demand.

China is the world’s largest consumer of copper, with almost half of it going into power generation and the rest into appliances, transport, construction and electronics.

Bottom line: the mining industry of today is not even close to finding or mining enough copper to provide the metal for the oncoming market demand. www.stocknewsnow.com

Cordoba Minerals Corp. (CDBMF) on OTC - (CDB) on the Vancouver exchange - Market-Cap $46 million. http://www.cordobamineralscorp.com/ A mini-cap company I like in the copper space is Cordoba Minerals in Columbia.

Billionaire mining mogul Robert Friedland* through ‘his’ privately owned company HPX, has just recently “strengthened” his position in Cordoba to 69%. The interest from Friedland / HPX stems from a bonanza grade copper 10.25% copper / gold 4,440 g/t gold intersection. [Hole ACD036] The find has a strike length of 1.3 kilometers, to widths of up to 400 meters and extends from the surface to 260 meters below surface.

Cobalt In reality the lithium ion battery is a cobalt, nickel battery in all but name.

The dominant and necessary chemistries for the next-generation EV battery are lithium, cobalt and nickel. We’ve all heard about lithium and true, it’s necessary. However, the far, far more essential elements are cobalt and nickel salts. These salts make up around 15% of the battery—lithium only 5%.

When combined with Clean TeQ’s proprietary ion exchange extraction and purification processing technology Clean TeQ becomes one of the largest and lowest cost www.stocknewsnow.com

suppliers of cathode materials in the EV battery pack market.

Since 2010, China has spent well over $6 billion acquiring interests in cobalt mining ventures and now control over 60% of the worlds refined cobalt production.

Clean TeQ Holdings LTD (CTEQF) on the OTC and (CLQ) on AX [Australia] http://www.cleanteq.com/company/ Conspicuously, China’s Pengxin International Mining Co. Ltd. recently acquired 16.2% of Clean TeQ for $81 million.

Here again Robert Friedland* is a Director and the major shareholder of Clean TeQ and recently acquired an additional 1.99 million shares on top of his previous 16.2% interest in three recently reported insider-buys in the ‘open market’ (May / June 2017.)

The cobalt / nickel deposit in New South Wales, Australia, contains one of the highest grade and largest cobalt and nickel deposits outside of Africa (and the world’s largest and highest grade scandium resource.)

Over 1,300 core holes have been drilled in the near-surface deposit to delineate the resources size and grade. And it’s amendable to simple strip mining by excavators.

Who will be the eventual winners of the most popular and most profitable EV manu-

facture may take decades to determine; think the oil / gasoline business vs the hundreds of auto makers that have fallen by the wayside. * In 2016 Friedland was inducted into the Canadian Mining Hall of Fame and this year was the recipient of The Northern Miner’s Lifetime Achievement Award (link; https:// insider.kitco.com/lifetime-achievementaward-presentation-fireside-chat-robertfriedland/ ). Currently Friedland (Ivanhoe Mines) sits on three of the largest mineral finds ever: perhaps the largest and richest copper, perhaps the largest and richest zinc find, and perhaps the largest and richest platinum find. Plus he has size interests in several other mining ventures, notably Clean TeQ and Cordoba.

I bought shares of Clean TeQ and Cordoba in the open market. www.onthemar.wordpress.com 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 throughout the world to an extensive list of financial institutions, brokers, mutual funds, hedge funds and high net worth investors. Contact: onthemar@san. rr.com

MicroCap Review Magazine

41

PROFILED COMPANY

otc MArkets: cteQF, Asx: clQ

clean teQ holdings limited cobalt, nickel and scandium: key raw Materials for technology disruption

C

lean TeQ Holdings Limited All key permitting on the Project has been (CLQ:ASX; CTEQF:OTCQX) is the completed, including approval of the com100% owner of the Syerston Cobaltpany’s Environmental Impact Statement, a Nickel-Scandium Project in Australia. secured water allocation and an approved Syerston’s unique mineral resource positions Development Consent. Syerston is develClean TeQ to become one of the largest and opment ready and will be the first mine lowest cost suppliers of cathode raw materideveloped to exclusively produce high-purity als to the lithium-ion battery industry. cobalt and nickel sulphate to supply the Figure 1: Project Location Founded in 1990, Clean TeQ has a track lithium-ion battery market (Figure 2 below). record of innovation in clean technologies Clean TeQ is backed by its largest sharespanning over 25 years. Clean TeQ’s Clean- tonnes in higher grade peripheral zones). holder, Mr Robert Friedland, one of the most The Project comprises an exploration respected and successful project developers iX® continuous ion exchange hydrometallurgical process provides highly efficient license and several mining lease applications in the mining industry and a serial investor extraction and purification for a range of granted under the NSW Mining Act, which in disruptive technologies. The company valuable strategic metals from slurries and overlay the project area. In addition, Clean also has significant support from China, with solutions. The company focuses on metals TeQ owns (or has options to acquire) most of Shanghai Pengxin Mining recently investing that are highly geared to disruptive changes the freehold title that underlies the Project.

AUD81M to acquire a 16% interest in the in technologies and markets, particularly in global energy and transport.

Clean TeQ acquired the Syerston Project in 2014. The Project, located near the township of Fifield, is based in one of Australia’s most established mining jurisdictions, approximately 350 km north-west of Sydney.

It is well serviced by infrastructure, with road, rail and power services readily available. The Fifield District is noted for its intense magnetic anomalism and significant occurrences of minerals containing nickel, cobalt, scandium and platinum.

Syerston is uniquely positioned as one of the largest and highest-grade cobalt resources outside Africa. The mineral resource totals 109 million tonnes grading 0.65% nickel and 0.10% cobalt for contained metal of 700,000 tonnes nickel 114,000 tonnes cobalt. It also hosts almost 9,000 tonnes of scandium oxide (in addition to the 18,000 Figure 2: Clean TeQ’s nickel sulphate (top) and cobalt sulphate samples

42

MicroCap Review Magazine

www.stocknewsnow.com

Figure 3: Barren and Ni/Co-loaded resins

company. The management team is led by Mr Sam Riggall, an experienced executive who has held senior management roles at Rio Tinto and Ivanhoe Mines.

A Definitive Feasibility Study (DFS) is currently underway, due for completion in Q4, 2017. Clean TeQ completed a pre-feasibility study (PFS) in October 2016 which assessed the economics of a 39-year mining operation, processing 2.5Mtpa of ore.

With 18,000tpa of nickel and 3,200tpa of cobalt production, combined with a C1 cash cost of US$0.89/lb Ni after cobalt credits, the Project demonstrates strong economics, with a post-tax NPV8 of US$891M and an IRR of 25%. Capital cost was estimated at US$680M. (see ASX Release of 5 October 2016 for more details on the financial evaluation). The economic model in the PFS did not attribute any value to scandium production.

As the global automotive industry stands on the edge of a technology and energy revolution, cobalt and nickel are critical raw materials in the production of cathodes for the lithium-ion battery market. These metals make up between 70% and 80% of the cost of producing the battery cathode. The global battery industry already consumes

approximately 50 per cent of global cobalt supply, with demand expected to soar as the world switches from internal combustion engines to electric drivetrains. Two-thirds of mined global cobalt supply comes from the Democratic Republic of Congo.

Importantly, the battery industry cannot use cobalt or nickel metal to manufacture battery cathode. The products must be supplied in the form of metal salts, usually hydrated metal sulphates (CoSO4.7H2O and NiSO4.6H2O). The key to Clean TeQ’s Clean-iX® process is that it produces these metal salts in the primary extraction phase of processing, thereby saving significant rehandling and reprocessing costs. It does this by selectively loading nickel and cobalt on to apolymer ion exchange resin, and then stripping the metals in the form of a sulphate (Figure 3).

The demand for lithium-ion batteries is anticipated to grow strongly over the next decade as production of electric vehicles increases and batteries become an important component in utility-scale energy storage systems.

Syerston’s high cobalt grades, combined with Clean TeQ’s proprietary ion exchange technology to produce the specific high purity cobalt and nickel sulphates

required by lithium-ion cell manufacturers, positions the Company to benefit from strong forecast growth in demand for lithium batteries.

The Company has entered into a small number of non-binding Memoranda of Understanding (MoU) for offtake of cobalt and nickel sulphate representing a proportion of Syerston’s anticipated production over the first five years of the mine. These are with counterparties who are well established in the lithium-ion battery supply chain. The MoU’s define certain key terms of the offtake contracts including volumes and pricing structure.

The Syerston resource also hosts a globally significant resource of scandium. This rare metal is widely regarded as the most effective alloying element that exists for aluminum, improving strength, corrosion-resistance and weldability. However, due to its scarcity, scandium has rarely been adopted for largescale industrial applications.

Global scandium oxide production is limited to only 10-15 tonnes per annum. The absence of reliable and secure long-term production, combined with a high and volatile price, has constrained the use of scandium to niche applications. The Syerston Project has the potential to produce up to 170tpa scandium oxide as by-product from cobalt and nickel production, for very low incremental capital and operating cost. This represents strong potential for significant economic upside in the Project.

For more information about Clean TeQ please visit the Company’s website: www.cleanteq.com. n

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

MicroCap Review Magazine

43

nAsdAQ cM: FnJn

PROFILED COMPANY

Finjan holdings, inc. cybersecurity for the Modern era introduction Finjan Holdings, Inc. (NASDAQ: FNJN) is a cybersecurity technology company with a rich 20-year history. Back in the mid1990’s the company pioneered behaviorbased threat detection as well as various other dynamic real-time web and network security concepts that are very prevalent in the cybersecurity market today.

The company was founded by serial entrepreneur, Shlomo Touboul who entered a competition hosted by Sun Microsystems to help them create programs for Java, a software technology to deliver content and information over networks and the internet. Instead of focusing on new programs, Shlomo discovered that on the back-end there were many holes which would require a new type of security for protection. Out

of this Finjan was formed in 1996 in Israel to innovate behavior-based threat detection focused on proactively detecting risks by identifying patterns and behaviors of malicious content. The name “Finjan” is derived from the word used in the Middle East to describe a vessel or small cup that contains or “protects” the coffee - or java. Shlomo believed the name was appropriate because the idea for the company and the associated technology came from his realization that with the introduction of the Java programming language, the existing security software would not be able to contain or protect against the possible threats to a computer using Java. Finjan relocated its headquarters in San Jose in 1997 and provided software web solutions and hardware to the enterprise market and, importantly, patented its landmark technology.

From L to R. Michael Noonan(CFO), Julie Mar-Spinola, (CIPO),Phil Hartstein, (CEO)

44

MicroCap Review Magazine

www.stocknewsnow.com

In 2005, the online security industry began moving towards real-time, behaviorbased, proactive threat detection, at times in violation of Finjan’s patent rights. In the same year, the Company completed its first license with Microsoft. As a result of its successful licensing program, Finjan sold-off its hardware and software divisions and kept its global patent portfolio which contains more than 50 issued and pending patents and is organically derived through the company’s internal research and development investments. The company remains active in pursuing the licensing of it patents and has generated over $250 million in licensing fees to date. Finjan stands behind and encourages innovation and as such, the company is flexible on how it works with prospective licensees to ensure together, parties can arrive at a fair value license. These patents have been and remain the foundation for Finjan’s technology and protecting its innovation will always be a key strategic objective for the company.

www.stocknewsnow.com

Multiple Paths Towards Future Growth Over the last two years, security software and hardware segments of the cybersecurity industry are reaching a tipping point of maturity and the market is undergoing a faster pace of consolidation than ever before.

With this evolving and changing landscape Finjan continues to evaluate new ideas and opportunities for expanding our current programs and potentially starting new ones.

The last two years have been instrumental for the company as it returned to the market with emerging businesses to spread its thought leadership through its Consulting arm, CybeRiskTM and to bring its technology back to market through its subsidiary Finjan MobileTM. Finjan’s subsidiary, CybeRisk, was formed to help address the growing need for enterprise security worldwide. CybeRisk partners with its clients and helps to identify current risks and mitigate future issues and differentiates itself but connecting the server

room with the board room, recognizing that enterprise security is absolutely a high-level issue. These cyber-attacks not only threaten a company’s employees and stakeholders, it can leave a huge financial burden, impact the company’s brand, reputation and cause irrevocable damage. CybeRisk is important to Finjan as it allows the company to spread its 20-year know-how in cybersecurity to help enterprises mitigate future risk.

In its effort to offer the market its enterprise-grade technology, Finjan has formed another subsidiary, Finjan Mobile. Given the uptrend in mobile device usage coupled with the amount of transient corporate data, the average mobile user presents and represents higher risks of data loss through hacking. This return to product development was meaningful for Finjan as earlier in 2015, Finjan was bound to a non-compete and confidentiality due to the sell-off of its hardware business. Once this non-compete expired, Finjan moved quickly and decisively into the development of mobile applications for the consumer using its innovative patented technology which it continues to build upon.

The goal with the first product, The FinjanMobile Secure Browser, was that it be simple to access and easy to use as it protects your mobile device from malicious content from the Internet. More importantly, unlike most mobile applications, the Secure Browser is intended to bring transparency to users who search for anything on the internet with the promise of not collecting user data – your data. Since the initial launch back in June of 2015, Finjan has listened to customer feedback and released several updates and new generations of the application.

In June of 2017, Finjan launched VitalSecurity Gen 3.7 built off Finjan’s patented technology and highlighting the ability to block trackers associated with Advertising, Analytics, Content and Social. This new and improved offering provides passcode access, menu bars, browsing history and detailed virus information to educate users on potentially malicious sites. Customer interest conMicroCap Review Magazine

45

Finjan’s subscription service is easy to use and priced affordably and can be used amongst many devices. tinues to grow with more than 165,000 downloads to date.

While all of the mobile development has been internally focused to-date, the Company does not lose sight of the fact that to grow more rapidly it must consider go-to-market partnerships and acquisition candidates.

As such, in April of 2017, Finjan signed a go-to-market partnership with Avira, a German multinational security software company that provides antivirus software, Internet Security, Privacy, Identity and Performance tools for computers, smartphones, servers and networks, delivered as both software and cloud-based services.

Avira will provide Finjan with its Virtual Private Network (VPN) Platform for distribution and sale by Finjan Mobile as part of Finjan’s VitalSecurity™ suite of product offerings. The companies also entered into a confidential cross-license under their respective patents. Finjan’s partnership with Avira sets us up for VitalSecurity Gen4 in which Finjan will design Avira’s VPN into its next browser to offer enhanced mobile security and protection for its customers.

Many may ask why is VPN suddenly gaining so much traction? Attackers could be intercepting mobile phone data without consumers knowledge, and advertisers and ISP’s are absolutely engaged in similar activities.

With Gen 4 VitalSecurity, VPN users are protected against multiple threats. Finjan’s subscription service is easy to use and priced affordably and can be used amongst many devices. While there are mobile browsers and standalone VPN apps available in in the Apple and Google Play Stores VitalSecurity combines these features so the users can enable/disable VPN while browsing the

46

internet. Finjan expects to launch/launched this in September of this year with revenue generation for the VPN enabled browser shortly thereafter. Over time, Finjan’s goal is to offer a premium suite of mobile security products to the consumer and ultimately move into enterprises.

Finjan’s 20-year history in cybersecurity, has enabled the company to gain a unique perspective on the industry and almost watch in slow motion as the market has consolidated and transitioned and Finjan’s choice to move its enterprise-grade technology into the hands of the consumer was very deliberate and to-date has proven to be a desirable offering and as risks to mobile security grows, the attractiveness of Finjan’s top-of-the-line security offerings will become even more attractive.

recent FinAncinGs hAVe bolstered strenGth

written registered public offering of its common stock in which the company achieved gross proceeds of $11.3 million. These events offer renewed confidence in Finjan, its historical licensing and enforcement results, emerging business momentum and ultimately its long-term staying power. In 2016, Finjan returned to profitability for the first time as a public company. The company’s momentum has carried into the first half of 2017 as with a record first quarter, the company is on track to achieve profitability again for the full year. Finjan has officially achieved its inflection point after several years of building and executing on our strategic objectives which include vigorously protecting Finjan’s IP and successfully reintroducing its technology and new products into the market. The diversified platform the company has built should position it for strong sustainable growth. Looking ahead Finjan remains confident in its vision and sees multiple catalysts ahead that should position the it for future progress across all segments of its business. n 2000 University Ave., Suite 600, East Palo Alto, CA 94303 (650) 282-3228 www.finjan.com investors@finjan.com

When Finjan went public in November of 2013, it self funded with its own money to start operations. Given the company had not done any formal pubic raise, it has taken recent momentum as an opportunity to strengthen its balance sheet over the last year. In May of 2016, the company did its first financing with Halcyon and Soryn to raise $10 million in preferred shares.

Impressively, Finjan redeemed and retired these shares in less than one year and turned around to do another financing with the same partners for another $15 million in June of 2017. Halcyon and Soryn not only appreciate the complexities of Finjan’s business, but were able to see through the risks and recognize all that Finjan has achieved.

Separately, Finjan engaged in an underThe company paid consideration to SNN or its affiliates for this article.

MicroCap Review Magazine

www.stocknewsnow.com

”

I am thankful for my friends, my family, my dog, sports,

my legs and my Xbox :) Braylon O'Neill 6-year-old bilateral above knee amputee 3-time CAF grant recipient Determined to be the fastest kid on the block

4 OUT OF 5

98.7%

PEOPLE WITH PHYSICAL CHALLENGES, WHO HAVE RECEIVED A CAF GRANT REPORT INCREASED ACTIVITY LEVEL AND MORE 1 HAPPINESS, CONFIDENCE, AND EMOTIONAL SATISFACTION

OF CAF GRANTEES REPORTED INCREASE IN DAILY 1 ACTIVITIES LIKE SOCIALIZING, SELF-CARE AND HOBBIES

YOUR SUPPORT MAKES THE DIFFERENCE.

DONATECAF.COM ABOUT CHALLENGED ATHLETES FOUNDATION ® It is the mission of the Challenged Athletes Foundation® (CAF) to provide opportunities and support to people with physical challenges, so they can pursue active lifestyles through physical fitness and competitive athletics. CAF believes that involvement in sports at any level increases selfesteem, encourages independence and enhances quality of life.

Challenged Athletes Foundation, Inc. is a 501(c)(3) non-profit organization. Tax ID #33-0739596

C Hwww.stocknewsnow.com A L L E N G E D AT H L E T E S . O R G

1

Stitch Marketing & Research, 2015

@CAFOUNDATION #TEAMCAF

MicroCap Review Magazine

47

otc MArkets: tGcdF, tsx: tGz

undertook strategic actions “ We in 2016, significantly de-risking the business and expanding our growth opportunities. For shareholders, Teranga offers meaningful upside potential, backstopped by a robust production profile, a strong balance sheet, and a supportive cornerstone investor.

Richard Young, President and CEO

”

2017 Progress On track to meet gold production and cost guidance for the year Increased gold reserves by more than 400,000 ounces to a total of 2.7 million ounces at flagship gold mine in Senegal Two new gold discoveries reported on exploration property in Burkina Faso Focused on building its second gold mine – the Banfora gold project – located in Burkina Faso Industry winner of PDAC Social and Environmental Responsibility Award INCREASING ANNUAL GOLD PRODUCTION (gold ounces) 216,735

Guidance Range 205,000 – 225,000

A JUNIOR GOLD PRODUCER Teranga is a multi-jurisdictional West African gold company focused on production and development, as well as the exploration of more than 5,000 km2 of land located on prospective gold belts. Since its initial public offering in 2010, Teranga has produced more than 1.2 million ounces of gold from its operations in Senegal, which has a reserve base of 2.7 million ounces of gold*.

Focused on diversification and growth, the Company is advancing its Banfora development project and conducting extensive exploration programs in three countries: Burkina Faso, Senegal and Côte d’Ivoire.

Teranga has a strong balance sheet with US$80 million in cash* and the financial flexibility to grow its business. * as at June 30, 2017

182,282

TERANGA GOLD CORPORATION 114,460 Produced*

2015

2016

2017 Guidance

121 King Street West, Suite 2600 Toronto, ON Canada M5H 3T9 Telephone +1 416 594 0000 Email investor@terangagold.com Website www.terangagold.com

TSX: TGZ

Building a Multi-Asset Mid-Tier Gold Company in West Africa ONE PROFITABLE STEP AT A TIME WEST AFRICA – ONE OF THE BEST EMERGING GOLD FRONTIERS

Canadian-based gold mining company listed on the Toronto Stock Exchange

Over the last 25 years, West Africa has been one of the fastest growing regions in the world for gold production.

In 2016, West Africa produced 8.2 million ounces of gold, which translates into half of Africa’s entire gold production.

Producing asset in Senegal provides cash flow to fund future growth

For example, in Burkina Faso, where Teranga is planning to start construction of its next mine in 2018, there were only six producing gold mines in 2012. In 2017, that number has more than doubled to fourteen.

This is a true testament to the growth of the gold industry in the mining-friendly jurisdictions where Teranga operates today.

MINING RESPONSIBLY Teranga has always taken the approach that sharing the benefits of mining with all local stakeholders is imperative to its success. Teranga’s corporate social responsibility achievements are gaining global recognition after winning several awards in the last year, including the 2017 Environmental & Social Responsibility Award from the Prospectors & Developers Association of Canada.

Fully permitted development project in Burkina Faso Exploration opportunities on world-class gold belts Strong balance sheet Supportive cornerstone investor is also largest private employer in Senegal and Côte d’Ivoire Strong social license to operate Proven and experienced management team

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

P R O F I L E D C O M PA N Y

tsx-V: esk, otc MArkets: eskyF

eskay Mining corp

E

skay Mining Corp (TSX-V: ESK) is a TSX Venture Exchange listed company, headquartered in Toronto, Ontario.

Eskay 130,000 acre exploration holdings in North West British Columbia” “Current drilling project in Red”

50

Eskay is an exploration company focused on the exploration and development of precious and base metals in British Columbia in a highly prolific, poly metallic area known as the Eskay Rift Belt located in the Golden Triangle, 70km northwest of Stewart, BC. The Company currently holds mineral tenures in this area comprised of 177 claims (130,000 acres) Eskay is targeting precious metal enriched massive sulphide deposits in its current drill program of 6,000 – 9,000 metres on its 4,400-hectare SIB property in northwestern British Columbia. Joint venture partner, on the S.I.B. property, SSR Mining Inc. (formerly Silver Standard Resources Inc.) (“SSR Mining”) has the option to earn up to a 60% undivided interest in the property by spending an aggregate of $11.7 million in exploration expenditures over three years.

The S.I.B. drilling program to date has successfully identified the target Eskay Creek assemblage stratigraphy beneath the CCTF (“Coulter Creek Trust Fault”) for over 1 km in strike length, and the exploration work has demonstrated the presence of alteration associated with footwall zones to massive sulphide deposits. The completion of the program is hoped to provide the evidence of a “new” Eskay Creek Mine. The SIB property lies along trend, approximately 4 km south-southwest, of Barrick Gold’s former producing Eskay Creek Mine, which was North America’s highest grade gold producer between 1994 and 2008, producing over 3 million ounces of gold and nearly

160 million ounces of silver from 2.2 million tonnes of ore.

Over the past few years two major deposits have been discovered on Eskay’s boarders.

Pretium Resources Inc. (TSE:PVG) to the north commercially began production this summer at its BruceJack Mine. Seabridge Gold (TSE:SEA) to the direct west of Eskay, with its KSM project is one of the largest undeveloped gold projects in the world measured by reserves.

C.E.O, Mac Balkam is an experienced professional investor in the Canadian mining industry for over 25 years. He has aggressively invested in Eskay for the past 10 years and led a re-vitalization of the board and direction of the company beginning in 2010.

Board members are accomplished Canadian businessmen strong in capital deployment in major commercial developments. Eskay’s development approach is to joint venture with significant mining companies with extensive geological experience that best compliments the specific objective of the particular Eskay development program. The Board members hold more than 17% of the outstanding shares of the company.

The Board anticipates as the S.I.B. drill program with SSR Mining matures and shows results that proves up the targeted mining potential, suitors interested in buying out the company as a whole with its massive 130,000 acres in the Golden Triangle will be in play.

For more information: Info@Eskaymining.com www.eskaymining.com n The company paid consideration to SNN or its affiliates for this article.

MicroCap Review Magazine

www.stocknewsnow.com

www.stocknewsnow.com

MicroCap Review Magazine

51

LIFE SCIENCES CORNER

What BioPharma Investors Need to Know About Financial Disclosure

I

nvesting in BioPharma is not for the faint of heart. In fact, investments in this sector are often considered to be

among the riskiest of life science and healthcare plays.

n BY ROBERT E. FIORENTINO, CPA

52

MicroCap Review Magazine

After all, only approximately 10% of compounds in clinical trials will ultimately make it to market. Most investors in this sector will point towards two critical factors that enable success and a big payday. First, novel science and a partially de-risked technology (along with a follow-on pipeline) and second, a management team with a proven track record of successfully bringing a compound through development and to market.

After these ultra-important factors and other “macro” considerations such as development challenges, regulatory hurdles and market influences, what can the financial statements and related disclosures add to the mix in order to identify potential “red flags”?

The financial statements and disclosures are helpful in assessing and validating “cash burn”. After all, efficient capital utilization is almost always a critical factor for an earlier stage BioPharma company. The science may be novel, the pipeline very alluring, but the cash on the balance sheet may not be sufficient to get the compound or technology to its next inflection point. We like to think SEC and FASB regulatory requirements, along with the importance of transparency

to management and the Board’s credibility would ensure user friendly financial statements with meaningful disclosures. However, it’s no secret that obtaining thoughtful and straight forward disclosures is not easy, especially when it comes to microcap and smaller reporting companies!

As such, to evaluate cash burn, you may have to go beyond merely understanding the timing of the next inflection point and dividing cash on the balance sheet by the quarterly or annual operating expenses or operating loss. The following should be considered: • First, an explanatory paragraph in the audit opinion may identify a going concern situation, which essentially means the auditor and company management don’t believe there is enough cash on hand to last at least 12 months from the financial statement release date. If this is the case, and an inflection point is not imminent, then you may be looking at an expensive stock or debt offering due to the desperate nature of the company, and significant ownership dilution on the horizon. Note: Let’s www.stocknewsnow.com

face it, in the world of life sciences, the expected inflection points are not even close to guaranteed. Studies generally take longer and burn more cash than originally estimated by management. With that premise, you will want to look closely at the financial statement disclosures even if a going concern explanatory paragraph is not part of the audit opinion.

• Review the stock-based compensation and equity disclosures to determine the current and expected noncash compensation charge, as well as non-recurring items disclosed elsewhere and other non-cash items such as mark to market adjustments on past financing derivatives. This will adjust the operating expenses in the profit and loss statement with the goal of providing a proxy for cash burn.

• Review the commitment footnote for potential significant expenditures or increases which may not be included in the current operating statement.

If the company is a public reporting company, the MD&A liquidity and capital section and other disclosures in the business section and risk factor section of the SEC filing may provide pertinent forward-looking information.

• To the extent the company has revenue from out licensing deals or R&D collaborations, remember that the cash associated with the revenue may already be included on the balance sheet because in deals such as these, the cash is often received before the revenue is recognized. This may need to be factored into the equation if you used operating loss as a starting point to develop cash burn estimates.

After an intensive review, if it is still difficult to gain an appreciation for cash burn and the respective run rate, you likely have a potential “red flag”.

With respect to those same non-cash www.stocknewsnow.com

items excluded from the “cash burn” assessment, a further assessment may be helpful to identify a liquidity “red flag” if you are dealing with a public reporting company. All too often microcap companies are saddled with derivatives from earlier stage financings because of negotiated investor protection features and/or other accounting nuances.

These often give rise to embedded derivatives that are bifurcated from the financing and establish a derivative liability on the balance sheet at fair value. These derivative liabilities are then required to be marked to market with the resulting increases and decreases flowing through the statement of operations. Depending on the assumptions used, the profit and loss impact can be significant and material. Nevertheless, the impact is dismissed because it is a noncash charge which won’t impact cash flow or capital needs.

This is typically not a problem, unless the non-cash negative profit and loss impact associated with these mark to market adjustments deceases stockholders’ equity so much that you have a listing deficiency with one of the major exchanges. To the extent the deficiency can’t be remedied, having to move to a lesser exchange may impact the liquidity and following of the stock!

Depending on your concerns and the specific facts and circumstances, the financial statements and related disclosures can be meaningful to the decision-making process.

They often shed light on how creative management has been in raising capital through non-dilutive means such as state and federal grants, licensing, R&D and NOL attribute sales. For more established microcap public companies, if the company’s disclosure and internal control assessments in the Form 10Q or 10K are not identified as effective, and the company is far enough along in its capital raise and seasoning continuum, is it reasonable that adequate resources were not previously devoted to internal controls when the level of R&D spend and outsourcing is so significant and capital utilization is paramount?

Finally, if the disclosures and MD&A in a public reporting company are boiler plate or repetitive, do not have tailored disclosures that focus on material information or don’t seem transparent in nature, what does that tell you about the quality of management and the board? n Robert E. Fiorentino, partner at Friedman LLP, is the Firm’s Life Sciences Practice leader. Rob has over 30 years of experience in business advisory and audit services, as well as private-industry finance leadership. The private-industry experience includes senior finance positions within corporate, various operating segments and internal audit at a large Pharma company. Rob’s business advisory clients have ranged from private companies, to smaller reporting public companies, to well established multinational public companies. He has an extensive concentration in the Life Sciences sector with biotechnology, pharmaceutical, and medical device companies, as well as other industries including consumer products, advanced manufacturing and various R&D driven industries. Rob specialized in SEC reporting requirements, financing transactions ranging from traditional IPO’s to Reverse Mergers/APO’s, and M&A transactions. Rob previously worked with a former “Big 6” Firm as well.

For more information on Rob and Friedman LLP, visit www.friedmanllp.com or contact Rob at 973-929-3652 or rfiorentino@friedmanllp.com.

MicroCap Review Magazine

53

54

MicroCap Review Magazine

www.stocknewsnow.com

A Private company

PROFILED COMPANY

American Gene technologies international is an hiV cure within our Grasp?

This biotech company has proprietary technology and therapeutic protocols that are on track to functionally cure HIV-infection and make patients impervious to the HIV virus.

A

GT is an emerging gene and cell therapy company with an enhanced lentiviral platform capable of addressing a broad range of large and orphan indications including infectious diseases, immunooncology, and monogenic disorders. AGT has enhanced the Lentiviral vector in a manner that mitigates the insidious mechanisms HIV uses to infect T cells and compromise a person’s immune system.

This could mean that an HIV-infected individual could be made immune to HIV! This may not only functionally cure HIV (an industry-term meaning “equivalent to a cure, but not immediately, fully eliminating all traces of the virus in the patient”), it may also make the individual permanently immune to reinfection. That would be important news for the over 1 million HIVinfected individuals in the U.S., as well as the estimated 37 million HIV-infected persons worldwide.

AGT’s therapeutic strategy uses gene modulation both to reduce the levels of CCR5 and shut down the expression of gene that were integrated by HIV that are necessary for HIV viral production. The delivery method of AGT’s treatment is an

Jeffrey A. Galvin Co-Founder, CEO

AGT’s Protocol

autologous cell therapy using ex vivo modification of T cells. HIV patients enrolling in the AGT functional cure clinical trials may first receive a vaccine (the trial will be conducted both ways to see the difference with and without this step) to increase the number of T cells that are most active against HIV. Next, a draw of approximately ½ liter of blood from the patient will be filtered for T cells. The extracted T cells are then treated ex-vivo with the therapeutic lentivirus AGT103 to protect the T cells from HIV to restore their ability to clear HIV virus without being vulnerable to HIV infection.

Finally, the patient’s T cells are infused back into the patient to carry out normal immune function against HIV virus -- thus creating an anti-HIV immune response and functional cure of the patient’s HIV. In some ways, AGT’s treatment protocol is similar to the Novartis treatment for pediatric and young adult acute lymphoblastic leukemia (a treatment from Novartis that has been in clinical testing for several years, was recently unanimously recommended for approval by an FDA advisory committee and is likely to receive marketing approval in the U.S. this September). AGT does a slightly different transformation (“reprogramming”) of the patient’s T cells, but the type of virus used is the same, and a substantial portion of the protocol is very similar. AGT hopes to improve safety for trial participants by paralleling some established ex-vivo clinical

techniques that have be used in several previous CAR-T human trials.

Participants are expected to gain natural immune control of the HIV virus that may remain in their body, and to be protected against reinfection.

Although HIV disease in the U.S. and many other nations seems to be “under control” because of highly effective (antiretroviral) therapy, this disease continues to spread around the world. Only a small percentage of HIV+ people in the U.S. (20%) are effectively treated and the remaining 80% are contagious.

Antiretroviral therapy or highly active antiretroviral therapy (HAART) involves powerful drugs with negative side effects. Even when these drugs are effective, the patients have shorter life spans and much higher risk for cancer, diabetes, liver or kidney failure and a host of other life-threatening conditions.

This reality for the HIV community makes a functional cure an imperative, and highlights the magnitude of the market.

The near-term addressable market for an HIV functional cure in the U.S. and Europe ranges from $40 billion to $80 billion. AGT has attracted a “dream team” of worldrenown experts in HIV who are collaborating to optimize and prove their therapeutic in the clinic.

For more information: www.americangene.com info@americangene.com • 800-888-9480 n The company paid consideration to SNN or its affiliates for this article.

www.stocknewsnow.com

MicroCap Review Magazine

55

OPINION

Junior Resource Market: 2017 Mid-Year Review

I

recently interviewed Rick Rule at the Sprott Natural Resource Symposium 2017 in Vancouver. Rick is President of Sprott U.S. Holdings, a publicly traded company Stock Ticker: SII on the Toronto Stock Exchange. Rick, welcome back to SNN Live.

Rick Rule: Shelly, on behalf Sprott Shareholders, it’s a pleasure to have you here in the conference.

Shelly Kraft: Thank you for having us.

Rick, I want to start with giving you the opportunity as we do at every annual Sprott conference for your State of the Union of the resource market.

Rick Rule: This will be easy, you know Shelly and I don’t need to tell you. The junior resource business has been through a tremendous bear market. The Toronto Stock Exchange Venture Index was off 88% in nominal terms, probably more like 92% in real terms. What investors need to recognize is that bear markets are the authors of bull markets because this is a capital intensive business.

The consequence of that is this tremendous bear market will at some point in time give way to a real bull market. My belief is that the bear market really ended the end of 2015.

Specifically, I think with regards to precious metals and precious metal stocks, that we’re in the third inning of a nine-inning ballgame. In other words, we’re a third of the way through.

The recovery that we had in 2016 was pleasant and dramatic. The markets faded since then. But it’s important to remember that we’re in a stretch. It isn’t like the game is over. With regards to the rest of the resource sector, we’re in the first inning of a nine-inning game. It doesn’t mean that recovery happens in a period of time that’s comfortable for your audience, but it is inevitable even if it’s not imminent.

Shelly Kraft: We’ve been around a while in the markets and I see that the Dow Jones Industrial Index is going up and breaking

56

MicroCap Review Magazine

own records almost every single day. But I’m seeing that gold is creeping up also, which is very unusual. Silver has seemingly crept up even more on a percentage scale and the dollar is strong but showing signs of wekaness. When was the last time this occurred, seems like an anomaly to me.

Rick Rule: I’m not smart enough to understand all of those correlations. The correlation that’s made sense to me over time has been that the Delta between the U.S. ten-year Treasury and the ten-year treasury strip, which is the market’s implication of the real yield in the U.S. ten-year treasury, determines the gold price; when the implication is that we have negative real interest rate, then gold does extremely well. What’s interesting about the last 18 months as you point out is that gold did well the same time that the U.S. dollar and the U.S. ten-year treasury did well.

In my experience that happened first in 1975, secondly in 2001 and this is the third time in my 40-year career that I’ve observed this phenomenon. What’s important for your audience to understand is that in the prior two instances, the dollar eventually rolled over, which you point out it may be doing now, and the consequence of that was that the gold price soared in the aftermath of that circumstance. Is past prologue? I don’t know, I’m not an economist. I’m a credit analyst. What I do know is I’ve seen this circumstance twice before and the outcome from the point of view of gold holders, not U.S. bondholders, was very pleasant.

Shelly Kraft: On topic, I see that some of the juniors stock prices are starting to bump up a little bit. Now, I don’t know if it’s because U.S. investors are starting to be attracted to gold and they’re looking for opportunities or because some of the other sectors are so overpriced and toppy. Bottom feeders if they’ve been buying gold outright that’s one thing, but now all of a sudden we’re seeing

Rick Rule

volumes pick up, and usually volume precedes price. Am I correct?

Rick Rule: Three answers as to why. First, the junior market was oversold, and some of the response that we’ve seen is seller exhaustion. The second thing is that it takes a long time to profitably deploy capital. The last investment cycle that we had in this universe was the middle part of the last decade. The capital that was employed in 2004, 2005, 2006, 2009, 2010, is now beginning to bear fruit.

In my experience of over 40 years, it takes a decade, ten years for district exploration to begin to yield discoveries. Ten years ago, we began exploring in places like West Africa and in the deep parts of Eastern Australia. The consequence of ten years of focused exploration is we’re now starting to enjoy the results and the consequence of that which of course the news that drives share prices.

And thirdly, it’s important to remember in terms of a market that was as old as these stocks were; that you can move up on fairly low volumes because you exhaust the sellers.

The stocks have come to be in very, very strong hands. Hands that will not trade the stock for a 10% or 15% gain, hands that will be looking for 50% and 100% increases. I’m not suggesting that those increases are imminent. What I’m suggesting is that the better companies in the sector are extraordinarily well owned, relative to other larger, more popular sectors.

Shelly Kraft: Now, I’m going to hit you with something about base metals. Let’s call it, Green Energy. For instance, as you know, there is less lithium used in a lithium battery than copper or cobalt or nickel.

How is this for example affecting base metals in your opinion?

Rick Rule: I think most of the impact is in the future, with the exception of course of the cobalt price, which has done very well. And you point out something very interesting. www.stocknewsnow.com

The lithium battery, by value is 4% lithium.

In other words, it is a copper, nickel, cobalt battery. Interesting also that the world’s four major lithium producers, pardon me, estimate that collectively they have a hundred year’s reserves at current lithium demand.

We don’t have a shortage of lithium. We have a shortage of lithium processing capacity, and at these prices that will be addressed in a two or three year plus timeframe.

Many companies that purport to be looking for lithium, in other words, that don’t have any lithium believe there is a lithium shortage, and those companies which do have it believe that there’s a surplus. You need to decide yourself which side is more credible, those that have it or those that don’t. Moving on to the rest of the battery metals, this is exciting, particularly cobalt from my point of view. The problem with cobalt is that you don’t find cobalt in countries that you’re comfortable with. You find cobalt in the Congo and Russia. What investors want is politically secure cobalt. The problem with that is that politically secure cobalt is a fantasy. You want a great country and you want cobalt. Okay, you want to date the four prettiest girls from Victoria’s Secret.

What you want doesn’t matter. It’s what you can have. We are attracted to the cobalt space, attracted enough that we’re investing in the Congo and we’re investing in Russia.

Shelly Kraft: But, I understand that when you’re hunting for copper you could end up finding nickel, cobalt and other elements?

Rick Rule: Absolutely true. And one of the things that we hope to do is assist companies exploring mafic and ultramafic horizons for whatever happens to be there, and that could occur for example in lateritic terrains in Brazil and Australia, which would be very nice.

Believe me, I’m not a slave to the Congo. It’s just that when I look for cobalt and I look for copper, I look for places where it’s available in grade, and that’s often in challenging countries.

Shelly Kraft: So, here we are at the Sprott 2017 Conference. What are you saying to the investor audiences when speaking? www.stocknewsnow.com

Rick Rule: I’m saying that you have been through five very, very bad years. You suffered through the pain, be prepared to enjoy the gain. Bull markets follow bear markets, bear markets are the authors of bull markets.

And the bear market that we’ve just been through I believe is the author of a pretty incredible bull market coming.

Shelly Kraft: In your opinion, is there more cash on the sidelines ready to come in at this point or are investors spent, in your opinion?

Rick Rule: Not spent at all. There’s tremendous, tremendous dry powder just in our network. But importantly, you know, Sprott, and you’re aware of this… Sprott went out last year to raise an institutional lending fund. The first institutional fund that we ever raised, the first 12 months were fruitless knocking on doors for no return but ultimately in terms of -- including sidecars, we raised over $800 million. There’s a tremendous amount of money circling the natural resources space, more than adequate amounts of money. It’s a function of having the correct opportunity, the correct management team, meeting the correct investors. There’s a lot of money out there, there’s a lot of opportunity out there. Markets are messy. It takes two or three years to get it right, but it’s coming.

Shelly Kraft: So, I’ve interviewed a lot of project generators over the course of the last year. It seems like there’s another one born every day. What’s your opinion on them for our investor audience if you would?

Rick Rule: Well, the prospect generators, the people who use their management acumen and other people’s money to explore is arithmetically the most intelligent way to pursue the exploration business. It’s important to know that not all prospect generators are the same. Many are what I would call, and pardon the pun, constipated generators, meaning that projects come in but they never get them out. Investors need to pay attention to which explorers are really successful and whose success is evidenced through their ability to attract major mining

companies to joint-venture their projects.

In other words, if there are 40 prospect generators in the investment landscape, ten will be worth investing in, not 40.

Shelly Kraft: Here we are in third quarter 2017. How do you see the year ending and what do you think 2018 is going to look like?

Rick Rule: The rest of 2017 will be choppy at best. I see in the very near term continued contraction in the natural resource markets… by the way you’re asking me a question well above my pay grade. Since you asked I’ll answer. I’m quite optimistic about 2018, at least in our own portfolios, because we’ve tended to confine ourselves not to the market in general but to companies in particular that we see utilizing the cash we’ve provided them and using the capital we’ve provided them in very, very constructive ways. One of the things that many people get wrong in the resource business is they don’t correlate their time expectation with the time required to add value.

In my experience, you make money in junior resources by answering unanswered questions, and in my experience the time required to answer an unanswered question is 18 months.

For an investor that has trauma holding stock over a long weekend, the probability that they would be able to hold onto a stock for the time necessary to realize the reward seldom occurs.

What’s happened to me and I think has happened to you Shelly as a consequence of being on earth for a long time is that an 18-month timeframe seems less daunting to us than it once did.

Shelly Kraft: You know what, for more information, let’s get your website out there so our audience can come and visit.

Rick Rule: Delighted, www.sprottglobal. com. Your audience should subscribe to Sprott’s thoughts, it’s a great publication and it’s absolutely free. n Here is the link for ordering Sprott Conference MP3s: https://opptravel.webdestin.net/ EventTariff/Index/naturalresourceregistration-SNN082

MicroCap Review Magazine

57

F E AT U R E D A R T I C L E

The Current Status of the Reverse Merger Market

I

n previous articles I have written for MicroCap Review, I have discussed and compared the various ways that a private company can become publicly-traded. Briefly, they are: (a) the traditional IPO; (b) the so-called “Slow PO;” (c) the relatively new Regulation A+; and (d) of course, the reverse merger.

In those articles, I have stated my preference for using the reverse merger technique: it is by far the quickest, the most sure, and--although it doesn’t raise capital in and of itself—it can be far less expensive than a proposed IPO or a Reg A+ offering if they are unsuccessful. So, to summarize my thoughts about these techniques: These days, IPOs are almost exclusively accomplished by companies that are far larger than the usual type of company that completes a reverse merger, thus significantly limiting the number of companies that can even contemplate an IPO. Another important drawback for companies that want to go public via an IPO is that potential offerings are subject to market conditions—if the stock market is declining, the underwriter can either delay or even cancel the offering.

The “Slow PO” is a term used to describe a method by which private companies become publicly-traded: a private company can raise money from investors over the years, build its shareholder base, and then make those shares publicly tradable. The Slow PO requires a broker-dealer to file a Rule 15c2-11 application with FINRA to clear the shares for trading.

That application can take several weeks to be cleared, and does not result in the company raising any capital. So, the Slow PO can be used only by the relatively few private compa-

n BY JOHN LOWY, ESQ.

58

MicroCap Review Magazine

nies meeting these requirements.

When it was promulgated in June, 2015, Regulation A+ was heralded as the panacea for smaller companies that want to raise capital in a public offering directly to the public, via social media and other ways to reach investors, both traditional and nontraditional. However, despite all of the hype surrounding it, very few Reg A+ offerings, other than local banks and real estate deals, have successfully raised more than minimal amounts of capital.

The main reason I see for the lack of success of most Reg A+ offerings is that social media-type investors mostly want to invest in consumer oriented products, but have only limited capital available, thus requiring issuers to spend enormous amounts of upfront money to create the marketing program for the offering and to build a customer/investor base.

Which brings me to reverse mergers. In the past 12 months, I have seen an increasing demand for clean public «shell» companies, as vehicles for the reverse merger (I’m using the term “shell” to describe companies that check both the shell box and non shell box in their SEC filings). My sources tell me that they believe the demand will continue, as the public markets keep hitting new highs (because of Donald Trump??). As a result of the continuing demand, the number of available shells has significantly decreased, causing an increase in the cost to purchase and reverse merge with a public shell.

To be clear, not every company is suited to go public, whether by reverse merger or otherwise. In the opinion of experts I have spoken with, the companies best suited to go public are either the ones that are in the most innovative industries (“True Disrupters”), or those with a history of revenues and earnings. Both types of companies have the best long-term potential for up-listing to the NASDAQ or NYSE. Once a company goes public—again, no matter how they get there—the most challenging problem is establishing liquidity in the trading market. In my experience, many CEOs of newly-public companies often don’t

fully understand that it’s far easier to grow the company and raise capital with an activelytraded stock. Going public does not create real (liquid) wealth overnight.

Raising capital, like almost everything in business, is a competitive undertaking. Newly-public companies must compete with the likes of Apple, Amazon, the big banks, etc. when trying to raise capital, because retail and institutional investors are not throwing their money at a company just because it’s public instead of private.

In order to build a post-reverse merger market, newly-public companies need to have a compelling story, to show Wall Street the significant upside long-term growth prospects of their company.

The major upside of a reverse merger is not simply being public—it’s what the company does once it’s there.

So, the consensus opinion of the experts is that reverse mergers, which have been around since the enactment of the Securities Act of 1933, will continue to be a strong, viable alternative to the other ways to go public.

And, I strongly agree with that consensus.

Many thanks to David Lazar of Zenith Partners International, for his insights. n John Lowy is the founder (in 1990) and senior partner of his law firm www.johnlowylaw.com, and the founder (in 1993) and CEO of Olympic Capital Group, Inc. (www.ocgfinance.com), 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, a consultant or 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 many of these companies have reverse merged, raised capital, 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, 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.

He is a frequent contributor to MicroCap Review. www.ocgfinance.com

www.stocknewsnow.com

F E AT U R E A RT I C L E

Why List on TSX Venture Exchange?

Q&A with Brady Fletcher, Managing Director, TSX Venture Exchange Let’s start with an overview of TSX Venture Exchange (TSXV).

TSX Venture Exchange (TSXV) is an important driver of the Canadian economy, and a key element in Canada’s innovation and venture capital ecosystem. TSXV is the “junior exchange” to Toronto Stock Exchange (TSX) and is part of the world’s most successful two-tiered exchange system. TSXV is a leading platform for venture stage capital formation, allowing companies to leverage a public listing to raise “public venture capital”, use their share currency for acquisitions and employee incentives, and scale their business in the public arena. As businesses grow and mature as publicly-traded companies, they can “graduate” to the main board, TSX. In fact, in the past 16 years, there have been over 635 companies that have successfully graduated from TSXV to TSX. What does the V in TSXV stand for? Explain Venture - we are often referred to as simply the Venture Exchange and companies that raise capital on TSXV often describe this as raising “public venture capital”. TSXV’s unique eco-system has been built on facilitating venture stage capital formation and providing a platform for venture stage companies to list and build on that foundation.

How do the listing requirements differ from the Toronto Stock Exchange?

The listing requirements on TSXV are designed for early-stage companies. TSXV companies are fully-regulated and all companies must meet initial and ongoing rules set by TSXV and the Canadian securities regulators. BUT, these rules reflect the nature (and stage) of early-stage companies. As a result, the costs of being a public company on TSXV are not prohibitive, even for earlystage businesses. That’s why there are over 1,500 companies listed on TSXV today. Once listed, the Venture rule set is also designed to www.stocknewsnow.com

provide additional flexibility to Venture stage issuers, allowing them to finance more easily, use shares for acquisitions, scale or pivot their business as necessary.

What types of companies list on the Venture Exchange?

Historically, the resource sector has provided a foundation for both TSX and TSXV, but today, TSXV is a well-diversified exchange with companies from the technology/innovation, financial services, industrials, telecom/ media, and natural resource sectors. A common theme for all of these companies is that they are looking to access capital (sometimes as little as a few million dollars, or sometimes over $100 million) to fund growth and acquisitions.

What are the benefits to US companies listing on the TSXV? Companies from around the world look to TSX and TSXV every year to access growth capital and get liquidity. In particular, US companies “look North” for the following reasons: • Access to Capital, early – U.S. issuers raised $2.7 billion in equity capital on TSX/ TSXV in 2016. Importantly, US companies are able to go public in Canada sooner than they typically can in the US • Efficient access to capital - rather than a prolonged VC due diligence process, listed issuers can raise money in weeks, or shorter through the bought deal mechanism because of continuous disclosure requirements ensuring prospective investors are “up to speed” • Differentiated deal structures: by raising capital from a broad group of public investors (instead of a handful of VCs), entrepreneurs find that they can often realize more favorable deal structures (eg: only common shares are issued, no liquidity preferences, etc.). In many cases, these terms can help entrepreneurs retain greater influence over the company’s long-term growth strategy

Brady Fletcher

• Good Visibility – A large analyst community covers small-cap companies listed on TSXV. This means that even early-stage companies can get capital markets profile and attention from investors locally and internationally • Stay local, but raise money globally - US companies that want to go public on TSXV do not need to re-incorporate in Canada or move their head office to Canada. Simply put, US companies can stay put, while accessing capital from abroad • Tailored & Flexible Listing Criteria – Listing requirements are tailored to companies at varying stages of growth. As a result, the cost of being a public company on TSXV is not prohibitive for early-stage businesses.

• Growth Support – TSXV-listed companies have the potential to graduate to the senior board, TSX, as they grow and mature • Entrepreneur Friendly - entrepreneurs are able to build their boards with industry leaders, rotate shareholders as necessary through the exchange, communicate and scale according to their business plan, etc.

How can the TSXV help companies with capital formation and funding?

We believe that the public markets offer a unique value proposition and in some cases a better cost of capital for acquisitions while providing investors with some liquidity and the company with on-going access to capital.

We also believe that the process of capital raising can be complicated (and sometime overwhelming) for entrepreneurs. So, we have dedicated teams in Canada, the US, Europe, the Middle East, and Asia that to work with companies and help guide them through the process of going public. n How to learn more: More information on TSXV can be found at www.tsx.com/listings or on Twitter @TSX_TSXV Brady Fletcher, Managing Director MicroCap Review Magazine

59

COMMODITIES CORNER

VSTOXX / VIX Volatility Spread Behavior During Recent Volatility Events ®

(The full paper is found at the Eurex Exchange)

T

he Brexit election and the U.S. election are now behind us. Several European elections are on the horizon in 2017. And there doesn’t seem to be a shortage of ideas being discussed for potential future macro volatility events. This article examines the behavior of the VSTOXX® / VIX spread during recent volatility events.

Could the understanding of the spread’s behavior during past volatility events offer some insight for future events?

Trading a spread is just another way of saying trading relative value. An investor is simply going long one product and short another product as they are seeking the spread price or price differential between the two products to either widen or narrow based on the position they are holding.

In the case of the VSTOXX® / VIX spread a trader may go long VSTOXX® Futures and short VIX futures when the spread price is

n BY MARK SHORE, MBA

60

MicroCap Review Magazine

oversold or sitting at or near the bottom of the range. A trader may sell VSTOXX® Futures and buy VIX futures when the spread is near the high end of the range or considered overbought and finding resistance.

Often, when the VSTOXX® / VIX spread widens, it is due to one of the below items occurring: EURO STOXX 50® Index declines, causing VSTOXX® Volatility index to rally while the VIX may remain relatively stable thus causing a widening spread price.

S&P 500 index rallies causing the VIX index to decline while VSTOXX® remains relatively stable equating to a widening spread.

S&P 500 index declines and the EURO STOXX 50® Index declines causing both the VSTOXX® and VIX indexes to rally.

However, VSTOXX® will often rally at an accelerated rate versus VIX thus widening the spread.

The VSTOXX® / VIX spread may be utilized as a sentiment indicator. If the spread is oversold or overbought it could give an indication of how the individual volatility indexes may behave in the near future to either narrow or widen the spread price. A second derivative analysis of the spread may imply that if the volatility indexes should move, it could be a signal for direction of the respective underlying equity markets.

For example if the spread is priced above 11, it would be considered very wide with an increased probability for either VSTOXX® Futures or VIX futures to move to narrow the spread and what that may imply about the underlying equity market?

Table 2 lists the average, median, maximum and minimum VSTOXX® / VIX spread price and the frequency of how often the spread price is either above or below a specific spread price. For example, 0.8 percent of the time the spot spread price is above 14. The pricing and the frequency of spot versus futures VSTOXX® / VIX spreads are similar. VSTOXX® Futures began trading 2 June 2009, which is the starting date of this analysis to compare the spread statistics of the spot price to the futures price.

Monday 24 August 2015 the Dow Jones Industrial Average opened 1,000 points lower. The declining U.S. equity markets triggered a decline in global equity markets and rallying of volatility indexes. The VSTOXX® Futures / VIX futures spread came close to going negative at 0.925 on 25 August 2015. The price of the spot spread actually did go negative at -2.3715. This narrowing of the spread may be attributed to the VIX futures rallying faster than VSTOXX® Futures. As noted in Table 2 the futures spread price is negative 0.7 percent of the time. Only 11 percent of the time is the futures spread priced below 2. The price www.stocknewsnow.com

didn’t remain low for long. By 2 September 2015, the spread price rallied above 5 as VIX futures declined faster than VSTOXX® Futures.

In summary, VSTOXX® / VIX spread tends to maintain similar characteristics from one macro volatility event to the next.

A spread price below 2 is considered support and may offer opportunities to buy the spread or unwind a short spread with the exception of the financial crisis. When the spread is priced in the high single digits or higher it is considered resistance and may be an opportunity to sell the spread or unwind a long position. Often the spread will move higher as VSTOXX® Futures leads the rally of the two volatility indexes. Analyzing how the VSTOXX® / VIX spread behaves during macro volatility events may offer some insight for future macro volatility events. n Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. His research is found at Shore Capital Research LLC www.shorecapmgmt.com Mr. Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business where he teaches a graduate level 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 Eurex Exchange, CBOE, Swiss Derivatives Review, MicroCap Review and Seeking Alpha.

Prior to founding Shore Capital Research, Mr. Shore was Head of Risk for Octane Research Inc ($1.1 billion AUM) in NYC, 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 Chief Operating Officer of VK Capital Inc, a wholly owned Commodity Trading Advisor unit ($250 million AUM) of Morgan Stanley.

Mr. Shore provided research and risk management expertise on portfolio construction, product development and business strategy.

Chart 1: Spread price of VSTOXX® / VIX spot index spread 1 January 2009 to 9 November 2016 Source: Bloomberg data

Chart 6: Daily prices of VSTOXX® Futures, VIX futures and VSTOXX® Futures / VIX futures spread 3 March 2015 to 31 December 2015 Source: Bloomberg data

Mr. Shore graduated from DePaul University with a degree in Finance. He received his MBA from the University of Chicago.

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.

Table 2: Statistics of daily spot and front month futures of VSTOXX® / VIX spread 2 June 2009 to 9 November 2016

Spot Futures

Avg

Median

Max

Min

<0

<2

>8

>11

>14

5.5 4.7

5.0 4.4

20.53 17.78

-2.70 -1.88

0.9% 0.7%

7.5% 10.9%

18.9% 10.2%

3.6% 0.8%

0.8% 0.1%

Source: Bloomberg data

www.stocknewsnow.com

MicroCap Review Magazine

61

62

MicroCap Review Magazine

www.stocknewsnow.com

www.stocknewsnow.com

MicroCap Review Magazine

63

ASIA CORNER

Hong Kong Equity Market Robust 20 Years After Handover

W

eeks before Hong Kong’s 20th anniversary of the handover to China on July 1st, the Hang Seng Index hit a two-year high as it crossed

over 26,000.

For the year, the Hang Seng Index is up 20 per cent bolstered by the expanding flow of capital from China. Since Britain’s lease on the city ended, Hong Kong’s stock market capitalization is up eightfold growing from HK$3.2 trillion (US$410 billion) as of the end of 1997 to HK$28.0 trillion (US$3.6 trillion) as of mid-July with the city advancing to the world’s 7th largest market from

10th largest market two decades ago. China opening-up policies in an effort for mainland businesses to become more globally competitive transformed Hong Kong from a market dominated by British Colonial firms and local conglomerates to an international hub with an increasingly important role as a gateway to China. Since 2014, a series of events, including the launch of Shanghai-

n BY LESLIE RICHARDSON

64

MicroCap Review Magazine

www.stocknewsnow.com

Hong Kong Stock Connect and ShenzhenHong Kong Stock Connect and the flow of mainland insurance funds and mutual funds into Hong Kong, have brought more mainland capital to the Hong Kong market.

Mainland Chinese companies dominated Hong Kong’s IPO market last year as Chinese IPOs raised HK$156.6 billion, representing 82 per cent of all listings. Southbound flows from investors trading through Shanghai and Shenzhen Connect continue to increase with many Chinese mom-and-pop retail investors looking for bargains outside mainland China. Mainland companies with dual listings have an average discount of 25% in the SARS. Longer term, Hong Kong’s equity market is expected to benefit from China’s Belt and Road projects and the development of the Pearl River Delta economic zone.

The Hong Kong Exchange (HKEX) continues to look for ways to enhance the city’s competitiveness as a global financial center by attracting high-growth, new economy companies, diversifying its markets and developing Hong Kong’s technology sector.

Despite ranking as a top destination for IPOs, the exchange still struggles to attract significant volume of technology deals. Last year the financial services sector accounted for 69 per cent of total fund raised while the technology sector accounted for only 3 per cent. As part of strengthening the scale and quality of Hong Kong’s capital markets and continuing to develop Hong Kong’s market as a competitive international hub, HKEX is evaluating adding a third board to attract more technology firms along with start-ups for new economy and technology companies. Currently, technology companies are turned away from listing because they are unable to meet specific financial yardsticks due to having no profit or low cash flow.

The proposed new board is expected to have two markets, one for large companies that match all the main board requirements but who cannot list in Hong Kong because they have dual-class stock structures and a second market dedicated to start-ups companies.

In the first half of 2017, Shanghai and www.stocknewsnow.com

Shenzhen overtook Hong Kong as they knocked the city to fourth place in terms of IPO funds raised. Hong Kong had 69 new listings raising approximately HK$53.8 billion for an increase of 77% from 39 IPOs and up 23% from HK$43.6 billion raised during the first half of 2016. With just three large IPOs, small and medium-sized deals dominate the first half of the year.

Education proves to be profitable with private schools and tutoring institutions springing up around China as state schools cannot meet the growing demand for quality education among China’s middle class. Two successful IPO’s in China’s private education sector are Wisdom Education International (6068:HK) which raised US$150 million and China YuHua Education (6169:HK) which raised US$245 million. Wisdom Education International is up 71 per cent while YuHua Education is up 36 per cent as of July 17, 2017 from their respective IPO dates.

Wisdom Education International is considered the largest private school group in South China and YuHua Education currently operates one university and 24 schools in the K-12 education segment. Listing on the GEM board this February, Dadi Education Holdings Ltd (8417:HKG), a consultancy firm that advises students on overseas studies, raised HK$148.8 million (US$19.0 million) and is up 324% since its IPO. Another noteworthy IPO on the GEM is In Technical Production Holdings (8446:HKG), a leading visual display solution provider for pop concerts, corporate events and exhibitions in Hong Kong which raised HK$60 million (US$7.7 million) in mid-June and is up 271 per cent as of July 17th since its IPO. During the first week of July, two technology companies announced their plans for an IPO this year. Razor, a California based gaming company backed by Hong Kong tycoon Li Ka-Shing, is looking to raise more than HK$600 million (US$77 million). Razer plans to use the IPO proceeds to develop new verticals in the gaming and entertainment industry such as smartphones, to expand its research and development capabilities,

and finance acquisitions to expand its ecosystem. Founded in 2005 by Singaporean entrepreneurs Min-Liang Tan and Robert Krakoff, Razer›s main business is manufacturing gaming peripherals such as mouse, keyboards, and mouse pads, as well as laptops specifically designed for playing video games and e-sports events, where audience watch professional video game players compete on big screens. Around 50% of its sales come from the U.S. market, while around 13% is from China. Recent investments and acquisitions include the iconic audio IP THX, the mobile hardware firm NextBit, and the SE Asia-focused e-payment specialist MOL, which is now the “master distributor” of Razer’s zGold virtual currency.

The other technology firm to announce its IPO is Tencent’s online publishing service, China Literature. China Literature is considered to be China’s equivalent to Amazon Kindle’s service and is expected to raise up to HK$800 million (US$102 million). The company has 175.3 million monthly users across all services and 8.4 million pieces of content from more than five million writers. Tencent (0700:HK), one of the largest internet and gaming company in the world and Asia’s highest value technology firm, owns 65 per cent of the business. Tencent is expected to retain at least 50 percent control as China Literature becomes a subsidiary. 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, www.microcapreview.com, 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. www.elite-ir.com.

MicroCap Review Magazine

65

F E AT U R E D A R T I C L E

Man Versus Machine?

No! Man Plus Machine!

M

uch has been made over the rise of smart beta and other purely quantitative approaches to investing, many of which are seen as threats to true

active managers, such as our firm, Opus Capital. However, unlike in The Matrix or any other of a myriad of dystopian sci-fi flicks in which machines overtake humans, we believe in using the machines to improve our investment processes.

n BY LEN HAUSSLER, CFA

66

MicroCap Review Magazine

We have been investing in smaller capitalization stocks for more than twenty years. In that time, we have had success with products that have run the gamut from highly concentrated portfolios, where we know the management team, the company and the industry intimately, and where we use little to no screening to discover interesting investment ideas to very diversified portfolios that primarily use quantitative screening to source ideas. However, in the case of the latter, some fundamental analysis and judgment is required to eliminate unsuitable candidates.

Over the years, both of these approaches to small and micro cap investing have worked well for us. Today we explore why and how a primarily quantitative approach to the micro cap universe can lead to outperformance at a lower risk level and with downside protection â&#x20AC;&#x201C; a tall task indeed!

Why would a quantitative approach work in micro caps when it is increasingly obvious that this approach (or almost any approach) does not work well in the large cap arena any longer? Quite simply, the large cap universe is very efficiently priced (and will remain so) while the micro cap universe is not efficiently priced and, in all likelihood, will also

remain so.

Literally hundreds of analysts and hundreds of thousands of investors study and have opinions about names such as Apple (AAPL), Exxon (XON) and Microsoft (MSFT) and, consequently, the prices for these highly-followed stocks reflect market sentiment very well and are fairly valued, as seemingly no one has an informational advantage. Not so in micro cap land! Micro cap stocks tend to be considerably underfollowed by sell-side analysts because there is less opportunity to generate trading and investment banking revenue. The average micro cap stock has fewer than three analysts covering it, with over 24% of micro cap stocks having no analyst coverage at all.

And letâ&#x20AC;&#x2122;s not forget that some of the coverage of micro cap stocks is paid for by the companies themselves and may be less than objective. The other factor coming into play here for micro caps is that larger institutional (and arguably smarter) investors are widely underinvested here due to structural limitations (e.g. lack of liquidity).

Our investment approach seeks companies with the following characteristics, the combination of which has outperformed www.stocknewsnow.com

let’s focus on how we implement our mostly quantitative investment process.

Our universe consists of companies with market caps between $50M and $750M. The stock must have adequate liquidity (average daily dollar volume of at least $110,000) and be priced above $2. Approximately 2,200 stocks meet the above requirements. By comparison, the Russell Micro Cap Index is comprised of the smallest 1,000 companies in the Russell 2000, plus the next 1,000 smallest U.S.-based listed stocks. Over-thecounter (OTC) stocks and pink sheet securities are excluded.

From here we endeavor to seek the good, eliminate the bad, and then rank the remaining stocks for inclusion in the portfolio.

The Good – We screen for those companies that are in the lowest 40th percentile in terms of trailing P/E. At Opus, we believe that you must have an E to have a P/E so all companies with negative operating earnings are eliminated in this step. In the micro cap universe, this eliminates a huge number of over long periods of time: Low Valuation – Low P/E, P/B, EV/ EBITDA and High FCF Yield Lower valuation stocks have historically outperformed and this phenomenon is especially apparent in micro caps. Additionally, lower valuation stocks tend to hold up better in down markets.

Higher Quality – Lower Debt/Capital and Higher ROE Lower leverage tends to limit the risk of default and higher ROE tends to be correlated with higher quality business models.

Additionally, higher quality stocks tend to hold up better in down markets.

Strong Price Momentum – One-Month Change in the 200-Day Moving Average Strong price momentum reflects both investor sentiment and recent success of the current business model. Momentum has proved over the years to be exceptionally effective in sourcing higher performing stocks in the micro cap universe and aids in the timing of investment.

The above reflects our philosophy, so now www.stocknewsnow.com

MicroCap Review Magazine

67

companies even in a growing economy such as the one we are in currently.

The Bad – We eliminate those companies that are in the lowest quintile for year over year earnings growth, the highest quintile for leverage (adjusted for industry and sector averages), the worst quintile for price momentum and any company that has negative free cash flow.

The Ranking – We then rank the remaining stocks based on valuation, ROE and price momentum. The valuation measures used are different for non-financials vs. financials.

Non-financials and financials both use P/E for a portion of the valuation ranking. For non-financials, we add a combination of P/B, EV/EBITDA and FCF yield to the mix, while for financials we add a combination of P/TBV and dividend yield .

The most highly rated are added into the portfolio (subject to sector weighting limitations) but, in fairness, about 25% of the names are further eliminated based on fundamental analysis and our judgment/ investment experience garnered over the last twenty years. This part of the process is more art than science, and helps us eliminate companies that violate the spirit of the portfolio.

For example, companies that have earnings due solely to a one-time event, or that are making money currently due solely to some preferential tax treatment, are eliminated as part of the human side of the process.

At this point, we want to acknowledge that many of the names in the portfolio will have uncertainties associated with them.

That is just fine by us – we believe that taking advantage of such opportunities is a key component in the success of a primarily

68

MicroCap Review Magazine

quantitative process. Mr. Market is prone to wild swings of emotion, leading to over- and under-valuations, especially in the underfollowed micro cap universe. Oftentimes, the negative news is more than reflected in the current stock price. By demanding a margin of safety (lowest 40th percentile of trailing P/E in our process) on every purchase and adhering to strict sell rules, we minimize the risk of permanent loss of capital.

The Sell Rules – We meet frequently to refresh the 120-stock portfolio and ultimately turn the entire portfolio over once a year, on average. As new information becomes available, we sell those stocks that have sharply negative relative returns and those stocks that no longer pass the screen, and replace them with more recent higher ranking stocks that are not currently in the portfolio.

Conversely, winning stocks can run until their valuations are so rich that they violate our screen valuation discipline. Net-net, we allow our winning stocks to run much further than we allow our losing stocks to fall, and it is this asymmetry that helps us generate superior performance for our clients while minimizing downside.

The result of our investment process is a highly-diversified portfolio of stocks that, in the aggregate, exhibit lower valuation, higher quality and stronger price momentum vs. the micro cap benchmarks.

So how has all this worked so far over the last three plus years that we have been implementing this strategy? So far, the results are encouraging as seen in the above table.

As we would expect, the standard deviation (risk level) over this period of time has been

about 20% lower than the benchmarks and performance in down markets has been consistently positive on a relative basis.

Our process has been successful so far and certainly provides evidence that the combination of machine (the quantitative portion of the approach) with man (the fundamental review) is an effective approach in the micro cap space.

However, one can never be complacent and the investing environment can and does change dramatically over time, so you should expect that any successful investment process should continue to evolve in order to consistently thrive, including our own.

Interested in learning more about this strategy? Visit www.opusinc.com, follow the firm on Twitter and LinkedIn, or call (513) 621-6787 for more information! n About the Author Mr. Len Haussler, CFA is responsible for research and portfolio management for Opus’ investment products. With more than 36 years of experience, Mr. Haussler was the assistant treasurer and director of Investments at Cincinnati Bell Inc., before co-founding Opus in 1996. While at Cincinnati Bell, he developed the investment policy for the Employees Benefit Funds and directed investments for more than $1 billion in assets. Prior to Cincinnati Bell, Mr. Haussler worked as the manager of planning and analysis for the Mead Corporation, taught at the University of Cincinnati and performed various accounting, audit and tax duties for Arthur Andersen LLP. About Opus Capital Management Opus Capital is a minority- and woman-owned investment management firm based in Cincinnati, OH. Founded in 1996, the firm leverages its experienced and dedicated team to provide investment solutions in the high-quality value equity space. With its experienced investment team, Opus Capital offers separate account management and investment subadvisory services to a diverse group of public funds, insurance companies, corporations, endowments, foundations, registered investment companies, TaftHartley plans, and high net worth individuals.

Important Information The net returns mentioned reflect the deduction of advisory fees and other expenses a client may incur in the management of the account. Opus advisory fees are disclosed in Part 2 of our Form ADV. The performance data mentioned represents past performance, which is no guarantee of future results. Investing in the securities of smaller capitalization companies involves greater risk and the possibility of greater loss of capital than investing in larger capitalization and more established companies. You should carefully consider your investment objectives before investing. Information presented supplements the composite presentation, which can be found at www.opusinc.com. Data as of 3/31/17, unless noted otherwise. www.stocknewsnow.com

LEGAL CORNER

What is an ICO? N

ow that we have gotten used to all of the equity crowdfunding buzzwords like Reg A+, Rule 506(c), Title III and Reg CF, a whole new array of buzzwords has come our way. They include ICO, blockchain, tokens, cryptocurrency and smart contracts. My new obsession is trying to figure out this whole ICO business and whether there might be an angle for my clients, who could either be investors in ICOs or the entrepreneurs that sell tokens in an ICO to raise capital for their companies. Given the hours of research that I have done, I thought it would be helpful to share with you what I have learned so far.

This article assumes that you have a basic understanding of cryptocurrencies and blockchain. If you don’t, you may want to read “The ultimate 3500-word guide in plain English to understand Blockchain” by Mohit Mamoria, which is the best beginner’s guide to cryptocurrency and blockchain that I have found.

initiAl coin oFFerinG (ico) According to Smith + Crown, a research group focused on revolutionary technologies in the emerging field of cryptofinance, “an ICO is an event in which a new cryptocurrency project sells part of its cryptocurrency tokens to early adopters and enthusiasts in exchange for money today.”

So, companies basically pre-sell tokens that fund the development of a new cryptocurrency or related technology. Instead of paying cash in exchange for tokens, investors pay in a cryptocurrency like Bitcoin or Ethereum. The investors in

n BY LOUIS A. BEVILACQUA, ESQ.

www.stocknewsnow.com

an ICO, or token sale, will make money if the new cryptocurrency or related technology becomes popular and the tokens appreciate.

According to Enzo Villani, CEO of Equities.com, an ICO thought leader, “Many organizations in traditional finance are researching and developing blockchain and cryptocurrency solutions as we speak. At Equities.com, we’ve seen a surge of cryptocurrency clients that are public and private companies working on ICOs that are strategic and add benefit to the markets.”

You can find a list of ongoing and proposed ICOs on websites like ICO Tracker or through forums like Bitcointalk. Each ICO will typically have an offering page, which is a website page containing information on the offering. The offering page will typically include a link to a whitepaper for the cryptocurrency project which is analogous to a prospectus in an IPO, except that the contents of the whitepapers are not regulated and the whitepapers tend to have less disclosure about risks. The offering page will also contain information about the project team, the goals of the project, a timeline, and other useful information. If you desire to invest in ICOs, I recommend that you find offerings that are covered by an independent research report. Smith + Crown maintains a curated list of ongoing and upcoming token sales and publishes summaries, profiles and detailed research reports on different ICOs. Given the lack of legislation in this area, companies considering an ICO should follow best practices. First, companies should focus on transparency. The whitepaper should include the same type of disclosure that a reasonable investor would want to see before making an investment decision.

Second, the founders should provide some proof that their technology is viable. Lastly, the use of an escrow account, where funds are released over time, is an additional deal feature that could be added to provide inves-

tors with additional comfort.

If the ICO concept still seems too big to get your arms around, consider investing in a fund that is managed by experts that have a better chance of choosing the winners. Boustead Securities, a boutique investment bank, is helping some of these funds raise capital. According to Keith Moore, the CEO of Boustead, “While there is much debate whether ICOs are securities, we believe that ICOs will ultimately be considered securities transactions and have approached the ICO industry with the same institutional approach we take with all offerings.

We believe the benefits of blockchain technology will drive down the costs associated with and improve transparency and disclosure of securities transactions and we are looking forward to helping the industry with those benefits.” n Mr. Bevilacqua is the founding member of Bevilacqua PLLC (www.bevilacquapllc.com), 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.

Bevilacqua PLLC is a boutique transactional law firm that understands entrepreneurs and provides goal oriented legal services that facilitate agreement and closure. Instead of being an impediment to progress, Bevilacqua PLLC proactively finds solutions that enable its clients to achieve their goals.

In addition to having significant legal experience, the firm›s founder is also a business person and entrepreneur and utilizes his business experience to give context to the legal services that the firm provides. Bevilacqua PLLC handles all types of public and private offerings of securities, including equity crowdfunding (Regulation CF, Rule 506(c) and Regulation A), PIPEs and other Regulation D and Regulation S private placements, registered direct offerings and initial public offerings. The firm also handles domestic and international mergers and acquisitions and joint ventures. The firm also provides services in the areas of SEC maintenance and compliance, general corporate, formation, equity incentive plans, reverse mergers, broker-dealer regulation, venture debt and traditional loan agreements and similar matters.

MicroCap Review Magazine

69

PPMT Capital Advisors, Inc.

DO WE HAVE THE RIGHT BOARD STRUCTURE AND MEMBERSHIP?

DO WE HAVE THE RIGHT BROKER DEALER?

EXCLUSIVE?

WILL A SINGLE BD GET THE JOB DONE?

HOW CAN

WE RAISE CAPITAL MORE EFFECTIVELY?

10

HOW MUCH SHOULD

MY AUDIT COST?

WHAT CAPITAL

STRUCTURE WORKS FOR MY COMPANY? REG A, AN S1, OR DEBT?

QUESTIONS THAT KEEP MICROCAP CEOs UP AT NIGHT

HOW DO WE FIND THE

HOW CAN WE CONTROL LEGAL COSTS?

WHAT IR

STRATEGIES REALLY WORK?

DO WE HAVE THE RIGHT CFO?

RIGHT AUDITOR FOR MY FIRM?

Get the edge with PPMT insight and expertise!

Capital Advisors to successful growth companies, their CEOs, Boards and institutional 70 MicroCap Review Magazineinvestors since 2009.

www.ppmtgroup.com 646-289-5358 info@ppmtgroup.com www.stocknewsnow.com

FitzGerald Yap Kreditor LLP

Award–Winning Business Lawyers for Over 30 Years Excellent Listening Skills are Essential to Providing Exceptional Service

We’re Listening

FitzGerald Yap Kreditor LLP provides high-level expertise, guidance, and legal representation to clients ranging from small businesses and entrepreneurs to large public companies. Our attorneys know the nuances of the law as well as the practical demands of business. This translates into the experienced counsel you need, without the inflated costs you don’t. We listen to your needs and leverage our experience to deliver unparalleled results.

Contact Lynne Bolduc Phone: 949.788.8900 | Email: lbolduc@fyklaw.com | Fax: 949.788.8980 MicroCap Review Magazine 71 16148 Sand Canyon Avenue, Irvine, California 92618 www.stocknewsnow.com

F E AT U R E D A R T I C L E

5 Takeaways from Our Small-Cap IR Summit C

hanges in market structure, increased listing requirements and a decline in research sponsorship have also made the U.S capital markets challenging for small-cap companies.

But that doesn’t mean there isn’t reason for optimism. Small-cap and microcap companies who demonstrate a willingness to step out of their comfort zones and try new approaches to today’s more innovative and cost-efficient capital raising methods will reap the benefits.

As part of this year’s NIRI conference, OTC Markets Group worked with the team to organize and moderate a panel of industry experts dedicated to addressing the needs of small cap IR professionals.

5 tAkeAwAys FroM our sMAll-cAP ir suMMit https://blog.otcmarkets.com/2017/07/05/5takeaways-from-our-small-cap-ir-summit/

Below are key take-aways from our panel: Small Cap IR Summit: New Ideas for Creating Interest & Value

be Visible: Leo Hinkley, Managing Director, Investor Relations, BBX Capital said it best, “If people don’t know you exist, they can’t buy you.”

His philosophy is to be featured on as many screens as possible and to become as innovative as technology will allow. But, he cautions this must all be done with an eye towards compliance and remaining inside the bounds of Reg. FD. Your primary goal is to ensure that information about your company is easily accessible to investors. Take steps to establish

n BY JASON PALTROWITZ

72

MicroCap Review Magazine

www.stocknewsnow.com

a strong web presence – post your IR presentations and earnings presentations to your website, film analysts events, webcast investor days and use social media to amplify your corporate news and brand messaging.

Find your niche: When it comes to attracting buy-side interest, start by taking a hard look at your company and your peers. Most firms operate under a specific mandate, so you need to do your homework to determine which firms might be a good fit for your company.

What is your company’s valuation? Look at firms that have holdings in the small cap space Look at your sector – who’s investing in your industry?

Do you pay a dividend? Income-focused investors may be a good target for your company Explore family offices vs. standard institutional portfolio managers Studies have suggested that for companies under $500 million, 80% of their stock was actually held by retail investors – making this audience an organic fit and a key target for small cap companies.

Make the most of your Event Calendar:

Accessing Research: Everyone acknowledged that while research is vital to investors, it has become increasingly difficult for most small-cap companies to garner coverage. This shows that a more novel approach is often needed to get to the desired result. First, look at the analysts that cover your peers and your industry/ sector. They may be willing to meet with you to learn more about the industry and deepen their knowledge. The sell-side can also prove to be another great access point.

Look at smaller boutique banks or firms that you aspire to work with, but be realistic about your short list and the timeline to getting there.

Another option is to arrange meetings with Institutional Sales staff. They will often bring forth and highlight shareholder questions, which works well if you don’t presently have coverage.

And lastly, quality sponsored research is often a favorable tool when looking to provide investors with access to information about your company. Look for reputable firms that leverage the same analysts to cover their company-sponsored research who also cover traditional coverage. OTC Markets Groups’ research marketplace includes three firms that should be considered by t companies interested in generating coverage.

Watch out for Red Flags: With a new conference popping up on virtually a daily basis, it’s important to find the ones that are reputable and tailored to the Small Cap market. Suggestions as to some of the more popular events included: LD Micro; Marcum; Sidoti; Virtual Investor Conferences and events sponsored by the CFA Institute.

Other tips included scheduling an Analyst Day in conjunction with a group of companies similar to yours. This collective approach gives people a greater incentive to attend and helps make the most of their travel and itinerary.

www.stocknewsnow.com

There still a lot of sharks looking to prey upon small companies. Thus, IR professionals need to keep their guard up, proceed with caution and take a more critical look at the opportunities with which they are presented.

For example, partners and vendors that are reputable will want to get paid in currency/ dollars. If someone asks for stock in your company, rather than a check – that’s a red flag. One important suggestion is to carefully read the “about us” and “disclosure” pages as a way to further examine the details on exactly what these service providers are offering.

On behalf of the team at OTC Markets… a special thanks to my fellow panelists: David Calusdian, President, Sharon Merrill Associates Leo Hinkley, Managing Director, Investor Relations, BBX Capital Randy Renfrow, Partner, DePrince, Race & Zollo, Investment Advisors n Jason Paltrowitz, Executive Vice President Corporate Services Jason Paltrowitz is Executive Vice President, Corporate Services at OTC Markets Group, where he is responsible for managing the firm’s international and domestic Corporate Services business.

Drawing upon his expertise in cross-border trading and as a recognized proponent of Reg A+ and small company capital raising, Jason is an advocate for small cap issuers, start-ups, and entrepreneurial innovators working to alleviate the cost, time and complexity associated with being a public company.

Prior to joining OTC Markets in October 2013, Jason was Managing Director and Segment Head at JP Morgan Chase responsible for the custody, clearing and collateral management business in the Corporate and Investment Bank division. Jason also held multiple senior management positions at BNY Mellon, most notably, as Head of M&A for the Financial Markets and Treasury Services Sector and 11 years as the Head of the Global Capital Markets Group in the Depositary Receipt Division. Jason currently serves on the Board of Directors of the Crowdfunding Professional Association (CfPA) and also served as a member of the Board of Directors at OTC Markets Group from 2008-2011. Jason holds a Bachelor’s degree in International Relations from Boston University and received his MBA from the NYU Stern School of Business.

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 financial markets, visit: www.otcmarkets.com.

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

73

HELPING BUSINESSES NAVIGATE SINCE 1912

LAW FIRM OF CHOICE

For Emerging Growth Companies in Public Capital Markets “Smith Anderson brings a real confidence and calmness to a transaction and are strategically excellent. They walked us through the process really well and the work they did was flawless.”

– Client quotation from CHAMBERS USA 2016 – America’s Leading Lawyers for Business

74

SmithLaw.com

MicroCap Review Magazine

www.stocknewsnow.com

F E AT U R E A RT I C L E

Impact of the Trump Administration on the Price of Oil

P

resident Trump’s withdrawal from the Paris Climate Accord might be good for the Oil Industry but will erode the price of oil even further as the perception is that drilling permits will become easier to obtain. During the first week of June, Brent crude fell 1.8% to $49.71 a barrel on London’s ICE Futures exchange and the West Texas Intermediate futures were trading down 1.9% at $47.44 a barrel.

The slides in price began when the Organization of the Petroleum Exporting Countries (OPEC) and other major producers agreed to extend ongoing production cuts by nine months on May 25. However, the messages sent by the various participants were mixed and investors have expressed their concern about rising production. EIA reported last week that U.S. average daily output hit its highest level since August 2015.

The OPEC decision was widely anticipated but many investors were hoping that the producers would be even more aggressive as they aim to work off a glut that has weighed on the market for nearly three years.

At the same time, Libya, a member of OPEC that is exempt from the agreement to cut production, is once again ramping up output, according to its National Oil Corp. It seems that despite the upbeat declaration by the Saudi Minister of Energy and his Russian counterpart the market is being driven by supply & demand and the rising US oil supply is driving a lower price. A plethora of producers outside of OPEC are pushing up

n BY FREDERIC SCHEER

www.stocknewsnow.com

their production for export such as Brazil and Kurdistan. This is not supporting a higher price.

In such an environment, where to invest in the O&G industry becomes a difficult dilemma. Much of the oil and gas industry has survived an especially tough few years with weak demand and low prices and it has been difficult for companies to make strategic decisions and to plan for the future.

o&G inVestor 101 Investing should not be a guessing game.

Although there are forces beyond your control, let’s try to set up a logical approach to avoid the “big” mistakes. What should I look for in a microcap O&G company before I invest?

First some due diligence and understanding the market trends. Are we in a positive market, negative market, is there a lot of volatility, etc.

What are the main components that could affect an investment. There are a lot of blogs on O&G that will give the “temperature” of the market at the time of an investment and will describe the global trends. Although no analysts have a magic wand, their knowledge of the market will provide the necessary understanding of the major trends.

My target company: You understand the trends now you have selected a company, let’s try to dissect the information. For a public company, it is easy -normally- The SEC.gov website allows you to access all public disclosures and statements as well as all financial reporting issued by companies.

A glance at the last 10K/ Annual report of a couple of years and the last Quarterly report (10Q Form) will start to describe the overall status of any company.

Let’s be a little bit more accurate and look for the key factors of an O&G company that will allow you to make an intelligent decision: Revenue and trends. Is the revenue growing or stable? A decrease in revenue over

the past three years is common for many microcap companies in the O&G industry due to market conditions but was it accompanied by a reduction in SG&A? What was the internal company trends of wages and compensation of top executives. If all have reduced or stayed stable it is a good indication of management strategy and the health of the Company.

Strategy of the Company: Is the company favoring cash-flow versus investment? What is the reserve strategy of the Company?

What is the assets position of the Company especially active assets such as reserves and equipment?

Indebtness: What is the level of the debt in the Company. The large cap O&G companies have taken large loans over the past three years but some of the Banks have called such loans and have reduced their exposure. What is the position of your target microcap company with respect to bank or financial institutions? Are loans in default and or being reimbursed? What is the overall indebtedness of your target company?

Reserves: How do you know the value of proven reserves vs unproven speculative potential reserves when examining your investment strategy? Reserves are a big part of an O&G stock balance sheet. A basic review is to make sure that the reserves are valued at the current market price of oil and not an old historical value that could throw off the real value. Always try to understand the reserves; are these reserves currently in exploitation or is it just a “dormant” investment, or speculative based on future expectations. n I wrote this article myself in reviewing public disclosures, and it expresses my own opinions.

Frederic Scheer is CEO of L6 Chemicals & Logistics, an Oil trading company. 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.

MicroCap Review Magazine

75

tsx: bkx, otc MArkets: bnkPF

PROFILED COMPANY

bnk Petroleum, inc.

B

NK Petroleum, Inc. is an oil and gas exploration and development company focused on finding and exploiting large, predominantly

unconventional, oil and gas resource plays.

Operators in SCOOP and STACK Plays

BNK’s operations are focused on its Tishomingo Field, located in the SCOOP region of the SCOOP/STACK area of Oklahoma. The SCOOP/STACK region is currently among the hottest oil plays in the United States. BNK has amassed over 16,800 acres in this project and has proved and probable reserves of 42 million barrels of oil equivalent (BOE) from the Caney formation which are valued at $370 million per its last reserve report dated December 31, 2016. In addition, it’s proved, probable and possible reserves were estimated at 66 million BOE’s with a value of $695 million also per its last reserve report. The reserves were evaluated by Netherland, Sewell and Associates, Inc. and are summarized in BNK’s most recent Statement of Reserves Data and Other Oil and Gas Information available at www.

BNK Drilling Rig #1

76

MicroCap Review Magazine

sedar.com and at www.otcmarkets.com. In 2016, the Company averaged 1,045 BOE’s a day of production which generated positive operating cash flow from continuing operations of $5.2 million during the year where the average West Texas Intermediate Oil price was $43.15.

In the Tishomingo Field, BNK originally developed the Woodford shale formation by drilling and participating in about 40 Woodford shale wells. The Woodford shale lies about 350 feet below the Caney shale that holds BNK’s current reserves. BNK sold its acreage to XTO Energy (a subsidiary of Exxon) for $147 million in 2013, but retained its rights to develop the slightly shallower Caney formation. XTO Energy now owns over 280,000 acres in the SCOOP play and surrounds BNK’s acreage. In addition, during the sale, BNK negotiated the right to utilize the existing Woodford gas gathering system, eliminating the need to build out costly infrastructure for the development of its Caney wells.

BNK’s latest reserve report ascribed additional 157 well locations to its reserves, so the Company has many future well locations that it can drill. In addition, the reserve report is only evaluating 68% of BNK’s acreage in the field. As the Company continues to drill wells on its acreage further to the east, BNK’s management believes that its reserves base will increase even further as this acreage is added to future reserve reports. BNK has been operating in the Tishomingo field since 2005 and has acquired information on the Caney shale that was penetrated originally www.stocknewsnow.com

BNK Drilling Rig #2

to produce from the deeper Woodford wells.

Therefore, its technical team has an excellent understanding of the geology which makes the drilling risk lower by design.

The Company has a very strong management team in place. Wolf Regener is the CEO and he has 30 years of oil and gas experience in key senior executive positions in a number of companies. He has had many different roles throughout his career, including an extensive operations and finance background. BNK’s CFO is Gary Johnson who is a CPA with over 25 years of experience including his role at Occidental Petroleum where he was Director of Technical Accounting. At Occidental Petroleum, Gary was responsible for the company’s public filings and worldwide

BNK Drilling Rig #3 www.stocknewsnow.com

accounting compliance. Ray Payne is the Vice President of Operations and his previous job was with Marathon Oil Company as Manager Drilling and Operations where he developed Marathon’s South Texas Eagle Ford shale asset, which in two years added more than a billion barrels of reserves.

In late 2014, when oil prices dropped so dramatically, BNK quickly stopped its drilling program. Since 96% of its acreage is held by production from the previously drilled Woodford wells, the Company did not have to continue to drill wells to hold on to its current acreage position.

Now that oil prices have somewhat recovered from the lows of 2015 and 2016, the Company has restarted it’s drilling program.

According to Wolf Regener, “BNK is cur-

rently planning on fracture stimulating its latest 2 wells in 3rd quarter 2017, which have already been drilled and cased. These two wells incorporate all the Company’s learnings to date, which we believe will result in the most productive wells we have had, and will demonstrate that we can have good rates of return even in a lower oil price environment.”

BNK’s Tishomingo field production generated $26 per BOE of production (netbacks) in the first quarter of 2017. If cash received from its hedging program is included in the BOE calculation, then BNK’s netbacks increase to about $33 per BOE for the quarter.

The Company also has a new financing agreement and existing oil hedges to minimize fluctuations in cash flow going forward. In June 2017, BNK announced a new $25 million line of credit provided by BOK Financial, which has a five year term and provides a lower interest rate compared to their previous loan. Gary Johnson, BNK CFO stated, “The new line of credit will save the Company about $650,000 per year of interest expense, assuming the line is fully drawn. We have also lessened the impact from oil price swings, as we have oil hedges in place for 75% of our forecasted production from our existing wells, at an average of $61.55/barrel for 2017 and $53.72/barrel for 2018.”

BNK expects that the productivity of the two upcoming well completions will demonstrate the potential excellent rates of return from its Caney formation wells.

“These latest two wells incorporate everything we have learned from our previous wells and we are confident the new wells will quickly increase our production and cash flow, so we can accelerate the development of the large reserves we have in our field” stated Ray Payne, Vice President US Operations. BNK’s plan going forward, is to utilize the operating cash flow and new bank line to drill more wells, prove up additional reserves, and increase production to grow the value of the Company. www.bnkpetroleum.com n The company paid consideration to SNN or its affiliates for this article.

MicroCap Review Magazine

77

OPINION

Uranium Exploration and Mining Public Companies

U

ranium exploration and mining public companies are a contrarian investors dream and they’re hiding in plain sight.

The feedstock for nuclear fuel, uranium has been mired in a 6-year bear market which has seen the price of uranium decline over 85% from its peak to sit near a 12-year low.

The equities of uranium exploration and mining companies have been decimated.

The peak saw 500 companies, today there are just around 50. The stock prices of most miners have declined by close to 90%.

The bear market began following a nuclear accident in March 2011 at the Fukushima Daiichi nuclear power plant in Japan and caused a tsunami which disabled the power supply and cooling system which triggered three nuclear cores to meltdown.

n BY MIKE ALKIN

78

MicroCap Review Magazine

Following the incident, Japan shut down all 54 of the country’s reactors for safety checks. That took 13% of uranium demand off the market. Reactors have been slow to come back. Five are on-line. Nearly 20 are scheduled to be back by 2019 and will ultimately reach 42 powering the electric grid.

Negativity permeates the existing investor narrative and is well captured in the price of the commodity and reflected in stock prices.

The reality based on the outlook for nuclear power and the laws of supply and demand paint a very different and optimistic picture.

Nuclear power is here to stay. It’s 11% of global electricity output and 20% of the US’s.

It’s a large-scale solution for solving many countries poor air quality problems.

It’s growing - 60 reactors world-wide are under construction totaling $750 billion in committed capital. Growth will be about 3% per year through 2035.

Nuclear is carbon free, available 24/7, unlike wind or solar providing only intermittent power (when the wind is blowing or the sun is shining) and what comes as a surprise to many, it’s the safest form of electricity generation on a death per terawatt of energy produced.

A pending supply shortage is also good news for bulls. Despite temporary excess secondary supply pressuring the market, there is an inherent primary mine shortfall of about 10%. The miners are working to shift the supply dynamics back their way.

Miners are selling uranium for $20/lb and mining it for $50. That math doesn’t work.

Miners are shutting in some production and

putting new mine plans on hold. Most of the new mines require $60/lb uranium to make money.

That’s a problem for nuclear plants which are entering a uranium contracting cycle.

They need to buy two years ahead of needs.

30% of their uranium needs for 2020 are not under contract and 75% are unmet by 2025.

Given new mines can take as long as a decade to come on line, and some existing production is being shut down, there is a pending supply shortage right around the corner.

Miners need $60 to incent new production. The commodity is $20 today. Without uranium, the lights go off. We think utilities will choose providing lights to its customers.

This bodes very well for the uranium equity sector. n Mike Alkin is the Founder and Director of Research for The Stock Catalyst Report, an investment newsletter that offers investors the opportunity to join the journey in the search for value through the eyes of an experienced former hedge fund manager.

Mike spent 20 years in the hedge fund industry.

He worked for a few multi-billion dollar hedge funds. During his career he was an analyst, portfolio manager and partner. At times, he was responsible for several hundred million dollars of capital and traveled to many countries throughout the world, some places where many don’t often look searching for mispriced industries and stocks.

www.stocknewsnow.com

PROFILED COMPANY

tsx-V: Gxu, otc MArkets: GVxxF

Goviex uranium inc.

A Growing, Africa-Focused uranium company

G

oviEx offers its shareholders a unique opportunity to be part of the green energy solution. With mine-permitted projects, outstanding mineral resources(1), a seasoned management team, and industry-leading shareholders, GoviEx is positioning its projects to take advantage of anticipated higher uranium prices that may be the consequence of, among other things, expected mid- to long-term uranium supply shortages.

oriGins GoviEx was founded by Govind Friedland, son of internationally-renown mining entrepreneur Robert Friedland. While living in China, Govind became acutely aware of the air pollution crisis that was devastating the health of China’s citizens.

Applying his business development and geological engineer expertise, he explored the opportunities available for nuclear energy as a clean energy solution and the viability of uranium mining as a business.

GoviEx was born out of that exercise and acquired the exploration ground for what is now the mine-permitted Madaouela Project in Niger.

MAdAouelA ProJect The Madaouela Project is located adjacent to Areva’s existing uranium mines, which have been producing approximately 8% of the global uranium supply for almost 50 years. This proximity means that the project is advantageously positioned with access to existing roads, ground water, grid power, and

a skilled labour force that resides in nearby communities.

One of the most compelling advantages of operating in Niger is its consistent and welldeveloped mining and exploration permitting environment. The Madaouela Project’s Environmental Permit was approved in July 2015 (approximately six months from the date of the ESIA submission), and was closely followed by Mine Permit approval in January 2016. Historically, the permitting process for uranium projects in North America has taken anywhere from seven years to over two decades. The relative speed of the process in Africa is one of the reasons GoviEx focuses on African projects.

Mineral Resources GoviEx’s second mine-permitted project is the Mutanga Project in Zambia. The Falea Project in Mali is in the exploration stage. GoviEx’s current projects have the following combined mineral resources: Measured Mineral Resources of 28.59 Mlbs U3O8, Indicated Mineral Resources of 95.70 Mlbs U3O8, and Inferred Minerals Resources of 73.11 Mlbs U3O8.

leAdershiP And industry suPPort Daniel Major was appointed CEO of GoviEx in 2012. A mining engineer with 30 years of experience, Daniel is leading GoviEx as it transitions from exploration to production.

GoviEx’s shareholders include some of the biggest names in the industry: Denison Mines, a uranium exploration and development company, chose to focus on Canadian projects, so GoviEx acquired

Denison’s African projects in exchange for GoviEx common shares.

Toshiba Corporation owns Westinghouse Electric Company, and their status as a major reactor vendor makes them a valued shareholder.

Cameco Corporation, one of the largest uranium producers in the world, has been part of the GoviEx story since 2008.

Ivanhoe Industries became a GoviEx shareholder in 2015, bringing the support of serially successful mining magnate Robert Friedland.

urAniuM suPPly-deMAnd GAP Forecasts predict growth in uranium demand, as China and India build new reactors, Japan re-starts their reactors, Europe maintains a stable level of nuclear power generation, and the U.S. becomes increasingly supportive of nuclear energy. Low current prices mean that new production cannot be incentivized, and older uranium mines are reaching the end of their life cycles. These factors are expected to produce a supply-demand gap that should drive the uranium price upwards. www.goviex.com n 1 Certain scientific and technical information disclosed in this article related to GoviEx’s projects is derived from NI 43-101 compliant technical reports, which may be found on GoviEx’s website at www.goviex.com, or GoviEx’s continuous disclosure documents, which have been reviewed and approved

by Dr. Rob Bowell, a Chartered Chemist of the Royal Society of Chemistry, a Chartered Geologist of the Geological Society of London, and Fellow of the Institute of Mining, Metallurgy and Materials, who is an independent Qualified Person under the terms of NI 43-101.

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

MicroCap Review Magazine

79

LIF E I N SUR ANCE COR N ER

NAIC Sees Life Insurance as a Viable Solution to Long-Term Care Costs

O

f all the problems health care reform has tried to fix, longterm care funding may be one of the most complicated.

n BY CHRIS ORESTIS

80

MicroCap Review Magazine

With a growing population of aging babyboomers who need it, but haven’t properly planned for it, it leaves the government’s Medicaid program to pick up a growing tab.

In 2013, that meant Medicaid payments accounted for 51 percent of long-term care expenses or more than $155 billion, according to a Kaiser Family Foundation report.

The result is that any cuts intended to fix other problems in the health care system run the risk of directly affecting seniors at their most vulnerable.

But, there is one potential way to save some of that taxpayer money. The National Association of Insurance Commissioners (NAIC), has advocated for a source of longterm care funds that had never been seriously tapped before: life insurance policies.

Specifically, an exchange of life insurance for long-term care that has tax-advantages. The NAIC Long-Term Care subgroup has issued a policy report that included life insurance as a tax-advantaged exchange for long-term care for seniors who are struggling to pay for their post-retirement care. This is done in the secondary market, what many know as the “life settlement” industry.

For those of us in the life insurance secondary market industry, this shift is tremen-

dous. For years, we’ve been fighting the good fight, working to dispel the myths that have loomed over this asset class. To help protect vulnerable seniors in this stage of their lives, state insurance regulators put in place stringent consumer protections, including numerous consumer disclosures, disclosure of all offers, broker commissions, and alternatives to selling a policy.

Here are the facts about an industry that is growing in prominence: • The vast majority of life insurance policies that are issued never result in a benefit paid to beneficiaries.

An astounding 88% of universal life policies are either lapsed or surrendered prior to a claim, according to statistics cited by the Life Insurance Settlement Association.

• The life insurance secondary market is designed to help seniors obtain maximum value for life insurance policies that are almost certain to lapse or be surrendered.

• Life settlements pay seniors an average of 4 to 11 times what they would have received from the insurer for a surrendered policy, according to studies conducted by the US Government www.stocknewsnow.com

Accountability Office (2010) and the London Business School (2013).

• At GWG Life alone, we’ve paid seniors nearly $418 million to purchase their policies over the past 11 years. Had those seniors surrendered their policies back to their insurance company, they would have received a tenth of what they received through GWG Life.

The proceeds from the sale of a life insurance policy that is no longer needed or has become unaffordable can provide seniors with the liquid assets they need to fund the increasing costs of long-term care. For many seniors, a life insurance policy is the only source of income available to address this critical need.

As the only firm offering this kind of swap, GWG Life has launched the LifeCare Xchange Program (https://lcx.gwglife.com) with solutions that include benefits exempt from Medicaid spend-down requirements that can be used in this way to pay for longterm care and other health care costs. For many seniors, a life insurance policy is the only source of income available to address this critical need.

Until now, broker-dealers who lacked the resources or initiative to complete due diligence regarding life settlements have kept this important asset class “off the menu” for the advisors. The July endorsement from the NAIC is expected to change all that. Already, GWG Life has partnered with a growing number of advisors who understand that a life settlement can be beneficial to seniors, as well as to their practice.

These firms have done their diligence on the secondary market and on GWG and have authorized their advisors to introduce life settlements to seniors. Some advisors are holding local events to introduce the secondary market to new potential clients, as well as to other financial services professionals. We hope, for the sake of today’s seniors, that this momentum continues to grow.

It’s important to note that life settlements wasn’t the only asset class discussed in the

The proceeds from the sale of a life insurance policy that is no longer needed or has become unaffordable can provide seniors with the liquid assets they need to fund the increasing costs of long-term care. new report. Other options listed include traditional long-term care (LTC) insurance, hybrid life and annuity products, single premium permanent life insurance, annuitylong-term care products, and impaired-risk payout annuities. However, while traditional LTC insurance was one of the most popular products among seniors only a decade ago, rising costs have shifted that trajectory completely. According to the NAIC report, traditional long-term care insurance sales fell from 754,000 policies in 2002 to just 129,000 in 2014. As well, while more than 100 carriers offered LTC insurance in 2002, by 2014, only about a dozen insurers were continuing to offer LTC products. With LTC insurance options dwindling fast, recognizing life settlements as a viable, reliable alternative is more vital than ever.

At GWG Life, our mission has always been to help consumers and the financial services industry to understand life settlements and the unique value they can offer to seniors, especially to fund the rising costs of long-term care and general healthcare. The NAIC’s endorsement of life settlements as a way to pay for long-term care—and the fact that the committee’s report specifically cited GWG Life’s long-term care benefit plan that we introduced to the market more than a decade ago—feels a lot like a big win we’ve been fighting for. The best part of all is that the real winners are those who are the most vulnerable of all: seniors who are in desperate need of a source of income to fund the looming costs long-term care. Luckily for them, the life insurance secondary market is poised and ready to help. n

Chris Orestis, Executive Vice President of GWG Life (www.gwglife.com), is an over 20-year veteran of the insurance and long-term care industries and is nationally recognized as a healthcare expert and senior care advocate. He has been a featured guest on over 50 radio programs and in The New York Times, The Wall Street Journal, USA Today, Kiplinger’s, Investor’s Business Daily, PBS, and numerous other media outlets.

About GWG Holdings, Inc. GWG Holdings, Inc. (Nasdaq: GWGH) the parent company of GWG Life, is a financial services company committed to transforming the life insurance industry through disruptive and innovative products and services. The company has developed a new a suite of options for the life insurance secondary market called LifeCare Xchange (LCX). This new capability provides seniors with the exchange value of their life insurance policies they can apply to long-term care and other post-retirement needs.

GWG Life seeks to further transform the industry by applying proprietary M-Panel epigenetic technology to disrupt traditional life insurance underwriting practices. Since 2006 GWG Life has provided seniors over $418 million in exchange value for their life insurance and, as of March 31, 2017, owned a portfolio of over $1.4 billion in face value of policy benefits.

For more information about GWG Holdings, Inc. email info@gwglife.com or visit www.gwgh.com.

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

MicroCap Review Magazine

81

F E AT U R E D A R T I C L E

Reg A+ Status Report: A+ or B- ?

Last year I wrote that everyone should still be cheering for the JOBS Act and Reg A+, and not be surprised by the challenges it had faced.

At the time we only had one Reg A+ IPO close and begin to trade. The company, Elio Motors (OTC: ELIO), has struggled. Initial shares were offered to the market at $12, and the stock spent nearly six-months above $20, before it’s slow decline to $6.04, where it is trading as of this writing.

The result of Elio’s struggles and a lack of new listings, Reg A+’s perceived value has been tarnished. Furthermore, the investment bankers and lawyers that recommend deal structures have started to question whether Reg A+ is a viable vehicle for a company seeking to raise investment capital. “Not so”

says, Robert Kaplan, Jr. Managing Partner of Kaplan Voekler Cunningham & Frank. “Reg A+, like most new regulations, is going to take time. If you think back, it took a long time for Reg D to be broadly adopted.”

Despite Elio’s challenges, issuers do not seem dissuaded from trying to raise capital via Reg A+. 127 issuers have filed a Form 1-A over the past 12-months, indicating their intent to raise capital via Reg A+. Of those, 104 have been qualified. While most of those qualified are in the process of raising capital, only three have closed and listed on a major exchange.

Myomo (NYSE MKT: MYO), a commercial stage medical robotics company, started the June Reg A+ IPO boom by offering shares to the public at $5.00. The shares began trading on the New York Stock Exchange MKT on June 12th, shares traded as high as $23.19, before settling to $12.43, as of this writing.

Daily trading volume has been an impressive 500,000 shares a day.

Adomani (NASDAQ: ADOM), a provider of advanced zero-emission electric and hybrid vehicles and replacement drivetrains, quickly followed MYO and offered shares at

$5.00. ADOM’s shares have traded consistently traded near it’s 52-week high of $18.26 since it’s June 15th listing, with average daily volume of a respectable 120,000 shares.

And last, but certainly not least is ShiftPixy (NASDAQ: PIXY), a California-based staffing company. PIXY offered its shares to the public at $8.00, and began trading on the NASDAQ on June 30th. The shares have traded as high as $12.3, and settled to $9.22 as of this writing. Average daily volume in excess of 1m shares daily is providing investors with ample liquidity.

The short-term results are hard to beat.

These three issuers are up a combined 100%.

Especially when you compare the returns to this year’s two big traditional IPOs, Snap and Blue Apron. Blue Apron went public at about the same time our Reg A+ companiid, but is currently trading well below its $10 offering price. Snap was a hit on its first day of trading in March, but has since been trending lower.

As of this writing Snap was trading at $15.69, 7½% below its $17.00 initial offering price.

So, what makes the latest Reg A+ IPOs different than Elio? The first thing one will notice is that these issuers elected to

n BY MIGUEL COLON, MBA

82

MicroCap Review Magazine

www.stocknewsnow.com

as iConsumer have met their minimum and are actively seeking DTC eligibility and the opportunity to trade. Quality offerings from companies like Teraphysics, Muscle Maker, Chicken Soup for the Soul, True Leaf Medicine, and CapRocq Core REIT are in the works, and may represent the next round of listings. n work with a financial advisor rather than Crowdfund on their own; Adomani worked with Boustead Securities, Myomo with TriPoint Global Equities, and ShiftPixy engaged WR Hambrecht + Co. Does that mean working with a BD is the secret to a successful Crowdfunding IPO? Like most great debates, it depends on whom you ask.

According to Lou Fisi, CEO of Teraphysics, using an investment advisor was never a question. “A Reg A+ is not any different than any other type of IPO. Therefore, conducting our offering in a traditional (with bankers) way made the most sense. When you consider that there is a lack of IPOs in the marketplace, properly incented investment advisors can make the difference between a successful or not.”

“The analysis really isn’t that complex,” says David Dobkin, President of Dobkin & Co. and financial advisor to Teraphysics.

“When you consider the cost of investor acquisition relative to time and amount invested, working with a financial advisor makes pure economic sense. A good syndicate will have trusted financial relationships with 10,000’s of investors ready to invest significant amounts of money. Regardless of the fee, it’s always to going less expensive to raise $2.5m from 100 investors than from 10,000.”

Robert Grosshandler, CEO iConsumer sees it differently. “iConsumer’s entire value proposition is built on making every customer a shareholder, and every shareholder a customer. Broker Dealers are great, if you’re interested in institutional support and investments from traditional Wall Street investors. iConsumer is completely a consumer-focused opportunity. We need many, many shareholders to be successful. And while I expect BDs, and Crowdfunding platwww.stocknewsnow.com

forms to eventually be a conduit to Main Street investors, they’re not there yet.”

For Jeffrey Karsh, CEO of stREITwise REIT, the decision to not use an investment advisor all came down to investor returns.

“We chose not to use broker dealers for distribution because, even though they are generally effective at raising capital, the fees they charge hasan considerably negative impact on investors. We’re trying to circumvent the broker dealer network, thus saving our investors that additional fee load.”

Regardless of whether a BD is engaged or not, the mini IPO boom doesn’t appear to be ending anytime soon. Issuers such

Investors interested in finding information on the latest Crowdfunding listings can visit www.transfer.ly/CFofferings/ Miguel Colon is the President of Transfer.ly, and a tenure tracked Professor of Entrepreneurship at Chabot College. Prior to joining Transfer.ly Mr. Colón held executive positions with Issuer Direct Corporation including, Vice President of Corporate Development and Head of EMEA. Miguel was the founder and CEO of SEC Compliance Services, a full service XBRL and EDGAR provider. SEC Compliance Services captured significant market share in less than a year, which led to the purchase of its assets by Issuer Direct Corporation. Mr. Colón received his Master’s of Business Administration (MBA) and Bachelors of Arts in Management from St. Mary’s College of California.

MicroCap Review Magazine

83

PROFILED COMPANY

84

MicroCap Review Magazine

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

www.stocknewsnow.com

MicroCap Review Magazine

85

F E AT U R E D A RT I C L E

Will the Private Public Joint Venture “PPJV” Reinvent the PIPE Market?

T

he Dow has been climbing at a breathtaking pace, reaching a record high of 22,000, a significant jump from 17,000 in 2016.

Whatever the underlying assumptions driving this growth, it’s clear that Keynes’ “Animal Spirits” are running wild! This economic improvement has had a impactful cross over effect on the private equity markets, pushing valuations to sky high multiples and leverage ratios to levels unseen since the pre-crash hay days. Undeployed capital chasing investments in privately held companies has grown considerably. The question

n BY KARL B. DOUGLAS

86

MicroCap Review Magazine

is, “Does this trend represent an opportunity for MicroCaps- traditionally limited to dilutive ATM and convertible debenture transactions- to change strategy and achieve significant high growth financing? And further, what are the best structures to consider?”

We believe the Private Public Joint Venture, or (PPJVP is the structure MicroCap CEOs and their Boards of Directors should explore.

Capital overhang in private equity is currently over $700 billion. Yes, that’s correct $700 Billion. Based on recent PIPE (Private Investment in Public Equity) activity over the last six months, some PE money is crossing over into the public markets. And yet, MicroCaps are still struggling to attract capital at competitive terms.

According to Placement Tracker (PlacementTracker.com), PIPE deal volume is down 2.8% (469 deals in H1 2016) and dollar volume decreased a massive 44% ($27B in H1 2016). A logical analysis of these numbers infers that PE managers have two possible course of action: to start sending money back to investors, or get more creative.

PIPE activity was well distributed across sectors, with financials leading the way.

Many of the sectors which are typical mainstays of private equity are showing consider-

able activity. That includes the energy and basic materials sectors, which typical represent a high concentration of MicroCaps.

Similar to 2016, the instrument types typically favored by PIPE investors have not changed. Registered common equity and ATM transactions have led the way. Both tend to favor more mature companies with market caps well in excess of $100M. These companies have the daily trading volume and VWAP profiles to allow companies to finance with these types of instruments without detrimental effect on share price. The reality is that unlike the larger Small Cap PIPE issuers, many MicroCap companies are limited to selling shares at discounted prices with warrant coverage, or selling convertible debentures that convert at discounts to market.

We picked a few random examples from 2017 to demonstrate the effect of each major transaction type on sub $10M issues. Where our analysis is not purported to be statistically accurate for each transaction type, we highlight the results using common examples of public issuers to examine the impact of certain structures. The companies selected were chosen randomly, and all information used was publicly available at the time.

Our conclusions are not buy or sell recomwww.stocknewsnow.com

Figure 1 Placement Tracker August 2017

Figure 2 Yahoo Finance 6mo chart for MBII 8/11/2017

Figure 3 Yahoo Finance 6mo chart for REED 8/11/2017 www.stocknewsnow.com

mendations, nor do we have any opinion on, or financial interest in, the specific issuers.

The first transaction type is a CMPO, or Confidentially Marketed Public Offering.

Marrone Bio Innovations, Inc. Nasdaq CM: MBII announced a $9,200,001 offering on April 24, 2017. The offering was issued at a 20% discount to the company’s share price which at the time was $1.75. By August the company’s share price dropped to $1.11, a 37% decrease. Without delving into the specific operations of MBII, it is clear that the combination of discount to share price, and sudden increase in share volume created a negative impact on price. This is a very common story for MicroCap issuers.

In addition to CMPO’s convertible debentures have been a mainstay of the PIPE market. We picked an offering that took place on the same day as the MBII offering in a different sector to demonstrate the effect.

On April 24, 2017, Reed’s, Inc. (NYSE MKT (AMEX):REED) announced that it raised $3,400,000 in a Convertible Secured Notes transaction. The fixed conversion price of the Convertible Secured Notes was $3.00 per share, an approximate 36.84% discount to the market price ($4.75 at the time) of the REED deal announcement. A series of 1,416,667 60-Month Warrants (125% Coverage) with an exercise price of $4.00 per share (8.05% discount) was issued to the investors in this transaction. As the chart indicates, on August 11th, the closing price of REED was $1.60, down 66%.

The two examples are representative of the broader experience of illiquid MicroCap issuers with traditional PIPE structures.

Clearly there must be a more effective way for MicroCap issuers to raise growth capital.

When the status quo cannot go on we must adapt, innovate or die. In this instance, we believe the solution may lie in a strategy wherein MicroCaps partner with private equity, opening up access to the current $700 billion private equity overhang. This strategy is particularly suited to companies pursuing an active M&A strategy such as data center roll ups or mining consolidations.

MicroCap Review Magazine

87

Given the heavy commitment by PE to the E&P sector, energy companies are uniquely suited to the strategy.

This structure allows management teams to execute their business plans and create shareholder growth without excessive dilution or “technical” erosion of market cap due to oversupply of shares with insufficient liquidity. Over the years we have met hundreds of MicroCap CEOs and their management teams. In general, we see highly motivated managers that could execute exciting plans “if only they were adequately capitalized.” We believe the market is ready for a new transaction type, the PPJV or Private Public Joint Venture. The PPJV brings both the public company issuer and the private equity investor together in a symbiotic relationship that meets the requirements of both worlds.

Generally speaking, the pubco initially has a minority position, and may not have board control.

However, this is not always the case. b. Potential double cost of management between Pubco and JV management.

Pros & cons For the Pe inVestor: 1.

let’s exAMine the Pros & cons For the MicrocAP oPerAtor: 1.

2.

88

Pros a. Non-dilutive – Pubco shareholders experience the benefit of pubco share of the JV cash flow without excess dilution. b. Acquisitions are accretive to pubco earnings. c. Financial stability - Commitment of long term deep pockets of the PE company. d. Easier access to low interest leverage. e. Experience and expertise of PE management particularly in the M&A process. f. MicroCap management team can focus on building shareholder value, and spend less time raising money. g. Access to higher quality investors. h. Access to higher quality acquisition targets.

Cons a. Non-consolidation of assets.

MicroCap Review Magazine

2.

Pros a. Built in exit option – by electing to convert JV equity interest into shares of the Pubco, or through phased divestiture, the PE investor has a built in public exit which can be phased over time. b. Higher exit value – since the PE company is converting, they are eliminating the illiquidity spread between private company and public company valuations. c. Greater financing flexibility – a properly executed pubco listed on a major exchange offers cheaper equity financing opportunities, particularly in difficult credit market cycles. Access to S3 shelf registrations can be a tremendous value.

Cons a. Transparency – depending on structure of the JV, the PE company could end up with unwanted transparency. b. Higher costs – depending on how pubco costs are allocated, this could reduce earnings at the JV level.

We believe that the pros of the PPJV structure significantly outweigh the cons for both issuer and investor alike. And this structure could quite possibly become the next major trend in MicroCap investment as the concept gains popularity. With possible elimi-

nation of dilution, which has a detrimental impact on public shareholders, we believe the PPJV is a far more productive approach for raising capital.

PPMT Capital recently attended the Planet MicroCap conference in Las Vegas in April and test marketed the concept with attendees, including representatives from the mining and energy sectors. We sat down with Chris Jones, CEO of Uranium Resources, Inc, (NASDAQ CM: URRE). Uranium Resources, Inc. operates as an energy metals exploration and development company and is developing lithium brine basins in Nevada and Utah for exploration and potential development of lithium resources. Chris felt that the PPJV would be an interesting way to accelerate transition to production of some of the company’s larger reserves.

Jericho Oil Corporation, (OTC: JROOF) is developing E&P reserves in one of the most exciting basins in the US, the “Stack” in Oklahoma. We were intrigued by the knowledge that Jericho was already leveraging the PPJV strategy with a strategic family office relationship. As a prime example of an early adopter, we’ll be tracking Jericho to see how the impact of the PPJV impacts their development longer term. n About the author: Karl B. Douglas is a Managing Director at PPMT Capital Advisors, Ltd.., a private investment and advisory firm. Mr. Douglas has a career that spans over 30 years investing in private and public companies. PPMT Capital invests and structures private equity and debt investments of $15M to $100M in Energy, Mining, Industrials and Real Estate.

For further information contact: kdouglas@ppmtcapital.com 800-401-9017 www.ppmtgroup.com 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.

www.stocknewsnow.com

144Opinions.com

A Division of FitzGerald Yap Kreditor LLP

Exhausted from trying to have your restrictive legends removed?

We provide fast, flat-rate legal opinions to remove restrictive legends from stock certificates for affiliates and non-affiliates; on Pink Sheet, Over-the-Counter, NASDAQ, and NYSE securities; and for non-shell and former shell companies.

Contact Lynne Bolduc Phone: 949.788.8900 | Email: lbolduc@fyklaw.com | Fax: 949.788.8980 MicroCap Review Magazine 89 16148 Sand Canyon Avenue, Irvine, California 92618

www.stocknewsnow.com

90

MicroCap Review Magazine

www.stocknewsnow.com

F E AT U R E D A RT I C L E

Crowdfunding on the Verge of Mainstream

A

t the end of 2013 I was asked to predict what the crowdfunding industry would look like in 2014.

I was energized, hopeful, bullish and insanely naive. That said, I used all sorts of colorful analogies to explain how the industry has yet to be born. Still in utero, not even in diapers yet, etc...

n BY ALON GOREN

www.stocknewsnow.com

At the time, a lot of my peers and colleagues took what I said as an insult. They thought that by saying that what we had built to that point wasn’t even yet born, I was saying that we hadn’t accomplished much. The truth is, regardless of the reasons (which I believe were MOSTLY out of our control), we hadn’t. We had very little to show for ourselves. What good is a product that nobody uses?

But, I thought at least, that 2014 was the year. Big things coming! Again, I was insanely naive. I should have known better... being in technology and finance I knew that behaviors rarely change, and if they do, they take many, many years to do so.

I believe that finally, that time has come.

I started launching social fundraising sites in 2009. That was before PayPal could even split a payment. Payment processors like Stripe didn’t exist. We needed escrow accounts for the simplest forms of fundraising and even technology was a major hurdle.

That’s no longer the case. All those types of products exist in many forms right out of the box. Now it’s about orchestrating existing products to fit your mold, versus building a product completely from scratch.

Aside from technology and product hurdles being squashed over the years, the JOBS Act passing created a new framework for selling securities over the internet. I won’t dive into the details that only an attorney could

help you dance around and the questions that Google can easily answer, but the general idea is that regardless of which exemptions you choose to raise under, now your private company can publicly solicit and take money from non-accredited investors. That is huge, especially if you are already selling a product over the internet. (Listen to my episode of the Planet MicroCap Podcast with Bobby Kraft!) What has been essentially created is a much more streamlined and affordable path to taking a company public.

OK, so the tech is ready and the regs are now usable. So why is this not mainstream yet?

It’s just a matter of time..we’re on the verge.

In the last year we’ve seen multiple deals raise millions of dollars and instantly list their companies on OTC Markets, NASDAQ and NYSE. Last year over 1,500 people came to our conference, Crowd Invest Summit, to meet and invest in crowdfunded deals.

Three of those deals are now publicly listed.

This year we expect that number to double. If you’re an investor or a potential fundraising company, you need to be paying attention.

The time is now! n Alon Goren is a pioneer in the financial technology sector and a founder of Crowd Invest Summit, the world’s largest Crowdfunding Conference and 805 Startups a group of over 2,000 investors and entrepreneurs in Southern California. https://crowdinvestsummit.com MicroCap Review Magazine

91

92

MicroCap Review Magazine

www.stocknewsnow.com

VE SA

TH

E

TE DA Presented by SNN, Inc.

April 24–26, 2018 at Planet Hollywood Resort & Casino, Las Vegas

Sponsorship Opportunities As a sponsor, you will have the opportunity to showcase your company’s products and services to a select group of emerging growth company executives, investors and finance specialists focused on the public MicroCap market and private markets.

Recognition as a Sponsor of Planet MicroCap Showcase in the conference marketing materials & event signage Recognition as a sponsor of the Showcase main networking reception Tabletop exhibition space in a premium location in Showcase main exhibit hall Full access tickets for staff Logo recognition in print and electronic advertising Logo recognition & company description with link on the Planet MicroCap Showcase website Logo recognition in post-event advertisement in MicroCap Review magazine Full page advertisement in Showcase resource book Opportunity to place literature on literature tables Thank you to last year’s sponsors:

To learn more about sponsoring Planet MicroCap Showcase 2018, please contact

Robert Kraft: 424 227 9018 / info@snnwire.com

www.planetmicrocapshowcase.com @StockNewsNow / info@snnwire.com / 424–227–9018

Aug Report

July, 2017 adds & subtracts of FINRA Member Firms

Financial Industry Broker Dealer Data Aggregator

compiled by DAVID ALSUP

July: 9 New formations & 12 Withdrawals *New formations chart now shows Private Placement/RIA firms (New Formations:Three-year average is 9.6 ↓ per mo. BDW three year average is 19.0 ↑ Closures per mo)

9 New Firms were admitted (Est)

12 Firms Withdrew

•

• 8 were equities firms

2 firms admitted are Private Placements • 2 firms admitted are Mutual Fund Sponsors 3 firms are classified as “Other” 2 firms admitted are equities oriented 9 new RIA formations had over 10 Advisors

• • • •

2 firms were classified as “Other” 2 were Private Placement firms All twelve of these firms had less than Ten reps One firm kept their RIA

Monthly New Formations chart showing the number & types of firms admitted 20 18 16 14 12 10 8 6 4 2 0

PP

Pvt

Mut F,

Other

EquiRes

12 14

9

10 15

9

11 11

7

8

7

6

7

10

9

8

4

9

Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar Apr May June July

Monthly RIA FormaRons.

Blue is with BD affiliaRon & Orange is without affiliaRon 200 150 100 50 0 79

92

79

75

37

152

83

131

140

99

81

126

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

June

July

As of July 31, 2017, there are about 3880 FINRA Member firm CRD Numbers.

There are now 12,505 SEC registered RIA firms (Means $100 mil in assets under management) =========================================================================== The above data has been sourced from regulatory agencies publications' and statistics, along with some independent third parties. While it is believed to be reliable there can be no guarantee of the accuracy of the data. The numbers have been cross-checked for accuracy, and they should be within plus/minus two percent. For example, there may be as many as 15 firms NOT included in these statistics and NOT reported that filed for a BDW prior to July, 2017.

David Alsup • 949-468-0111 • david@fishbowlstrategies.com

94

MicroCap Review Magazine

www.stocknewsnow.com

coMPAny ProFile on PAGe 10

lucaradiamond.com

TSX, BSE, OMX: LUC

1,109 carat Type IIa

Historic Diamond Recoveries in Botswana

The Constellation Diamond 813 carat, Type IIa

Second and sixth largest gem quality diamonds ever recovered

www.stocknewsnow.com

MicroCap Review Magazine

95

Accounting Corner Column on Page 69

Accounting Corner Column on Page 23