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FaLL 2018 The Official Magazine of the MicroCap Stock Market Since 2006

Jericho Oil Corporation TSX-V: JCO / PINK: JROOF OptimizeRx Corporation NASDAQ CM: OPRX

8 14
Page Brian Williamson, CEO Page Will Febbo, CEO
www.jerichooil.com www.optimizerx.com

US Nuclear Corp. PINK: UCLE Medical Transcription Billing, Corp. NASDAQ CM: MTBC

18 22
Page Bob Goldstein, CEO Bill Korn, CFO
Page
www.usnuclearcorp.com Delicious Flickr Twitter
www.mtbc.com
Retweet

FEATURED ARTICLES Facebook MySpace StumbleUpon Digg

21 There’s a New SEC in Town Corey Fischer, CPA 60 Invest and Make Money with the Power of 78 Harnessing Regulatory Initiatives & 90 TSX Venture Exchange Update
28 Undiscovered Down Under Mark Tobin Knowledge Maj Soueidan Targeted Rulemaking to Improve
Slash Dot Mixx Brady Fletcher
Skype Technorati

64 Why Family Offices Should Be Your First Transparency and Further Market
44 What is a SPAC? Doug Ellenoff, Esq. Efficiency Cromwell Coulson
Choice For Capital Investment Karl Douglas
52 Three Themes for Mining Investments in 2018 80 Digital Currency 101 Reddit FriendFeed YouTube LinkedIn

Rick Rule, Sprott U.S. Holdings 67 Investors Warm Up to U.S. Cannabis


Companies Alan Brochstein Robert Graham, CPA and Joshua Santos, CPA
54 Identifying Promising Opportunities in 86 Major Mining Companies Looking
MicroCap Investments Sam Namiri 68 Regulation of Crypto at a Crossroads Newsvine SlideShare Google Google Talk

Dina Ellis Rochkind, Esq. for Quality Junior Assets Brent Cook
56 Why www.stocknewsnow.com
Canada! Brandon Mackie
and Joshua Samuel Downer Esq. 88 How to Play PASPA from Canada
Yahoo Yahoo Buzz Netvibes AOL
Ralph Garcea
sEE arTicLE paGE 25

PLS – The Page 24


www.fissionuranium.com
OTCQX:FCUUF
TSX: FCU

Most-Awarded
Uranium Project
Total Strike Length of the Triple R Deposit now 3.18km

Focus of Pre-Feasibility Study

R1515W Zone R840W Zone


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R780E Zone R1620E Zone

PLS: The Premiere Project of the South-West


Athabasca Basin District
• Triple R Deposit: Athabasca’s only near-surface, large, high-grade uranium deposit
• Deposit includes 5 high-grade zones over a 3.18km mineralized trend
• Prefeasibility study expected by Q4, 2018

Fission Uranium Corp Toll-free 1.877.868.8140 @FissionUranium


700–1620 Dickson Avenue ir@fissionuranium.com fissionuraniumcorp
Kelowna BC Canada www.fissionuranium.com fissionuraniumcorp
E D I T O R I A L

A
In Loving Memory of Our Precious Daughter, s the third quarter concludes and is available selectively. Most MicroCap inves-
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ATE
D
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The Premier Event in MicroCap Finance


April 30–May 2, 2019
Bally’s Las Vegas Hotel & Casino
www.PlanetMicroCapShowcase.com
CONTENTS
STOCKNEWSNOW.COM

F E AT U R E D A RT I C L E S
Fall 2018

44 What is a SPAC? By Doug Ellenoff, Esq. 78 Harnessing Regulatory Initiatives & Targeted Rulemaking
to Improve Transparency and Further Market Efficiency
52 Three Themes for Mining Investments in 2018
By Cromwell Coulson
By Rick Rule
80 Digital Currency 101
54 Identifying Promising Opportunities in MicroCap
By Robert Graham, CPA and Joshua Santos, CPA
Investments By Sam Namiri
82 Communication Pitfalls in the Crypto Era
56 Why Canada! By Brandon Mackie
By John Lowy, Esq.
58 Investing in Electricity Conservation
90 TSX Venture Exchange Update By Brady Fletcher
By Sean Peasgood
102 Tracking Micro Cap Debt in Southeast Asia By Peter Pham
60 Invest and Make Money with the Power of Knowledge
By Maj Soueidan 108 What Are Gold Royalty Companies and Why Do
They Matter? By Nolan Watson
64 Why Family Offices Should Be Your First Choice
For Capital Investment By Karl Douglas 114 Junior Mining: Why Royalty Companies and Project
Generators By Adrian Day

Profiled Companies 22 Medical Transcription Billing, Corp. 43 New Energy Solar Ltd.
8 Jericho Oil Corporation NASDAQ CM: MTBC ASX: NEW
TSX-V: JCO / PINK: JROOF 25 Fission Uranium Corp. 46 GoviEx Uranium Inc.
11 AudioEye, Inc. TSX: FCU / OTCQX: FCUUF TSX-V: GXU / OTCQB: GVXXF
NASDAQ CM: AEYE 31 Buddy Platform Ltd. 47 SRAX
12 Concierge Technologies, Inc. ASX: BUD / PINK: POTTF NASDAQ CM: SRAX
OTCQB: CNCG 33 Tech Mpire Ltd. 51 Senetas Corporation Ltd.
14 OptimizeRX Corporation ASX: TMP ASX: SEN / PINK: SNESF
NASDAQ CM: OPRX 35 Race Oncology Ltd. 70 Creso Pharma Ltd.
17 Golden Arrow Resources ASX: RAC ASX: CPH
Corporation 36 Tinybeans Group Ltd. 76 Hilltop Cybersecurity, Inc.
TSX-V: GRG / OTCQB: GARWF / ASX: TNY / PINK: TNYYF CSE: CYBX / OTCQB: CYBXF
FRANKFURT: G6A
38 Family Zone Cyber Safety Ltd.
18 US Nuclear Corp ASX: FZO / PINK: FMZNF
PINK: UCLE

Accounting Corner Asia Corner Opinion


21 There’s a New SEC in Town 72 Hong Kong Exchange 95 Aussie Companies
By Corey Fischer, CPA Attracting Chinese Unicorns By John Kimber
and Biotechs
Australia Corner 95 The DJIA and the USA Economy:
By Leslie Richardson
28 Undiscovered Down Under Past, Present and Potential Future
By Mark Tobin Resources Corner By Steven M. Shelton, MS. MBA.
86 Major Mining Companies CFP®, CLU, CHFC, TEP, CIMA® CMT
Legal Corner
Looking for Quality Junior 105 Oil & Gas Turmoil But Steady
40 Don’t Blame it on Reg A Assets By Brent Cook
By Louis A. Bevilacqua, Esq. Growth in 2018 By Frederic Scheer
Gaming Corner 106 2020 BioPharma Expansion and
Cannabis Corner
88 How to Play PASPA from the Opportunities of Heading East
67 Investors Warm Up to U.S. Canada By Ralph Garcea By Jae Sly, MBA, Ph.D
Cannabis Companies
By Alan Brochstein Commodities Corner 112 Why is the Cryptocurrency
92 Introduction to the Futures Revolution Good for Gold?
Beltway Corner By Doug Casey
Markets By Mark Shore, MBA
68 Regulation of Crypto at a
Crossroads Comic Strip Fixed Income Corner
By Dina Ellis Rochkind, Esq. and 94 WallStreet Chicken 110 Fixed Income
Joshua Samuel Downer Esq. Episode 18 - The Roast By Michael E. Lewitt

www.stocknewsnow.com MicroCap Review Magazine 7


P R O F I L E D C O M PA N Y
Tsx-V: Jco / pinK: JrooF

Jericho oil corporation


The Future is ‘STACK’-ing up for Oklahoma’s Jericho Oil

I
t’s no big secret that until very recently, many companies, both large and small would
it has been a rather tough few years love the opportunity to do. A company
for the oil industry and, as a result, changer! Wait for it… Through years of
tough on companies associated with the hard work, diligence, relationship build-
industry. This is especially true for micro- ing, relentless Geological/Engineering/Land
cap companies in the junior oil sector that efforts, and finally, maybe a little bit of luck,
were fighting to stay between the lines in an microcap Jericho has managed to acquire an
environment of high costs and low returns interest in ~16,000 net acres (almost all held
that resulted from the oil price downturn of Figure 1. U.S. Onshore Shale Basins by production) in the prized Anadarko Basin
2014 to 2017. Well, it appears those days are the area, and an established strategy of buy- STACK Play. Yup! That’s it! Jericho man-
in the rearview mirror, as oil hovers in the ing distressed and undercapitalized assets aged to become a “player” in the STACK!
$70’s and many predicting it to go up from in proven plays with a focus on domestic, It’s kind of a big deal. And with each
there. That’s great news if you were one of liquids-rich unconventional resource plays, passing day, as their much larger neighbor-
the few microcaps savvy enough to manage primarily in Oklahoma.  Jericho’s core busi- ing oil companies release and upgrade well
your way through the traffic and are now ness objective is driving long-term share- results, work their own geology/engineering/
positioned to take advantage of the open holder value through the growth of oil and land, and continue to snatch up surrounding
road left by those that were forced to drive gas production, cash flow and oil-reserves.  STACK acreage at prices 3..4..5 times what
off a cliff… As such, the company has assembled an Jericho paid, the big deal for Jericho is getting
Jericho Oil Corporation is, in fact, one enviable 55,000 acre position across the state bigger… much bigger.
of the success stories now speeding down of Oklahoma at low-cost entry with signifi- Large E&Ps like Continental Resources,
the highway. The company, with operation- cant current production value. Devon Energy, Marathon Oil, Newfield
al headquarters in Tulsa, Oklahoma, is a Jericho is unique among juniors as it Exploration, Chesapeake Energy and Jim
well-capitalized junior E&P (Exploration & had strong financial backing during the oil Hackett’s recently-listed Alta Mesa Resources
Production) with an experienced Team that downturn which enabled it to acquire high collectively hold over ~1 million acres in
has a recognized track record for success in quality assets at the bottom of the market the STACK and have made it their core
and the height of distress. The cash to buy focus.   What do they know that Jericho
came from a handful of world-class, long- knew as well? It has to do with the supe-
term investors. The Breen Family (Ed Breen rior well results now able to be accessed
is CEO of the chemical and agricultural giant from “stacked-pay” formations. The STACK
DowDuPont) and the Hegna Family are
two of the company’s largest shareholders,
and they are joined by several other notable
families who have backed Jericho, even when
oil was sub-$30 a barrel.
Within those 55,000 acres, Jericho, along
with its private joint venture partner/family
office, owns and operates three high-quality
oil and gas plays in Oklahoma. And within
those three plays, Jericho has managed to do
something many companies were, and still
are, simply unable to achieve. Something
Brian Williamson, CEO Figure 2

8 MicroCap Review Magazine www.stocknewsnow.com


“We believe the value is all about understanding and delivering best-in-class
results in a particular opportunity within a particular play. In our world, the
ability to find oil gets harder and harder every year. As such, you want to be
aligned with a team that knows an asset, knows a region, and knows how to
develop the hydrocarbons in that area.

At Jericho, that’s exactly what we’ve built: a team geared around developing
Figure 3. Underlying STACK Intervals
the stack, a team that understands, lives, and has breathed Oklahoma oil
already, envious position.
and gas development for the last 40 years. That local knowledge, that rock
Looking out even further, Jericho’s story
knowledge, that geology knowledge, and that development experience
seems primed to pick up even more speed.
translates very, very well into successful after successful development
Each STACK well at $60 oil delivers ~$3.5
programs.” —Brian Williamson, CEO of Jericho Oil
million of PV10 value (PV10 is the current
value of approximated oil and gas revenues
boasts top-tier well economics similar to the best-in-class private operators. The first in the future, less anticipated expenses, dis-
Permian which translate into very low break- well (Wardroom) achieved a peak 24-hr counted yearly at 10%). Jericho’s STACK
even prices near $30 per barrel. rate of 957 BOE, with an IP30 (Initial JV currently owns ~200 well locations, so
How about a little background… One of Production over 30 Days) of 770 BOE per the upside for Jericho and its shareholders
the lowest cost oil and gas plays in North day and was amongst the highest of any well appears to be enormous.
America is the Oklahoma STACK. The to-date targeting the Meramec formation in With the inevitable winding road aside,
‘STACK,’ as it is affectionately known, is the northern STACK on a per 1,000 lateral Jericho is a world-class team, determined to
an acronym describing both its location foot basis. continue growing and succeeding, dedicated
and formation. Location - Sooner Trend Early results from the second well to the craft, with a detail to timing. As such,
Anadarko Basin Canadian and Kingfisher (Swordspear), which targeted the Osage Jericho Oil Corporation appears to have
County. Formation - The play has multiple, formation, after 30-days on an electrical their top down and are motoring in the right
“stacks” of productive formations that are submersible pump, were reported on July direction…
present in the area.   The STACK is a prolific 25, 2018. As of that date, the most recent
hydrocarbon system with high oil content, daily production reading was of +500 BOE Experienced Mid-Con
multiple horizontal target horizons (~700 – and the well had still not yet reached peak Leadership Team
feet thick), extensive production history and IP.  (See Figure 4)
historically high drilling success rates.  There are several catalysts ahead for Brian Williamson, CEO
The STACK fields were originally devel- shareholders as the coming months look to Mr. Williamson has been a part of the
oped by the majors (companies like Exxon, be filled with positive activity, pushing the energy industry since 1995. Mr. Williamson,
Texaco and Shell) and were drilled verti- company onward, upward and continuing in his role as CEO, is responsible for the
cally.  The recent introduction of horizontal the metaphor of heading down that high- overall vision, direction and corporate strat-
drilling and hydraulic fracturing has rein- way of success. Jericho has plans for at least egy of Jericho. Day to day, he spends
vigorated the play, and billions of dollars three new horizontal STACK wells in the his time working with Jericho’s leadership
of investment have been directed into the second half of 2018 along with additional team sourcing, evaluating and developing
STACK basin because of the repeatable “tuck-in” acquisitions contiguous to its cur- the company’s oil and gas assets and capital
stacked, multi-zone, successful drilling and rent STACK acreage increasing Jericho’s market activities. Mr. Williamson began his
development across the play. 
And Jericho is no exception. As oil moved
comfortably into the $60s/70s this year, the “While the Permian Basin has grabbed the attention of oil companies and
company transitioned its focus from growth their investors in recent years… Some drillers are finding that the STACK
through acquisitions to growth through the shale play in Oklahoma is just as good, if not better, than the vaunted
drill bit. Permian. That›s why they spent billions of dollars to scoop up land in the
Jericho recently participated in the suc- region over the past few years, which is starting to pay big dividends by
cessful drilling and completion of two test fueling remarkable production growth.” —The Motley Fool (Dec. 13, 2017)
horizontal STACK wells, partnered with

www.stocknewsnow.com MicroCap Review Magazine 9


Mississippian reservoirs. Mr. Matson gradu-
ated with a Bachelor of Science and Masters
of Science degrees from the University of
Arkansas, Fayetteville where he serves as an
honorary member of the External Advisory
Board to the Department of Geosciences. He
is a member of the American Association
of Petroleum Geologists, Tulsa Geological
Society, Ft. Smith Geological Society, and
the Oklahoma Well Log Library. Mr. Matson
is a two-time recipient of the AAPG Mid-
Continent Section A.I. Levorson Memorial
Award. The award recognizes the best paper
Figure 4. Growing Jericho’s Core Position Figure 5
presented at the MCS AAPG Section meet-
career at Arthur Andersen as part of its Tax years of experience primarily working the ing, with particular emphasis on creative
and Business Advisory Services Practice. While Mid-Continent and Permian Basins. His expe- thinking towards new ideas in explora-
at Arthur Andersen, he worked with Fortune rience spans everything from waterflooding to tion. He has presented work and ideas on
500 and FTSE 100 companies and private firms full field development and corporate manage- the Mississippian reservoirs of the Mid-
on evaluating investment opportunities and ment. He has also spent time in the industry Continent at the AAPG Playmakers Forum
conducting extensive research on corporate in Kuwait as well as in Yemen as Production and AAPG Discovery Thinking Forum.
planning and due diligence on industry trans- Superintendent for Hunt Oil. He has spent
actions. Mr. Williamson also oversaw the cre- the last eight years with Nadel and Gussman Bill Harwell, Director of Land
ation, trading and risk management of energy LLC where he was responsible for the horizon- Mr. Harwell brings an extensive background
and energy related trading products in various tal Mississippi Lime drilling program which in all aspects of petroleum landman manage-
world markets. From 2006 until 2012, Mr. involved 15 horizontal wells including the first ment, operations and administration. Mr.
Williamson managed the private equity plat- horizontal Mississippi Lime wells drilled in Harwell has spent much of his career in the
form for a New York based financial institution. Osage County, Okla. Mr. Webb has a Bachelor Mid-Continent region. With over 30 years’
Mr. Williamson earned a B.S. in Accounting of Science in Computer Engineering from the experience in land functions, Bill has suc-
from LaSalle University and a J.D. from Widener University of Oklahoma, is a 25 year member cessfully led land teams as part of Williams
University School of Law, where he served as of the Society of Petroleum Engineers, and has Energy as well as managed the land func-
law review editor and was a national moot been a registered professional engineer for 37 tion for Private Equity sponsored energy
court semi-finalist. Mr. Williamson is a Certified years. focused groups. Bill’s experiences include
Public Accountant (inactive). end to end exposure to all aspects of the
Shane Matson, Director of Geology petroleum land business including man-
Ben Holman, CFO Mr. Matson joined the Jericho manage- aging and overseeing acquisitions, inspec-
Mr. Holman, based in Tulsa, Oklahoma, has ment team in 2016 and serves as Director tions, divestures, right-of-way projects. Mr.
more than 17 years’ experience in accounting of Geology. He has studied the outcrops and Harwell has given expert testimony at The
and business administration in the oil and subsurface geology of the Mid-Continent Oklahoma Corporate Commission in over
gas industry, including senior positions at region for 20 years and brings over a decade 50 hearings. He is currently a member of
Apco Oil and Gas International Inc., a for- of work as a Petroleum Geoscientist with the International Right of Way Association,
mer subsidiary of The Williams Companies focus specifically on Jericho’s current area Tulsa Association of Petroleum Landmen
and WPX Energy. He has been working with of focus and brings a history integrating and Tulsa Pipe Liners Club. n
Jericho at its Tulsa operational headquarters highly technical attribute analyses of 3D
since November 2017. Mr. Holman is a CPA, seismic volumes into modern explora- JERICHO OIL CORPORATION
with a MAcc, B.S. and BSBA, all from the tion and reservoir development workflow. For more information, please visit:
University of Tulsa. Through his work with Ceja Corporation, www.jerichooil.com
Spyglass Energy Group and Mid-States Toll-Free: 1-800-750-3520
Dennis Webb, Director of Engineering Petroleum Matson has been at the forefront Tickers: PINK: JROOF / TSX-V: JCO
Mr. Webb is a Petroleum Engineer with 40+ in pioneering the horizontal development of
The company paid consideration to SNN or its affiliates for this article.
10 MicroCap Review Magazine www.stocknewsnow.com
P R O F I L E D C O M PA N Y nasdaQ cM: aEYE

audioEye, inc.
Technology with an Accessible Purpose

F
ounded in 2005 as an R&D company
by serial entrepreneurs, technolo-
gists and brothers, Sean and Nathan Accessibility Guidelines (WCAG) 2.1.
Bradley, AudioEye is technology with pur- tricts, state, local and federal government
pose. When Nathan was diagnosed with a LEVELinG ThE pLaYinG FiELd agencies and entities from the Fortune 500
degenerative disease that would leave him to small businesses have sought solutions
blind, the Bradley’s dedicated themselves to For people with disabilities, accommoda- that are cost effective and sustainable.
developing a solution to ensure the Internet tions in the digital world are as critical In an industry historically populated by
remained accessible to Nathan. as ramps and rails in the physical world. consultants, scanning tools and report writ-
Fortunately for the 15%+ of the world’s No business, school or government agency ers, AudioEye has emerged as the clear
population that lives with a disability, their intends to exclude people with disabilities, leader, offering a service based in technol-
project became a technology, company and but unless their websites are accessible, that ogy that has fueled the company to growth
offering that positively impacts the ability of is exactly what they’re doing: excluding mil- year-over-year.
all people to access and use digital content. lions.
Fortunately for all, AudioEye has achieved doinG WELL, doinG Good
accEss is noT EQUaL a solution that makes it simple and cost effec-
tive to remediate existing websites, ensure What began as the mission of two brothers
A website is inaccessible for people relying accessibility for people with disabilities and to find a personal solution to manage dis-
on assistive technology, such as screen read- create greater usability for all end-users. ability, has become the reason AudioEye
ers, if it is not coded or designed for digital Leveraging patented technology and subject exists: to make digital content more acces-
accessibility. But the failure to provide acces- matter expertise, AudioEye is able to provide sible, and more usable for more people.
sible websites and content is bigger than an end-to-end solution that is the most effi- Today, AudioEye automatically publishes
access. More than 71% of the billion plus cient and sustainable method for achieving more than one billion remediation fixes
people with disabilities, have disabilities that and maintaining ADA-related compliance. daily on more than one thousand websites
are not perceptible. These include a range of for 800+ customers. Through direct clients
cognitive disabilities, such as Dyslexia, all of doinG ThE riGhT This is and partners building our technology into
which negatively impact their ability to fully sMarT BUsinEss their platforms, AudioEye is steadfast in
absorb and retain digital information. our belief that Accessibility is about people
Designing websites for digital accessi- Fueled by year-over-year increases in ADA- first. n
bility also ensures equal access and com- related lawsuits, and threats of legal action
pliance with requirements related to the for failure to provide equal access on their AudioEye, Inc. (AEYE)
Americans with Disabilities Act (ADA) and websites, public and private companies For more information, please visit:
generally accepted standard, Web Content across industries, schools and school dis- www.audioeye.com
The company paid consideration to SNN or its affiliates for this article.

www.stocknewsnow.com MicroCap Review Magazine 11


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

concierge Technologies, inc.


Building Value, One Profitable Acquisition at a Time

C oncierge Technologies’ strategy is to provide balance among its busi-


nesses and offset the cyclicality that faces so many companies by own-
ing and operating entities in diverse sectors.
Warren Buffet once said: “Put together a
portfolio of companies whose aggregate
earnings march upward over the years, and
so also will the portfolio’s market value.”
That’s exactly what CEO Nicholas Gerber,
COO David Neibert, and the team at Concierge
Technologies is doing—building value for share-
holders, one profitable acquisition at a time.
A publicly traded holding company that
took its present form under new leadership in New Zealand of the company’s Original
in 2015, Concierge Technologies is quietly Sprout line of natural, 100% vegan, safe, non-
building a solid business. Since 2015, book toxic hair and skin care products through
value per share has grown at a compounded the existing distribution channels of another
rate of more than 22 percent, and annual rev- Concierge company, New Zealand-based
enues are hovering at the $30 million mark. Gourmet Foods. Original Sprout was acquired
The company today has four operating at the end of 2017. Gourmet Foods, which
units. Each is healthy, profitable and well- produces and distributes iconic meat pies and
established in its respective sector. pastries throughout New Zealand under the
“Our goal is to build a publicly traded entity brand names Pat’s Pantry and Ponsonby Pies,
for the benefit of all shareholders, adding joined Concierge in August 2015.
value through conservative, accretive acquisi- The company’s other businesses include cessful history of creating value for shareholders.
tions of companies with strong management Wainwright Holdings, operating under In 1995, he founded and served as chief invest-
teams and solid growth prospects,” Gerber the USCF Investments brand, acquired in ment officer of the Ameristock Fund, which,
said. “Our underlying strategy is to provide December 2016, and Brigadier Security under his leadership, beat the S&P500 with
balance among our businesses and offset Systems, acquired in June 2016. double-digit returns over its lifetime.
the cyclicality that faces so many companies Based in Oakland, Calif., and with about Gerber believes that Concierge, which is
by owning and operating entities in diverse $3 billion in assets under management, still in its formative stages, represents a
sectors.” USCF serves as manager, operator or invest- ground floor opportunity for shareholders
“The people who run our companies day- ment adviser to exchange traded products, and prospective acquisition candidates alike.
to-day, and the companies themselves, are structured as limited partnerships or invest- “At our size, it is rare and gratifying to have
leaders in their industries,” Neibert added. ment trusts that issue shares trading on achieved profitability,“ he said. “We are just
“We provide expert resources at the corporate the NYSE Arca. Brigadier, headquartered in getting started and believe Concierge has a
level, allowing them to concentrate on profit- Saskatoon, Canada, provides comprehensive bright future.” n
able growth of the businesses they each know security solutions to homes and businesses,
so well. Where it makes sense, we maximize government offices, schools and other public For more information about Concierge
resources and take advantage of synergies.” buildings throughout the province. Technologies, visit:
One vivid example is the rollout this fall Gerber is a prudent investor, with a long, suc- www.conciergetechnology.net.
The company paid consideration to SNN or its affiliates for this article.
12 MicroCap Review Magazine www.stocknewsnow.com
www.stocknewsnow.com MicroCap Review Magazine 13
P R O F I L E D C O M PA N Y nasdaQ cM: oprx

optimizerx corporation
Delivering Results in Digital Health

R arely do you find an emerging growth company that has taken a sea
change in a major industry and turned it into a powerhouse of high-
margin revenue and earnings. This is OptimizeRx (NASDAQ: OPRX).
Over the last few years, the U.S. healthcare Fueling the frustration is the breakdown
system has become exceedingly complex and in doctor and patient education by pharma
costly for everyone — not only for patients, companies which has traditionally support-
but also for doctors and hospitals. Even Big ed better adherence. Given how the health-
Pharma is feeling the pain. care system has changed in recent years, the
Patients are facing an increasing cost traditional channels of patient education
SUBMIT ePrescription
burden due to expensive medications and are no longer viable. Millions of dollars in
record-high deductibles and co-pays. The coupons and vouchers from pharmaceutical
Kaiser Family Foundation reports that manufacturers go unused due to patient lack OptimizeRx’s proprietary technology alerts 
deductibles have risen by 300 percent since of information and access. doctors of prescription savings and automatically 
sends info to patient’s pharmacy.
2006, while co-insurance costs have nearly In fact, it has become increasingly more
doubled. Combined with fewer generic drug difficult for pharmaceutical companies — being able to communicate with and educate
options, this has created a ‘perfect storm’ that acting through their sales reps in the field — healthcare providers on clinical benefits and
is undermining patient adherence to their to get in front of the physicians they need to encourage prescribing. This hits the bottom
doctor-prescribed medications. Patients reach and provide clinical information, drug line.
simply cannot afford them, and doctors are samples and savings coupons. Due to the
increasingly frustrated. Sunshine Act and similar reporting require- EnTEr opTiMiZErx
ments, these days fewer and fewer doctors
and now less than half the hospitals in the OptimizeRx has emerged as the only public
U.S. will allow pharma reps in the door. company that has been able to effectively
This contributes to higher costs for address the challenge of escalating drug
patients, as most have long relied on co- costs, patient adherence and pharma-doctor
pay coupons and vouchers provided by the communication, while providing a simple
pharma reps to alleviate their out-of-pocket solution right within a doctor’s everyday
expense. Further, new research is showing workflow. In fact, lowering co-payments,
that the increasing widespread failure to doctors can improve patient adherence,
take prescribed medications is now costing according to research published by the
the U.S. healthcare system more than $100 National Institutes of Health.
billion annually due to poor healthcare out- As the largest digital health network of its
comes, disease progression and other avoid- kind, OptimizeRx provides patient access to
able healthcare expenses. savings directly through the doctor-man-
All this is not good for drug companies aged electronic health records (EHR) and
either. Despite spending billions of dollars ePrescribing system.
on developing new drugs, pharma compa- This point-of-care presence has become
Will Febbo, CEO nies are increasingly challenged with not increasingly essential, given how EHRs

14 MicroCap Review Magazine www.stocknewsnow.com


directly through the EHR and at the point-
of-care, doctors are alerted to opportunities
during the ePrescribing process as a natural
part of their workflow. The content is deliv-
ered, tracked and reported across a large
point-of-prescribe promotional network.
Physicians can search for a brand name drug
within the EHR and be instantly alerted to
alternatives or potential savings for a specific
patient.
This technology not only helps improve
today dominate the attention of healthcare patient adherence to medications and clini-
providers. Most physicians now spend more cal outcomes, it also allows healthcare pro-
than five hours a day interacting with patient viders to extract greater value from their
health records through an EHR interface, EHR investments by streamlining the pro-
whether it be viewing test results and logging cess of identifying cost savings for patients.
notes, or issuing ePrescriptions. In addition to savings information, the intel-
In 2017 alone, more than $2 billion in ligent point-of-care technology can also
ePrescriptions were transmitted from doc- alert physicians about recommended tests or lion, growing at a 49% CAGR since 2011.
tor to pharmacy. This phenomenally high procedures related to a patient’s condition, For the second quarter of 2018, the company
number reflects how 90 percent of ambula- prompting additional action if needed. reported its seventh consecutive quarter of
tory care providers now use EHRs, and that revenue growth and turned the corner to
ePrescribing now exceeds 85 percent of all A WIN-WIN WITH POWERFUL profitability. At $5.1 million, second quar-
prescriptions written, according to a 2018 RESULTS ter revenue was up 78% from the year-ago
Surescripts report. In fact, most hospital quarter and up 24% sequentially. On a trail-
systems now require that all medications be The OptimizeRx digital communication ing 12-month basis, revenue was up 79% to
ePrescribed. network now reaches more than half of $16.3 million.
OptimizeRx’s powerful digital health care the office-based healthcare providers in the These results demonstrated how the com-
messaging platform improves critical com- country. This highly-effective solution to a pany’s low fixed-overhead model contin-
munication between pharma companies and growing problem has not only been good for ues to support a highly-scalable financial
healthcare providers, where providers can be doctors, patients and major drug brands, it opportunity, which was also evident in its
alerted to available financial programs right has also generously rewarded the sharehold- expanding margins. In fact, at 56.1% for the
at the point-of-care. In real-time, the patient- ers of OptimizeRx. quarter, the company surpassed its previ-
savings solution checks eligibility and deliv- For 2017, revenue hit a record $12.1 mil- ously announced gross margin goal of 55%.
ers an offer to the prescribing physician. The The management team expects to exceed
voucher or coupon is then printed for the this margin goal again in the second half of
patient to present to their pharmacist or is the year as the company scales.
sent along with the prescription electroni- Driving this growth is the record addi-
cally. tion of new pharmaceutical brands on the
By delivering patient savings and clinical platform, fast-growing digital health mes-
content from pharmaceutical manufacturers saging volume sponsored by these brands,
and an expanding distribution channel of
EHRs and ePrescribing systems. The com-
pany’s recent entry into hospital systems
and physical decision support is expected
to fuel this growth even furtherIn In just
the last yeaockOPhasmore thly tripleIt The
stock climbed above $.1010 per share 5x 8x
average daird volume the day afthisits recent

www.stocknewsnow.com MicroCap Review Magazine 15


OptimizeRx Digital Health Messaging Platform
Pharma communicates directly  Reminds physicians about  have begun to cross-traid their respective
with physicians via on‐screen  recommended tests or 
brand messages. procedures or eCoupon savings. sales and support team, and responding to
sales opportunities. Revenue from this new
Can be specific to therapy 
being evaluated.
Helps physicians remember 
to take actions that deliver  international effort is expected to ramp up
better patient care.
in 2019.

7
PLATFORM DEVELOPMENT

quarterly report. But according to company once the market fully adopts this channel. OptimizeRx continues investment in the
CEO, William Febbo, they have only just “Using our digital health platform, major underlying technology that powers it solu-
begu pharma brands are discovering that the tions and is investing in a broader data
“We believe we are in the earlier days of point-of-care, where the patient and doctor strategy. It has hired new technical leader-
this opportunity with a huge first-mover are directly engaged, is now the most effec- ship and increased the size of its software
6
advantage and are truly a pure play in this tive space for them to communicate their development team.
space,” said Febbo. “We have advanced tech- message,” said Febbo. A new data warehouse represents the
nological infrastructure in place at the right As personalized medicine grows in popu- underpinning of a new reporting and data
time in this industry sea-change, where we larity and specialty treatments are more com- analytic capabilities that will provide valu-
are able to reconnect pharmaceutical manu- monly prescribed, platforms like OptimizeRx able insights to its customers. These changes
facturers and physicians in a seamless, effi- that exist at the point-of-care will be the are expected to support future growth, pro-
cient way, and generate high-ROI for our greatest technology-based enablers of com- vide recurring revenue, and significantly
pharma customers.” munication between the pharma industry enhance the company’s value proposition.
For the second half of 2018, Febbo says and healthcare professionals. “In this way, we “Investments in our growth initiatives
the company will remain focused on revenue are becoming an increasingly critical com- may result in quarterly fluctuations in prof-
generation from core products and expand- ponent for improving outcomes and reduc- itability,” noted company president, Miriam
ing its channel and partner networks both ing costs throughout the healthcare system,” Paramore, who has been leading these
domestically and internationally. “We see added Febbo. efforts, “but our shareholders can expect
doing this while maintaining strong gross these investments to drive further strong
margin as we scale,” noted Febbo. MARKET EXPANSION topline growth and margin expansion while
sustaining our position as the clear market
MULTI-BILLION DOLLAR OptimizeRx plans to use a portion of the pro- leader.”
OPPORTUNITY ceeds from a recent $9 million raise to make Any way you look
additional sales and channel investments for at it, the company’s
Of the 2 billion ePrescriptions transmitted expanding further into its core ambulatory current and in-
annually, 10% of these transactions involve market where it continues to demonstrate development solu-
brands with a co-pay savings program. This high ROI for pharma marketing spend.yIt tions have tremen-
means OptimizeRx has the potential to also plans to further expand into the hospital dous market poten-
deliver more than 200 million transactions market, a new channel for OptimizeRx that tial. This potential is President Miriam
annually. also represents a significant growth opportu- being realized more Paramore
Given the escalating cost of healthcare nity. The company recently partnered with and more every day as OptimizeRx expands
and especially the cost prescriptions being UK-based Patient Connect, representing the its client base and channel reach, and inte-
shifted increasingly to patients, the need company’s first expansion into Europe. This grates deeper within the ePrescription work-
for co-pay saving programs is expected to strategic alliance will expand distribution flow and point-of-care. n
increase. The pharma industry has report- of OptimizeRx’s digital health messaging to
edly set aside more than $8 billion to cover millions of new healthcare providers and For more information, please visit:
co-pay programs. patients through Patient Connect’s interna- www.OptimizeRx.com
Based on these factors and indicators from tional pharmacy and EHR networks.
CONTRIBUTING PHOTOGRAPHERS
OptimizeRx clients, agencies and partners, Patient Connect’s European pharma clients
Isabella Febbo and Tito Febbo
the company estimates its total addressable can now also take advantage of OptimizeRx’s
market is worth well north of a $1 billion EHR network in the U.S. eThe companies
The company paid consideration to SNN or its affiliates for this article.
16 MicroCap Review Magazine www.stocknewsnow.com
Tsx-V: GrG / oTcQB: GarWF / FranKFUrT: G6a
P R O F I L E D C O M PA N Y

Golden arrow resources corporation

G olden Arrow Resources Corporation


is an exploration company with a suc-
cessful track record of creating value by
making precious and base metal discoveries
and advancing them into exceptional depos-
its. Golden Arrow owns a 25% share of Puna Brian McEwen PGeol.
Operations Inc, a joint venture company VP EXPLORATION & DEVELOPMENT
operated by SSR Mining, an experienced Mr. McEwen is a professional geologist with
precious metals miner. Puna Operations more than 30 years of exploration and pro-
is producing silver concentrate from the duction experience in open-pit and under-
Pirquitas operation and developing the near- ground mining projects and operations. The
by Chinchillas silver project, which has more extent of his experience is global in managing
than 8 years of forecast production and numerous projects in Canada, US, Europe,
upside potential. Asia, Africa and throughout Latin America.
Mr. McEwen›s previous roles include more
WhY arGEnTina than a decade with MRDI (AMEC Peru)
where he was responsible for project man-
Management at Golden Arrow considers agement, economic resource and reserve
Argentina to be an under-explored country calculations for various precious and base
with highly promising geological potential metal companies worldwide, including BHP
stemming from its direct border with some Billiton, CM Antamina, Teck, Hochschild
of the world’s most prolific mining areas and Phelps Dodge among others.
including the El Indio belt, the Maricunga
belt and the Bolivian silver-zinc-tin belt. Alf Hills
  Management’s long tenure in Argentina DIRECTOR
and positive track-record of community and Alf Hills has over 35 years of international
government relations has led to Golden mine evaluation, development and opera-
Arrow’s portfolio of projects containing Argentina was instrumental in attracting a tional experience. From 2006 to 2013, he was
over 200,000 hectares of properties. These premier team which led to the acquisition of the CEO and a director of Kobex Minerals Inc.
projects are strategically located near major key properties in Golden Arrow’s portfolio. and its predecessor company, International
mines and within well-known mining dis- He has successfully formed strategic alli- Barytex Resources. Prior to that he spent 26
tricts. ances and negotiated with mining industry years with the Placer Dome group. He was
majors such as Barrick, Teck, Newmont, involved in the development of the CIM Best
KEY ManaGEMEnT Viceroy (now Yamana Gold) and Vale S.A., Practice Guidelines for Mineral Resource
and government officials at all levels. Mr. and Mineral Reserve Estimates. Mr. Hills
Mr. Joseph Grosso Grosso’s specialty is financing, negotiations, is registered as a Professional Engineer and
EXECUTIVE CHAIRMAN, CEO & corporate and marketing strategy, and he is a graduate of the University of British
PRESIDENT was an early and passionate adopter of best Columbia in Mining and Mineral Process
Mr. Grosso became one of the early pioneers practices in environmental protection and Engineering. n
of the mining sector in Argentina in 1993 socio-economic development through min-
when mining was opened to foreign invest- eral exploration. He is the founder and For more information, please visit:
ment, and was named Argentina’s ‘Mining president of Grosso Group Management Ltd. www.goldenarrowresources.com
Man of The Year’ in 2005. His knowledge of
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 pinK: UcLE

Us nuclear corp.
G ood News for Cancer and Heart Disease Patients: US
Nuclear Partner Achieves Critical Milestone Proving
New Way to Fill Multi-Billion/Year Shortage of Radioisotopes
for Diagnostics and Treatments
• The National Academies of Sciences, lion procedures using radioisotopes are per-
Engineering and Medicine warns formed each year. They are injected into the
about severe shortages of radioiso- body to facilitate those targeted and whole
topes that are required to non-inva- body scans to enable doctors to determine
sively diagnose heart disease, cancer, (without the use of invasive, risky and costly
other health issues, and to treat over exploratory surgery) whether the heart and
half of all cancers cardiovascular system has adequate blood
• Radioisotopes are largely made in flow; whether cancer has spread to a patient’s
only 5 outdated and unreliable nucle- bones or elsewhere; and to help diagnose
ar fission reactors that are all located gallbladder, kidney, thyroid, nerve, brain
outside the United States disorders, and more. When delivered into a
• Supply chain effects not yet known malignant tumor, isotopes can kill the cancer
as major radioisotope supplier, NRU cells minimizing damage to nearby healthy
Chalk River Reactor, was permanent- tissue.
ly shuttered a few months ago and is Worldwide shortages of radioisotopes
now being demolished are already impacting the quality of health-
• US Nuclear and their partner care globally and experts warn about the
MIFTEC Laboratories, have devel- likelihood of further deterioration until a
oped a revolutionary new way to major new source for supply comes on line.
produce large quantities of radioiso- Because they are largely produced in very
topes at about half the cost of today’s expensive and outdated nuclear fission reac-
outdated and unreliable methods tors, the availability of radioisotopes is sus-
• Critical “1010” milestone toward pro- ceptible to unexpected shut downs such
ducing radioisotopes recently achieved as the recent breakdown and closure of
by MIFTEC at University of Nevada, the Lucas Heights radioisotope producing
Reno National Terawatt Facility nuclear reactor in Australia and the perma-
nent closure of the big Chalk River NRU
Medical isotopes are minute amounts of Canadian reactor.
radioactive substances commonly used to An example of the extraordinarily high
diagnose and treat cancer, heart disease and costs to build a nuclear fission reactor today,
Bob Goldstein, CEO a variety of health issues. Over 40 mil- and the equally challenging length of time

18 MicroCap Review Magazine www.stocknewsnow.com


isotope generators for North America and
Asia, and makes US Nuclear a sales rep-
resentative for all MIFTEC products. The
agreement also makes US Nuclear a 10%
equity owner in MIFTEC with the potential
to increase its stake in the near future.
With US Nuclear being designated as
the exclusive manufacturer of the MIFTEC
isotope generators, US Nuclear expects to be
a major market participant in the US$10B
worldwide industry upon reaching final test-
ing and implementation. 
A recent press release from US Nuclear
states:

“We are proud of the many accomplish-


to build one is Georgia Power’s newest twin Now There is Good News ments reached to date, including:
Vogtle reactor that may top initial esti- for Cancer and Heart • US Patent issue for radionuclide
mates of $14 billion and reach  $21 billion, Disease Patients production using Z- pinch neutron
according to recent Georgia Public Service source.
Commission testimony. The first two Vogtle US Nuclear Corp.’s partner, MIFTEC • Ongoing collaborations with the
Units begun in 1971 took 18 years to build Laboratories, Inc., has discovered a revolu- University of California, San Diego
and were a decade over schedule at a final tionary new way to make commercial quan- and the University of Nevada, Reno
price of $9 billion — ten times the original tities of radioisotopes in their fusion power National Terawatt Facility for labora-
budget. generators. The fusion based method they tory experiments and advancement
The Journal of Nuclear Medicine are developing is simple, safe, and cost effec- of MIFTEC technology
Technology says, “The production of medi- tive.  It uses an isotope of hydrogen as fuel,
cal isotopes is in crisis and is built on a house which is derived from seawater, and is simple, And planned actions:
of cards; adequate production is dependent safe, and cost effective compared to the cur- • Planned production of Mo-99 using
on 5 aging nuclear reactors that are being rent method of using highly enriched or low the safe, efficient, environmentally
stretched beyond their lifetime operational enriched uranium (HEU/LEU) that results in friendly and scalable Staged Z–Pinch
capacities. In 2008, the president of the dangerous, long-term radioactive byproducts. technology, producing no long-term
Society of Nuclear Medicine stated that the Jerry Simmons, MIFTEC CEO says, nuclear waste
United States and other countries are not “Neutron flux of 1012  is required to make • MIFTEC technology with expected
prepared to adequately deal with a shortage radioisotopes in commercial quantities, and capability of providing the nuclear
crisis, nor could they anticipate or prevent the exciting achievement of 1010 by Dr. Hafiz medicine industry with on-site iso-
additional shortages. Since 2007, as reactor Rahman, President and Chief Scientist and tope production at a cost savings of
shutdowns have occurred, nuclear medicine his staff at MIFTEC Labs and the University up to 50% of current facilities.”
practitioners throughout North America of Nevada, Reno National Terawatt Facility,
and Europe, in particular, have needed to tells us that our scientific predictions and Bob Goldstein, the CEO of US Nuclear,
ration medical isotopes, cancel or postpone device will work as designed. MIFTEC’s graduated from MIT with a degree in
procedures, and pay higher costs for medical larger and more powerful machine currently Physics and also has a degree in Engineering
isotopes. This has created ethical problems in the design phase is expected to achieve, from Stanford. He has authored more than
surrounding beneficent care for patients, and even surpass, the minimum parameter 40 white papers and presentations on radia-
and rationing decisions are frequently being of 1012 for radiopharmaceutical production.” tion measurement and his work has been
made by individual practitioners who may US Nuclear Corp. and MIFTEC recently met and approved by US Federal  standards
not have sufficient knowledge or expertise in signed a definitive agreement which formal- set by the EPA, FDA, and NRC.  He also
effective and sound priority-setting frame- ly names US Nuclear as the exclusive manu- works closely with Los Alamos, Sandia and
works.” facturer of MIFTEC’s revolutionary medical Jefferson National Labs. His  family’s  first

www.stocknewsnow.com MicroCap Review Magazine 19


number of nuclear power plants to produce
electricity (none planned to produce radio-
isotopes), the demand for radiation moni-
toring devices also grows.
Other large opportunities for US Nuclear
are their unique products recently offered for
radon mitigation in homes and offices and
the use of drones to mount their sophisticat-
ed monitoring devices. Radon is commonly
found in many homes and is one of the lead-
ing known causes of lung cancer. Goldman
Sachs sees the drone market growing to a
very large size by 2020.
In conclusion, US Nuclear is enjoying
strong growth from its core business, and on
experiences in nuclear physics go back to the for new and sustained growth spawned a top of that, is well positioned to become a
1940’s when  his father was involved in the sales increase of 50% with several new very dominant supplier in a multi-billion-dollar
historic Manhattan Project that developed large opportunities blossoming in the large healthcare market of radioisotopes.
the atomic bomb. and underserved radioisotope market, and Goldstein says, “Given the failing state of
Mr. Goldstein founded US Nuclear and the environmental monitoring market that is essential medical isotope production facili-
is known for delivering the most sensitive, forecast to hit $20 billion by 2021. For exam- ties, this first-ever achievement to meet and
accurate and reliable instruments in the ple, China is converting all of their coal- exceed the 1010 milestone in fusion neutron
world. The quality of their work is con- fired power plants that are responsible for production could not come at a better time.
firmed by a list of loyal and repeat custom- dangerous polluted air and water, to about Additionally, the projected cost savings of up
ers such as NASA, the EPA, Department of 200 fission nuclear reactors that all require to 50% over the current imported resources;
Energy, U.S. Air Force, U.S. Army, U.S. Navy, the best radiation monitoring equipment in the idea of on-site production; the low cost
MIT, Pacific Gas & Electric, General Electric, order to insure safety. The Chinese nuclear and shorter time to build the generators, and
Lawrence Livermore, Oakridge National Lab agency claims that each individual nuclear the environmental benefit of a non-prolif-
and many more. power plant requires about $8,000,000 in the erating process that precludes the hazards
US Nuclear has enjoyed a long-standing highest quality and most reliable radiation of fission-based methods; should make for
financial history of stable sales and modest monitoring devices. With World Nuclear important upgrades ahead in the vital medi-
profitability, but in 2017 the perfect storm Power Organization’s forecast for a growing cal isotope supply chain.” n

For more information, please visit:


www.usnuclearcorp.com
US Nuclear has enjoyed a long-standing financial
history of stable sales and modest profitability, but
in 2017 the perfect storm for new and sustained
growth spawned a sales increase of 50% with
several new very large opportunities blossoming
in the large and underserved radioisotope market,
and the environmental monitoring market that is
forecast to hit $20 billion by 2021.

The company paid consideration to SNN or its affiliates for this article.
20 MicroCap Review Magazine www.stocknewsnow.com
AC C O UN T IN G COR N ER

There’s a New SEC in Town

“T
here’s a new Sheriff in Town.” That was fully on display when the SEC attestation of the adequacy of a company’s
Those are words that have Commission adopted amendments earlier internal financial statement and disclosure
sent chills up the spines of this year that changed the definition of a controls -- something deregulation advo-
micro- and small-cap companies for almost “Smaller Reporting Company (SRC);” a fil- cates wanted changed, but did not happen.  
a decade. But the winds have shifted. ing status that requires less reporting com- Upon adoption of the new rules, Chairman
Companies can take a breath of fresh air. pliance. Simply said, a lot of bigger com- Clayton said, «Expanding the smaller report-
Major regulatory change is happening, but, panies will now be smaller companies in ing company definition recognizes that a
it’s OK. the eyes of the SEC. And, that’s a very good one-size regulatory structure for public com-
Nowhere is that more evident than at the thing. panies does not fit all. These amendments to
Securities and Exchange Commission, where Under the SEC’s new definition, a com- the existing SRC compliance structure bring
its recently seated chairman, Jay Clayton, has pany now can qualify for SRC filing status if that structure more in line with the size and
set into motion a new way of doing business. it has public float of  less than $250  million scope of smaller companies while maintain-
More conscious of the intended as well as the (formerly $75 million) or alternatively, if ing our long-standing approach to investor
unintended consequences of its actions, the it has less than $100 million (formerly $50 protection in our public capital markets.»
new SEC is fully committed to protecting the million) in annual revenues and a public It is encouraging to hear the head of a
public, but intends to so without chocking float of less than $700 million (formerly no regulatory agency speak about fostering eco-
the life out of the capital markets. Both are public float). nomic growth and more efficient markets
possible. Companies that qualify as a SRC do not while concurrently committing to protecting
need to comply with the stiffer disclosure the public. It is a very different posture for an
rules required by their larger company breth- agency that for too long measured its success
ren. The scaled disclosure requirements  for by the number of its enforcements and the
smaller reporting companies permit less fines it collected.
extensive narrative disclosures, particularly Unlike many of his recent predecessors,
in the description of executive compensa- Chairman Clayton comes to the position
tion. It also permits them to provide audited from the business community, not as a for-
financial statements for two fiscal years, mer prosecutor. It should not be surprising
instead of three. that he would seek solutions in the market-
Although qualifying as a SRC does not place rather than the courthouse. n
automatically make a registrant a non-accel-
Corey Fischer, CPA, is Firm Managing Partner of
erated filer, Mr. Clayton has directed his
Weinberg & Company, a multi-office, PCAOB and
staff to formulate recommendations to the CPAB-Registered firm specializing in the audit,
Commission for possible additional changes assurance and tax needs of micro and small cap
companies.  He has more than 25 years of experi-
to the “accelerated filer” definition that, if ence, having worked with the Big 4 accounting firms,
adopted, would reduce the number of accel- and as an SEC reporting officer for a number of
NASDAQ-listed companies.  Based in Los Angeles,
erated filers and provide a healthy reduction
he is an expert in financial reporting, SEC compli-
in compliance costs.   ance, raising debt and equity, mergers and acquisi-
Until that happens, it should be noted that tions and structuring accounting operations.
E-mail: coreyf@weinbergla.com or 310-601-2200.
changing filer status to smaller reporting Visit www.weinbergla.com
company does not necessarily exempt com-
panies from section 404(b) of the Sarbanes-
n BY COREY FISCHER, CPA Oxley Act, which requires an auditor’s

www.stocknewsnow.com MicroCap Review Magazine 21


P R O F I L E D C O M PA N Y nasdaQ cM: MTBc

Medical Transcription Billing corp.


Consolidator in the Healthcare IT Market

M
ost people don’t think about
the Healthcare IT market very
often, but it plays a crucial role
in the U.S. healthcare system. Every patient
encounter needs to be documented in a way
that ensures privacy but allows all health-
care providers to access relevant informa-
tion on a patient. Equally as important, the
charges need to be billed in a timely manner, MTBC (Nasdaq: MTBC)(Nasdaq: utilizing a team of low-cost, highly skilled
with sufficient support to ensure payment MTBCP), based in Somerset, NJ, was start- employees in the Company’s offshore loca-
is prompt and reimbursement maximized. ed in 1999 by a former American Express tions, including more than 300 IT and R&D
Finally, healthcare IT is the key to reducing executive, Mahmud Haq, based on the needs team members. MTBC was small for a public
the estimated $90 billion of waste which he saw first-hand. His wife is an internist, company, but intent on growing organically
“administrative complexity” adds to annual and was the Company’s first client, and the as well as via acquisitions. The first two years
U.S. healthcare spending. business has since grown by focusing on as a public company were spent integrat-
There are more than 1,500 niche compa- improving outcomes for doctors like her. ing the businesses acquired at the time of
nies providing healthcare IT services similar The business went public on Nasdaq in July, the IPO. “Management focused on building
to MTBC, none of whom have a market 2014, acquiring three smaller competitors on a scalable platform and doing a series of
share greater than 5%. The sector is highly the day of the IPO. smaller acquisitions to perfect its integration
fragmented and cluttered with competitors The vision was simple. MTBC developed process without diluting investors, which is
that lack viable business models. This is an an integrated technology platform, includ- important to us since our executive team
attractive opportunity for a consolidator ing the electronic health record used by and board together own approximately 50%
like MTBC, which offers an industry leading doctors, a practice management system to of MTBC’s common stock”, stated Bill Korn,
software platform, an experienced and cost- schedule patients and check insurance eli- Chief Financial Officer.
efficient team, and a strong track record of gibility, mobile apps for the doctors and The late 2016 acquisition of MediGain, the
acquiring and integrating companies in this patients, coupled with a revenue cycle man- largest before Orion, helped the Company
sector. agement (a.k.a. medical billing) solution, demonstrate proof-of-concept as it success-

Bill Korn, CFO

22 MicroCap Review Magazine www.stocknewsnow.com


acquisitions, during which it has duplicate
expenses which depresses adjusted EBITDA.
So management has provided guidance to
expect adjusted EBITDA for the whole of
2018 to be $4 ‒ $5 M.
The Orion acquisition opens multiple new
complementary lines of business, including
the following:
• Practice management. MTBC
now manages medical practices through
multi-decade management services agree-
ments. The Company employs nurses, medi-
cal assistants, receptionists, practice man-
agers and other practice personnel in five
locations. This is an attractive new line of
business and may provide opportunities for
growth in the future.
• Group purchasing organization.
MTBC now enables thousands of physicians
to purchase vaccines from leading phar-
maceutical companies at discounted rates.
profitability, MTBC was ready for another As they purchase discounted vaccines, the
major acquisition”, added Bill Korn. Company generates referral fees from its
On July 1, 2018 MTBC closed its biggest pharmaceutical industry partners. In the
acquisition to date, acquiring the assets of coming months, MTBC expects to make this
Orion Healthcorp, Inc. and 13 of its affiliates service available to all existing customers
(together “Orion”), in an all cash closing for and investing marketing and sales resources
$12.6 million, thereby avoiding dilution and to expand the user base, while also cross-
debt. The Orion transaction, which repre- selling its other solutions.
sents more than twice the potential revenue • Niche hospital services. MTBC
of MediGain at a very attractive price, is an now provides innovative solutions to com-
even more compelling opportunity to add munity hospitals that are beyond the scope
value for shareholders. of its traditional revenue cycle management
“The Orion deal marks an inflection point offerings. For example, with the Orion acqui-
for MTBC in several ways,” explained Bill sition, the Company now has employees who
Korn. “It will nearly double the Company’s work onsite at hospitals to assist clients and
fully integrated the acquired assets, signifi- size. We expect revenues in the second half of their patients in effectively addressing insur-
cantly enhanced the acquired division’s core 2018 to be $32 ‒ 33 M, compared to $17 M in ance eligibility and related needs. MTBC’s
technology and operations, and eliminated the first half of 2018. This will bring MTBC employees also provide other unique con-
its losses as it began generating positive to a scale where we expect to be significantly sulting and revenue cycle management solu-
cash from operations and adjusted EBITDA increasing our profitability in the future.” tions to hospital clients. “We look forward
within six months. “We did this by transi- MTBC generated positive adjusted to offering these unique solutions to our
tioning work from MediGain’s five offshore EBITDA for the last five quarters, once the existing hospital revenue cycle management
subcontractors into our operations, improv- Company was able to reduce costs from the clients and exploring additional opportuni-
ing service while reducing costs. We turned MediGain acquisition. Adjusted EBITDA for ties for growing this line of business,” stated
several large clients, who were unhappy the first half of 2018 was $2.5 million, which Stephen Snyder, Chief Executive Officer.
with the quality of work being performed by was more than adjusted EBITDA for the full Since Orion brings MTBC new services,
MediGain’s subcontractors, into happy, long- year 2017. Typically, the Company allocates it opens the door to cross-selling oppor-
term clients. A year later, generating record six months of time to integrate major new tunities. For example, MTBC could offer

www.stocknewsnow.com MicroCap Review Magazine 23


the discounts of its new group purchasing ages artificial intelligence to provide “smart” MTBC has financed its recent acquisi-
organization to existing clients, and offer navigation and contextual responses to phy- tions by selling shares of its publicly-traded
revenue cycle management and electronic sicians’ queries to reduce administrative bur- non-convertible preferred stock (Nasdaq:
health records to its GPO members. The dens and improve the patient experience. MTBCP). Bill Korn explained: “the pre-
Company can market its new hospital ser- Mahmud Haq, MTBC’s founder and ferred shares, originally issued in November
vices to its existing hospital clients. Executive Chairman stated “our vision with 2015, pay monthly cash dividends at an
Another promising source of future Allison is to enable healthcare providers to 11% annual rate. Preferred shareholders are
growth will be talkEHR™, MTBC’s next gen- practice more efficiently and deliver a higher comfortable with our track record of mak-
eration SaaS EHR solution, which utilizes level of patient care. talkEHR is offered com- ing monthly dividend payments for near-
natural language processing and artificial pletely free of cost to U.S. healthcare provid- ly three years, and common stock holders
intelligence to automate key components of ers. talkEHR users are also eligible to upgrade appreciate that there is no fixed redemption
patient charting and reduce manual tasks to MTBC’s premium, end-to-end medical requirement, no covenants to jeopardize the
and errors. talkEHR features Allison, a billing solution, which is offered at one of the Company, and that the preferred shares are
voice-activated virtual assistant that lever- lowest price points in the industry.” NOT convertible, so they minimize dilu-
tion.” Having two Nasdaq-traded securities
gives MTBC more flexibility with financing
than most small cap businesses.
For more information about MTBC,
please visit ir.mtbc.com/events. You will be
able to listen to videos by the management
team, download the investor presentation,
or listen to the most recent earnings call. n

For more information, please visit:


www.mtbc.com

This article may contain forward looking statements.


See MTBC’s periodic filings with the Securities and
Exchange Commission for more complete information.

The company paid consideration to SNN or its affiliates for this article.
24 MicroCap Review Magazine www.stocknewsnow.com
P R O F I L E D C O M PA N Y
Tsx: FcU / oTcQx: FcUUF

Fission Uranium corp.


Focus on Acquisition and Development of Minerals
Properties in Canada’s Athabasca Basin

F
ission Uranium Corp (Fission) junior now focusing on developing the proj-
is a mineral exploration company ect after making the discovery in 2012. The
engaged in the acquisition and devel- company completed a robust preliminary
opment of evaluation assets. Fission discov- economic assessment (PEA) in 2015 high-
ered and owns the award-winning PLS proj- lighted by a $1.02 billion after-tax net pres-
ect located in the world’s most prolific region ent value at a 10% discount rate and a 34.2%
for high-grade uranium - the Athabasca after tax internal rate of return, assuming a
Basin in Northern Saskatchewan, Canada. long-term price of u308 at $65/lb. Currently,
Fission is one of, if not the most, successful Fission is working toward a prefeasibility
exploration companies in the uranium sec- (PFS) and expects that to be released some-
tor led by a highly decorated team including time before the end of 2018.
Dev Randhawa, CEO
CEO and Chairman Dev Randhawa and Many tangibles and intangibles separate
President, COO & Chief Geologist Ross Fission from its uranium counterparts. From
McElroy. a project perspective, the deposit is located
PLS contains the Triple R deposit which near surface and is shallow which enables
includes five mineralized bodies and approx- the company to develop a cost-effective,
imately 140 million lbs (indicated and hybrid mine plan utilizing both open pit
inferred) of uranium making it one of the and underground methods. Another key
largest undeveloped discoveries in history. tangible of the project is how rich the deposit
Fission is classified as an advanced stage is, which again, is attributed to being in the

www.stocknewsnow.com MicroCap Review Magazine 25


Athabasca basin. Global uranium grades
are approximately 0.20% u308, while the
Athabasca basin is host to approximately
2% u308 – a staggering ten times more valu-
able. The province of Saskatchewan is also
a mining friendly jurisdiction, evidenced by
the Fraser Institute consistently ranking it
in the top three jurisdictions globally. This
point should not be discounted as govern-
ments globally have been known to add risk
and uncertainty to projects often moving
the goal posts and subsequently creating
capital destruction. This isn’t the case in
Saskatchewan as there is a 60-year history of
extracting uranium from the province, pri-
marily from the eastern side of the Athabasca
basin. In addition to that, this area has roads,
water and existing infrastructure which will
eventually aid in lowering overall costs.
Fission’s management team is in a league or there, this team has proven their expertise Kepco of Korea through Fission Energy
of their own when is comes to mineral explo- by taking a shell in 1996 called Strathmore Corp.
ration and development. While many market Minerals and turning it into four existing Management, jurisdiction, government,
participants and conventional wisdom was companies today. technical teams, and geology are all very
focused on the eastern side of the basin – an Fission’s success has not gone unnoticed important, but the spot price of uranium
area that has been host to the world’s richest by sophisticated investors and strategic part- ultimately sets the market and things have
uranium mines, Fission thought outside the ners. In Randhawa’s and McElroy’s previ- been unsustainable for a while now creating
box. The company came up with an innova- ous companies they built the trust of some a perfect storm for investors. The industry’s
tive strategy to fly an airplane directly above industry giants and savvy resource investors. average all in cost is roughly $40 - $45 per
the tree canopy covering the western edge Specifically, Rick Rule and his team at Sprott pound u308. Uranium prices have not been
of the basin using radiometric and magnetic are believers in Fission and are existing achieving their cost of capital for at least five
surveys. This technology and strategy yield- shareholders. For any investor unfamiliar years, as the spot price has been below $45/
ed a boulder field that eventually Fission with Rick Rule, he claims to have made his lb since 2013 and was as low as $18/lb in Q4
tracked back to the west shore of Patterson initial life changing fortune from a previous 2016. How is that even possible one might
Lake. On November 5th, 2012, Fission had uranium bull market (more on that later). ask? Uranium is unique in that buyers are
discovered Triple R and have not looked On the institutional side, Randhawa and typically utility companies procuring supply
back. Randhawa and McElroy had cre- McElroy have a history of making a discov- for base load power, also known as the power
ated wealth changing shareholder value once ery, finding an Asian partner to invest and grid, as well as governments for matters of
again, for the fourth time. Management’s develop the project, and then later sell it. national security. These buyers secure sup-
experience is fundamental in mining and With Fission, the erudite Chinese General ply by buying long term contracts at fixed
mineral exploration due to the inherit boom Nuclear Power Group (CGN) became a prices directly from producers, historically
bust cycles commodities experience. Fission’s 19.99% owner with a massive CAD $82.2 between five and ten years. If buyers secure
experience is second to none as Randhawa is million-dollar deal in Q4 2015, paying a 25% enough supply for the next 5 – 10 years, the
a 22-year veteran CEO in the uranium space, premium to the share price at the time mark- spot market can become irrational and an
while McElroy has made been involved in ing the first time a Chinese company directly unrealistic proxy for the market. To give
five major discoveries already in his 30-year invested in a Canadian uranium company. you a quick sample of spot prices in recent
career including two for Fission. Mineral Déjà vu all over again as this is exactly history, in the early 2000’s the price was less
exploration is arguably the hardest ‘game in what this team did with previous exploration than $10 dollars per pound. By 2007 prices
town’ and despite anecdotal evidence that and development assets such as Sumitomo peaked at almost $140/lb, while today they
may suggest there should be a deposit here of Japan through Strathmore Minerals and rest at approximately $25/lb. This volatility

26 MicroCap Review Magazine www.stocknewsnow.com


power is a necessity. Secondly, the world is
pushing for a ‘greener and cleaner’ mandate
of which uranium can support because reac-
tors do not emit any carbon like other cheap
forms of base load power such as coal. Third,
it is a very cheap form of energy separating
itself from other substitutes such as renew-
ables that are significantly more expensive
that also absorb large land masses. Quite
simply nuclear reactors are efficient, reliable,
cheap, and clean.
The fundamentals for uranium have final-
ly crossed as 2018 will mark the first-year
demand has outstripped supply by a mean-
ingful margin, suggesting the lengthy bear
market is over and a new bull is a born. Due
to the overinvestment made by utilities at
peak prices roughly a decade ago a glut of
inventory in the secondary market pushed
can be attributed to both the long-term con- Uranium is often associated with the stig- the spot price from $140/lb to where it is
tracts, as well as how little uranium fuel rods ma of nuclear warheads and weapons of today but those inventories have been drawn
represent in the cost of running a nuclear mass destruction, but that is an elementary down to levels requiring action from market
reactor. Fuel rods (enriched uranium) have viewpoint completely missing how vital this participants. Couple that with the fact most
historically accounted for roughly 2% - 5% metal is to humankind and the accustomed of the long-term contracts are maturing in
of running a nuclear reactor, thus the market higher standard of living experienced in the next few years and you have the potential
fosters these surpluses and shortages that today’s world. As an example, many would for a ‘rip your face off ’ bull market where the
directly distort the spot market like we see be surprised to know that 20% of U.S. elec- price slingshots back to sustainable levels,
today. From an investors standpoint how- tricity is sourced from nuclear reactors. putting the industry back into equilibrium.
ever, this should be seen as an opportunity On a global scale, uranium still supplies Much of this demand can be credited to
as not a single producer, or future producer between 15% and 17% of electricity and has both the numbers of new reactors being built
regardless of how rich the grade is would be maintained that weighting despite the recent globally right now, predominately in India,
able to make money sub $40 dollars. This advancements from other forms of energy. China and Saudi Arabia. That is in addition
does not factor profit margins required for Uranium is an attractive energy source for to the record number of reactors operating
future investment which is paramount in several reasons. First, it is a form of base load globally right now.
creating a sustainable market for exploration power – an attribute “in vogue” renewables After a very difficult past decade the ura-
and development when demand increases. do not possess such as wind and solar. For nium market presents an accretive oppor-
In other words, the uranium spot price in many heavy populated areas of the world tunity for investors looking for value or
inelastic. that experience rolling blackouts, base load diversification in their portfolios. Prices are
at unsustainable levels for both explorers and
producers at a time when demand is out-
The fundamentals for uranium have finally stripping supply, which is what value inves-

crossed as 2018 will mark the first-year demand tors should look for when allocating capital.
Fission Uranium has a world class asset, with
has outstripped supply by a meaningful margin, an award-winning team, in a stable jurisdic-
tion, in the biosphere’s most fertile region for
suggesting the lengthy bear market is over and a high grade uranium deposits. n

new bull is a born. For more information, please visit:


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

www.stocknewsnow.com MicroCap Review Magazine 27


AUSTRALIA CORNER

Undiscovered Down Under


T he Australian equity market provides a plethora of undiscovered microcap companies for US investors
who invest time researching stocks listed on the Australian Securities Exchange (ASX).
This piece provides a brief overview of the 5 years. starting to converge around a small
Australian microcap market and highlights The incumbent ASX CEO Dominic group of stocks leaving others with
6 ASX microcap stocks which exhibit some Stevens has endeavored to a drive an increase only one broker providing coverage
of the diversity, found on the ASX. in the number of international stocks listed or no broker coverage at all.
on the ASX. In an attempt to showcase the
asx Microcap MarKET ASX as an alternative listing venue to either incrEasinG inForMaTion
oVErViEW the Nasdaq or the AIM in London. He has, I asYMMETrY
would say had moderate success and a num-
The ASX has circa 2,100 stocks listed on ber of international microcap stocks have This dearth of coverage by the broking com-
the exchange. The S&P/ASX 200 Index is listed on the ASX in the last 2 years. These munity means there is an increasing level of
widely used as the main barometer for the stocks have come primarily from the US, information asymmetry to be exploited in
performance of the Australian equity market. Israel and Europe. order to generate alpha for investors.
However, outside of the top 200 largest stocks I can also point to some empirical evidence
is an extremely long tail of microcap stocks LacK oF BroKEr rEsEarch to back up this assertion. The S&P Dow
for investors to delve into. Microcap stocks, Jones SPIVA Scorecard for Australia is the
for the most part, are largely overlooked by Australian microcaps lack quality research gold standard in my view of tracking if active
both Australian and international investors. coverage from broking firms much like their managers as a cohort actually outperform
The ASX provides its own microcap index, US counterparts. Research coverage has their relevant benchmarks. While the SPIVA
the S&P/ASX Emerging Companies Index. actually been falling in the last few years scorecard does not segment Australian micro-
Comprising of 156 stocks currently with a medi- despite the good performance of microcaps cap equity funds as a specific cohort it does
an market cap of AUD$204m/USD$150m. The stocks versus large-cap stocks. segment Mid and Small-cap equity funds.
index is heavily weighted to both the materials An analysis conducted on the breath of The 2017 SPIVA Australia scorecard found
and technology sectors which make up 27.2% broker coverage for ASX microcaps stocks that 60% of Mid and Small-cap equity funds
and 15.7% of the index respectively. Other size- in 2017 found that outside the top 100 outperformed their benchmark on a ten-year
able sectors include Consumer Discretionary, ASX stocks approximately 70% of stocks basis. The equivalent US figure for Small Cap
Healthcare and Energy. The S&P/ASX Emerging have no current broker coverage whatsoever. equity funds was less than 5%.
Companies Indexes composition differs vastly Equating to roughly 1,400 ASX listed stocks IIR itself tracks the performance of 23 dif-
to that of the S&P/ASX 200 Index which has with no current broker coverage. ferent Australian microcap funds of which
a sector weighting of 33% to financials, caus- Research released earlier this year by 15 have a 3-year track record or longer.
ing the performances of both indexes to differ Goldman Sachs Australia highlighted some Within this subset, the average Australian
widely from each other. Notably, the S&P/ASX salient points about small cap stocks listed microcap fund manager returned 17.7%
Emerging Companies Index has outperformed on the ASX. I would contend the results annualized after fees over the last 3 years. 11
the S&P/ASX 200 Index over the last 1, 3 and would prove similar for ASX listed microcap of the 15 (73%) funds outperformed the S&P
stocks, if not even more pronounced. Emerging Companies Index which returned
• Stocks with less broker coverage had 15.8% annualized over the last 3 years.
lower valuations when measured on
a price to book or price to sales basis. six asx Microcap sTocKs
• The total number of stocks with any
broker coverage is falling. Scout Security (SCT: AU) Mkt Cap
• The total number of stocks with mul- AUD$14.7m is a US company newly listed on
tiple brokers covering them is also the ASX. SCT seeks to disrupt the residential
n BY MARK TOBIN
falling. In other words, brokers are security industry by retailing Wi-Fi enabled

28 MicroCap Review Magazine www.stocknewsnow.com


security cameras and associated products. world this marks a significant vote of confi- Mark Tobin Senior Analyst at IIR
Their products are then linked to a monitor- dence in VEE new product offering. After graduating with a Master’s Degree in
ing app on your phone. The monitoring app iSignthis (ISX: AU) Mkt Cap AUD$137m Economic Science from University College
requires a monthly subscription so SCT has provides remote online identity verification Cork in Ireland in 2004 Mark spent several
been building a recurring revenue base over and payment services to a host of e-com- years working as a hedge fund accountant both
time. SCT’s product integrates with Google merce and bricks and mortar merchants on the service provider side and the client side
Nest, Amazon Alexa and Samsung Smart both in Australia and Europe. It recently in Dublin, London and Sydney. During which
things. Its US resale partners include COPS became a principal member with Mastercard time he attained Fellowship of The Association
Monitoring & Zega. It also retails on Amazon for Australia following on from principal of Chartered Certified Accountants one of the
and is an Amazon Alexa portfolio company. member status with Visa and Mastercard largest professional accounting bodies in the
Fertoz (FTZ: AU) Mkt Cap AUD$19.1m in Europe. ISX received membership of the world. Mark then changed careers becoming a
is a US organic phosphate fertilizer company interbank SWIFT network and certification small cap equity analyst with highly respected
supplying the burgeoning North American for Eurosystem Central Bank facilities and Australian fund management group Wilson
organic farming industry. Fertoz exceeded account earlier in 2018. These developments Asset Management in Sydney. After a few
its goal of 10,000 tpa in sales for CY2018 by allow ISX to avoid having to overlay their years working in Sydney, Mark relocated to
the end of April 2018 and is targeting sales of services on partner bank infrastructure and South Africa for family reason and took up
100,000 tpa within the next 3 years. It is also networks. All which should improve ISX’s an opportunity to work at the coal face of the
working closely with organic cannabis grow- costs of goods sold moving forward. family food business so has actually worked in
ers in Canada ahead of regulatory changes PWR Holdings (PWH: AU) Mkt Cap small business and gained a day to day opera-
envisaged in that market in the next year. AUD$280m is a world leader in the design, tional perspective of what it is like to run a
Kip McGrath Education (KME: AU) Mkt development and production of automotive small company. Mark has been providing ASX
Cap AUD$26.1m is an elementary and high cooling solutions. PWH manufactures high- microcap consulting services to IIR for the last
school tutoring franchise providing individ- performance aluminum radiators, intercool- couple of years and is a regular contributor
uals with the opportunity to open their own ers and oil coolers. Its race cooling solutions to Australian financial media on microcaps.
tutoring business. KME currently operates are used by leading race categories and Mark maintains an extensive network of rela-
in Australia, New Zealand, United Kingdom teams such as F1, NASCAR, IndyCar, V8 tionships with Australian microcap fund man-
and South Africa. It has recently concluded Supercars and World Rally Championship. agers, brokers and companies in the Australian
a major capex expansion project for its PWH acquired US-based C&R racing in microcap space. n
core operating system and online tutoring 2015 and has invested AUD$3.5 to grow its
platform. KME is also working on the USA US business. The majority of PWH’s revenue For more information, please visit:
www.independentresearch.com.au
curriculum as part of a plan to enter the US comes from high-performance racing but is
market in the medium term. currently diversifying into the auto aftermar- Mark Tobin Disclosure
Veem (VEE: AU) Mkt Cap AUD$74m ket and OEM market with its products. Mark personally I don’t own or have never owned
any of the stocks profiled.
is a 50-year-old Australian company which  
recently listed on the ASX. VEE supplies pro- Conclusion IIR disclosure
IIR may have provided research services to some or
pellers, fin systems, gyrostabilizers and other
all of these companies in the past or may do so in
specialist components to an array of industries Hopefully, US investors will recognize the the future.
but primarily to shipbuilding companies. VEE latent opportunity which exists in ASX  
Regards
has a particular focus on gyrostabilizers for microcaps. Similarly, I believe it would be Mark Tobin
defence vessels and superyachts. VEE recently of great benefit to ASX microcaps to actively Senior Analyst
Independent Investment Research
concluded sea trials with Dutch shipbuilders engage with US investors given it is the larg-
Level 1, 350 George Street, Sydney, NSW 2000
Damen (2nd largest in Europe) for the use of est capital market in the world leading to a Sydney Ph: +61 (2) 8001 6693 Main
VEE’s new generation gyrostabilizers on one of mutually beneficial outcome. Sydney Ph: +61 (2) 8091 5216 Direct 

Damen’s new fast crew supplier vessels. Sea tri- Note:: This article  is informational in nature and
als were a success and Damen are progressing IIR Corporate Bio should not be construed as providing individualized
investment advice.  Investors are advised to conduct
commercial discussions with VEE on orders.
their own research and due diligence or seek the
Given that Damen delivers 160 vessels annu- For IIR I think we can use the previous bio advice of a registered investment professional. Both
ally, employs 10, 000 staff globally and supplies used in the Microcap Review Spring 2018 the Author and Ridgewood Investments disclaim any
liability from the use or misuse of this information.
vessels into 100 different market around the edition when John did his article.

www.stocknewsnow.com MicroCap Review Magazine 29


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P R O F I L E D C O M PA N Y asx: BUd / pinK: poTTF

Buddy platform Limited


ASX-listed microcap making spaces smarter around the world
monitoring solution is used by commer-
cial building operators, schools, hotels, and
others to simplify building operations and
provide peace of mind by harnessing real-
time utility and operational data to reduce

T
or mitigate risk, improve operations, savings
he Internet of Things (IoT) has and sustainability. The product is distributed
entered the mainstream vernacular around the globe by the world’s largest tech-
and its transformative effects can be nology distributor, Ingram Micro. The Buddy Ohm solution is made up of
seen across all industries and regions. One The backbone of Buddy Ohm is the Buddy IoT class hardware, secure and scalable
data infrastructure, an operations portal,
company, Buddy Platform Limited (“Buddy”, Cloud that enables ubiquitous access to and engaging occupant-facing dashboards
ASX:BUD), is tapping into the IoT to bring storage of data from any environment in and a mobile installation app.
simple and affordable solutions to its cus- support of smarter, healthier spaces. Any
tomers to increase energy efficiency, create spaces. Originally developed to connect aBoUT BUddY
smarter infrastructure and apply more pro- disparate systems within smart cities and
active, data-driven decision making. Based buildings, Buddy’s technology is now inside Buddy Platform Limited (BUD.ASX) provides
in Seattle – the global ground zero for cloud- Airstream’s 2019 Classic travel trailer coor- simple, affordable and engaging solutions for
tech, and featuring Microsoft Corporation dinating communication between the trailer, customers of any size to make their spaces
amongst its earliest investors and closest Buddy Cloud and the RV owner. It enables smarter and their occupants more efficient,
partners – Buddy is a prime vehicle for functions such as lighting, air condition- environmentally-aware and informed. Buddy
investing in smart city based IoT technolo- ing, awnings, water, propane, battery levels Cloud, Buddy Ohm and Parse on Buddy are
gies. Worldwide spending on the IoT is set to and more to be controlled and monitored the company’s core offerings that empower
reach $772.5 billion in 2018, a 14.6 percent remotely, transforming the user’s experience its customers to fully leverage digital tech-
increase over the $674 billion spent in 2017 and comfort. nologies and their impact in a strategic and
and is expected to surpass the $1 trillion The company attributes much of its suc- sustainable way. Buddy Cloud enables ubiq-
mark in 2020 and reach $1.1 trillion in 2021. cess to the stable of talent it has man- uitous access to and storage of data from any
Against the backdrop of the global move- aged to attract. The company boasts former environment – recreational vehicles, schools,
ment toward more energy efficient practices Microsoft, Amazon and Google employees commercial buildings or an entire city – in
(Paris Climate Agreement, United Nations’ amongst its ranks, including a former manu- support of smarter, healthier spaces. Buddy
17 Sustainability goals, etc.) and with build- facturing executive from Microsoft’s Xbox Ohm is a resource monitoring solution that
ings consuming 70 percent of all electric- division and later Sonos, with responsibility simplifies building operations and provides
ity and emitting 40 percent of all green- for manufacturing the Buddy Ohm hardware peace of mind by harnessing real-time utility
house gases around the world, Buddy saw product line. In an industry where engineer- and operational data to reduce or mitigate risk
an opportunity to develop engaging tech- ing, business and strategic talent make all and improve operations, savings and sustain-
nology to make it easy for people to gain the difference, Buddy is punching well above ability. Parse on Buddy is a mobile backend
insights and make more informed decisions its weight. as a service (mBaaS) built on the world’s most
that positively impact their businesses, their From connecting functions and amenities popular BaaS technology. Buddy Platform is
communities and the environment. “Simply within trailers to monitoring energy resourc- headquartered in Adelaide, Australia, with
put, Buddy’s vision is to make every space es within buildings, to unifying city infra- offices in Seattle, Washington. n
smarter,” said David McLauchlan, CEO of structure, Buddy offers affordable, smart
Buddy Platform. connectivity and monitoring solutions for For more information, please visit:
The company’s Buddy Ohm resource many IoT use cases. www.buddy.com
The company paid consideration to SNN or its affiliates for this article.

www.stocknewsnow.com MicroCap Review Magazine 31


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32 MicroCap Review Magazine www.stocknewsnow.com


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

Tech Mpire Limited


T
ech Mpire Limited (ASX: TMP)
provides a global business-to- “We are proud of our team of 15 data scientists
business (B2B) software-as-a-ser-
vice (SaaS) patent-pending product called who have analysed trillions of advertising campaign
TrafficGuardTM, which addresses the rapidly
growing global problem of mobile advertis-
data points to develop TrafficGuardTM . We are
ing fraud. Having already secured its two ini-
looking forward to helping advertisers globally to
tial SaaS clients - Canadian-based ClearPier
(http://clearpier.com/) and US$15 billion fight back against digital advertising fraud.”
NYSE-listed Omnicom (http://www.omni-
comgroup.com/) - TMP is now focusing on
growing SaaS sales through North America data scientists who have analysed the data of Mobile Advertising Networks help adver-
and APAC. millions of advertising campaigns. TMP was tisers find mobile app installs through
Advertisers are forecast to lose US$19bn previously an Advertising Network, which the mobile app ecosystem. TMP’s first
to digital advertising fraud in 2018, increas- allowed the company to directly observe the Advertising Network client is Canadian per-
ing to US44bn in 2022 (Juniper Research). global fraud epidemic and feel compelled to formance marketing business ClearPier.
Advertising fraud is becoming increasing develop an anti-fraud solution. Direct Advertisers are businesses pro-
sophisticated, with the rise of “human click The Company is not aware of any other moting their own apps without an agen-
fraud farms” and other techniques designed comparable offering which stops fraud at the cy. TMP has developed a “user-driven”
to defraud advertiser budgets. click level. TrafficGuardTM software interface which
TrafficGuardTM’s solution is disruptive COO and Co-Founder Luke Taylor said, allows Direct Advertisers to prevent app
because it prevents mobile phone app install “Previously, we had been operating as an install fraud.
fraud at the “click level”, as opposed to Advertising Network for many years and CEO Mathew Ratty said, “Ad fraud is
the existing industry practice of analyzing observed that our clients were increasingly becoming increasingly sophisticated in
the quality of mobile app installs “after the concerned about the growing digital adver- order to evade detection by conventional
event” through companies called mobile tising fraud epidemic. We are proud of our anti-fraud tools. TrafficGuard’s multi-point
measurement platforms. team of 15 data scientists who have analysed fraud verification blocks fraud before it
TrafficGuardTM is based on unique intel- trillions of advertising campaign data points impacts our clients’ budgets. This is vital in
lectual property. It has been fully developed, to develop TrafficGuardTM . We are looking not only protecting media spend from fraud,
tested and operated in-house by a team of forward to helping advertisers globally to fight but reducing the time it takes to manually
back against digital advertising fraud.” adjust accounts with delayed fraud report-
TrafficGuardTM was launched as a global ing.
SaaS solution on 1 July 2018 and is now ready After having developed and tested our
to scale globally, targeting three key custom- technology internally, we are pleased to have
ers segments: Media Agencies, Advertising the validation of our initial clients. We now
Networks and Direct Advertisers. look forward to enabling more customers
Media Agencies are diversified, global cor- globally to prevent mobile advertising fraud
porates with multi-billion dollar advertising and grow their businesses with genuine
services revenues. TMP’s first Media Agency mobile app installs.” n
client is Omnicom Media Group, who has
For more information, please visit:
initially licensed the SaaS technology for
www.techmpire.com
1-year.
The company paid consideration to SNN or its affiliates for this article.

www.stocknewsnow.com MicroCap Review Magazine 33


Contract SEC Quarterly Monthly Board Of Financial
CFO Fillings Closing Reporting Directors Projections

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COMPLIANCE
GROUP

CFO's DELIVER WELLS


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GROUP
info@wellscompliance.com
34 MicroCap Review Magazine (310) 800-7175
www.stocknewsnow.com
P R O F I L E D C O M PA N Y asx: rac

race oncology Ltd.


R
ace Oncology (ASX: RAC) is an
ASX-listed company specializes in
de-risked drug assets that have a
fast pathway to market. Race’s first asset
is a cancer drug called Bisantrene, which
shows great promise in a difficult-to-treat
blood cancer called Acute Myeloid Leukemia
(AML).
Each year, around 20,000 people in the
US are diagnosed with AML and 75% of
people die within 5 years. The standard of
care for AML is old-fashioned chemotherapy
and although it leads to a remission in most Bisantrene 250mg in vials
cases, unfortunately, the cancer often returns
(the AML relapses) and the disease can be 3 registration study for Bisantrene in order
resistant to further chemotherapy treatment to hopefully see the product approved by
Bisantrene lyophilized powder and
(‘refractory’). the FDA for the treatment of r/r AML in reconstituted solution for administration
20-30% of adult AML patients can end adult patients. While AML is considered
up as relapsed and/or refractory (r/r) AML an ‘orphan disease’ because of the relatively awarded by the FDA as a mechanism to
patients. It is for these r/r AML patients that small number of patients, the market poten- stimulate development of drugs for rare
Bisantrene is targeted: In five Phase 2 stud- tial for a drug like Bisantrene is still substan- diseases that would not otherwise justify
ies, Bisantrene produced a remarkable 48% tial. Race believes that a successful approval the development cost. Importantly, the PRV
new remission rate in r/r AML patients. in adult r/r AML could make Bisantrene be sold to other pharmaceutical companies
Race’s goal is to conduct the final Phase worth several hundred million dollars to a and in recent years, PRVs have sold for more
potential licensee or acquirer. than $80 million per voucher.
The next milestone for Race is to file an Finally, outside the US, RAC is pursu-
IND (Investigational New Drug application) ing clinical usage of Bisantrene under early
with the FDA, under which it can complete access programs known as Named Patient
the final steps towards FDA approval of Programs (NPP). NPPs allow doctors to
Bisantrene for the treatment of adult AML in obtain access to drugs that are unlicensed
the US. That IND could be filed as early as (not yet approved) in their country, but are
Q1 2019. The multinational trial could take needed for life-saving treatment of diseases
3-4 years to complete, but RAC may seek like AML. In some countries, mechanisms
a pharmaceutical partnership prior to trial exist for reimbursement or payment for the
completion. drugs, leading to modest sales revenues.
In addition, Bisantrene has been designat- RAC is exploring the opportunity for NPP
ed by the FDA as a potential treatment for revenues in France, Italy, UK and other mar-
rare pediatric (childhood) forms of AML. kets outside the US. n
This ‘Rare Pediatric Disease’ designation
For more information, please visit:
means that Bisantrene could qualify for a
Peter Molloy, Chief Executive Officer www.raceoncology.com
Priority Review Voucher (PRV) which is
The company paid consideration to SNN or its affiliates for this article.

www.stocknewsnow.com MicroCap Review Magazine 35


P R O F I L E D C O M PA N Y asx: TnY / pinK: TnYYF

Tinybeans Group Limited


Happy memories for every family

T
inybeans was born in 2012 in
Sydney, Australia and much like the
babies in its journals, has grown tre-
mendously, hitting major milestones along
the way.
Entrepreneurs Sarah-Jane Kurtini and
Stephen O’Young created a platform where
parents could save and share milestones
for their kids in a more secure way than
traditional social media. They were quickly
joined by Eddie Geller, who came on board
as a founder, investor and CEO in 2013.
“Our vision is to create a space where mil- unlimited safe and secure storage. Tinybeans
lions of families can effortlessly capture and also automatically shares with extended fam- looking for advice on what to buy and we’re
share their kids’ stories. In the beginning we ily like grandparents, in a platform-agnostic there with age-appropriate recommenda-
were focused on private photo sharing, but way, with no smartphone required. tions,” said Geller.
over time it’s grown to so much more. Every “We want to provide for parents a product Looking ahead, TInybeans has cash in the
moment with your child is worth remem- that meets the needs they have now around bank and solid runway, thanks to a recently
bering and Tinybeans makes that easy and organizing their children’s stories and shar- closed round of funding, and it is working
convenient,” said Geller. ing,” said Geller, “and the needs they don’t towards enhancing time in-app, engagement
From that small sprout in Sydney, even know they have yet, like easy ways to and increasing revenues across all lines. With
Tinybeans has grown to add headquarters look back on those first moments and con- the advertisers in place like Amazon, Canon
in New York and is now a must-have app for venient ways to print.” and Macmillan Books to name a few, Tinybeans
every new parent, with 5-star reviews in the Tinybeans has built a deeply engaged user is well positioned for a successful future.
Apple App and Google Play stores. base serving 2.5 million, primarily in the Tinybeans is traded ASX: TNY / PINK:
Popular with millennials who want to U.S, but reaching over 200 countries. TNYYF n
keep their children away from the prying Along with user growth of 41% year-over-
eyes of Facebook, Tinybeans helps families year, Tinybeans has exhibited strong revenue For more information, please visit:
tinybeans.com/investor
organize all their children’s firsts using pho- growth. Thanks to hyper-targeted advertis-
tos and video, text and more in one spot with ing, premium upgrades at $50 USD per year,
printed products, affiliate revenue and spe-
cialised research, Tinybeans revenue grew by
65% last year. Premium subscription revenue
has grown by over 30% and advertising has
more than doubled.
“We allow advertisers to reach families at
the moment they’re researching what they
need for the next stage of baby’s develop-
ment. And we speak to entire family, so
parents, but also grandparents, and aunts
and uncles. Oftentimes grandparents are
The company paid consideration to SNN or its affiliates for this article.
36 MicroCap Review Magazine www.stocknewsnow.com
www.stocknewsnow.com MicroCap Review Magazine 37
P R O F I L E D C O M PA N Y asx: FZo / pinK: FMZnF

Family Zone Rapidly growing, global


cyber safety provider!

F
amily Zone was founded by an Businesses of Tomorrow. porting filtering across all devices
experienced team of global telecom children use plus home, enterprise
executives who identified a massive WhY is cYBEr saFETY and telecom networks;
unsatisfied cyber safety marketplace and a sUch an ExciTinG A world first common platform
truly disruptive solution. opporTUniTY? for schools & parents; supporting
Family Zone has developed a world first school duty of care, school digital
ecosystem that enables a parent-set access The average age a child views their citizenship programs and parent-
policy to roam with a child and be enforced first pornographic video is 81. ing needs;
across any device and any network. At home, Suicide is now the second leading A world first platform for tele-
on mobile devices, at public hotspots and cause of death among teenagers2. coms providers to re-sell and embed
schools. Family Zone’s innovation is a univer- The majority of children today Family Zone’s comprehensive suite
sal approach, delivered through a cloud-based have been exposed to inappro- of services into their offerings;
policy platform and a suite of apps, applica- priate material and cyber threats A world first platform for hard-
tions, access points and network appliances. and bullying. These are the clear ware manufacturers to join the
Developed in Australia in late 2016, impacts of uncontrolled or mod- ecosystem by pre-loading Family
Family Zone’s ecosystem approach is rapidly erated access to technology and Zone technology on cell phones,
gaining traction across consumers, telcos, the internet. tablets, Chromebooks, computers
schools and device manufacturers through- Parents, schools and the media and networking equipment.
out Australia, New Zealand, South East Asia, are now starting to take notice and
India. Family Zone has recently entered the whilst fast growing, the current WhY FaMiLY ZonE?
United States of America. cyber safety industry is estimated
In operation for less than 24 months the to be merely US$1.5Bn/a 3. Management team: An impec-
company has achieved remarkable success Unsatisfied demand however is cable executive and management
including: estimated at potentially US$70Bn!4 team including former senior
• Family Zone is now the leading executives from Blackberry, SAP,
cyber safety provider in independent FaMiLY ZonE’s UniQUE, major telecoms providers, retail-
Australian & New Zealand Schools; proVEn and ExciTinG ers and technology vendors.
• Family Zone has wholesale partnerships sTraTEGY To oWn ThE Market opportunity: A vast and
with some of the largest telecommuni- spacE poorly addressed global market-
cations providers in the world including place. Cyber safety as in industry
Vodafone, Telkomsel (Indonesia), Maxis Family Zone’s ecosystem approach is growing fast, and is a topic of
(Malaysia), Smart (Philippines); is innovative, disruptive and gaining signifi- increasing importance and interest to the
• Family Zone technology is now being cant traction across the globe. community, media and governments.
pre-loaded in Android smart devices Features to support the needs of parents Product: A unique, patented and now
across Australia & India; and with comprehensive yet simple parental con- proven universal approach to cyber safe-
• Family Zone has won numerous awards trols to filter content, manage screen time ty. Family Zone’s ecosystem offers the only
including StartUp of the Year and Top and access to apps; and more workable solution to the challenges parents
A world first integrated technology sup- and schools face in the digital age.
1 https://lutheranyouthroom.org/talking-kids- Strategy: A demonstrably successful busi-
pornography-parent-resource/ ness strategy sees Family Zone the leading
2 https://www.cdc.gov/nchs/fastats/adolescent-
health.htm
provider in Australia & New Zealand and the
3 https://www.absolutemarketsinsights.com/news/
go-to provider for Asian telecos. n
Global-Parental-Control-Software-Market
4 https://www.parksassociates.com/blog/article/ For more information, please visit:
mid-year-2014-update-on-the-parental-controls- www.familyzone.com
software-market - based on Park’s estimates of 2%
Tim Levy, Managing Director
penetration today. The company paid consideration to SNN or its affiliates for this article.

38 MicroCap Review Magazine www.stocknewsnow.com


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MicroCap Review Magazine 39
LEGAL CORNER

Don’t Blame it on Reg A


L ately, it seems like every article that I read about Regulation A is negative.
Most of these articles point to the trading price of the dozen or so Reg A
offerings that successfully listed on Nasdaq or the NYSE.
Yes, it is true, if you look at these offerings ents have begun asking whether they should
and compare their IPO offering price to engage in a traditional IPO using an S-1
their current market price, things look a registration statement instead of using the
bit gloomy. Reg A poster children, Myomo, Reg A offering process. But, Regulation A
Adomani, Chicken Soup for the Soul and really has nothing to do with it. The offer-
Level Brands are all currently trading below ing method – best efforts Reg A or firm
their IPO prices. Even LongFin Corp. commitment S-1 offering – has nothing to
(OTC: LFIN), a FinTech company powered do with how a particular stock will perform
by Artificial Intelligence (AI) and Machine in post-IPO trading. The Reg A stocks that
Learning, that delivers foreign exchange and are performing poorly in post-IPO trading
finance solutions to importers, exporters and would be performing just as badly if they
small to medium sized enterprises, whose did a firm commitment underwritten offer-
stock jumped from an IPO price of $5 a ing using a Form S-1 registration statement.
share to over $14 a share is now down below The problem is not the offering methodol-
its IPO price and delisted from Nasdaq due ogy. Instead, the problem is valuation. It
to a regulatory cloud that has developed seems that many issuers and perhaps even
regarding alleged insider trading and the their underwriters are under the impression
unregistered sale of securities. that since investors in a Reg A offering will
As a result of the poor performance of mostly be comprised of non-accredited retail
some of the Regulation A offerings, cli- investors, they can “get away” with a higher

n BY LOUIS A. BEVILACQUA, ESQ.

40 MicroCap Review Magazine www.stocknewsnow.com


www.stocknewsnow.com MicroCap Review Magazine 41
valuation. These companies successfully life. With that in mind make sure that you should spend more time getting valuation
raise capital at higher valuations, but then price the deal to where the crowd has a real right and taking steps to support the stock
the stock price plummets post-IPO as more shot at seeing the value of its shares rise. price post-IPO through transparent report-
sophisticated institutional investors short Proper valuation always has been the way ing and investor relations activities. Reg A is
the stock or investors in the original offer- to attract investment in an IPO, it shouldn’t not the reason deals fail. It is a great new tool
ing seek some liquidity in a narrowly traded change just because it is the crowd getting that can result in the return of the mini-IPO
stock. involved and not professional investors. An so long as new Reg A issuers learn from the
According to Gordon McBean, the Chief offshoot of this strategy is that professional mistakes of their predecessors.
Executive Officer of Cambria Capital, an investors will likely become more interested Investors should also take notice of Reg A
investment bank that offers issuers wide in the offering. We have seen a lot of larger offerings. Although the Reg A issuers may
retail distribution for their Reg A offerings, investment funds taking interest in micro- be earlier stage than those that raise capital
“We are huge believers in Regulation A+ caps recently and there is no reason that in a traditional IPO, Reg A also offers unique
and its ability to get growth capital into the they should avoid Reg A+ deals when valued opportunities to invest in businesses that
hands of entrepreneurs in an efficient man- appropriately.” Mr. McBean concluded by would not otherwise be able to access the
ner. It is unfortunate that many of the Reg saying that “at Cambria we are excited about capital markets. However, investors in Reg
A+ IPOs have performed so poorly (even what the future holds for Regulation A+ and A offerings must do their homework, espe-
though we feel that many of them are great we are positioning ourselves to be part of it.” cially when it comes to valuation. As more
businesses) but we feel it is fairly obvious Companies should not shy away from companies use Regulation A to IPO over
why this has happened and the fix is quite Regulation A, especially if they plan to trade time, the initial problems with Regulation A
straightforward. Issuers and their respective OTC before uplisting to a national securities will work themselves out and the quality of
underwriters have to find that right balance exchange. Reg A is significantly more flex- the Reg A deals will improve. So, investors
in valuing the business to where it is a fair ible and streamlined than the traditional S-1 should keep Reg A offerings on their radar
deal for the issuer and a good deal for the process. Under a traditional IPO process, and not miss potential opportunities just
investor. Unfortunately the majority of the companies cannot do any marketing before because a company is using Reg A instead of
Reg A+ deals were priced more than fairly the registration statement is filed (other than the traditional IPO process. n
for the issuer and left the investor with little limited marketing to institutional accredited
Mr. Bevilacqua is the founding member of Bevilacqua
chance of seeing the share price rise on a sus- investors) and if the company is not listed on
PLLC (www.bevilacquapllc.com), a boutique transac-
tained basis. The “crowd” has been viewed a national securities exchange like Nasdaq tional corporate and securities law firm. Mr. Bevilacqua
as an investor audience that is less sensitive or NYSE at the closing of the offering, then counsels companies of every size ranging from entre-
preneurs with just an idea to established companies
to valuation and deals were priced accord- it must not only satisfy the SEC’s comments whose securities trade on the NYSE or NASDAQ. He
ingly. The problem starts when professional but also those of state regulators in the has broad experience representing issuers in public
offerings and private placements of securities (including
investors see a valuation on a stock that is states where it sells securities. Regulation A
private placements under Rule 506(c) of the Securities
significantly higher than its public peers eliminates this issue by allowing companies Act, crowdfunding offerings under Title III of the
and the stock quickly trades to a level at or to generally solicit and advertise their offer- JOBS Act, and Regulation A+ offerings), Exchange Act
compliance, angel and venture capital financings, other
below its peers.” Mr. McBean added “The ing (known as testing the waters) before the areas of equity and debt financing and mergers and
issuer may have obtained valuation that it offering statement is filed. State blue sky acquisitions.
was happy with but now two significant regulations are also preempted in the case of
problems emerge: First, you now have a dis- a Tier II Regulation A offering, thus elimi-
gruntled shareholder base (and remember nating regulatory reviews at the state level.
many of these deals were bought by custom- Finally, the requirements of Form 1-A com-
ers of the issuer), and second, your ability pared to S-1 are less involved and the Staff
to raise additional capital has been severely of the SEC is making a real effort to reduce
hindered by the fact that you are now an the review period for Reg A offerings, which
orphaned microcap with tired shareholders.” seem to take at least a month less than when
According to Mr. McBean, “In working Form S-1 is used.
with issuers Cambria Capital hammers on Companies considering an IPO should
a very important point – the IPO is likely not dismiss Reg A. It is a more flexible and
to be the smallest capital raise that the com- streamlined approach that will save them
pany will undertake through the rest of its time and money. Instead, these companies

42 MicroCap Review Magazine www.stocknewsnow.com


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

new Energy solar Ltd.


T
he global shift towards renew-
able energy is underway, and New
Energy Solar (NES) stands at the
forefront of this exciting transition. NES
was established in 2015 with the purpose of
identifying investment opportunities in this
rapidly growing sector to build a thriving
portfolio of large-scale solar power plants
that generate emissions-free power. Now
an award-winning, ASX-listed solar infra-
structure business, NES has already invested
more than $1 billion1 in solar power plants
across the United States and Australia, and
in doing so, has helped clients access invest-
ment opportunities otherwise unavailable
to them, as well as achieve positive social
impact and long-term, risk-adjusted returns.
The NES management team has a strong
investment and asset management focus,
harnessing their many decades of combined
experience in high-level positions across
the power, utilities and infrastructure sec-
tors to identify, acquire and operate solar
assets with attractive risk-adjusted returns.
The team’s disciplined approach to acquiring
high-quality, low-risk assets has led NES to
become one of the top five listed renewable
investors in solar PV plants in the world.2
“NES is focused on generating consistent
financial returns for our investors alongside ty.3 However, once all 22 plants are opera- the state of New South Wales.5
positive social impact in the renewable ener- tional, the portfolio will have an anticipated Looking ahead, the team will focus not
gy sector,” says CEO John Martin. “Behind combined capacity of 840 megawattDC, which only on ensuring its remaining plants under
this mission is our dedicated team, whose can generate more than 1.7 million MWh of construction progress smoothly to commer-
knowledge, industry expertise and collab- electricity and displace an estimated 1.15 cial operations, but also identifying further
orative efforts have driven the business’s million tonnes of CO2 – the equivalent to opportunities for growth. Following rapid
success to date.” removing 282,000 cars from the road.4 And progression in this sector and with renewable
In 2018 alone, NES’ seven operating once all plants are commissioned through energy fast becoming the lowest cost source
plants are anticipated to generate more than 2019, the portfolio will generate enough of unsubsidised electricity, the team antici-
700,000 megawatt hours (MWh) of electrici- energy to simultaneously power every pates a strong pipeline of future investment
household in Newcastle and Wollongong in opportunities and a bright future for solar. n

3 NEW Expands its Australian portfolio with For more information, please visit:
acquisition of Beryl Solar Power Plant – 23 July
1 Quarterly update – June 2018 2018
www.newenergysolar.com
2 Ibid 4 Ibid 5 Quarterly update – June 2018

www.stocknewsnow.com MicroCap Review Magazine 43


F E AT U R E D A RT ICL E

What is a SPAC?
S PACs represented nearly 20% of the US IPO market
in 2017.
So what is a SPAC? A SPAC is an acro- raised in the IPO. Simply, the SPAC pro- just any other public companies.
nym for a Special Purpose Acquisition gram is increasing the number of investible With respect to current themes in the
Corporation or what is more easily under- companies that are publicly-traded. SPAC industry, the vast majority of issuances
stood to be a single purpose, publicly-held, In 2017, there were a total of 34 SPAC are done by PE funds and serial SPAC spon-
private equity-like vehicle. A sponsor of a IPOs, which raised slightly more than $10 sors. The most prevalent theme has been
SPAC is typically either a private equity fund billion dollars. In the first half of 2018, there Oil and Gas, although there are numerous
(or individual professional), venture firm or have been 17 SPACs, which have raised $4.5 general industrial and technology acquisi-
former CEO of an S&P 500 company, who billion dollars. According to SPACanalytics, tions as well. The average SPAC IPO is in
are required to put up and are “at risk” of there have been a total of 300 US SPAC excess of $250 million dollars.
losing nearly 5% of the amount raised in the IPOs since 2003; 159 of which have closed For some of your readers you may be ask-
SPAC IPO if they fail to identify and close their business combinations, 9 more have ing yourselves “wow, SPACs are back”- “I
on an acquisition within a finite amount of announced deals, 51 are continuing their didn’t realize”, so I appreciate your taking the
time, typically 18-24 months. Through the search $13 billion) and 81 have liquidated time to read this article and learning about
SPAC IPO, the public co-invests with the and given back their money. how the industry has evolved. n
sponsors with the expectation that the spon- In the last 7 years though, the number of
Douglas S. Ellenoff, a member of Ellenoff Grossman
sors will identify and close on the acquisition SPACs that have liquidated has been very & Schole LLP since its founding in 1992, is a corpo-
of a private company that is interesting in few and the percentage that have closed on rate and securities attorney with a focus in business
transactions, mergers and acquisitions and corporate
being publicly-listed. The public’s capital successful business combinations is quite financings. In the last several years, he has been
remains in a trust account for the benefit of high. A meaningful percentage of the 81 involved at various stages in numerous registered
public offerings and hundreds of private placements
the public, until the closing of the proposed liquidations happened between 2003 and
into public companies. Along with other members of
acquisition, and is subject to an automatic 2011/12. Since that period of time, working his Firm, Mr. Ellenoff has been involved at various
right of redemption. The public has the with the bankers, other lawyers, accountants stages with over 100 registered blind pool offerings
(commonly referred to as “SPACs”); In addition to
opportunity to approve of the acquisition and investors in the SPAC industry, we col- our IPO experience with SPACs, he has been involved
candidate or require a full return of their lectively recognized that the dilutive impact with more than 30 SPAC M&A assignments. The
Firm represents nearly 60 public companies with
capital at the closing. The overall market of the earlier generation of SPACs was dis-
respect to their ongoing 34 Act reporting responsibil-
impact is even more significant since the couraging potential target’s from pursuing ities and general corporate matters. He also provides
size and type of acquisition candidates tends a sale to a SPAC, and thereby, unnecessar- counsel with regard to their respective ongoing (SEC,
AMEX and NASD) regulatory compliance.
to be significantly greater than the amount ily forcing the liquidation of those SPACs. Like the other innovative securities programs,
To reduce the impact of the dilution, we the Firm has taken a leadership role in the emerging
crowdfunding industry, which was signed into law by
repriced the warrants issued as part of the
President Obama on April 5, 2012. The Firm actively
IPO to investors to be above market and also participates in many discussions with the SEC and
subjected them to price appreciation. Over FINRA with respect to the proposed rules which
went into effect May 16, 2016.  The Firm has spon-
the years, the regulatory tension that existed sored conferences, webinars and has been invited to
back prior to 2010 has also dissipated (old speak at numerous events on the topic. The Firm is
already actively engaged with clients (funding por-
news) and both the IPO and proxy process
tals, broker-dealers, technology solution providers,
are now normal and timely processes--- the software developers, investors and entrepreneurs).
n BY DOUG ELLENOFF, ESQ. SEC, FINRA and Exchanges treat SPACs as
www.egsllp.com

44 MicroCap Review Magazine www.stocknewsnow.com


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P R O F I L E D C O M PA N Y Tsx-V: GxU / oTcQB: GVxxF

GoviEx Uranium inc.


G
oviEx Uranium Inc. (TSX-V: GXU; recent report highlighted the increase in
OTCQB: GVXXF) is a mineral global nuclear electricity output to 2506 ter-
resource company focused on the awatt hours (TWh), an increase of 29 TWh
exploration and development of its uranium compared to 2016, and 160 TWh higher
properties in Africa. GoviEx has two fully- than in 2012. At the end of 2017, the global
permitted uranium projects: the Madaouela nuclear capacity encompassed 448 operable
Project in Niger, and the Mutanga Project in reactors, with 59 reactors under construc-
Zambia. With the uranium market currently tion. Both 2015 and 2016 showed additional
on the uptick, GoviEx is positioned to tran- nuclear power plant grid connections, with
sition from exploration and development to ten each, and there have already been more
production, subject to a uranium price that grid connections in 2018 than in the whole
supports the development of new mines. of 2017.
2018 represents a change in fortunes for The supply side has reacted aggressively
the uranium market. Demand continues to sustained lower uranium spot prices, with
to grow; the World Nuclear Association’s additional cutbacks to Kazakh production
and the placement of Paladin Energy’s Langer
Heinrich mine on care and maintenance. The
biggest supply-side development has been Cameco, Ivanhoe Industries, and Denison
Cameco’s decision to indefinitely suspend Mines are GoviEx’s key, strategic sharehold-
operations at its McArthur River operation ers, and their continued commitment pro-
in Canada. This move not only eliminates vides GoviEx with a solid foundation.
a significant amount of forward production GoviEx is following a multi-pronged strat-
from the market (16 to 21 million pounds egy that includes the further optimization
(Mlb) U3O8 annually), but will also compel of the Madaouela project in Niger. GoviEx
Cameco to purchase additional inventory has quotations from a number of consultan-
to meet forward sales commitments, thus cy companies for the final feasibility study.
further reducing supplies. As soon as that costing is secured, GoviEx
According to Ux Consulting, 2018 ura- will announce who will finish the study on
nium production is forecast to total 136 Mlb, Madaouela. GoviEx also has been working
and secondary supplies are estimated at 48 on the debt financing for the Madaouela
Mlb. Demand is estimated at 191 Mlb, thus project with a number of banks that have
projecting a deficit of 7 Mlb. Together, these provided expressions of interest
factors are creating optimism in the uranium GoviEx will continue to advance these
market, and GoviEx Uranium is poised to and other progressive strategies, and, as the
take advantage of what comes next. uranium market improves, the company
GoviEx’s board of directors includes CEOs intends to accelerate project improvement
of major listed companies, representing both and development accordingly. Changes are
mining in general and the uranium sector in ahead, and GoviEx offers a gateway into what
particular. These directors have the required is likely to be an exciting time in the uranium
skills in capital markets, legal, debt, and proj- industry. n
ect development, and the experience working
For more information, please visit:
in Africa to help advance the Madaouela and
www.goviex.com
Daniel Major, CEO Mutanga uranium projects to production.
The company paid consideration to SNN or its affiliates for this article.
46 MicroCap Review Magazine www.stocknewsnow.com
P R O F I L E D C O M PA N Y nasdaQ cM: srax

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

S
RAX is at the forefront of a new SRAX has built a platform that serves all
digital era where the commercial web sides of the digital advertising ecosystem.
is powered not by machines – but SRAX CEO and Co-founder Christopher
by consumers. The recent events between Miglino believes 2018 will continue to be a
Facebook and Cambridge Analytica, and year of tremendous strategic change as the
new regulations like the European Nation’s company grows and monetizes its verticals
General Data Protection Regulation (GDPR) as well as launches its new blockchain con-
and California Consumer Privacy Act sumer data management system, BIG.
(CCPA) have finally shed light on the value
of data and people are taking notice. BETa TEsTinG nEW
Founded in 2010, SRAX’s machine- BLocKchain soLUTion
learning technology has enabled brands and
content owners to reach and reveal their In the fourth quarter of 2017, SRAX unveiled
core consumers across marketing channels. its blockchain initiative, BIG, which enables
Capitalizing on its considerable track record consumers to own, verify, and sell their data
and experience, SRAX is launching a new while staying connected to their commu-
blockchain solution that supports the newly- nity. Through BIG, consumers earn rewards
empowered users of the web: consumers. when they create or add data to the system,
SRAX’s blockchain identification graph, opt into sharing their data, and when that
BIG platform, found online at www.bigto- data is purchased. Consumers also control
ken.com, is revolutionizing advertising by what pieces of data are for sale and who can
offering consumers choice, transparency and buy them. For advertisers and data buy-
compensation for their data. The company’s ers, BIG unlocks valuable consumer-verified
vision for BIG is to create an equitable rela- and informed-opt in data for targeting and
tionship between corporations and consum- enhanced campaign performance. BIG also
ers to fundamentally restructure the digital supports third-party application integrations
advertising and data ecosystem. to help marketers learn more about their cus-
Chris Miglino, CEO tomers and earn revenue through data sales.
SRAX released the BIG Alpha version in
spring to test functionality, reward mecha-
nisms, and blockchain mechanics. This sum-
mer, the company entered the Beta testing
phase for BIG, which includes new game-
like features, social-oriented elements, and
a contest to incentivize participation and
consistent engagement.
SRAX’s new product takes advantage of
the data and digital advertising market to
return people to the core mission of the web.
“The BIG platform solves challenges for both
consumers and businesses. Most important-
ly, the ability for consumers to verify their

www.stocknewsnow.com MicroCap Review Magazine 47


existing data and create new data through vertical strategy that’s proven successful time Budget allows users to load funds and eas-
BIG, represents a significant milestone in again. Launched this year, SRAX’s CPG ver- ily allocate budgets to multiple teams, while
enabling consumers to own and manage tical, SRAXshopper, targets shoppers vis- Auto Boost allows users to automatically
their data,” said SRAX COO and Principal of iting advertisers’ key retailers by layering promote all Facebook posts based on rules
BIG, Kristoffer Nelson. social and shopping data with media buying and parameters set by the user. After reach-
to enable marketers to message a single, ing a specific metric(s) in a Facebook post,
sTrEnGThEninG a MULTi- verified shopper across multiple devices and such as 25 likes, the rule triggers a launch of
VErTicaL sTraTEGY inventory sources. Recently, SRAXshopper a boosted campaign for that post. Users can
introduced a new video ad unit that creates also A/B test different audiences and rules
Over the past several years, SRAX’s multi- real-time responsive product videos, target- to maximize performance and guide future
vertical approach has proven successful in ing shoppers through local and personalized campaigns.
more ways than one. In August 2018, SRAX data. Product page messages coupled with 2019 is set to be an exciting year for SRAX,
announced the sale of its healthcare and the right combination of sight, sound, and as it continues to grow its verticals and
pharmaceutical business, SRAXmd, to pri- motion from our unique Natural Language launch its blockchain identification graph,
vate equity firm, Halyard Capital, for up to Processing platform is used to generate a BIG. In addition to being named a 2017
$52.5 million. Management believes SRAX’s one-of-a-kind ad experience for shoppers. Deloitte Fast 500 winner, SRAX was added to
other verticals including consumer pack- In addition, SRAX Social, a social media the Russell Microcap® Index, which remains
aged goods, sports, auto and lifestyle, can management tool that makes it easy for in place for one year and means automatic
each achieve similar or greater valuations as agencies, businesses and individuals to grow inclusion in the appropriate growth and
SRAXmd. SRAX plans to invest the SRAXmd their digital presence, also released new value style indexes. n
proceeds in the further development of these features, specifically to its boosted Facebook
verticals as well as the BIG platform. post tool. This tool, which enables market- For more information, please visit:
While the company monetizes one busi- ers to promote posts beyond their Facebook www.srax.com
ness, it continues to take great leaps with its Page communities, has added an Intelligent
other businesses, strengthening the multi- Budget and an Auto Boost feature. Intelligent

The company paid consideration to SNN or its affiliates for this article.
50 MicroCap Review Magazine www.stocknewsnow.com
P R O F I L E D C O M PA N Y asx: sEn / pinK: snEsF

senetas corporation Ltd.


S enetas Corporation Limited (Senetas) is a
leading developer of data encryption solu-
tions; from certified high-assurance encryption
SureDrop – the most secure, encrypt-
ed “box”-type file sharing application with
100% data location control.
data protection is essential – privacy, com-
pliance and data integrity – the health sector
demands security without compromise.
hardware and virtualised encryption for carrier SureDrop leverages Senetas’s state-of-the-
Ethernet Metro and Wide Area Networks, to the art encryption security to provide secure file Financial
most secure encrypted file sharing and collaboration collaboration and data sovereignty. SureDrop This banking and financial services sector
application, providing data sovereignty control. provides the same Senetas crypto-agility, scal- highlights the criticality of secure high-
Senetas is an Australian public listed compa- ability and ease of use as the network data speed transmission of banking transactions
ny (ASX:SEN) and a global leader in the devel- encryption solutions. It is also an ideal solution and general business operations data around
opment of advanced encryption technologies. for service providers’ large-scale deployment as the globe. Banks are highly dependent upon
The Company’s CN Series hardware a “Security-As-A-Service” customer solution. secure high-performance data networks
encryptors, CV Series virtual encryptors and Senetas encryptors have been trusted to pro- without compromise
SureDrop, secure file sharing application, share tect much of the world’s most sensitive infor-
a common high-performance encryption plat- mation for more than 20 years. They are used Defence
form and are used to protect high-speed net- to protect everything from government and Defence and military organisations have
work data in more than 35 countries. defence data and secrets, to intellectual proper- among the most demanding data network
Senetas encryption solutions leverage ty and business data, to financial transactions, security requirements and information
state-of-the-art encryption key management CCTV networks, SCADA critical infrastruc- security classifications. Senetas protects gov-
and are crypto-agile by design; providing ture control systems and citizen identities. ernment, defence force and military data in
long-term data protection in a post-quantum Senetas CN and CV Series encryptors motion in more than 25 countries.
computing world. They protect data without provide optimised encryption security for
compromising network and application per- everything from modest bandwidth require- Commercial
formance, or the user experience. ments of 10Mbps to the ultra-fast 100Gbps Commercial organisations’ adoption of
networks required for aggregated Big Data, technologies such as Cloud computing and
sEnETas prodUcTs Cloud and data centre applications. database services, expose them to serious
Senetas encryption solutions are used and data security risks. Perceptions that data
CN Series – certified high-assurance hard- supported in more than 35 countries. They networks are inherently safe have been
ware encryptors, ideal for core IT and net- are distributed and supported internation- proven wrong. Privacy and damages risks
work infrastructure. ally by Gemalto, the world’s largest data demand secure data transmission. n
The CN Series features crypto-agility, security company, under its SafeNet Identity
uncompromising performance and certifi- and Data Protection products. ManaGEMEnT
cations by multiple independent authorities Senetas customers include enterprise, gov- Andrew Wilson was appointed CEO of Senetas
(C.C., FIPS and NATO), providing Senetas ernment, defence and telecommunications on 15 August, 2012. He was formerly Senetas’s
Company Secretary and Chief Financial Officer.
customers with the added confidence that and technology service providers: Throughout his 14-year career with Senetas, Mr.
CN Series solutions are state-of-the-art and Wilson has had a significant role in most of the
important stages of the company’s development
provide maximum security and performance Government since it was first listed on the ASX.
essential for today’s infrastructure. Senetas high-speed data encryptors are Julian Fay has been CTO of Senetas for 10 years.
CV Series – strong encryption for large- often the first choice of governments around Julian was a co-developer of Senetas’s hardware
encryption technology that is used in more than 35
scale extended and virtualised WANs. the world. Why? leading near-zero latency, countries and holds multiple testing authority certi-
The CV Series virtual encryptor provides multi-certified, dependable, scalable and fications for use in government and defence.
Senetas has a strong commitment to R&D and
up to 5Gbps performance and is transport interoperable encryption. Security without testing authority certifications. Advanced prod-
Layer agnostic. The CV Series enables rapid network performance compromise! uct development continues to identify and meet
scalability, flexibility and cost-effective data the increasing market demand and use cases for
secure data in motion and opportunities to increase
protection, all the way to the virtual edge. Healthcare Senetas’s addressable markets.
The CV Series encryptor uses the same Health sector advances are driven by adop-
high-assurance Senetas CN Series hardware tion of new technologies that depend on For more information, please visit:
www.senetas.com
encryption platform. high-performance data networks. Because
www.stocknewsnow.com MicroCap Review Magazine 51
F EAT UR E D ARTICL E

Rick Rule: Three Themes for


Mining Investments in 2018
I
n this Wall Street View, our host caught Shelly Kraft: Rick, what’s unique about sector lower risk opportunities to participate.
up with Rick Rule, President and CEO Sprott?
Sprott U.S. Holdings, Inc. TSX: SII at The third is that we’re moving back into
the Sprott Natural Resource Symposium Rick Rule: I think first of all the fact that an exploration market. We haven’t had an
2018 in Vancouver, BC. we stick to our knitting, we only do one exploration market for 20 years and man-
thing we do the thing that we’ve done for 40 kind as a whole has under invested in explo-
Shelly Kraft: It’s good to have you, let’s tell years. We don’t try and be all things to all ration. Remember Shelly, despite the fact
our audience an overview of what you do. people. When you invest with Sprott or you that other sectors are more popular than
invest in Sprott, you’re investing in a team natural resource sectors, everything in the
Rick Rule: Sprott Inc. is a natural resources of 160 investment professionals including world is grown or mined. If it wasn’t grown
finance house we manage about 12 billion dol- geologists, engineers and finance people or it doesn’t - wasn’t mine, it doesn’t exist.
lars in investor funds across a broad spectrum with a long history and resource businesses And the truth is the stuff of mankind, the
of resource opportunities including resource that do just resource businesses. Many sub- thing that makes, things that make your life
equities and of course resource lendings. In mit financial services firms flit sort of from good and my life good are all mined. And we
addition to that we’re the sponsor for New York what is popular to what is popular to what haven’t been looking for them for 20 years.
Stock Exchange traded passive investment is popular. Never developing any expertise
trusts which assist investors in making U.S. in anything other than marketing. In Sprott Shelly Kraft: So, what do you tell the com-
investors making tax-advantaged investments through good times and bad we’ve been the mon investor the ordinary investor person
in gold silver and platinum and palladium. resource business. - what do you do in this sector today?

Shelly Kraft: Now what’s the history Shelly Kraft: Sprott’s name is on the door Rick Rule: Ours is a cyclical capital-intensive
behind the company? of this conference, so what are you speak- business. So in our business if you’re not a con-
ing about to the audience? trarian you’re going to be a victim. You have
Rick Rule: We’ve been investment man- to buy the business, this business, these busi-
agers really based on Eric Sprott’s and then Rick Rule: I speak about a variety of nesses, when they’re out of favor, and right now
more laterally my track record for 40 years investment topics. Here at this conference they’re in fact out of favor. This is a fairly good
in natural resource based businesses. Well with natural resource loyalists; I don’t have entry time for people who want to be in natural
there are many places to invest in the world to be a generalist. So, here specifically I’ve resource based businesses. All the hot money is
we’ve limited ourselves to the ones that we been talking about the the three themes in in crypto and marijuana and various technology
understand, which are specifically mining mining investment which I think are attrac- applications that I personally can’t pronounce
oil and gas agriculture timber and water. tive. The first is merger and acquisition tar- or spell. So, if you are going to be in basic busi-
gets. We’re coming into a phase where min- nesses you want to be in basic businesses when
ing companies are going to have to acquire they’re out of favor and this is such a time.
other mining companies because they have
under invested in their development pipe- Shelly Kraft: The mantra when I was on the
lines. We see that as being fairly easy money street was buy low sell high, how do you go
for the next 18 to 24 months. The second wrong you can’t lose money doing that. So, for
are the royalty and streaming companies people who are not and who have no knowl-
which despite the fact that they have valu- edge or basic knowledge of the mining and
ations which are larger than the sector at resource business, what would you say to them
n BY RICK RULE whole, still, we think have a more attractive to get them started in the business today?
SPROTT U.S. HOLDINGS outlook, and present what is in a very risky

52 MicroCap Review Magazine www.stocknewsnow.com


Rick Rule: Well, it’s a great mantra; cer- the local level, the pension level, the con- chaff, when you come into periods like the
tainly you can’t buy low in a sector that’s sumer level, my suspicion is that either we one we’re coming into when you come into an
popular. So, if you want to buy low, you have see a default cycle in the United States or we exploration bull market they last four or five
to look across the spectrum of financial press default the old-fashioned way by inflating years and the upside that individual selective
and see something that never makes head- away the net present value, value of the obli- investments can make is mind-boggling.
lines. Technology is making the headlines, gation. Hence, I feel good about gold.
Real estate is making the headlines, Cannabis Shelly Kraft: You know, I just want to
is making the headlines, Blockchain is mak- Shelly Kraft: Now, let’s take that feeling finish off with your take on M&A and my
ing the headlines; whatever is popular is about gold and let’s specifically talk again view of consolidation in the industry. So,
expensive, whatever is unpopular is inex- about these juniors and exploration and I think that they’re part and parcel to one
pensive and you never see headlines on The expansion outside of Canada and all over another, aren’t they?
Wall Street Journal or Forbes about natural the world and you know I’m hearing some
resource-based businesses. Ergo relative to very interesting stories and I want your Rick Rule: Absolutely. The last bull market
other sectors they’re cheap. comments on that. that we had in resources last decade the industry
made some absolutely idiotic acquisition deci-
Shelly Kraft: So, we haven’t mentioned the Rick Rule: Well, understand that natural sions. There were two consequences of that:
price of gold in this entire interview, but I resource conferences you’re always going to one of the appreciation for the whole industry
think it would be remiss if we didn’t, tell hear bullish things about natural resources. was diminished and there was a dearth of M&A
me about it, what do you think? So, take half what you say and throw it out activity. But M&A needs to happen and as a con-
the window, okay. sequence of that it’s beginning to happen again.
Rick Rule: Gold is a unique natural resource Mercifully, the bad decisions of the last decades
asset in the sense that it’s not part of the neces- Shelly Kraft: You mean half what I hear? still weigh on the minds of investors and manag-
sary stuff of mankind except for its transac- ers. And so the acquisitions that you’re seeing
tional capabilities. I personally own a lot of Rick Rule: Half what you hear, yeah. take place right now are uniformly good acquisi-
gold and I own it for insurance purposes. It is tions and acquisitions are always good.
at once a medium of exchange and a store of Shelly Kraft: I’ll take the other half of what
value. Now ironically it’s the only asset class I say; you throw that out of the window also. Bigger companies have lower general and
that I own a lot of that I hope doesn’t go up in administrative expense relative to AUM that’s a
price, if you look at gold not as an investment Rick Rule: Take half what you hear the good thing you spend less money running the
but rather as an insurance policy, shall I think resource conference and throw it out the win- business more money on the business. And
about an insurance policy that you want to get dow like you would experience in any other secondly, if you are a participant in a merger,
paid off on - Auto insurance means you had a industry conference. But the truth is that an intelligently constructed merger, benefits
wreck, life insurance means somebody died. mankind has under invested in exploration for the seller because of the immediate premium
the last 20 years. And the consequence of that and it benefits the buyer too. We’re coming
So, well, I encourage every investor to is that that dog is going to come bite us. The into a circumstance that’s going to last I think
have a holding in physical gold, I would also exploration sector as a whole is one where the for eighteen months to two years where both
encourage them ironically to have that as the expectation in every individual decision is fail- the buyers and the sellers are materially ben-
one asset that they own that they don’t want ure. What’s lovely, however, is that the games efited by M&A. So, I think you’re exactly right
to see rapid price appreciation in. Having that you experience on your successful efforts in your description of mergers and acquisitions
said that ,I think we are going to see price can often be sufficient to more than offset your being an intelligent way to play the game for
appreciation in gold. Gold moves broadly, losses in unsuccessful efforts. the next 18 to 24 months. n
inversely with faith in the U.S. dollar. My
For more information about Rick Rule and Sprott
own belief is that the current U.S. dollar Once you learn how, once you learn that
U.S. Holdings, please visit: www.sprottglobal.com
strength is more a function of the weakness value is associated with a fairly small group
of competing currencies than it is the under- of people, there are three thousand public Note:: This article  is informational in nature and
lying strength in the U.S. economy. When I exploration companies worldwide and all of should not be construed as providing individualized
investment advice.  Investors are advised to conduct
look at the price of the dollar, relative to the the real performance is generated by about their own research and due diligence or seek the
encumbrances the debt carried by American two hundred of three thousand. Once you advice of a registered investment professional. Both
the Author and Ridgewood Investments disclaim any
Society at the federal level, the state level, begin to learn to separate the wheat from the
liability from the use or misuse of this information.

www.stocknewsnow.com MicroCap Review Magazine 53


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

Identifying Promising Opportunities


in MicroCap Investments

I nvesting in Microcap companies has many similarities to investing


in larger companies – though certain unique risk factors more appli-
cable to Microcaps require savvy investors to supplement their normal
investment process.
Some of these considerations more appli- 2. Perform extensive due diligence
cable to smaller companies include the fol- 3. Pay the right price
lowing: 4. Monitoring results
• They are underfollowed and less reg- 5. Implement A Sell Discipline in
ulated advance
• Tend to have weaker reporting sys- Focusing on quality companies is an
tems and controls important initial step in MicroCap invest-
• Have fewer resources in time and ing because in smaller and lower quality
money than larger companies companies, the business model sometimes
At Ridgewood Investments, we have been just doesn’t work and a checklist helps you
investing in Microcap opportunities for eliminate these investment traps ab initio.
many years and through our experience For example, customers may not want to buy
n BY SAM NAMIRI
have come to develop our own five point the company’s product or perhaps the prod-
investment process to help us focus on the uct is one for which they can easily switch
most promising opportunities: to a competitor or a new entrant into the
1. Focus on quality companies market. Owning “quality” companies helps

54 MicroCap Review Magazine www.stocknewsnow.com


lower these risks. At Ridgewood we use a to go the extra mile, this step is one where tion. Also, if things change and the target
checklist of over 20 items to help us measure we can develop “an edge” on the upside while price falls to where the prospective return is
if a potential microcap investment candidate also reducing the risk of investing in a poorly no longer attractive, look at selling the posi-
passes this initial quality test. These check- run or even fraudulent company on the tion as well. It’s important to consistently
list items range from financial ratios to quali- downside. In the last three years, I’ve avoid- revisit and re-check the original investment
tative aspects of the business such as barriers ed two potential investments that ended up thesis to see if it still holds. This process
to entry and competitive analysis. (email being frauds later – in both of these cases the has helped us reduce the risk of investing in
us to get a copy of our checklist – note that companies refused my request to let me visit microcaps. While no one can be right one
the idea of having a checklist is inspired, in their operations. hundred percent of the time (only liars),
part, by Atul Gawande’s book the Checklist Another key to reducing risk when invest- the hope is to have a good batting average
Manifesto which we highly recommend) ing in very small companies is maintaining for which one of the keys is to be selective
Once a company passes the quality test, valuation discipline. The cheaper that one based on a sound investment process and
the next step is to perform intensive and can purchase a company’s shares, compared not swing at most pitches.
thorough due diligence. We start off by to what its intrinsic value is, the less risk is
comprehensively reading the company’s SEC being taken. In other words, purchasing a Sam Namiri is a Portfolio Manager and
Filings (including footnotes!), conference dollar for 50 cents is less risky than purchas- Analyst at Ridgewood Investments, where he
calls and press releases. This is the time to be ing a dollar for 90 cents or even worse 150 concentrates on managing the Ridgewood
looking for buried red-flags and hidden pit- cents. Rather than having a trader’s mental- Select Value Fund, our fund focused on
falls. For example, is the amount of options ity we focus on cultivating a business owner’s investing in small and micro-cap compa-
and/or warrants a company has issued rea- mentality. Once we identify a good company nies. Ridgewood focuses on implementing
sonable and reflect positively on manage- that we want to own, even if we own some intelligent value-oriented investing strate-
ment’s capital allocation abilities? We once shares already, we get excited not dejected, gies (modeled after investors like Warren
identified a clean coal technology company if the price of a company’s stock goes down Buffett, Ben Graham, and Phil Fisher). Prior
that had a great product and seemed to and creates more compelling value for us to to Ridgewood, Mr. Namiri was an analyst at
have investment promise, but upon closer take advantage of. a small cap hedge fund and the founder
examination we noticed this company had a Although it can be psychologically tough of a jewelry television and manufacturing
habit of regularly diluting the current share- to buy more of a stock as it is dropping, company. Mr. Namiri has a BS in Industrial
holders by issuing an egregious amount of by doing extensive primary research and Engineering and Operations Research from
options and warrants. In this step we also developing strong conviction on the value of the University of California, Berkeley and
scrutinize the totality of the company and a company, it makes it easier to pull the trig- an MBA from Columbia Business School. n
management’s history of past decisions and ger. Remember that there can be many rea-
www.ridgewoodinvestments.com
communications to see if they have a strong sons why someone wants, needs or is forced
track record of capital allocation and strate- to sell a stock, however only one reason why Note:: This article  is informational in nature and
gic decisions or the opposite. someone would buy, which is that they think should not be construed as providing individualized
investment advice.  Investors are advised to conduct
After the above initial stage of diligence, if that it is worth more. their own research and due diligence or seek the
the company still looks interesting, we start After buying, we continue to monitor advice of a registered investment professional. Both
the Author and Ridgewood Investments disclaim
to have more extensive conversations with and perform ongoing periodic due diligence
any liability from the use or misuse of this informa-
management, competitors, customers, sup- updates on the business and the industry. tion.
pliers and anyone else that can help verify This update process is continuous and lasts
and give more insight on the business and as long as the stock is in the portfolio. We
industry. We often travel to visit the com- continue to read all the news, press releases,
pany as well as attend trade shows and read SEC filings as well as have meetings with the
industry publications if applicable. Not companies, competitors, suppliers, custom-
many microcap investors do this much due ers and so forth.
diligence on their investments, and even Finally, always make sure to maintain and
fewer sell-side analysts that cover smaller update price targets for each investment
companies do so – partly because they don’t upfront (though targets can be updated in
typically have the budget to travel and invest light of information). Once the company has
in such deep diligence. As investors willing hit its fair value, be happy selling the posi-

www.stocknewsnow.com MicroCap Review Magazine 55


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

Why Canada!
P
op Quiz! Which country has pro- over 3 years.
duced – on a percentage basis – more David’s story – along with many other
microcap 5-baggers over the past five Canadian microcaps we have found – have
years? led us to believe: if you are a US microcap
investor and not thinking about Canada, you
The United States are crazy.
Canada Today, we’ll share our Top 4 reasons why.

The answer may surprise you. 1) UndiscoVErEd


The US OTC had 113 companies whose
shares rose 5x over the past five years, Good treasure hunters know there is no
or 1.1% of the 10,584 listed companies. point searching where others have looked.
Meanwhile on Canada’s Toronto Venture The riches are gone. You’ve got to look in
Exchange (TSXV), 54 of the 1,980 listed undiscovered places.
companies, or 2.7%, reached five-bagger sta- The US is the world’s premier stock mar-
tus during the same time period. That means ket. If it wasn’t competitive enough, investors
if the future is anything like the past, you are all over the globe also want to invest there.
n BY BRANDON MACKIE
more than twice as likely to find a 5-bagger But in Canada, you’ll find far fewer eyeballs
in Canada vs the US OTC. on microcaps.
That statistic is no coincidence. Once And even within Canada, the whole bro-
only a mining mecca, the Toronto Venture kerage industry is built around one thing: the
Exchange has transformed itself into the resource sector. These are after all the com-
world’s most efficient public venture capital panies that need to raise tens of hundreds of
marketplace. millions to bring a project to life. That’s a lot
So if thinking about Canadian investing of fees for the brokers and bankers! What
conjures up an image of a slick back haired incentive do firms have to research small,
man holding an ore deposit, we suggest you profitable companies outside of this sector?
look take a closer look. Here you’ll find a Let their neglect be your opportunity.
vibrant technology and healthcare sector One of our biggest winners was XPEL
that has outperformed nearly every global Technologies (DAP-U:TSX-V). When we
market this year. invested in 2013 at $0.17, it was growing
100% year-over-year while trading at 4 times
Here’s David Wolf, CEO of US-based but earnings. Shares trade over $5.00 today. It
Canadian-listed Hamilton Thorne: “The was a gem hiding in plain sight.
[TSX] Venture [Exchange] can be a good
place for a development-stage company to 2) accEss To GroWTh
access capital, along with solid regulatory coMpaniEs
framework and reasonable costs.”
Hamilton Thorne is a healthcare company Intel (INTC) went public in 1971 at a $8.2
we have owned since 2014. Once completely million valuation. Imagine investing in Intel
undiscovered, it has become a microcap blue as a microcap. A $10,000 investment in Intel’s
chip today. Shares have gained 820% in just IPO would be worth $302 million today.

56 MicroCap Review Magazine www.stocknewsnow.com


It’s the American dream. Well, at least it Lastly, the venture requires full disclosure Disclosure: Paul Andreola and Brandon Mackie
was. Now companies are staying private lon- of ownership and share structure. There is are long HTL:TSX-V and DAP.U:TSX-V. No
ger – opting for a waterfall of VC money over no hiding the faces behind each deal. position in any other securities mentioned.
the headaches of going public.
Take SnapChat. At a valuation over $30 4) Built for Small About SmallCap Discoveries:
billion, most of the upside – you could argue Companies Smallcap Discoveries is a newsletter dedicat-
– is already gone. Uber has raised capital at a ed to uncovering Canada’s premier emerging
$70 billion valuation, yet is still private. In our opinion, The TSX Venture is the growth stocks. Smallcap Discoveries focuses
What is great for the VCs, is bad for you most efficient public venture exchange in the on growing smallcaps with positive cash flow
as a public markets investor. Since 2000, world. This is because the entire infrastruc- that have gone undiscovered by the broader
the average number of US smallcap IPOs ture – from the lawyers to the accountants to market. Smallcap Discoveries was created
(<$100M) has fallen a staggering 74% since investment bankers – is built around bring- as platform to share actionable ideas and
the 1990’s. ing small – and we mean really small – com- help investors get an edge in the markets.
Canada has fared better. The VC and pri- panies public on the exchange. Smallcap Discoveries’ mission is to bring
vate equity industry is less mature compared From the fees that service providers the world the best original research, on-the-
to the US. Going public is still the route of charge to less onerous filing requirements, ground due diligence, and profitable ideas in
choice for many innovative, high-growth small companies have it easier when it comes the smallcap space. If you’re an avid smallcap
companies. to listing in Canada relative to the United investor, Join Us. n
Catamaran Corp (CRTX), Lions Gate States. US investors expect companies to be
About Brandon Mackie:
Entertainment (LGF), and IMAX (IMAX) worth billions before listing, and the whole
Brandon Mackie is currently Head of Research for
all got their start as Canadian-listed micro- financial infrastructure has evolved to make Smallcap Discoveries. Prior to joining Smallcap
caps. We invested years ago in a company that expectation a reality. Discoveries full-time, Brandon was VP of Financial
Planning & Analysis for venture-back food technol-
called Bowflex, which made home exercise ogy company Soylent. Brandon got his investing start
equipment. It traded at CAD $0.10 (yes, Conclusion from the value investing teachings of Warren Buffett
and Benjamin Graham, which inspired him to write a
ten cents) and after many years of growth,
microcap-focused blog called Moatology. When not
moved onto the NYSE renamed as Nautilus Because of Canada’s thriving ecosystem of researching stocks, Brandon can be found surfing
(NLS). Accounting for splits, shares trade at speculative industries – think mining, cryp- and making music.

USD $230 today. to, and cannabis – there will always be rea-
www.smallcapdiscoveries.com
sons to be cautious of investing in Canadian-
3) Regulatory Protection & listed securities. But investors who can look Note: This article is not an attempt to provide invest-
ment advice. The content is purely the author’s per-
Transparency through the noise can find innovative com-
sonal opinions and should not be considered advice
panies like Shopify (SHOP:TSX), which has of any kind. Investors are advised to conduct their
Despite what the media would have you returned 897% since its IPO in 2015 or own research or seek the advice of a registered invest-
ment professional.
believe, Canada’s regulatory framework Covalon Technologies (COV:TSX-V) which
offers microcap investors as much or more has returned over 4100% since 2013.
protection than the US. We believe Canadian investing gives
On the TSX Venture, you cannot do a Americans the best of both worlds – you
financing under $0.05 (except under extraor- get the valuation arbitrage of internation-
dinary circumstances). This means you can’t al investing without the headaches – time
structure a deal where 100M shares are zones, language barriers, and immature reg-
issued at a fraction of a penny to insiders – ulations to name a few.
only to list at $0.10 or $0.20 a few months Over just the past 5 years, we’ve had the
later. good fortune to invest in 7 companies that
You also can’t do financings lower than increased over 10 times from our purchase
25% of the last trade. This protects investors price. We believe Canada’s non-resource sec-
from the dreaded “death-spiral” financing tor is one of the market’s best kept secrets.
where shares are issued continuously at ever And it’s only a matter of time before interna-
lower prices. tional investors figure it out.

www.stocknewsnow.com MicroCap Review Magazine 57


F E AT UR E D A RT ICL E

Investing in Electricity
Conservation
I n this article we describe the issue of waste in electrical systems and
introduce an innovative and patented solution to this old problem.

coMBaTinG ELEcTricaL LinE electricity distributed with the farthest end- cost isn’t always the repair of the machine
Loss: ThE oVEr-VoLTaGE point in mind. The result being higher than itself; it can be the opportunity cost of the
proBLEM needed voltage across the entire system. machine’s downtime. Moreover, an elec-
tric current which exceeds the machine’s
The electricity we depend on every minute TYpicaL EnErGY saVinG operating range could also damage internal
of every day is generated from a variety of soLUTions components. High voltages can also cause
facilities including coal and natural gas- damage to machinery as magnets become
burning power plants, hydroelectric dams, To help conserve energy, the Rockefeller saturated and overheat.
nuclear power plants, wind turbines, and Foundation estimates some $279 billion could Conservation Voltage Reduction (CVR) is
solar panels. From its point of generation to be invested in retrofitting the residential, com- a tried-and-true practice of producing ener-
the point of consumption, electricity goes mercial, and institutional market segments in gy savings by reducing voltage in an electri-
through several changes. Electrical energy the U.S. with window treatments, energy effi- cal system. It tends to be most effectively
is wasted as it as transmitted over distance, cient lightbulbs, energy efficient motors, and deployed in electrical environments where
primarily due to conversion to heat and other solutions. These solutions do work, but the voltage to the end customer is difficult to
electromagnetic energy. To minimize energy they only address part of the problem. control due to aging infrastructure and the
loss, electricity from generating stations is Consider the problems for machinery layout of the distribution system.
converted to higher voltage/lower amper- posed by poorly conditioned electric-
age, and then, at the point of consumption ity. A machine performs optimally when an innoVaTiVE WaY To saVE
it is converted again to lower voltage/higher it is operated at its specified rated voltage. EnErGY
amperage. Despite best efforts to reduce Machines operated using electricity out-
waste, up to 6% of electricity generated is lost side of prescribed tolerances are subject to Legend Power® Systems (LPS-TSX-V) is
in transit across the grid, and loss attribut- reduced efficiency and increased wear. In an innovative provider of energy conserva-
able to distribution is not constant—it varies the event of machine failure, the biggest tion solutions. It developed and patented
with distance. In order to compensate for
line-loss, utilities increase the voltage of the

n BY SEAN PEASGOOD Figure 1. Source: Union of Concerned Scientists

58 MicroCap Review Magazine www.stocknewsnow.com


the Harmonizer™, a product which reduces recommenders including utility Con-Edison, a
electrical energy consumption in commercial top 10 U.S. utility serving the five boroughs of
buildings. The Harmonizer is installed in a New York and Westchester County.
building’s electrical room at the point where Outside of New York, there are at least
power enters a building, and then works to 10 other U.S. states where the intersec-
automatically optimize incoming voltage. It tion of comparatively expensive electric-
is non-invasive in that, unlike some energy ity costs, aging infrastructure and older
saving alternatives, there is no requirement to buildings provide opportunities for Legend
close floors or sections of buildings to imple- Power Systems’ Harmonizer solution,
ment the solution. This is also an important including California, Oregon, Washington,
consideration for historical and protected Colorado, New Jersey, Minnesota, Maryland,
buildings where physical alterations are not Connecticut, and others on the east coast.
permitted. The Harmonizer can be thought of Legend Power’s management has estimat-
as an ‘industrial dimmer switch’, where voltage ed that North America presents a market
can be dialed to a level that allows equipment opportunity of $38 billion.
to run with greater efficiency and save energy
while reducing costly premature equipment Conclusion
failure and extending equipment life expec-
tancy. As well, if the incoming voltage drops, Although Conservation Voltage Reduction
the Harmonizer automatically switches to a (CVR) is a tried-and-true practice for pro-
bypass mode, allowing the existing line volt- ducing energy savings by reducing voltage in
age to enter the building unimpeded. Legend an electrical system, it tends to be addressed
Power® believes a typical commercial facility as a set of solutions rather than a sin-
can expect to save between $14,000 to $20,000 gle-point solution. Legend Power® Systems
per year with payback in less than 3 years. The (LPS:TSX-V) is attempting to change this
product comes with a 10-year warranty. with a solution that automatically regulates
The Harmonizer™ is not a prototype or distribution line voltages and bypasses the
Figure 3. Legend Power’s Harmonizer ™
concept; it is an energy savings product (and entire system in the event of line voltages
a new category) that Legend Power® has falling too low. By using Harmonizers, prop-
deployed in more 250 locations across 13 On October 13, 2016, Legend Power® erty owners can realize significant reduc-
markets including office buildings, multi- announced its first sale of a Harmonizer unit tions in their electricity bills, with as little
residential units, prisons, government build- in New York City to an unnamed Fortune as a 3-year payback. Legend Power Systems
ings, industrial facilities, education facili- 500 company. New York City is a strategic is set for growth, targeting an estimated $38
ties, lodging, and recreational facilities. market for Legend Power, given the number billion market opportunity. n
Across the markets described above, there of older buildings in the city and the city’s
www.sophiccapital.com
are approximately 759,000 buildings in the comparatively high energy costs. To help drive
United States that would likely be strong Harmonizers into this market and the broad- Disclosures
Sean Peasgood, Sophic Capital, and Sophic Capital’s
candidates for achieving material energy er North-Eastern and Mid-Atlantic regions, employees own common shares of Legend Power
saving benefits with Legend’s Harmonizer. Legend Power has forged relationships with key Systems, Inc.

Legend Power Systems has contracted Sophic Capital


for investor relations services.

Here is a link to Sophic Capital Disclosures and


Disclaimers: http://sophiccapital.com/disclaimers/

Note:: This article  is informational in nature and


should not be construed as providing individualized
investment advice.  Investors are advised to conduct
their own research and due diligence or seek the
advice of a registered investment professional. Both
the Author and Ridgewood Investments disclaim any
Figure 2 liability from the use or misuse of this information.

www.stocknewsnow.com MicroCap Review Magazine 59


F E AT UR E D A RT ICL E

Invest and Make Money with


the Power of Knowledge
“Behavioral Finance Is Central To BEhaVioraL FinancE – view the financial markets, but rather that
EMoTions can aFFEcT YoUr during dynamic or unstable environments,
Value Investing” Jim Kelly

B
inVEsTMEnT dEcisions the assumptions that make up the EMH
ehavioral finance is central to value are unrealistic. He expresses an opinion
investing. This is a quote that Jim If you have ever let emotion impact or that the old financial models are based on
Kelly, director of the Gabelli Center threaten your investment decisions, or if static environments and need to “adapt”, as
for Global Security Analysis at Fordham you have an opinion on the Efficient Market the environment changes. From there, they
University, stated leading up to a presenta- Hypothesis, I think you will find this video must take into account how investors react
tion given by Professor Andrew W. Lo on presentation enlightening. (behavior) to these changes.  This is his basis
January 24, 2018 at the Museum of American Andrew W. Lo: for his “Adaptive Market Hypothesis.”   Some
Finance. …is the Charles E. and Susan T. key conclusions include:  (slides 8 and 9)
The Gabelli Center for Global Security Harris Professor at the MIT Sloan School
Analysis at Fordham University was of Management and director of the MIT FEaTUrEd conTEnT
established in 2013 to support and pro- Laboratory for Financial Engineering. He has
mote investment analysis in the tradition published numerous articles in finance and • Real Estate Dividend Stock On Our
of Graham, Dodd, Murray and Greenwald. economics journals, and has authored several Radar: Limited Downside and 58%
The center offers a variety of programs and books including Discount to Book Value
events designed to promote collaboration • Adaptive Markets: Financial • Here’s Why I Finally Took a Long
among its constituencies and to foster dia- Evolution at the Speed of Thought Position in The Eastern Company
logue between the academic community and • The Econometrics of Financial Markets (EML)
practitioners. • A Non-Random Walk Down Wall Street • Could This Speculative Information
I recently came across this a video  high- • Hedge Funds: An Analytic Arbitrage Play Be Worth An 8 Times
lighting Professor’s Lo’s presentation titled: Perspective and the Evolution of Current Price?
“Adaptive Markets: Financial Evolution Technical Analysis.
at the Speed of Thought.” You can view His  awards  include the Alfred P. Sloan He ends with a discussion how Artificial
the video and transcription transcribed here.  Foundation Fellowship, the Paul A. Intelligence (AI) plays a big role in our deci-
Please note that the video did not capture the Samuelson Award, the American Association sion-making process and how AI can lead a
slides that went along with the presentation, for Individual Investors Award, the Graham charge to create financial products that take
but I obtained them from Mr. Lo, which you and Dodd Award and numerous other into account an individual’s behavioral foot-
can view here. awards and honors print. He even touches on how record low
market volatility will not last forever, and this
prEsEnTaTion hiGhLiGhTs is very interesting, given that the stock market
is beginning to experience more volatility.
Andrew explains how he starts with an Professor Lo’s delivery is articulate, and
acceptance of the old school Efficient Market the analogies he makes to non-financial situ-
Hypotheses (EMH) and he then takes you ations as it relates to behavior may surprise
through his journey of why he concludes it you. For example, he references a study by
is not invalidated, when it appears the EMH economist  Sam  Peltzman,  that shows over
does not hold. Specifically, he argues that the the long-run, U.S. regulation requiring that
n BY MAJ SOUEIDAN
EMH is not necessarily an incorrect way to new cars should be made safer (reinforced

60 MicroCap Review Magazine www.stocknewsnow.com


psychology literature.
Like many of you I began with the idea
that markets are efficient, people behave in
a rational manner and from that literature, I
was brought to the psychology literature that
showed all sorts of experiments, behavioral
economics, behavioral finance that demon-
strated that people did not react in the ways
that we would predict using expectation of
mere utility functions and so on.

Volatility Will Revert to


The Mean

Of course, what goes up eventually does come


down and so as we start adapting to this kind
of a new low level of volatility there is a rude
awakening that we are facing. Something to
keep in mind. That is one important implica-
tion of adaptive markets. Markets are not the
same over time and the population of inves-
tors they are not the same over time.  They
have changed and they adapt and sometimes
that adaptation is positive and beneficial, but
other times that kind of adaptation can be quite
dangerous and detrimental.

bumpers, airbags and so on) essentially had prices fully and everywhere and always reflect Adaptive Market
zero impact on “saving” lives: all available information.  And at the opposite Hypothesis
“So what he concluded is that every time end of that spectrum is the fact that people are
one of these safety regulations was imposed, people and we engage in all sorts of human The adaptive market hypothesis begins with
initially it reduced the number of deaths biases foibles and irrationalities. the acknowledgement that the traditional par-
and then people adapted because there were There is a pretty wide gulf between these adigm of investment analysis, what we know
driving safer cars they simply drove faster two schools of thought and as a graduate and love and use in our day-to-day practices
and more recklessly and so his conclusion student, I was introduced to both of them and is not wrong, but it’s incomplete.  It doesn’t
was, if you want people to drive more safely, it was really difficult to choose, you know it’s capture the fact that in a very dynamic
what you should do is to take way all of these kind of like a child listening to his or her par- environment, we are not going to see the
safety devices and install sharp spikes on the ents arguing, you know, you just want to stop same king of relationships as in the static
dashboards pointing at the driver.” and get along and you know that they love environment. So, when the things are stable,
Here are a few notable passages from each other but they just you know can’t come then stable investment policies make sense.
Professor Lo’s January 24, 2018 presentation: to terms.  So, I decided over the course of prob- But when things are highly dynamic, well then
ably now going on 25 years to try to reconcile actually things don’t stay the same and people
Impetus for the book these two warring parties and that is really the adapt to those kinds of changes and the fact is
nature of this book. that right now we are living a very dynamic
And the state of affairs, I suspect most of you What I wanted to do was to describe the economy with lots of things changing even
know, is the fact that most of us who grew up different paths that I have ended up taking to day-to-day and so the reason that many of
in this kind of a “Neoclassical financial eco- try to reconcile these two schools of thoughts these theories look like they are not working is
nomics” type of a paradigm, were taught the and really that path started off as a graduate not because they are wrong, but because they
Efficient Market Hypothesis.  The idea that student when I started reading a lot of the are not being applied to the right context and

www.stocknewsnow.com MicroCap Review Magazine 61


we need a meta theory to allow us to integrate market.  But starting in the 1980’s, they “The  efficient market hypothesis  (EMH)
all of these ideas. That is the idea behind the ran into a problem,  as I am sure all of you is an investment theory that states it is impos-
adaptive markets hypothesis. know, and the lost decade became the lost two sible to “beat the market” because stock mar-
decades and now we are running on the lost ket efficiency  causes existing share prices to
Changing Environments three decades in Japan. So once again, you always incorporate and reflect all relevant
look at this and you ask yourself well do you information.”
This is a graph of the cumulative performance think that the last 30 years was just a minor This definition is fairly strict. I think most
over $1 investment in the S&P 500 from blip in an otherwise upward trending curve of us would insert “quickly reflect all relevant
1926 to the present. Now the reason you don’t or did something change? I would argue that information.”
recognize this, it is because I have plotted it something has changed and so the adaptive Mr. Lo’s presentation can inspire us to
on a semi logarithmic scale and the reason I market Hypothesis takes change seriously and inspect the EMH a little more thoroughly
did that was because on a log scale, it turns asks the question, what are you going to do than we may have in the past.  It’s standard
out that equal vertical distances correspond about that change. How are you going to practice to presume that the higher than
to equal rates of return and so if you have got respond? How will you adapt to that change? “market” returns we are able to get by invest-
an investment that has roughly the same rate The basic idea behind the adaptive market ing in microcaps are due to a variety of fac-
of return over the time, it looks like a straight hypothesis really follows that of evolution- tors, such as risk aversion, low liquidity aver-
line on this graph and when you look at this ary biology – and the great evolutionary sion, lack of institutional interest and a less
graph, you see that the United States Stock biologist Theodosius Dobzhansky once said fluid flow of information when compared
market has been one of the most consistent that nothing in biology makes sense, except to bigcaps.  However, after viewing Lo’s pre-
investment in the history of capital markets in the light of evolution and so I am going sentation, one could start to at least consider
.  For a period of about five or six decades, to steal his phrase and repurpose it for our this subject from different angles.
the US stock market looks like a straight current context, which is that nothing in the A question that popped into my head includ-
line. It turns out that during this period, the financial industry makes sense expect in the ed: How should we be defining ‘efficient’?
assumptions that I showed you on the previ- light of adaptive markets and I am going to Is it really inefficient that microcaps
ous page were an excellent approximation try and convince you of that by giving you should offer investors higher rates of return?
to this much more complicated reality. Does some examples. With Lo in mind, the answer could depend
not much matter where you invest during on how much of the arbitrage is due to
that period of the 1930’s to the early 2000’s, Alternative Take on EMH lack of fluid information flow (information
you would have earned approximately a risk as it relates to GARP arbitrage) and misinterpretation of business
premium of about 8% with an approximate Microcaps risk factors  compared  to how much is due
standard deviation of about 15-20 %. Pretty to behavior, regulation and environmental
reliable risk reward trade-off during that peri- Many of us do not accept the tenets of the factors shaping attitudes about overall
od of time. efficient market hypothesis when it comes risk aversion and appetite for certain asset
But take a look at the last 15 years.  Do to investing in microcap and nanocap stocks classes. I would argue that it’s quite efficient
you believe that the last 15 years is just like (market capitalizations less than $300 mil- that, over the long-term, some factors should
the previous 50? If you do then you don’t need lion). At times, I will even attempt to exploit allow growth at a reasonable price (“GARP”)
any other theories, the traditional efficient inefficiencies in stocks with market caps up microcaps to exceed the returns of the
markets hypothesis, Cap M and all of the to $1 billion. Peter Lynch handily beat the market or large caps.
various different implications are just fine. market by investing in stocks with  market These two forces work together to give
But I would argue that the last 15 or 20 years, capitalizations up to $5.0 billion.  You can see you opportunities and to determine how
it does look a little bit different and there are Lynch’s stock picking guidelines here. long it takes the market to reward you for
reasons that I will give you in a few minutes As a microcap and nanocap investor, I your hard research.
why I think there are very different. And in found Professor Lo’s topic to be extremely How is it be possible to buy Evans &
case you want to see a better example of interesting.  We can poke holes in the tradi- Sutherland  (OOTC:ESCC)  at valuations
this kind of a difference, let me show you tional definition of the EMH because micro- ($0.14 in 2014) indicating bankruptcy when
Japan. So, this is the Japanese stock market cap returns have been proven to beat out SEC filings clearly indicated that liquidity
form 1940’s to the present. They also had bigcaps and the market over time, by a wide issues would be favorably resolved well ahead
their period of about 20 or 30 years of very, margin. Here is the classic definition of the of its huge multi-bagger move to $1.98; or
very stable performance in the Japanese stock EMH: to buy Zynex Inc  (OOTC:ZYXI)  ($0.40 in

62 MicroCap Review Magazine www.stocknewsnow.com


2017) weeks before it began its monster April 11, 2016 in Toronto that could tie last 10 years or so. As for me, my behavior
move to $5.50, when press releases had been neatly into Professor Lo’s logic. The global has changed in a few ways. I am “adapting”
clearly indicating sustained profitability and recession has, no doubt, impacted the way to be a more patient, longer-term investor,
de-risking balance sheet moves? investors act and react in the stock market. and employ a more concentrated invest-
The inefficiencies in the microcap uni- Reduction in Pool of Investors: ment style. Because I know I may need to
verse provide tremendous information arbi- • Many microcap investors disap- be invested longer in some of my stocks, I
trage chances.    It makes perfect sense that peared from the market and/or never take deeper dives into their stories, which I
information arbitrage and gaining a better came back to invest in microcaps. think has made me a better investor.
understanding of a company’s growth and • The rise of ETFs and passive invest-
risk profile than your peers exploits the ing has reduced the number of inves- Conclusion
“inefficiencies” of the EMH. It’s also clear tors using stock picking as a strategy,
that the less participation by investors in the a dagger in the heart to microcaps. The pendulum swings both ways. The time it
microcap space compared to large caps helps • ETFs typically are not investing in takes for many GARP microcap stocks to reflect
create this opportunity. This “lack of par- true microcaps (market cap less than their true value is taking longer than other cycles
ticipation” has always been a factor.  But how  $300 million). I have gone through, but GARP investors are
much of  the alpha is from inefficiencies. Changing Attitudes to Risk: finally beginning to get paid sooner.
Maybe, what is efficient, is how behavior • Some investors don’t want to deal Overall, I think examining the EMH
changes over time to add to or subtract from with the perceived risk inherent in is an interesting exercise, but reality will
the pool of microcap investors and impact microcaps, so they think they can often diverge from hypothesizes and theo-
their attitude towards related stocks, thus take less risk in large caps. ries.   One thing is for certain: information
influencing how long it takes for stocks to • Large cap returns have been sufficient arbitrage chances in the microcap world
react to positive developments and investors’ (due to Fed policies) to keep investors are both real and widely present, and wont’t
required rates of return. satisfied change anytime soon. n
Before 2008, I would have told you that • Investors don’t want to hold stocks
ABOUT MAJ SOUEIDAN
prices would adjust upward to the informa- long-term (holding period of retail
I lead the GeoInvesting Team on a daily basis to
tion arbitrage identified through great GARP investors has gone from 6 years to 6 increase build a healthy investment opportunity
research in a reasonable time frame, once the months). pipeline and heighten GeoInvesting’s awareness in
the financial market. I stress the concept of “informa-
market found vital information.  In essence, • Aversion to time, ironically, has tion arbitrage” in an era where information overload
enough inefficiency existed to give you time investors looking for highly specula- has actually made it more difficult for investors to
locate profitable information. An arbitrage exists
to buy stocks early, but eventually, enough tive (non-GARP) microcap plays like
when a disconnect between stock prices and available
market interest (efficiency) would build to biotechs and pump and dumps to public information on a company is noticeable, and
allow you to earn a nice return on your make big money fast. monetarily worth pursuing. 

research in a reasonable amount of time. At These trends are both good news and bad ABOUT GEOINVESTING
times, I would hold of hundreds of stocks, news.  It’s great to be able to buy all the stock GeoInvesting is a research boutique which specializes
in microcap stock research and portfolio protection
Peter Lynch style, and easily beat the market. you want of some really undervalued names,
investigations for its members. Co-founders Maj
Since the Global Recession, it has been but there is a price to pay other than dollars Soueidan and Dan David find money-making oppor-
my observation that the performance of and cents. GARP investors have needed to tunities that others flat out miss. In a nutshell:
** We share our ideas in hopes that others can
quality  GARP  microcaps have often wait longer to get paid. If you are a long- profit alongside our team.
underperformed speculative “get rich quick” term investor, you might not be phased, but ** We clarify the dynamics of the micro-cap space
to show you that big investments can come in small
microcaps and their larger counterparts.  My if you have been spoiled to be accustomed
packages.
biggest takeaway is that it has been taking to achieving quick returns, then you may ** We provide education on how to do conduct
longer for these GARP stocks to rise to have felt a high level of frustration for the real research, leading by example.
** Our expertise gives us,  and therefore you, an
fair valuations.  How is it possible that it advantage over the everyday investor.
takes longer to be rewarded for your good
www.geoinvesting.com
research, when information is more avail-
able than it has even been? Note: This article is not an attempt to provide invest-
The answer takes me back to a  presenta- ment advice. The content is purely the author’s per-
sonal opinions and should not be considered advice
tion  I had the pleasure of giving at Fred of any kind. Investors are advised to conduct their
Rockwell’s microcap  conference  event on own research or seek the advice of a registered invest-
ment professional.

www.stocknewsnow.com MicroCap Review Magazine 63


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

Why Family Offices Should Be Your


First Choice For Capital Investment
Five Steps to a Successful Raise

A
s our third article on family offices tunities to invest in direct venture and private Campden report. For example, in a recent
for Microcap Review, we’re sharing equity, an ideal family office feeding ground. discussion with a co-investor which we had
a deeper dive into some of the secrets According to the Campden Report, in assumed was exclusively in real estate, we
to successfully completing transactions with 2017 direct venture capital and private equi- learned that they had recently invested in a
family offices based on our own investment ty investments represented 9.3% of port- cobalt mine in Africa, and were in the pro-
practices and analysis of deals presented to us folios. Direct investments are investments cess of rolling out an ABL debt portfolio. It is
over the last 12 months. where the investor invests directly in a com- our belief that armed with such data, compa-
The family office investor segment has pany rather than investing through a blind nies in the microcap sector should market to
established its presence as a significant glob- pool venture capital fund or private equity family offices as their first choice. In favor of
al alternative to traditional institutional capi- fund. We reported previously that direct the issuers, family offices offer many benefits
tal sources. According to a recent report by investing is a central theme, as family offices which we’ve covered in other issues. Some of
Campden Research which surveyed a pool seek to reduce fees and gain greater control the primary benefits are:
of 262 family offices the average assets under of risk exposure. This is now confirmed by
management was $921M in 2017. And these the report. Where 9.3% may not seem large • Long term equity and debt capital.
assets were highly diversified. As more FO’s on first glance, consider that number repre- • Typically do not have finite invest-
begin to report their specific investment sents over $1 trillion dollars globally. And ment horizons.
practices, the portfolio diversity of this at 9.3% it’s the second largest percentage in • Tend to be anchor investors which create
investor segment is increasingly revealed. the alternative investment segment behind stability for follow on investors and also
The results are staggering, and clearly point direct real estate investment which still holds for business development and credit.
to opportunities within the microcap sector. the highest position allocation at 16.2%.
It is clear that given the steadily increas- As family office investors ourselves, we Similarly Microcap companies offer many
ing quality level of microcap companies, routinely compare notes with other offices. of the key ingredients that interest family
and family offices aggressively in search of We are seeing increased corroboration of the offices:
investment opportunities, we expect to see
convergence between the two groups. The
high-quality end of the microcap spectrum
i.e semi-liquid NASDAQ listed companies of
less than $100M, offers “semi-public” oppor-

n BY KARL DOUGLAS

64 MicroCap Review Magazine www.stocknewsnow.com


• High growth potential  Family offices are unlikely to participate in 4. Governance Structure
• Liquidity a syndicated deal. They won’t invest on the Family offices are driven by preservation of
• Transparency  same terms are a $1,000,000 HNW investor. capital. Governance and transparency are two
• Venture Exposure Why should they? When the going gets rough components of risk mitigation that allow fam-
• Private Equity and the quick money and market driven ily offices to understand what’s happening at
money disappears, family offices are generally the company. Although NASDAQ companies
5 ways to be successful  willing to weather the storm provided that the have this as a rule, managers tend to under-
fundamental business model makes sense. utilize the board of directors and don’t solicit
As part of our deal sourcing activity we To get family office capital help them to directors that can have a major impact of this
attend a number of conferences each year. understand the merits of the business model. business. Attract major talent to your board
We also have relationships with many of Only then will they consider investment in of directors and showcase it. Value-add direc-
the investment banks. We prefer confer- a preferred share or debt round. And more tors can make a huge difference and send a
ences because we get to interact directly with often than not they will require a custom message to your investors. Ability to attract an
management teams and hear first hand the designed round offering a significant array iconic retired industry executive also speaks
growth strategy for the companies. Based of shareholder rights and protections. loudly about the business potential and man-
on recent interactions we’ve highlighted five agement acceptance in the community.
factors that contribute to successfully raising 2. Lead with Management
capital from family offices. Family offices tend to invest in manage- 5. Financial Plan
ment. The impression you create is 51% of A well thought out financial plan is critical
Understand Family Office the decision. We’re always surprised at the to the family office. Understanding when
Drivers – lackluster way management are portrayed major cash calls will be required and under-
in written materials. Prior successes and standing the capital stack in total is also
1. Family offices tend to be fundamental failures should be well described. Don’t cut important. Although liquidity is not usually a
investors. and paste an old description from 10 years driver, liquidity for risk mitigation purposes is
They are much more interested in your bal- ago. Hire a professional writer if necessary. important. So articulate the various liquidity
ance sheet and cash flow statements than in We’ve read many plans where management options thoughout the plan timeline.
your VWAP. Even though you are public, successes are poorly described, only to learn
they look at your company as a private com- more about positive experiences during due A clear understanding of these drivers will
pany with a liquidity option, nothing more. diligence. Share your wins and your losses. set your company and your capital raising
They are interested in your business model, Losses to the family office are examples of efforts well ahead of your competition in
market potential and execution plan. The typi- what you won’t repeat again. So they are of terms of securing a family office backer. n
cal family office investor will seek to become an as much value as the wins.
anchor investor bringing balance sheet stabil-
ity to your company, which reduces investor 3. Competitive Market and Marketing Plan
About the author:
uncertainty and increases creditor and vendor This is a real area where most microcap
Karl B. Douglas is Chief Investment Officer at
confidence. 70% of microcap companies go managers fail. It is critical to have a full PPMT Capital Advisors, Ltd.., a multi family office
out of business because they run out of capital. understanding of market size and competi- advisory firm. Mr. Douglas has a career that spans
over 30 years investing in private and public com-
CEOs and CFOs that attend microcap tive landscape. These are not just lines in a panies. PPMT Capital invests in private equity
conferences have fallen into a groupthink business plan, this is your revenue and earn- and debt investments of $15M to $100M in Energy,
Mining, Industrials and Real Estate.
model of “I need to create volume in my ings growth potential! And family offices are
For further information contact:
stock, so I should hire an IR firm and pitch aware of this point. We have seen NASDAQ kdouglas@ppmtcapital.com
the buy-side”. That’s all well and good, and company presentations where management 800-401-9017
Note: This article is not an attempt to pro-
serves a purpose, but when sitting with a describe less than 25% of their competition. vide investment advice. The content is purely the
family office, they are unlikely candidates to We’ve also seen scenarios where the market author’s personal opinions and should not be con-
sidered advice of any kind. Investors are advised to
purchase common stock on the open mar- size is described as X, and the entire com-
conduct their own research or seek the advice of a
ket, or even through a private placement. petitive landscape is only 25% of market size registered investment professional. The author does
Failure to adjust your presentation for the claimed. Do your homework in this area and not own shares or any equity or debt interest in any
companies mentioned in this article before or at its
audience is a fatal mistake that we have seen have a clear execution plan which describes publishing.
many managers commit. how your company will gain market share.

www.stocknewsnow.com MicroCap Review Magazine 65


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66 MicroCap Review Magazine www.stocknewsnow.com
CANNABIS CORNER

Investors Warm Up to U.S. Cannabis Companies


I n past columns, I have discussed how
Canada, which has now formally legalized
for adult access beginning October 17th, has
Attorney General, and his rescission of the
Cole Memo, a guidance letter from 2013 that
created a temporary safe harbor for operators
coming from Canada. Two recent go-public
transactions highlight how the path to going
public runs through Bay Street, including
been leading the global cannabis industry, sug- and regulators, had had a profoundly negative MedMen (CSE: MMEN) (OTC: MMNFF)
gesting that “anyone who cares to invest in the impact on sentiment earlier this year. and Green Thumb Industries (CSE: GTII)
global cannabis industry must pay attention to With the chill lifting, indeed capital formation (OTC: GTBIF), both of which debuted in
these Canadian companies.” The U.S. cannabis has taken a turn for the better. Both private and June. While California-based MedMen strug-
industry is far bigger, but federal illegality and public companies are finding the flow of capital to gled following the initial trade, the company,
concerns that the status quo might persist or be more favorable as we have seen the emergence with operations in California, Nevada and
even revert have left many investors on the side- of investment funds who are able to write big New York (and soon Florida) raised over
lines. In the words of the Bob Seger, “Against the checks. For example, Gotham Green Partners in $110 million just prior to going public. The
wind, we were runnin’ against the wind.” New York City invested $50 million into iAnthus company provided projections of sales in 2019
In April, though, things changed dramati- Capital (CSE: IAN) (OTC: ITHUF), which oper- of over $450 million. GTI, on the other hand,
cally for the better. Out of the blue, Senator ates in Colorado, Florida, Massachusetts, New which reported sales of almost $11 million in
Corey Gardner, a Republican from Colorado, Mexico, New York and Vermont. It also invested Q1, doubled following its debut.
announced that he and President Trump had $15 million into privately-held Flow Kana, a Since 2014’s big bubble and crash following
come to an agreement after Gardner had held up California-based company that provides craft the Colorado legalization, real cannabis compa-
Department of Justice nominations that would cultivators with distribution, compliance and nies have been very cautious about going public.
allow Gardner to introduce legislation to protect other services. Several other funds are deploying This remains the case, for now, with respect to
the rights of states to oversee cannabis regula- capital as well as they are apparently having an the OTC, but going public on the Canadian
tion with Trump’s support. He followed through easier time raising funds. Securities Exchange has become quite fashion-
in June, introducing with Senator Elizabeth In a sign of how important the U.S. capital able. Investors in the public markets can finally
Warren, Democrat of Massachusetts, the markets will be globally over time, Tilray, invest in cannabis companies that represent the
Strengthening the Tenth Amendment Through the fifth largest Canadian licensed producer, true industry by buying the stocks in Canada or
Entrusting States (STATES) Act. Formally, this announced in June that it would be conduct- through their dual listings on the OTC. n
is known as S. 3032, and a companion bill, ing a NASDAQ IPO. In fact, the company,
Editor’s Note:  Alan Brochstein, CFA, began his
H.R. 6043, was introduced by Ohio Republican which is controlled by Seattle-based pri-
career as a bond trader in NYC in 1986 with Kidder,
David Joyce in the House of Representatives. vate equity fund Privateer Holdings, won’t Peabody and worked with CS First Boston and
While the chances of passage are not very be pursuing a dual listing in Canada. U.S. Criterion investments until transitioning to equi-
ties as a analyst/portfolio manager in 2000.  In
high, the pendulum had swung too far in the investment bank Cowen was underwriter of 2007, he began AB Analytical Services, where he
direction of negativity, and the signal that the IPO along with BMO Capital Markets. provided research and consulting to several invest-
ment advisors while also becoming one of the most
the cannabis industry won’t be trampled by As I have mentioned in the past, the valu-
popular contributors at Seeking Alpha.  In 2013, Alan
the federal government has lifted the spirits ation gap is quite large between Canadian launched 420 Investor, an online community focused
of investors as well as operators. Recall that companies and their cheaper counterparts on publicly-traded companies in the cannabis sec-
tor, and, more recently, he began New Cannabis
the industry had faced enormous uncertainty in the U.S. While federal illegality and some Ventures, a news & information platform that high-
following the appointment of Jeff Sessions as issues like the punitive federal taxation of the lights the most promising companies and influential
investors in the cannabis industry.
industry, which is known as 280E, certainly
justify higher prices in Canada, all things Disclosure: I own no stocks mentioned. iAnthus is a
equal, the gulf remains too wide, especially client of mine at New Cannabis Ventures.

if the U.S. policy is going to be more laissez- www.420investor.com


faire. Of course, a single tweet could change
the sentiment again, but, for now, the industry Note:: This article  is informational in nature and
should not be construed as providing individualized
appears to be taking advantage of the better investment advice.  Investors are advised to conduct
political environment that is evolving by rais- their own research and due diligence or seek the
advice of a registered investment professional. Both
ing larger amounts of capital than ever before.
n ALAN BROCHSTEIN the Author and Ridgewood Investments disclaim any
Not surprisingly, a lot of the capital is still liability from the use or misuse of this information.

www.stocknewsnow.com MicroCap Review Magazine 67


B E LT WAY C O R N E R

Regulation of Crypto
at a Crossroads
B efore the summer of 2017, cryptocurrencies had yet to enter the main-
stream consciousness, much less the crosshairs of Capitol Hill.
That changed with record-smashing prices of Federal Reserve Board Jerome Powell,
and the massive proliferation of initial coin argue that money laundering is the primary
offerings (“ICOs”). By the start of sum- use of cryptocurrency. The Department of
mer 2018, the sleeping giant of government Justice released a report presenting virtual
intervention had begun to stir in the form of currencies as an enabler of financial crime
coordinated enforcement actions by the U.S. and formed a Digital Currency Initiative
and Canadian governments. Next came to increase money-laundering prosecutions.
rhetorical rumblings by regulatory agen- The Financial Crimes Enforcement Network
cies. Then the growl of hearings on Capitol has reported a significant uptick in sus-
Hill. Now, as the summer of 2018 draws to picious activity reports regarding crypto-
a close, the beast is fully awake and showing related activity.
signs of hunger, with its gaze fixed squarely Viewed in this light, one proposal would
on crypto. At the moment, it is torn between be for Congress to simply ban trading in
viewing the industry as a companion for the cryptocurrencies altogether.
hunt or a prey to be consumed. Crypto’s next But of course, there is a counter narra-
moves will likely determine its fate. tive to be told, which is that crypto is the
most effective means of not only transfer-
MonEY LaUndErinG coUnTEr ring value digitally, but of tracking it as well.
narraTiVEs The great virtue of this story is that it is
true. A member of the Drug Enforcement
What appears certain is that Congress and Administration’s Cyber Investigative Task
the regulatory and enforcement agencies are Force noted that cryptocurrencies actually
poised to take significant steps in the com- give law enforcement “a lot of tools to be able
ing months to decisively shape the crypto to identify” money launderers, and that she
industry. The most critical issue driving “actually want[s] them to keep using them.”
government action is money laundering and It is critical for the crypto industry to make
the financing of terrorism and organized this case clearly and emphatically to Capitol
crime. So far, the government’s strongest Hill. The focus should be so-called “privacy
impulse has been to see crypto as the enemy tokens.” A strong distinction must be made
in this regard. Congressional hearings have between them and coins such as Monero
been conducted that focus on the negative that appear explicitly designed to facilitate
n BY DINA ELLIS ROCHKIND, Esq. impact of cryptocurrencies on money laun- criminal activity, and which the government
AND JOSHUA SAMUEL DOWNER, Esq.
dering. Prominent voices, such as Chairman will inevitably devour.

68 MicroCap Review Magazine www.stocknewsnow.com


Dina Ellis Rochkind  is Of Counsel in the Paul
Steps Towards Positive XRP, which are arguably more centralized.
Hastings Government Affairs practice www.paul-
Regulation The stakes of whether to consider the hastings.com and is based in the firm’s Washington,
generality of blockchain-based tokens to be D.C. office. Her practice focuses on representing cli-
ents before Members of Congress on Capitol Hill and
The encouraging news is that many in securities are increased by the perception the Executive Branch. Ms. Rochkind represents cli-
Congress are eager to be educated about the of widespread fraud among ICOs. On the ents in matters involving regulatory initiatives, poli-
cymaking and legislation, and enforcement actions.
nuances of the crypto industry, and there is other hand, the impulse for regulation is
Ms. Rochkind has over 20 years of experience on
movement on the Hill toward positive regu- mitigated by the countervailing case for the Capitol Hill, lobbying, and working for the Executive
lation. In a hearing in May, several members overall social benefit of the crypto industry. Branch. Prior to joining Paul Hastings, she served as
Washington Director in the office of Rep. Mike Coffman
of the House Financial Services Committee The SEC is at a moment of decision on this (R-CO). Other Capitol Hill experience includes serving as
assertively pressed a positive case regarding issue, which underscores the importance of senior staff for various Congressional Committees and for
Senator Pat Toomey (R-PA). Ms. Rochkind also served in
cryptocurrencies to the representatives of the industry assertively making the case for
the George W. Bush Administration as Deputy Assistant
the Securities and Exchange Commission its socially transformative potential. Secretary at the Treasury Department. She has been
(“SEC”) who were testifying. More recently, involved in drafting major pieces of legislation over the last
two decades, including: the 2005 bankruptcy reform legis-
numerous members have drafted or signed Energy and the Blockchain lation, the FACT Act, E-Sign, Check 21, Federal Deposit
on to a letter that they plan to send the SEC Insurance Reform Act, Gramm-Leach-Bliley Act, and,
most recently, the comprehensive and bipartisan JOBS Act,
seeking clarity on a range of issues related to Another increasingly sensitive regulatory
for which she was the lead staffer in the Senate.
initial coin offerings, including greater trans- issue is the incredible amount of energy that Ms. Rochkind has worked across party lines on
parency on what would justify an enforce- is used to mine tokens in the traditional both sides of the aisle to achieve key legislative suc-
cesses and has a reputation for “getting things done”
ment action. “proof-of-work” models used by bitcoin, in Washington. She is also experienced in crisis
The SEC is showing signs of softening its ethereum and others. The Senate Energy management. During the auto industry crisis, Ms.
Rochkind led the lobby to rescue Chrysler and han-
stance. In a rare rebuke of its own staff, the Committee recently held a hearing to con-
dled the consequences and fallout from its bankrupt-
Commissioners stayed a decision to deny a sider the energy efficiency of bitcoin and cy. She has led legislative advocacy on behalf of major
rule change that would have permitted the related currencies. The high energy usage of corporate entities and advised congressional leaders
on issues such as banking, bankruptcy, insurance,
listing of bitcoin-related exchanges on NYSE these traditional cryptocurrencies, and the other financial services, and economic development.
Arca. If the SEC Commissioners ultimately concentration of their mining operations in Prior to leading Rep. Coffman’s office, Ms. Rochkind
served as Vice President of Federal Government
reverse the denial, that would be a milestone China, presents a challenge to the industry.
Affairs for a leading mortgage lending company.
in integrating the trading of cryptocurren- On the other hand, those liabilities also pro-
cies with the traditional financial markets. vide Ripple an opportunity to make the case Joshua Downer  is an associate in the Bank
Regulatory and Global Banking and Payment Systems
that the consensus model is more sustainable practices of Paul Hastings. His practice focuses on
Security or Not a Security and secure. Whether those attributes will regulatory and transactional matters relating to
banking, fintech and payment systems. Mr. Downer
persuade the SEC to refrain from declaring
regularly represents traditional and non-traditional
This summer also saw a significant, if lim- XRP and other consensus-based tokens to financial institutions in transactions and matters
ited, victory for the non-classification of be securities may depend on how compelling before federal and state bank regulatory agencies. He
also advises clients on blockchain and cryptocurrency
cryptocurrencies as securities, when SEC a case is made for their overall social utility. matters, including government affairs, initial coin
Commissioner William Hinman declared in • • • offerings and the development and expansion of
services on various cryptocurrency exchanges.
a speech that the “present state” of Ether and Congress and the U.S. regulatory and
Mr. Downer received his A.B. in Government
the Ethereum network “are not securities enforcement agencies are poised to impose from Harvard University, his MSc. in International
transactions.” In an encouraging sign to the significant regulations on the crypto indus- Political Economy from the London School of
Economics, and his J.D. from Vanderbilt University,
market that a token could “evolve”, Hinman try in the coming months. The future of the where he graduated Order of the Coif in 2013. Mr.
indicated that the SEC viewed Ether as not a industry depends significantly on whether Downer clerked for the Honorable Samuel H. Mays,
Jr. on the United States District Court for the Western
security without taking a position on wheth- the government perceives crypto to be an
District of Tennessee. Prior to joining Paul Hastings,
er the fundraising that accompanied the ally or an enemy in the fight against money he worked at another multinational law firm in
creation of Ether had caused it to initially be laundering and organized crime. Regulatory Washington, D.C. 

a security. However, Commissioner Hinman agencies are also highly sensitive to the Note:: This article  is informational in nature and
also cited Ethereum’s current “decentralized threat posed by fraud in initial coin offer- should not be construed as providing individualized
investment advice.  Investors are advised to conduct
structure” in coming to the SEC’s decision, ings, particularly to retail investors. It is
their own research and due diligence or seek the
which raised doubt whether the SEC’s posi- a critical juncture. If there were ever a advice of a registered investment professional. Both
tion would apply to “consensus” transaction moment for the industry to make its case in the Author and Ridgewood Investments disclaim any
liability from the use or misuse of this information.
models used for other coins, such as Ripple’s Washington, it is now. n

www.stocknewsnow.com MicroCap Review Magazine 69


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

creso pharma Ltd.


C
reso Pharma was founded by a By using my 30 years’ experi-
team of highly-experienced phar- ence in the pharmaceutical
maceutical executives who saw the and biomed industries and
huge potential in the cannabis industry. The partnering with pharma
team bring years of pharmaceutical expertise experts with long pharma
as well as the associated methodologies and and scientific expertise, we
rigour to successfully harness the potential have been able to leverage
of cannabis for people and animal health. our scientific knowledge
Creso’s mission is to bring the best of can- to deliver the highest qual-
nabis to better the lives of people and animals. ity, trustworthy cannabis
To do this, Creso uses the latest in science and hemp products across
and research to develop, register and com- a range of areas spanning
mercialise innovative cannabis and hemp- therapeutics, topical applica-
derived products. Since inception and as a tions, animal health, lifestyle and nutraceuticals. Creso is currently expanding its presence
global operation, Creso’s experienced leader- “Our business model means we will con- in North and South America – two lead-
ship team, as well as its diverse geography, has tinue to partner with experts to help launch ing markets for the cannabis industry and
enabled its expansion into different markets. our innovative products into new territories. forecast to be worth $48 billion by 2028.2
Since launching, Creso has delivered a These partners benefit from our un-paral- Creso’s expansion in this market is coming
number of firsts in the cannabis industry; it leled expertise in this area and we benefit to life through the construction of Mernova
was the first to import medicinal cannabis from their in-market reputation and ability Medicinal’s Nova Scotia-based state of the art
into Australia, the first to launch innovative to open doors for our ever-expanding prod- fully GMP cannabis growing and extraction
hemp derived products into Switzerland for uct line in human and animal health.” facility – due for completion by Q4 2018 - the
humans and animals and recently became Conservative estimates predict the nutra- completion of Creso’s acquisition of Kunna
the only Australian-listed medicinal cannabis ceutical and medicinal cannabis industry S.A.S. in Columbia, and the appointment of
company with direct exposure to the oppor- could grow to US$31 billion in the next a Chief Operations Officer for the Americas.
tunity-rich Colombian cannabis market. three years.1 Creso’s global footprint posi- Creso’s recent product launches of anibi-
Dr. Miri Halperin Wernli, Creso Pharma’s tions it perfectly to seize market share in the diol® and cannaQIX® in Switzerland resulted
CEO and co‐founder said: “I truly believe that industry, drawing on its highly experienced in initial revenues as well as confirmed reor-
the beneficial properties of cannabis deliver leadership, diverse geographic spread and ders and commercial agreements signed with
better health outcomes in people and animals. strict adherence to pharmaceutical rigour. partners to commercialise Creso’s human and
animal health products across key European
countries, the Middle East and Latin America.
At the same time, the Creso lifestyle portfolio
is growing with the first samples of its choco-
late and beer products in market for testing. n

For more information, please visit:


www.cresopharma.com

(Endnotes)
1 Brightfield Report cited in Financial Post

2 Forbes Magazine, Legal Cannabis Industry poised


for big growth in North America and around the
world (source: Arcview Market Research & BDS
Analytics)

70 MicroCap Review Magazine www.stocknewsnow.com


Platform Exchange Partners

We’ve Broadcasted We’ve Delivered We Manage


22,000+ 160+ Million 4+ Million
Earnings Events Investor Kits Globally Shareholder Records

From regional to global distribution,


our news network has you covered in
real-time, 24/7.

sales@issuerdirect.com issuerdirect.com US Toll-Free: 877.481.4014


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

www.stocknewsnow.com MicroCap Review Magazine 71


ASIA CORNER

Hong Kong Exchange


Attracting Chinese
Unicorns and Biotechs
S ince changing its listing rules earlier this year, Hong Kong is see-
ing an escalation in listings from China’s new-economy and biotech
companies.
The Hong Kong Exchange expanded its Approximately 220 companies are antici- of Hong Kong›s IPO market, China Tower,
listing rules in April to allow companies pated to go public in Hong Kong this year, the world’s biggest operator of mobile phone
with dual-class share structures and pre- with total funds-raised by IPOs forecasted to towers, raised US$6.9 billion on the Hong
revenue biotechnology firms to list on the be in the range of HK$200 billion to HK$250 Kong exchange making it the largest IPO
exchange in an effort to attract blockbuster billion, according PwC. For the first half of in two years at a time when the market was
Chinese tech and new economy companies 2018, Hong Kong maintained its ranking as down about 14 percent from its January
as well as become the IPO destination for the third largest IPO destination with 108 peak. Additionally, Sinochem Energy, a unit
biotech startups. Long thought of as the new listings raising a total HK$50.4 billion of state-owned Sinochem Group Co Ltd,
place where east meets west, Hong Kong is of which the GEM board recorded 50 IPOs filed for a US$2 billion Hong Kong IPO at
perfectly positioned to provide access to one and HK$3.4 billion of total fundraising. the end of July.
of the fastest growing regions of the world. Telecommunications firms represented 41.4
With the new listing reforms, the SARS has per cent of the IPO funds raised in the first chinEsE Unicorns To
become more competitive with the US for half which includes US$4.7 billion raised by chanGE honG KonG’s
the IPOs of China’s mega technology and Xiaomi, followed by financials at 19.8 per capiTaL MarKETs
biotech firms. Previous to the new rules cent and technology at 11 per cent.
being implemented, these companies would Despite the pressures in the Hong Kong Rapidly expanding tech start-ups are the
likely go to the US for listing, but now can stock market from trade tensions, slowing future of China, driving innovation and
enjoy the advantages of geography and lan- global growth and tightening U.S. monetary fueling the country’s growth while obtain-
guage through a Hong Kong listing. policy, some analysts believe that Hong Kong ing record speed success. In China it takes
can regain its top position this year as more an average of four years to go from gesta-
technology companies and biotech firms tion to unicorn status, according to Boston
apply for a listing. They believe that Hong Consulting. Even more impressive, 46 per-
Kong may even benefit from the ongoing cent of Chinese firms broke through the
trade dispute between the US and China as it US$1 billion valuation in just two years from
could discourage mainland companies from launch. With many of these companies turn-
listing in the US. Charles Li Xiaojia, CEO ing to the equity markets to support their
of the HKEX, said he expects over a dozen continued growth, the number of unicorns
technology companies to list in Hong Kong seeking to tap the IPO market has become
this year under the new dual-class share an unprecedented phenomenon in global
n BY LESLIE RICHARDSON
structure rule.  Demonstrating the resiliency capital markets. This historical trend is

72 MicroCap Review Magazine www.stocknewsnow.com


expected to bring fundamental changes to Subsequently, China’s e-commerce market in 2018. The company has become China’s
Hong Kong’s capital market. While the term has grown to over a trillion-dollars. biggest online-offline services group where
“unicorn” was coined in order to express Encouraged by President Xi Jinping call consumers can order food, check for reviews
the rarity of a startup company valued at for national, mass entrepreneurship in 2014, for restaurants and bars, rent bikes, book
over US$1 billion, they are getting more China has created a vibrant start-up scene hotels or purchase movie tickets, all on one
common, especially in China where they supported by government policies such as mobile app.
are being created at a much faster rate tax incentives and billions in start-up funds.
than US counterparts. A joint study issued Venture capitalists are more than happy Growing Pipeline of
by a Ministry of Science and Technology to participate by investing billions as they Biotech Firms Seeking HK
affiliate and a Beijing-based consultancy search for the next Baidu, Alibaba or Tencent IPO
issued the  2017 China Unicorn Enterprise Holdings, known collectively at BAT.
Development Report which shows China has Funding for start-ups in China in the first China’s Biotech is an industry that’s explod-
164 unicorns, worth a combined US$628.4 half of this year topped 2016’s record  with ing, yet still in its infancy.
billion and the number is growing expo- Chinese entrepreneurs raising a total of 368 With pre-revenue biotechnology firms
nentially. In fact, China’s top 10 unicorns billion yuan (US$54.1  billion),  according allowed to list for the first time, the Hong
all have individual valuations of more than Shanghai DZH. China’s fin-tech enterpris- Kong Exchange has received filings from
US$10 billion, which are sometimes referred es received the majority funding, raising around 16 biotech firms pursuing IPOs this
to as “super unicorns”. Furthermore, four around 230 billion yuan (US$35 billion), year, seeking to raise upwards of US$3 bil-
out of every 10 unicorns picked Hong Kong with Ant Financial, Du Xiaoman Financial lion. Through the Shanghai and Shenzhen
as the preferred market for an IPO according and JD Finance (financial arms of Alibaba, stock links, mainland investors can also
to a survey of 101 companies by PwC. Five Baidu and  JD.com  Inc. respectively) raising buy shares of Chinese biotech companies
sectors account for 92 of the 164 Chinese about 120 billion yuan in total. Additionally, listed in Hong Kong.
unicorns – e-commerce, internet finance, China has become a top destination of ven- China’s pharmaceutical sector has long
health, cultural and entertainment and logis- ture capital in sectors such as virtual reality, been dominated by low-cost generic medica-
tics. Many of these unicorns are backed by autonomous vehicles, robotics, drones and tions, with little focus on developing innova-
industry titans such as Alibaba and Tencent artificial intelligence. tive products. While annual spending on
Holdings. These start-ups have the advan- The next multibillion dollar tech float prescription medicines has crossed US$100
tage of enjoying huge success in an unusually expected this year is Beijing-based Meituan billion in China as diseases typically associ-
short period of time due to a unique envi- Dianping who is aiming for a US$60 billion ated with the western lifestyle are on the rise,
ronment of a vast and growing population valuation in its initial public offering, in the country is facing significant unmet med-
of internet users with high mobile penetra- what could be one of the most highly valued ical needs, particularly in cancer, neurology
tion rate and mobile-first consumer habits. listings for a Chinese technology company and diabetes, along with a rapidly ageing

www.stocknewsnow.com MicroCap Review Magazine 73


population.    In an effort to improve the ing scare about the safety of pediatric vac- which make up around 60 percent of the
country’s healthcare and medical services, cines in China. Despite the company’s rocky Hang Seng Index. Traditionally, the Hong
China is executing a comprehensive strategy start, industry professionals remain confident Kong market pays a lot of attention to earn-
to accelerate the development of new drugs that Hong Kong will become a top listing ings and market size and lacks experience
and therapeutics with the intention to grow destination for mainland biotechnology com- evaluating firms before they start recording
the biotech sector to over four percent of panies. Following Ascletic Pharma’s listing, earnings.   As Asia’s biotechnology industry
GDP by 2020. The country is building 10-20 NASDAQ-listed biotech, BeiGene, also com- is in its infancy, analysts and investors in the
science parks for biomedicine where it will pleted its secondary listing on the HKEX rais- region have little experience or knowledge
incubate national and global champions by ing just over $900 million, near the top of its in analyzing early-stage drug firms with no
helping them gain leading technologies and range but under the $1 billion target. profits, revenues or cash flow. Specifically,
expanding their commercial capabilities. They With strong optimism, a string of Chinese having to predict and make decisions about
are also investing in graduating large num- life science companies continue to file for the future success of drugs that are not yet
bers of university-trained Chinese scientists. IPOs. Earlier this year, Chinese biotechs, approved by regulators and market potential
The government is particularly interested Innovent Biologics and Ascentage Pharma, can be challenging for inexperienced analysts
in seeing smaller, innovative biotech com- canceled plans to list in New York choosing and bankers. Subsequently, global banks
panies emerge and has made biotech along instead to list in Hong Kong. Ascentage with are under pressure to hire biotech experts
with other innovative businesses eligible a focus on therapeutics for cancers, hepatitis to cover the new listing in Hong Kong. Still
for greater government backing. They are B and aging-related diseases is targeting to many companies believe that while it may
streamlining regulatory procedures for new raise up to $300 million. While Suzhou- take time for Hong Kong to build expertise,
drug approvals and expediting the addi- based Innovent, which is backed by Fidelity its links to mainland China could help out-
tion of new and more effective drugs to and Singapore state investor Temasek, is weigh the shortcomings. In the meantime, the
the approved list for public hospitals to get looking to raise between US$300 million combination of a stream of new biotech list-
reimbursement under the state health care and US$500 million in its Hong Kong ings and Asian investors adjusting to valuing
insurance scheme.  With the new measures IPO. Tianjin-based Tasly Pharmaceutical pre-revenue biotech companies could create
to speed up new drug approval, pharmaceu- Group is planning to list its biopharma unit, an opportunity to find undervalued biotech
tical sales are expected to grow by 15 percent Shanghai Tasly Pharmaceutical, in Hong companies in Hong Kong. n
from 2019 to 2021. Overall, China›s biolog- Kong as it is targeting to raise about US$1
Ms. Leslie Richardson has over 20 years of investment
ics industry is forecasted to double in size billion, which could make it the largest funds
management and equity research experience. She oper-
to US$52 billion by 2021 compared with a raised for a biotech. Other biotech compa- ates a boutique investor relations firm in Hong Kong
global growth rate of 60 percent, according nies in the queue include Shanghai Henlius for Asian companies listed in the U.S. and Hong Kong.
She also assists private companies develop investment
to JP Morgan. Biotech, a subsidiary of Shanghai Fosun material and build an investor following in prepara-
At the end of July, Ascletis Pharma, a maker Pharmaceutical, U.S.-based cancer detec- tion for a public listing. Additionally, she is the Asian
Correspondent for Micro-Cap Review, www.microcap-
of HIV and liver-cancer drugs was the first tion start-up Grail and CanSino Biologics, a
review.com, a financial magazine focused on mirco-cap
pre-revenue biotechnology firm to complete Chinese developer of vaccines. JHL Biotech companies. Previously, she worked for CCG Elite in
its IPO in Hong Kong under the new listing Inc, a Taiwan developer of low priced bio- assisting Asian-based, U.S. listed clients formulate key
communication strategies. Ms. Richardson began her
rules.  The company raised US$400 million, similar therapeutics, which delisted from investment career at U.S. Trust Company then went
making it the largest biotech IPO in terms the Taiwan Exchange in February, plans to on to join Odyssey Advisors as a portfolio manager
and Director of Research. Ms. Richardson specialized
of dollars raised and valuing the company relist in Hong Kong stating Hong Kong will
in high growth sectors such as bio-tech, alternative
at US$2 billion. The IPO was widely seen provide higher trading liquidity and better energy, IT and telecommunications. She earned her
as a test for the new biotech sector as a gold valuation for its shares enabling it to raise M.B.A. from the University of Southern California. Ms.
Richardson is based in Hong Kong.
rush is expected in Hong Kong with fund funds for its expansion plans. www.elite-ir.com.
raising shifting into overdrive. However, the While biotech companies are eager to join
Note: This article is not an attempt to provide
company struggled in its first week of trad- the Hong Kong exchange, some profession-
investment advice. The content is purely the author’s
ing with the Hong Kong market down 3.9 als question if Asian investors are adequately personal opinions and should not be considered
percent for the week as market sentiment able to cope with the complexities of biotech advice of any kind. Investors are advised to conduct
their own research or seek the advice of a registered
continued to deteriorate due to escalating sector investing, especially pre-revenue com- investment professional. The author does not own
trade tensions between China and the US. panies.  Hong Kong has long been dominated shares or any equity or debt interest in any companies
mentioned in this article before or at its publishing.
Additionally, Chinese drug stocks have been by traditional companies such as Chinese
under pressure in Asia as a result of an ongo- state firms, financial and property groups

74 MicroCap Review Magazine www.stocknewsnow.com


www.stocknewsnow.com MicroCap Review Magazine 75
P R O F I L E D C O M PA N Y csE: cYBx / oTcQB: cYBxF

hilltop cybersecurity, inc.

H
illtop Cybersecurity, Inc(CYBX) icant sales from other companies adoption
is a software company focused on and re-distribution of our core products.
creating products which are spe- We are differentiated in that we are prod-
cifically for cybersecurity and the security of uct focused unlike many “cyber-security”
cryptocurrency.    firms and our goal is to not only protect our
The company is disruptive in that it has customers but also to reduce their depen-
patents regarding threat orchestration, cryp- dency on outside services firms.   We want
tocurrency storage and cyber-enabled proj- our customers to do a better job keeping
ect management.  The products were cre- themselves safe in Cyberspace with the lim-
ated by a seasoned team of ex-military and ited budgets and personnel that they have,
intelligence professionals with a focus on to do the job.  
the small and medium business enterprise.  The company has 3 patents, one that is
Because of the complexity and depth of the issued 2 that are pending and continues
software it has taken the company over 3 to work on innovation.  The products are
years of development to mature the product built with maximum interoperability and
portfolio to launch in the market.  open standards where possible to ensure and
The cyber-security market is estimated which most customers can use in their secu-
to approach 170 Billion by 2020 *, however, cyber-vulnerability of the businesses which rity plan. CYBX uses blockchain in order to
there are some sources that put the total deploy them.   make security logs immutable because it is
cost at closer to 1 Trillion and increasing.   CYBX management has held roles in the best way to make this particular aspect
Regardless of which figures are accurate the companies such as Informatica, NIKU, of the application safe not because it is the
cyber-war will be fought on the battlefield Department of Treasury, UPS, SAP, and flavor of the day like many firm. n
of businesses not like a traditional war.   others.   
Cryptocurrency further accelerates the risk Our channel partners include company For more information, please visit:
because of the ability to steal large sums like Guardsight an MSSP, Twin-Soft a resell- www.hilltopcybersecurity.com
of money effortlessly and quickly relative er in MENA and others.   Our strategy is to
to physical currency, an example being the focus on building the market’s best cyberse-
compromise in Japan wherein a hacker stole curity products and work with other firms
over 500M USD worth of Bitcoin.   that focus on sales and marketing thereby
CYBX has three primary products, becoming complementary to other cyber
CyberEPM, Vauban, and CryptoKEEP.  Each products and initiatives. There are several
product has a specific role in protecting a “white-label” distribution deals being dis-
customer and each is designed to reduce the cussed and we feel that we should see signif-

CYBX has three primary products, CyberEPM, Vauban, and CryptoKEEP.


Each product has a specific role in protecting a customer and each is designed
to reduce the cyber-vulnerability of the businesses which deploy them.

76 MicroCap Review Magazine www.stocknewsnow.com


www.stocknewsnow.com MicroCap Review Magazine 77
F E AT UR E D A RT ICL E

Harnessing Regulatory Initiatives & Targeted


Rulemaking to Improve Transparency and
Further Market Efficiency

O ver the past 10 years, the reputation and recognition of the OTCQX
Best Market and OTCQB Venture Market has grown.
This positive transformation, stemming of comment letters and rule proposals, we years, we have worked with state regulators
from our technology platform driving great- continue the conversations to achieve regu- towards achieving our goal of nationwide
er market transparency, coupled with the latory streamlining and targeted rulemaking Blue Sky recognition for our OTCQX and
competitive evolution of our broker-dealer that will increase transparency and improve OTCQB markets.
community, has fostered vibrant, data-driv- market efficiency. As of June 2018, we have achieved second-
en, electronic public markets. The improved In March 2018, I participated in the SEC ary trading exemptions in 30 states – with
standards we have implemented have led Investor Advisory Committee (IAC) featured 27 states recognizing both the OTCQX and
regulators to recognize the important role of panel “Discussion of Regulatory Approaches OTCQB markets and 3 states solely recogniz-
our OTCQX and OTCQB markets in foster- to Combat Retail Investor Fraud.” This public ing the OTCQX market. Each state adopted
ing efficient secondary trading for public platform provided an opportunity to share my a tailored approach to granting these exemp-
companies. Based on the price transparency thoughts and insights on how regulators can tions, using no-action letters, rule changes,
and current public information available for improve retail investor protection while low- administrative orders and existing statutory
free on our website, these markets are rec- ering the barriers to capital formation. exemptions.
ognized by the SEC as “Established Public In conjunction with the panel, OTC
Markets” and have Blue Sky secondary trad- Markets submitted a series of regulatory JoBs acT onLinE capiTaL
ing exemptions in 30 states. recommendations which underscore the raisinG
Of course, we see regulatory recognitions need to increase disclosure and drive further
and rule modernizations that support capital transparency. We believe that the future of capital raising
formation as a core practice in providing The team at OTC Markets proactively is online, and we support changes to make
effective and efficient secondary markets advocates on behalf of our issuers, the bro- the JOBS Act more efficient and accessible.
for public companies. Through constructive ker-dealer community, the investing public Regulation A+ allows small companies to
dialogue with regulators, and the submission and the stakeholders we serve. We continue raise up to $50 million online, transparently
to engage regulators and lawmakers on how and directly from the public without the
to improve our public markets by updating extensive cost burden of a full SEC public
restrictive and outdated regulations, driven offering. However, the SEC initially did not
by our belief that there needs to be a more allow SEC reporting companies to raise capi-
holistic approach to targeted rulemaking and tal through Regulation A+.
related legislation In 2016, we filed a Rulemaking Petition
For the remainder of 2018, we are focused with the SEC, advocating that SEC report-
on the following initiatives: ing companies be permitted to conduct an
online public offering under Regulation A+.
BLUE sKY ExEMpTions Experienced reporting companies with com-
prehensive disclosure and investor relations
State Blue Sky laws impact all companies processes in place are ideal candidates to use
n BY CROMWELL COULSON
trading on our markets. Over the past two Reg A+.

78 MicroCap Review Magazine www.stocknewsnow.com


In 2017, the House of Representatives Plans (known as “ESOPs”) to their employ- increased regulation and disclosure require-
passed the Improving Access to Capital Act, ees. Current IRS regulations force public ments for transfer agents, company affiliates
based in large part on our SEC Petition for companies quoted on our premium OTCQX and insiders. Bringing greater transparency
Rulemaking. On May 24, 2018 the Economic and OTCQB markets to treat their stock as to the share ownership and transfer history
Growth, Regulatory Relief, and Consumer “private” for ESOP purposes. As a result, would go a long way to deter bad actors.
Protection Act (S. 2155) was enacted into despite having a publicly-quoted price that These achievements underscore our con-
law-- Section 508 of the bill incorporated is recognized as a Level 1 price source by tinued commitment to engage regulators and
the Improving Access to Capital Act. As a the Financial Accounting Standards Board lawmakers. As we continue to push ahead
result of this key legislation, SEC reporting (FASB), current regulations require OTCQX with these policy initiatives, we encourage
companies are now eligible to raise capital and OTCQB companies to use an inde- issuers, investors, advisors, regulators and
under Regulation A+. pendent appraisal to establish the value of other market participants to contact us to
We will continue to support other legisla- their securities. The cost and risk involved explore how you can help.
tive proposals aimed at strengthening the ultimately deters many smaller public com- (* Data as of April 18, 2018) n
JOBS Act. panies on our markets from offering ESOPs
R. Cromwell Coulson - President, Chief Executive
to their employees.
Officer and Director of OTC Markets Group 
Regulations Impacting A robust roster of 72 established U.S. R. Cromwell Coulson is President, Chief Executive
Small Public Companies: companies* trade on our OTCQX Premier Officer and Director of OTC Markets Group, Inc.
responsible for the company’s overall growth and
Margin Eligibility and market, with an aggregate market capitaliza- strategic direction. Since acquiring OTC Markets’
ESOPs tion of over $8.7 billion and employing over predecessor business in 1997, Cromwell has trans-
formed the company from a privately-held publisher
20,000 employees. These companies and
of broker-dealer quotations into a publicly-traded
Our modernization efforts often target their employees should not be prohibited company operating three public markets for 10,000
decades-old regulations that were adopted from accessing these benefits that come with U.S. and global securities. Cromwell is a strong advo-
cate of efficient public markets, improving access to
during a time when OTC trading was con- being a public company, simply because they capital for small companies, supporting a diverse
ducted via printed quotes and phone calls, are not listed on an exchange. ecosystem of broker-dealers, and empowering
investors with information.  He has testified before
and company information was scarce. Our
Congress and spoken on these and other issues
markets have changed dramatically since the Investor Protection: Stock at numerous industry conferences. Prior to OTC
pre-internet days, and outdated laws now Promotion and Share Markets, Cromwell was an institutional trader and
portfolio manager at Carr Securities Corporation.
impose unnecessary restrictions on small Ownership Disclosure He holds an OPM from Harvard Business School
company capital formation and limit the and received his BBA from Southern Methodist
University.  Cromwell is Chairman of the FINRA
value of investors’ holdings in these com- Our transparency-focused mission to
Market Regulation Committee that advises FINRA
panies. improve market efficiency closely ties to our on rulemaking and trading issues.
We are working with lawmakers to ongoing efforts to combat securities fraud.
About OTC Markets Group Inc.
adopt common-sense legislative amend- We recognize the damage that can be created OTC Markets Group Inc. (OTCQX: OTCM) oper-
ments that would allow qualified securities by fraudulent “pump-and-dump” schemes ates the OTCQX® Best Market, the OTCQB® Venture
Market and the Pink® Open Market for 10,000 U.S.
on our markets to become margin-eligible. and other manipulative activities involv-
and global securities. Through OTC Link® ATS and
Updating these rules would allow sharehold- ing anonymous paid stock promotion. In OTC Link ECN, we connect a diverse network of
ers to access additional value by borrowing our experience, disclosure and transparency broker-dealers that provide liquidity and execution
services. We enable investors to easily trade through
against their holdings and would have a most effectively combat and deter fraudulent the broker of their choice and empower companies
direct impact on the issuer’s ability to raise activities in the public markets. to improve the quality of information available for
investors.
additional capital. Access to sensible mar- In 2006, OTC Markets Group submitted
To learn more about how we create better
gin financing allows long-term investors to a Rulemaking Petition to the SEC seeking to informed and more efficient markets, visit www.
continue to hold securities in established increase disclosure obligations for paid stock otcmarkets.com.

companies and community banks. promotion activities under Section 17(b) of OTC Link ATS and OTC Link ECN are operated
Employee share ownership is a great way the Securities Act, including disclosure of by OTC Link LLC, member FINRA/SIPC and SEC
regulated ATS.
for companies to build stable investor bases the parties paying for the promotion and
Subscribe to the OTC Markets RSS Feed
and better align interests of employees and the amount of such payments. Our recent
shareholders. We also want to see a more submission to the SEC’s Investor Advisory For more information please visit:
efficient pathway for OTCQX and OTCQB Committee reiterates this proposal. www.otcmarkets.com
issuers to offer Employee Stock Ownership Similarly, we continue to champion

www.stocknewsnow.com MicroCap Review Magazine 79


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

Digital Currency 101


Key Considerations to Help You Lay the Groundwork for Success

W
hile regulatory and accounting States (“US GAAP”) makes it challenging to trade 24 hours a day 7 days a week.
uncertainties remain, under- navigate without the ongoing support of an
standing critical aspects of the advisor. Companies investing in or holding KEY dETaiLs For MEasUrinG
rapidly evolving digital currency landscape digital currencies in their business must YoUr diGiTaL cUrrEnciEs aT
before you invest will help keep your busi- resort to applying existing GAAP by analogy hisToricaL cosT:
ness compliant. to their digital currency transactions. This
indirect approach is both time consuming • You may conclude that it’s necessary
WhaT shoULd i KEEp in Mind and mentally taxing when trying to under- to report digital currencies at cost
WhEn iT coMEs To accoUnT- stand the underlying transaction to select in accordance with existing GAAP.
inG For diGiTaL cUrrEncY? the appropriate accounting treatment. A key Tracking the historical cost of invest-
consideration is whether to measure digital ments in digital currencies can be
There’s no one-size-fits-all approach when currencies at fair market value or historical complex. For example, an entity could
it comes to accounting for digital curren- cost for financial statement presentation. directly exchange bitcoin for ethe-
cy. The lack of guidance under generally reum with a counterparty and there
accepted accounting principles in the United considEraTions For MEa- would not be a fiat currency to bench-
sUrinG YoUr diGiTaL cUr- mark the transaction price.
rEnciEs aT Fair MarKET • Tracking historical trades can be a
VaLUE: time consuming process depending
on the technical resources available
• Entities who qualify as investment and whether the company is engaging
companies will be required to record third party specialists that can extract
digital currencies at fair value. This trading data efficiently and accurately
can be challenging considering there from digital currency exchanges.
is no active clearinghouse or regu-
lated exchange. As such, there are WhaT shoULd MY coMpanY
varying market prices across multiple considEr WhEn dEVELopinG
markets at any one point in time. accoUnTinG poLiciEs?
• Under the fair value framework, con-
sider if there are markets that are Knowing which questions to ask will help
regarded as having active trading keep your company compliant. Be sure to
volumes for estimation of fair value. consider the following:
This may be challenging for newer or • You’ll want to address significant
less popular digital currencies. events including hard forks and air
• Your company will need to develop drops. A “hard fork” is a dramatic
accounting policies in accordance change to the protocol that validates
with GAAP to identify a principal or invalidates previous transactions.
market to value digital currency An “air drop” is the process under
transactions. Keep in mind that there which cryptocurrency enterprises
n BY ROBERT GRAHAM, CPA is no formal closing price in the digi- distribute digital currency to users’
AND JOSHUA SANTOS, CPA tal currency markets as they typically wallets free of charge. For example,

80 MicroCap Review Magazine www.stocknewsnow.com


a hard fork occurred on August 1, Therefore, general rules for property Director of Friedman CyZen. If you are
2017 when the bitcoin network was transactions apply. interested in learning more about how you
modified so that certain participants • Companies who pay contractors or can get cyber-ready before you invest in digi-
continued using a pre-modified soft- service providers in digital currency tal currency, contact Jacob at JLehmann@
ware which continued as the bitcoin should issue Form 1099 for the value friedmancyzen.com or 212-897-6422.
network and other participants began of digital currency paid for values in If your company is contemplating using
using a modified network known as excess of $600. or investing in digital currencies, you should
the bitcoin cash network. • The character of gain or loss from the engage knowledgeable professionals in the
• Following a hard fork or air drop sale or exchange of a digital currency industry to help you navigate the regulatory,
such as the bitcoin network, holders depends on whether it is a capital cyber security, legal and accounting land-
of the digital currency tokens typi- asset in the hands of the taxpayer. scapes as they continue evolving. n
cally receive a new token simply as a However, digital currency trading
About Robert Graham:
result of holding the original digital activity does not qualify for like-kind
Robert Graham, a partner at Friedman LLP, is
currency. exchange treatment in the eyes of the Firm’s Digital Currency Practice Leader. He
• Financial statement classification of the IRS. Therefore, most taxpayers has over 10 years of experience serving clients in
a range of industries, including digital currency/
digital currencies will depend on how should pay capital gains taxes similar fintech, telecommunications and technology, con-
your company employs digital cur- to how they pay taxes on stock trad- sumer & industrial products and life sciences. Bob
specializes in helping private companies go public.
rencies. You’ll need to explore digital ing activity.
Robert has an extensive concentration in the digital
currencies as financial instruments, • In response to this emergence and currency industry and has an in depth knowledge
inventory, intangible, assets, etc. to outdated guidance from the IRS, the of the accounting issues that companies in this
industry face. Robert also has developed expertise in
determine what works best for your “AICPA Virtual Currency Task Force” the issues private companies face as they go public.
organization’s financial statements. developed a list of frequently asked This includes analyzing complex equity instruments
involving preferred stock, convertible debt, war-
tax questions and their suggested
rants, share-based compensation and other financial
What details should I be answers to those questions. instruments.
aware of when it comes to • Accurate record keeping is crucial.
About Joshua Santos:
planning for income tax Websites will only use the informa- Joshua Santos specializes in providing audit, tax and
for digital currencies? tion downloaded or manually added accounting services to clients in the Digital Currency
industry at Friedman LLP.  Joshua helps clients with
and it is rare that websites provide a
the adoption of complex accounting policies and
Many traders use multiple exchanges to complete tax form without manual supervises audit, review and compilation engage-
trade and move digital currencies. Come input and possibly manipulating the ments, culminating in the issuance of financial
statements, and prepares corporate, partnership and
tax time, this can complicate record keep- information. individual tax returns.
ing. There are plenty of websites available
About Friedman LLP:
that allow traders to import trading activity What safeguarding tips
Friedman LLP has been serving the accounting,
directly from the exchanges they use, and should I keep in mind? tax and business consulting needs of public and
traders can download a tax form directly private companies since 1924. Our industry-focused
practice features concentrated areas of expertise and
from the website. It’s important traders keep “As with any fast-paced, emerging technol- understanding of the economic environment. We
track of trading activity and the exchanges ogy security gaps form. Hackers and mali- have the ability to be innovative in our approach, act
quickly in our decision-making and be flexible in our
they use to ensure returns are filed correctly. cious actors are constantly looking for new
delivery of services. Our clients have the advantage of
The IRS was successful in collecting the ways to gain access and steal virtual assets. working with a mid-size accounting firm that com-
information from over 14,000 Coinbase.com There are certainly best practices that you bines the staff and resources of a large firm with a
philosophy of personal responsibility for our clients.
accounts in 2018 and appears to be keeping a can add to your toolbox, including hardware
close eye on digital currency trading activity. wallets and two-factor authentication; how- For more information please visit:
Laying the foundation for accurate reporting ever, there is no singular step and repeat pro- www.friedmanllp.com
will help you get tax season-ready and avoid cess. Cyber security in the digital currency
Note:: This article  is informational in nature and
unwanted surprises. For tax purposes, you space requires ongoing monitoring from
should not be construed as providing individualized
should be aware of the following: expert advisors who understand your busi- investment advice.  Investors are advised to conduct
• In 2014, the IRS stated digital cur- ness’s unique needs given a myriad of factors their own research and due diligence or seek the
advice of a registered investment professional. Both
rencies are treated as property for from your industry to your overall business the Author and Ridgewood Investments disclaim any
United States federal tax purposes. structure,” says Jacob Lehmann, Managing liability from the use or misuse of this information.

www.stocknewsnow.com MicroCap Review Magazine 81


FEAT UR E D A RT ICL E

Communication Pitfalls
in the Crypto Era
I
n my legal career, I have represented, and continue to represent,
principals of many companies who were not born in the U.S., and
who are sometimes difficult to understand when they speak, or when
they or their advisors write letters, emails or, especially, documents.
I’ve been involved with, and completed said, “Did you see the people at the others
transactions, with companies whose CEOs tables? I saw the Goldbergs, the Bernsteins,
speak Korean, Turkish, French, Chinese, the Sternheims and the Pearlsteins.” (brief
Portuguese, Spanish, Italian, German, quiz: guess my religion). “It’s amazing”, she
Hebrew, and more. And, sometimes, to said, “A Chinese restaurant can’t survive
be clear, those foreigners might even be around here without us Jews.”
English-speaking all of their lives. Her brother Robert readily agreed, and
For example, many years ago, when then speculated out loud, “Hey, I wonder if
involved in a reverse merger with a London- a Chinese restaurant can survive in China
based company, at a time when there was without Jews as customers.” His conjecture
a misunderstanding about an accounting was met with approbation from his family,
issue, that company’s CEO, a born and raised and a suggestion that he explore the ques-
Brit, said to me, which I have repeated many tion further.
times, “John, we are divided by a common Not having access to Google (it was the
language.” 1960’s), he called the waiter over and asked,
So, understanding what is said by others him “Tell me young man, are there Chinese
to you, and by you to others in a financial Jews?” The waiter appeared somewhat con-
transaction, is critically important. And fused, paused for a moment as if trying to
that’s true in all walks of life, which reminds grasp the meaning of what he was asked, and
me of a true event that took place many years then said, “I will ask the owner.” They then
ago, about not understanding one another: watched the waiter have an animated con-
I was raised in suburban New Jersey, versation with the restaurant owner, before
before sushi became people’s favorite Asian he returned to the table where my aunt,
food, when Sunday night was family dinner uncle and two cousins were seated.
night at one’s favorite restaurant. So, my As the waiter was standing near him,
cousin told me what happened this par- Robert then asked the waiter, “So, what did
ticular night, when his family went to their the owner say? Are there Chinese Jews?” To
favorite Chinese restaurant. He (I’ll call him which the waiter confidently replied, “The
Robert, because that’s his name) was sitting owner says there are no Chinese Jews, only
n BY JOHN LOWY, Esq. at the table with his parents when his sister apple juice and tomato juice.”

82 MicroCap Review Magazine www.stocknewsnow.com


we see wannabe entrepreneurs trying to
The moral of the story (assuming that this true raise capital, and sometimes succeeding, by
communicating to investors the flimsiest of
story has a moral), is that it’s extremely important so-called businesses, which unfortunately
arouses the interest of the regulators, and
to make yourself clearly understood, in both makes it more difficult for the real crypto
written and oral presentations, that you clearly companies, of which there are many.
Some of these self-proclaimed cryptocur-
understand what is said to you or written to you, rency deals haven’t even reached the stage
of being pre-revenue; they are actually “pre-
and, that each speaker/writer acknowledge that startup,” an oxymoron; and many of them
they understand the other. should more accurately be called “craptocur-
rency” deals.
It’s up to you, the reader, to make an
The moral of the story (assuming that this money did your client bring to Court today, informed decision whether to invest in—
true story has a moral), is that it’s extremely to extinguish these tickets and dismiss this or even consider investing in—a particular
important to make yourself clearly under- case?” cryptocurrency company. And what are
stood, in both written and oral presenta- The attorney briefly consulted with Steve, the important considerations? No surprise,
tions, that you clearly understand what is and then said, “Judge, my client has $700 the usual: who are the principals—their
said to you or written to you, and, that with him, which he will deliver to the Court experience and reputation, in this sector and
each speaker/writer acknowledge that they if this case is dismissed with prejudice.” others? Who is on their team—have they
understand the other. It took the Judge a nanosecond (a period assembled well-respected professionals? Is
Here’s another true story about how lan- of time which did not then exist), to bang this a credible business plan (even if pre-
guage—or (in this case) the lack of it—can his gavel and shout, “Case dismissed, with revenue), or is it pre-startup?
be decisive. It also happened a long time ago, prejudice.” All investors should remember that it’s not
when my friend Steve (in this case, not his But here’s the punchline: why did Steve what you make, it’s what you keep. n
real name), had a serious regulatory prob- have his attorney tell the Judge that he had
John Lowy is the founder (in 1990) and senior part-
lem: dozens (maybe hundreds, I don’t recall) $700 in his pocket (which he did, and which ner of John B. Lowy, P.C. www.johnlowylaw.com and
of unpaid New York City parking tickets, for he paid)? Why didn’t he say he had $200? (in 1993) of Olympic Capital Group, Inc. www.ocg-
finance.com both based in New York City. John is a
which he was hauled into Court to appear Or maybe $300? With his stuttering attorney highly-respected and acknowledged expert in reverse
before a magistrate. The stakes were high— and an exasperated Judge, maybe as little mergers, representing public companies, capital for-
mation, strategic consulting and initial private and
my friend Steve was a professional (not an as even $100 and an apology, might have
public offerings of all types.
attorney), who stood to possibly do jail time worked? As an attorney, an advisor and principal, John has
as a scofflaw. Well, a few of his friends had told Steve led or participated in more than 200 such transac-
tions, creating market value in excess of $5 billion.
He and his attorney stood before the before his Court appearance that he was in He has been instrumental in leading the process by
Judge, who asked, “Counselor, what, if any- deep (to use the vernacular) ca-ca, and that which these companies have raised capital or reverse
merged, and achieved listings on the NASDAQ or the
thing, is your client’s defense to his many he would be convicted and end up wearing
AMEX, or were sold to larger companies.
unpaid parking tickets, stretching back stripes. He bet them, and they gave him 3-1 In addition to the U.S., John has completed trans-
several years?” To which Steve’s attorney odds, that he wouldn’t go to jail. So, because actions for clients based in at least 15 foreign coun-
tries. The sectors in which his clients are engaged
replied, “Your Honor, m-m-y c-c-c-client of his stuttering attorney, Steve’s $700 fine range from low tech to high tech, cryptocurrency/
p-p-p-pleads n-n-not g-g-g-guilty, and w-w- turned into $2,100! (Maybe he should have blockchain, real estate, pharmaceuticals, medical
devices, biotech, oil and gas, mining, renewable
w-wants a t-t-t-trial n-n-now.” Steve had brought $5,000 to Court.)
energy, entertainment, food, agriculture, education
intentionally retained an attorney with a Moral of the story: sometimes—even and retail, among others.
severe stutter. when negotiating--less is more. He received his undergraduate degree from Tufts
University and graduated from the University of
The Judge looked over the courtroom, I hope you found these two true recollec- Pennsylvania Law School, and is a licensed attorney
packed with dozens of looming cases, and tions about communicating amusing. But in New York and New Jersey. He is a frequent con-
realized that a trial with this attorney would what’s happening sometimes in the crypto- tributor to MicroCap Review.

be a monumental time-consuming disaster. currency world is not amusing, in fact, in


So, he quickly asked, “Counselor, how much many cases it’s alarming. Here and there,

www.stocknewsnow.com MicroCap Review Magazine 83


84 MicroCap Review Magazine www.stocknewsnow.com
www.stocknewsnow.com MicroCap Review Magazine 85
RESOURCES CORNER

Major Mining Companies Looking for


Quality Junior Assets

I
n this Wall Street View, our host caught Brent Cook: Well, like much of the world Shelly Kraft: You know, we’ve known each
up with Brent Cook, Editor/Geologist right now it’s pretty chaotic. Base metal pric- other a while and you predicted this event
of Exploration Insights at the Sprott es have been coming down rapidly the past taking place of the majors running out of
Natural Resource Symposium 2018 in months since this whole tariff issue came resource to mine, that’s consistent with
Vancouver, BC. about. The stocks themselves are languish- what you’ve said, now how does this affect
ing but looking further out I think what’s all the base metals if you would?
Shelly Kraft: So, Brent, I want to start important to keep in mind what I’m really
off by asking you what’s going on in the excited about is that we know the major Brent Cook: Well, I think it may actually
resource markets? mining companies are not finding enough put a squeeze on that metal prices if there’s
new deposits enough new order place to put not enough supply. Certainly what it’s going
their mining. Consider for every pound of to do is make the deposits that are found, the
copper they produce if they don’t find one new deposits, much more valuable and we’re
they’re going out of business. So, that’s a seeing that right now with Lundin Mining
real key here is that we’re seeing these com- taking out Nevsun Mining for their project
panies start to go out and acquire assets, in Serbia and Eritrea. We’ve seen a number
quality assets and the junior mining sector of instances this year where a major mining
the ones that are finding them. All we’ve company comes in and takes out a junior
got to do is own the right ones and identify company that has an asset that they feel is
them because they’re real cheap right now worthwhile. So, we’re going to see that hap-
and wait for the take out and that’s going to pening regardless of metal prices and in fact I
happen it is happening so I’m pretty excited. think metal prices being low like this is going
to instigate a lot of this acquisition activity.

n BY BRENT COOK,
INDEPENDENT EXPLORATION
ANALYST, GEOLOGIST

86 MicroCap Review Magazine www.stocknewsnow.com


Shelly Kraft: Is there an essence of looking to be very, very careful that when you invest ultimate goal and educating them as well.
more closely at project generators or does in these companies, make sure what they’re
it matter, I mean, how do you pick the ones drilling the work they’re doing confirms Shelly Kraft: So, what would you say to some-
that you want to talk about? your thesis your investment thesis or geo- one who’s not a traditional metals investor?
logic concept, if it doesn’t just get the hell out
Brent Cook: It’s a long process, I mean, of there quick. Brent Cook: Be careful and buy my news-
I’ve got 30 odd years of geologic background. letter. n
I’ve been to 60 odd countries looked at hun- Shelly Kraft: Are exploration companies
For more information about Brent Cook and Exploration
dreds of deposits and projects. So, I’ve got able to raise money in this market? Have
Insights, please visit: www.explorationinsights.com
that experience so to me it’s number one it’s that freed up a little bit?
the geology. Is the geology conducive to the Disclaimer
This letter/article is not intended to meet your specific
development of a major gold deposit? Once Brent Cook: It’s been tight, it’s been very individual investment needs, and it is not tailored to
we’re there, okay, how would you going to tight, I mean, companies are doing it. But your personal financial situation. Nothing contained
herein constitutes, is intended, or deemed to be--either
take to actually find this? What how much again for the most part money is now going
implied or otherwise--investment advice. This letter/
money is it going to take to prove or disprove to the better companies and the better peo- article reflects the personal views and opinions of Brent
a concept? Is this management team capable ple a lot of the garbage, a lot of the low-grade Cook and Joe Mazumdar, and that is all it purports
to be. While the information herein is believed to be
of doing it? Do they know how to not just small whatever they’re not getting financed accurate and reliable, it is not guaranteed or implied
geologically but financially run a company? and that’s positive too really. to be so. The information herein may not be complete
or correct; it is provided in good faith but without
So there’s a lot that has to go right and we’ve
any legal responsibility or obligation to provide future
made good money in the letter on stocks Shelly Kraft: Is there a wave of mergers updates. Research that was commissioned and paid for
that eventually failed because we recognized and acquisitions coming? by private, institutional clients is deemed to be outside
the scope of the newsletter, and certain companies that
something at this level this looks like it might may be discussed in the newsletter could have been
work. But as we follow the results we started Brent Cook: No, I don’t think there’s a the subject of such private research projects done on
behalf of private institutional clients. Neither Brent
saying here’s an issue, here’s the fatal flaw. wave because there’s not that much quality
Cook, nor Joe Mazumdar, nor anyone else, accepts
The stock share price is up we sell out before out there but the few that are the quality will any responsibility, or assumes any liability, whatsoever,
it collapses again. So, we’ve, you know, you be acquired. for any direct, indirect or consequential loss arising
from the use of the information in this letter/article.
can make money both ways on a failure or a The information contained herein is subject to change
success you just had to be very diligent. Shelly Kraft: So, when your investors are without notice, may become outdated, and may not be
updated. The opinions are both time and market sensi-
reading your newsletter, what are they
tive. Brent Cook, Joe Mazumdar, and the entities that
Shelly Kraft: Does this give you an indica- looking for in particular - just to follow they control, family, friends, employees, associates, and
tion that there’s actually more value in an what you’ve done as far as due diligence on others, may have positions in securities mentioned, or
discussed, in this letter/article. While every attempt is
exploration company today then there is projects or is it something that they gain so made to avoid conflicts of interest, such conflicts do
let’s say on a producer or a development much information that they can compare arise from time to time. Whenever a conflict of interest
arises, every attempt is made to resolve such conflict in
company? it to their own thoughts and their own
the best possible interest of all parties, but you should
essence of their own research? not assume that your interest would be placed ahead of
Brent Cook: For a producer there is much anyone else’s interest in the event of a conflict of inter-
est. No part of this letter/article may be reproduced,
more value in the exploration companies Brent Cook: That, you know, Joe copied, emailed, faxed, or distributed (in any form)
right now in terms of you know valuing Mazumdar and I we write this together now without the express written permission of Brent Cook
or Joe Mazumdar. Everything contained herein is sub-
companies themself it comes down to you and that’s our long-term goal I mean we talk-
ject to international copyright protection.
know what’s their cash flow or the profitable ed about we bought this talk because its XYZ
or not know what was their asset. So, that’s and we think this is going to happen, the Note:: This article  is informational in nature and
should not be construed as providing individualized
individual. results come in and we like them, we don’t investment advice.  Investors are advised to conduct
like them. But we go through more than that their own research and due diligence or seek the
advice of a registered investment professional. Both
Shelly Kraft: For exploration companies, hoping to give them our subscribers insights
the Author and Ridgewood Investments disclaim any
they’re drilling, and that’s money out the that they can use on their own when they’re liability from the use or misuse of this information.
door, and money is not coming in yet, evaluating their own results a company com-
right? ing at to them and with a drill hole because
I recognize this from something that Brent
Brent Cook: Right, that’s why you need and Joe said and I can evaluate. That is our

www.stocknewsnow.com MicroCap Review Magazine 87


GAMING CORNER

How to Play PASPA from Canada


onLinE GaMinG UpdaTE — vices, and civilians aren’t permitted to offer William Hill Australia and SkyBet acquisi-
UniTEd sTaTEs or use private gambling services. At present, tions are a meaningful expansion in this verti-

U
the Canadian Criminal Code explicitly pro- cal, with focus now on integration and growth
ntil recently, the Interstate Wire hibits Canadian civilians from marketing or in their respective markets.
Act of 1961, combined with the offering betting services to other Canadians. TSGI reported Q218 revenue of $412M
Professional and Amateur Sport Provincial governments are permitted to (EWP: $385M) (Cons: $381M), Adj. EBITDA
Protection Act (PASPA) of 1992, prohibited offer a variety of gambling services, includ- of $168M (EWP: $156M) (Cons: $152M),
sports betting in the U.S. in all but four grand- ing parlay betting on sports. In practice, the and Adj. EPS of $0.60 (EWP: $0.56) (Cons:
fathered states (Montana, Oregon, Nevada, vague nature of Canadian gambling laws and $0.54). Its newly segmented International
Delaware). Despite its illegal status, sports the limited sports betting options offered and Australia divisions contributed $350M
betting has been a thriving underground busi- by provincial governments have resulted in and $61M, respectively, to revenue. Organic
ness, with the American Gaming Association extensive online sports betting activity. It’s growth in the Q was 15%. Consolidated Poker,
(AGA) estimating that in 2015, $149B was estimated that Canadians bet over $2B with Casino and Sportsbook revenues in the quar-
wagered illegally on U.S. sports – the 2016 offshore bookmakers every year. ter were $217M, $102M, and $81M, respec-
Super Bowl 50 alone attracted $4.1B in illegal Brian Masse, NDP MP of Windsor West, tively. International and Australia quarterly
wagers, with only ~$100M placed legally. tabled Bill C-221 in 2016 to repeal paragraph real-money active uniques (QAUs) were down
In mid-May 2018, the U.S. Supreme Court 207(4)(b) of the Criminal Code to make it law- 5.2%. 2018 guidance was updated including
overturned PASPA in a decision that found ful for the government of a province, or a person the recent CrownBet, WMH Australia and
PASPA unconstitutional in a 7-2 decision. or entity licensed by the Lieutenant Governor SkyBet acquisitions with 2018 revenue between
What this means is it will be up to individual in Council of that province, to conduct and $1,995-2,145M (prev. $1,390-1,470M), Adj.
states to decide whether to allow its residents manage a lottery scheme in the province that EBITDA between $755-810M (prev. $625-
to bet on sports. Many are expected to move involves betting on a race or fight or on a single 650M), and Adj. EPS between $1.99-2.22
quickly to establish sports betting as a means sport event or athletic contest. Bill C-221 was (prev. $2.33-2.47). International net deposits
to increase their respective coffers. We have defeated on September 21, 2016; 156 “nay” votes were $322M in the quarter, an increase of
since seen a number of states pass legislation to 133 “yay” votes. We expect a revisit or a new 19.3% y/y. If the three sportsbook acquisitions
to allow online gambling. We believe the U.S. Bill to be tabled in due course in light of the were considered from the beginning of 2017,
market will take 3-5 years to fully develop. recent SCOTUS ruling on PASPA. the revenue mix by product would have been:
Poker (37%), Sportsbook (34%), and Casino
onLinE GaMinG UpdaTE — hoW To pLaY paspa FroM (26%), with 75% of 2017 revenues from locally
canada canada regulated or taxed markets.
TSGI is strategically evaluating opportuni-
The legality of online betting in Canada is We believe the best way to play PASPA from ties to partner with various gaming opera-
currently a grey area. Provincial govern- Canada is through the Stars Group (TSG- tors and media companies in New Jersey
ments have a monopoly on gambling ser- US, Buy, US$43 PT) and Newgioco Group (extended existing poker/casino partnership
(NWGI-US, Spec Buy, US$1.80 PT). with Resorts Casino to launch an online and
Sportsbook represents 50% of the global mobile sportsbook in the near future) and
online gambling market. The Stars Group Pennsylvania (announced a partnership with
officially rolled out its sportsbook product, Mount Airy Casino Resort to offer betting
BetStars, in a limited capacity in December and gaming products subject to regulatory
2015 in anticipation of the Euro 2016 soccer approval). As the US market evolves, TSGI
competition. The sports betting product will will seek to secure leading market positions
launch within the PokerStars poker client in by combining its expertise and brand aware-
certain markets, and PokerStars will gradually ness with strategic focus on: (1) selectively
add more markets as well as web and mobile partnering with land based gaming operators
n BY RALPH GARCEA
versions over time. We think the CrownBet, and/or lotteries in key U.S. states; (2) provid-

88 MicroCap Review Magazine www.stocknewsnow.com


Exhibit 1 – What’s the current state of sports betting in the U.S.? Source: www.playusa.com; ESPN

ing a multi-vertical offering of poker, casino (1) NWGI currently has the 20th largest share to bet across state lines – even if the respective
and betting; and (3) following CMA approval of the Italian online market – a tremendous states in question have legalized online sports-
of the SkyBet acquisition, TSGI intends to opportunity exists in rolling up smaller opera- betting. Evidence has shown that a high number
export to the U.S. SkyBet’s deep expertise with tors beneath it while staying under the radar of gaming and gambling companies have used
respect to the integration of media and sports. of the larger players. (2) With over 150,000 blockchain technology to raise money and fund
Newgioco engages in the operation of events per season and more than 90,000 events startups. In total, more than $4B has been raised
licensed gaming, providing retail web-based in Live mode, Newgioco has a highly competi- via ICOs, according to Autonomous NEXT.
and land-based gaming services in Italy. The tive game offering for bets and sporting events Business Insider reported a $500M ICO to build
Company offers online casino, sports betting, through its Odissea platform. (3) Newgioco’s a floating cryptocurrency casino in Macau.
virtual sports betting, horse racing, and physical management team has a combined 100+ years’ Gambling with cryptocurrencies – as opposed
slots. The Company was founded on August 26, experience in gaming and technology devel- to fiat money – can currently be conducted
1998, and is headquartered in Toronto, Canada, opment. An extensive network in the Italian without the need to provide identification docu-
with wholly owned subsidiaries in Italy and marketplace among operators and government ments, or in some cases, without the need to
Austria. Subsidiaries include: Multigioco Srl regulators should be beneficial as Newgioco create an account. Demand for anonymous
(acquired on August 15, 2014), Rifa Srl (acquired expands in the region and seeks opportunities gambling is evident in the relatively high use of
on January 1, 2015), as well as Ulisse Gmbh and abroad. (4) Newgioco launched the first phase pre-paid cards – such as the paysafecard– on
Odissea Betriebsinformatik Beratung Gmbh of its Artificial Intelligence (AI) technology gambling websites, and in consumer behaviour
(both acquired on July 1, 2016). on its ELYS Odissea gaming platform with surveys. What about setting up a blockchain
NWGI had a strong Q218 which included the release of CHATBOT – CHATBOT is an platform, to allow sports betting across state lines
15 days of the 2018 World Cup – Q218 rev- AI betting technology using customized pat- via smart contracts between the bettor, operator
enue was $8.8M, with adj. EBITDA of $1.1M tern recognition and machine-learning algo- and respective states involved where betting is
(excl. the non-cash derivative liability related rithms to determine the relevant features of legal and taxes are collected. We note that both
to the convertible debenture and share price customer interactions and to develop a com- Stars Group and Newgioco have blockchain and
volatility through Q218). Non-GAAP betting prehensive customer betting profile. (5) We AI capabilities already in place. n
turnover in Q218 was $100M (+101.6% y/y), expect Newgioco to start showing business-to-
Note: This article is not an attempt to provide
and $190.6M (+86.3% y/y) for the H118. business (B2B) revenue on white-labelling its
investment advice. The content is purely the author’s
NWGI is on track to exceed its 2018 pro- platform by the end of this year, and use it as a personal opinions and should not be considered
jected turnover target of ~$300M. NWGI vehicle for international expansion – including advice of any kind. Investors are advised to conduct
their own research or seek the advice of a registered
has obtained final SOGEI certification just the US sports betting market. investment professional. The author does not own
in time for the start of the 2018/2019 Italian shares or any equity or debt interest in any companies
mentioned in this article before or at its publishing.
soccer season. Odissea is now independently Is an Amendment to the
connected to the regulator and completely Federal Wire Act of 1961 Next?
free from third party processing.
Several reasons why we like Newgioco are: Despite the PASPA ruling, it would still be illegal

www.stocknewsnow.com MicroCap Review Magazine 89


F EAT UR E D ARTICL E

TSX Venture Exchange Update


T he beauty of venture stage investing is that we are supporting
companies that are in the early stages of their journey.
Whether it’s developing a new mine, permit-
ting a marijuana cultivation facility, com- companies. Since 2000, over 650 companies
mercializing technology or developing a new have graduated from TSXV to TSX, now
pharmaceutical, these are companies that constituting almost one fifth of the S&P/TSX
have step function valuation changes tied to Composite Index. A study conducted by the
achieving milestones. Haskayne School of Business demonstrated
These businesses raise money to finance a that graduations from TSXV to TSX exhib-
drill program, which either helps prove out ited positive long-run, buy and hold abnor-
a resource or doesn’t. mal returns, outperforming private venture
These businesses raise money to finance capital—backed IPOs by 31.2% in the three
the next phase of clinical studies, which years following listing.
proves efficacy of a new drug or doesn’t. Every year we recognize those companies
These businesses raise money to finance that are growing with us by leveraging public
the build out of a cannabis cultivation facil- venture capital with our Venture 50 Awards.
ity, which will receive a license from Health These awards recognize the top 10 com-
Canada and enter production or not. panies in five industry groupings based on
In any scenario, venture stage companies equal weightings of share price appreciation,
are pursuing milestones which result in step market capitalization growth and liquidity in
function valuation increases. the previous year.
Generally speaking, there are two mecha- For the 2018 winners, we saw an average
nisms of facilitating this growth - private share price appreciation of 279% and market
venture capital, modeled after Silicon Valley capitalization growth of 631%. By evaluating
where companies receive large rounds of companies on both share price and market
capital to grow privately, with the hope that capitalization, we recognize those companies
the company may turn into a success by that are using publicly quoted share currency
either being acquired or undertaking a high to raise capital or make acquisitions - result-
profile IPO; or public venture capital - what ing in new share issuances.
we deliver through TSX Venture Exchange Increasingly, the momentum demonstrat-
(TSXV). ed by companies listed on TSXV with over
The public venture capital model is built $4.8 billion raised by TSXV listed companies
on individual retail investors, family offices in 2018, as of July 31, has driven strong new
and small cap funds with a risk appetite for listing activity, with 120 new listings in the
participating in the potential growth of a same period. Current market statistics for
new business. Canada’s unique two-tiered TSX and TSXV can be found in our MiG
capital markets, consisting of public venture Reports here: www.tsx.com/mig
capital on TSXV combined with a stream- In addition, international issuers are now
lined ability to graduate to the senior TSX, recognizing the value of accessing public
n BY BRADY FLETCHER has truly evolved into a leading platform venture capital through TSX and TSXV.
financing and supporting the growth of

90 MicroCap Review Magazine www.stocknewsnow.com


2018 Venture 50 Winners
cleantech & Life sciences Technology diversified industries Energy & Energy services Mining

Emerald Health Reliq Health Technologies Radient Technologies Inc.° GEN III Oil Corporation Garibaldi Resources Corp.
Therapeutics, Inc.° (EMH) Inc.° (RHT) (RTI) (GIII) † (GGI)

Cronos Group Inc.° * Identillect Technologies Mission Ready Services PetroShale Inc. (PSH) Novo Resources Corp.
(CRON) Corp. (ID) Inc.° (MRS) (NVO)

Revive Therapeutics Ltd.° Millennial Esports Corp.° Hempco Food and Fiber Molori Energy Inc.° (MOL) Metallis Resources Inc.°
(RVV) (GAME) Inc.° (HEMP) (MTS)

VentriPoint Diagnostics BTL Group Ltd.° (BTL) StorageVault Canada Inc.° SDX Energy Inc. (SDX) First Cobalt Corp. (FCC)
Ltd.° (VPT) (SVI)

PyroGenesis Canada Inc.° NexOptic Technology Uniserve Communications Renaissance Oil Corp. Standard Lithium Ltd.
(PYR) Corp. (NXO) Corporation (USS) (ROE) (SLL)

Lexagene Holdings Inc.° AnalytixInsight Inc. (ALY) Wellness Lifestyles Inc.° Questor Technology Inc. Liberty One Lithium Corp.
(LXG) (WELL) (QST) (LBY)

BlueOcean NutraSciences NYX Gaming Group Grande West Pentanova Energy Corp. Wolfden Resources
Inc. (BOC) Limited* (NYX) Transportation Group Inc. (PNO) Corporation (WLF)
(BUS)

Xebec Adsorption Inc. Edgewater Wireless Perlite Canada Inc. (PCI) Seaway Energy Services Tinka Resources Limited
(XBC) Systems Inc. (YFI) Inc.° (SEW) (TK)

Aurora Solar Technologies Siyata Mobile Inc. (SIM) Imaflex Inc. (IFX) MATRRIX Energy Power Metals Corp. (PWM)
Inc.° (ACU) Technologies Inc.° (MXX)

NeutriSci International Inc.° Photon Control Inc.*** Quantum International Eco (Atlantic) Oil & Gas NRG Metals Inc. (NGZ)
(NU) (PHO) Income Corp. (QIC) Ltd.° (EOG)

° Went public via Capital Pool Company® Program †Number 1 company overall

*Cronos Group Inc. graduated to TSX in May 2018.


**NYX Gaming Group Limited was acquired by Scientific Games Corporation in January 2018.
***Photon Control Inc. graduated to TSX in May 2018.

A Computer Engineer by background, Brady spent


almost a decade in investment banking, primarily
focused on financing and advising technology and
diversified issuers through strategic transactions,
before leaving to found Coastr.
With Coastr, Brady successfully took a concept
through ideation, building a development team,
and launching the platform. We successfully sold a
network of almost 30 venues locally while using cus-
tomer feedback to drive iterative revisions to the app
and back-end platform.
Throughout his investment banking career, Brady
has advised hundreds of companies on business strat-
egy, capital raising, public and private markets, and
exit strategies – having successfully executed over
$500million in growth equity financings, secondary
transactions, and sell-side advisory mandates.
Brady joined TMX Group recently and is
Managing Director of TSX Venture, the world’s lead-
ing public venture capital marketplace.

www.tsx.com

Note: This article is not an attempt to provide invest-


TMX Group Limited or its affiliated companies. This ment advice. The content is purely the author’s per-
Learn more about Canada’s two-tiered article is not intended to provide legal, accounting, sonal opinions and should not be considered advice
markets and TSXV’s capital formation plat- tax, investment, financial or other advice and should of any kind. Investors are advised to conduct their
not be relied upon for such advice. The information own research or seek the advice of a registered invest-
form, and listing requirements here. n
provided is not an invitation to purchase securities ment professional.
listed on Toronto Stock Exchange and/or TSX Venture
The views, opinions, and advice provided in this article Exchange. TMX Group and its affiliated companies do
reflect those of the individual author and do not reflect not endorse or recommend any securities referenced in
the opinions or views of, nor are they endorsed by, this document/presentation.

www.stocknewsnow.com MicroCap Review Magazine 91


COMMODITIES CORNER

Introduction to the Futures Markets


T
he futures markets may seem like a Some contracts such as the E-mini S&P 500 if a corn futures contract trades at $3 per bushel
new idea to some in the investment and Eurodollars are cash-settled instead of and each contract is 5,000 bushels. The value of
community. However, the futures delivering an actual product. A cash-settled the contract is $15,000. However, a trader may
markets have been around for a very long contract does not include delivery of the be required to only maintain $500 to $1,000 in
time. The futures markets in some form or underlying contract. Instead, a debit or credit their account as margin to enter and continue
another have existed since at least the middle is applied to the futures account when the the position. Margins vary from market to mar-
ages. Some historians may argue it can be contract expires. The majority of futures con- ket. Any extra funds could be invested in T-bills
traced back to ancient China. In the U.S., 1848 tracts are not delivered at expiration.1 Instead, and earning interest.
could be considered a starting point when the traders may either unwind their position or The margin to equity ratio may be used
Chicago Board of Trade began. In the U.S., may rollover their position from the expiring to determine the account leverage. The ratio
futures contracts were initially developed for month they are currently positioned in, to a calculates the dollars needed in the account to
agricultural hedging by producers and end- farther back month (expires at a later time). meet the margin divided by the assets held. For
users to offset market volatility. The process of rolling over a position may example, if an account is required to maintain
cause either a positive or negative roll yield $10,000, but the size of the account is $100,000
dEFininG FUTUrEs conTracTs: depending on the current shape of the forward the ratio is $10k / $100k = 10%. The higher the
curve as either in backwardation or contango. ratio, the greater the account’s leverage.
Futures contracts represent a wide array I’ll leave the discussion of forward curves for The Securities and Exchange Commission
of sectors and markets traded at futures another time. But keep in mind, contango (not (SEC) regulates the securities industry.
exchanges around the world to include: a dance from Argentina) occurs when the spot In 1975 the Commodity Futures Trading
Equity indices; fixed income; currencies; (cash) price is lower than the futures prices. Commission (CFTC) became the futures
energies; softs such as orange juice, cot- Backwardation occurs when the spot price is regulator due to the Commodity Futures
ton, sugar, and coffee; metals; grains; meats; higher than futures prices. Trading Commission Act of 1974.
single stock futures; volatility indices such A futures contract is derived from an under-
as VIX futures and VSTOXX futures. As of lying market such as crude oil, gold or treasury diFFErEncE BETWEEn FUTUrEs
December 2017, bitcoin futures joined the bonds. Futures markets allow traders to sell and ForWard conTracTs
list of futures contracts. short without the need to borrow such as
Some of the benefits of futures markets include: short sellers in stocks have to borrow shares of In the managed futures course I teach at
1: Centrally located on an exchange. a given stock. There is no uptick rule to short. DePaul University and the workshops I teach
Therefore the contracts offer price discovery on managed futures, I’m frequently asked the
derived from bid / ask spreads. MarGin difference between a futures contract and a
2: Ability for producers or end-users to forward contract? The table below demon-
hedge or offset their risk. In equities, the term margin, are funds borrowed strates some of the differences.
3: Usually, easier liquidity versus the spot market. from a brokerage firm to purchase shares of stock.
Futures are a legal and binding standardized The investor pays an interest rate for the borrowed opEn inTErEsT
contract with delivery dates, delivery locations funds. In the futures world margin refers to the
and grades of the underlying market to deliver. required amount needed in an account to trade Open interest is a term frequently used in
in a given futures market. Think of it as a good the futures industry. It represents the entire
faith deposit a trader will retain in their account amount of futures contracts outstanding at
to enter and maintain a position. If the market the close of a trading day for either the longs
moves against a trader and the value of the account or the shorts. Since each futures transaction
decreases, a trader may need to add funds to their has a buyer and seller, only one side of the
account to meet the required margin. transaction is counted to calculate open
Because futures contracts are designed to be a interest.2 Open interest will either increase,
leveraged product, only a percentage of the con- decrease or remain the same dependent of
n BY MARK SHORE, MBA tract’s value is required for margin. For example, futures positions increasing or decreasing

92 MicroCap Review Magazine www.stocknewsnow.com


Futures Forwards
Standardized Customized
Exchange traded Privately negotiated
Exchange clearinghouse is the counterparty Individual counterparty risk
Market to market daily P & L may be realized at settlement
Margins required to be posted Margins are not required
Regulated Not regulated
Source: https://institute.cmegroup.com, http://www.theoptionsguide.com/difference-between-futures-and-forwards.aspx

in a given market. As a futures contract gets tion if the stop is touched. before entering into futures trading. n
closer to the expiration day, the open inter- 2. Profit targets: When a certain price
(Endnotes)
est will usually decline, and it will grow in level is reached, a position is reduced
1 Hull, J. (2014). Fundamentals of Futures and
the nearby month as traders reduce their or closed. Frequently a price level or Options Markets (8th ed.). Upper Saddle River, NJ:
positions in the front month and enter new percentage level is utilized. Pearson Education, Inc.
2 https://institute.cmegroup.com/support/glossary
positions or roll into the nearby expiration. 3. Size of the position may be adjusted
to adhere to the market environment. Mark Shore, Director of Educational Research at
Coquest Advisors LLC, has more than 30 years of
Methodologies of Trading 4. Hedging the position with other
experience in alternative investments, publishes
futures contracts or utilizing options research, consults on alternative investments and con-
There are primarily two schools of thought on on futures contracts. ducts educational workshops. mshore@coquest.com
Mr. Shore is also an Adjunct Professor at DePaul
how to trade the futures markets. 1) Trading University’s Kellstadt Graduate School of Business
fundamental or discretionary methods to Trading will include some where he teaches a managed futures / global macro
course. He is a board member of the Arditti Center
include supply and demand, economic reports, of the following:
for Risk Management at DePaul University. Mr.
commodity reports, and government policies, Shore is a frequent speaker at alternative invest-
traders judgment, and other possible factors. Directional: Going long a futures contract ment events. He is a contributing writer for the
Eurex Exchange, Cboe, Swiss Derivatives Review,
2) The quantitative technique involves and selling at a higher price. Or shorting MicroCap Review and Seeking Alpha.
factors such as price, volume open interest, a futures contract and repurchasing it at a Prior to Coquest Advisors, Mr. Shore founded Shore
Capital Research, a research/ consulting firm for alterna-
volatility, risk management and quantitative lower price.
tive investments. Prior to Shore Capital, Mr. Shore was
formulas (aka “algos”) or other factors. Thus Spreading: Spread trades are the same Head of Risk for Octane Research Inc ($1.1 billion AUM),
creating a rules-based methodology of trading concept as relative value strategies. A trader where he was responsible for quantitative risk manage-
ment analysis and due diligence of Fund of Funds. He
frequently referred to as systematic trading. may buy the spread if the trader believes the chaired the Risk Management Committee and was a vot-
There are three types of market partici- price difference in the two futures contracts ing member of the Investment Committee. Prior to join-
ing Octane, he was the COO of VK Capital Inc, a wholly
pants: 1) hedgers who use the market to will widen. Or sell the spread if the price
owned Commodity Trading Advisor unit ($300 million
hedge their production or use of a given differential is perceived as too wide and will AUM) of Morgan Stanley. Mr. Shore provided research
market. For example, a farmer or food com- narrow over time. Each component of the and risk management expertise on portfolio construction,
product development and business strategy.
pany may use futures to hedge. 2) An indi- spread is called a “leg”. The process includes He received his MBA from the University of
vidual trader, who trades their account. 3) A buying a futures contract in one market and Chicago and is currently a doctoral candidate at
DePaul University.
professional trader, trading on behalf of cli- selling a futures contract in a different mar-
Past performance is not necessarily indicative of
ents (often referred as Commodity Trading ket with the same expirations (Intermarket future results. There is risk of loss when investing in
Advisors or CTAs) or for a proprietary firm. spreading). Or purchasing a contract in one futures and options. Futures can be a volatile and
risky investment; only use appropriate risk capital; this
expiration month of a market and selling investment is not for everyone. The opinions expressed
Risk Management: a different expiration month of the same are solely those of the author and are only for educa-
tional purposes. Please talk to your financial advisor
futures market (Intra-market spreading).
before making any investment decisions.
Some forms of risk management include, but Margins are often lower for spread positions
are not limited to: versus directional positions. Note:: This article  is informational in nature and
should not be construed as providing individualized
1. Utilizing buy stops and sell stops. They This article introduces many basic concepts investment advice.  Investors are advised to conduct
may be used to get into a long or short of the futures markets. However, for anyone their own research and due diligence or seek the
advice of a registered investment professional. Both
position. Once a position occurs, the interested in futures trading, a deeper under-
the Author and Ridgewood Investments disclaim any
stops may be used to unwind a posi- standing of the futures markets is needed liability from the use or misuse of this information.

www.stocknewsnow.com MicroCap Review Magazine 93


O P I N ION

Aussie Companies
I
t is hard to believe that so many emerg- Australian Securities Exchange which is well *Independent Investment Research: “Independent
ing USA based businesses could remain received internationally for its recognition Investment Research (IIR) is the largest independent
undiscovered for so long. of GAAP accounting, continuous disclosure equities research house in the small/ microcap space
for in Australia for listed companies across all sectors
This issue contains 8 Australian listed and governance standards that mirror the - (the large caps equities part of the business was sold
stocks with most of their assets and business best offshore markets. As fully reporting to Morningstar in 2009) -   its business is regulated
like broker/ dealer focuses on supporting research
in the USA and many of their shareholders ASX listed companies there is a clear path to needs to brokers, family office and Institutional enti-
in Australia. The inevitable result is that the listing on the US markets. The missing links ties globally.   It does not deal in stocks nor does it
Australian markets can never fully appreci- for many of these companies in the past has undertake any investor relations or like promotional
activities. In fact any promotional activities for its
ate the value of these businesses and up until been 1. lack of market awareness and inves- researched clients are prohibited It has complete edi-
now US investors have had no direct means tor visibility to the right audience, 2. few torial independence on its research outputs.
of participation in their own time zone and interested US market makers, 3. difficulty
John Kimber – Executive Director - Americas
markets. buying and selling ASX listed stocks through John Kimber is the Executive Director in North
Additionally, these 8 profiled compa- US brokers/dealers, and 4. lack of available America of Independent Investment Research.
After graduating in Economics from University
nies are extensively and fully covered by information in the US. of Sydney John spent several years at Coopers and
Independent Investment Research* which Thanks to SNN Inc., publishers of Lybrand (now Pwc) as an accountant and then
produces first class research under its license MicroCap Review Magazine, StockNewsNow. changed career and was employed as a financial jour-
nalist and economics correspondent in South Africa
issued by the Australian Securities and com, and hosts of the Planet MicroCap and London for the Financial Times and finally with
Investment Commission, Showcase, Australian companies with US Reuters Economic Services. He then changed his
career path again and commenced work as a research
Australia lists a lot more than resources operations have begun sharing their stories analyst and later became a full Member of the Sydney
stocks. There is a strong appetite in Australia with North American investor audiences. Futures Exchange. John was employed for many years
for investment in foreign businesses. Most It is also worth mentioning that US retail in Sydney with Prudential Bache Securities, BT Alex
Brown (Bankers Trust) and then with Ord Minnett
of these public companies are in varying investors have been starved of good IPO (JP Morgan) where he specialized in offshore invest-
stages of development and have spent time participation in the past few years. Fewer ments and the local subsidiaries of foreign corpora-
tions in Australia. He is married to an American from
and money to have themselves listed on the companies are going public and there are Denver and located there in October 2012 to further
fewer opportunities for participation in pursue his career with IIR He maintains close links
good microcap stocks at the ground floor. with the Colorado mining industry and with the bio-
technology and medical device industry in Colorado.
Household names like Uber and AirBnB John takes an active interest in all aspects of Denver
remain unlisted for years and years with business, sporting and cultural life. He is an active mem-
ber of the Denver Athletic Club, The Colorado Mining
fewer companies wanting to run the gauntlet Association, the Society for Mining and Exploration, the
of legal fees and US investor activism. Denver Petroleum Club and the Colorado Bio Science
Australian companies with their entrepre- Association and attends most of their meetings. He is
an active participant with graduates from the Colorado
neurial can-do spirit are filling the gap for School of Mines. John is a regular attendee at the PDAC
investors seeking ground floor opportunities conference in Toronto and maintains close links with
the Australian Stock Exchange, Bank of New York,
in a wide range of US based businesses that various brokerages and investment institutions, and the
just happen to be listed on the ASX. various Exchanges in the United States which provide
It is more than 30 years ago now but listing facilities for Australian companies.

don’t forget that it was an Australian yacht Note: This article is not an attempt to provide
skippered by John Bertrand that snatched investment advice. The content is purely the author’s
the America’s Cup away for the first time in personal opinions and should not be considered
advice of any kind. Investors are advised to conduct
200 years in 1984. We like to think the same their own research or seek the advice of a registered
thing could happen in the financial markets investment professional. The author does not own
shares or any equity or debt interest in any companies
n BY JOHN KIMBER in the next few years. n mentioned in this article before or at its publishing.

www.stocknewsnow.com MicroCap Review Magazine 95


OPINION

The DJIA and the USA Economy:


Past, Present and Potential Future
CORNERSTONE GLOBAL • Why do such cycles reflect the demise forward you are likely to see.”
GROUP “T-REPORT” of so many great nations? • I suggest that the history of the USA
• The German philosopher Hegel Stock markets, especially the Dow
EconoMic coMMEnTarY (1770-1831) stated it most succinctly, Jones Industrial Average and other
“Just because men and women learned charts presented in graphical form
• The “Great Experiment” in Democracy about the past, that didn’t mean they’d below, are worthy proxies by which to
began on 2 July 1776 with the make better decisions witness and learn from the past, pres-
Declaration of Independence, approved • about the future. What experience ent and potential future of the USA
by the Continental Congress on 4 July and history teach us is this—that • First, consider the following
1776 and signed on 2 August 1776 people and governments never have • The USA’s current indebtedness
• Since that time, much has transpired learned anything from history, or stands at $21.2 Trillion or 107.1% of
economically, socially and geopoliti- acted on principles deduced from it.” GDP and rising every minute
cally in the USA and around the world. • That is a profound statement as he was • That is the tenth largest ratio of debt to
• History records a wide variety of born and lived through the beginning GDP in the world, just behind, Japan
cyclical trends in diverse areas, to stages of the current Revolutionary (1), Lebanon (2), Italy (3), Eritrea (4),
include the well-known and docu- Cycle that is topping now and will Portugal (5), Cape Verde (6), Bhutan
mented Cycle of Nations soon to be trending to the bottom of (7), Libya (8) and Jamaica (9)
• The Cycle of Nations is a summary the current cycle to begin again • Federal debt, as a percentage of GDP,
of many repetitive cycles that, in the • In summary, many great nations have has almost doubled since the turn of
aggregate, reflect the rise and fall of progressed through a cycle of stages the century
empires throughout recorded history in which they expanded, matured, • The big jump occurred during the
declined and collapsed. 2007–2009 recession and the debt has
• Far from a surprise to financial mar- continued to grow
ket observers, many great companies • This is a consequence of a fiscal policy
have followed the same cycle, to be of higher spending; lower than historical
discussed at a later date. GDP growth; a prior USA central bank
• To be clear, that does not mean that monetary policy of Quantitative Easing
the USA and other nations must con- (QE); and continued artificially low rates
tinue the cycle, which is a reflection of • The recent blips up in GDP growth
repetitive human behavior and might have not established a confirmed
be considered “Behavioral Economics.” trend as of date
• What would break that cycle is an • In fact, the words, “TRADE WAR”,
understanding of the past; accurate may very well indicate that a peak in
assessment of the present; and for- GDP growth may be behind us, as
ward looking actions founded on history may suggest per the “250 year
historical lessons learned   Revolutionary Cycle”
• As the great British Prime Minister • Some Sovereign debt around the world
n BY STEVEN M. SHELTON, and noted historian Winston is being held at even lower historical
MS, MBA, CFP®, CLU, CHFC, TEP, Churchill observed, “The farther levels of interest rates, due to Global
CIMA®, CMT backward you can look, the farther Central Bank monetary policy, but for

96 MicroCap Review Magazine www.stocknewsnow.com


how long can that continue without • Per a Forbes article, the net present • The long wave cycle, 250 year
adverse and unintended consequences? value of the US government’s 75-year Revolutionary Cycle, and more con-
• In the meantime, the USA Fed has future liability for Social Security and verging cycles are pointing toward a
stated that they are moving “toward” Medicare is $210 Trillion Grand Reset, a debt “jubilee”
normalization through Quantitative • That amount exceeds the net present • This reset is cyclical and is quite
Tightening (QT) value of the tax revenue designated to healthy to rid an economy of excess
• However, “moving toward” suggests pay those benefits by $46.7 trillion debt and capacity
they are not normalized as of date • This $46.7 trillion will logically come • With all the various bailouts and
and the market mechanism to allo- from higher taxes and reduced pro- monetary fiscal policies, this reset
cate scarce resources, such as capital grams, given the runaway indebted- was not allowed to occur during
at market established interest rates or ness of the USA government, corpo- the Great Recession, thus, creating
equity values, are still impaired rations and households increasing historic debt
• As interest rates rise, the impact of the • Tax cuts, in this time frame of the • If the reset were encouraged, it would
increased borrowing costs would not Long Wave Cycle Winter, along with bring forth a new economic “spring
be a positive for the USA government increased federal spending, is leading season”
issuing Treasuries, corporate bond to a point of “debt reckoning” • It is plausible that if this natural-
market issuers, and the stock market • Given this scenario, perhaps a con- ly economic cleansing was fostered
• The reason for concern is that USA cern is that fewer will want to buy US within a positive monetary and fis-
corporate debt, due in part to stock debt, pushing up rates even more cal environment, it would have the
buy backs and low interest rates, as • Currently, China and Japan are the potential to break the rise and fall
well as, stock margin and household top two countries owning US debt, cycle of a nation’s demise?
debt are at or near all-time highs most ironic in this time of Trade • Although unpopular and painful as it
• Additionally, many USA cities are Tensions, a characteristic of the eco- may be, this course of action should
heavily in debt, as well as, govern- nomic “Winter Season” be considered
ment and private pensions and • It is not a surprise that both countries are • The charts and commentary below
household retirement accounts are allegedly manipulating their currencies, add clarity regarding where the USA
severely underfunded? devaluing them to the US Dollar, so that is economically and financially, as well
• Additional upside pressure on rates the value of their US Debt holdings and as, the DJIA’s potential trends going
would eventually come from more yields becomes greater forward
Quantitative Tightening and addi- • So far, with the USA being the world’s
tional corporate bondholder com- reserve currency, its credit standing Global Dow Monthly Bar
pensation for default risk and safety given the rest of the world, Chart
• It is logical that the bond holders attractive treasury rates and it’s still
of USA Treasury debt will be paid strong consumer economy, USA • The Global Dow tracks 150 stocks select-
through eventually higher taxes and Treasury debt is in demand so far ed from leading companies in all indus-
reduced government programs and
not an inflation bail out
• Inflationary policies have been applied
in the past by select nations, as a means
to inflate their way out of excess debt
• However, such policies have had little
success, considerable negative impact
on the country and its citizenry and
ultimately resulting in deflation,
which “wrings” out the excess debt
• As for the USA, the $21 Trillion of
indebtedness does not include the
unfunded liabilities of Medicare and
Social Security Global Dow Monthly Bar Chart

www.stocknewsnow.com MicroCap Review Magazine 97


DJIA history since 1980
• Thanks to the historic extraordinary
global monetary and fiscal policy,
global equities have had quite the ride
• However, who will mention or deal
with the debt bomb, comprised of
historic margin, household, corpo-
rate and sovereign wealth debt?
• It’s getting bigger by the day and histo-
ry is clear, it is most difficult to inflate
it away, as many have tried, it usually
Dow Jones Industrial Average Monthly Bar Chart ends in deflation – a Grand Reset
• Turkey is likely just the beginning, as
tries globally including emerging and Italy or another country or company
developed markets selected for current ties, once a top is confirmed but not or bank may be next “trigger” event
size, reputation and potential, as well as all individual stocks will decline the
emerging sectors like alternative energy same percentage, nor will other index Foundation for the Study
• It’s a comprehensive barometer of the averages that they may comprise of Cycles “Super Bear”
global equity trend • Interesting, year-to-date, the S&P is up report
• This elegant chart portrays a very more than 4% while world stocks (exclud-
compelling visualization that a major ing the U.S.) are down more than 4%, • The above chart is from the FSC,
top has likely occurred, awaiting a indicating a “fractured” global market which I have been a member and sup-
decisive reversal down or, conversely, porter since the 1970’s
one more move up to a lasting crest, Dow Jones Industrial • It is the most recent update regard-
most likely well under the January Average Monthly Bar ing long term DJIA cycles, and most
high and, ideally, in 2018 Chart impressive
• The Global Dow also portends of a • It is depicting a top in January 2018
substantial global decline in equi- • This chart is a “factual” snapshot of and perhaps the current August crest
or, as an alternative, a double top at a
higher level than present
• The take-away is that this is another
credible analysis indicating a long
term and very important top has
occurred or is about to occur, fol-
lowed by a dramatic decline
• For more information regarding
the Foundation, go to https://timin-
gandtrading.com/

Dow Jones Industrial


Average 20 Year Average
Rate of Return

• This chart depicts the current Long


Wave Cycle in terms of the DJIA,
which began in 1949 and is com-
prised of 4 economic seasons
• Spring Season: 1949 to 1962
Foundation for the Study of Cycles “Super Bear” report
Courtesy of the Foundation for the Study of Cycles (FSC), https://timingandtrading.com
• Summer Season: 1962 to 1982

98 MicroCap Review Magazine www.stocknewsnow.com


mean reversion would take the DJIA
well below its current mean and for a
considerable duration
• This provides more historical evi-
dence of the potential for a substan-
tial decline and cleansing of excess
debt and over capacity

Dow Jones Industrial


Average Monthly – 1885 to
Present

• Sources that influenced the cre-


ation of this chart by the author in
MetaStock: general internet searches;
Foundation for the Study of Cycles,
• https://timingandtrading.com; Elliott
Wave International, www.elliottwave.
com; MetaStock International, www.
metastock.com.
Dow Jones Industrial Average 20 Year Average Rate of Return
Courtesy of Thechartstore.com, July 2018 •
• This is a very long term view of the
• Fall Season: 1982 to 2000 asset managers and investors, “mean DJIA, which portrays the topping
• Winter Season: 2000 to 2020-2030? reversion” process at the very top of the upper
• The chart indicates that when the • With the DJIA so far above its histor- trend channel, a top that may be in
Long Wave Cycle winter season ic mean for such a long time, a typical but cannot be confirmed at this time
is over, the DJIA 20 year average
return will be under 0% and per-
haps by a great deal more (mean
reversion)
• Note the move up on the chart from
2009 to 2014 (end of QE), the evident
impact of QE and so is the decline
from 8% to the 31 July 18 rate of 5%
• For all the monetary policy and
fiscal policy expenditures during
that time frame, resulting in enor-
mous debt, that was a short lived
impact and now the resumption of
the downward trend in the 20 year
average return

Dow Jones Industrial


Average Monthly with
Mean Average Since 1885

• The DJIA monthly mean aver-


age chart is quite telling in regards
Dow Jones Industrial Average Monthly with Mean Average Since 1885
to two currently dreaded words to Courtesy of Thechartstore.com, July 2018

www.stocknewsnow.com MicroCap Review Magazine 99


Steven M Shelton CFP®, CLU, ChFC, TEP, CIMA®,
CMT
Cornerstone Global Group LLC
Office: 773-697-8021
Cell: 773-294-8174

steven.shelton@cornerstoneglobalgroup.com
www.cornerstoneglobalgroup.com

Dow Jones Industrial Average Monthly – 1885 to Present Broker/Dealer services and investments are offered
by Steven M. Shelton, independent contractor and
FINRA Registered Representative, through Weild &
Co., http://www.weildco.com, a Member of FINRA
• There can be many labelings of this tectionism, military aggression, civil
http://www.finra.org and SIPC, http://www.sipc.org
long term chart, as witnessed per unrest, revolutions at the ballet box Cornerstone Global Group LLC is not affiliated
internet searches but, in my opin- and more with Weild & Co.; Cornerstone Global Group LLC
does not offer securities nor securities advice and is
ion, this is the most likely, given • The USA has the opportunity to not a member of FINRA/SIPC.
the Revolutionary 250 year cycle, come quickly into the economic Cornerstone Global Group LLC, 3240 North Lake
Shore Drive, Suite 11-D, Chicago Illinois 60657, may
Brenner’s research, Long Wave Cycle Spring Season, unencumbered by the
provide institutional non-FINRA related consultancy
and intermarket analyses excess debt of past monetary and fis- on farming and general marketing, distribution and
• Once the pending decline is over, cal policies and rise to new heights of product/service development to and for institutional
use only, without contact with any of a consulting
look carefully at the chart, as the final prosperity firm’s individual clients
bottom for the Grand Super Cycle IV • The past polices, as well meaning as Cornerstone Global Group LLC is also a financial
literacy newsletter publisher of the CGG Global
is not likely until at least 2062-2066, they were, did not learn from the past
Market Technical Report and CGG Technical
all an extreme estimate and, thus, placed a heavy debt burden Research Notes, all of which are general informa-
• I have depicted a very simple struc- on the USA and its citizenry tional services regarding Global Macro Economics
and Market Technical Analysis. Cornerstone Global
ture but it can take many different • This analysis is stated in full realiza- Group LLC’s independent contractor consultants are
forms depending on market action tion that so many of the current eco- not investment advisers. At no time may a reader,
caller, viewer or consultancy client be justified in
dictates nomic indicators, such as consumer
inferring that any advice from Cornerstone Global
• Until the final bottom occurs, expect confidence, are fundamentally bull- Group or its Non-FINRA registered consultants
high volatility, wide swings and a ish, as is the current long term techni- is intended as investment advice or as investment
recommendations directed to any particular person
personality opposite the great bull cal trend of the DJIA, which remains or in view of the particular circumstances of any
market of the early 1980s to 2000 up as of date particular person. Investing carries risk of losses,
and trading futures or options is especially risky
• However, in my analysis, the growing
because these instruments are highly leveraged, and
in sUMMarY global technical evidence that tends traders can lose more than their initial margin
to “precede” the fundamentals, war- funds.  Before investing consult with your invest-
ment advisor. Cornerstone Global Group LLC does
• A Grand Reset is likely on our hori- rants a current increase in awareness not render tax, accounting or legal advice and the
zon and with it bringing a close to the and defensive preparedness, as we information contained in this communication should
not be regarded as such. Information provided by
Economic Winter Season move into October and the balance
Cornerstone Global Group is expressed in good faith
• How it is embraced and handled of 2018 but is not guaranteed in any way.
through monetary and fiscal policy, • One may not know the day nor the
Note: This article is not an attempt to provide invest-
may well impact whether the USA hour of the Grand Reset but we do
ment advice. The content is purely the author’s per-
will break the cycle of the rise and fall know we are in the Winter Season sonal opinions and should not be considered advice
of nations in which it historically occurs, caveat of any kind. Investors are advised to conduct their
own research or seek the advice of a registered invest-
• It is equally true of other developed emptor n ment professional.
and emerging market economies, as
this is global, with all the attributes
that come with this time frame, to
include trade wars, populism, pro-

100 MicroCap Review Magazine www.stocknewsnow.com


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www.stocknewsnow.com MicroCap Review Magazine 101
F E AT U R E D A R T I C L E

Tracking Micro Cap


Debt in Southeast Asia
T hrough our years of experience analyzing Asia’s markets, we’ve
developed a proprietary economic model known as the Asian Capital
Development model (ACD) to track capital flows in Asian debt markets.
Through extensive back-testing, we have road cleared for them to skyrocket. mies, particularly in state-centric economies
identified debt fluctuations as key indicators In other words, you as an investor possess of China, Japan, Korea and Vietnam, is key
for profiting off Asian stock markets, using a significant advantage by understanding to understanding the way in which certain
the debt cycle for maximizing our gains. debt cycles and knowing where the next sectors and industries develop.
In brief, while using ACD, governments boom will occur. The success of government-backed indus-
pour large amounts of cheap debt influxes At One Road Research, the research firm I tries in Asia’s developing or developed econ-
into state-selected industries or companies, run, we track exactly that. Our team of Asia- omies serves a range of purposes, from the
thus turning their economic agendas into based researchers are constantly on the lookout narrow, self-serving interests of politicians
realities. Governments direct their banking for new opportunities, and in the developing looking to line their pockets, to the wider
system and capital distribution through the economies of East and Southeast Asia, a lot of political legitimacy that is afforded to gov-
private sector. this opportunity is to be found in companies ernments that are seen to be doing a good job
As a result, there are clear cycles of debt that fall within the micro cap category. at running the economy.
and credit throughout the region. And the What we realized, was that there was a way
“hot spots” absorbing the debt injection at ThE EMErGinG MarKET to basically join the party without an explicit
preferential borrowing rates have had the oF GoVErnMEnT-BacKEd invite. As the region’s stock markets begin to
indUsTrY develop and liberalize, opportunities arise
for private, non-connected and also foreign
A big part of our day to day work involves investors to get a piece of the action, benefit-
developing and testing investment theses ing from the embedded connections between
that track the region’s micro and large cap government and business in the region.
stocks, using our ACD model as a tool for So, instead of just sitting back and watching
isolating opportunities that we can highlight governments and their business associates line
and provide to our clients. Our strategy for their pockets, at One Road Research we inves-
our portfolio is long term growth through tigate where governments have instructed
well-timed exposure to companies benefit- their capital markets to direct cheap credit
ing from government-protected expansion. flows to, and then use this information to
This means we are looking for well-priced provide our clients with clearly profitable,
stocks that benefit from stable management, low-risk investment opportunities.
good market prospects and are protected by Using our ACD model as a basis, we
governments that have committed – offi- develop solid economic models for profiting
cially or otherwise – to ensuring that these off both micro and large cap companies in
homegrown entities do well. the region.
n BY PETER PHAM
The role of government in Asian econo- We have back-tested this model across a

102 MicroCap Review Magazine www.stocknewsnow.com


range of Asian economies, from the devel- Debt growth our Vietnam portfolio was – Nam Long Investment Corporation – is
oped Northeast to the developing Southeast. very significant in 2017 (at roughly 500%). from the real estate sector, whose growth
The cheap credit stream has proved itself This surge in debt was fueled by the real is forecast to continue steadily well into the
again and again as an effective investment estate and consumer discretionary sectors. next decade.
indicator across the board, even in vastly Positive economic results in 1H18 and But that being said, it’s just the tip of the
different industries and economies. rising incomes across the board have also iceberg of the range of companies across
While many of the companies benefit- encouraged the growth of consumer discre- Asia that we’ve isolated as fulfilling all of our
ting from these government-instigated debt tionary companies, notably mobile phone tried and tested requirements for projected
cycles in the developed Northeast Asian retailers. upward trajectories across a whole range of
economies are unsurprisingly large-cap, Similarly, Vietnam’s real estate sector con- sectors in this exciting new economic envi-
many in the developing countries of the tinues its steady growth, with no sign of a ronment.
Southeast would be considered micro cap. slow down, while fears that the expanding For example, in Malaysia, its newly-elect-
sector was a bubble and not a tough balloon ed government bodes well for the country’s
Vietnamese Real Estate seem to have faded as the overall economy politics and economy. It has changed the
Groups – Micro Caps with develops in tandem. GDP growth of 6.8% guard at market regulators and state-owned
Mega Potential in 2017 made it one of the fastest growing firms, boosting confidence in initially-jittery
economies in Asia. stock markets as investors take a shine to
Vietnam is expected to become a very Although the growth pace has slowed the prospect of better governance and an
appealing ‘alternative property market’, as down compared to previous years, a key sup- end to decades of patronage politics. The
neighboring real estate markets like China, porting factor is the government’s continued bullish factors for Malaysia now also rely on
Japan, and Hong Kong freeze up. investment in large-scale infrastructure proj- higher oil prices, a recovering currency, and
The government has conducted various ects, which helps make the country’s trajec- a quickly-narrowing deficit.
stimulus policies to excite the domestic real tory to a middle income status, advanced One of our picks from the country – Wah
estate market. manufacturing economy almost guaranteed. Seong Corp Bhd – has a market cap of just
The number of foreigners buying in Vietnam is one of the largest investors in under US$300 million and had debt growth
Vietnam has doubled since 2014. Coupled infrastructure in the region, spending more of 100% over the last year. This infrastruc-
with speedy economic expansion and eased than 5% of its GDP on big projects such ture company, which is well-positioned to
entry barriers, property investments in the as roads, metro networks, power grids and serve Malaysia’s expanding oil export capac-
two largest cities — Ho Chi Minh and Hanoi ports, making it second only to China in ity, is also quite cheap to buy with a P/E ratio
— have exhibited tremendous profitability in this regard. of 10.
recent years. 
 So, our microcap stock pick from Vietnam If you’d like to find out more about other

www.stocknewsnow.com MicroCap Review Magazine 103


emerging Asian micro caps that are ben- Peter Pham Under Pham’s management, Phoenix Capital created
the VN30 Equal Weight Index, which tracks the total
efitting from government-led cheap credit, www.oneroadresearch.com performance of the top 30 large-cap, liquid stocks
feel free to contact me directly using the research@oneroadresearch.com listed on the Ho Chi Minh City Stock Exchange. All
index constituents are equal-weighted, helping inves-
email below, or sign up to our newsletter tors with foreign ownership, liquidity, and state-owned
Peter Pham is an author, researcher and investor.
and/or premium subscription service. We enterprise issues in Vietnam. The index is the first
Pham’s book, The Big Trade: Simple Strategies for
offer free content via our email newsletter, index in Vietnam to be affiliated with S&P Dow Jones
Maximum Market Returns, was published in 2013 by
Indices for updates and calculations.
Decoding Asia, to anyone who wants to truly John Wiley and Sons. Pham has contributed invest-
ment advice on different media platforms, including
understand the region, as well as premium Note: This article is not an attempt to provide invest-
Seeking Alpha, CNN Money Trading Markets and
ment advice. The content is purely the author’s per-
paid content via our exclusive publication, Forbes. He is the creator and editor of “One Road
sonal opinions and should not be considered advice of
Research”, a website focused on decoding Asia for
Asia Insider, which provides more detailed any kind. Investors are advised to conduct their own
international investors. He also presents a podcast that
insights and reports into specific industries, research or seek the advice of a registered investment
was launched on iTunes in 2014, which has featured
professional. The author does not own shares or any
sectors, stocks and recommended actions. guest appearances from experts such as Ron Paul, Jim
equity or debt interest in any companies mentioned in
Rogers, Robert Kiyosaki, Marc Faber, John Perkins,
Good investing, n this article before or at its publishing.
and Kevin Kelly, to name a few. Pham is currently
the managing director and principal fund manager
of the award winning Phoenix Capital Group and
serves on the board of Wisdom and Founder Girls.

104 MicroCap Review Magazine www.stocknewsnow.com


OPINION Oil & Gas Turmoil But Steady Growth in 2018

O il prices continue to rise on as increased


global demand and U.S. efforts to shut
out Iranian output through the use of sanctions
from Saudi Arabia, the world’s biggest exporter.
Saudi Arabia’s willingness and preparedness
for a stock market listing of Saudi Aramco is
US president Donald Trump has called on the
Kingdom to ramp up output by 2m b/d to calm
rising oil prices, amid outages in Venezuela and
outweighed drilling data suggesting that U.S. now in doubt amid concerns about legal expo- an impending drop in Iranian supplies after the
shale production would climb. sure and an inability to generate the $2 trillion re-imposition of oil sanctions. The US, despite
The United States new Administration valuation sought by the kingdom’s powerful the shale boom, is still reliant on foreign oil but
says it wants to reduce oil exports from Iran, crown prince, Mohammed bin Salman. Saudi Arabia cannot be relied upon alone to
the world’s fifth-biggest producer, to zero by American energy companies increased the keep the oil market in check over the long term.
November 2018 in a move that will oblige other number of rigs drilling for oil by five to 863, The International Energy Agency (IEA) has
big producers such as Saudi Arabia to pump up 100 year on year, reported by Baker Hughes said insufficient investment into new large-scale
more. But Saudi Arabia and other members of in early July. projects will lead to a supply shortfall in the
the Organization of the Petroleum Exporting The U.S. rig count, an early indicator of early 2020s just as US shale production plateaus.
Countries (OPEC) have little spare capacity and future output, is much higher than a year ago Capital expenditure by energy groups is expect-
oil demand has risen faster than supply over the because companies have ramped up produc- ed to fall by nearly half from the 2010-15 level.
past year. The oil industry risks a supply crunch tion in response to higher prices. But the U.S. The industry needs about $500 Million in
as big energy companies focus on US shale and oil market is still tightening. Crude inventories new investment that none of the Majors are
other short-term efforts over the long-term at Cushing, Oklahoma, the delivery point for willing to do as they are making their investors
mega-projects seen in years past, the head of U.S. crude futures, have fallen to their lowest in happy after the crunch of the Obama era.
Saudi Arabia’s state energy giant said. 3-1/2 years, data shows. On the short-term prices seems to be settling in
Energy majors are prioritizing cutting costs Are we going toward a crunch and peak on the $70, may peak to $80 due to some topical issues
and returning money to investors through oil price? (hurricanes, or other unexpected shut down) but
dividends and share buybacks after a brutal OPEC, Russia and other producers agreed in what would happen in 2020 remains to be seen and
industry downturn. June to a modest increase in output to dampen will be largely a function of geopolitical decision.
At the same time there has been a decline in oil prices. A rise in supply will reverse some One interesting development could be a
exports from several OPEC producers, includ- of the output cuts that OPEC and other major significant increase in Gaz export toward the
ing Libya. Libya’s national oil output has fallen producers put in place in early 2017 to end EU as the Trump Administration is trying to
to 527,000 barrels per day (bpd) from a high of several years of glut. obtain from its European “Allies” to switch from
1.28 million bpd in February, according to the Brent crude, the global oil benchmark, is up Russian to American gaz. This also could have
Libyan National Oil Corporation settling in the high $70 since mid-April and flirt- an impact in the energy industry as well and
U.S. oil output is increasing but is unable to ing with $80 a barrel on London’s ICE Futures eventually could trigger the Majors to re-start
fill the supply gap if U.S. sanctions successfully exchange and West Texas Intermediate (WTI) investment in large oil infrastructure projects to
block Iranian exports. futures is trading in the low to mid $70 a barrel. keep up with the 2020 supply crunch to come. n
Technological advances in hydraulic fractur- Unplanned supply outages like Libya and
I wrote this article myself in reviewing public disclo-
ing have unlocked vast amounts of oil from Canada, which started earlier this month, are sures, and it expresses my own opinions. I am not
“tight” rock formations, and ExxonMobil, helping support the market with prices holding receiving compensation for it. I have no business rela-
tionship with any company whose stock is mentioned
Chevron and Royal Dutch Shell are among near more than three-year highs. Expectations in this article. Please be aware of the risks associated in
those investing heavily in US shale fields, that U.S. sanctions against Iran and the contin- investing in public stocks and this Article should not be
considered as an invitation to purchase any stocks.
which generate cash quicker. But the world will ued economic crisis in Venezuela could further Frederic Scheer is CEO of L6NRG is an indepen-
still depend on conventional oil such as that deplete global oil supplies were also bullish. dent Oil & Gas company, Montana based corpora-
tion working on drilling exploration in East Montana,
So, the price is and will remain high, which North Dakota and Wyoming. He is also the CEO of
Libra6 Management, Corp, a small private equity com-
could become a stunning block for a continued
pany operating in new alternative technology, media
growth of the economy. and chemicals. Scheer was the Ceo of several public
companies including Cereplast a biomaterial company,
The developing trade war between the U.S. the Cannon Group, an entertainment company and
and China is unsettling as both countries are Imperials Hotels a hotel management company.
bickering at each other, introducing tariffs on Note: This article is not an attempt to provide invest-
each other’s exports. So far crude has been kept ment advice. The content is purely the author’s per-
sonal opinions and should not be considered advice of
of China’s list of goods it imports from the U.S. any kind. Investors are advised to conduct their own
but it has indicated this could change. research or seek the advice of a registered investment
n BY FREDERIC SCHEER
professional.

www.stocknewsnow.com MicroCap Review Magazine 105


OPINION

2020 BioPharma Expansion


and the Opportunities of
Heading East
How do we hitch our wagons?

T he geographical distances may be vast, but the regulatory steps


and cross-border collaborations are bringing the markets closer.
The joint poll by management consultants A report jointly published by the social emergence of US Chinese owned start-ups,
L.E.K and US trade body, Biotechnology development department of the Ministry Chinese-American Associations and a pleth-
Innovation Organization (BIO), found 86% of Science and Technology and the ora of state side investors or partners are
of biopharma firms are interested in China  China National Center for Biotechnology growing steadily!
Drug regulatory reform, pro-biotech Development, stated that the output of Developing a presence in this movement
trends, new intellectual property rights pro- China’s biotechnology industry will rise to 8 is key and understanding “who and how”
tection and increased public and private to 10 trillion yuan (1.21 to 1.51 trillion U.S. can have a dizzying effect! As with all things,
investment within China are contributing to dollars) by 2020. making the “contact” and starting the dis-
the Chinese market’s attractiveness. This added value of the biotech industry cussion of partnering are primary. Several
will account for over 4 percent of the coun- Chinese/Sino-American Associations, such
try’s gross domestic product (GDP) by 2020. as SAPA, CABS and CABA, have grown in
As one of the most dynamic and influential membership Nationwide. These Associations
industries in the 21st century, the biotech provide Networking and Educational events
industry has become a major emerging sec- that bridge some of the gap. Events ranging
tor of strategic importance in China. from Investment platforms to Employment
With all these factors considered, the fairs, bring the presence of Chinese based

n BY JAE SLY, MBA, PH.D

106 MicroCap Review Magazine www.stocknewsnow.com


accelerators of their own. Other policy efforts
Mitigating the uncertainties and difficulties of may be less obvious (yet effective) as a means
to foster startup partnering.
expansion in China and national policies, it is now In summary, while any emerging market
seen as highly advantageous and most efficient for requires a distinct strategy, in the case of China
the distinctiveness of the strategy will likely
foreign Biopharmaceutical companies to partner be greater because of the profound role of the
state in influencing ecosystem orchestrators,
with local Chinese companies when bringing a drug participants, and intermediaries, Western cor-
into the Chinese market. porations’ efficacy in tapping the unprecedent-
ed opportunities to engage with startups in
emerging markets such as China will, in part,
BioPharma, US BioPharma, start-ups and has specialized teams to this industry. be determined by how well they approach
Funding partners from Angels, VC an Equity Mitigating the uncertainties and difficulties these markets with Strategic Partners and a
groups. Participation in presentations or of expansion in China and national policies, it defined plan for the Chinese Market. n
Roundtables, offer exposure and introduc- is now seen as highly advantageous and most
Jae Sly is the CEO of Strategic BioPharm Consulting,
tion to a varied audience. efficient for foreign Biopharmaceutical com-
Inc. Jae has over 20 years in the Biopharmaceutical
Before seeking a partner and developing panies to partner with local Chinese compa- Industry, from R&D to Clinic. Jae is an Industry
a strategy for funding approach, taking an nies when bringing a drug into the Chinese Leader providing strategic partnering of Biopharma
technologies and services.  Jae has initiated cross
inventory of the strength of your team, tech- market. Chinese companies that have the border partnering platforms, investment forums and
nology presentation and plan for next steps are knowhow, experience, manufacturing capac- is a corporate mentor in the DE and MD Incubator
Startup Programs. Much of Jae›s career has been with
essential. Far too often, the plan or technology ity and are very familiar with Chinese law
numerous start-up and small BioPharma Companies
presentation are not clearly portrayed. This and the regulatory environment. The latter seeking to expand infrastructure, technology exposure
is the challenge for all, whether it is US com- is of extreme importance not only in estab- on an International level.. Contract negotiations and
technology evaluation for Investment Opportunities,
panies, Chinese owned US Companies and lishing drug development strategies but also has been primary expansion within Jae›s portfo-
Chinese based Companies. The comfort zone in tracking the latest updates on regulations lio of services in last few years. Jae maintains a
strong Industry presence by presenting and attend-
tends to be within “like company” and step- and obtaining preliminary recommendations
ing at major conferences. Jae received her Ph.D. in
ping out of that comfort zone can seem like a and progress of a drug’s registration. Efficient Immunology from University of Washington and
daunting feat. Truly, it is not. Simple steps to communication with government bodies MBA from San Diego State University. Jae is a member
of LES, Maryland ICOY, ESACT, BIO and is Adjunct
improve your “message” and understand the (CFDA, local FDA and the CDE) may also Faculty at University of Delaware, Bioinformatics
right path to take can be easily achieved. avoid misguided product R&D. Core.. Jae possesses the skills of being Multi-lingual
and well versed in Cultural negotiations.
Identifying Financial Advisors that spe- Moreover, cultural and language chal-
cialize in acting as a bridge between the lenges are often mitigated when partnering Jaesly@gmail.com
North American and Asian markets. One with a local company. 410-920-4483

steadily growing Company based in New In China, policy measures initiated at the Note: This article is not an attempt to provide invest-
York is Haitong Securties USA, LLC (HTUS). national level to redress the institutional voids ment advice. The content is purely the author’s per-
sonal opinions and should not be considered advice
HTUS is a SEC and FINRA registered US impeding innovation and entrepreneurship
of any kind. Investors are advised to conduct their
broker dealer wholly owned by Haitong cascade down to more local levels  — the own research or seek the advice of a registered invest-
International, the largest listed Chinese province level, city level, district level, and so ment professional.

investment bank and brokerage house in on — through what are often entrepreneurial Note:: This article  is informational in nature and
Hong Kong (665:HK). and creative actions taken by local govern- should not be construed as providing individualized
investment advice.  Investors are advised to conduct
The parent of Haitong International is ment officials. For multinational partners,
their own research and due diligence or seek the
Haitong Securities, headquartered in this can represent an opportunity to tap into advice of a registered investment professional. Both
Shanghai and the second largest investment ecosystem intermediaries that help enhance the Author and Ridgewood Investments disclaim any
liability from the use or misuse of this information.
bank and brokerage house in China. HTUS the efficacy of their startup partnering efforts.
focus on biopharma sector results from the This may take the form of district govern-
experience and knowledge from its direct ments within a large city like Shanghai incen-
parent who has supported many companies tivizing corporations to participate in efforts
raising capital and listing in Hong Kong and such as Incubation Platforms or to establish

www.stocknewsnow.com MicroCap Review Magazine 107


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

What Are Gold Royalty


Companies and Why Do
They Matter?
G old has been used a trusted hedge in many successful portfolios for
decades. Traditionally, if investors wanted exposure to gold they
would choose between physical gold as a low-risk option or invest in a gold
exploration or mining company if they were eager for higher returns.
However, over the past decade, a new way cally a safe bet does not at all yield a return
to invest in gold has emerged in the market and as an investment, bullion (or ETFs that
in the form of gold royalty companies and track bullion) is restricted to the current
such companies have quickly become the price of gold with no leverage or upside. For
go-to way to invest in gold because they typi- those comfortable with a little more risk,
cally have far more upside than investing in gold mining companies can provide plenty of
gold bullion, and far less risk than investing upside. Some of the biggest investment wins
directly in mining companies. over the last 50 years have come out of the
Traditional gold investments just don’t gold mining industry. Unfortunately, some of
cut it anymore. Physical gold, while histori- the biggest investment flops have also come

n BY NOLAN WATSON

108 MicroCap Review Magazine www.stocknewsnow.com


out of this industry. Investing in gold mining a gold mine is the potential for exploration scape of gold investing. Through a diversi-
can bring plenty of risk. A recent internal upside – that is, the potential for more gold fied portfolio of carefully selected assets,
study of over 60 mining companies showed to be discovered at an existing site or opera- royalty companies provide leveraged expo-
that almost 80% of the projects scheduled tion. The technical teams at royalty compa- sure to gold, while minimizing many of the
for production did not start on time. Once nies include geologist and mining engineers common risks. n
they did commence production, the majority that carefully sift through hundreds of proj-
Company Profile
went over budget and on average, produced ects each year, selecting only the opportuni-
Sandstorm is a gold royalty company that provides
less than half of the expected amount dur- ties with the most exploration upside poten- upfront financing to gold mining companies that are
ing the first year. As a result many mining tial and since the acquisition cost of buying looking for capital and in return, receives the right to
a percentage of the gold produced from a mine, for
companies have trouble paying back the debt a royalty is paid upfront, with no ongoing the life of the mine. Sandstorm has acquired a port-
they borrowed to build the mine, resulting costs, royalty portfolios get all of this explo- folio of 188 royalties, of which 20 of the underlying
mines are producing. Sandstorm plans to grow and
in substantial losses for equity investors. So, ration upside as a free benefit to their share-
diversify its low cost production profile through the
what’s the alternative? holders. This can lead to increased mine life acquisition of additional gold royalties.
and more gold production to the royalty
For more information visit:
The Gold Royalty Model company and its shareholders. www.sandstormgold.com

Nolan Watson – CPA, FCA, CFA


Gold royalty companies such as Sandstorm An Industry Ready for
Since co-founding Sandstorm Gold in 2008, Nolan
Gold Royalties (the company that I co- Growth Watson has led the company’s transformation from
founded and am CEO of) purchase royal- a small startup into a diversified royalty company
with a billion-dollar market capitalization. Prior to
ties on gold mines around the world. This Mining is a tough business, and it seems to co-founding Sandstorm, Nolan was Chief Financial
typically includes a single upfront payment be getting tougher. For mining companies, Officer of Silver Wheaton Corp. (now Wheaton
Precious Metals Corp.) where he gained the experi-
in exchange for the right to a percentage of raising capital has become increasingly dif-
ence that he needed to make Sandstorm a reality and
the gold production for the life of the mine. ficulty over the past several years. With more a success. During his time there, Nolan developed
Once a project moves into production, we and more capital being moved from active to the silver streaming business model and helped raise
more than US$1 billion in debt and equity to fund
sell our percentage of gold and add the passive investors, brokers and bankers disap- the company’s growth.
revenues to our free cash flow. Sales from pearing or switching industries, and capital Nolan is a Fellow of the Chartered Professional
Accountants of British Columbia (Valedictorian). He
gold production are then returned back to moving into other parts of the capital struc-
holds the designation of Chartered Financial Analyst
shareholders or invested in more royalty ture, mining companies are often left with and received a Bachelor of Commerce degree, with
purchases. Simple as that. little options for financing when they need it. honours, from the University of British Columbia.
Nolan’s professional and charitable achievements
Since 2009, Sandstorm has been building a are not without their honours either. He was named
royalty portfolio with assets on nearly every The gold royalty industry is helping fill the EY Entrepreneur of the Year, recognized as one
of Canada’s Top 40 under 40, awarded CEO of the
continent. As of this writing, we have nearly that gap. Over the last 10 years, gold royalty
Year by Business in Vancouver, and received the
190 royalties on mines around the world finance has become a mainstream funding Queen’s Diamond Jubilee Medal. In 2014, Nolan was
including 20 mines in production. source for resource companies of all sizes, recognized as a Young Global Leader by the World
Economic Forum. He is also the President of Nations
and Sandstorm has been a significant part Cry, a charity focused on education-based develop-
Less Risk, More Upside of that evolution. During the last five years, ment in Sierra Leone, West Africa.
close to US$14 billion in royalty transactions
Note: This article is not an attempt to provide invest-
Unlike mining companies, royalty compa- were completed in the mining industry. It ment advice. The content is purely the author’s per-
nies don’t operate mines. This removes the is an attractive financing option to com- sonal opinions and should not be considered advice
of any kind. Investors are advised to conduct their
common risks associated with direct invest- panies since it does not dilute shares and own research or seek the advice of a registered invest-
ments in mining operations. If a project runs is less restrictive than debt financing. An ment professional.
over schedule or budget, or is forced to pause investment from Sandstorm Gold Royalties
Note:: This article  is informational in nature and
production temporarily, royalty companies provides mining companies with a strategic should not be construed as providing individualized
are not responsible for the overhead costs partner whose incentives are aligned. investment advice.  Investors are advised to conduct
their own research and due diligence or seek the
incurred. Once the upfront royalty pay- advice of a registered investment professional. Both
ment is made, the money received from any Hundreds of Mines in a the Author and Ridgewood Investments disclaim any
liability from the use or misuse of this information.
operation is clear and free to use on future Single Investment
investments.
One of the main attractions of investing in Royalty companies are reshaping the land-

www.stocknewsnow.com MicroCap Review Magazine 109


FIXED INCOME CORNER

Fixed Income
F
ixed income investing is tough going 30-year Treasuries. This means that the Fed
right now. Through June 25, the will eventually raise the cost of overnight
Bloomberg Barclays High Yield money higher than the cost of 10 and 30 year
Index posted a paltry year-to-date return of money. This will have profound effects on
+0.7% compared to a -3.6% loss for invest- the financial system, not just in the United
ment grade bonds and a -1.4% drop for States but around the world – and it will put
Treasuries. There is little reason to expect downward pressure on the prices of all fixed
these returns to improve as long as central income instruments because their prices
banks are tightening, and when they stop drop as interest rates rise. It is also likely to
tightening it will be because the economy put pressure on stock prices for a variety of
is slowing and stocks will then come under reasons.
pressure. But all is not lost – there are still Ten of the last thirteen recessions were
ways to earn a decent return on your capital caused by the Fed raising interest rates, and
in yield investments without losing money many observers believe the Fed will again
or placing your money at undue risk. The raise interest rates too high and push the
key is understanding the economic environ- U.S. economy into a recession. With the
ment and knowing where to look. U.S. economy carrying roughly $65 trillion
The Federal Reserve is going to keep of public and private sector debt, a reces-
raising rates well into 2019 until it lifts the sion would cause a lot of stress for heavily
Federal Funds Rate (the rate at which banks indebted borrowers including consumers,
lend to each other overnight) to roughly businesses and governments.
3.5%. That level is higher than the yield on There are also concerns that the Treasury

n BY MICHAEL E. LEWITT

110 MicroCap Review Magazine www.stocknewsnow.com


than 50% to under $6.00. But that was then
Why would you lend money to the U.S. and this is now. The company is led by real
estate investor Tom Barrack who has a lot
government, which spends money like a drunken of his net worth wrapped up in the com-
sailor, for ten years or thirty years for a lousy 3% pany and has a lot to prove to investors (and
himself). The stock is now trading at a 50%
return? discount to book value and paying a $0.44
per share annual dividend while owning a
strong and diverse real estate portfolio. This
yield curve is signaling that the economy will other fixed income instruments today. The may not look like a fixed income investment
slow down sometime in 2019 or 2020. The other problem with these corporate bond but it has the attributes of a high yield-
shrinking gap between short term and long investments – as well as floating rate corpo- ing dividend play with equity upside and
term Treasury yields - what is known as rate bank loans that pay around 5% - is that significant collateral coverage. I think the
curve flattening - used to signal an oncom- they lack strong covenants that provide lend- downside on this investment at the current
ing economic slowdown and likely recession ers with rights to prevent borrowers from price is extremely limited and the stock will
in the period before the Great Financial taking advantage of them. As a result, when eventually move toward book value. Among
Crisis of 2008-9. The yield curve has been borrowers do default in this credit cycle, its large holders is hedge fund legend Seth
flattening sharply over the last year and is lenders will recover only a small portion of Klarman. n
now at its flattest level since 2007. Now their principal.
Michael Lewitt is the Manager of The
many people question whether that is still In order to earn a positive risk-adjusted
Third  Friday  Total Return Fund, L.P., a top-
what it means since central banks play a and inflation-adjusted return on your cash, performing options hedge fund with a 10+ year
much larger role in markets and own tril- you need to look for investments that pro- track record that has never experienced a losing year
(including during the financial crisis in 2008) (www.
lions of dollars of government bonds. With duce returns in the high single digits to low thirdfriday.com).  He is also the editor of The Credit
$9 trillion of global bonds still yielding double digits, and that requires doing some Strategist  (www.thecreditstrategist.com), a widely
read financial newsletter and of two books,  The
below zero, it is hard to know if the yield serious homework.
Death of Capital  (2010) and  The Committee to
curve is actually predicting a recession, but You also need to be creative and think Destroy the World (2016).  Mr. Lewitt was one of the
we can say with certainty that (1) current out-of-the-box. Avoid large mutual funds few people to predict the 2001-2 credit crisis and the
2008-9 financial crisis.
yields are very unattractive and (2) rates are and ETFs that by their very nature are forced
rising which is bad news for anyone holding to buy the broad market. Look for unique www.sandstormgold.com
a fixed income piece of paper. investments that may be out of favor with the
Note: This article is not an attempt to provide
Why would you lend money to the U.S. mainstream but have merit. investment advice. The content is purely the author’s
government, which spends money like a Right now I have two such investments personal opinions and should not be considered
advice of any kind. Investors are advised to conduct
drunken sailor, for ten years or thirty years that I recommend and own in my hedge their own research or seek the advice of a registered
for a lousy 3% return? And that’s the nomi- fund, The Third Friday Total Return Fund, investment professional. The author does not own
shares or any equity or debt interest in any companies
nal return – if you adjust it for inflation, the L.P.
mentioned in this article before or at its publishing.
return is actually negative. Other invest- The first is Chimera Investment Corp.
ments like junk bonds may add three or four (CIM). Chimera is a mortgage REIT that
percent to that return (annualized) but you borrows money on a short term basis to buy
have to take a lot of risk for that extra yield mortgages. It hedges its interest rate risk
and you may not get paid back all of your and does this very effectively. As of July
principal if the company defaults. And if you 22, Chimera paid a 10.6% dividend. I have
invest in the riskiest parts of the junk mar- owned this stock for years and it consistently
ket like Business Development Companies produces strong total returns.
(BDCs) and other direct lenders that provide The second is Colony Capital Inc. (CLNY).
financing to smaller, riskier companies, you Colony is a real estate and investment man-
can get higher yields but expose yourself to agement company and has been a terrible
even higher odds of borrowers defaulting investment since merging with NorthStar
when the economy slows down. That is why Realty and NorthStar Asset Management
it is so tough to make money in bonds and last year, leading the stock to drop more

www.stocknewsnow.com MicroCap Review Magazine 111


OPINION

Why is the Cryptocurrency


Revolution Good for Gold?

I
n this Wall Street View, our host spoke why the Bitcoin and crypto revolution is
with Doug Casey, Founder of Casey actually going to be very good for gold. So,
Research, at the Sprott Natural Resource that’s going to be my main speech courses
Symposium 2018 in Vancouver, BC. mania on and crypto’s. The bubble is par-
tially deflated now I’m not exactly sure what’s
Shelly Kraft: Let’s get started with a little going to happen next. I first got involved in
explanation as to what you do and then Bitcoin when I was given one, when it was
we’ll go from there. worth $13 I still have that Bitcoin today and I
bought more and sold some over the years so
Doug Casey: Well, I have opinions on the on. Bitcoin, the wave of the future they say.
markets all the markets all around the world.
And I write books a couple of New York Shelly Kraft: Now how does that relate to
Times bestsellers most recently a couple of gold and silver?
novels “Speculator” and “Drug Lord”.
Doug Casey: Well, here’s the thing, the
Shelly Kraft: So, what are you speaking on actual value the Bitcoin in my opinion is
at this symposium? mostly as a transfer mechanism, that’s why,
however, not just millions but billions of
Doug Casey: Well, I’m going to talk about people in third world countries in Africa,

n BY DOUG CASEY
CASEY RESEARCH

112 MicroCap Review Magazine www.stocknewsnow.com


in South Asia that have currencies that are is hurting confidence in the dollar drawing today are commodities and gold along with
blocked and that are worth little within attention away from the dollar eventually being money in its most basic form is also
their countries and nothing outside their this is going to draw attention towards gold. a commodity. So, yeah, I’m very bullish on
countries; if people want to save it’s point- So, I guess I’m bullish on both Bitcoin and gold.
less to save Kwacha’s and Pula’s and Naira’s. gold and I own both.
So, these people who all have smartphones Shelly Kraft: So, what do you do when you
now after they buy a used t-shirt the next Shelly Kraft: What do you see in gold meet someone in the market, like, let’s say
thing they buy is a smart phone. They are all particularly trading in around 1200 and walking around at this symposium and
going to get into Bitcoin and I think it’s going change down from its high, it’s sort of lev- they come over to you and they say, we’re
to become the International currency. It’s eled off at this point, where do you see it? longing gold, we’re long crypto currencies
going to replace the dollar because in order and Bitcoin, should we buy juniors? Is that
to have dollars you essentially need banks Doug Casey: That’s a good question, we something, is that a question you can field?
and banks in these third-world countries are have to look at how much gold is there in
almost as bad as the currencies themselves. the world, maybe six billion ounces have Doug Casey: Well, foolishly, because I’ve
So, I’m even though Bitcoin has gone from been mined since the dawn of history most been playing in the junior part of the mining
$20,000 to down to what 6500 today I guess of it almost all of it’s still exist in someplace. market the Exploration Companies and the
something like that. In other words, that’s less than an ounce of Development Companies for 40 years now.
gold for every man woman and child on the They’re the most volatile class of securities
Shelly Kraft: It’s over 7,000 today. planet, that’s one argument for gold being on the planet. They are not investments
higher. But look we need a reliable money in there are speculations, your timing is criti-
Doug Casey: Oh it’s up, good, I haven’t the world and the dollar is no longer reliable cal - that and choosing the right company
checked. Well, excellent. I’m cautiously opti- money because the U.S. government is creat- because 90% of them are, well, at least burn-
mistic about the future for Bitcoin at least ing them, has been creating them since 2007 ing matches or worse than burning matches.
until version 2.0 comes out but the big thing by the trillions. And when the economy goes But it is now a good time to buy them? I
one of the most important things about back into a recession, well, it’s not going to believe it is, because I’m bullish on gold and
Bitcoin and the other crypto currencies is be a recession; it’s going to be much, much bullish on all the other metals, Uranium,
it’s drawing people’s attention to the fact that worse than a recession. Later this year, next Nickel, there’s 92 elements in the periodic
the U.S. dollar and all other currencies are year, it’s long overdue. The dollar’s going to table. Now it’s an excellent time to buy these
just floating abstractions. And people are lose value rapidly where are people going to things and I think it’s the U.S. government
saying, well, wait a minute, why do I have go? Are they going to buy any other govern- and other governments create trillions and
to own dollars I can own Bitcoin. But since ment currencies? I think not, I think there’s trillions more dollars. This is - they’re going
Bitcoin has another set of problems I think going to be a panic back into gold. to some of them it’s going to flow into this
it’s going to draw a lot of attention to gold this - isn’t even a microcap area of the mar-
because gold is the only financial asset that’ Shelly Kraft: So, you would be advising ket. It’s a Nano-Cap; in fact it’s a Pico-Cap
not simultaneously somebody else’s liabil- if you had clients, you would be advising area of the market. They’re volatile, I like
ity and it’s real; it’s tangible unlike a Bitcoin them to buy Bitcoin, cryptocurrencies, not them, and timing is good. Let’s see, if I can
which has use but gold has more use. only Bitcoin obviously there’s other crypto- make ten to one on my money over the next
currencies, and gold at this point? couple of years. n
Shelly Kraft: So, what do you see going
For more information about Doug Casey and Casey
forward in terms of like sovereigns, some Doug Casey: Yes, I would. What are your
Research, please visit: www.internationalman.com
are into Bitcoin, some are more into gold. alternatives? The stock market is in a bubble and www.caseyresearch.com
Where do you think the direction is? and I think it’s rolling over. Real estate is in
Note: This article is not an attempt to provide invest-
a bubble certainly in major cities around the ment advice. The content is purely the author’s per-
Doug Casey: My guess is that Bitcoin world and I think it’s starting to roll over. sonal opinions and should not be considered advice
of any kind. Investors are advised to conduct their
probably hit the bottom at around $6,000 And the bond market is in a hyper bubble
own research or seek the advice of a registered invest-
and it’s probably going to go back up. Now - that’s the big disaster out there because it’s ment professional.
whether that’s a dead cat bounce or we’ve just bigger much bigger than the stock market.
had another pullback in a long bull market, So, where are you going to put your money?
I’m not exactly sure. But the fact that Bitcoin The only things that are cheap in the world

www.stocknewsnow.com MicroCap Review Magazine 113


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

Junior Mining
Why Royalty Companies and Project Generators

A
drian Day Asset Management because they have to keep replacing the
is the business name of Global ounces that they produce and it’s difficult
Strategic Management, a “bou- and expensive to find ounces. For explora-
tique” asset-management firm founded by tion companies, it’s very difficult because
Adrian Day in 1991. The firm was created to frankly the odds are stacked against you and
serve the needs of individuals, families and you have to keep raising money because you
small institutions who believe in the merits don’t own anything; it’s an exploration com-
of investing with a global, value perspective. pany. So, I’m speaking on, well, is there a
In this Wall Street View, our host spoke with better way? And I think the royalty business
Adrian Day, President of Adrian Day Asset model; the royalty companies at the high
Management at the Sprott Natural Resource end against the producers and the prospect
Symposium 2018 in Vancouver, BC. generators, the business prospect generator
model are better ways of making money in
Shelly Kraft: So, what are you speaking on this business.
at this conference?
Shelly Kraft: And why is that?
Adrian Day: One of the problems in
the mining business is it’s a very, very dif- Adrian Day: That’s a huge subject as
ficult business. For miners it’s very difficult you know - royalty companies essentially

n BY ADRIAN DAY
ADRIAN DAY ASSET MANAGEMENT

114 MicroCap Review Magazine www.stocknewsnow.com


give money, invest money and it can be in Adrian Day: Oh yeah, Franco Nevada I have a piece of lots of lottery tickets. So, your
producers, it can be in development com- own personally my family owns but it is also odds of having a success are much greater.
panies or even in exploration companies. our largest position in the money manage-
But they invest money in these companies ment firm of a clients. I’ve always said to Shelly Kraft: Does the price of gold cur-
in exchange for a piece of a pie in exchange people if you want to own one gold stock it’s rently down from its hights, I’ll say that
for royalty when they produce. The benefit Franco Nevada. And we can talk more about kindly, does that price of the underlying
of the model is that they never have to deal Franco if you want but, yeah, I own it. In commodity have the same effect on a pros-
with the problems; now things can go wrong, fact any company that I mentioned favorably pect generator then it would on a single
of course, if the mine never comes into pro- here we’re going to own. exploration company?
duction they never get their royalty. But they
don’t have to deal with the governments; Shelly Kraft: So, let me ask you a ques- Adrian Day: Yeah, it definitely has an
with the NGOs; with the mine collapse; tion on if a prospect generator or a royalty impact; it has an impact because first of all
with the wall collapses; with the flooding’s arrangement with a company exists and it makes it more difficult to more expensive
of mines; they don’t have to deal with the that underlying company is then taken to raise money both more difficult and more
unions; they don’t have to deal with all of over, does the royalty move with the new expensive to raise money. And prospect
that. And so of a business via royalty model company? generators still need to raise money they
tends to be a much lower risk business model just don’t need to raise as much as often as
and therefore a lower risk investment. Adrian Day: Yeah, good point, the royal- exploration company. Certainly, when the
ties are always on the property. Streams, price of gold is down if you look last year the
Shelly Kraft: But at the same time you which are something a little different, the year before, the senior companies very few
must agree that they have to do a very spe- streaming model was developed by Silver of them were interested in doing deals with
cial level of due diligence to find the right Wheaton originally now Wheaton precious the prospect generators. So, yeah it does
people to invest in. metals, which we also own, and a stream is affect them, there’s no question. But the key
a little bit different from a royalty. Streams to me is that because of a prospect generator
Adrian Day: Absolutely, due diligence sometimes are with the company so you model, which we could talk about for four
of course is the key to their investments. have to be very careful about that. With a hours because of a prosperous generator
They are making investments just as you royalty you’re basically looking at the ground model these companies are more able to
and I when we invest our money are mak- so you’re looking at the geology and of withstand a downturn because of the capi-
ing investments and they do an incredible course the politics but you don’t worry too tal structure. A prospect generator doesn’t
amount of due diligence to make sure that much I’m exaggerating a little bit about the blow his brains out on a single property. So,
they think the property is going to be what company. they tend to be better financed they tend to
they think it is going to be. Also very impor- have better balance sheets. Other people
tant is the way they write these contracts. Shelly Kraft: So, I always looked at pros- are spending the money the famous OPM.
So, some contracts for example when it’s a pect generators or sometimes called proj- Other people spend the money on develop-
huge investment, Cobre Panama, which is a ect generators as literally having a diversi- ing the projects - exploring and developing
cup of mine being built by First Quantum in fied portfolio in an exploration portfolio. the projects, and so in a downturn there
Panama, believe it or not, Franco Nevada has Do you agree with that statement? may be less money spent on that projects
a royalty on the silver off take on the silver but they still had their own balance sheet to
stream. And, sorry, they have a stream on Adrian Day: Yeah, no that’s absolutely keep going. n
the silver production a huge investment 1.2 correct and that’s really the main reason that
For more information about Adrian Day and
billion dollars and they wrote the contract. I like and when you’re looking at a tradi-
Adrian Day Asset Management, please visit: www.
So, they staged those investments depending tional exploration company, typically, unless adriandayassetmanagement.com
on the hurdles that First Quantum had to you’re looking at a very large one; typically
Note: This article is not an attempt to provide invest-
meet. So, that was a clever way of minimiz- they have one or maybe two projects but ment advice. The content is purely the author’s per-
ing their risk but still getting the exposure. they’re developing. So, your risk is very, very sonal opinions and should not be considered advice
of any kind. Investors are advised to conduct their
focused with a prospect generator you might
own research or seek the advice of a registered invest-
Shelly Kraft: So, obviously for full disclo- have anywhere from 10, 20, 30, different ment professional.
sure, do you own any in that company? properties that they own. So, I like to save it
instead of having all of one lottery ticket you

www.stocknewsnow.com MicroCap Review Magazine 115


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MicroCap Review Magazine 117
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