MicroCap Review Spring 2019

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SPRING 2019

Hemispherx Biopharma, Inc. Page

NYSE American: HEB Thomas K. Equels, CEO www.hemispherx.net

Citius Pharmaceuticals, Inc. Page

NASDAQ CM: CTXR Leonard Mazur, Chairman www.citiuspharma.com

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18

Orgenesis, Inc. Page

NASDAQ CM: ORGS Vered Caplan, Chairman, CEO & President www.orgenesis.com

Taronis Technologies, Inc. Page

NASDAQ CM: TRNX Scott Mahoney, CEO, President & Director www.taronistech.com Twitter Retweet

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21 My 8 Rules for MicroCap Value Investors

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68 Form 4 Filings By Maj Soueidan 72 Australian Non-Resource Microcaps

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

STOCKNEWSNOW.COM spring 2019

21 My 8 Rules for MicroCap Value Investors

By Tobias Carlisle

66 Reading the Proxy Statement to Evaluate Management By Sam Namiri

26 MicroCap Investing: 4 Reasons Why Share Structure is Critical By Brandon Mackie

68 Form 4 Filings By Maj Soueidan

32 Microcaps’ 2009 Trend has been Your Friend but did it END? By Steven M. Shelton, MS, MBA, CFP®, CLU, CHFC, TEP, CIMA®, CMT 41 The Dual Listing Process for Foreign Issuers in the United States By Richard Revelins 60 Public Venture Capital in Canada By Brady Fletcher 64 Understanding Short Sale Activity

By Cromwell Coulson

Profiled Companies 8 Orgenesis, Inc. NASDAQ CM: ORGS 12 Taronis Technologies, Inc NASDAQ CM: TRNX 14 Hemispherx Biopharma Inc. NYSE AMERICAN: HEB 18 Citius Pharmaceuticals, Inc. NASDAQ CM: CTXR 24 Femeda Ltd. PRIVATE COMPANY

Cybersecurity Corner 11 How to Protect Your Clients’ Investments from Cyber Attacks

By Jake Lehmann

Accounting Corner 36 Life After Regulatory Onslaught

By Corey Fischer, CPA

Family Office Corner 38 Family Offices are Investing Heavily in Artificial Intelligence

By Karl Douglas

80 Dos and Don’ts for Private Companies when Reverse Merging By John Lowy, Esq. 82 Hand Over Fist . . . Picking Teams and Making Money By Jae Sly, PhD MBA 84 A Cannabis Play that Won’t Get Smoked

By Sean Peasgood 86 The Impact of the Repeal of PASPA on the Tribal Gaming Market By Ralph Garcea, P.Eng, MBA

25 Marrone Bio Innovations NASDAQ CM: MBII

50 OptimizeRx Corporation NASDAQ CM: OPRX

28 Jerash Holdings (US), Inc. NASDAQ CM: JRSH

56 SRAX NASDAQ CM: SRAX

30 KNeoMedia Limited ASX: KNM

59 Imugene Limited ASX: IMU

31 Tinybeans Group Ltd. ASX: TNY

74 First AU Limited ASX: FAU

48 CBD Unlimited, Inc. PINK: EDXC

78 ShiftPixy, Inc. NASDAQ CM: PIXY

Commodities Corner

42 Managed Futures for Microcap Investors

By Mark Shore, MBA

Legal Corner 46 Uplisting – More Than Meets The Eye

By Joe Lucosky, Esq.

Life Sciences Corner 54 Now, More than Ever

By Ramses Erdtmann and Thomas Butler

Beltway Corner 62 Taking Stock

By Dina Ellis Rochkind, Esq. and Lara Kaplan, Esq.

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Australia Corner 72 Australian Non-Resource Microcaps

By Mark Tobin

Resources Corner 76 Q&A with Brent Cook, Geologist

By Shelly Kraft

Comic Strip 83 WallStreet Chicken A look back to Episode 1

Asia Corner 92 Hong Kong Stock Market Robust in 2019

By Leslie Richardson MicroCap Review Magazine

7

NASDAq CM: ORGS

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

Orgenesis, Inc. A Seismic Shift In Cell Biology Is Fueling A New Breed Of Biotech Companies

Vered Caplan, Chairman, CEO & President

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MicroCap Review Magazine

Estimated Global Cell & Gene Therapy Market 200 180 160 140 120 Global Market 100 Volume (USD, in bn) 80 60 40 20 0

150 105 44 30 36 21 23 26

56

75

20 1 20 6 1 20 7 1 20 8 1 20 9 2 20 0 2 20 1 2 20 2 2 20 3 2 20 4 2 20 5 26

I

t’s the transformation in healthcare where many investors are just at the beginning of an investment surge.

Orgenesis, Inc. (NASDAQ: ORGS) stands to benefit from this transformation.

Cell therapies and regenerative medicines, where cells or cell materials are used to treat diseases, are transforming a variety of previously untreatable conditions. Cell therapies called CAR-T cells are curing cancer patients; gene therapies are correcting genetic disorders by replacing faulty DNA and bone marrow transplants are becoming safer and faster.

Advances in technology and our understanding of human biology have created and rapidly progressed an entirely new class of potential drug products. Cell therapies are taking the biotech sector by storm.

Cancer has been the biggest success story so far, and lives are being transformed at an increasing pace in the U.S., where the

33% ~26$ billion ~150$ billion Annual growth Current value of global Market volume Cell & Gene Therapy anticipated by expected between 2020-2025 market 2025

Figure 1: Data source Roland Focus: Regenerative Medicine, Sept 2017

ment team have proven they can execute: the company has inked manufacturing deals with some of the most respected companies in the industry, and they continue signing on new partners every month and evolving innovations even faster. Their revenue has been increasing consistently, and the company is making a name for itself as a top partner in the sciences industries.

Global Cell & Gene Therapy Clinical Trials 250

225

200

first two drugs of this type, called CAR-T cells, were approved in 2017. Industry leading Gilead Sciences (NASDAQ:GILD) and Novartis (NASDAQ:NVS) led the charge, each with their own new product. Industry sources anticipate the need for these drugs to be within billions of dollars in the coming 5-10 years.

Now that the first few cell therapies are across the finish line and approved by regulators, it’s smaller companies with deep development pipelines and quality knowhow that are taking the baton.

Orgenesis, Inc. (NASDAQ: ORGS) is one of the fastest-growing companies in this subsector. Orgenesis both develops a Point of Care platform for new therapy products, and processing of therapeutics (“POC”), developing and collaborating with third parties for therapeutics, and also provides manufacturing expertise for other companies in its CDMO business. In doing so, they’re building a unique pipeline of products and revenue, and the company benefits economically from advancements across the sector. CEO Vered Caplan and the experienced manage-

# of Clinical Trials

150 100

113 106

Gene-modified Cell Therapy Cell Therapy

90

50 0

Gene Therapy

170 144

30

Phase I

Phase II

925

9

38

Phase III

Clinical trials underway That utilize Cell & Gene Therapies

Figure 2: Data source Roland Focus: Regenerative Medicine, Sept 2017

DRUG DEVELOPERS AREN’T ALWAYS GREAT DRUG MANUFACTURERS Cell therapies are products that use human cellular material, sometimes modified, to treat disorders.

An immense host of companies and research facilities are developing products based around this modality. In Figure 2, it’s apparent that most of these are still early in development (Phase 1 and 2 of clinical trials), while only a minority are in phase 3 development, near the end of their research phase or before possible expedited approval by regulatory agencies like the FDA. Though not the very first cell therapies approved, CAR-T cells were the first resounding success for modified cell therawww.stocknewsnow.com

pies. CAR-T stands for Chimeric Antigen Receptor T-cells, a process through which a cancer patient’s immune “T” cells are removed and modified to give them precise cancer-seeking capabilities. They are then multiplied and re-infused back into a patient. So far, they’ve been able to produce amazing and sometimes curative effects in certain types of cancers.

Cell therapies are extremely costly and can go up to $500K per patient treated. Why the cost? For one, many of these cell therapies are one-time treatments. The companies that develop them need to make as much as they can from this single, possibly curative treatment. But second, these are also very costly and time-consuming to manufacture and supply. This process for autologous therapy involves removing a patient’s cells, sending them around the country for specialized modification and manipulation, and finally, re-infusion with ongoing long-term monitoring in the hospital. This can take in some instances weeks to complete.

Enter Orgenesis and their dual business model. The company’s core expertise is in processing cells efficiently utilizing innovative technologies for the advancement of autologous therapies. Their Masthercell subsidiary is a specialized contract development and manufacturing organization (“CDMO”) focused on cell and regenerative therapies, like CAR-T cells therapies. Orgenesis has made a name for themselves as a highquality provider of manufacturing services for other companies developing new cell therapies; they can also help the companies streamline their development processes.

Orgenesis’ expertise in this field can be seen

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Orgenesis Revenue, in Thousand $

in Masthercell’s gross margins, which have increased to about 40% in the last year.

20,000

18,655

17,500 15,000

POINT OF CARE (POC) COMPONENT…

Revenues (USD, in thousand)

12,500

10,089

10,000 7,500

6,397

5,000

2,974

2,500 0

Orgenesis is also growing their own Point of Care development platform for advancement of autologous therapeutics in collaboration with leading research and medical institutes. One of their lead programs alters human liver cells to produce insulin, called “Autologous Insulin Producing Cells” (AIP) and they’ve inked licensing deals with several collaborations.

THUS, A MULTI-BILLION DOLLAR OPPORTUNITY AS NEW DRUGS EMERGE The addressable market for those in the business of manufacturing cell therapies is growing rapidly as more of these potential products enter development.

Orgenesis’ revenues through their Masthercell subsidiary has been growing steadily as a result.

Masthercell has an expanding global footprint, with their primary facilities in Belgium, South Korea, Israel and North America. This expansion is a top priority for the coming years, and the company has an intriguing financing and collaboration agreement with a top healthcare investment fund in the U.S. for just this purpose.

In 2018, Great Point Partners invested up to $25 million in Masthercell to fund their CDMO expansion plans, with some of Great Point Partners’ own people taking direct

2018

2017

2016

2015

Figure 3: Orgenesis Financial Statements

Cell Therapy manufacturing market, in millions $ 4,500 4,000 3,500 3,000

US

390

EU

Asia

305

RoW 230

Market size 2,500 (USD, in millions)

167

2,000 1,500 1,000 500 0

6 7.6 37 36

7.3 9.5 44 43

11 15 66 65

23 30 131 128

49 63 267 260

84 109 438 425

121

213

155

785

599 579

760

290

Annual growth, % 46.1

498

46.2

1,587

40.7

1,535

40.6

387

1,296

1,021

988

1,254

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Figure 4: Data source Roots Research.

Cell Therapy Manufacturing Market, 20172027

roles in operations. This kind of collaboration is a rare sight in the world of biotechnology and it speaks to the potential of this business.

ORGENESIS’ MULTI-VERTICAL PLATFORM DIVERSIFIES THE FUTURE Orgenesis’ multi-pronged business strategy builds on the company’s core expertise in manufacturing and scaling cell therapies.

Masthercell is a strong business growing steadily with an increasing number of highprofile clients. Meanwhile, the company is expanding their own Point of Care development program among them, the AIP cells.

The first indication for AIP cells is in the treatment of severe diabetes following a total pancreatectomy. Orgenesis has developed a novel approach to utilizing liver cells as a source of insulin production after cell modification, in essence creating new insulin producing cells in patients who no longer make their own. In fact, the company signed a collaboration agreement with the New York Blood Center (NYBC), one of the largest independent, community-based blood centers in the world in order to collect liver MicroCap Review Magazine

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prior to which she was Interim President and CEO since December 23, 2013. Since 2008, Ms. Caplan had been CEO of several biotech companies. Ms. Caplan has an M.Sc. in biomedical engineering from Tel Aviv University specializing in signal processing as well as a B.Sc. in mechanical engineering from the Technion-Israel Institute of Technology specialized in software and CAD systems.

• Kangstem Biotech Co., Ltd. (KOSDAQ: 217730) • Hemogenyx Pharmaceuticals Plc (LSE: HEMO) And, this list includes only those clients that have been discussed publicly; there are undoubtedly more that the company is unable to name in public.

WHAT’S NEXT FOR ORGENESIS?

cells for the therapy validation. The company also expects to receive approval for collection and processing of such cells for use in human research in 2019, setting up a key catalyst for Orgenesis when the first results emerge.

The company has taken a licensing approach to Point of Care collaborative development. In 2018, they began a collaboration on the development of Hemogenyx’s (LSE: HEMO) Human Postnatal Hemogenic Endothelial (Hu-PHEC) technology.

Hu-PHEC is a cell replacement product candidate being designed to generate cancerfree, patient-matched blood stem cells after transplantation into the patient.

MANAGEMENT THAT CAN EXECUTE Orgenesis’ management team brings together a broad background, pairing strong business acumen with the research and cell therapy experience to attract and retain cell therapy clients and partners.

VERED CAPLAN Vered Caplan, Chairman, CEO and President Ms. Caplan has been the Chairman of the Board of Directors and CEO since 2014,

SARAH FERBER, CSO Professor Sarah Ferber – Chief Scientific Officer Professor Ferber was appointed on February 2, 2012. Since 2017, Professor Ferber has been the Principle Investigator of cell therapy for TMU DiaCure. Professor Ferber studied biochemistry at the Technion under the supervision of Professor Avram Hershko and Professor Aharon Ciechanover winners of the Nobel Prize in Chemistry in 2004. Most of the research was conducted in Professor Ferber’s Endocrine Research Lab. Professor Ferber received Teva, Lindner, Rubin and Wolfson awards for this research.

Professor Ferber’s research work has been funded over the past 15 years by the JDRF, the Israel Academy of Science Foundation (ISF), BIODISC and DCure. Professor Ferber earned her B.Cs. from Technion-Haifa and a Ph.D. in Medical Sciences from TechnionHaifa. She also holds a Post Doctorate degree in Molecular Biology from Harvard and a degree in Cell Therapy Sciences from UTSW, Dallas.

The quality of Orgenesis clients speaks to the quality of the business. Orgenesis counts among their development and manufacturing clients and partners: • • • • • • •

If 2018 is any indicator Orgenesis will continue to move quickly in 2019. The company signed on additional major clients during last year and a number of new licensing and collaboration agreements. Global expansion is their top priority, and as manufacturing needs climbs so too will their revenue potential. There’s little doubt that this nascent industry is growing by leaps and bounds – the question is who will provide solutions and who will soak up the demand. Orgenesis is well-positioned for the new century of cell therapies. n www.orgenesis.com

Servier (private) Imcyse (private) Adaptimmune (NYSE: ADAP) Athersys (NASDAQ: ATHX) Gamida Cell (NASDAQ: GMDA) CRISPR Therapeutics (NASDAQ: CRSP) Iovance Biotherapeutics, Inc. (NASDAQ: IOVA) The company paid consideration to SNN or its affiliates for this article.

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MicroCap Review Magazine

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CYBERSECURITY CORNER

How to Protect Your Clients’ Investments from Cyber Attacks

I

nvesting personal funds in the digital age has never been easier—from placing sizable investments via mobile devices to establishing regular wire transfers from your laptop during a flight layover. When banks, brokerage firms, mutual fund companies and high-net-worth individuals turn to you as an asset manager, they rely on you to protect their finances— wherever they are. According to recent cyber security studies, the average cost of lost business for a U.S. company is $3.8 million. Taking a personalized approach to protecting your clients’ financial assets will help you keep wealth in the hands of its rightful owners.

According to the 2018 Verizon Data Breach Investigations Report (DBIR), 95 percent of all attacks on enterprise networks are carried out through the email vector. Business Email Compromise (BEC) is a type of advanced email attack that relies on identity deception. BEC evades detection by avoiding the use of a detectable payload such as a spear phishing email that contains a fraudulent URL or attachment. A hacker will pose as someone you know or trust – a colleague, vendor, or client – and either ask you to perform a payment or share sensitive data.

THERE ARE THREE DIFFERENT TYPES OF IDENTITY DECEPTION: • Spoofing • look-alike domains • display name deception BEC scams have a wide range of sophistication. These scams span simple display name attacks using free webmail accounts to sophisticated multi-level hacker organizations, which

n BY JAKE LEHMANN

www.stocknewsnow.com

leverage everything from look-alike display names to proxies hiding their actual locations.

HERE ARE STEPS YOU CAN TAkE TO PREVENT AND PROTECT AGAINST CYBER CRIMINALS: • Train your employees through Spear Phishing Simulations. CyZen’s advisors design and execute campaigns to raise awareness, and help lower the success of these threats to your company. The team leverages techniques that teach employees how to be more mindful when opening and responding to emails, especially with links, attachments, or money transfer requests.

• Hire a third party to perform a vulnerability or penetration test of your business’s systems. This will let you know how vulnerable your business is by scanning and testing databases and networks for weaknesses. These scans should be conducted regularly and our cyber security experts have the capability to perform thorough testing in order to evaluate the level of your systems’ vulnerabilities.

• Advise your employees to create strong passwords that are long and hard to guess, but easy to remember. Using a password manager application to organize and store all passwords in one place (12 characters minimum) is another way to safely keep track of passwords.

• Use two-factor authentication, or 2FA. This adds an additional layer of security to verify that the person trying to gain access to an account is really your client. After submitting their username and password, they will be required to provide another piece of information, like a passcode.

• Deploying “next-gen” endpoint solutions is another service that CyZen offers. This approach gives your company an added layer of heuristic based software that not only blocks malicious

processes, but allows our team of professionals to detect and respond if a user falls victim to clicking a phishing email.

For any questions you have about protecting your financial assets, contact Managing Director of CyZen, Jake Lehmann at jlehmann@cyzen.io. n Jake Lehmann Managing Director Jake works to quantify and remediate clients’ cyber risks, leading engagements across industries and spanning small and medium businesses and highnet-worth individuals to big enterprise-level engagements and successful start-ups. For more than 10 years, he has spearheaded pro-active, innovative and custom-tailored solutions that help safeguard clients from cybersecurity risks.

Jake focuses on each client and their needs, bringing deep-rooted service, industry knowledge and a passion for delivering excellence. He has helped clients target and remediate security vulnerabilities including IT misconfigurations, exploitable systems, open source intelligence and information leaks. His toolbox of technical services includes cyber defense, vulnerability/risk assessments, penetration testing, architectural reviews, cybersecurity training, open source intelligence and spear phishing simulations.

As a cybersecurity thought leader, Jake has led internal client awareness trainings and presented at educational retreats. He received a Bachelor’s of Technology in Information Technology with a concentration in Network Administration from SUNY Morrisville.

When Jake isn’t combatting cyber-attacks, you can find him globetrotting with his wife, deep-sea diving with sharks, or spending quality time with his fourlegged friends, Chloe and Teddy.

Company bio: In today’s digital world of emerging cyber-threats, it is increasingly difficult to know the right steps needed to protect your business. The security experts at CyZen will help your organization achieve peace of mind by empowering you to make sense of cybersecurity and defend against attacks. We draw on the inspiration of the ensō, or the circle of enlightenment, to shape our values and influence our human-centric way of conducting business.

Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

MicroCap Review Magazine

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

NASDAq CM: TRNX

Taronis Technologies, Inc.

M

agneGas Applied Technology Solutions, Inc. got a new name in 2019: Taronis Technologies, Inc. (Taronis or the Company).

Scott Mahoney, CEO, President & Director

12

MicroCap Review Magazine

Taronis recently expanded their technology offerings and launched a new corporate brand that can be used across its various businesses comprised of industrial gas, a new fluid decontamination and sterilization business, and also emerging power generation capabilities. As part of this initiative, the Company initiated a shift of emphasis towards resource management, facilitating an expanding portfolio of renewable fuels, water management, and eventually power generation. These activities now enable Taronis to enhance the market’s perception and understanding of the Company’s business model.

The company’s core technology centers on plasma arc applications, which is a very scientifically complex version of lightning in a bottle. What better way to remind the consumer of the power of Taronis’ patented technology than by referencing the Celtic God of lightning? Taronis has developed a plasma-based system for the sterilization and gasification of waste. This process generates a hydrogen-based fuel called MagneGas as a by-product, which is sold as an alternative metal-cutting fuel to acetylene. MagneGas is a safer, more efficient, and cost-effective replacement for acetylene. The company also sells a variant of the gasification technology for sterilizing bio-contaminated liquid waste such as pig manure or water draining from landfills. This variant of its gasification technology can be sold for use as a fertilizer for

irrigation purposes rather than incurring disposal costs. The gasification units may also be used to convert many types of hydrocarbonbased waste into syngas or biodiesel, both of which can be used as substitute fuels.

It was a busy and productive year for the Company after acquiring seven companies in 2018, an additional purchase in January and two more in February. Each of these transactions were necessary and enabled the Company to achieve several of its corporate objectives including establishing itself as a leading independent gas distributor in the two largest industrial gas markets in the U.S. – California and Texas. Taronis is now well positioned to pursue its future ambitions from a stronger market position and with greater financial stability.

“We have a clear focus on building a top tier competitive position in the best markets www.stocknewsnow.com

Taronis has a unique, patented technology that enables the company to deliver innovative, industry-changing solutions. Equally importantly, the Company has a committed team of experienced, passionate employees that service their customers with an incredible sense of responsibility and pride.

in the U.S. today,” according to Taronis’ CEO, Scott Mahoney. “Taronis delivers excellent customer service and competitive pricing to our clients. We are beginning to grow our market share well above industry norms.

As a result, we have been approached by a number of potential partners, and we selectively evaluate the opportunity to grow our business when the right situation arises. Our recent expansion in Tyler, Texas, is an excellent example. We acquired a dominant local player with a fantastic reputation. The entire management team came aboard as part of this transaction, and we are excited to build on their 45 years of success together.”

As for Taronis’ strategy for 2019, CEO Scott Mahoney says, “We are very focused on building a world-class industrial gas business in the best markets in the U.S. We have made ten acquisitions the past 15 months, with a clear focus on the Texas and California markets. These are the two strongest markets for industrial gases in the U.S., and our renewable metal cutting fuel products are a powerful competitive advantage for marketing, business expansion, and building customer loyalty. We have the most cost-efficient, and most highly-discussed, metal cutting fuel on the market today.”

In addition to U.S. expansion plans, Taronis wants to continue its work at unlocking potential in the European market. European operations are also a part of the rebranding, as MagneGas Europe LLC was launched in December of 2017. The Company plans to launch their first metal cutting fuel produc-

tion in Europe later in 2019 with a focus on the highly trafficked port regions of Amsterdam and Rotterdam as initial bases of operations in Europe.

With respect to its European plans, Mr. Mahoney says, “We are very focused on making our European expansion a success. The European market is rapidly moving towards adopting more renewable fuel solutions making our product a natural fit. With the added cost savings and proven safety attributes of our product, we believe this market represents an exceptional growth opportunity for the Company for many years to come.”

Mr. Mahoney says, “We expect our existing operations to generate upwards of 50% revenue growth in 2019, and we believe our recent acquisitions, as well as potential future acquisitions, could help us to accelerate our growth model even further. When you compare this to industry-wide growth rates that rarely exceed 5%, we are very grateful for the growth we are experiencing.”

Taronis operates 17 locations across California, Texas, Louisiana, and Florida, and sells MagneGas into the metal working market as a replacement to acetylene which it distributes through its wholly owned distributors: ESSI, Green Arc Supply, Paris Oxygen, Latex Welding Supplies, Tyler Welders Supply, United Welding Supplies, Trico Welding Supply and Complete Welding of San Diego.

Taronis is also working on some new products potentially being brought to market, including developing a long-term plan to

deliver a renewable fuel product that could be a direct substitute for compressed natural gas as well as a renewable propane product.

Early testing results appear to be encouraging and management is confident due to feedback from its engineering team.

Taronis has a unique, patented technology that enables the company to deliver innovative, industry-changing solutions. Equally importantly, the Company has a committed team of experienced, passionate employees that service their customers with an incredible sense of responsibility and pride.

Mr. Mahoney said of the recent rebrand, “We are now a resource conservation company, and we help manage two of our most precious resources – fuel and water. Our new corporate mission statement is: Cleaner – Safer – Smarter. Our technology will drive global solutions that meet these three criteria at all times as we seek to solve some of the most pressing global issues at hand today.” n www.taronistech.com

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

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

NYSE AMERICAN: HEB

Hemispherx Biopharma Inc. The Coming Ampligen Revolution “Ten shots on goal.”

Spend a bit of time with Thomas K. Equels, or Tom, as he prefers to be called, as he goes about his workday — and nights and weekends — and this sports metaphor will quickly become familiar. In analyst meetings, during investor presentations, on internal phone calls and even in casual conversations in the hallways of his office in Ocala, Fla., he talks about his goals for the future of Hemispherx Biopharma Inc. When Tom talks about those “ten shots,” he’s talking about the Ampligen oncology clinical trials designed to save lives.

Ampligen (rintatolimod) is being evaluated in a variety of oncology indications. In addition to its cancer-fighting potential, it is also used in an Early Access Program (EAP) for the treatment of myalgic encephalomyelitis/chronic fatigue syndrome (ME/CFS), and with regulatory approval in Argentina it is the world’s only approved therapeutic for ME/CFS.

THE COMPANY

Thomas K. Equels Chief Executive Officer

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Hemispherx is an immuno-pharma company focused on the research and development of therapeutics to treat multiple types of cancers, as well as immune-deficiency disorders. Hemispherx’s corporate headquarters is in Ocala, Fla., and its 30,000 sq. ft. Manufacturing and Research Facility is in New Brunswick, N.J. “I initiated the current oncology clinical trials/programs and Dutch EAP over the past three years. We have had success after success in animal experiments, human tumor explants, and proof-of-concept clini-

cal studies. All of those successes would mean nothing but for the great work of our manufacturing team in New Brunswick.

Hemispherx’ Chief Manufacturing Officer, Carol Smith, Ph.D. and her team have nailed it, and have provided more than 16,000 vials of Ampligen to support these clinical trials in humans. Our clinical, quality control and quality assurance departments, under the leadership of David Strayer, M.D., Chief Medical Officer, and Vickie Scott, M.S., have succeeded in coordinating clinical trials and maintaining the highest levels of quality in the process. On behalf of Team Hemispherx, we also deeply appreciate the commitments from the major cancer research institutes and big-pharma for funding the clinical trials that are currently underway,” said Equels.

AMPLIGEN IN ONCOLOGY Hemispherx has seen tremendous success in its research in the field of immuno-oncology, which has guided the company’s focus toward the potential use of Ampligen as a combinational therapy with checkpoint inhibitors for the treatment of a variety of solid tumors.

Checkpoint inhibitors are powerful immuno-therapy drugs that block the signals that restrain the body’s immune system from fighting cancer, and are, therefore, used in the treatment for a number of advanced solid tumor malignancies. The object of these combination clinical trials is to measure synergistic improvements in therapeutic outcomes.

“Or, to put it more plainly, to determine whether combining an already proven drug www.stocknewsnow.com

with Ampligen can create an even more effective synergistic cancer-fighting therapy,” said Equels.

Dr. David Strayer states, “Checkpoint blockade therapies work best with what are known as ‘hot’ tumors. Unfortunately, many solid tumors are ‘cold.’ Clinical proof-ofconcept findings using an Ampligen cocktail in colorectal carcinoma have demonstrated an ability to convert ‘cold’ tumors into ‘hot’ tumors. The Ampligen cocktail accomplishes a conversion from ‘cold’ to ‘hot’ by stimulating a more favorable ratio of killer T-cells to regulatory T-cells in the tumor microenvironment. Killer T-cells attack cancer cells but their presence in the tumor microenvironment can be inhibited by regulatory (suppressor) T-cells. Therefore, the suppressor cells essentially reduce a patient’s immune response to cancer. An increase in killer T-cells, without a corresponding increase in suppressor T-cells, is therefore an indicator of the body’s increased ability to mount a potentially effective immune response and through this mechanism of action supports the strong pre-clinical evidence of Ampligen’s activity in converting ‘cold’ tumors into ‘hot’ tumors.”

HEMISPHERX’S ONCOLOGY EFFORTS An Early Access Program (EAP) approved by the Inspectorate of Healthcare in the Netherlands for pancreatic cancer at Erasmus Medical Center has been ongoing for two years. Supervised by Prof. Casper van Eijck, MD, a world-renowned specialist in this dread malignancy, and Diba Latifi, MD, the team at Erasmus is making progress. As disclosed recently, the Dutch government has approved and extended the therapeutic program for an additional year.

At Erasmus 8 out of 24 patients with either locally advanced or metastatic disease have survived for more than one year since the start of Ampligen. Further, Ampligen was administered to 5 resected patients, 2 died at 24 and 27 months after resection. The other www.stocknewsnow.com

3 patients are still alive with a current mean survival of 26 months after resection and subsequent Ampligen treatment.

All patients reported improvement in quality of life during treatment. A more comprehensive update from the Erasmus team on the immunological response in relation to survival is expected soon. Hemispherx hopes to work with Dr. Van Eijck, Dr. Latifi, and Erasmus M.C. to initiate a combination therapy program to extend the results seen thus far in the Netherlands by combining Ampligen with checkpoint blockade therapy.

The four Ampligen immuno-oncology clinical trials initiated/ongoing in the U.S. are: • Recurrent ovarian cancer - Phase 1 / 2 study of intraperitoneal chemo-immunotherapy in recurrent ovarian cancer at University of Pittsburgh Medical Center.

Dr. R. Edwards, PI. Study underway. An interim report from Dr. Edwards’ team is expected within thirty days and a summary of same will be disclosed upon receipt.

• Colorectal cancer - Phase 2a study of Ampligen as a component of chemokine modulatory regimen on colorectal cancer metastatic to liver at Roswell Park Comprehensive Cancer Center. Dr. P. Boland, PI. Study underway.

• Metastatic triple negative breast cancer Open label study of metastatic triplenegative breast cancer using chemokine modulation therapy, including Ampligen and pembrolizumab, at Roswell Park Comprehensive Cancer Center. Dr. M. Opyrchal, PI. Initiation of study is expected in the near future and will be announced forthwith.

• Recurrent ovarian cancer - This is a Phase MicroCap Review Magazine

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“Success in any of these trials has the potential to light a path to a new and more effective way of fighting cancer and dramatically change the immuno-oncology landscape. This is all about R&D to develop therapies aimed for those fighting lethal malignancies who currently have no real hope,” said Equels. “There can be no higher calling.”

2 investigator-sponsored trial being conducted in advanced recurrent ovarian cancer at the University of Pittsburgh Medical Center that will evaluate Ampligen in combination with pembrolizumab. Patient enrollment has been initiated in this study designed for 45 subjects. Dr. Robert Edwards, world renowned expert in ovarian cancer is the lead investigator.

In addition, five Ampligen clinical trials are planned for initiation in 2019, subject to funding: 1. Phase 2 study that will evaluate Ampligen in combination with pembrolizumab in refractory metastatic colorectal carcinoma at Roswell Park Comprehensive Cancer Center. Dr. P. Boland, PI. Study design and budget being developed.

2. Phase 2 study of advanced urothelial (bladder), melanoma and renal cell carcinoma, resistant to checkpoint blockade that will evaluate Ampligen in combination with a checkpoint blockade therapy at Roswell Park Comprehensive Cancer Center. Dr. M. Opyrchal, PI. 3. First-line therapy for non-small cell lung cancer with SOC chemotherapy that will evaluate Ampligen in combination with pembrolizumab at University of Nebraska Medical Center. Dr. V. Ernani, PI. Study design and budget being developed.

4. Phase 2 study in advanced pancreatic cancer using checkpoint blockade plus Ampligen at University of Nebraska Medical Center. Dr. K. Klute, PI. Protocol

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and budget being developed.

5. Phase 2 study of neoadjuvant conditioning of prostate cancer using Ampligen as a component of chemokine modulation at Roswell Park Comprehensive Cancer Center. Dr. G. Chatta, PI. An Independent New Drug application has been filed and is under review by the FDA. These ten trials/programs include nine different solid tumor types: pancreatic, ovarian, colorectal, prostate, lung, bladder, breast, melanoma and renal cell carcinoma. These are what Equels is referring to when he talks about Hemispherx’s “ten shots on goal.”

“Success in any of these trials has the potential to light a path to a new and more effective way of fighting cancer and dramatically change the immuno-oncology landscape. This is all about R&D to develop therapies aimed for those fighting lethal malignancies who currently have no real hope,” said Equels. “There can be no higher calling.”

years served as a court-appointed receiver turning around businesses in a number of different fields. Equels received his J.D. with high honors from Florida State University.

He is also a summa cum laude graduate of Troy University and obtained his Masters’ Degree in Management from Troy. Equels is also a highly decorated combat aviator, twice awarded the Distinguished Flying Cross and awarded the Purple Heart, the Bronze Star and 15 Air Medals, including three for extraordinary valor. In 2012 he was knighted

by Pope Benedict as a knight of the Papal States.

David R. Strayer, M.D. — Chief Scientific & Medical Officer Dr. Strayer was appointed Chief Scientific Officer in February 2016 and has acted as Hemispherx’s Medical Director since 1986.

With this background and experience, he is the world’s foremost medical expert on both Ampligen and Alferon. He served as Professor of Medicine at the Medical College of Pennsylvania and Hahnemann University from 1987 to 1998. Dr. Strayer is Board Certified in Medical Oncology and Internal Medicine, with research interests in the fields of cancer and immune system disorders. He has served as principal investigator in studies funded by the Leukemia Society of America, the American Cancer Society, and the National Institutes of Health. Dr. Strayer received his M.D. in 1972 from the School of Medicine at the University of California at Los Angeles. n www.hemispherx.net

MANAGEMENT Thomas K. Equels, M.S., J.D. — Chief Executive Officer Equels was named Chief Executive Officer in February 2016 and has served as President since August 2015, having first joined Hemispherx in 2010 as General Counsel from 2010 to 2016. Prior to that, Equels’ successful legal career included extensive experience in the pharma sector. He has over the The company paid consideration to SNN or its affiliates for this article.

MicroCap Review Magazine

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BECOME A HERO OF SPORT Heroes of sport believe we are more alike than we are different. We’re all striving for the same things in sports: to practice, play, compete and celebrate. Yet, for individuals with physical challenges expensive adaptive equipment can be a barrier to participate.

For 25 years, the Challenged Athletes Foundation (CAF) has empowered thousands of individuals with physical challenges by providing access to sports. We are proud that our efforts the past 8 years through the ROTH conference have resulted in over $1 million being raised to support CAF. Help join their efforts this year to do more and become a hero of sport that will help break financial barriers and make sport possible. Together, let’s provide more access to sports. Donate online at donateCAF.com www.stocknewsnow.com

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NASDAq CM: CTXR

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

Citius Pharmaceuticals, Inc. EXECUTIVE SUMMARY Citius Pharmaceuticals, Inc. (Nasdaq: CTXR) is a specialty pharmaceutical company dedicated to the development and commercialization of drug products and devices that address important unmet medical needs. The Company focuses on adjunctive cancer therapies, critical care medicine, infectious disease and special opportunities.

Citius’ products offer new expanded indications for existing pharmaceutical entities to achieve leading market positions. The Company primarily utilizes the U.S. Food and Drug Administration’s (FDA’s), 505(b) (2) pathway for new drug approvals. Citius believes this pathway is comparatively faster, lower risk and less expensive than other new drug approval pathways. By using previously approved drugs with substantial safety

and efficacy data, Citius seeks to reduce the risks associated with product development. The Company is focused on obtaining intellectual property protection for a significant post approval period, and also seeks to identify regulatory opportunities for market exclusivity. Citius is advancing 3 product candidates – Mino-Lok is in Phase 3 trials and is enrolling patients, CITI-002 is being prepared for a phase 2b trial later this year, and Mino-Wrap (CITI-101) has recently been licensed and is being submitted to FDA to determine the appropriate regulatory pathway – device or drug. The markets for these products are large and underserved, and provide unique positions for the Company.

INVESTMENT CATALYSTS Market Opportunity – Critical Care/Infectious Disease

Leonard L. Mazur, Chairman

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The Mino-Lok therapy market is estimated at >$700 million per year in the U.S., and more than $1 billion worldwide. Central venous catheters (CVCs) are life-saving vascular access ports in patients requiring long term intravenous therapy. Of the approximately 7 million CVCs used annually, up to 500,000 become infected leading to serious, life threatening infections called catheter-related blood stream infections (CRBSIs). Infected CVCs must be removed and most need to be replaced; these procedures are costly and 15-20% of the procedures are associated with significant morbidity. Although ALTs are sometimes attempted when venous access is unavailable, there are not adequate data available to evaluate their efficacy; additionally, it has been shown that antibiotics alone are unable to penetrate the biofilm formed by bacteria to protect the colonies. There are

currently no approved therapies to salvage infected CVCs. Mino-Lok is an antibiotic lock solution used to treat patients with CRBSIs in combination with appropriate systemic antibiotic(s), to preserve central venous access and to avoid the complications and morbidities associated with catheter removal and reinsertion. Mino-Lok penetrates biofilm, eradicates bacteria and salvages infected, indwelling vascular catheters while providing anti-clotting properties. Mino-Lok has the potential to change the standard-of-care for the management of these serious infections.

Market Opportunity – Gastrointestinal In the U.S., hemorrhoids affect nearly 5% of the population, with approximately 10 million patients annually reporting symptoms of hemorrhoidal disease; approximately one-third visit a physician for evaluation and treatment of their hemorrhoids.

Between 50% and 90% of the general population will experience hemorrhoidal disease at least once in life. According to IMS, over 25 million units of topical combination prescription products for hemorrhoids are sold in the U.S. Hemorrhoids are a common gastrointestinal disorder characterized by pain, swelling, itching, tenderness, and bleeding.

Although hemorrhoids are not life-threatening, individual patients often suffer painful symptoms that can limit social activities and have a negative impact on the quality of life. Citius believes the market for hemorrhoid treatment is large and underserved; an effective prescription product would be unique and highly welcomed by both professionals and consumers alike offering a prescription-strength therapy for hemorrhoids.

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Market Opportunity – PostMastectomy/Infectious Disease The frequency of post-mastectomy breast reconstruction, following breast cancer treatment, has been increasing on an annual basis. In 2017, the American Society of Plastic Surgeons reported that over 105,000 women in the United States underwent a postmastectomy breast reconstructive procedure. 30% of the time breast reconstruction occurs simultaneously with the mastectomy; most occur weeks after. A common breast reconstruction technique is tissue expansion, which involves expansion of the breast skin and muscle using a temporary implanted tissue expander. Approximate 80% of the time, a tissue expander (TE) is used to prepare the surgical site for permanent breast implants either immediately after mastectomy or in a separate procedure afterwards. A TE is a silicone implant that serves as a temporary device that is placed within a surgical pocket in the mastectomy space and inflated with saline over a period of time to prepare the area for a permanent breast implant. After a few months, the expander is removed and the patient receives either microvascular flap reconstruction, or the insertion of a permanent breast implant.

There is a reported rate of TE-related infections of between 2.5% and 24%, depending on the extent of surgery, duration of post-operative drainage and many other factors. It is assumed that mean infection rate is around 10%. There is a high association of positive microbial cultures with TE-associated infections, the most prevalent culprit organisms being Staphylococcus aureus, Staphylococcus epidermidis and Pseudomonas aeruginosa. TE infections frequently require removal of the TE, treatment with culture-directed antibiotics, and could result in further complications for the patient. Currently, the preventive measures used to decrease the rate of TE infections are (a) systemic perioperative antimicrobial agents, (b) immersion of the implant or irrigation of the surgical pocket with an www.stocknewsnow.com

antimicrobial solution prior to insertion of the device, and/or (c) immediate postoperative oral antimicrobials. Except for (a), all of the other preventive modalities are of debatable use.

PRODUCT DEVELOPMENT PIPELINE Mino-Lok® Mino-Lok is a late-stage development product that is expected to complete Phase 3 trials within 18 months. Citius has partnered with a world leading cancer center to develop Mino-Lok. Mino-Lok has received QIDP

Company Highlights • Over $24 million invested privately by the founders and insiders; $16.5 million by the public • Announced $5.3 million registered direct offering • Announced $10.0 million underwritten offering priced at-the-market • Announced $2.0 million registered direct offering • Provided a status report on the Mino-Lok® Phase 3 trial • Reported Phase 2b development plan for the hemorrhoid program • Published expert roundtable discussion on treatment consideration for catheter related bacteremias • International study at MD Anderson sister Institutions supports Mino-Lok® Phase 2b results: 95% efficacy in salvaging infected catheters • Received “Fast Track” designation by FDA for Mino-Lok® investigational trial • Targeting large market opportunities with unmet medical needs with cost-effective products. High growth categories with low developmental risk • Highly experienced and successful management team investing significantly in company • Multiple near-term milestones Upcoming Milestones

Milestone

When

Mino-Lok® FPFV

Q1 ’18

M-L Phase 3 Status

Q2 ’19

M-L Phase 3 Interim Data

Q4 ’19

CITI-101Jurisdictional Decision

Q2 ’19

CITI-002 Animal Tox Data

Q3 ’19

CITI-002 Phase 2b Trial Initiation

Q4 ’19

Management Myron Holubiak, President & CEO Mr. Holubiak has extensive experience in managing both large and emerging pharmaceutical companies. Most recently he was the Founder, Director and CEO of Leonard Meron Biosciences, Inc. which merged with Citius. He is the former President of Roche Laboratories, Inc., USA, a

designation providing fast track status, priority review, and additional market exclusivity.

Mino-Lok provides a superior alternative to removing and replacing a CVC, a reduction in patient discomfort, and cost savings to healthcare system. In February 2018, the Company announced the first patient was randomized into the Mino-Lok Phase 3 clinical trial for catheter related bacteremias (“CRBSIs”) at the Henry Ford Health System in Detroit, Michigan. When fully-recruited, it is planned that there will be 700 patients enrolled in 50 participating institutions, throughout the U.S. On October 2, 2018, received notice from MD Anderson Cancer Center (“MDACC”) major research based pharmaceutical company. During his tenure as President of Roche, Holubiak transformed Roche Labs into a major antibiotic company.

Leonard Mazur, Chairman Mr. Mazur is a highly accomplished industry executive with notable accomplishments in founding, building and creating value and returns for investors. Mr. Mazur is a founder/co-founder of the following companies: Genesis; Triax, Akrimax, and Rouses Point. He previously served as Executive VP at Medicis Pharmaceutical Corporation and VP of Sales & Marketing at ICN Pharmaceuticals, Inc/, Knoll Pharma.

Jamie Bartushak, CFO Mr. Bartushak is an experienced finance professional for early stage pharmaceutical companies, and has over 20 years of corporate finance, business development and strategic planning experience.

Gary F. Talarico, EVP Operations Mr. Talarico is highly experienced and successful in developing and leading commercial activities for a number of p[harmaceutical companies. He has directed all of the commercial disciplines including marketing, sales, operations, training, trade and managed markets, KOL development.

Alan Lader, PhD, VP Clinical Operations Dr. Lader, has over 25 years of experience in medical research. Dr. Lader earned his Masters degree from the Hartford Graduate Center of Rensselaer Polytechnic Institute, He went on to receive his Ph.D. in Biomedical Science and Physiology from the University of South Carolina School of Medicine, then returned for post-doctoral training at Harvard Medical School and Massachusetts General Hospital. Following his post-doctoral training, Dr. Lader was an Instructor in Medicine at Harvard Medical School and Brigham and Women’s Hospital.

Disclaimer: This fact sheet contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are valid only as of today, and we disclaim any obligation to update this information. Actual results may differ significantly from management’s expectations.

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that the US Patent and Trademark Office (“USPTO”) issued United States Patent Number 10/086,114 entitled “Antimicrobial Solutions with Enhanced Stability”. The patent will provide and strengthen intellectual property protection for Mino-Lok through November of 2036. Citius also received official notification from MDACC that the European Patent Application (No. 16806326.1) for Mino-Lok with Enhanced Stability was published (September 12, 2018) under serial number 3370794.

CITI-002 - Hemorrhoid Topical Program Citius is developing a topical formulation of a corticosteroid and lidocaine to provide anti-inflammatory and anesthetic symptomatic relief to persons with hemorrhoids.

Several corticosteroids and lidocaine have each been separately approved by the FDA for other indications, and are commercially available and marketed by other companies. Citius is advancing its combination therapy for hemorrhoids as being synergistic to its individual components and has completed Phase 2a studies. If Citius receives FDA approval for its topical corticosteroidlidocaine combination cream for the treatment of hemorrhoids, it will qualify for at least three years of market exclusivity.

Citius will be pursuing a patent for the new formulation. Citius may have the only FDAapproved prescription product on the market proven to be safe and effective for the treatment of hemorrhoids. In March 2018, the Company selected a higher potency corticosteroid in its steroid/anesthetic topical formulation program for the treatment of hemorrhoids. While not used in combination in currently marketed products, the proposed corticosteroid is included as an FDA-approved topical product to treat a variety of dermatological disorders.

CITI 101 - Mino-Wrap Mino-WrapTM is a bioabsorbable, antimicrobial solid film wrap that is placed in the surgical pocket to provide cushioning of the

TE and provide prophylaxis against infection for an extended period of time. MinoWrap is designed to allow the temporary tissue expander to be inflated without any restrictions, protect tissue from inflammatory responses, and also prevent infection and biofilm formation on the implant over longer durations than current practice, which are primarily irrigation with an antimicrobial solution. Mino-Wrap would also be used with breast implants during reconstruction post-TE removal.

Mino-Wrap has been studied preclinically and the following are the conclusions of those experiments: • Mino-Wrap remains intact at least for 1 week after being submerged in a collagenase-saline solution at 37⁰C; • Mino-Wrap Is safe and not cytotoxic towards human fibroblasts; • The active ingredients remain active after gamma radiation sterilization; and, • The antibacterial components are active against the most common bacterial clinical isolates responsible for TE infections, for at least 10 days.

Mino-Wrap appears to have the characteristics necessary for an advance in the protection of human implants from subsequent infection.

In January 2019, Citius signed a definitive license agreement with MD Anderson Cancer Center (MDACC) to develop and commercialize a novel approach to reducing post-operative infections associated with surgical implants A US Patent was filed on April 17, 2014 and issued on Dec. 26, 2017.

Citius is filing an application with the Center for Devices and Radiological Health (CDRH) of the FDA to determine if MinoWrap could be considered a device since there are a number of predicates with similar components that have been accepted by this regulatory route; and, such a pathway would expedite the development time to bring this important new technology to the market.

DEVELOPMENT & COMMERCIALIzATION STRATEGY Citius’ goal is to build a successful pharmaceutical company through developing and commercializing innovative, efficacious, and cost-effective products that address compelling market opportunities. Citius seeks to leverage the FDA’s, 505(b)(2) pathway for new drug approvals and bring products to market faster and with less cost as compared to other FDA new drug approval pathways.

Objectives include: • Identifying new drug product candidates that are typically prescribed by a relatively small number of specialist physicians and can therefore be successfully commercialized; • Obtain licenses for the most relevant and advanced technologies to provide our new product candidates with superior product characteristics and intellectual property protection; • Outsource formulation development and manufacturing in order to reduce upfront capital investment; • Leverage in-house clinical and regulatory expertise to advance the development of product candidates in the pipeline more rapidly; • Establish strategic relationships with marketing partners to maximize sales potential of products that require significant commercial support; and, • Manage our business in a financially disciplined and cost-conscious manner. n www.citiuspharma.com

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

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MicroCap Review Magazine

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FEATURED ARTICLE

My 8 Rules for MicroCap Value Investors 1. zIG WHEN THE CROWD zAGS For any potential investment we compare the crowd’s view—the consensus—with our own. How do we find the consensus? It’s revealed in the difference between the price of a stock and its value. We do our own research to work out the value. We look for stocks where our estimate diverges from the crowd’s. In other words, we try to zig when the crowd zags.

Here’s why: The only way to get a good price is to buy what the crowd wants to sell, and sell what the crowd wants to buy.

A “good” price implies a lopsided bet:

A small downside and a big upside. The downside is small because the price already assumes the worst-case scenario. That creates a margin for error. If we’re wrong, we won’t lose much. If we’re right, we’ll make a lot. An upside bigger than the downside means we break even though we err more often than we succeed. If we manage to succeed as often as, or more often than we err, we’ll do well.

Undervalued and out-of-favor companies offer lots of chances to zig—make contrarian bets. When a company owns a scary, bad, or boring business, the crowd overreacts or grows impatient and sells. That’s how the

n BY TOBIAS CARLISLE

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stock becomes undervalued. Given time, many businesses turn out to be less scary, bad, or boring than they seem at first. The reason is mean reversion.

2. BUY UNDERVALUED COMPANIES The bigger the discount to value the better the return. This is true in the US, UK, Europe, Africa, Asia, Australia and New Zealand. It’s true in developing and emerging markets. It’s true globally. Deep discounts and good returns go together.

For most industrial companies, the Acquirer’s Multiple is the best single measure of undervaluation. The Acquirer’s Multiple is a company’s enterprise value compared to its operating earnings. It is the metric private equity firms use when buying companies whole, and activist investors use when seeking hidden value.

The enterprise value is the “true” price we must pay for a company. It includes the market cap. Market cap is the share price multiplied by the number of shares on issue.

The market cap alone can mislead because it ignores other costs borne by the owner. The enterprise value also examines the balance sheet and off-balance sheet items. It rewards companies for cash. And it penalizes companies for debt, preferred stock, minority interests and off-balance sheet debts. These are all real costs paid by the owner.

Operating earnings are the income flowing from a business’s operations. It excludes one-off items like sales of assets and legal settlements. We adjust operating earnings for interest and tax payments because they are affected by the capital structure: the mix of debt or equity. The adjustment makes possible an apples-to-apples comparison between two companies with different mixes of debt and equity.

For non-industrial businesses like financials—banks and insurers—book value is the better single measure. Whatever the proxy, the goal is deep undervaluation.

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3. SEEk A MARGIN OF SAFETY This is a threefold test of the discount to the valuation, the balance sheet and the business.

First, the greater the company’s discount to its value, the safer the purchase. A wide discount allows for errors and any decay in value. This is the corollary to the last rule, that the biggest returns flow from the biggest discounts. It breaks the received wisdom of the market and academia that higher returns mean more risk. Here, the greater the margin of safety, the higher the returns and lower the risk.

Second, on the balance sheet we favor cash and other liquid securities over debt.

We watch for off-balance debts like leases and underfunded pensions. We look for credit issues and signs of financial distress.

No company ever “won” with too much cash, but many have sunk with too much debt.

Finally, the company should own a real business. The business should have strong operating earnings with matching cash flow.

Matching cash flows ensures the accounting earnings are real, and not merely the figment of a clever embezzler’s mind. We look for signs of earnings manipulation.

Companies that own science experiments, or toys in search of a business model are for speculators. But weak current profits in a stock with a good past record offer a good chance for mean reversion in those profits.

4. TREAT A SHARE AS AN OWNERSHIP INTEREST, NOT A MERE TICkER SYMBOL A share is an ownership interest in a company. This has two implications: First, a shareholder has rights as an owner of a company. Shareholder exercise those rights by voting.

Second, shareholders should pay attention to everything a company owns. That includes its business and its assets, chiefly its cash.

We look at both the business and the balance sheet to find financial robustness. A business can be worth a great deal, worthless, or worth less-than-nothing (if it’s a regular money loser).

In the same way, a balance sheet can hold great value, or have a negative net worth if the debt outweighs the assets.

Many investors follow profits—the fruits of the business—but ignore assets on the balance sheet. They ignore cash. A seemingly poor business with a strong balance sheet could represent hidden value. The asset value offers a free call option on any recovery in the business.

5. BE WARY OF HIGH EARNINGS GROWTH AND PROFITS Mean reversion is a powerful force. It pushes down on fast growth rates and high profits.

And it pushes up on low growth and losses.

Fast growth and good profits attract competition. And competition eats away at the growth and profit. Investors following Warren Buffett’s example seek highly profitable businesses with a “moat”—a competitive advantage. But moats are harder to find—and easier to cross—than most investors realize.

Researchers have studied how businesses sustain high profits. The data show most highly profitable companies’ profits mean revert down over time. A small subset of businesses do earn persistent, high profits.

But we have not yet been able to identify the causal factors ex ante—before the fact. In other words, we don’t know beyond broad observations what factors predict steady growth and profits.

The evidence shows the odds of finding the next high-growth or high-profit stock are about the same as flipping a coin. Buffett’s genius has been to identify these businesses.

Mere mortals are better served buying at a steep discount to value.

The best place to find future growth and profit is in businesses enduring hard times.

These businesses are also likely to trade at a www.stocknewsnow.com

wide discount to value. Buyers of these businesses can enjoy both an improvement in the business and a narrowing of the market price discount.

6. USE SIMPLE, CONCRETE RULES TO AVOID MAkING ERRORS Cognitive errors happen when we make odds-based decisions about uncertain future outcomes. Investing in the stock market presents exactly this type of problem.

The secret to avoiding these errors is to use a set of simple, concrete rules. Ideally, we should write them down and strictly follow them.

Simple, concrete rules are testable. They should be back tested and battle tested. The back test makes sure the rules work over historical data sets, ideally in different countries and stock markets. The battle test makes sure the rules work in practice. No strategy has ever failed in theory. Almost all have failed in reality.

7. CONCENTRATE, BUT NOT TOO MUCH If you want to match the market, buy the market. If you want to beat the market, you must do something different. That means buying only the best ideas, or “focusing.”

The trade-off for focus is twofold: First, concentrated portfolios tend to be more volatile than the broader stock market. This means they move around more, both up and down. Good years for the market can be great years for the portfolio. Bad years for the market can be terrible years for the portfolio.

Second, concentrated portfolios don’t closely follow the market. We call this “tracking error.” It means concentrated portfolios can go down when the market goes up, and up when the market goes down. The second kind of tracking error—portfolio up, market down—is great to have. But you won’t notice it. You’ll only notice when your concentrated www.stocknewsnow.com

portfolio is down while the market is up.

Academics have found high tracking error to be associated with good long-term performance. But the market can beat portfolios of undervalued stocks for a long time. Tracking error won’t feel good then.

Don’t become too concentrated. Assume your calculations and thinking are wrong.

Remember, it’s more likely you are wrong and the rest of the market is right.

8. AIM TO MAXIMIzE AFTER-TAX GAINS OVER THE LONG TERM Our aim is to maximize the real, after-tax return over the long term. This has three important implications: First, thinking long term—beyond the next few quarters or years—offers a huge advantage to investors. Companies often become mispriced because the next year or so looks tough. This creates a good spot for investors willing to lag over the short term.

We call this “time arbitrage.” It offers an enduring edge available to patient investors, no matter the size of their portfolio.

Second, the effects of compounding take a long time to become observable. But interest-on-interest or gains-on-gains become significant over the long term.

Third, taxes and fees are hidden enemies of long-term compounding. High-fee mutual funds and other flow-through vehicles will struggle to beat passive indexes. But low-fee, active ETFs are more tax efficient and can do so over the long term.

Value investing is a logical, time-tested investment method. The best value investors zig while others zag. They maximize their margin of safety and minimize their costs and taxes. They treat high growth and profits skeptically. And they assume their calculations and thinking are wrong. Skepticism, humility and low costs maximize our chance of surviving. With luck and time, we can beat the market.

Note: This article was Adapted from Carlisle, T.E. (2017) Zig when the investing crowd zags. In Parker, C. (Ed.).

(2017). Harriman’s New Book of Investing Rules: The do’s and don’ts of the world’s best investors. London, UK. Harriman House. n Tobias Carlisle is the founder and portfolio manager of Acquirers Funds, LLC. He is the author of the bestselling book The Acquirer’s Multiple: How the Billionaire Contrarians of Deep Value Beat the Market (2017), Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014). He is a co-author of Concentrated Investing: Strategies of the World’s Greatest Concentrated Value Investors (2016), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012). His books have been translated into six languages. Tobias also runs the website AcquirersMultiple.com—home of The Acquirer’s Multiple® stock screeners. His Twitter handle is @greenbackd.

He has broad experience in investment management, business valuation, corporate governance, and corporate law. Before founding the precursor to Acquirers Funds in 2010, Tobias was an analyst at an activist hedge fund, general counsel of a company listed on the Australian Stock Exchange, and a corporate advisory lawyer. As a lawyer specializing in mergers and acquisitions he has advised on deals across a range of industries in the United States, the United Kingdom, China, Australia, Singapore, Bermuda, Papua New Guinea, New Zealand, and Guam.

He is a graduate of the University of Queensland in Australia with degrees in Law (2001) and Business (Management) (1999).

Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

www.acquirersmultiple.com

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

Femeda Ltd.

F

emale health company Femeda develops Pelviva® – a pioneering Pelvic Floor muscle re-trainer, clinically proven to have a life-changing impact on women’s quality of life.

Femtech (female technology) is one of the fastest growing sectors of healthcare, forecast to reach $50bn by 2025. Urinary Incontinence is the largest unmet need in female health and a $14bn global opportunity.

Life changing clinically proven technology: One in three women (over 750 million worldwide) experience bladder leakage, which has a negative impact on daily life and relationships This is a condition which changes the lives of millions of women, though over 60% of US women haven’t told their partners/husbands. Femeda is a specialist UK-based company driving strategic innovation to develop a range of technically groundbreaking medical devices for female urinary incontinence (UI), just launching the unique Pelviva® device life changing clinically proven technology. With no drug-related side effects, this multiple award-winning product is unique in a rapidly accelerating market.

Pelviva addresses THE biggest unmet need in female health – Urinary incontinence (UI).

It is the first product of its kind that is clinically proven and is really easy to use. Pelviva is a pioneering medical device that has a lifechanging impact on women’s quality of life.

Supported by an in-depth research and development programme and driven by consumer needs, Pelviva is the first of its kind to provide one combined treatment for both

Andrew Tasker, CEO

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stress and urinary continence. It offers women a clinically effective, safe and discrete treatment for bladder leakage. Each single-use, disposable intra-vaginal device incorporates a revolutionary pattern of neuromuscular electrical stimulation using a programme developed by Professor Oldham at The University of Manchester. Reactive Pulse Technology causes the Pelvic Floor muscles to contract, mimicking the way the body works naturally, helping to restore speed and strength to the power fibres, preventing bladder leakage when women cough, laugh, sneeze or exercise. It is made of a Body Responsive Foam, so adapts to each woman’s individual shape.

The unique development is the result of combining advanced research and patents from University of Manchester with internal product development expertise to deliver a product which meets core patient needs.

Pelviva is CE marked, Class IIa medical device which can be recommended by the hospital practitioner, and bought directly by the end consumer. The business is now commencing a global out licensing programme.

Pelviva offers a long-awaited treatment supported by a comprehensive package of clinical data. In single-blind controlled trial, women using Pelviva® reported a fourtimes greater improvement in quality of life than those who simply followed an exercise programme, with 84% reporting improved symptoms of bladder leakage. Having an ongoing programme of clinical evaluation is paramount to Femeda’s development and a post marketing 330 women patient randomised real world primary care study has been commissioned for Q2 2019.

PRIVATE COMPANY

Bladder leakage is not life-threatening, but it is life-changing – it affects women psychologically, emotionally, socially and sexually. This is a global problem, affecting women of all ages, often exacerbated by childbirth and menopause. Only one in four women with this condition is likely to consult with a healthcare professional due to embarrassment over the nature of the condition.

The recent issues with mesh and tape surgery are prompting an immediate rethink into treatment pathways which Pelviva can become 1st line recommendation – the UK, Australia, New Zealand and others have banned surgical mesh in UI, and a major medical device supplier has recently announced withdrawal of mesh across the whole of Europe.

Introducing Femeda: a UK based healthcare company focused on the development of an innovative female health portfolio and is positioning itself to be a global Femtech leader.

With its specialism in female health, it has recently launched its first product Pelviva, a treatment for female urinary incontinence (UI). The product is a result of an innovative research and development activity led by highly skilled internal R&D resource, which has integrated leading technology from world class academia.

The Femeda team is led by Andrew Tasker, Chief Executive who has extensive pharmaceutical, medical device and consumer healthcare experience in global markets. He has set a culture of instinctive innovation, integral understanding of patient and consumer insights, and continued delivery of core business objectives. The business has put in place a highly experienced senior management team with international healthcare and operational skills.

Femeda has recently opened a new London headquarters, and has it own advanced ISO13485 manufacturing plant in Cramlington (North East UK). n www.femeda.com The company paid consideration to SNN or its affiliates for this article.

MicroCap Review Magazine

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NASDAq CM: MBII

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

Marrone Bio Innovations A Clear Leader in the Emerging Biological Pest Control Industry

C

onsumers are increasingly concerned about the environment, health, and food safety. The world needs effective, sustainable pest management solutions that are both safe for human consumption and protect the earth’s natural resources. Dr. Pamela Marrone, CEO of Marrone Bio Innovations (NASDAQ: MBII), was acutely focused on these challenges back in 2006 when she founded MBII to discover and develop effective, sustainable, biologically-based products for pest management and plant health.

MBII is the only public pure-play company in biological pest management and plant health and is widely recognized as the thought leader in the space given the company’s industry-leading product portfolio consisting of 6 EPA approved products.

Dr. Pamela Marrone, President & CFO

The total global pesticide market is more than $50 billion annually and is growing at a compound annual growth rate of about 2%. The newly emerging biological market is approximately $3-4 billion but is growing at a compound annual growth rate between 10% and 20%.

MBII’s growth is significantly outpacing both the traditional pesticide market and the biologicals market – revenues grew 29% in Q3 2018 YoY to $5.4 million at the same time achieving a record gross margin of 48.3% and climbing.

MBII’s proprietary products are not only used in organic farming, where historically the Company has provided pest control solutions where no good alternative previously existed, but in conventional farming, where farmers traditionally use synthetic chemicals but are increasingly looking for sustainable programs that utilize biologicals.

Conventional farmers account for approximately 70% of the company’s sales. “The benefits are significant,” explained Pam Marrone, MBII’s CEO. “First, by implementing our products as one part of an integrated program, conventional growers can improve yields and crop quality, creating a higher return on investment than chemical pesticides alone. A notable example was in strawberries, where a trial implementing MBII’s products resulted in a $1,400/acre increase in revenues, or a >9x ROI on investment.

In addition, pests developing resistance to synthetic chemicals is reduced or eliminated by using our products in a sustainable, integrated program, again increasing return on investment. And our products do not harm the beneficials, such as bees, also an important yield issue for today’s farmers.”

An area of growth and opportunity for the company is the rapidly growing cannabis industry, where MBII products are impacting cannabis production through the reduction of toxic chemicals and pesticide residues that are harmful to both the environment and to consumers. To provide some scale of the market opportunity, a study from the UC Davis Graduate School of Management estimated the current Cannabis inputs market in just Colorado, Oregon, and Washington alone to be $91 million. The study estimates the pesticide and fertilizer inputs market for Cannabis, including California due to recent changes in California Cannabis legislation, will grow to $1.4 billion within the next five years in just those four states.

MBII has made significant progress in penetrating its target markets in the U.S. and is expanding rapidly abroad, where there are similar drivers for both consumers and farmers. MBII is well positioned to continue to gain market share in the emerging biological pest management and plant health market. n www.marronebioinnovations.com

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

MicroCap Review Magazine

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

MicroCap Investing: 4 Reasons Why Share Structure is Critical The choice is yours!

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ou have the choice of investing in two microcaps. Both are in the same industry. They have the same profitability and growth metrics. They even have the same valuation.

The only difference is Stock A is trading at $1.00 per share with 100 million shares outstanding and Stock B is trading at $10.00 per share with 10 million shares out.

Which would you invest in? Does it even matter if the valuations are the same? They’re mathematically equivalent... right?

Not quite. In this article we will look at 4 reasons why share structure is critical and discover why one of these stocks is likely to produce much better returns over the longterm.

1) CLUES INTO THE COMPANY’S HISTORY

n BY BRANDON MACKIE

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MicroCap Review Magazine

Share structure has two primary components: 1) the total number of shares outstanding – the pieces of the pie – and 2) the type of shares – common stock, options, warrants, etc.

A company is not assigned a share structure upon founding or listing on an exchange.

Nor is it the result of a single decision by the founding team. Rather, it’s the cumulative impact of thousands of decisions by the founders and management team over the life of the company.

This single data point then gives you a major clue into the company’s history – everything from how successfully the original business plan was executed to management’s capital markets savvy.

Early on in a company’s life, everything is in flux. The target markets, product lines,

industry dynamics. All these can turn on a dime and threaten a microcap’s existence.

The wise management team recognizes this and runs lean, raising only what is necessary to iterate to a successful business model – and only at prices they can’t turn down.

As the company gains customers, validation, and moves closer to profitability, it gains leverage in the markets. More leverage = less dilution = higher returns for you.

Your job as an investor is to study history to inform the future. History as they say, doesn’t repeat but it often rhymes. And few things will teach you more about a company’s history than the share structure.

2) CAPITAL ALLOCATION SCORECARD Investing in a good share structure is critical. But it’s not enough. Share structure is dynamic – it can change in an instant with a single decision by the CEO. And how that structure changes over your holding period will often be one of the biggest predictors of success.

Every day management is faced with countless decisions. Should we fund a new product development program? Should we acquire a key competitor? Should we issue shares and raise capital?

All these decisions come down to transforming capital into value. The better management becomes at capital allocation, the more value they will create.

In his bestselling book, The Outsiders, William N. Thorndike explains most CEOs get to the top by being really good at one thing. Maybe they’re a great salesperson or product innovator. But it’s rare to find a CEO www.stocknewsnow.com

More important than the number of shares is often who owns them. Because if insiders don’t own a significant piece, how can you expect them to treat your shares like gold? that can operate and allocate capital well.

The greatest capital allocator ever according to Warren Buffett was Henry Singleton, CEO of Teledyne. In the 1960’s, when Teledyne’s shares were flying high in the conglomerate boom, Singleton diluted heavily to acquire companies and build his empire.

But when the stock plummeted in the early 1980’s, Singleton changed course and began buying back his shares, eventually reducing the share count by 90%.

The lesson here? It’s all context. Dilution can be horrible. It can also be great. You must constantly assess management’s capital allocation and ask the question: are they creating or destroying value?

Watching revenue and earnings growth per share is one of the best ways we know to do this.

3) UNDERSTAND THE INCENTIVES More important than the number of shares is often who owns them. Because if insiders don’t own a significant piece, how can you expect them to treat your shares like gold?

With microcaps, though, share structure incentives can get tricky. You may find a promising company where the CEO owns 20% and think, “great our interests are aligned.” Check the box.

But what if that CEO is making $350,000 per year in salary and because the company is so small, his or her shares are worth only $200,000? Here the incentives say it’s better to coast along than risk capital to try and grow the business.

Options can pose another problem. If management has exposure primarily www.stocknewsnow.com

through options, they have big upside if the share price goes up. But if shares languish, or decline, the options expire worthless and they’re in the same place as before. It’s an asymmetric structure that incentivizes management to take big swings – say with a risky acquisition – to increase the share price.

We always want to see management own a good chunk, 25-40%, and ideally that equity is worth at least 3 times their annual salary. The more they acquire with their own money, the more bullish we become.

4) SUPPLY AND DEMAND Our final reason has little to do with a company’s fundamental value. Stock trading follows economics 101: supply and demand.

The fewer shares in the float, the higher the price will be for a given level of demand.

This becomes important when a fund wants to build a position in a promising microcap. Large institutional demand combined with a tight share structure can be a recipe for a rocketing share price – often going far beyond what the fundamentals justify.

These boons are unique opportunities you’ll rarely see happen to companies with over 100 million shares outstanding.

THE BOTTOM LINE So, is there a magic number of shares outstanding? Not exactly. Like most things in investing, it’s more art than science.

A company can do a reverse split and overnight go from 100 million shares outstanding to 2 million. Don’t be fooled though... all those existing shareholders will still have

sky-high cost bases that can weigh on the share price.

That said, we’ve been amazed over the years by how many multi-baggers – companies with 10, 20, even 50x returns – all had 20-30 million shares outstanding.

These companies often had no warrants, convertible notes, or even options outstanding. Employees were bonused in cash and went in the open market to buy their positions. It was an investor’s dream.

There are management teams that treat their shares like gold. And then there are teams that treat their shares like toilet paper.

Make sure you know which side management is on before you invest. n www.smallcapdiscoveries.com Brandon is a passionate microcap investor. He has developed a specific set of criteria for selecting investment ideas. The key attributes include: Attractive business models Compelling valuations Quality management teams He then conducts intensive research, talking to management teams, industry contacts, and other like-minded investors. His philosophy is to know his stocks better than anyone else and build a concentrated portfolio around them.

Based in Texas, Brandon spent several years as a project manager and engineer with a multi-national oil company, a place where he could use BSc in Chemical and Biomolecular Engineering. That’s where he developed his technical writing skills.

But then he got the investing bug. He started reading articles and books by the gurus of value investing: Warren Buffett and Ben Graham. He was hooked.

After following boring large cap stocks for a while, he began channeling all that experience to microcap stocks with cash flow. After being completely selftaught in the investing arena, he couldn’t get enough.

He started getting all these ideas about stocks and companies, so he began writing a blog, which he has now rolled into https://smallcapdiscoveries.com/.

Brandon writes about stocks he likes, but he also writes about process, how he thinks, and he analyzes his mistakes in an honest, raw manner. That’s where a lot of the best information is for retail investors.

Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

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NASDAq CM: JRSH

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

Jerash Holdings (US), Inc. Jerash Holdings is a profitable, growing global manufacturer of sport and outerwear garments for top global brands at facilities located in US & EU tariff-free zones in Jordan.

J

ordan may not be the best-known manufacturing location to US investors, but it is quickly becoming one of the most important in the garment industry, and for US consumers. This stable US ally in the

Middle East boasts a low cost, highly trained global work force and key free trade zones that generate duty-free imports to the US and EU. When import duties on popular fleece jackets and outerwear can run 30%plus, that tariff savings is critical to the final price consumers pay, and to profits at major clothing brands.

Jerash has leveraged its Jordanian factories and duty-free capabilities to become a key strategic manufacturer to 17 top global brands such as The North Face, Columbia, VF Corp, and PVH, with more on the way.

Its sterling reputation for quality and penchant for on-time delivery have consistently filled its factories to maximum capacity, even as the company announces new expansion plans.

DOING WELL BY DOING GOOD

Richard J. Shaw, CFO

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As a socially responsible employer, Jerash’s factories are audited by Jordanian agencies, the United Nations, its customers and other global organizations. The company was even an invited speaker at the United Nations for its efforts in hiring Syrian refugees.

Jerash’s workforce comes to Jordan from around the world seeking stable employment. In fact, 75% of the workforce are immigrants on work visas. Employees typically sign three-year contracts with wages averaging $300 a month, a significant cost savings compared with popular garment manufacturing markets such as China.

Immigrant workers are provided housing, meals, healthcare, child care and more.

Dedication to its workers has paid off, as Jerash has reported five years of record revenue, rising profitability and increased demand from customers. Through the first nine months of fiscal 2019 (fiscal year ending March 31, 2019), Jerash has reported a record $70.5 million in revenue, $5.3 million in GAAP net income, or $0.47 per share, and $11.9 million in cash from operations.

The company recently initiated a $0.20 per year dividend to further enhance shareholder returns.

In order to meet rapidly rising customer demand for manufacturing capacity, Jerash recently announced a 1.5 million piece capacity expansion, on top of its current 6.5 million pieces of annual production. The new capacity begins production in April 2019, and included 800,000 pieces in new customer orders even before the doors opened.

WHY JERASH While the new capacity positions Jerash for another year of growth and financial records, the company is not resting on its laurels. It is presently looking for opportunities to further augment its organic growth, averaging 15% or more annually, with strategic acquisitions to grow more quickly, diversify its production capabilities and enhance its geographic footprint. n Jerash Holdings (NASDAQ: JRSH) For more information, visit: www.jerashholdings.com

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

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Help a child or widow who is coping with the aftermath of a traumatic loss. Make a tax-deductible clothing donation, become a youth mentor, fundraise, or simply call and tell us how you'd like to get involved.

Our families need your support.

For more information, please call 212-332-2980 or visit www.tuesdayschildren.org Tuesday's Children provides a lifetime of healing for those whose lives have been forever changed by terrorism or traumatic loss. Through a time tested, long-term approach, Tuesday's Children programming keeps the promise to support all those impacted by 9/11; builds resilience and common bonds in communities worldwide recovering from tragedies; and serves and supports our nation's military Families ofwww.stocknewsnow.com the Fallen.

MicroCap Review Magazine 29

ASX: kNM

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

kNeoMedia Limited

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NeoMedia Limited (ASX:KNM) is an Australian listed company in the process of obtaining an OTCQB listing. The company has operations in 4 continents, principally in the US and delivers SaaS products via its portal www.KneoWorld.com to schools and districts on a Business 2 Schools basis. The main activity of the company is online education publishing to assist education of children with learning difficulties, whether they are genetic or socio-economic.

In excess of 10 percent of all students are present as challenged learners and while the Company focuses on elementary students, this represents a very substantial market that is far less competitive and under-catered for in comparison to the crowded general education online market.

KneoMedia has pioneered and developed a highly sophisticated suite of gamebased learning programs that engage challenged learners enabling improved education and behavior within the classroom and beyond. Curated to enhance teaching and learning in both general education and special needs classrooms, KneoWorld work closely with educators and administrators of curricula to develop programs that help students of all abilities master academic and life skills to reach their full potential. All programs are COPPA and GDPR security compliant.

Educators are further assisted by detailed

James Kellett, Executive Chairman

student performance analytics. KneoMedia’s learning programs are quite remarkable as detailed in a recent university study strongly supporting the highly positive results received to date.

KneoWorld programs inspire students to want to learn through the power of play and digital game-based learning is nondiscriminatory. All children, at any level of ability can learn and progress with the right digital tools.

We create programs to help educators bridge the achievement gap to provide educational equity to all students, regardless of learning ability.

Our intuitive programs target four student ability levels: • Early Learner • Emerging Learner • Developing Learner • Proficient Learner All programs are geared to a continuum of learning.

Whether teacher directed or student initiated, our audio assisted programs are a powerful in-class learning tool that measures performance mapped to global standards. Identified in six categories of learning: Literacy, Science, Maths and Art, in line with US based standards and alternative assessments, plus Critical Thinking and Life Skills to address the practical skills of daily living as well as the social and emotional skills necessary to navigate in the world.

• Game-based programs • For students of all abilities • Engaging and empowering • Mapped and measured • Integrates to curriculum • Meaningful analytics • Real time feedback • Ongoing PDs and support We believe all children should be given every opportunity to succeed, regardless of their academic ability and game-based learning is an

integral part of childhood education. Growth in educational markets, combined with advances in mobile devices and connectivity, will continue to accelerate innovation, adoption, and affordability of our products around the world.

The Company’s primary focus during the year was the refinement of its operating platform to deliver sustainable sales through four key pillars: • Partnerships that deliver access to multiple funding channels from government and private enterprise; • Leading technology to ensure we maintain a commanding position in Special Needs education; • Validated content by globally recognised and credible health and education bodies; • Recruitment of top talent in Special Needs learning and development to deliver scale in the markets where we deploy content.

Using the four key pillar strategy plus the continued recruitment of key sales personal, the Company will continue to remain fully focused on its Software as a Service (SaaS) platform under a Business-to-School sales model in its now defined markets The Company recognises the education markets have a lengthy sales lead time, much of which has been deployed and together with the investment to date in both the SaaS strategy and the opening of those markets at the earliest opportunity and the extensive work of curriculum alignment within those markets, will, the Company believes, provide long term sustainable income and further growth in new markets due to the readily translatable design of the KneoWorld platform. n www.kneomedia.com Appointed Executive Chairman October 2015. Mr Kellett has over 30 years’ experience in global corporate finance and business management and has held senior executive positions in the finance and communications industries, including ASX listed companies. Mr Kellett has been the driving force in establishing KNeoWorld Inc. in the game-based education sector in America and other global markets.

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

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ASX: TNY

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

Tinybeans Group Limited

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inybeans is a mobile and web-based technology platform that connects now over 3 Million parents with the most trusted tools and resources on the planet to help every family thrive.

Tinybeans offers an experience without the distractions or privacy concerns that arise on other platforms when sharing a child’s memories. Tinybeans generates revenue from advertising from brands, premium subscriptions and printed products. Founded in Sydney, Australia in 2012, Tinybeans serves a deeply engaged user base of over 3 Million members and over 1.1 Million monthly active in over 200 countries/territories and keeps over 200 million precious memories safe.

From that small sprout in Sydney, Tinybeans, now with a Net Promoter Score (NPS) of 80, has grown to add headquarters in New York and is now a must-have app for every new parent, with over 55,000 5-star reviews in the Apple App and Google Play stores.

As the audience continues to grow, so do the company’s revenues. In the December half of 2018, Tinybeans generated over $1.2M USD, which was nearly as much as what it delivered the previous 12 months.

This growth reflects the momentum continuing to build across the Company’s revenue drivers, largely advertising, with supported recurring revenues in premium subscriptions and printed product sales.

Advertising revenues increased to over $800k USD representing growth of over 185% on the previous year, driven by seasonal holiday

The largest family only platform on the planet!

campaigns. More brands are signing up for direct advertising deals plus more advertisers are increasing their investments across the programmatic platform. These results demonstrate the value to advertisers in the Tinybeans audience and our targeting capabilities based on the unique data set to get to the right people with the right message.

“We want to provide for parents a product that meets the needs they have now around organizing their children’s stories and sharing,” said Geller, “and the needs they don’t even know they have yet, like easy ways to look back on those first moments and convenient ways to print.”

To December 2018, Tinybeans attracted many new advertisers on the platform. Some running tests, while others re-signed for ongoing programs. Some of the advertising partners that have recently run on the Tinybeans platform include Macmillan Kids, Haven Life, Peppa Pig, Mixbook, DK Books, BuyBuyBaby, BarkBox & Kabrita to name but a few.

“With Tinybeans, we want to harness the power of the trust we have with our audience—other parents—on an emotional level.

We speak to our audience as peers: those who’ve been in our shoes; shared the same joys and worries; who understand the awesome responsibility of parenting, but also

the incredible journey on which it takes us.

We’re connecting with a global community of parents over what we have in common and sharing a unique way to capture the emotional moments that mean so much.” Eddie Geller, Tinybeans’ CEO said.

Tinybeans has recently been getting a lot of press and was included in a Harvard Business Review1 article, stating…

“Consider TinyBeans, a fast growing private social media network with over 3 million users.

It’s a photo and video sharing site focused on newborns and the many delightful milestones they achieve over the next months. Unlike Facebook where everyone can see your posts, photos and videos, TinyBeans is private and invite only to close friends and family so there is a tremendous amount of trust which encourages more sharing. This newborn Maximum Density Market (MDM) sparks a cornucopia purchase behavior related to becoming a parent—like life insurance, a ~$700 billion dollar industry that is normally unpleasant to talk about. But becoming a parent unlocks greater motivation to make it through the purchase funnel.”

Looking ahead, Tinybeans has cash and solid runway—and has confirmed many times to the market it’s confidence of reaching cashflow positive in calendar 2019.

Tinybeans is traded on the Australian Stock Exchange (TNY) and https://www. otcmarkets.com/stock/TNYYF/overview n For more: tinybeans.com/investor 1 https://hbr.org/2019/03/why-businesses-shouldknow-where-their-densest-markets-are The company paid consideration to SNN or its affiliates for this article.

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

Microcaps’ 2009 Trend has been Your Friend but did it END? CORNERSTONE GLOBAL GROUP “T-REPORT” IN BRIEF • Prior analysis of 29 January 2018 continues to be relevant and accurate, per details and charts provided in this technical note.

• As the Preferred Scenario, expecting Index to crest and rollover to confirm a major TOP and trend down to establish a major low, parameters provided below.

• Alternative Scenario, if the 2018 high is taken out, the final top will only be delayed to the last quarter 2019 or no later than mid2020, possible but not probability favored at this time.

COMMENTARY AND ANALYSIS First, below is a verbatim Restatement of Noteable Comments, written 29 January 2018 and published in the Spring MicroCap Review

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

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• “The Russell Microcap® Index breaking out of a six month near sideways consolidation, led to an impulsive bullish move up to the current testing of its upper trend line. It remains in a confirmed uptrend but is subject to downward corrections, as it moves toward its end of trend, an anticipated historic crest or at least a “truncated” crest”.

• “Select technical indicators, stock market cycles, Elliott Wave analysis, Prof. Wheeler’s cycle analysis, Benner cycle analysis and more are suggesting a near term short term top, followed by a corrective decline into early 2018 and a major top ideally in mid2018 but no later than end of 2018, with a

potential crash 2018-2019”.

• “Until more definitive index market action takes place that allows for calling a high probability end of the 2009 “cyclical” bull market trend and a lasting crest, a decisive breakdown from its lower 2009 trend line and 200 week moving average, will strongly indicate a trend change. A decisive move under the February 2016 low will confirm the long term trend is down.”

SECOND, HOW DID WE DO? – A REVIEW OF 29 JANUARY 2018 ANALYSIS AND COMMENTS • As of date, the 2018 Primary Scenario comments and analysis continue to be in line with market action from 29 January 2019 to 20 March 2019, a rather long stretch in time!

• Indeed, there was a deep correction in early 2018, 8 February 2018 to be exact, projected as chart point 4 in blue on the above 2018 weekly chart.

• That correction penetrated the 200 weekly simple moving average but closed above that line.

• In fact, the daily move created a bullish daily key reversal, which led to a decisive crest, at least as of date.

• Thus far, a major top, as projected for between mid-2018 to end of 2018, may have occurred on 31 August 2018, pending market action confirmation.

• In fact, it was the highest top of what would be considered a triple top, painted on 21 June 2018 at 682.83, 10 July 2018 at 684.1 and 31 August 2018 at 686.14, only a 3.3 point spread between crests!

• As for the potential crash, suggested for the time frame of 2018-2019, the Index www.stocknewsnow.com

Weekly Russell Microcap® Index bar chart – 29 January 2018

did indeed decline 29.51% over about 4 months into 24 December 2018, a “proper crash”.

• Additionally, the Index broke its lower 2016 channel trend line and its 200 week simple moving average in a decisive manner but “bounced” off its 2009 trend line, most interesting and important!!

• This action met the “partial” stated parameters for a trend change to down, at

least short term to intermediate term.

• However, as stated in the 2018 publication, for such a move to go beyond an intermediate trend change to a confirmed long term trend change down, the Index must take out not only its 2009 lower trend channel line but the 29 February 2018 low of 364.89, per basic technical analysis.

• It should be noted that from an “Elliott Wave perspective”, a move under its

December 2018 low would “structurally” confirm a major top and the progression of a long term move down to a meaningful low.

THIRD, CURRENT WEEkLY CHART ANALYSIS – 20 MARCH 2019 • The 20 March 2019 weekly Index chart

Weekly Russell Microcap® Index bar chart – 30 March 2019 www.stocknewsnow.com

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Monthly Russell Microcap® Index bar chart – 20 March 2019

clearly indicates the Index closed below its 2016 lower trend line channel and did close below its 200 week and 50 week Simple Moving Averages, as well as creating a bearish “Death Cross” on the daily bar chart, confirming the short term and intermediate term trend to down • Unless the Index takes out its October 2018 high, the intermediate trend remains down but the short term trend is up, as the Index is likely in an upward correction • Looking next for a crest and a move under the 2018 low, creation of a weekly “Death Cross” and ultimately, taking out the 2016 low • However, a close under the 2018 low

will provide a high probability of a major top, which should be followed by an upward correction, an opportunity to consult with your financial advisors to consider exiting long positions, rebalance portfolios, and potential shorting opportunities

FOURTH, CURRENT MONTHLY CHART ANALYSIS – 20 MARCH 2019 • Monthly chart puts it all together and extols the order and trend of the 2009 advance and pending decline, as well as the potential path of an Alternative Scenario in red • NOTE: the Russell 2000 small cap index

However, a close under the 2018 low will provide a high probability of a major top, which should be followed by an upward correction, an opportunity to consult with your financial advisors to consider exiting long positions, rebalance portfolios, and potential shorting opportunities.

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has much more market history and such history has noted that after each market rise from 1998 to 2000 and 2002 to 2007, the index has returned to its origin; that would suggest a potential decline of the Russell Microcap® Index to around 130-150 for a major low during the 2020-2023 time frame.

LASTLY, IN SUMMARY • Historically, markets top on GOOD news, not bad news, as well as extreme optimism and compliancy.

• Therefore, it is not a surprise that extreme optimism and complacency toward financial asset prices has emerged in the currently perceived “Good Times”, setting the stage for explosive volatility in various asset classes, as many believe the “Fed has their backs”!

• Look back at prior markets for guidance, as market crashes tend not to occur at the top of the market but come later in an already established downtrend, just as the DJIA and S&P 500 did in 1968, 1987, 2000, 2007!

• Add in the global backdrop of the cresting and decline of the 125 year “Revolutionary” www.stocknewsnow.com

Therefore, it is not a surprise that extreme optimism and complacency toward financial asset prices has emerged in the currently perceived “Good Times”, setting the stage for explosive volatility in various asset classes, as many believe the “Fed has their backs”!

Cycle, Long Wave Cycle and many shorter term cycles, all pointing to a potential historic economic and equity market decline that is synch with global history, a grand economic “reset” to cleanse economies of excess debt and overcapacity, much like the Biblical Year of Jubilee.

• These cyclical tendencies are clearly evidenced by nationalism not seen since the 1930s, rising global protectionism, a fractured European Union, yellow jackets in France, BREXIT, 5 Star Movement in Italy, far left political agendas emerging globally, Anti-Semitism on the rise, large and violent global demonstrations, the toppling of once honored statues of patriots, desecration of once sacred memorials, a decisive slowing Chinese economy, liquidity on the decline, reversing credit cycle, extremely divided citizenry and sabre rattling around the world.

• It is a slow and steady build, with spurts and pauses in between, all leading to a trending conclusion to be witnessed by those who are aware of a long and well documented global history and who think independently

from the “Thundering Herd”!

• Oh, ponder upon the wisdom of King Solomon, considered to have been one of the wisest men ever, who was attributed in Ecclesiastes for this “market applicable” statement, “The thing that has been, it is what will be, and that which has been done, and there is nothing new under the sun.” n About the Author: Steven Shelton is a Financial Services veteran of more than 30 years, having served in senior management in both the insurance and broker/dealer community, on and off shore. He has expertise in economics, financial market analysis, wealth management, traditional and alternative investments, financial planning, marketing, insurance, sales and consulting as well as an international speaking regarding global economics and financial markets. This is evidenced by advanced degrees in business administration and economics as well as six professional designations to include, Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant, Certified Investment Management Analyst, Tax and Estate Practitioner and Chartered Market Technician. He is the Managing Member of Cornerstone Global Group LLC, an Institutional consultancy and financial services publishing entity, as well as, Managing Partner of Shelton Farms and Enterprises LLC. He is a personal affiliate of Weild & Co., member FINRA/SIPC, an institutional Broker/ Dealer focused on investment banking.

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

Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

Look back at prior markets for guidance, as market crashes tend not to occur at the top of the market but come later in an already established downtrend, just as the DJIA and S&P 500 did in 1968, 1987, 2000, 2007! www.stocknewsnow.com

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ACC O UN T I N G COR N ER

Life After Regulatory Onslaught

F

inancial reporting executives, audit committees, and independent auditors have been wrestling with a number of developments in the U.S. recently, including new accounting standards, technological impacts on financial reporting, tax reform and other regulatory developments.

Implementation of new accounting standards has been burdensome for many companies, including new standards for equity linked derivatives, credit losses, nonemployee stock compensation, the definition of a business in business combinations, and, the two most significant changes, the new revenue and leasing standards. But these are all effective now, so the accounting onslaught is over for the foreseeable future. So what is on the horizon?

SIMPLIFICATION NOT SO SIMPLE Effective November 5, 2018, the SEC issued its final rule that eliminates or revises a number of disclosure requirements that are redundant or outdated in light of changes in US GAAP, or the business or technological environment.

The simplification rules are 308 pages long, and actually add a new requirement to disclose interim changes in stockholders’ equity.

This results in a new equity statement format to replace a single statement of changes in stockholders’ equity with up to four equity statements for interim and year to date periods for two comparable years.

INTRODUCING CRITICAL AUDIT MATTERS Under the newly-revised PCAOB standard,

n BY COREY FISCHER, CPA

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MicroCap Review Magazine

auditors must augment their traditional audit opinion with a discussion of “critical audit matters” (CAMs), essentially matters that “kept the auditor up at night.” A CAM is defined as any matter that is required to be communicated to the audit committee that relates to accounts or disclosures that are material to the financial statements and involve especially challenging, subjective or complex auditor judgment.

Disclosure of CAMs will be effective for large accelerated filers for fiscal years ending after June 30, 2019 (and all other filers for fiscal years ending after December 15, 2020).

A CAM could include matters related to revenue recognition, management override of controls, receivables, inventories, intangibles, covenants, investment valuations, derivatives, fixed assets, lease accounting, pension accounting, expenses, reserves, and related parties, just to name a few. The PCAOB has said it expects that, in most audits, the auditor will identify at least one CAM.

CHANGES TO EMPLOYEE BENEFIT PLAN AUDITS

INEFFECTIVE INTERNAL CONTROLS

Both the SEC and the PCAOB continue to focus on the responsibility of the audit committee to understand financial reporting requirements fully, and to challenge senior management on major, complex decisions if necessary. The audit committee should review all financial communications to satisfy itself that all information is presented fairly and in a transparent and consistent manner.

Also, as part of their oversight of the external audit, audit committees need to ask probing questions of external auditors related to audits and any significant deficiencies or material weaknesses that were identified. n

In January 2019, the SEC settled charges against four public companies for failing to maintain internal control over financial reporting (ICFR) for seven to 10 consecutive annual reporting periods. According to the SEC’s orders, year after year, the four companies disclosed material weaknesses in ICFR involving certain high-risk areas of their financial statement presentation.

Each of the four companies took months, or years, to remediate their material weaknesses after being contacted by the SEC staff.

The companies involved three accelerated filers and one smaller reporting company that all had audits of their ICFR. Three of these companies had clean ICFR audit reports in their most recent fiscal year, but the SEC still charged them for continually having ineffective controls in prior years.

A new standard for employee benefit plan audits is coming soon that primarily focuses on expanded reporting and disclosures. It follows a collaborative effort by the Department of Labor (DOL) and Auditing Standards Board (ASB), in response to weaknesses found in a number of benefit plan audits. A new report format will replace what is currently known as a limitedscope audit. The new standard will require new procedures for engagement acceptance; audit risk assessment and response; and communications with those charged with governance. The standard is expected to be issued in the first half of 2019 and for audits of financial statements for periods ending on or after Dec. 15, 2020 (i.e.

December 31, 2020 audits).

AUDIT COMMITTEE RESPONSIBILITIES

Corey Fischer, CPA, is Firm Managing Partner of Weinberg & Company, a multi-office PCAOB and CPAB-Registered firm specializing in the audit, assurance and tax needs of micro and small cap companies.

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

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

E-mail: coreyf@weinbergla.com or 310-601-2200.

Visit www.weinbergla.com www.stocknewsnow.com

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FA M I LY O F F I C E C O R N E R

Family Offices are Investing Heavily in Artificial Intelligence Here are Five Reasons Why . . .

A

s our fourth article on family offices for Microcap Review, we’re focusing on new investment trends in investment practices seen in the family office investor space as well as related investment mandates presented to us over the last 12 months.

The second half of 2018, and to a greater degree, the first quarter of 2019 has been marked by a continued expansion of family office mandates from the traditional focus on real estate assets to more diverse investment strategies. Smart money always seems to have the ability to identify and capitalize on mega-trends before those trends become mainstream. And the major anomaly that we’ve seen develop since last year is a spike in inquiries about investments in artificial intelligence.

n BY KARL DOUGLAS

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MicroCap Review Magazine

REASON 1: BIGGEST ECONOMIC CATALYST IN 150 YEARS AI is too big to be ignored. The smart money realizes that sitting on the sidelines is tantamount to putting money in a mattress.

Imagine knowing what you know today about the last 100+ years of economic history, and being a peer of John D. Rockefeller, Henry Ford, Alexander Graham Bell, Thomas Edison, and Charles Babbage. Your “crystal ball” would have resulted in one of the more impressive investment portfolios of all time, because you’d have gone long in the petroleum, automobile, telecommunications, power and computer sectors in their infancy before most investors understood that those industries would define the 20th century economy. You would have shorted

Figure 1. The Era of Deep Learning. Source: Nvidia, JP Morgan www.stocknewsnow.com

iterative basis to “learn” and generate an algorithmic understanding of a dataset. In effect, rather than requiring a programmer to code specific instructions based on the programmer’s knowledge. The computer analyzes data and “learns” based on a defined data set, and refines a series of algorithms. Take driver automation for example: The computer analyzes programmer defined data such as maps, obstacle data, traffic rules and laws and derives a series of complex algorithms to seamlessly guide a level three enabled autonomous vehicle down a major highway without incident. In ML, the dataset is largely defined. The Adoption Cycle for New Technology is Getting Progressively Shorter.

Figure 2. Source: Morgan Stanley

REASON 3: THE ADOPTION CYCLE IS GETTING SHORTER

Figure 3. Deep Learning Will Drive Industries. Source: ARM Limited

dying industries and focused on the emerging ones. AI, and the Fourth Revolution that it’s creating is the modern-day equivalent of that period, but with an effect on logarithmic proportions. And that is the reason that AI as an investment area cannot be ignored.

Machine Learning, or ML, relies on algorithms and statistical formulas run on an

Deep learning is the next generation of ML in the sense that DL is unstructured. In DL, the program analyzes all data, determines all correlations and determines its own datasets and algorithms, not a predetermined subset, and identifies correlations, and then creates algorithms. Imagine a program that rather than figuring out how to move a car down a highway, analyzes all available data and correlations and designs the most efficient way

REASON 2: ADVANCES IN ML AND DL ARE UNPRECEDENTED Ask anyone in the AI field to describe artificial intelligence and they’ll talk about Machine Learning (ML) and Deep Learning (DL) as the two major components. Where these two components are the basis of AI, in translation they bear little resemblance to the actual effect that AI will have on our economy, sociology and culture. That being said, it is useful to have a basic understanding of the two components. www.stocknewsnow.com

Figure 4. ImageNet - Superbowl of Image Computing. Source: Pacific Crest MicroCap Review Magazine

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Time is being compressed and innovation is increasing at a pace beyond our comprehension.

For a basic investment approach look at the requirements of AI. By its very nature AI uses and creates massive amount of data. to move people from point A to point B. That is the second generation of ML. It’s far closer to what we view as invention. But imagine an inventor that can seamlessly access terrabytes of data. The speed and complexity of innovation is infinite. And the rate of adoption is shrinking.

Welcome to the fourth industrial revolution. Time is being compressed and innovation is increasing at a pace beyond our comprehension. For a basic investment approach look at the requirements of AI. By its very nature AI uses and creates massive amount of data. So data storage, data processing and ability to move massive amounts of data are three core categories of investment opportunity. In effect data warehousing, data mining and networks are broad categories of investment opportunities.

REASON 4: MANY ENTIRELY NEW BUSINESS TYPES THIS BE CREATED In terms of data processing, think in terms of GPU manufacturers such as Nvidia to

participate in the AI processing arena. The value associated with ability to move the massive amounts of data that this model requires lies in the rollout of 5G. So think 5G value chain. And data storage is tantamount to the modern utility. However the fourth industrial economy, or AI economy will reach far beyond those three areas.

Mobile phones and autonomous vehicles are going to have the most obvious direct influence in the near term for the consumer. And the combination of AI chips, and additional AI programming will dramatically enhance the user experience in both examples. From the hardware perspective alone, the revenue growth could be significant. Certain technological breakthroughs which have been in the works for the last 15 years are poised to drive significant growth.

Consider the improvements made in image recognition for example.

REASON 5 - PREDICTABLE GROWTH

standard with 72% accuracy vs the human benchmark of 95% accuracy. As of 2016, computers are 97% accurate in image recognition, two percent better that the human eye. From an investment perspective consider the various components of the image recognition value chain. From the lens manufacturers to the chip manufacturers, these companies will see significant growth.

An example of this is the average smartphone currently has one to two cameras.

However by the end of 2019, the average phone will have eight cameras to support the growing functionality increasingly revealed.

A clear understanding of these drivers will set your company and your capital raising efforts well ahead of your competition in terms of securing a family office backer. n

About the author: Karl B. Douglas is Chief Investment Officer at PPMT Capital Advisors, Ltd.., a multi family office advisory firm. Mr. Douglas has a career that spans over 30 years investing in private and public companies. PPMT Capital invests in private equity and debt investments of $15M to $100M in Energy, Mining, Industrials and Real Estate.

For further information contact: kdouglas@ppmtcapital.com 800-401-9017 Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

Just nine years ago, NEC Corp was the

Mobile phones and autonomous vehicles are going to have the most obvious direct influence in the near term for the consumer. And the combination of AI chips, and additional AI programming will dramatically enhance the user experience in both examples.

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www.stocknewsnow.com

O P I N ION

The Dual Listing Process for Foreign Issuers in the United States US investors crave high quality new investment ideas. Today there are less US companies going public, as a result, investors are looking elsewhere. Foreign listed companies are turning to OTC Markets for access to US investors. OTC provides a cost-effective solution: a listing on the OTCQB or OTCQX makes it far easier to for US investors to get exposure to earlier stage, high value opportunities and take positions. This is known as the dual listing process.

Less US companies are looking at going public, particularly in the MicroCap space.

The reasons for this include structural market considerations (i.e. availability of private equity funding), cost, complexity, time, legal liability and regulatory and compliance considerations. Consequently, astute investors are turning toward companies listed on foreign exchanges to identify interesting, undervalued opportunities which have the potential to generate superior investment returns. The issue for many US investors, including funds and family offices, is often the burden of having to set up and administer banking arrangements, broker agreements and trading facilities in overseas jurisdictions. As an ex-pat Australian investment banker and corporate adviser living in the US, I have been working with a number of Australian Securities Exchange (“ASX”) listed entities, assisting them to dual list

Richard Revelins www.stocknewsnow.com

their securities on the OTCQB and OTCQX markets respectively, which creates investment opportunities for US-based investors and exposure to US investors for companies.

From the onset it is important to distinguish OTCQB and QX from the “pink sheet” and “grey sheet” companies, which are regarded as far more speculative investment markets. The QB and QX markets offer a far greater degree of transparency and disclosure. ASX listed companies are subject to the very exacting reporting rules imposed under the ASX listing rules, including the continuous disclosure of all material information and a very strong duty of care by the management and directors. Historically, foreign issuers have been attracted to US Exchanges like the NYSE, AMEX and NASDAQ to gain exposure to US investment markets.

However, foreign issuers are increasingly becoming more concerned with cost, time obligations and legal liability associated with becoming and maintaining their status as US reporting issuers. OTCQB and QX allows foreign issuers direct exposure to the US investment community at a far more cost effective and less time-consuming impost than is offered by the other US exchanges.

From an investor’s perspective, the dual listing allows investors to buy and sell securities in foreign entities in real time through the investor’s existing broking and trading arrangements. In this context, it is important that the foreign issuer be DTC eligible (Depository Trust Clearing Corporation, which is a member of the US Federal Reserve System). DTC compliance allows for both electronic and broker-initiated trading of OTCQB and QX listed stocks and many funds are unwilling, or specifically excluded from trading in stocks that are not DTC compliant.

The foreign issuer operates on the basis of its primary listing, in this case the ASX, without the requirement to comply with

additional and often onerous US reporting obligations, as long as its filings are complete and accurate on its home exchange.

OTC Markets automatically uploads or “EDGARizes” the announcements from the ASX, and other approved exchanges, to the OTC Markets platform ensuring that US investors are fully informed of all material developments as and when they are announced and have access to historical reports and financial information.

Microcap companies in Australia tend to go public at an earlier stage than their US counterparts and at far lower multiples and relative market capitalizations. This creates an opportunity for US investors to gain exposure to prospective microcap companies and investment opportunities at earlier stages of development than is usually available from traditional US stock market investing with the probity offered by the strong compliance regime of the ASX. We see dual listing of “suitable” foreign companies on OTCQB and QX as a win/win situation for the company and the investor.

The company gains exposure to the largest investment market in the world and the investor has the ability to gain exposure to new and interesting investment opportunities, often at an earlier stage of development, than is generally being offered through traditional US listed companies. n Richard Revelins has worked as an international investment banker for over 30 years and specializes in listed public companies. He is a co-founder of Peregrine Corporate Limited based in Australia and is also a Managing Director at Cappello Group Limited based in Los Angeles, USA. He currently resides in Venice, California and divides his time between the US and Australia.

Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

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COMMODITIES CORNER

Managed Futures for Microcap Investors T

here is both academic and practitioner research literature that discusses the use case of managed futures as potential benefits when employed with large cap equity indices, such as the S&P 500 index (SPX) for portfolio allocation.

However, there is very little, if any, literature DEFINITIONS discussing the comparison of microcap indices to managed futures. In researching these Microcap stocks are defined as firms with market capitalization between $50 twoThe investments, the results demonstrate 4) correlation difference is more pronouncedain low the three-year rolling correlation chart (Figure 2) as it filters out some of the shorter-term noise of the one-year rolling correlation.

Except for 2 how managed futures may be a beneficial million and $300 million. Managed futures the downward correlation spike in 1999/ early 2000s, the correlation between micro and large managers trade the futures allocation to a microcap cap remained relativelyportfolio. consistent over the lastare fewprofessional decades and more so who in roughly last 15 years. The chart also supports evidence of thecontracts, diversification of managed futures to microcap options on futures contracts and stocks.

Figure1:1:One-Year One-YearRolling Rolling Correlation Figure Correlation Micro to CTA

1.00

Micro to SPX

0.80 0.60 0.40 0.20 0.00 -0.20 -0.40 -0.60 -0.80

n BY MARK SHORE, MBA

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10/1/2018

2/1/2017

12/1/2017

4/1/2016

6/1/2015

8/1/2014

10/1/2013

12/1/2012

4/1/2011

2/1/2012

8/1/2009

6/1/2010

10/1/2008

2/1/2007

12/1/2007

4/1/2006

6/1/2005

8/1/2004

10/1/2003

12/1/2002

4/1/2001

2/1/2002

8/1/1999

6/1/2000

10/1/1998

2/1/1997

12/1/1997

4/1/1996

6/1/1995

8/1/1994

10/1/1993

12/1/1992

-1.00

Source: Bloomberg data Source: Bloomberg data www.stocknewsnow.com

Figure2:2:ThreeThree-Year Year Rolling Correlation Figure Rolling Correlation Micro to CTA

Micro to SPX

1.00 0.80 0.60 0.40 0.20 0.00 -0.20 -0.40 -0.60 -0.80

12/1/1994 9/1/1995 6/1/1996 3/1/1997 12/1/1997 9/1/1998 6/1/1999 3/1/2000 12/1/2000 9/1/2001 6/1/2002 3/1/2003 12/1/2003 9/1/2004 6/1/2005 3/1/2006 12/1/2006 9/1/2007 6/1/2008 3/1/2009 12/1/2009 9/1/2010 6/1/2011 3/1/2012 12/1/2012 9/1/2013 6/1/2014 3/1/2015 12/1/2015 9/1/2016 6/1/2017 3/1/2018

-1.00

Source: Source: Bloomberg data data

DATA I compared the monthly returns of the BarclayHedge CTA index to the Wilshire U.S. Micro-Cap index. The Wilshire U.S. Micro-Cap Index is a cap-weighted index with constituents of all stocks in the Wilshire 5000 Index below the 2501st rank of the Wilshire 5000 Index.4 The BarclayHedge CTA index is an equal-weighted managed futures index and rebalanced annually. For 2018, there were 541 programs included in the managed futures index. Between 1992 and 2018 the index had an average of 396 programs.5 The data is January 1992 to November 2018, nearly 27 years of monthly returns.

This period includes economic expansions, contractions and various volatility regimes.

Tail Risk Figure 3 is often referred to as the Ò managed futures smileÓ or the Ò CTA smileÓ . The forex markets.

Thereturns managers arethe alsox axis known day strategies or managed hold positions only a METHODOLOGY/ RESULTS quarterly microcap are on (horizontal axis) and the futuresfor quarterly returns are on the Trading y axis (vertical axis).(CTAs).

The right side the chart whenfor stocks are as Commodity Advisors fewofdays, whiledemonstrates others will hold several positive, many times managed futures is also positive. But there are plenty of times when microcap They are known for being systematic, trend- months or longer. Some managers trade only This research was broken into multiple parts: stocks are positive and managed futures are not, often when microcap stocks have relatively 1. Examining both static correlations following strategists.

However, some managcommodityinvestment futures, while trade smaller returns, as managed futures tend to be a diversifying for theothers portfolio, butonly itÕ s 6 However, the more imperative characteristic is found on the left (negative) side of the not a hedge. ers are discretionary and there are a variation financial futures, and some will trade a and rolling correlations (Jan 1992 to Nov scatter plot.

of strategies and time horizons employed, combination of commodity and financial microcap experience a negative quarter, there are several moments when 3 such asWhen spread tradingstocks strategies and option futures. managed futures will be positive, thus offering potential reduction in both tail risk and correlation strategies.

Some managers use intrarisk.

The black dotted trend linemay in Figure 3 offers evidence for potential non-correlation in periods of both positive and negative months. It also demonstrates the relationship between the two indices is non-linear.

Figure 3: Managed Futures Smile with quarterly returns of microcap stocks and managed futures

Source: Bloomberg data www.stocknewsnow.com

2018). The static correlation is -0.08 between microcap stocks and CTAs, thus implying non-correlation between the two indices.

The correlation of the microcap index to the S&P 500 index is 0.70, noting, over time a relatively strong positive correlation between the two indices.

2. The rolling correlation chart (Figure 1) supports the above results of a positive correlation between microcap stocks and large cap stocks on a 12-month basis. And a non-correlation between microcap stocks and managed futures. This suggests when investing in microcap stocks, an allocation to large cap investments offers some diversification for microcap investments, but it may not offer a strong diversifier or vice versa.

3. Figure 1 notes when investing in microcap stocks, allocating to managed futures may offer greater diversification than allocating to large cap stocks may offer, as the correlation tends to cycle between positive and negative, thus non-correlated.

4. The correlation difference is more proMicroCap Review Magazine

43

Figure 4: Managed Futures Smile with quarterly returns of SPX and managed futures

Source: Bloomberg data

nounced in the three-year rolling correlation chart (Figure 2) as it filters out some of the shorter-term noise of the one-year rolling correlation. Except for the downward correlation spike in 1999/ early 2000s, the correlation between micro and large cap remained relatively consistent over the last few decades and more so in roughly the last 15 years. The chart also supports evidence of the diversification of managed futures to microcap stocks.

TAIL RISk Figure 3 is often referred to as the “managed futures smile” or the “CTA smile”. The quarterly microcap returns are on the x axis (horizontal axis) and the managed futures quarterly returns are on the y axis (vertical axis). The right side of the chart demonstrates when stocks are positive, many times managed futures is also positive. But there are plenty of times when microcap stocks are positive and managed futures are not,

Figure 5: Quarterly returns of Microcap stocks and managed futures

Source: Bloomberg data

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MicroCap Review Magazine

often when microcap stocks have relatively smaller returns, as managed futures tend to be a diversifying investment for the portfolio, but it’s not a hedge.6 However, the more imperative characteristic is found on the left (negative) side of the scatter plot.

When microcap stocks experience a negative quarter, there are several moments when managed futures will be positive, thus offering potential reduction in both tail risk and correlation risk. The black dotted trend line in Figure 3 offers evidence for potential non-correlation in periods of both positive and negative months. It also demonstrates the relationship between the two indices is non-linear.

The managed futures smile in Figure 4 with the S&P 500 index on the X axis and managed futures on the Y axis, demonstrates a similar relationship between large cap stocks and managed futures as the orange trendline is parabolic with a u-shaped curve at the extremes of the return distribution.

The correlation results are also supported in evidence with a low R2 of 1.3% for microcap stocks to managed futures. R2 of 0.72% of SPX to managed futures. Lastly, an R2 of 55% for SPX to microcap stocks.

Figure 5 demonstrates the greater volatility of microcap stocks vs managed futures on a quarterly basis. Microcap stocks had the maximum and minimum quarterly returns of 48.65% and -39.02%. Whereas, the managed futures benchmark experienced a smaller dispersion between positive and negative tails with maximum and minimum quarterly returns of 12.39% and -8.70%, respectively.

Figure 6 exhibits the change of portfolio performance metrics as the allocation shifts from 100% microcap stocks to 100% managed futures (X axis). As the allocation shifts, the gap between the monthly maximum and minimum returns narrows. The monthly standard deviation and the monthly returns decline. This is due to the larger return tails of microcap stocks. However, the portfolio’s skewness (yellow line, based on the right axis) moves from -0.25 to 0.42, indicating as www.stocknewsnow.com

Figure 6: Performance metrics with microcap stocks and managed futures portfolio allocations

Source: Bloomberg data

the standard deviation decreases, there is a potential for tail returns to be derived more from the positive returns than the negative returns, thus potentially reducing the portfolio’s tail risk. As I’ve often stated, volatility is like cholesterol, there is good and bad volatility. Volatility derived from positive returns is the “good’ volatility. While the bad volatility is derived from the negative returns and is what investors would like to control or reduce.7

CONCLUSION In summary, the results show, managed futures may offer diversification for a microcap investment as noted in the rolling correlations, the managed futures smile and the change of portfolio metrics as the alloca-

tions shift from microcap stocks to managed futures. n (Endnotes) 1 10 compelling reasons to consider adding managed futures ... (n.d.). Retrieved from https://www. cmegroup.com/education/files/10-reasons-to-consider-managed-futures.pdf.

Shore, M. (2005). Skewing Your Diversification.

Retrieved from https://www.cmegroup.com/education/alternative-investment-resource-center/ research/skewing-your-diversification.html Kat, H. M. (2002). Managed Futures and Hedge Funds: A Match Made in Heaven. SSRN Electronic Journal.

2 https://www.sec.gov/reportspubs/investor-publications/investorpubsmicrocapstockhtm.html 3 Shore, M. (2018). Managed Futures Lecture Notes 4 https://wilshire.com/indexes/wilshire-us-styleindexes/wilshire-us-micro-cap-index 5 https://www.barclayhedge.com/barclay-cta-indices/barclay-cta-index/ 6 Shore, M. (2015). Decoding the Myths of Managed Futures. Retrieved from https://www.cme-

group.com/education/files/decoding-the-myths.pdf 7 Shore, M. (2005). Skewing Your Diversification.

Retrieved from https://www.cmegroup.com/education/alternative-investment-resource-center/ research/skewing-your-diversification.html Mark Shore, Director of Educational Research at Coquest Advisors LLC, has more than 30 years of experience in alternative investments, publishes research, consults on alternative investments and conducts educational workshops. mshore@coquest. com Mr. Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business where he teaches a managed futures / global macro course. He is a board member of the Arditti Center for Risk Management at DePaul University. Mr. Shore is a frequent speaker at alternative investment events.

He is a contributing writer for the Eurex Exchange, Cboe, Swiss Derivatives Review, MicroCap Review, ReachX and Seeking Alpha.

Prior to Coquest Advisors, Mr. Shore founded Shore Capital Research, a research/ consulting firm for alternative investments. Prior to Shore Capital, Mr. Shore was Head of Risk for Octane Research Inc ($1.1 billion AUM), where he was responsible for quantitative risk management analysis and due diligence of Fund of Funds. He chaired the Risk Management Committee and was a voting member of the Investment Committee. Prior to joining Octane, he was the COO of VK Capital Inc, a wholly owned Commodity Trading Advisor unit ($300 million AUM) of Morgan Stanley. Mr. Shore provided research and risk management expertise on portfolio construction, product development and business strategy.

He received his MBA from the University of Chicago and is currently a doctoral candidate at DePaul University.

Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions.

Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

When microcap stocks experience a negative quarter, there are several moments when managed futures will be positive, thus offering potential reduction in both tail risk and correlation risk. www.stocknewsnow.com

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L EG A L C OR NER

Uplisting – More Than Meets The Eye

T

rading on a national securities exchange is often the goal of most microcap companies. Unless a company qualifies to engage in an initial public

offering directly onto a national exchange, reaching this goal is accomplished by uplisting.

n BY JOE LUCOSKY, Esq.

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MicroCap Review Magazine

This is the process of moving a company from having its stock quoted on the OTC Capital Markets to trading on a national exchange, such as the NASDAQ or NYSE. The potential benefits of uplisting include increased marketplace attention, improved liquidity for existing shareholders and potential investors, ease of depositing shares, and improved availability of capital (including the possibility of doing an S-3 shelf takedown quickly following the uplist), among many other benefits.

As is the case in many things in life, how you begin often dictates how you end up.

The first step is the most important. For a microcap company to succeed in this process, the company must engage a competent team of professionals – each of whom have a track-record of successfully bringing OTC companies to the next level. Typically, a competent attorney should quarterback the process – outlining the macro plan and keeping the team of professionals on track to meet each of the company’s micro objectives throughout the process.

The three main initial listing requirements are well-known: minimum share price, number of shareholders, and stockholders’ equity; however, there are often misconceptions as to the simplicity of these requirements. Upon committing to beginning the uplisting process, the company and its advisors should outline the timeline and

requirements, keeping in mind possible contingencies, both generally and with respect to the three main uplisting criteria discussed in detail below.

I. MINIMUM SHARE PRICE Regarding the minimum share price, most people believe that a company simply needs to obtain a $3 or $4 share price prior to uplisting and that the company can simply complete a reverse stock split if its shares are below that price. In reality, however, the first question is the length of time the minimum share price needs to be sustained prior to uplisting. Is it five business days? Thirty of sixty trading days? Does the stock trade on every trading day? The answer to the timing question depends upon whether the company seeking to uplist is the product of a reverse merger. If so, how long ago did the reverse merger take place?

For the reverse split, the complexity arises because a reverse split raises numerous legal and business issues. Does the company have the legal authority to consummate the reverse split (common versus preferred votes)? From a business standpoint, there could be objections from existing shareholders concerned with a depressed stock price following such an action. When should the company effect the reverse split and how large of a split does the company need in light of possible price www.stocknewsnow.com

reductions in the market? Finally, as discussed below, reverse splits could negatively impact the company’s ability to comply with other listing requirements. Organic growth does not carry the dilution inherent to a reverse split, however, it brings uncertainty with respect to the timeframe in which (and whether) the threshold will be met.

When considering whether the lower $3 price can be used, do the company’s latest audited financial statements reflect net tangible assets? How much revenue has the company averaged per year over the last 3 years?

II. NUMBER OF SHAREHOLDERS A common misconception about the minimum number of shareholders required is that the company only needs to have 300 shareholders prior to uplisting. This seemingly straightforward requirement still leaves a number of questions unanswered: Do they have to be round lot shareholders? Do shares held in street name count or must they be held by shareholders of record? If the company is doing a reverse split, will the company still have the required number of shareholders following the split? If the company is doing a registered offering in connection with the uplist and it does not meet the shareholder requirement prior to the offering, can the company’s underwriter sell securities to enough small shareholders to meet this requirement?

What about the value of the shares outstanding? The misconception is that there is just a $15 million value requirement for the publicly held shares. Who counts as an affiliate? Has the company made a profit during the last year? What about a profit in two of the last three years? If so, the requirement could be $5 million instead of $15 million.

III. STOCkHOLDERS’ EqUITY Far too often we hear that the $5 million stockholders’ equity requirement is simply a matter of converting liabilities into equity to increase the stockholders’ equity on the www.stocknewsnow.com

balance sheet. Is the company’s debt widely held? Is erasing these liabilities as simple as a 3(a)(9) exchange? A tender offer? Both?

Who will coordinate those efforts and at what cost? Again, has the company made a profit during the last year? If not, what about Nasdaq’s informal rule regarding burn rate which could require subtracting certain amounts from your stockholders’ equity calculations?

The other initial listing requirements, while understandably rarely the focus of uplisting candidates, cannot be ignored: Will 1 million shares still be held by non-affiliates following the reverse split? Does the company have the required number of independent directors and does it have the needed Board of Director’s committees in place? If not, does the company have enough D&O Insurance and indemnification policies to attract quality directors?

THE WAY FORWARD: SEEk LEGAL COUNSEL FROM COMPETENT PROFESSIONALS AND OUTLINE A STRATEGY FOR SUCCESS In summary, to uplist, companies need to have a clear path to meeting the seemingly straightforward yet often tricky requirements of a proven share price of at least $3.00, at least 300 shareholders with a large enough float value, and sufficient stockholders’ equity, among many other criteria.

In addition, prior to even beginning the uplisting process, there are numerous legal, practical, and strategic questions that must be answered, including, for example, might the company qualify for an “organic” uplisting? Can the company afford to enter the “quiet period” associated with the registration process? Does the company have enough capital to complete the uplist process and, if not, must the company hire an investment bank to access bridge financing?

Following a successful uplist, will the company have enough operating capital so that it does not need to do another private or public

offering for at least 1 year? Each of these questions must be discussed with company counsel to properly outline a plan for achieving the company’s uplist objectives.

A competent attorney should quarterback the process – outlining the macro plan and keeping the team of professionals on track to meet each of the company’s micro objectives throughout the process. To be sure you are leaving as little to chance as possible when you are thinking of starting the uplisting process, please email the corporate and securities professionals at Lucosky Brookman LLP at info@lucbro.com for a free analysis of your company’s ability to uplist, an action timeline, and a master strategic plan. n Lucosky Brookman is a corporate finance and securities law firm with offices in New York and New Jersey, representing both domestic and international clients in sophisticated corporate and securities transactions, mergers and acquisitions, secured and unsecured lending transactions, PIPEs, commercial and securities litigation, insurance coverage and defense, real estate, and general corporate matters.

Joseph M. Lucosky is the founding and managing partner of Lucosky Brookman LLP and oversees both the transactional and litigation departments. Mr. Lucosky has a broad multidisciplinary practice that includes extensive experience in litigation and dispute resolution, regulatory investigations (including FINRA and SEC matters), negotiated mergers and acquisitions (including reverse mergers); domestic and cross-border investments/joint ventures; the representation of private equity; venture capital and other private investment funds; securities offerings; private and public financings (including secured and unsecured lending); bankruptcy transactions; real estate matters; and various other types of commercial transactions. In addition, he counsels corporate boards, board committees (including special committees) as well as being a personal adviser to many entrepreneurs, business leaders and corporate executives. He has counseled clients on significant litigation, regulatory and transactional matters across a number of industry sectors.

Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

MicroCap Review Magazine

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

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).

In recent years, the U.S. healthcare system has become exceedingly complex and costly for everyone, and not only for patients, but also for doctors and hospitals. Even pharma is feeling the pinch.

Patients are facing an increasing cost burden due to expensive medications, and recordhigh deductibles and co-pays. The Kaiser Family Foundation reports that deductibles have risen 300 percent since 2006, while coinsurance costs have nearly doubled.

Combined with fewer generic drug options, this has created a ‘perfect storm’ that is undermining patient adherence to their doctor-prescribed medications. Patients simply cannot afford them, and doctors are increasingly frustrated.

Will Febbo, CEO

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MicroCap Review Magazine

Yet doctors want to help. A recent survey of 642 physicians by OptimizeRx revealed several key trends: Nearly all physicians believe they have a role to play in discussing the cost of health care with patients (91%) and are comfortable doing so (86%).

Patients raise the issue of prescription drug costs with their doctors nearly 40% of the time.

Prescription drug costs are “very important” or “extremely important” to the vast majority of doctors (73%) and impact their prescribing decisions.

So, it’s clear that patients and providers want to discuss the cost of prescriptions.

Providers also want to help patients look for savings opportunities, like through copay coupons and other patient assistance programs.

But how? Both parties are ham-strung by the prevailing lack of information showing total drug price, including true patient out-of-pocket price, as well as access to costsavings coupons.

Largely to blame is the continuing breakdown in doctor/patient education traditionally provided by pharma companies. It has become increasingly more difficult for pharma companies, acting through their sales reps in the field, to provide clinical information, drug samples and savings coupons.

Due to the Sunshine Act and other burdensome reporting requirements related to sales reps providing such materials, these

SUBMIT ePrescription

OptimizeRx’s proprietary technology alerts doctors of prescription savings and automatically sends info to patient’s pharmacy.

days more and more doctors, and now more than half the hospitals in the U.S., will not even let pharma reps in the door.

As a result, millions of dollars in coupons and vouchers from pharmaceutical manufacturers are going unused due to patient lack of information and access.

Further, new research is showing that the increasing widespread failure to take prescribed medications is now costing the U.S. healthcare system more than $100 billion annually due to poor healthcare outcomes, disease progression and other avoidable healthcare issues.

All this is not good for drug companies either. Despite spending billions of dollars on developing new drugs, pharma companies are increasingly challenged with not being able to communicate with and educate healthcare providers on clinical benefits and encourage prescribing. This hits the bottom line.

There is hope, however. According to research published by the National Institutes www.stocknewsnow.com

of Health, simply by lowering the cost of patient co-payments, doctors can improve patient adherence and outcomes. Yet, still, the question is, how?

ENTER OPTIMIzERX OptimizeRx has emerged as the only public company that has been able to effectively address this challenge of escalating drug costs, patient adherence and pharma-doctor communication, while providing a simple solution right within a doctor’s everyday workflow.

As the largest digital health network of its kind, OptimizeRx provides patient access to savings directly through the doctor-managed electronic health records (EHR) and ePrescribing system.

This point-of-care presence has become increasingly essential, given how EHRs today dominate the attention of healthcare providers. Most physicians now spend more than five hours a day interacting with patient health records through an EHR interface, whether it be viewing test results and logging notes, or issuing ePrescriptions.

In 2017 alone, more than 2 billion in ePrescriptions were transmitted from doctor to

www.stocknewsnow.com

pharmacy. This phenomenally high number reflects how 90 percent of ambulatory care providers now use EHRs, and that ePrescribing now exceeds 85 percent of all prescriptions written, according to a 2018 Surescripts report. In fact, most hospital systems now require that all medications be ePrescribed.

OptimizeRx’s powerful digital health care messaging platform improves critical communication between pharma companies and healthcare providers, where providers can be alerted to available financial programs right at the point-of-care. In real-time, the patientsavings solution checks eligibility and delivers an offer to the prescribing physician. The voucher or coupon is then printed for the patient to present to their pharmacist or is sent along with the prescription electronically.

By delivering patient savings and clinical content from pharmaceutical manufacturers directly through the EHR and at the pointof-care, doctors are alerted to opportunities during the ePrescribing process as a natural part of their workflow. The content is delivered, 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 patient adherence to medications and clinical outcomes, it also allows healthcare pro-

viders to extract greater value from their EHR investments by streamlining the process of identifying cost savings for patients.

In addition to savings information, the intelligent point-of-care technology can also alert physicians about recommended tests or procedures related to a patient’s condition, prompting additional action if needed.

A WIN-WIN WITH POWERFUL RESULTS The OptimizeRx digital communication platform now reaches more than half of the office-based healthcare providers in the country. This highly-effective solution to a growing problem has not only been good for doctors, patients and major drug brands, it has also generously rewarded the shareholders of OptimizeRx. For 2018, revenue hit a record $21.2 million, growing at a 53% CAGR since 2011.

For the fourth quarter of 2018, the company reported its seventh quarter in a row of revenue growth and its first year of profitability.

At $6.6 million, fourth quarter revenue was up 64% from the year-ago quarter.

These results demonstrated how the company’s low fixed-overhead model continues to support a highly-scalable financial opportunity, which was also evident in its MicroCap Review Magazine

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expanding margins. In fact, at 62.2% for the quarter, the company for the third time in a row surpassed its previously announced gross margin goal of 55%.

Driving this growth is the record addition of new pharmaceutical brands on the platform, fast-growing digital health messaging volume sponsored by these brands, and an expanding distribution channel of EHRs and ePrescribing systems. The company’s recent entry into hospital systems and physical decision support is expected to fuel this growth even further.

In just the last year, OPRX more than doubled. The stock climbed above $14.00 per share the day after its recent quarterly report. But according to company CEO, Will Febbo, they have only just begun.

“We believe we are in the earlier days of this opportunity with a huge first-mover advantage and are truly a pure play in this space,” said Febbo. “We have advanced technological infrastructure in place at the right time in this industry sea-change, where we are able to reconnect pharmaceutical manufacturers and physicians in a seamless, efficient way, and generate high-ROI for our pharma customers.”

For 2019, Febbo says the company will remain focused on revenue generation from core products and expanding its channel and partner networks both domestically and internationally. “We see doing this while maintaining strong gross margin as we scale,” noted Febbo.

MULTI-BILLION DOLLAR OPPORTUNITY Of the 2 billion ePrescriptions transmitted annually, 10% of these transactions involve brands with a co-pay savings program. This means OptimizeRx has the potential to deliver more than 200 million transactions annually.

Given the escalating cost of healthcare and especially the cost prescriptions being shifted increasingly to patients, the need for co-pay saving programs is expected to

52

increase. The pharma industry has reportedly set aside more than $8 billion to cover co-pay programs.

Based on these factors and indicators from OptimizeRx clients, agencies and partners, the company estimates its total addressable market is worth well north of a $1 billion once the market fully adopts this channel.

“Using our digital health platform, major pharma brands are discovering that the point-of-care, where the patient and doctor are directly engaged, is now the most effective space for them to communicate their message,” said Febbo.

As personalized medicine grows in popularity and specialty treatments are more commonly prescribed, platforms like OptimizeRx that exist at the point-of-care will be the greatest technology-based enablers of communication between the pharma industry and healthcare professionals. “In this way, we are becoming an increasingly critical component for improving outcomes and reducing costs throughout the healthcare system,” added Febbo.

MARkET EXPANSION OptimizeRx plans to use a portion of the proceeds from a recent $9 million raise to make additional sales and channel investments for expanding further into its core ambulatory market where it continues to demonstrate high ROI for pharma marketing spend. It also plans to further expand into the hospital market, a new channel for OptimizeRx that also represents a significant growth opportunity.

The company’s recent strategic acquisition of CareSpeak Communications allows it to complement and diversify its revenue streams while continuing to scale. Febbo added: “CareSpeak allows us to further bridge the critical communication gaps between pharma, healthcare providers and patients.”

lying technology that powers its solutions and is investing in a broader data strategy.

It has hired new technical leadership and increased the size of its software development team.

A new data warehouse represents the underpinning of new reporting and data analytic capabilities that will provide valuable insights to its customers. These changes are expected to support future growth, provide recurring revenue, and significantly enhance the company’s value proposition.

“Investments in our growth initiatives may result in quarterly fluctuations in profitability,” noted company president, Miriam Paramore, who has been leading these efforts, “but our shareholders can expect these investments to drive further strong topline growth and margin expansion while sustaining our position as the clear market leader.”

Any way you look at it, the company’s current and in-development solutions have tremendous market potential. This potential is being realized more and more every day as OptimizeRx expands its client base and channel reach, and President Miriam integrates deep- Paramore er within the ePrescription workflow and point-of-care. n For more, go to OptimizeRx.com CONTRIBUTING PHOTOGRAPHERS Isabella Febbo and Tito Febbo

PLATFORM DEVELOPMENT OptimizeRx continues to invest in the underThe company paid consideration to SNN or its affiliates for this article.

MicroCap Review Magazine

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MicroCap Review Magazine

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LIFE SCIENCES CORNER

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ver the past years we have seen a shift in the biotech market. A truly deep dive into the science was often not necessary to make an investment. Many decisions were made based on general analytical work, and when combined with some good luck and the overall appreciation in the field - due to the solutions created by a few companies - many investors were able to achieve great returns.

If you did a thorough job, digging deep into the science, analyzing preclinical as well as clinical data, did a check with physicians, understood the differences in the often times strong competitive field, and really did your homework, the pay out was formidable.

The world has since changed. Venture funding more than doubled over the past 10 years for biotech companies, with more than $8 billion invested by VCs this past year (1). The number of trials has also exploded, with over 300,000 studies filed on clinicaltrials.gov in 2018 up from about 130,000 just 5 years ago (2). There are currently over 6,000 clinical studies ongoing in oncology alone (3)(4) and R&D expenditures by big and small pharma currently exceeds $70 billion in the US (5). There is a massive focus on biotech research. Unfortunately, the dollars invested have not translated to patient benefits per se. In 2018, the FDA only approved 59 new drugs and biologics (6) and an even more frightening trend is the overall drop in the clinical success rate of new chemical compounds in development. Today, the probability is less than 10% that a Phase I asset makes it all the way to a governmental approval (7).

While many invest in the biotech sector because they are interested in fostering progress and helping others, the known low likelihood

n BY RAMSES ERDTMANN AND

THOMAS BUTLER OF POINT SUR INVESTORS LLC

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MicroCap Review Magazine

Now, More than Ever of success has attracted also those that play the odds. With a 90% probability of losing, shorting an early biotech stock makes ‘good’ sense, with odds that are better than in Las Vegas. A short seller lives off bad news, unclear signals, uncertainty, delays, missed outcome and disappointments. Our beloved biotech sector is a perfect investment target for the new-age short seller. Good news of a successfully executed trial travels fast and is promoted by the company, its investors, employees and can cast a wide net.

However, the biotech short seller knows this as well and will actively spread news that will convince the community of the potential, or the presumed reality, of failure and live off the damaged share price. Long as well as short investors will do their best to gain mind share, creating tremendous confusion in the market place.

There is a lot of news-flow in biotech today, with more Phase I, II and III studies being initiated than ever before, more money dedicated to an ever-increasing number of chemical compounds, a plethora of incremental updates, and a healthy long as well as a very active short investment community. The general investment public has gotten a bit fatigued by much of the news flow and often confused by the conflicting data dissemination from the various market participants.

An analyst must understand the innovative character of a molecule, dig in deep to understand and properly value the scientific advances and the real patient benefits, in order to properly evaluate what new and innovative therapies are promising. The modern analyst has to practice patience and resist the increasing pressure for performance. Scientific progress is rarely mono directional - it evolves, it lives, and it develops – the analyst can easily get swayed to sell too early as the fundamentals still unfold. There is also a lot of messaging, with many copy-cat developers and often weak market participants, to sort through and discern.

At Point Sur Investors, we have been successful because we are at heart with biotech operators and scientists, with experience in building and growing successful biotech programs that today are providing great ben-

efits to patients all over the world. We have a defined research approach to analyze novel therapies, and to identify the lasting patient benefits within them. We use a long-term oriented investment approach with disciplined buying and selling rules that guide our portfolio allocation. Our analytical and disciplined approach has resulted in successfully beating the NASDAQ Biotech Index as of March 1 by 1.63x over the past three years.

Now, more than ever, a biotech investor has to recognize that the market is very dynamic and often purports conflicting viewpoints. Now, more than ever, a biotech investor has to be mindful not to miss things that were subtly evident in early clinical and preclinical data sets. Now, more than ever, in order for a biotech investor to be successful in the long run, he or she has to do the extra work and go the extra mile to separate real solutions, providing benefits to patients, from those that will stall somewhere in the long clinical development pathway. n The authors are portfolio managers of Point Sur Investors Fund I. Please find further information on Point Sur Investors at www.pointsurinvestors.com or call 650-600-8302. Since its inception in April of 2016, Point Sur Investors has consistently beat the Nasdaq Biotech Index, cumulatively 1.63 fold as of 1 March 2018.

Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

References: 1. https://endpts.com/six-top-biotech-vcs-takea-look-at-the-latest-trends-and-offer-theirthoughts-on-2018/ 2. https://clinicaltrials.gov/ct2/resources/trends#Typ esOfRegisteredStudies 3. Thomas D and Wessel C. Emerging Therapeutic Company Investment and Deal Trends, BIO Industry Analysis; 2018.

4. Lloyd I and Shimmings A. Pharma R&D Annual Reviews 2018.

5.https://www.statista.com/statistics/265085/ research-and-development-expenditure-uspharmaceutical-industry/ 6. https://www.raps.org/news-and-articles/newsarticles/2019/1/fdas-record-year-a-look-at-2018new-drug-approva 7. Clinical Development Success Rates 2006-2015, BIO Industry Analysis-2016.

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NASDAq CM: SRAX

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

SRAX

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

Figure 1: SRAX IR insights feature highlighting shareholder behavior including buyers, sellers, and share change over time.

S

Chris Miglino, CEO

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RAX is a [digital marketing and] consumer data management technology company that builds valuable verticals around specific data sets. Since 2010, SRAX has actualized multiple revenue-generating products centered on identifying and engaging brands’ core audiences. The company’s major driving growth is leveraging its vertical model, proven successful with the sale of healthcare vertical, SRAXmd, for total consideration of $52.5 million in August 2018. Recently, the company’s efforts have been focused on fueling growth by expanding its sales infrastructure and technology stack. SRAX increased its sales force from six

people in January of 2018 to 30 team members in January of 2019. Two illustrations of the company’s expanded technology stack are the rapid advancement of consumer data management platform, BIGtoken, and the launch of new investor relations vertical, SRAX IR.

TRACkING SHAREHOLDER BUYING AND SELLING BEHAVIOR As a publicly-traded company since 2012, SRAX recognizes the challenges companies face in attracting new investors to their www.stocknewsnow.com

BREAkING DOWN CONSUMER DATA BARRIERS

Figure 2. Source: Roland Berger Focus. Regenerative Medicine, 2017. Orgenesis Investor Presentation.

stories and holding onto existing ones. In January 2019, SRAX IR joined the roster of SRAX’s verticals including SRAX Auto, SRAX Shopper, and SRAX Social. SRAX IR is a software as a service (SaaS) platform that analyzes stock buyer behavior and trends for issuers of publicly traded companies. With SRAX IR, executives can understand their shareholder base behavior including who is buying and selling stock, and can engage with those investors across marketing channels.

The platform currently consists of three key offerings. The first enables users to identify key shareholders and market makers to discover trends in their buying and selling behavior. The second enables management teams using multiple advisors to attribute acquired shareholder credit to specific banks, analysts, and investor relations firms to track return on investment. Lastly, SRAX IR offers precise audience building, targeting, and delivery across marketing channels, including but not limited to programmatic display, social, and hyperlocal.

Hyperlocal campaigns enable companies to www.stocknewsnow.com

target investors with mobile ads at specific locations such as investment conferences, trade desks, and at home on both desktop and mobile. SRAX IR is just one example of SRAX’s strength in addressing verticalspecific challenges with unique technology.

Learn more at sraxir.com.

BIGtoken, or BIG, a wholly owned subsidiary of SRAX, is the first consumer-managed data marketplace where people can get paid for their data. Now available for all to download on the App Store and Google Play, BIG enables consumers to manage their digital data and earn rewards for opting to share that data in the marketplace.

For consumers, BIG gives them control over what pieces of their data are for sale and who can buy them—all while rewarding them with cash, gift cards, charitable donations, or assets. For advertisers, BIG solves the inefficiencies and inaccuracies that affect how they acquire and target consumer data.

A recent study shows that while 95% of marketers use personal data to form their strategy, 64% don’t fully understand where that data comes from. BIG provides advertisers with accurate, consumer-verified and optedin data for targeting and enhanced campaign performance. In addition, BIG supports third-party application integrations to help marketers learn more about their consumers and earn revenue through data sales.

In February, SRAX integrated major banking and financial institutions such as TD Ameritrade, Chase, Citibank, and Bank of America into the BIGtoken app. BIG’s

Figure 3: BIGtoken’s user growth and revenue potential (January 2020 –January 2022)

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SRAX Auto effectively surfaces the full range of accurate, actionable data on your target customer and engages them across the customer journey.

Fueled by data-driven technology, SRAX Auto delivers digital ads to a matched list of people leasing and/or looking to buy. machine learning technology analyzes a user’s transaction log to identify patterns in spending and places that user into the appropriate advertising segments. For example, if a user’s log shows multiple transactions from Walmart, the user would be placed into the following segments: Walmart shopper, Superstore shopper, Value shopper.

A user’s personal account information is never accessible to BIGtoken. Users are rewarded in BIGtoken points for the initial bank integration, on a monthly basis if the bank account remains integrated, and each time an advertiser buys access to their segments based on transaction data. All in all, the BIGtoken platform is looking promising for user growth and revenue potential. As reported on November 15, 2018, by January 2020, the platform is expected to serve one million users, generating $3.5 million in monthly revenue ($90 million annualized). By January 2022, the intended user base is estimated to hit 10 million, which would generate $30 million in monthly revenue ($400+ million annualized revenue). The best part of BIG is that SRAX can leverage this consumerverified and opted-in data across our other verticals like SRAX Social, SRAX Auto, and SRAX Shopper. Learn more at bigtoken.com.

AUTOMATING SOCIAL MEDIA CONTENT AND PROMOTIONS SRAX Social is a free artificial intelligence

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marketing tool that makes it easy for businesses and individuals to manage, grow, and measure engagement across multiple social media networks. The platform’s most notable feature, Auto Boost, enables marketers to automatically trigger social media campaigns beyond their Facebook Page communities. Users can set up rules that trigger a new social media campaign based on specific parameters such as number of reactions, likes, or comments. Creating multiple rules enables users to A/B test different audiences and rules to maximize performance and guide future campaigns. This data can be analyzed through the platform’s powerful analytics component, eliminating the need to export data from multiple platforms. The platform also comes free with an intelligent budget that allows users to load funds and easily allocate spending to multiple campaigns. Learn more at sraxsocial.com.

STRATEGICALLY TARGETING SHOPPERS’ BUYING BEHAVIOR

timeframe to purchase. Only SRAX Shopper can deliver a cross channel, premium digital experience at scale targeted to high value audiences and optimized to performance whether targeting by demographics, behavioral or lifestyle, category and brand past, purchase data, or geographic location.

ENGAGING AUTO INTENDERS ON THE PATH TO PURCHASE SRAX Auto effectively surfaces the full range of accurate, actionable data on your target customer and engages them across the customer journey. Fueled by data-driven technology, SRAX Auto delivers digital ads to a matched list of people leasing and/or looking to buy. Additionally, advertisers can reach test drivers after leaving a location or visitors to a competitor’s location. The company’s proprietary technology also uses cookie-less real-time fingerprinting from users’ browsing behavior and social media engagement to develop high value audiences that can be targeted across SRAX. SRAX is dedicated to creating positive and repeatable outcomes, which is why in addition to being named a Deloitte Fast 500 winner two years in a row, the company is also part of the Russell Microcap® Index, which remains in place for one year and means automatic inclusion in the appropriate growth and value style indexes. n For more information, please visit: www.srax.com.

SRAX’s shopper marketing solution, SRAX Shopper, enables marketers to engage shoppers, drive foot traffic into stores and boost sales lift. Businesses can use SRAX Shopper to layer both social and shopping data with media buying. This approach enables marketers to target a single, verified shopper across multiple devices and inventory sources. Marketers will no longer have few opportunities for meaningful interactions with their target shoppers within a very limited The company paid consideration to SNN or its affiliates for this article.

MicroCap Review Magazine

www.stocknewsnow.com

ASX: IMU

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

Imugene Limited Emerging Leader in Cancer Immuno-Oncology

I

mugene Limited (ASX:IMU) is a clinical stage cancer immuno-oncology company based in Sydney, Australia. Immunooncology is an innovative area of research that seeks to help the body’s own immune system fight cancer. Immuno-oncology treatments are at the forefront of cancer innovation with the leading drugs generating over USD $ 23 billion in 2018. Imugene’s cancer immunotherapies (B-cell peptide vaccines) harness the body’s immune system to generate antibodies against tumors, potentially achieving similar or greater effect than synthetically manufactured monoclonal antibody therapies. Following promising Phase 1 clinical trial results across lead candidate B-cell vaccines, the company is recruiting patients for Phase 2 trials with all clinical research programs fully funded from the company’s existing cash resources.

Leslie Chong, CEO & Managing Director

Imugene currently has 2 therapies (HERVaxx and B-Vaxx) in Phase 2 studies with a pipeline of other therapies and combinations undergoing earlier stage development and the company anticipates a number of key clinical and preclinical catalysts in 2019.

HER-Vaxx activates and stimulates the patient’s B-cells to produce antibodies that target only those cancer cells with HER-2 (Human Epidermal Growth Factor Receptor) overexpressed on their surface. Imugene’s products have the potential to improve upon well-known HER-2 treatments such as Herceptin ($7.1 bn in 2018 sales) and Perjeta ($2.8 bn in 2018 sales).

Similar to HER-Vaxx, B-Vaxx is a B-cell peptide cancer vaccine designed to treat tumors that overexpress the HER-2 receptor, such as gastric and breast cancers.

KEY-Vaxx is a B-cell peptide cancer vaccine designed to treat tumors such as lung cancer by interfering with the PD-1/PD-L1 binding and interaction and produce an anticancer effect similar to Keytruda ($ 7.2 bn in 2018 sales), Opdivo ($6.7 bn in 2018 sales) and other immune checkpoint inhibitor monoclonal antibodies that are transforming treatment of a range of cancers.

Imugene recently presented a number of its clinical programs at the American Association for Cancer Research (AARC) Annual Meeting. These presentations were

delivered by members of the company’s Scientific Advisory Board which consists of world leading oncologists, researchers and developers from esteemed centers including the Mayo Clinic (USA), Medical University of Vienna (Austria), Memorial Sloan Kettering Cancer Centre (USA), City of Hope (USA), Queen Mary University (London), Ohio State University (USA) and Vall D’Hebron (Spain). The company’s Managing Director and CEO, Leslie Chong has had over 20 years’ experience in oncology and was the former Senior Clinical Program Lead at Genentech, one of the world’s most successful biotech businesses which sells the bestselling breast cancer drug Herceptin.

With a strong cash balance sheet (cash of USD $ 17 million as at December, 2018) and fully funded Phase 2 clinical trials underway for key indications, Imugene is very well positioned to build upon its past success and deliver highly anticipated further results moving forward. n www.imugene.com

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

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O P I N ION

Public Venture Capital in Canada A unique opportunity for US companies and investors

T

oronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV) are a unique funding and listing platform for high growth US companies looking to raise Series B+ capital. Companies with early revenue, a strong management team, and a growth strategy to eventually list on a US exchange should consider the Canadian capital markets as an alternative that may be the right fit. For US investors, TSX and TSXV provide an opportunity to access investment opportunities not necessarily available in the US.

FINANCING OPPORTUNITY FOR US COMPANIES Every entrepreneur and management team should consider all of their funding options.

With the introduction of equity crowdfunding and Initial Coin Offerings (ICOs), there are now more financing options than ever, including the public markets.

However, in the US going public typically means being quoted on the unregulated over-the-counter markets on one end of the spectrum, or completing a large initial public offering (IPO) on one of the country’s main exchanges on the other end. The average IPO in the US is currently around $250M… resulting in the US regulated exchanges being more of an exit market than a growth capital market.

The Canadian capital markets are unique in that TMX Group owns and operates a

two-tiered marketplace - unlike any in the world - serving companies from early stage pre-revenue companies on TSXV to multibillion dollar established businesses on TSX. • TSX is the senior market for larger, more stable companies with a track record.

The average financings on TSX fall in the $25-$100M range and have an average market cap of $2.0B. These companies benefit from increased analyst coverage and being eligible for our index products.

• For smaller, early-stage growth companies, TSXV is a unique platform that is tailored to companies of this size. TSXV provides financings typically in the $5-$25M range and TSXV issuers have an average market cap of about $30M. For currently listed OTC companies, the opportunity is to dual list on TSXV to access new pools of capital, gaining exposure to new research analysts and investors.

WHY CONSIDER A LISTING OR DUAL-LISTING ON TSX OR TSXV? 1. A Source of Growth Capital Last year, TSX and TSXV issuers raised over $40B, a significant amount of capital consid-

ering the size of the Canadian population.

Approximately 40% of TSX/V daily trading originates from outside of Canada (a majority of that coming from US sources), providing access to international investors.

As an alternative to private venture capital, a TSXV listing can provide the benefit of raising small, subsequent rounds of capital. Financings on TSXV in 2018 were up 11% for a total of $6.8B raised by TSXV companies, with an average financing of $4M. These are small public companies raising “public venture capital”, as companies are accessing rounds of capital similar to the typical VC route of Series A, B, and C rounds. TSX companies raised $34B with an average financing of $64.8M… still considered venture capital in US terms.

2. Tailored to Small Public Companies With a 165-year history of financing exploration companies, the Canadian public markets have evolved to support small cap public companies. From the securities commissions, the exchanges, and analysts to the retail and institutional investors… everyone in the Canadian ecosystem understands and embraces small public companies. This is not the case in the US. TSXV companies benefit from right-sized

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corporate governance and reduced time and costs to listing. Listing vehicles like the Capital Pool Company (CPC) program allow growth companies to access the public markets without the high costs and risk of a large IPO. 3. No Longer Just a Resource Exchange While TSX has historically been known as a natural resource market - given our 165 years financing mining and energy companies - today our stock list is quite diverse. In fact, our mining issuers currently account for just 10% of the market cap of all issuers, with other sectors surpassing them.

For the past five years, the number one source of new listings has been tech and life sciences companies (including cannabis).

2018 was a record year for the innovation sector with 59 new listings (#1 sector for new listings) and $14.7B in capital raised (#1 sector for equity capital raised).

4. A Platform for Long Term Growth The key benefit of this two-tiered market is the potential for early stage growth companies to list on TSXV, raise several rounds of capital, and when ready, graduate to TSX. In the past 20 years, over 650 companies graduated from the junior board to the senior board, and almost 40% of current TSX-listed technology companies started on TSXV. TSX is also a true stepping stone to the US markets. Once a TSX issuer is large enough and relevant enough, it can look to interlist on a US stock exchange. If your end goal is to be listed on Nasdaq or NYSE, TSXV and TSX are a viable path to get there. Currently there are 183 companies dual listed on TSX/V and a US exchange.

For the growth company that is looking to build a long-term sustainable business that requires ongoing access to capital, TSX and TSXV are important financing options to consider. Visit the US landing page for more information and to access the Guide to Listing: us.tsx.com

INVESTMENT OPPORTUNITIES FOR US INVESTORS From the cannabis stocks not available on US www.stocknewsnow.com

2019 TSX VENTURE 50 - TOP COMPANIES BY SECTOR Company

Sector

Ticker

Market Cap Change

2018 Trading Volume

Share Price Change

Location

Aleafia Health Inc.

Cleantech & Life Sciences

ALEF

762%

300,836,368

107%

BC

theScore, Inc.

Diversified Industries

SCR

112%

79,532,269

88%

ON

Alvopetro Energy Ltd.

Energy

ALV

169%

14,919,645

137%

AB

Westhaven Ventures Inc.

Mining

WHN

1386%

65,908,876

980%

BC

Kraken Robotics Inc.

Technology

PNG

218%

51,569,562

111%

BC

Several US companies also made the 2019 TSX Venture 50 ranking: Company

Sector

Ticker

Market Cap Change

2018 Trading Volume

Share Price Change

Location

Hamilton Thorne Ltd.

Cleantech & Life Sciences

HTL

33%

30,123,350

20%

MA

XPEL Technologies Corp.

Diversified Industries

DAP.U

343%

6,748,522

343%

TX

Evergreen Gaming Corporation

Diversified Industries

TNA

53%

10,936,163

53%

WA

POET Technologies Inc.

Technology

PTK

39%

148,041,191

26%

CT

Trackx Holdings Inc.

Technology

TKX

21%

41,685,711

21%

CO

Universal mCloud Corp.

Technology

MCLD

78%

25,890,725

-17%

CA

markets to the high-performing companies on the venture board, TSX and TSXV provide unique investment opportunities for US investors.

This is most evidenced by the 2019 TSX Venture 50®, a ranking of top performers on TSXV over the last year. The ranking is comprised of 10 companies from each of five industry sectors, selected based on three equally weighted criteria: Market Capitalization Growth, Share Price Appreciation, and Trading Volume Amount.

For the full 2019 TSX Venture 50 list and videos of the companies, go to: www.tsx. com/venture50 For more information, contact Delilah Panio, VP Capital Formation, Toronto Stock Exchange and TSX Venture Exchange at delilah.panio@tmx.com. n Note: All numbers are quoted in Canadian dollars.

The views, opinions, and advice provided in this article reflect those of the individual author and do not reflect the opinions or views of, nor are they endorsed by, TMX Group Limited or its affiliated companies. This article is not intended to provide legal, accounting, tax, investment, financial or other advice and should

not be relied upon for such advice. The information provided is not an invitation to purchase securities listed on Toronto Stock Exchange and/or TSX Venture Exchange. TMX Group and its affiliated companies do not endorse or recommend any securities referenced in this document/presentation.

A Computer Engineer by background, Brady spent almost a decade in investment banking, primarily focused on financing and advising technology and diversified issuers through strategic transactions, before leaving to found Coastr.

With Coastr, Brady successfully took a concept through ideation, building a development team, and launching the platform. We successfully sold a network of almost 30 venues locally while using customer feedback to drive iterative revisions to the app and back-end platform.

Throughout his investment banking career, Brady has advised hundreds of companies on business strategy, capital raising, public and private markets, and exit strategies – having successfully executed over $500million in growth equity financings, secondary transactions, and sell-side advisory mandates.

Brady joined TMX Group recently and is Managing Director of TSX Venture, the world’s leading public venture capital marketplace. www.tsx.com Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind.

Investors are advised to conduct their own research or seek the advice of a registered investment professional.

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B E LT WAY C O R N E R

Taking Stock Latest in US FinTech Legislation and Regulation

W

e are at the beginning stages of legislators working to understand and influence potential FinTech regulation and legislation – with many players operating at the federal and state level. The ultimate goal of reducing the complexity of regulation to encourage innovation will require a delicate balance among competing priorities.

CONGRESS Following the November midterms, Democrats retook control of the House while Republicans expanded their majority in the Senate. The resultant shift in power dynamics and personalities will influence the direction of legislation and action at the agencies. As the Democrats have gained the chairmanship of the House committees and therefore the ability to issue subpoenas and call hearings, we can expect an uptick in investigations and targeted hearings.

In the 116th Congress, the House Financial Services Committee is chaired by Congresswoman Maxine Waters (D-CA), with Congressman Patrick McHenry (R-NC) serving as Ranking Member. Rep. Waters is known as a bipartisan deal maker who has vowed to

n BY DINA ELLIS ROCHKIND, Esq.

AND LARA KAPLAN, Esq.

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encourage responsible fintech innovation and promote diversity and inclusion. The expected creation of a new House Task Force on Financial Technology will aid her endeavors.

Congressman Bill Foster (D-IL), who also cochairs the Blockchain Caucus, has expressed interest in leading the newly formed task force to tackle issues such as marketplace lending, cryptocurrencies, and artificial intelligence.

On the Senate side, Senator Chuck Grassley (R-IA) took over the Chairmanship of the Senate Finance Committee, and therefore Senator Mike Crapo (R-ID) remains Chair of the Banking Committee, with and Senator Sherrod Brown (D-OH) serving as Ranking Member. The loss of red state Democrats Joe Donnelly (IN) and Heidi Heitkamp (ND) on the Senate Banking Committee may decrease the likelihood of bipartisan compromise on financial services bills.

CONGRESSIONAL INITIATIVES There have been a number of bipartisan bill proposals in the House aimed at promoting innovation, clarifying regulation or combating anti-money laundering in FinTech and digital currencies.

Congressmen Darren Soto (D-FL) and Ted Budd (R-NC) have sponsored two bills, H.R. 922 - Virtual Currency Consumer Protection Act; and H.R. 923 - Virtual Currency Market and Regulatory Competitiveness Act, with the aim to “direct the CFTC and other financial regulators to make critical recommendations for how to improve the regulatory environment for both the consumer and business development side” of virtual currencies.

Increasingly, Congress is becoming more sophisticated about the potential malevolent

abuse of FinTech. Congressman Juan Vargas (D-CA) sponsored H.R. 502, the “Fight Illicit Networks and Detect Trafficking Act or the FIND Trafficking Act” which directs the Government Accountability Office (GAO) to report on the use of virtual currencies and online marketplaces in sex and drug trafficking. Another similar bill, H.R. 56 the “Financial Technology Protection Act” was introduced by Congressmen Ted Budd and Stephen Lynch (D-MA) intended to deter abuse of FinTech by bad actors.

STATE LEVEL ACTION There have also been some interesting legislative drives at the individual state level, with a patchwork of regulation evolving. Some states are seeking to encourage innovation, such as Wyoming which recently passed a bill, HB 185, which would authorize corporations to issue certificate tokens in lieu of stock certificates. The Wyoming Senate also recently passed SF0125, the “Digital Assets Existing Law” making Wyoming the first state to enact a law promoting the private ownership of digital assets, giving cryptocurrencies a legal status. Following Arizona’s Fintech Regulatory Sandbox1, The District of Columbia recently launched its own 21 member Financial Services Regulatory Sandbox to analyze the risks and benefits to residents of FinTech companies. Colorado’s Senate recently unanimously passed SB19023, the “Colorado Digital Token Act,” which exempts digital tokens that are sold to consumers rather than investors from being deemed securities. The idea behind this law is to address the issues involved in ICOs 1 https://www.azleg.gov/legtext/53leg/2R/bills/ HB2434H.pdf www.stocknewsnow.com

often accused of being vehicles for fraud, and enabling entrepreneurs to raise capital.

AGENCY ACTIONS The longest partial government shutdown in US history constrained the activity of the regulatory agencies over the new year, limiting oversight of the cryptocurrency market, registration applications and rules.

However, as industry and congress become more fluent in the potential of FinTech, the US agencies are trying to avoid stifling innovation through unnecessary regulation. To that end, multiple banking regulators have set up tech focused task forces, which have each been up to different things: 1. FDIC in October 2018 launched its Office of Innovation, with the goal of encouraging innovation in the FinTech space for banks. FDIC Chair, Jelena McWilliams, has been vocal on the negative effects of regulation on FinTech innovation.

2. CFPB in July 2018 under former acting director Mick Mulvaney established an Office of Innovation, which in September proposed the creation of a “disclosure sandbox” which will “focus on creating policies to facilitate innovation, engaging with entrepreneurs and regulators, and reviewing outdated or unnecessary regulations”.

3. CFTC established the LabCFTC which “is the focal point for the CFTC’s efforts to promote responsible FinTech innovation and fair competition” and held its first Fintech conference in October. CFTC’s LabCFTC released a primer about smart contracts as part of its effort to engage with innovators and market participants on a range of FinTech topics.

4. SEC launched a strategic hub for innovation and financial technology in October 2018 and issued a statement on digital assets, noting how technological advances of blockchain and distributed ledger technologies have impacted the markets. SEC Chair Jay Clayton has discussed concerns over cryptocurrencies being manipulated and stolen on exchanges by noting that “safeguards don’t exist in many www.stocknewsnow.com

of the markets where digital currencies trade.”

SEC Commissioner Peirce voiced different concerns over cryptocurrencies, noting that “While the application of the Howey test seems generally to make sense in this space, we need to tread carefully,” as ICOs don’t map squarely on the existing traditional security offering legal framework. The SEC has also had two ICO registration enforcement actions that settled in November 2018; its first cases imposing civil penalties solely for ICO securities offering registration violations. In early February 2019, the SEC has announced that it wants to hire a private vendor to gather data from the “most widely used blockchain ledgers” to help it oversee digital assets.

The agencies’ actions are not without their criticisms however, 22 democratic Attorney Generals wrote a comment letter to the CFPB criticizing its sandbox proposal and policies on innovation. Cryptocurrency fund Blockvest LLC argued that evidence submitted by the SEC in its enforcement case was based upon hearsay and “self-serving out-ofcourt statements” that are “masquerade[ing] as foundational evidence” and therefore should not be considered in the agency’s effort to block their initial coin offering.

AN EYEGLASS TO THE FUTURE: It may be a while until we see results at the federal level, due to the lengthy legislative process with bills in initial stages. However, with state legislature and agencies growing their guidance and surveillance of crypto assets and FinTech firms, we can expect continued growth with increased cooperation amongst the states. This could pressurize Congress to take more concrete action.

There is a lot of global action in the FinTech Sphere, with the Global Financial Innovation Network, the European banking Authority publishing its assessment of crypto-assets and the UK Financial Conduct Authority consulting on its approach to crypto-assets and when they would be considered a security. This will also influence the pace of American development in FinTech. n

Dina Ellis Rochkind is Of Counsel in the Paul Hastings Government Affairs practice and is based in the firm’s Washington, D.C. office. Her practice focuses on representing clients before Members of Congress on Capitol Hill and the Executive Branch.

Ms. Rochkind represents clients in matters involving regulatory initiatives, policymaking and legislation, and enforcement actions. Ms. Rochkind’s legislative experience allows her to advise her clients on the latest client initiatives, from starting a business to crowdsourcing; bitcoin ($bitcoin) and ICOs; and blockchain technologies. Ms. Rochkind has over 20 years of experience on Capitol Hill, lobbying, and working for the Executive Branch. Prior to joining Paul Hastings, she served as Washington Director in the office of Rep. Mike Coffman (R-CO). Other Capitol Hill experience includes serving as senior staff for various Congressional Committees and for Senator Pat Toomey (R-PA). Ms. Rochkind also served in the George W. Bush Administration as Deputy Assistant Secretary at the Treasury Department. She has been involved in drafting major pieces of legislation over the last two decades, including: the 2005 bankruptcy reform legislation, the FACT Act, E-Sign, Check 21, Federal Deposit Insurance Reform Act, GrammLeach-Bliley Act, and, most recently, the comprehensive and bipartisan JOBS Act, for which she was the lead staffer in the Senate.

T 1(202) 551-1938 F 1(202) 551-0438 dinaellis@paulhastings.com Lara Kaplan is a foreign qualified professional in the Corporate department of Paul Hastings and is based in the firm’s Washington DC office. Her practice focuses on financial services regulation, FinTech and payment systems. She has worked as a lawyer for the UK Financial Conduct Authority in London and prior to that, she spent two years in the London and Brussels offices of an international law firm. She completed the Accelerated Legal Practice Diploma with Distinction at the University of Law, gained an MPhil in History from Cambridge University and received a first class Law with Politics degree from the University of Manchester. Ms Kaplan is an international Attorney admitted in England and Wales only. She is not engaged in the practice of law of the District of Columbia.

At Paul Hastings, our purpose is clear — to help our clients and people navigate new paths to growth.

With a strong presence throughout Asia, Europe, Latin America, and the U.S., Paul Hastings is recognized as one of the world’s most innovative global law firms. https://www.paulhastings.com Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

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F E AT UR E D A RT ICL E

Understanding Short Sale Activity Q

uality data is essential to well-functioning markets. Improving the availability, relevance and usefulness of data aligns with OTC Market Group’s mission to create better informed, more efficient financial markets. In our experience, short selling remains one of the most highly-debated topics among academics, companies, investors, market makers and brokerdealers. As a market operator and company CEO, I believe it’s critical to address the misconceptions that still exist around short sale data and the correlation to a stock’s fundamental value.

Short selling, the sale of a security that the seller does not own, has long been a controversial practice in public markets.

Advocates for short selling believe it builds price efficiency, enhances liquidity and helps improve the public markets, while critics are concerned that it can facilitate illegal market manipulation and is detrimental to investors and public companies. Given the diverse range of opinions and opposing views, we believe the first step is to take a deeper dive into the data and help separate out the noise.

“THE RELIABLE” - FINRA EqUITY SHORT INTEREST DATA The most accurate measure of short selling is the data reported by all broker-dealers to FINRA on a bi-weekly basis. These numbers reflect the total number of shares in the security sold short, i.e. the sum of all firm and customer accounts that have short positions.

This information is available on www.otc-

OTC Markets Group (OTCQX: OTCM) SHORT INTEREST Data DATE

SHORT INTEREST

% CHANGE

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DAYS TO COVER

SPLIT

NEW ISSUE

09/28/2018

97

11.49

5,551

1

No

No

09/14/2018

87

8.75

4,423

1

No

No

08/31/2018

80

100.00

6,818

1

No

No

07/31/2018

103

-48.24

3,197

1

No

No

07/13/2018

199

-27.64

2,124

1

No

No

06/29/2018

275

166.99

3,239

1

No

No

06/15/2018

103

24.10

2,739

1

No

No

05/31/2018

83

-72.33

3,925

1

No

No

05/15/2018

300

1.69

3,944

1

No

No

04/30/2018

295

100.00

4,278

1

No

No

markets.com on the company quote pages.

As an example, OTC Markets Group has a few hundred shares sold short on average, which represents a fraction of our daily trading volume and shares outstanding.

FINRA Rule 45601 requires FINRA member firms to report their total short positions in all over-the-counter (“OTC”) equity securities that are reflected as short as of the settlement date. In 2012 FINRA clarified that firms must report short positions in each individual firm or customer account on a gross basis2 under FINRA Rule 4560. Therefore, firms that maintain positions in master/sub-accounts or parent/child accounts must calculate and report short interest based on the short position in each sub- or child account.

Since this data is part of a clearing firm’s books and records, it is of high quality and FINRA regularly inspects broker-dealer compliance with the rule. Of course, it would be great if this data was collected and published daily (with an appropriate delay).

“THE MISLEADING” – DAILY SHORT VOLUME n BY CROMWELL COULSON

AVG. DAILY SHARE VOL

In contrast, the most frequently misinterpret-

ed data is the Daily Short Volume, sometimes referred to as Naked Short Interest. This data shows the percentage of published trade reports3 (called media transactions in FINRA Rules) that were marked short. As an example, the recent data for OTC Markets Group shows that up to 90% of the trading volume comes from short selling on some days. If we did not carefully track our bi-weekly Short Interest, we could easily be led to believe that short selling is rampant in our stock.

Seeing the above data can be alarming for public companies and their investors, until they understand the inner workings of how dealer markets function and broker trades are reported—which render the data virtually meaningless.

Since this data also comes from FINRA, what gives? The daily short selling volume is misleading because market makers and principal trading firms report a large number of trades as short sales in positions that they quickly cover. For market makers with a customer order to sell, they will temporarily sell short (which gets published to the tape as a media transaction for public dissemination) and then immediately buy from their customer in a non-media transaction that www.stocknewsnow.com

Historical Short Volume Data for OTC Markets Group (OTCX: OTCM) Date

Volume

Short Volume

% of Vol Shorted

Oct 18

3,341

1,399

41.87

Oct 17

5,989

3,198

53.40 46.58

Oct 16

16,120

7,509

Oct 15

24,155

12,991

53.78

Oct 12

6,297

4,914

78.04

Oct 11

4,059

1,553

38.26

Oct 10

2,185

999

45.72

Oct 09

7,473

4,556

60.97

Oct 05

880

525

59.66

Oct 04

492

200

40.65

Oct 03

2,041

801

39.25

Oct 02

4,786

1,560

32.60

Oct 01

3,973

2,607

65.62

Sep 28

244

23

9.43

Sep 27

882

805

91.27

Sep 26

259

Sep 25

3,085

Sep 24

967

189

72.97

2,250

72.93

571

59.05

Sep 21

2,350

825

35.11

Sep 20

7,164

6,453

90.08

Sep 19

297

202

68.01

is not publicly disseminated to avoid double counting share volumes. SEC guidance also mandates that almost all principal trading firms that provide liquidity at multiple price levels, or arbitrage international securities, must mark orders they enter as short, even though those firms might also have strategies that tend to flatten by end of day. Since the trade reporting process for market makers and principal trades makes the Daily Short Volume easily misleading, we do not display it on www.otcmarkets.com.

Making daily short reporting data easilydigestible and relevant is not hard. On the contrary, it should be easy to aggregate all of the short selling that is reported as agency trades, as well as all of the net sum of buying and selling by each market maker and principal trading firm. This would paint a clear picture for investors of overall daily short selling activity. Fixing the misleading daily short selling data would bring greater transparency and trust to the market.

“THE MISSING PIECE”– SHORT POSITION REPORTING BY LARGE INVESTORS There is ample evidence that short selling conwww.stocknewsnow.com

tributes to efficient price formation, enhances liquidity and facilitates risk management.

Experience shows that short sellers provide benefits to the overall market and investors in other important ways which include identifying and ferreting out instances of fraud and other misconduct taking place at public companies. That said, we agree with the New York Stock Exchange and National Investor Relations Institute that there is a serious gap in the regulation of short sellers related to We undertheir disclosure obligations4. stand that well-functioning markets rely on powerful players who cannot be allowed to hide in the shadows. Since we require large investors, who accumulate long positions, to publicly disclose their holdings, why aren’t there disclosure obligations for large short sellers? This asymmetry deprives companies of insights into their trading activity and limits their ability to engage with investors.

It also harms market functions and blocks investors from making meaningful investment decisions.

One point is clear, we all need to continue to work collaboratively with regulators to improve transparency, modernize regulations and provide investors with straightforward, understandable information about short selling activity. We

want good public data sources that bring greater transparency to legal short selling activity as well as shine a light on manipulative activities. All while not restricting bona fide market makers from providing short-term trading liquidity that reduces volatility. n www.otcmarkets.com 1. 4560. Short-Interest Reporting (a) Each member shall maintain a record of total “short” positions in all customer and proprietary firm accounts in all equity securities (other than Restricted Equity Securities as defined in Rule 6420) and shall regularly report such information to FINRA in such a manner as may be prescribed

by FINRA. Reports shall be received by FINRA no later than the second business day after the reporting settlement date designated by FINRA. (b) Members shall record and report all gross short positions existing in each individual firm or customer account, including the account of a broker-dealer, that resulted from (1) a «short sale,» as that term is defined in Rule 200(a) of SEC Regulation SHO, or (2) where the transaction(s) that caused the short position was marked “long,” consistent with SEC Regulation SHO, due to the firm’s or the customer’s net long position at the time of the transaction. Members shall report only those short positions resulting from short sales that have settled or reached settlement date by the close of the reporting settlement date designated by FINRA. http://finra.complinet.com/en/display/display_main. html?rbid=2403&element_id=6288 2. http://www.finra.org/industry/notices/12-38 3. “certain matching principal trades involving a Market Maker are now explicitly included within the riskless definition, and reported to the public tape only once.” Notice of change to the NASD’s trade reporting rules designed to reduce fees charged under Section 31 of the Securities Exchange Act and to limit the double-counting of volume for trades executed in the over-thecounter market. https://www.finra.org/sites/ default/files/NoticeDocument/p004191.pdf 4.NYSE Group. Inc., along with the National Investor Relations Institute (“NIRI”), hereby respectfully submits this petition for rulemaking to the U.S. Securities and Exchange Commission (the “Commission”) pursuant to Rule 192(a) of the Commission’s Rules of Practice, requesting that the Commission promulgate rulemaking pursuant to Sections 10 and 13(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which were amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), in order to require the periodic public disclosure of short-sale activities by institutional investment managers. https://www.sec. gov/rules/petitions/2015/petn4-689.pdf Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

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F E AT UR E D A RT ICL E

Reading the Proxy Statement to Evaluate Management

O

ne of the main focuses in my microcap investment strategy is to find high quality companies. However, a high quality company needs a high quality management team and board members as well.

Thoroughly reviewing the Proxy Statement From the company’s perspective, the also known as the DEF 14A, as referred to by the SEC, gives valuable information that investors can use in their evaluation of the management of any company.

I believe that there are only a small minority of investors who read the Proxy Statement thoroughly. Even those that do, likely only glance at the management compensation section and ignore the rest. The Proxy Statement is meant to provide shareholders with valuable information that allows them to be informed as shareholders of the company when voting their shares.

Proxy is meant to disclose compensation guidelines and governance policies, showcase board members and their committee roles, explain what is being voted on at the annual meeting, and present materials that shareholders can use to understand what they are voting on.

However as an investor and shareholder, the Proxy Statement is helpful to understand the motivations and incentives of the people managing the company to make sure that they are aligned with shareholders. Warren Buffett stated on CNBC: “You want to figure

n BY SAM NAMIRI

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out ... how well that they treat their owners,” he said. “Read the proxy statements, see what they think of —see how they treat themselves versus how they treat the shareholders … The poor managers also turn out to be the ones that really don’t think that much about the shareholders, too.”

So what are some of the key things that I look for? First I evaluate the board members and their backgrounds and prior experience.

In addition to reading the Proxy to learn about their biographies and backgrounds, I run a simple web search and also look on social media to learn more about them. If I have any mutual connections, I talk to them as well to see what they think or know about the board member. My goal is to find out if the board member is an active contributor or if they are just golfing buddies with the CEO looking to cash an extra check. The easiest way to tell if a board member is truly aligned with the shareholders is to find out if he or she owns a meaningful position in the stock of the company.

The Board structure of a company is very important as well. One important consideration is whether the CEO is also the Chairman of the Board. The Chairman holds a lot of power and having both roles may vest too much authority in one person, which can potentially cause problems.

Especially if the CEO is well paid yet doesn’t own many shares, his or her goal often becomes to do whatever they can to keep collecting paychecks for as long as possible.

If the CEO is also Chairman then they are more likely to be able to stay in the CEO position longer regardless of performance.

Compensation is another extremely important section to analyze. Something to pay attention to is the percentage of executive compensation that is fixed versus variable. Look at the past and see the rate of increase in compensation and compare their compensation to other companies of similar size. Read about the short term metrics that the company looks at to evaluate management and what the targets are. Do these align with shareholder interests? If Earnings www.stocknewsnow.com

Per Share (EPS) is a metric that management is evaluated against for their annual bonuses, they may push for a stock buyback to lower the share count and boost EPS for their own benefit even though buying back the shares is not the best use of capital. I prefer companies that set targets and evaluate management on multi-year return on invested capital and free cash flow metrics instead of metrics that can be more easily manipulated such as EPS and adjusted EBITDA. Equity compensation is another metric that I look at closely. I want to make sure that the company isn’t just giving out shares annually just for showing up, but truly values its shares and gives them for truly good performance. I also prefer that companies give restricted stock that vests over a few years instead of options, as this better aligns management with shareholders. When granted options, management is more likely to swing big and take more risk.

Finally, in particular with microcap companies, it is important to look at the employee agreements and severance agreements of the key executives and learn about how they benefit from a potential change in control or acquisition. You ideally want a good balance where they are incentivized to accept a good deal from an acquirer, but also not be too expensive where their payout from an acquisition would be so expensive that it deters a potential acquirer.

A few other things that are important to notice and look for in the Proxy Statement are insider ownership and how much of the company management owns, who the major outside shareholders are, whether there are different classes of shares, who the peer companies are according to the compensation consultant, perks and related party transactions and also who the auditor is and whether the audit firm has changed frequently. All of this information helps provide more data points to paint either a pretty or ugly picture of the people leading the company that you might invest in.

As a shareholder in any size company, it is important to read the Proxy Statement,

however, in the MicroCap space where companies are not as much in the spotlight and are more likely to suffer with poor management and corporate governance, the Proxy Statement can be an indispensable resource in helping investors to sniff out the good, the bad, and the downright ugly. n Sam Namiri is a Portfolio Manager and Analyst at Ridgewood Investments, where he concentrates on managing the Ridgewood Select Value Fund, our fund focused on investing in small and micro-cap companies. Ridgewood focuses on implementing intelligent value-oriented investing strategies (modeled after investors like Warren Buffett, Ben Graham, and Phil Fisher). Prior to Ridgewood, Mr. Namiri was an analyst at a small cap hedge fund and the founder of a jewelry television and manufacturing company. Mr. Namiri has a BS in Industrial Engineering and Operations Research from the University of California, Berkeley and an MBA from Columbia Business School.

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 liability from the use or misuse of this information.

Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

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F E AT UR E D A RT ICL E

Form 4 Filings Insider Buying 101

I

n my last article about how multi-baggers hide out in “easy money” places, I discussed five strategies microcap investors can add to their tool box. Deep “in the trenches” microcap and nanocap investors are always looking for an information edge to exploit positive or negative information and to make money or protect portfolios. One of these Information Arbitrage (“InfoArb”) tools is tracking buy and sell stock transactions disclosed in Form 4 filings (Form 4’s) by Management, Employees, Board of Directors or 10% Owners (MEBO). I wrote this article for beginner investors, and for those who may still have a vague understanding of the overall layout of Form 4 filings, including related codes contained within them.

“The insider anomaly advantage has been estimated to be as much as 11 percentage points over the market return annually. The advantage tops out closer to seven percentage points, says Ian Dogan, founder of Insider Monkey, who wrote his doctoral dissertation on insider trading.”

TRACkING FORM 4 FILINGS I monitor Form 4’s for several reasons: 1. To see when insiders or large investors start loading the boat after shares have fallen hard 2. To see if insiders start buying stock after a hit piece has been published 3. To see if management is buying stock near new 52 week highs 4. To find patterns that set a near-term bottom in a stock 5. To see if insiders are selling as they glowingly talk about their company Why do I consider the Form 4 as a type of InfoArb? The default view at SEC.gov that lists a company’s filings does not include Form 4’s. The example below is that of Evans & Sutherland (OOTC:ESCC).

I even bet that some beginner microcap and nanocap investors may not even know that they can track Form 4’s. However, all you need to do is select “include” or “only” under the “Ownership” header to view Form 4 and other types of ownership filings.

I know it’s subtle, but any task that takes the slightest extra effort for other investors can be your investing advantage. Luckily, there are some services that allow you to track Form 4 activity such as SECFilings. com, where you can track stock symbols for free (to a limit). You can also set up an RSS feed from the SEC website that will send Form 4 filings to your email, free of charge.

Or you can link to the RSS feed directly from the page that lists the Form 4 filings of a target company (see above). However, you can’t really customize your searches.

We conveniently track the last handful of Form 4’s at GeoInvesting here, and are planning to address some of the shortcomings of different services that allow you to track Form 4 activity in the microcap universe.

It really irks me when a microcap management team does not have skin in the game, as opposed to just “acquiring” shares through indirect methods with little cash outlay. That’s why it’s important to learn how to read a Form 4 filing.

n BY MAJ SOUEIDAN

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stock at predetermined prices (usually below market prices and sometimes at zero), the transaction shows up in the Non-Derivative table. That is why it’s important to reference codes that are included in the filings.

THE SECRET CODES

THE FORM 4 The Form 4 must be filed before the end of the second business day after the execution of a transaction resulting in a change in beneficial ownership. There are many transactions that can result in purchases by MEBO. Some of these include “FREE” or below-the-current-price instances such as options, warrants, share based compensation and other indirect transactions. Boiling it down to what it is important, we focus on the buys that took place directly in the open market where MEBO is taking on the same risks as any other market participants.

Above is an image of a Form 4 filed on January 27, 2017 by billionaire Peter Kellogg on microcap ESCC, highlighting two open market purchases made on January 25 and 26: The first thing to take note of is that Mr. Kellogg bought his shares through one of his companies, Bermuda Partners. Still, “cold hard cash” was laid out to execute these two purchases at open market prices. The “I” in column 6 signifies that the recent purchases were indirect (through Bermuda) and shows that he also owns 2.9 million shares acquired

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in his own name (“D”). Column 5 shows how much a filer owns after each transaction.

We began to take notice of Mr. Kellogg’s purchase of shares on September 16, 2016 when the stock was trading at $0.83.

Looking into it further, we saw that he already had a sizable ESCC position. Whenever we notice large blocks or high volume in ESCC, we speculate that “Peter is back in town.”

Next, notice that the filing is divided into two sections • Non-Derivative Table • Derivative Table The non-derivative section is what you want to focus on when searching for bullish signals related to purchases by insiders at market prices. This is where it gets a little tricky, as you can’t automatically assume that a transaction outlined in this section did not originate from a derivative security.

For example, insiders often own stock options or warrants awarded to them by their company (approved by the Board). The initial grant of these derivatives is first recorded in the Derivative section of a Form 4. But when/if insiders convert them (also referred to as exercise) into ownership of common

The codes are outlined here on page 6 so that you can determine if a purchase was or was not related to a derivative security reported on various transaction filings such as Form 4 and Form 5. The direct purchase non-derivate codes you should be most interested in are “P” for buy and “S” for sale. Essentially, all other codes are mainly related to derivative instruments or other transactions that are not the result of meaningful “skin in the game” transactions.

As you can see, Peter Kellogg executed his purchase of ESCC shares indirectly through open market transactions as evidenced by the code “P” in column 3 next to the corresponding transaction (as opposed as “D” for disposed). Leave it to the SEC to use similar letters for different codes.

Take another example of a stock we are long, GSE Systems Inc. Common Stock (AMEX:GVP).

A constant flow of non-derivative direct market purchases by insiders confirmed by Form 4 analysis was a big reason we placed a bullish bet on microcap GVP at around $1.40 (even though shares appeared expensive at face value). Similar purchases have continued at prices over $3.00. You can see our initial coverage on GVP here.

GVP Insiders were also awarded performance based stock warrants that can be exercised in different tranches when shares reach certain predetermined levels. Some of these levels have been reached, which prompted insiders to exercise some of their warrants. Notice that even though the transaction is included in the Non-Derivative Table, the codes “M” and “F” show that it was the result of a conversion of derivative security (performance rights). A peek at the Derivative Table supports this fact. These MicroCap Review Magazine

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performance rights have a zero cost basis.

Here is a list of all the Form 4 codes: General Transaction Codes P – Open market or private purchase of non-derivative or derivative security S – Open market or private sale of nonderivative or derivative security V – Transaction voluntarily reported earlier than required Rule 16b-3 Transaction Codes A – Grant, award or other acquisition pursuant to Rule 16b-3(d) D – Disposition to the issuer of issuer equity securities pursuant to Rule 16b-3(e) F – Payment of exercise price or tax liability by delivering or withholding securities incident to the receipt, exercise or vesting of a security issued in accordance with Rule 16b-3 I – Discretionary transaction in accordance with Rule 16b-3(f) resulting in acquisition or disposition of issuer securities x M – Exercise or conversion of derivative security exempted pursuant to Rule 16b-3 Derivative Securities Codes (Except for transactions exempted pursuant to Rule 16b3) C – Conversion of derivative security E – Expiration of short derivative position H – Expiration (or cancellation) of long derivative position with value received O – Exercise of out-of-the-money derivative security X – Exercise of in-the-money or at-themoney derivative security Other Section 16(b) Exempt Transaction and Small Acquisition Codes (except for Rule 16b-3 codes above) G – Bona fide gift L – Small acquisition under Rule 16a-6 W – Acquisition or disposition by will or the laws of descent and distribution Z – Deposit into or withdrawal from voting trust Other Transaction Codes J – Other acquisition or disposition (describe transaction) K – Transaction in equity swap or instrument with similar characteristics U – Disposition pursuant to a tender of

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shares in a change of control transaction I hope this summary helped you if you were unsure of how to properly use Form 4 filings in your research process. Other MEBO purchase forms also exist (Source: Investopedia): • Form 3 – This document must be filed with the SEC no later than 10 days after an insider becomes affiliated with a company, and it must be filed for each company in which a person is an insider, regardless of whether the insider has an equity position in the company at that time.

• Form 5 – Insider transactions involving small amounts of money and certain transactions such as gifts of shares received from another party are sometimes exempt from the usual Form 4 reporting requirements; therefore, a Form 5 submission is required from an insider who has at least one transaction which was not reported during the year. Form 5 submissions are due to the SEC no later than 45 days after the company’s fiscal year ends, or within six months after an insider ends his or her affiliation with the company.

• Form 144 – A form that must be filed with theSEC when an executive officer, director, or affiliate of a company places an order to sell that company’s stock. Also known as Rule 144.

• 13D – The Schedule 13D is a form that must be filed with the SEC under Rule 13D. The form is required when a person or group acquires more than 5% of any class of a company’s shares (and wishes to reserve the right to exert control). This information must be disclosed within 10 days of the transaction. Rule 13D requires the owner to also disclose any other person who has voting power or the power to sell the security.

• 13G – To be able to file 13G instead of 13D, the party must own between 5 and 20% in the company. It must also be clearly understood that the party acquiring the stake in the company is only a passiveinvestor and does not intend to exert control. If these criteria are not met, and if the size in

the stake exceeds 20%, a 13D must be filed.

In a follow up article, I will go over endof-year insider transaction arbitrage and highlight examples where you could have used Form 4 research to find microcap stocks in which insiders were telegraphing expectations of higher prices or confidence that sharp drops in share prices were buying opportunities. Tracking insider purchases correctly is a great tool anyone can use to increase conviction when making shortterm or long-term bets alongside management. Notice that I mainly talked about insider buys — why? Peter Lynch said it best: “Insiders might sell their shares for any number of reasons, but they buy them for only one: They think the price will rise.” n ABOUT MAJ SOUEIDAN I lead the GeoInvesting Team on a daily basis to increase build a healthy investment opportunity pipeline and heighten GeoInvesting’s awareness in the financial market. I stress the concept of “information arbitrage” in an era where information overload has actually made it more difficult for investors to locate profitable information. An arbitrage exists when a disconnect between stock prices and available public information on a company is noticeable, and monetarily worth pursuing.

ABOUT GEOINVESTING GeoInvesting is a research boutique which specializes in microcap stock research and portfolio protection investigations for its members. Co-founders Maj Soueidan and Dan David find money-making opportunities that others flat out miss. In a nutshell: ** We share our ideas in hopes that others can profit alongside our team. ** We clarify the dynamics of the micro-cap space to show you that big investments can come in small packages. ** We provide education on how to do conduct real research, leading by example. ** Our expertise gives us, and therefore you, an advantage over the everyday investor. www.geoinvesting.com Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

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MicroCap Review Magazine

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AUSTRALIA CORNER

Australian Non-Resource Microcaps

A

ustralian microcap stocks provide an abundance of undiscovered non-resource focused microcap stocks for US investors who are looking for such stocks listed on the Australian Securities Exchange (ASX). A bit similar to the Canadian market, the Australian microcap market is considered a junior resource market primarily but there is so much more listed on the ASX than just junior resource microcap stocks. This article provides a brief overview of the Australian microcap market and highlights 6 ASX microcap stocks which exhibit some of the diversity to be found within the ASX microcap stock universe.

ASX MICROCAP MARkET OVERVIEW The ASX has circa 2,100 stocks listed on the exchange. Unlike the US and Canada, there is only one main ASX board/exchange where everything is listed. A few legacy competing stock exchanges remain but are so small as to be irrelevant for all practical purposes. The S&P/ASX 200 Index is widely used as the main barometer for the performance of the Australian equity market

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currently. However, outside of the top 200 largest stocks is an extremely long tail of microcap stocks for investors to delve into.

ASX microcap stocks, for the most part, are largely overlooked by both Australian and international investors.

The ASX provides its own microcap index, the S&P/ASX Emerging Companies Index. Comprised of 157 stocks currently with a median market cap of AUD$158m/ USD$114m. The index is heavily weighted to resource stocks with the materials and energy sectors comprising 34% of the index.

However, comparing this with TSX.V, for example, and adding together the mining and energy sectors weightings on the TSX.V you get a combined index weighting of 43%.

So yes, like Canada, there are a lot of junior resources stocks on the ASX, but it’s not as heavily skewed as the TSX.V and offers more non resource stocks for US investors to research.

Some other differences I find when comparing ASX microcap stocks to US or Canadian microcap stocks is that the balance sheets are usually “cleaner” for ASX microcap stocks. You rarely see convertible notes or debt on ASX microcap stocks balance sheets. The norm is usually just listed stock, listed options and/or unlisted options.

The amount of litigation being faced by the ASX stocks is also substantially less than the volume of cases reported by US and Canadian microcap stocks I find in general. This means you don’t have to worry about these contingent legal liabilities coming through and severely denting the stocks profitability and cash reserves.

Below are some ASX non-resource stocks which typify some of the opportunities available.

Six Non-Resource ASX Microcap Stocks Energy One (EOL: AU) Mkt Cap AUD$28m/USD$20m is a provider of energy trading software to both generators

and a host of downstream customers in order to effectively manage their supply and demand at the optimum price. The company is the market leader in both gas and electricity trading in Australia and New Zealand with a small presence in Singapore and the Philippines. The company recently entered the European energy market through the acquisition of Contigo Software which was a non-core asset from Trayport a subsidiary business of the TSX which it acquired in 2017. The company has successfully deployed capital into acquisitions over recent years to build out its product and market presence with funding for these acquisitions chiefly coming through deploying existing cash reserves or through debt financing. To date, all debt has been repaid timeously and no major integration problems have been encountered. This speaks to the quality of both the capital allocation and post deal execution of the integration by the management team. The executive management and the board are also large shareholders in the company so are well aligned with minority holders. A profitable, dividend-paying, high return on equity microcap stock with a solid and aligned management team in place it’s one of the more interesting ASX microcap stocks.

Avita Medical (AVH: AU / OTCQX: AVMXY) Mkt Cap AUD$261m/ USD$188m is a healthcare technology company focused on regenerative medicine in the treatment of burns, aesthetic indications and chronic wounds. The company’s RECELL products have recently gained FDA approval, after a near decade in development. This comes on the back of RECELL’s approval in China, Australia and Europe. Since its USA regulatory market approval the company has had significant interest from both medical professionals and insurers in getting the RECELL product into the market as quickly as www.stocknewsnow.com

possible. The RECELL product provides better patient outcomes at a lower cost than conventional treatments so it is a real win-win for all stakeholders. The company is now in full commercialization mode and is expecting a solid uptake of the product and associated sales in the US market over the coming quarters. While currently unprofitable, this marks a major milestone for the company and currently looks to be at an inflection point in its development.

City Chic Collective (CCX: AU) Mkt Cap AUD$271m/USD$195m is an omnichannel apparel retailer specializing in plus size women’s fashion. While predominately operating in Australia and New Zealand, they have started to achieve success in the US market in recent times. Indeed 16% of their total sales now come from the northern hemisphere. The business was previously known as Specialty Fashion but after a boardroom battle a few years ago the current management team has executed a superb repositioning of the business by selling off non-core brands and assets and working on the company’s strategic direction, the results of which are now starting to filter through their data.

Jayride (JAY: ASX) Mkt Cap AUD$32m/ USD$23m listed on the ASX in only January 2019. Think of it as the Uber for airport transfers. They service individuals, families, groups in getting from the airport to their accommodation by allowing people to search for appropriate transport and compare prices between similar transport operators. They offer their service to DIY customers or travel agents making a booking on behalf of their customers. They are in the midst of a large global rollout and currently operate in 44 countries around the globe and nearly 700 airports. The company has an aggressive rollout plan for the next 12/24 months and a large runway of airports and customers still in front of it. Given the hoopla currently surrounding the Uber and Lyft IPO’s, it will be interesting to compare the valuation multiples they achieve to what JAY is currently trading on. www.stocknewsnow.com

Credible Labs Inc. (CRD: ASX) Mkt Cap AUD$263m/USD$189m is fintech business focused on providing a marketplace for loans to US millennials. It is a San Francisco based company that is listed on the ASX. The company has spent the last few years building out its marketplace to bring millennial consumers and financial product providers together for the benefit of both parties. The business specifically targets millennials with a slick mobile-only offering that appeals to its core customers. The company started out with student loans, then moved into personal loans and is now about to launch into the home mortgage market. The company is still very much in the growth phase and seeking volume through its platform in order to reap the benefits of both scale and the associated network effects at significant scale down the line.

Dubber (DUB: AU) Mkt Cap AUD$137m/ USD$99m provides call recording as a service on an enterprise level scale. Their customers are telecommunication providers such as AT&T and Cisco Broadcloud providing them with call recording functionality but also some more advanced features such as analytics and keyword searches as required. The end users are primarily governments at various levels of governance, be that federal, state or local level. The service is provided on an SAAS monthly subscription type basis. The business is still run by the founder who founded the business almost 30 years ago. The business is seeing increasing uptake in its product offering over the last 12/24 months and has been hitting new monthly revenue records over that time. It has signed quite a few new telecommunication customers to use its platform but the billing for these has yet to start in earnest so there is a lag in the revenue from contract signing to the actual first billing. This situation should normalize over the course of 2019 and will lead to a step change in the company’s revenue profile moving forward.

The company looks to be at a noteworthy point in its growth.

CONCLUSION Hopefully, US investors will recognize the latent opportunity which exists in some of the non-resource ASX microcaps as displayed by some of the names above.

ABOUT INDEPENDENT INVESTMENT RESEARCH Independent Investment Research, “IIR”, is an independent investment research house based in Australia and the United States. IIR specializes in the analysis of high quality commissioned research for Brokers, Family Offices and Fund Managers. IIR distributes its research in Asia, United States and the Americas. IIR does not participate in any corporate or capital raising activity and therefore it does not have any inherent bias that may result from research that is linked to any corporate/ capital raising activity.

No ownership by IIR of individuals of shares. n For more information about Independent Investment Research, please visit: www.independentresearch.com.au Mark Tobin Senior Analyst at IIR After graduating with a Master’s Degree in Economic Science from University College Cork in Ireland in 2004 Mark spent several years working as a hedge fund accountant both on the service provider side and the client side in Dublin, London and Sydney. During which time he attained Fellowship of The Association of Chartered Certified Accountants one of the largest professional accounting bodies in the world. Mark then changed careers becoming a small cap equity analyst with highly respected Australian fund management group Wilson Asset Management in Sydney. After a few years working in Sydney, Mark relocated to South Africa for family reason and took up an opportunity to work at the coal face of the family food business so has actually worked in small business and gained a day to day operational perspective of what it is like to run a small company. Mark has been providing ASX microcap consulting services to IIR for the last couple of years and is a regular contributor to Australian financial media on microcaps. Mark maintains an extensive network of relationships with Australian microcap fund managers, brokers and companies in the Australian microcap space.

Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. The author does not own shares or any equity or debt interest in any companies mentioned in this article before or at its publishing.

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ASX: FAU

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

First Au Limited

A

ustralia is the world’s second largest gold producer behind China, producing around 10.4 million ounces of gold a year, worth around USD$ 13.2 billion. Kalgoorlie, Western Australia, is undoubtedly the gold capital of Australia and gold has been mined there continuously for over 125 years. The Golden Mile, which sits within the Kalgoorlie gold region, has produced over 60 million ounces of gold.

Accordingly, some market observers found it surprising when a recently listed junior mining and exploration company announced a brand-new gold discovery in one of the most heavily explored and historically successful gold regions in the world.

After listing on the Australian Securities Exchange less than a year ago, First Au Limited (ASX: FAU) announced on March 18 this year that it had intersected significant lode gold mineralization at its 100% owned flagship Gimlet Gold Project, which sits 9.3 miles northwest of Kalgoorlie. The Company’s recent 2,900m reverse circulation (“RC”) drilling program followed up outstanding results from its previous RC and aircore programs, which returned strong intersections, including 3m at 462 g/t gold (15 ounces per tonne) from 52m (refer ASX release dates November 8, 2018 and December 14, 2018).

First Au’s exploration results have delineated mineralization over a strike length of over 400m with mineralization remaining open to the north and at depth. Gimlet adjoins the tenements of Intermin Resources Limited (ASX: IRC), which contain the Teal, Jacques Find and Peyes Farm gold deposits which

Richard Revelins, Executive Director

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Brand New Gold Discovery in the heart of “Gold Town” Kalgoorlie, Western Australia

currently host JORC classified resources of 289,000 ounces of gold. Over recent years the Kalgoorlie region has seen significant merger and consolidation activity as junior companies have sought to maximize their reach and development opportunities by merging with similar or larger listed companies.

First Au’s Executive Chairman, Bryan Frost recently commented “We are delighted with the excellent results from our follow up RC program. We believe these results, together with our previous drilling programs, provide a solid basis to undertake further work aimed at pursuing FAU’s first JORC classified resource.”

Assay result reported to the ASX, from the latest RC Drilling program include: Drillhole 19GRC005- 3m @ 4.0 g/t Au from 48m Drillhole 19GRC011- 4m @2.9 g/t Au from 98m Drillhole 19GRC013- 15m @7.2 g/t Au from 93m (including 2m @ 16.4 g/t from 101m & 2m @ 17.4 g/t Au from 105m) Drillhole 19GRC015- 26m @3.1 g/t Au from 90m (including 1m @ 19.1 g/t Au from 94m) Drill hole 19GRC019- 5m @ 3.9g/t Au from 89m (including 1m @ 9.7 g/t Au from 90m & 2m @ 2.7 g/t Au from 111m) Drillhole 19GRC022- 4m@ 18.8 g/t Au from 38m (including 1m @ 71.2 g/t Au from 38m) Drillhole 19GRC025- 11m @ 4.0 g/t Au from 99m Drillhole 19GRC029- 16m @ 1.2 g/t Au from 53m Drillhole 19GRC030- 15m @ 6.6 g/t Au from 157m (including 2m @ 31.4 g/t Au from 169m)

The Company recently applied for a mining lease in respect to the Gimlet Mineralized Zone, which represents the majority of the project area.

In addition to the new gold discovery at Gimlet, First Au is also involved in exploration for gold and base metals in the East Pilbara region of Western Australia. This region recently came to prominence with announcements by Novo Resources (CN: NVO), and other explorers, in respect to the discovery of numerous “watermelon style “characterized gold nuggets

of the Hardy Formation and other disseminated conglomerate gold occurrences. First Au’s Emu Creek Project, which also contains unexplored Hardy Formation conglomerates, is located 23kms northwest of Nullagine, and 25kms north of Novo Resources’ Beatons Creek conglomerate gold deposit (6.4mt @ 2.7g/t Au for 658,000 ozs of gold), the largest known conglomerate gold resource discovered in the Pilbara to date and is considered to geologically similar. First Au recently increased its exposure to the conglomerate gold story in the East Pilbara, by entering into a Joint Venture with fellow junior West Wits Mining Limited (ASX: WWI) which holds a number of granted mining leases in the area, known as the Tambina project.

First Au boasts a highly experienced and successful exploration team headed by Brian Richardson (formerly Thunderlara Resources and Royal Resources) and Gavin England (PhD in conglomerate gold, substantial public company experience), as well as Brett Keillor (formerly Independence Group Chief Geologist and two-time winner of AMEC Prospector of the Year Award) and Denis O’Meara (highly respected Australian mining identity and winner of AMEC Prospector of the Year Award).

Richard Revelins, Executive Director at First Au, commented. “We are indeed fortunate to have such a well credentialled exploration team, who have achieved so much in a very short timeframe. We are moving into the 2019 field season full of confidence with the knowledge that we are onto something quite significant.”

Further information and analyst reports can be accessed from the Company’s website at www.firstau.com n The company paid consideration to SNN or its affiliates for this article.

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RESOURCES CORNER

Q&A with Brent Cook, Geologist

W

e recently conducted a Q & A with Brent Cook about US investors investing in resource companies within a diversified MicroCap portfolio.

Brent writes the Resource Corner column for MicroCap Review magazine and has years of experience and expertise in the field.

Question 1. As a microcap company investor why should I invest in resource companies? (Please discuss diversification, relationship to EV market, explain the difference between exploration, developers, and producers).

There is virtually nothing in our modern society that does not require metal, from the antimony, silver, zinc, cadmium, chrome, aluminum, gold, palladium, etc., that go into your computer to the iron, lead, copper, nickel, etc., that go into the farm equipment, processing facilities, trucks and stores that bring you food.

The global push towards cleaner energy and electrification will increase the demand for copper, lithium and a number of other metals as shown below. Significantly, the whole world wants the same lifestyle as most Americans enjoy meaning the demand for metals will continue to grow.

The problem, but more importantly, the opportunity, for microcap investors is that

the mining industry is not finding enough new metal deposits to meet demand. The bloated and bureaucratic nature of the major mining companies means they are relying more and more on nimble and innovative microcap junior exploration companies to make these new metal discoveries to fill their future production gaps. Majors will pay a significant premium for a legitimate deposit, one that may deliver 5 to 10 times returns to an early speculator in the junior exploration company.

Question 2. Are resource companies mostly Canadian and traded on Canadian exchanges?

The Toronto main and Venture exchanges host the vast majority of mining and exploration companies. There are over 1,000 exploration and mining companies listed on the Toronto exchange, 700 on the Australian exchange, and far fewer on the US and London exchanges.

Question 3. Can a US citizen buy Canadian resource stocks through their US broker or online? (I would answer this by saying many Canadian and foreign based resource companies are dual listed in US on OTC

Markets, Nasdaq or NYSE …etc.

It is very easy for US residents to buy Canadian listed stocks. Any stockbroker can facilitate the trade (I use Sprott USA which specifically deals in resource stocks) and many online brokers allow US residents to trade Canadian stocks, although do be cautious with fees on penny stocks. Additionally, many microcap explorers are dual listed in the US. Question 4. As a value investor how do I compare a resource company balance sheet to companies with revenues?

Exploration is a risky and expensive business that often requires additional funds via financings or contributions from mining partners. The risk to reward is extremely high. It can be compared to biotech companies searching for a cure to diabetes, or technology companies working on the next app or video game and therefore requires constant due diligence on the speculator’s part. However, an early stage exploration program sufficient to make a discovery and significant impact on a microcap explorer’s share price can take as little as $1M to $2M.

n BY SHELLY KRAFT

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Question 5. How would an investor create a portfolio of both base metals and precious metals, and would you suggest mostly exploration companies?

I think an intelligent mining and exploration portfolio should consist of a few high quality royalty companies, some solid and growing base and precious metal mining companies, and a select group of exploration companies. Royalty companies generate profits by taking a cut of a mine’s production and therefore face minimal operating challenges. Mining companies should be growing their reserves organically and have a cost of production in the lower third of the industry unit cost. Exploration companies should be run by competent, experienced professionals who know the difference between a mineral deposit and a geochemical anomaly. They should be exploring for a deposit that is large enough to attract a major mining company buyout.

Question 6. As an investor how would you describe the liquidity in resource stocks?

The larger mining and exploration companies generally have sufficient liquidity for a modest sized investor to execute trades.

For instance, Newmont Mining (NEM. NYSE) trades 5 to 10 million shares a day, and Kirkland Lake (KL.T) trades 1 to 2 million shares a day. At the other end of the spectrum, microcap exploration companies can be very illiquid, trading only a few tens of thousands of dollars per day.

Question 7. Do you think it is prudent to diversify a microcap portfolio with resource companies? If so why?

think the depressed level of the mining sector offers a fine opportunity to diversify one’s microcap portfolio.

Question 8. How do resource commodity prices affect microcap resource stocks?

Metal prices are certainly a key component of any surge of interest into the mining sector. The gold price is the big mover and I expect the gold price to rise over the next few years. Gold is essentially the reciprocal of the US dollar and given a wide range of geopolitical issues related to the US, its allies, China, plus the massive debt and decreased purchases of US treasuries by foreign investors, odds are the dollar declines while the gold price increases. If gold gets even close to $1,400/ounce I expect that will trigger a significant rally into the sector.

Question 9. Please explain your newsletter and how it helps investors remain informed.

herein is believed to be accurate and reliable, it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Research that was commissioned and paid for by private, institutional clients is deemed to be outside the scope of the newsletter, and certain companies that may be discussed in the newsletter could have been the subject of such private research projects done on behalf of private institutional clients. Neither Brent Cook, nor Joe Mazumdar, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in this letter/ article. The information contained herein is subject to change without notice, may become outdated, and may not be updated. The opinions are both time and market sensitive. Brent Cook, Joe Mazumdar, and the entities that they control, family, friends, employees, associates, and others, may have positions in securities mentioned, or discussed, in this letter/article.

While every attempt is made to avoid conflicts of interest, such conflicts do arise from time to time.

Whenever a conflict of interest arises, every attempt is made to resolve such conflict in the best possible interest of all parties, but you should not assume that your interest would be placed ahead of anyone else’s interest in the event of a conflict of interest. No part of this letter/article may be reproduced, copied, emailed, faxed, or distributed (in any form) without the express written permission of Brent Cook or Joe Mazumdar. Everything contained herein is subject to international copyright protection.

Just as the biotech and technology sectors require an in depth understanding of the underlying sciences, so does the exploration business. Geology, metal recovery, processing options, social and environmental issues, as well as local and national politics all play into valuing and assessing a junior explorer’s chances of success. Exploration Insights is a newsletter written by Joe Mazumdar and myself, both seasoned economic geologists who travel the world evaluating exploration projects. The letter is about what Joe and I are doing with our own money in the sector. We are completely independent, paid only by subscriptions plus what we make from our investments. That’s about as straightforward as it gets. n www.explorationinsights.com

The mining and exploration space has had a rough few years while the “hot money” chased crypto and weed stocks. However, the mining space has always been cyclical, and, when it comes back, provides returns equal to any other specialty microcap sector.

The demand for new deposits is real and I www.stocknewsnow.com

Disclaimer This letter/article is not intended to meet your specific individual investment needs, and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be--either implied or otherwise--investment advice.

This letter/article reflects the personal views and opinions of Brent Cook and Joe Mazumdar, and that is all it purports to be. While the information

Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

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

NASDAq CM: PIXY

ShiftPixy, Inc. OVERVIEW

BACkGROUND

ShiftPixy is a California-based technology company that designs, manages, and sells access to a disruptive, revolutionary platform that facilitates employment in the rapidly growing Gig Economy. The cloud-based ShiftPixy ecosystem offers businesses an outsourced employment solution for securing part-time employees, and offers individuals such as Millennials access to a pool of temporary employment opportunities. The company primarily focuses on the restaurant, hospitality and maintenance services industries, and aims to differentiate its offering by leveraging sophisticated technology to help businesses and employees efficiently connect on mobile devices. The ShiftPixy platform is designed to automate the matching of companies with a pre-approved pool of prevetted employees for shift-based work, while managing the wide variety of burdensome regulatory employment mandates, thereby reducing administrative hassles for small businesses and workers alike.

Our purpose is to bring efficiency to the part time labor markets by delivering workplace level liberation and ease through an ecosystem designed to leverage mobile technology to better engage workers to work opportunities.

ShiftPixy was established to address a national labor market weakness that was identified by management during its decades of experience delivering essential employer services to small businesses. The Company has developed a nationwide platform providing a unique service and support ecosystem to connect shift workers (Shifters) with open shift opportunities at employers (Providers). The ShiftPixy ecosystem delivers and supports a legally compliant engagement between shift workers and shift work providers, one shift at a time.

ShiftPixy’s keys to success are rooted in management’s deep experience helping small business owners with risk, compliance and process management over the past 25 years. Given the unique nature of the Millennials and Generation Z, the ShiftPixy solution arrives at a perfect time to quickly become a disruptive market influence.

Using an already existing, well-established national network of business insurance agents to introduce our products to their clients based on insurance coverage needs

kEY POINTS • A sophisticated, technology-driven solution to the unique challenges faced by employers and employees alike in the Millennial-driven Gig Economy.

• A nationwide “Uber-like” technology providing critical connections between shift workers and the open shifts they seek.

ShiftPixy has experienced rapid growth since its founding, and positive secular forces can help drive profitable growth even in weaker economies.

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FINANCIAL MODEL The ShiftPixy business model generates revenue from both the Shifter and Provider sides of the transaction. The Shifter pays a nominal monthly subscription fee to access the shift network, while the Provider pays

Scott W. Absher Co-Founder, Chairman, President & CEO

process fees for each hour that a Shifter works.

Our target market is the 30+ million part time workers in the US For the employer, the ShiftPixy platform provides a legally compliant, outsourced payroll and employment solution that automates and accelerates the entire staffing process to include pre-qualification, hiring, on-boarding, scheduling, payroll processing, taxes and benefits. For the employee, the mobile application provides easy access to multiple shifts and “gigs” and provides frictionless and flexible scheduling and payroll fulfillment of a classic PEO. Initially targeting hotel and restaurant industries (13 million workers) in major metro markets ShiftPixy has experienced rapid growth from a pre-revenue start up in 2015 to gross billings of $51 million in fiscal 2016, $126 million in fiscal 2017, and $222 million in fiscal 2018.

Additional monetization opportunities, once clients and shift workers are in the ShiftPixy ecosystem, such as restaurant self-delivery and driver management.

UNDERLYING TECHNOLOGY Artificial Intelligence Active User Engagement Active User Workflows Blockchain Ultimate Transaction Security Distributed Ledger Integrity Amazon Web Service Server Infrastructure Rapid SaaS Scalability Deep Global Operating Capacity n www.shiftpixy.com The company paid consideration to SNN or its affiliates for this article.

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O P I N I ON

Dos and Don’ts for Private Companies when Reverse Merging T o principals of, and advisors to, privately-owned companies: It’s well-documented that publicly-held companies are generally worth considerably more than similar private companies. There are many good reasons for the disparity--liquidity, of course, is paramount. Also, it’s much easier to raise capital, because investors see the exit strategy; and, public companies can use stock options to hire more qualified employees, whose talent enables public companies to increase revenues, profits and value. Not to mention, of course: the added prestige and personal wealth of the principal shareholders (which I just mentioned).

To be sure, however, going public isn’t for the faint of heart. So, before a private company embarks upon this route, the following not all-inclusive list of Dos and Don’ts

should be considered carefully: The Dos: Do retain experienced attorneys—especially those who have completed many reverse mergers—to represent your private company. The documents that are required, especially the Reorganization Agreement, the “Super 8-K,” and the filings with the SEC, FINRA, OTC Markets, the state of incorporation of the public company and probably the private company (depending on the structure of the transaction), are often complex and very detailed.

Do engage experienced, PCAOBregistered accountants to audit the private company’s financial statements. The reputation of the accounting firm is important in establishing and maintaining credibility of the new-public company in the investing community.

n BY JOHN LOWY, Esq.

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Don’t go into the reverse merger process blindly.

Going public is an important milestone for any private company. So, and as noted above, communicate early in the process, and often, with experienced advisers who have gone this route before.

Do try to hire a CEO and a CFO with previous public company experience. These two persons will be the “face” of the public company at most, if not all, shareholder meetings, conferences, telephone conferences, etc. with investment bankers, company podcasts and presentations, etc. In my experience, if the private company’s principal does not have this background, he or she is often “kicked upstairs” to be Chairperson, thus allowing the new CEO to fend with Wall Street, among other duties. Finding, hiring and retaining quality persons with the requisite experience and reputation to be CEO and CFO isn’t easy, and—candidly—it will probably be expensive; but in the long run, it will be a bargain.

Do carefully check the backgrounds of the people you are dealing with on the public company side, before the reverse merger is completed. There are many “bad boys” lurking, looking for unsuspecting private companies to reverse merge into what could become a “pump and dump” scheme.

Do retain a reputable Investor Relations firm to best get the company’s message out to the investment community, shareholders and others. Using an IR firm is usually helpful in several areas: getting the word out to the Street about the company, introductions to broker-dealers, investment bankers, and in some instances to direct sources of capital.

Do: prepare and disseminate, as widely and as often as possible, news/announcements about the company. This can be tricky, because your obligation as a public company www.stocknewsnow.com

is to file periodic reports (three 10-Qs and the 10-K each year), plus 8-Ks as and when material events occur. So, for example, it would be inconsistent, and probably a violation of securities laws, to make a glowing announcement and then, shortly after, file a dismal 10-Q without making an announcement with the same distribution. And take note that there are different newswire services, some of which provide better distribution than others; be sure to use one which has the widest distribution, and use it consistently.

The above are many, but not all, of the Dos for private companies that want to go public by reverse merging. Here are some of the don’ts (many are the opposite of the Dos): Don’t go into the reverse merger process blindly. Going public is an important milestone for any private company. So, and as noted above, communicate early in the process, and often, with experienced advisers who have gone this route before.

Don’t think that going public via reverse merger is a “get rich quick” deal. As noted above, there are many reasons why a private company can gain important advantages by being public; but most of those advantages take time to take effect. And, they don’t take effect automatically; rather, they require additional time and effort beyond what executives devote to running their business. Put another way: executives should devote 100% of their time to running their business, as usual, and an additional 50% or more to what is involved with being a public company. Difficult math, but it makes the point.

Don’t ignore your shareholders: as a public company, they can be your biggest supporters (or your adversaries). They, and the investing public in general, need to be informed of company developments as they occur. Also, have a good website—essential.

Going public is a major step in a company’s corporate history. Like any other endeavor, there are good ways and bad ways to go about it. But by working with experienced and competent advisers following the other “dos” above, and avoiding the “don’ts,” the process of becoming and then being a public company can be a lot less arduous, and far more rewarding, both emotionally and financially. n www.ocgfinance.com John Lowy is the founder (in 1990) and senior partner of John B. Lowy, P.C. (www.johnlowylaw.com), and (in 1993) of Olympic Capital Group, Inc. (www. ocgfinance.com), both based in New York City.

John is a highly-respected and acknowledged expert in reverse mergers, representing public companies, capital formation, strategic consulting and initial private and public offerings of all types.

As an attorney, an advisor and principal, John has led or participated in more than 200 such transactions, creating market value well in excess of $5 billion. He has been instrumental in leading the process by which these companies have raised capital or reverse merged, and achieved listings on the NASDAQ or the AMEX, or were sold to larger companies.

In addition to the U.S., John has completed transactions for clients based in at least 15 foreign countries. The sectors in which his clients are engaged range from low tech to high tech, cryptocurrency/ blockchain, real estate, pharmaceuticals, medical devices, biotech, oil and gas, mining, renewable energy, entertainment, food, agriculture, education and retail, among others.

He received his undergraduate degree from Tufts University and graduated from the University of Pennsylvania Law School, and is a licensed attorney in New York and New Jersey. He is a frequent contributor to MicroCap Review.

Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

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FEATURED ARTICLE

W

hy do we say someone is making money hand over fist? Does it have to do with two competitors putting one hand over the other on a baseball bat to determine who’s up first? This idiom of the English language paints a vivid picture of the BioPharma Industry, regarding the competition within the Industry and the scramble to invest in start-ups that fuel innovation.

Start-ups are driving biopharma innovation, accounting for 63% of all new technology and drug approvals over the last eight years.

New approaches to combat drug resistance, elimination of side effects, more targeted therapies are urgently in need to be developed.

Despite growing recognition of this threat, there is an early stage funding gap for new technologies.Top of FormBottom of Form This is a huge global problem in need of R&D, but many Big Pharma companies have pulled out in the last 10 to 15 years because they see a challenging ROI. Most Big Pharma or Investing Partners would rather wait as startup biopharma take the risk out of development.

The economic challenge the industry faces is undeniable. That’s because the average cost to develop and FDA approval for a new prescription drug in the United States is about $2.6 billion, reports the Tufts Center for the Study of Drug Development. Despite high development costs, most drug launches achieve modest sales in the first five years on the market. Only 19 drugs have reached $1 billion in annual sales within five years of launch over the past 20 years, reported by QuintilesIMS Institute.

An Industry shift has Big BioPharma and others looking to become more entrepreneurial.

Increasingly, these big players are setting up venture capital funds and investing in start-ups and licensing technology to fuel their own drug

n BY JAE SLY, PhD, MBA

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Hand Over Fist . . . Picking Teams and Making Money pipelines. Many are also outsourcing R&D, while reducing product development efforts internally.

New investments for startup trends are accelerating at a rapid pace. Behind the scenes, pint-size ventures are driving pharma innovation. This scramble is multifaceted.

Small BioPharma start-ups are quick on their feet, and many can do research and product development faster. By investing in a broad portfolio of young ventures, a big drug company can leverage outside scientific talent and cast a wide net in order to gain access to breakthrough discoveries in areas of the company’s strategic interest. For investors the sheer market size of the industry cannot be ignored. It’s a global market growing at 6.5 percent compounded annually that is expected to reach $1.06 trillion by 2022.

Johnson & Johnson invests over $10 billion on R&D annually across the company’s different sectors — medical devices, Biotech, prescription drugs — they also invest over $250 million a year in everything from seed investments to Private Investment of Public Equity.

The League of Companies leading the field are those working to develop creative approaches to the R&D productivity crisis with all kinds of early stage collaborations. Applying business service teams that help manage startup’s operations and navigate the regulatory and product development pathway, facilitate permits and licenses and foster the funding startups need to grow. Cultivate relationships with fresh Start ups and Institutions that have great ideas and build a newco around them.

Prime example is a unit of the R&D group formed out of Sanofi’s global R&D. SanofiSunrise, a company creation that seeks to invest in seed ideas or co-invest with venture capitalists on promising new technologies. Leading the effort is a team of scientists with Sanofi’s global R&D department who have ties or actively seek out venture capitalists and academic networks.

Companies leading the league are those developing creative approaches to the R&D productivity crisis with all kinds of early stage collaborations. That then comes down to what do we mean by “early stage”. To a biotech hedge fund trader, it might be pre-Phase 2. To those of us

in the venture world, early stage could simply mean a new company, or a preclinical program, or a new drug discovery initiative. Unfortunately, without common and easily measured definitions, generalizations about early stage biotech venture data are challenging. New company formation has grown as an important route to commercializing technologies from research institutions. Although new company formation may not be the most efficient route to market for all technologies, to those concerned with economic development, the formation of new, successful companies is seen as a route to create and support jobs. Many countries have specifically developed programs to support this trend by the formation of “business incubators” and science parks to create a supportive environment.

Incubators are expanding opportunities for research to develop into startups, various research institutions are spinning technologies out into New Companies, and Venture Capital and Investors developing Start up Studios that take scientific discoveries made at universities are turning them into companies focused on growth. Big Pharma Companies are employing “fostering” investment payments on milestones that encourage early stage to success! The playfield is changing and the will to win is not nearly so important as the will to prepare to win.

The field is expansive, the Stake Holders are lining the stands, new innovative technologies are on deck and teamwork makes the dream work! n Jae Sly is the CEO of Strategic BioPharm Consulting, Inc. Jae has over 20 years in the Biopharmaceutical Industry, from R&D to Clinic. Jae is an Industry Leader providing strategic partnering of Biopharma technologies and services. Jae has initiated cross border partnering platforms, investment forums and is a corporate mentor in the DE and MD Incubator Startup Programs. Much of Jae’s career has been with numerous start-up and small BioPharma Companies seeking to expand infrastructure, technology exposure on an International level.. Contract negotiations and technology evaluation for Investment Opportunities, has been primary expansion within Jae’s portfolio of services in last few years. Jae maintains a strong Industry presence by presenting and attending at major conferences. Jae received her Ph.D. in Immunology from University of Washington and MBA from San Diego State University. Jae is a member of LES, Maryland ICOY, ESACT, BIO and is Adjunct Faculty at University of Delaware, Bioinformatics Core.. Jae possesses the skills of being Multi-lingual and well versed in Cultural negotiations.

Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

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O P I N ION

A Cannabis Play that Won’t Get Smoked THE “CANNABIS IS A COMMODITY” DEBATE Let’s be clear – THC and CBD, the cannabis components that affect our cannabinoid receptors, are commodities. This has caused many bearish cannabis investors to claim that cannabis company valuations are ripe for share price destruction. We, at Sophic Capital, believe that although market valuations for public cannabis companies are lofty, many licensed producers of cannabis will survive by branding, just like other commodity companies do.

For example, ethanol is the active ingredient in alcoholic beverages and is a commodity. Most consumers of beverage alcohol products don’t focus on the type or source of ethanol; they are more concerned with the taste, smell, labelling, and the story behind

the product. So, the way beverage alcohol companies add value to ethanol is by branding and creating illusory experiences around the product – think “natural spring water;” “aged in oak casks;” and “king of beers.”

CANNABIS DIFFERENTIATION A cannabis company relying solely upon growing plants likely won’t last. But cannabis companies with branding strategies that differentiate strains, packaging, or storefronts could be good investments. But differentiation can be expensive: Coke spent almost US$4 billion in 2017 to differentiate itself from Pepsi and Dr. Pepper. That’s a lot of dough to convince people to drink branded sugar water. Even crazier, Centers for Disease Control and Prevention reported that cigarette manufacturers spent $9.5 billion in 2016 marketing their products,

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and a lot of that was spent marketing the negative health effects of tobacco. That’s about $26 million a day to convince consumers whose brand (not necessarily tobacco) was best while trying to convince those consumers that they shouldn’t smoke tobacco.

A BIGGER POTENTIAL THREAT TO CANNABIS GROWERS Let’s assume that THC and CBD never become commoditized (we are often wrong).

One technology could outright displace cannabis growers - synthetic cannabinoids.

Synthetic cannabinoids are created in a laboratory. Pundits have vilified synthetic cannabinoids since many illegal designer drugs are synthesized to stimulate cannabinoid receptors. But some labs have “grown” legal synthetic cannabinoids for medical treatments.

In fact, they can do it cheaper, cleaner, and faster than licensed producers – (one company we met can synthesize grape plants in 3 weeks and claims cannabinoids will take no longer!). These could be why licensed producer Cronos Group (TSX:CRON) invested US$22 million in Ginko Bioworks, a private firm that uses biology to build sustainable products in food, pharma, manufacturing, and more. The partnership will see Ginkgo work with Cronos Group on research and development of microorganisms capable of producing certain target cannabinoids. If all milestones are met, the deal could be worth US$100 million.

domestic producers ramp, and c) licensed producers will have to backfill lofty valuations or risk share price contraction.

We don’t like any of these scenarios. But we like the cannabis industry – not for the commodities or plants but for the evolving supporting technologies. And one technology we think could be big targets medicinal cannabis data.

“MEDICINAL” CANNABIS REALLY ISN’T In a typical scenario where a physician decides to treat a patient with FDA-approved pharmaceuticals, the physician must assess the benefit to harm outcomes and determine what medication could help the patient.

Over 2,000 approved pharmaceutical drugs exist. We can’t expect doctors to know all of them, but diagnostic tools exist to help doctors recommend medications. These tools consolidate medical research to provide physicians with the knowledge base, guiding them to provide informed decisions that will best help their patients No such evidenced-based tools exist for cannabis treatments, and doctors do not have the time to absorb whatever peerreviewed clinical cannabis trials researchers publish. Doctors therefore hesitate to recommend cannabis treatments for patients. For those that do, cannabis-based treatments are guesses, at best, based on anecdotal information. We need science to define the best potential patient outcomes.

WHERE TO LOOk IF THE THREAT IS NOT REAL

LOOk FOR DATA MOATS

Achieving the quality, scale, cost reductions, and time savings of synthesizing cannabinoids strengthens our thesis that THC and CBD are commodities. But assuming we’re wrong (again) and labs cannot achieve the aforementioned benefits, investors need to consider that: a) licensed producers will need to spend big bucks to compete on brand, b) as new jurisdictions legalize cannabis, export markets will likely shrink as

In an interview with The Globe and Mail, Professor Janice Stein from the University of Toronto said, “Tomorrow’s challenge is who’s got access to the largest amount of data in the cheapest and fastest way.” We agree. Access to data is a moat. Aggregating data from several sources is a bigger moat.

We’ve seen data moats before. They come from onboarding major industry players before competitors have a chance, exten-

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sive sales cycles that make it difficult for the vendor to switch solutions, or unique data-collecting, hardware platforms that are difficult to replicate. The #1 and #2 best performing companies in 2018 on the Toronto Stock Exchange Venture Technology Index are creating these types of data moats.

DATA DRIVEN INFORMATION WITHOUT TOUCHING CANNABIS PLANTS Data exists in medical cannabis clinics, but no standard protocols exist to collect it. CB2 Insights (CSE: CBII) is going to change that.

They operate profitable cannabis evaluation and education centers in 12 states, servicing 65,000 patients and plan to continue consolidating profitable clinics. The clinics are a data pool for CB2 to collect and aggregate what clinicians are prescribing for specific conditions. More patient data refines recommendations, leading to better patient outcomes and improving doctor and practitioner cannabis recommendations. The Company will also use this data to create a software knowledge base of possible cannabis treatments that doctors, clinicians and patients can access (another data collection tool). Big pharma is already losing tens of billions to cannabis substitutions - it needs data. This is the type of data moat Sophic Capital loves - and we didn’t even get into CB2’s machine learning plans. n www.sophiccapital.com Disclosures Sean Peasgood, Sophic Capital, and Sophic Capital’s employees own common shares of Legend Power 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 not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional.

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OPINION

The Impact of the Repeal of PASPA on the Tribal Gaming Market

T

he tribal gaming sector generates between 45-50% of all gaming revenue in the U.S. Since the passage of the Indian Gaming Regulatory Act (IGRA) in 1988, tribal gaming has grown from a $121 million to a $37 billion plus segment in 28 states in 2018 (Source: AGA, Meister, NIGA).

That revenue allows tribal casinos across the country to provide diverse career opportunities, support local businesses and fund critical state, local, and tribal government programs.

According to a recent study by Eilers & Krejcik Gaming (EKG), 32 states will likely have legalized sports gambling within five years and as many as 14 could be ready for legislation within two years. Based on 32 states, EKG estimates that the overall U.S. sports betting market could generate approximately $6 billion in revenue, with an annual turnover of $100 billion.

HOW BIG CAN THE TRIBAL SPORTS BETTING MARkET BE?

potential tribal online gambling market of $3.4 billion. And if we assume that sports betting is 50% of the online market, that yields a potential tribal sports betting market of $1.7 billion.

Under the Professional and Amateur Sports Protection Act (PASPA) of 1992, sports betting in the U.S. was banned from 1992 to 2018 (except for four states that were grandfathered in under PASPA since they had previously allowed sports betting - Nevada, Delaware, Oregon, and Montana).

Since PASPA’s repeal in May 2018, six other states have passed laws to allow for legal sports betting – Delaware (allowing singlegame bets), New Jersey, Mississippi, West

Virginia, Pennsylvania, Rhode Island and New Mexico.

New Mexico provides an interesting study as the Santa Ana Star Casino & Hotel launched a sportsbook in October 2018.

Santa Ana is a tribal casino, and the tribe can take sports bets on its property even though sports betting is not yet legal in the state. In this case, sports betting is regulated by the Pueblo of Santa Ana Gaming Regulatory Commission.

According to the National Indian Gaming Commission (NIGC), there are 460 tribal gaming casinos in the U.S., operated by 240 federally recognized tribes. We believe the

If we assume that online gambling is ~10% of the overall market, that would yield a

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Exhibit 1 - Economic Impact of Tribal Gaming (2016)

Source: American Gaming Association

(AGA), Meister Economic Consulting

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tribal sports betting market will be a fragmented one because not all tribes have compacts with their respective states. Compacts outline what kind of gambling tribal casinos can offer, and how much taxes are paid to the state as a percentage of revenue. To complicate matters further, each state compact is different.

The National Indian Gaming Association (NIGA), led by Chairman Ernie Stevens Jr., supports sports betting on tribal land, and issued a set of guidelines just a few months after the U.S. Supreme Court repealed PASPA and ruled that sport betting could be legalized on a state-by-state basis. The guidelines are as follows: • Tribes must be acknowledged as governments with authority to regulate gaming; • Tribal government sports betting revenues will not be subject to taxation; • Customers may access tribal government sports betting sites as long as sports betting is legal where the customer is located; • Tribal rights under the Indian Gaming www.stocknewsnow.com

Regulatory Act (IGRA) and existing tribal-state gaming compacts must be protected; • IGRA should not be opened up for amendments; • Tribal governments must receive a positive economic benefit in any federal sports betting legalization proposals; • Indian tribes possess the inherent right to opt into a federal regulatory scheme to ensure broad-based access to markets; • Tribal governments acknowledge the integrity and protection of the game and patron protections for responsible gaming are of the utmost importance; • Any consideration of the use of mobile, online or internet gaming must adhere to these principles.

Source: www.sportshandle.com

FINAL THOUGHTS

Pennsylvania, we believe most estimates are conservative and the US could grow to be the largest sports betting market globally over the next 10 years. n About the Author Mr. Garcea co-founded Focus Merchant Group in September 2018 and has more than 22 years experience in senior analyst positions at major domestic and international firms. He was a top-ranked research analyst, well regarded for the depth and breadth of knowledge he brings to bear on his coverage of technology, gaming and industrial companies across a broad range of market capitalizations. Over the years, he has received top three rankings from Brendan Woods, Greenwich, Starmine and Thomson Reuters surveys. One of Mr. Garcea’s clients currently is Newgioco Group (NWGI-OTC QB), where he is the VP Corporate and Business Development.

Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. Mr Garcea does not own any shares in companies mentioned.

Just looking at the recent growth in sports betting handle and gross gaming revenue (GGR) in New Jersey, Mississippi and MicroCap Review Magazine

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LUCOSKY BROOKMAN GIVES BACK

Lucosky Brookman LLP, a leading corporate and securities law firm with offices in New York and New Jersey, is devoted to contributing time and resources to giving back to the community through a hands-on approach to charitable activities. Since 2014, Lucosky Brookman, together with its friends, clients and colleagues, has donated over $775,000 to charitable endeavors throughout the world. In 2017, Lucosky Brookman founded the Lucosky Brookman Foundation, a public 501(c)(3) charity, through which the Firm uses the power of philanthropy to impact the lives of those less fortunate.

Lucosky Brookman invites you to join it in supporting The Save A Child’s Heart Foundation (SACH). SACH is a global humanitarian organization, with a mission to provide life-saving cardiac care to children of all backgrounds, regardless of race, religion, gender, nationality, or financial status, who suffer from congenital and acquired heart defects and have no access to quality care in their native countries. SACH is also committed to providing training to doctors from developing countries to set up local centers of competence. To date, SACH has have saved the lives of 5,000 children from 58 countries and has trained over 120 international medical personnel.

To learn more or make a donation visit www.theLBF.org

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ASIA CORNER

Hong Kong Stock Market Robust in 2019 T

he Heng Seng Index has recovered most of its losses from 2018 with a robust start this year, up 13.2 percent as of March 14th, rebounding from a 14 percent drop in 2018.

Despite having the Index’s worst performance in seven years, Hong Kong won back the title for top global IPO market in 2018, beating the previous year’s winner: New York. Fundraising through initial public offerings increased to US$36.8 billion, the highest fundraising in eight years. A record 218 companies listed in Hong Kong’s main board and GEM during the year. More than 70 percent of the funds raised were from mainland companies, including 36 high growth mainland “new economy” companies as Hong Kong remains their number one choice to raise capital from international investors. The surge in tech company listings was driven by the change in listing rules allowing dual class shares structure to go public on the exchange. Telecommunications and hi-tech were the two biggest fundraising sectors in Hong Kong, representing 39 per cent of funds raised, compared to 10 per cent in 2017. The financial sector, traditionally the largest sector in Hong Kong, represented

just 9.5 percent of all fundraising, compared to 32 percent the previous year.

This year, more than 200 companies are already lined up to list on the exchange to raise an expected US$29.4 billion, the majority of which are new economy companies in the TMT, biotech and education sector.

Small and medium size IPOs are expected to dominate the landscape with only one or two mega-sized IPO anticipated, according to PWC. Companies preparing to list in Hong Kong this year include Shenzhenbased Belle International. With a 6.7 percent share of China’s apparel and footwear specialist retailer segment, according to Euromonitor, Belle is aiming for a valuation of at least HK$20 billion (US$2.55 billion) to HK$25 billion. The company has a solid position in China’s rapidly growing sports-

wear industry which Euromonitor estimates will increase to US$58 billion in 2023 from US$40 billion in 2018. Another highly anticipated IPO is Koolearn, an online education company under New Oriental. The company has plans to file for a Hong Kong initial public offering (IPO) this year to raise US$90 million to US$104 million. Koolearn is the largest online education brand in the Chinese college-exam preparation market, holding 8.2% market share in 2017 by revenue, according to consulting firm Frost & Sullivan. ESR-Reit is also planning an IPO on the Hong Kong stock exchange expecting to raise US$1 billion to US$1.5 billion. ESR is the largest Asia-Pacific-focused logistics real estate platform, formed by a merger of Shanghai-based warehousing services firm e-Shang and Singaporean logistics real estate

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investment firm The Redwood Group in 2016. With Hong Kong revamping its listing rules, it is generating increased interest from overseas companies. Controlled by Chinese investors, U.K.-based data center operator, Global Switch is in the process to list in the HKEX later this year, raising up to US$1 billion and Erdenes Tavan Tolgoi, a Mongolian state company controlling one of the world’s largest coal mines, plans to raise up to $3 billion in a public stock offering in Hong Kong.

As the world’s third largest exchange by capitalization, Hong Kong Exchange continues to expand its offerings with the goal of becoming the go to giant for investment in Asia. In March, it announced a new threeyear strategy to add currencies, fixed-income products and other financial derivatives to its offerings. Included in the plan, the HKEX will shorten the IPO settlement cycle and work to attract more ETFs to list in the SARS. It is also looking at ways to expand its yuan products, by offering more yuan futures and yuan bond products as well as develop infrastructure to help international investors access the onshore yuan markets.

It is providing foreign investors new tools to hedge their risk and better manage their exposure to mainland equity by introducing futures contracts on the MSCI Ching A Index, which represents the A-share portion of MSCI’s flagship Emerging Markets Index.

While northbound trading under the stock connect mechanism between the mainland and Hong Kong bourses had a slow start when initially launched, net inflow into the A-share market through northbound trading hit a record high of 60.69 billion yuan ($8.97 billion) in January.

China Continues to Build for the Future In March, China revealed its annual policy blueprint with a set growth target of 6.0 to 6.5 percent for 2019 as the country faces graver and more complex risks and challenges. The PRC stated it is reorganizing and restructuring its economy toward a more rational and healthier pattern of growth and consumption that aims to balance the global expectations of China’s high GDP www.stocknewsnow.com

growth against its environment, health-care and overall social welfare responsibilities.

Consumption is expected to be the major component of GDP growth in 2019, contributing over 80 percent, up from 76.2 percent in 2018.

China’s economic future is being fueled by its two major programs, the Greater Bay Area and The Belt and Road which are to act as a catalyst to further drive the openingup of its economy. The Guangdong-Hong Kong-Macao Greater Bay Area is expected to create unprecedented opportunities for a wide range of sectors including infrastructure, financial services, capital markets and technology. While the Belt and Road project which reached its 5th year in March, is intended to help facilitate economic and social development of the countries and regions along the B&R routes, mainly Euroasia, by providing cutting-edge technologies and high-quality products and services. As B&R construction enters new stage of economic and trade cooperation, China’s outward investment is expected to expand to wider fields from large-scale infrastructure, energy and resources to tourism, e-commerce, as well as cultural, educational and people-topeople exchanges, according to CGG. A noteworthy absence from the annual policy blueprint was the mention of “Made in China 2025” a strategy that has caused suspicion within the United States and Europe.

Still, Beijing remains committed to building a powerful manufacturing country as it enhances its industrial development and technology innovation. Along with increasing technology advancement, a number of high-quality new mainland brands such as Lenovo and Alibaba are emerging and looking to expand their market globally.

With consumption now China’s largest power for growth, retail sales in China are forecasted to grow 7.5 percent to $5.6 trillion this year, surpassing the US retail sales of $5.5 trillion for the first time to become the world’s top retail market, according to eMarketer. Of China’s 802 million-strong online population, 28 percent are aged between

20 and 29, according to the China Internet Network Information Centre. This group known as the “post-90s” generation is one of the fastest-growing and increasingly influential segments of Chinese consumers. China’s post-90s, the first generation to fully benefit from China’s reform, grew up in a country unknown to their parents, one with rapidly growing levels of wealth, exposure to Western culture, and access to new technologies. They are expected to represent more than 20 percent of total consumption growth in China between now and 2030, higher than any other demographic segment, making them the engine of consumption. This generation, born on the internet and living on their mobile devices, are non-savers, willing to spend on themselves. They spend most on smartphones, fashion, travel, experiences, products where brand and quality matter and on things that make their life more comfortable and convenient. With younger generations driving consumption, they are powering transformational economic and social change across the country, which Fung Business Intelligence believes combined with technological advances will continue to disrupt the retail landscape. n Ms. Leslie Richardson has over 20 years of investment management and equity research experience. She operates a boutique investor relations firm in Hong Kong for Asian companies listed in the U.S. and Hong Kong.

She also assists private companies develop investment material and build an investor following in preparation for a public listing. Additionally, she is the Asian Correspondent for Micro-Cap Review, www.microcapreview.com, a financial magazine focused on mirco-cap companies. Previously, she worked for CCG Elite in assisting Asian-based, U.S. listed clients formulate key communication strategies. Ms. Richardson began her investment career at U.S. Trust Company then went on to join Odyssey Advisors as a portfolio manager and Director of Research. Ms. Richardson specialized in high growth sectors such as bio-tech, alternative energy, IT and telecommunications. She earned her M.B.A. from the University of Southern California. Ms. Richardson is based in Hong Kong. www.elite-ir.com.

Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. Leslie does not own shares in IPOs or companies mentioned.

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The laRgest MicROcAP AuDience

Discover new Opportunities and stay informed MicroCap Companies: Reach Your Target Audience

Publishing since 2006

mi•cro•cap [mahy-kroh-kap] A private or publicly traded company that has a market capitalization under $500 million.

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MicroCap Review Magazine is the Official Magazine of the MicroCap Stock Market.

MicroCap Review is owned and operated by SNN Incorporated

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