MicroCap Review Fall 2018 by Planet MicroCap Review Magazine

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Fall 2018

Jericho Oil Corporation Page

US Nuclear Corp. Page

TSX-V: JCO / PINK: JROOF Brian Williamson, CEO www.jerichooil.com

PINK: UCLE Bob Goldstein, CEO www.usnuclearcorp.com

Featured articles 21 There’s a New SEC in Town Corey Fischer, CPA 28 Undiscovered Down Under Mark Tobin 44 What is a SPAC? Doug Ellenoff, Esq. 52 Three Themes for Mining Investments in 2018 Rick Rule, Sprott U.S. Holdings 54 Identifying Promising Opportunities in MicroCap Investments Sam Nimiri Canada! Brandon Mackie 56 Why www.stocknewsnow.com

60 Invest and Make Money with the Power of Knowledge Maj Soueidan 64 Why Family Offices Should Be Your First Choice For Capital Investment Karl Douglas 67 Investors Warm Up to U.S. Cannabis Companies Alan Brochstein 68 Regulation of Crypto at a Crossroads Dina Ellis Rochkind, Esq. and Joshua Samuel Downer Esq.

OptimizeRx Corporation Page

NASDAQ CM: OPRX Will Febbo, CEO www.optimizerx.com

Medical Transcription Billing, Corp. Page

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78 Harnessing Regulatory Initiatives & 90 TSX Venture Exchange Update Targeted Rulemaking to Improve Mixx Brady Fletcher Slash Dot Skype Technorati Transparency and Further Market Efficiency Cromwell Coulson Reddit FriendFeed YouTube LinkedIn 80 Digital Currency 101 Robert Graham, CPA and Joshua Santos, CPA Newsvine SlideShare Google Google Talk 86 Major Mining Companies Looking for Quality Junior Assets Brent Cook 88 How to Play PASPA from Canada Yahoo Yahoo Buzz Netvibes AOL Ralph Garcea

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s the third quarter concludes and Fall begins, fourth quarter earnings are highly anticipated in the microcap space. There are companies that will be reporting earnings, and others reporting revenues for the first time in their existence. For our readers, this will be exciting news and exactly what successful growth stocks are supposed to do. Many of our profiled companies are focused on their plans for organic growth and growth through acquisitions. As you know, the MicroCap Review focuses on MicroCap stocks, which includes public and private issuers that can also be classified as emerging growth companies – that can have their operations in emerging markets. By SEC standards, MicroCaps includes public companies of US$500M in market capitalization or less regardless of which exchange they are listed. This magazine features companies listed anywhere on the globe from Asia to New Zealand. The MicroCap stock market also includes pre-IPO private companies from startups to ramp-ups, whether Reg A+, Reg D, SPAC, crowd-funded or reverse mergers. As Investors’ appetites expand, more quality offerings are needed. Since the JOBS Act, with crowdfunding and the “new IPOs”, the demand for growth capital is yielding more and more investment opportunities. We see that many of our new subscribers are millennials, DIY investors, family offices, high net worth accredited investors, non-accredited investors and fund managers that are mostly located in the U.S. and North America. We are also noticing growth in foreign listed and dual-listed microcap issuers wanting to increase their market exposure and investor awareness. MicroCap investors should do as much due diligence as possible. It is quite difficult to find much needed broker dealer unbiased research since analyst coverage is scarce on microcap companies and sponsored research

is available selectively. Most MicroCap investors continue to develop their own creative means to gather data in search of information gathering, diligence and research. Concurrently even the best investigative investors run into dead ends. An informed disciplined investor has a propensity to make less mistakes investing than not. Investing in microcap companies has inherently more risk than large-caps of course and large-caps are covered by multiple wire house analysts, research departments, and published across all media. Ask yourself where do you go before making your investment decisions? In recent years this niche market has received attention from Wall Street, Washington D.C., Main Street, Bay Street and Market Street recognizing how investing in small business is good for the economy. Small business entrepreneurs create new technology, new products and services, new discoveries, and solutions to unmet needs and all need capital to grow. This issue includes many microcap companies in many sectors like technology, junior resource, energy, medical, biotech, pharma, healthcare, gaming, uranium, cannabis, security, social media, drones, nuclear fusion, blockchain, crypto currency and capital formation. Editor’s note: MicroCap Review is highlighting 8 Australian Securities Exchange (ASX) listed companies in this issue. Many of these companies have US operations and are in the process of attaining an active US listing. We have included available US tickers on Pink markets where applicable which are subject to change. I hope you find new information and discover new opportunities and enjoy this issue as much as I have had putting it together! It’s all for us, the microcap investor! Cheers and see you out there throughout the year. Happy holidays to you and your families! Shelly Kraft, Publisher n

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

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

CONTENTS F e at u r e d A rt i c l e s 44 What is a SPAC? By Doug Ellenoff, Esq. 52 Three Themes for Mining Investments in 2018 By Rick Rule 54 Identifying Promising Opportunities in MicroCap Investments By Sam Namiri 58 Investing in Electricity Conservation By Sean Peasgood

64 Why Family Offices Should Be Your First Choice For Capital Investment By Karl Douglas

Jericho Oil Corporation TSX-V: JCO / PINK: JROOF

11 AudioEye, Inc. NASDAQ CM: AEYE 12 Concierge Technologies, Inc. OTCQB: CNCG 14 OptimizeRX Corporation NASDAQ CM: OPRX 17 Golden Arrow Resources Corporation TSX-V: GRG / OTCQB: GARWF / FRANKFURT: G6A 18 US Nuclear Corp PINK: UCLE

Accounting Corner 21 There’s a New SEC in Town By Corey Fischer, CPA Australia Corner 28 Undiscovered Down Under By Mark Tobin Legal Corner 40 Don’t Blame it on Reg A By Louis A. Bevilacqua, Esq. Cannabis Corner 67 Investors Warm Up to U.S. Cannabis Companies By Alan Brochstein Beltway Corner 68 Regulation of Crypto at a Crossroads By Dina Ellis Rochkind, Esq. and Joshua Samuel Downer Esq. www.stocknewsnow.com

80 Digital Currency 101 By Robert Graham, CPA and Joshua Santos, CPA

90 TSX Venture Exchange Update By Brady Fletcher

60 Invest and Make Money with the Power of Knowledge By Maj Soueidan

Profiled Companies

78 Harnessing Regulatory Initiatives & Targeted Rulemaking to Improve Transparency and Further Market Efficiency By Cromwell Coulson

82 Communication Pitfalls in the Crypto Era By John Lowy, Esq.

56 Why Canada! By Brandon Mackie

stocknewsnow.com Fall 2018

102 Tracking Micro Cap Debt in Southeast Asia By Peter Pham 108 What Are Gold Royalty Companies and Why Do They Matter? By Nolan Watson 114 Junior Mining: Why Royalty Companies and Project Generators By Adrian Day

22 Medical Transcription Billing, Corp. 43 New Energy Solar Ltd. ASX: NEW NASDAQ CM: MTBC 25 Fission Uranium Corp. TSX: FCU / OTCQX: FCUUF

46 GoviEx Uranium Inc. TSX-V: GXU / OTCQB: GVXXF

31 Buddy Platform Ltd. ASX: BUD / PINK: POTTF

47 SRAX nasdaq cm: SRAX

33 Tech Mpire Ltd. ASX: TMP

51 Senetas Corporation Ltd. ASX: SEN / PINK: SNESF

35 Race Oncology Ltd. ASX: RAC

70 Creso Pharma Ltd. ASX: CPH

36 Tinybeans Group Ltd. ASX: TNY / PINK: TNYYF

76 Hilltop Cybersecurity, Inc. CSE: CYBX / OTCQB: CYBXF

38 Family Zone Cyber Safety Ltd. ASX: FZO / PINK: FMZNF

Asia Corner 72 Hong Kong Exchange Attracting Chinese Unicorns and Biotechs By Leslie Richardson

Opinion 95 Aussie Companies By John Kimber 95 The DJIA and the USA Economy: Past, Present and Potential Future By Steven M. Shelton, MS. MBA. CFP®, CLU, CHFC, TEP, CIMA® CMT

Resources Corner 86 Major Mining Companies Looking for Quality Junior Assets By Brent Cook

105 Oil & Gas Turmoil But Steady Growth in 2018 By Frederic Scheer

Gaming Corner 88 How to Play PASPA from Canada By Ralph Garcea

106 2020 BioPharma Expansion and the Opportunities of Heading East By Jae Sly, MBA, Ph.D

Commodities Corner 92 Introduction to the Futures Markets By Mark Shore, MBA

112 Why is the Cryptocurrency Revolution Good for Gold? By Doug Casey

Comic Strip 94 WallStreet Chicken Episode 18 - The Roast

Fixed Income Corner

110 Fixed Income By Michael E. Lewitt MicroCap Review Magazine

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

TSX-V: JCO / PINK: JROOF

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

t’s no big secret that until very recently, it has been a rather tough few years for the oil industry and, as a result, tough on companies associated with the industry. This is especially true for microcap companies in the junior oil sector that were fighting to stay between the lines in an environment of high costs and low returns that resulted from the oil price downturn of 2014 to 2017. Well, it appears those days are in the rearview mirror, as oil hovers in the $70’s and many predicting it to go up from there. That’s great news if you were one of the few microcaps savvy enough to manage your way through the traffic and are now positioned to take advantage of the open road left by those that were forced to drive off a cliff… Jericho Oil Corporation is, in fact, one of the success stories now speeding down the highway. The company, with operational headquarters in Tulsa, Oklahoma, is a well-capitalized junior E&P (Exploration & Production) with an experienced Team that has a recognized track record for success in

Brian Williamson, CEO

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many companies, both large and small would love the opportunity to do. A company changer! Wait for it… Through years of hard work, diligence, relationship building, relentless Geological/Engineering/Land efforts, and finally, maybe a little bit of luck, microcap Jericho has managed to acquire an interest in ~16,000 net acres (almost all held Figure 1. U.S. Onshore Shale Basins by production) in the prized Anadarko Basin the area, and an established strategy of buy- STACK Play. Yup! That’s it! Jericho maning distressed and undercapitalized assets aged to become a “player” in the STACK! in proven plays with a focus on domestic, It’s kind of a big deal. And with each liquids-rich unconventional resource plays, passing day, as their much larger neighborprimarily in Oklahoma. Jericho’s core busi- ing oil companies release and upgrade well ness objective is driving long-term share- results, work their own geology/engineering/ holder value through the growth of oil and land, and continue to snatch up surrounding gas production, cash flow and oil-reserves. STACK acreage at prices 3..4..5 times what As such, the company has assembled an Jericho paid, the big deal for Jericho is getting enviable 55,000 acre position across the state bigger… much bigger. of Oklahoma at low-cost entry with signifiLarge E&Ps like Continental Resources, cant current production value. Devon Energy, Marathon Oil, Newfield Jericho is unique among juniors as it Exploration, Chesapeake Energy and Jim had strong financial backing during the oil Hackett’s recently-listed Alta Mesa Resources downturn which enabled it to acquire high collectively hold over ~1 million acres in quality assets at the bottom of the market the STACK and have made it their core and the height of distress. The cash to buy focus. What do they know that Jericho came from a handful of world-class, long- knew as well? It has to do with the supeterm investors. The Breen Family (Ed Breen rior well results now able to be accessed is CEO of the chemical and agricultural giant from “stacked-pay” formations. The STACK DowDuPont) and the Hegna Family are two of the company’s largest shareholders, and they are joined by several other notable families who have backed Jericho, even when oil was sub-$30 a barrel. Within those 55,000 acres, Jericho, along with its private joint venture partner/family office, owns and operates three high-quality oil and gas plays in Oklahoma. And within those three plays, Jericho has managed to do something many companies were, and still are, simply unable to achieve. Something Figure 2

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“We believe the value is all about understanding and delivering best-in-class results in a particular opportunity within a particular play. In our world, the ability to find oil gets harder and harder every year. As such, you want to be aligned with a team that knows an asset, knows a region, and knows how to develop the hydrocarbons in that area. At Jericho, that’s exactly what we’ve built: a team geared around developing the stack, a team that understands, lives, and has breathed Oklahoma oil and gas development for the last 40 years. That local knowledge, that rock knowledge, that geology knowledge, and that development experience translates very, very well into successful after successful development programs.” —Brian Williamson, CEO of Jericho Oil boasts top-tier well economics similar to the Permian which translate into very low breakeven prices near $30 per barrel. How about a little background… One of the lowest cost oil and gas plays in North America is the Oklahoma STACK. The ‘STACK,’ as it is affectionately known, is an acronym describing both its location and formation. Location - Sooner Trend Anadarko Basin Canadian and Kingfisher County. Formation - The play has multiple, “stacks” of productive formations that are present in the area. The STACK is a prolific hydrocarbon system with high oil content, multiple horizontal target horizons (~700 feet thick), extensive production history and historically high drilling success rates. The STACK fields were originally developed by the majors (companies like Exxon, Texaco and Shell) and were drilled vertically. The recent introduction of horizontal drilling and hydraulic fracturing has reinvigorated the play, and billions of dollars of investment have been directed into the STACK basin because of the repeatable stacked, multi-zone, successful drilling and development across the play. And Jericho is no exception. As oil moved comfortably into the $60s/70s this year, the company transitioned its focus from growth through acquisitions to growth through the drill bit. Jericho recently participated in the successful drilling and completion of two test horizontal STACK wells, partnered with www.stocknewsnow.com

best-in-class private operators. The first well (Wardroom) achieved a peak 24-hr rate of 957 BOE, with an IP30 (Initial Production over 30 Days) of 770 BOE per day and was amongst the highest of any well to-date targeting the Meramec formation in the northern STACK on a per 1,000 lateral foot basis. Early results from the second well (Swordspear), which targeted the Osage formation, after 30-days on an electrical submersible pump, were reported on July 25, 2018. As of that date, the most recent daily production reading was of +500 BOE – and the well had still not yet reached peak IP. (See Figure 4) There are several catalysts ahead for shareholders as the coming months look to be filled with positive activity, pushing the company onward, upward and continuing the metaphor of heading down that highway of success. Jericho has plans for at least three new horizontal STACK wells in the second half of 2018 along with additional “tuck-in” acquisitions contiguous to its current STACK acreage increasing Jericho’s

Figure 3. Underlying STACK Intervals

already, envious position. Looking out even further, Jericho’s story seems primed to pick up even more speed. Each STACK well at $60 oil delivers ~$3.5 million of PV10 value (PV10 is the current value of approximated oil and gas revenues in the future, less anticipated expenses, discounted yearly at 10%). Jericho’s STACK JV currently owns ~200 well locations, so the upside for Jericho and its shareholders appears to be enormous. With the inevitable winding road aside, Jericho is a world-class team, determined to continue growing and succeeding, dedicated to the craft, with a detail to timing. As such, Jericho Oil Corporation appears to have their top down and are motoring in the right direction…

Experienced Mid-Con Leadership Team Brian Williamson, CEO Mr. Williamson has been a part of the energy industry since 1995. Mr. Williamson, in his role as CEO, is responsible for the overall vision, direction and corporate strategy of Jericho. Day to day, he spends his time working with Jericho’s leadership team sourcing, evaluating and developing the company’s oil and gas assets and capital market activities. Mr. Williamson began his

“While the Permian Basin has grabbed the attention of oil companies and their investors in recent years… Some drillers are finding that the STACK shale play in Oklahoma is just as good, if not better, than the vaunted Permian. That›s why they spent billions of dollars to scoop up land in the region over the past few years, which is starting to pay big dividends by fueling remarkable production growth.” —The Motley Fool (Dec. 13, 2017)

MicroCap Review Magazine

Figure 4. Growing Jericho’s Core Position

Figure 5

career at Arthur Andersen as part of its Tax and Business Advisory Services Practice. While at Arthur Andersen, he worked with Fortune 500 and FTSE 100 companies and private firms on evaluating investment opportunities and conducting extensive research on corporate planning and due diligence on industry transactions. Mr. Williamson also oversaw the creation, trading and risk management of energy and energy related trading products in various world markets. From 2006 until 2012, Mr. Williamson managed the private equity platform for a New York based financial institution. Mr. Williamson earned a B.S. in Accounting from LaSalle University and a J.D. from Widener University School of Law, where he served as law review editor and was a national moot court semi-finalist. Mr. Williamson is a Certified Public Accountant (inactive).

years of experience primarily working the Mid-Continent and Permian Basins. His experience spans everything from waterflooding to full field development and corporate management. He has also spent time in the industry in Kuwait as well as in Yemen as Production Superintendent for Hunt Oil. He has spent the last eight years with Nadel and Gussman LLC where he was responsible for the horizontal Mississippi Lime drilling program which involved 15 horizontal wells including the first horizontal Mississippi Lime wells drilled in Osage County, Okla. Mr. Webb has a Bachelor of Science in Computer Engineering from the University of Oklahoma, is a 25 year member of the Society of Petroleum Engineers, and has been a registered professional engineer for 37 years.

Ben Holman, CFO Mr. Holman, based in Tulsa, Oklahoma, has more than 17 years’ experience in accounting and business administration in the oil and gas industry, including senior positions at Apco Oil and Gas International Inc., a former subsidiary of The Williams Companies and WPX Energy. He has been working with Jericho at its Tulsa operational headquarters since November 2017. Mr. Holman is a CPA, with a MAcc, B.S. and BSBA, all from the University of Tulsa. Dennis Webb, Director of Engineering Mr. Webb is a Petroleum Engineer with 40+

Shane Matson, Director of Geology Mr. Matson joined the Jericho management team in 2016 and serves as Director of Geology. He has studied the outcrops and subsurface geology of the Mid-Continent region for 20 years and brings over a decade of work as a Petroleum Geoscientist with focus specifically on Jericho’s current area of focus and brings a history integrating highly technical attribute analyses of 3D seismic volumes into modern exploration and reservoir development workflow. Through his work with Ceja Corporation, Spyglass Energy Group and Mid-States Petroleum Matson has been at the forefront in pioneering the horizontal development of

Mississippian reservoirs. Mr. Matson graduated with a Bachelor of Science and Masters of Science degrees from the University of Arkansas, Fayetteville where he serves as an honorary member of the External Advisory Board to the Department of Geosciences. He is a member of the American Association of Petroleum Geologists, Tulsa Geological Society, Ft. Smith Geological Society, and the Oklahoma Well Log Library. Mr. Matson is a two-time recipient of the AAPG MidContinent Section A.I. Levorson Memorial Award. The award recognizes the best paper presented at the MCS AAPG Section meeting, with particular emphasis on creative thinking towards new ideas in exploration. He has presented work and ideas on the Mississippian reservoirs of the MidContinent at the AAPG Playmakers Forum and AAPG Discovery Thinking Forum. Bill Harwell, Director of Land Mr. Harwell brings an extensive background in all aspects of petroleum landman management, operations and administration. Mr. Harwell has spent much of his career in the Mid-Continent region. With over 30 years’ experience in land functions, Bill has successfully led land teams as part of Williams Energy as well as managed the land function for Private Equity sponsored energy focused groups. Bill’s experiences include end to end exposure to all aspects of the petroleum land business including managing and overseeing acquisitions, inspections, divestures, right-of-way projects. Mr. Harwell has given expert testimony at The Oklahoma Corporate Commission in over 50 hearings. He is currently a member of the International Right of Way Association, Tulsa Association of Petroleum Landmen and Tulsa Pipe Liners Club. n JERICHO OIL CORPORATION For more information, please visit: www.jerichooil.com Toll-Free: 1-800-750-3520 Tickers: PINK: JROOF / TSX-V: JCO The company paid consideration to SNN or its affiliates for this article.

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NASDAQ CM: AEYE

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AudioEye, Inc. Technology with an Accessible Purpose

ounded in 2005 as an R&D company by serial entrepreneurs, technologists and brothers, Sean and Nathan Bradley, AudioEye is technology with purpose. When Nathan was diagnosed with a degenerative disease that would leave him blind, the Bradleyâ&#x20AC;&#x2122;s dedicated themselves to developing a solution to ensure the Internet remained accessible to Nathan. Fortunately for the 15%+ of the worldâ&#x20AC;&#x2122;s population that lives with a disability, their project became a technology, company and offering that positively impacts the ability of all people to access and use digital content.

Access is Not Equal A website is inaccessible for people relying on assistive technology, such as screen readers, if it is not coded or designed for digital accessibility. But the failure to provide accessible websites and content is bigger than access. More than 71% of the billion plus people with disabilities, have disabilities that are not perceptible. These include a range of cognitive disabilities, such as Dyslexia, all of which negatively impact their ability to fully absorb and retain digital information. Designing websites for digital accessibility also ensures equal access and compliance with requirements related to the Americans with Disabilities Act (ADA) and generally accepted standard, Web Content

Accessibility Guidelines (WCAG) 2.1.

Leveling the Playing Field For people with disabilities, accommodations in the digital world are as critical as ramps and rails in the physical world. No business, school or government agency intends to exclude people with disabilities, but unless their websites are accessible, that is exactly what theyâ&#x20AC;&#x2122;re doing: excluding millions. Fortunately for all, AudioEye has achieved a solution that makes it simple and cost effective to remediate existing websites, ensure accessibility for people with disabilities and create greater usability for all end-users. Leveraging patented technology and subject matter expertise, AudioEye is able to provide an end-to-end solution that is the most efficient and sustainable method for achieving and maintaining ADA-related compliance.

Doing the Right This Is Smart Business Fueled by year-over-year increases in ADArelated lawsuits, and threats of legal action for failure to provide equal access on their websites, public and private companies across industries, schools and school dis-

tricts, state, local and federal government agencies and entities from the Fortune 500 to small businesses have sought solutions that are cost effective and sustainable. In an industry historically populated by consultants, scanning tools and report writers, AudioEye has emerged as the clear leader, offering a service based in technology that has fueled the company to growth year-over-year.

Doing Well, Doing Good What began as the mission of two brothers to find a personal solution to manage disability, has become the reason AudioEye exists: to make digital content more accessible, and more usable for more people. Today, AudioEye automatically publishes more than one billion remediation fixes daily on more than one thousand websites for 800+ customers. Through direct clients and partners building our technology into their platforms, AudioEye is steadfast in our belief that Accessibility is about people first. n AudioEye, Inc. (AEYE) For more information, please visit: www.audioeye.com The company paid consideration to SNN or its affiliates for this article.

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OTCQB: CNCG

Concierge Technologies, Inc. Building Value, One Profitable Acquisition at a Time

oncierge Technologies’ strategy is to provide balance among its businesses and offset the cyclicality that faces so many companies by owning and operating entities in diverse sectors.

Warren Buffet once said: “Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.” That’s exactly what CEO Nicholas Gerber, COO David Neibert, and the team at Concierge Technologies is doing—building value for shareholders, one profitable acquisition at a time. A publicly traded holding company that took its present form under new leadership in 2015, Concierge Technologies is quietly building a solid business. Since 2015, book value per share has grown at a compounded rate of more than 22 percent, and annual revenues are hovering at the $30 million mark. The company today has four operating units. Each is healthy, profitable and wellestablished in its respective sector. “Our goal is to build a publicly traded entity for the benefit of all shareholders, adding value through conservative, accretive acquisitions of companies with strong management teams and solid growth prospects,” Gerber said. “Our underlying strategy is to provide balance among our businesses and offset the cyclicality that faces so many companies by owning and operating entities in diverse sectors.” “The people who run our companies dayto-day, and the companies themselves, are leaders in their industries,” Neibert added. “We provide expert resources at the corporate level, allowing them to concentrate on profitable growth of the businesses they each know so well. Where it makes sense, we maximize resources and take advantage of synergies.” One vivid example is the rollout this fall

in New Zealand of the company’s Original Sprout line of natural, 100% vegan, safe, nontoxic hair and skin care products through the existing distribution channels of another Concierge company, New Zealand-based Gourmet Foods. Original Sprout was acquired at the end of 2017. Gourmet Foods, which produces and distributes iconic meat pies and pastries throughout New Zealand under the brand names Pat’s Pantry and Ponsonby Pies, joined Concierge in August 2015. The company’s other businesses include Wainwright Holdings, operating under the USCF Investments brand, acquired in December 2016, and Brigadier Security Systems, acquired in June 2016. Based in Oakland, Calif., and with about $3 billion in assets under management, USCF serves as manager, operator or investment adviser to exchange traded products, structured as limited partnerships or investment trusts that issue shares trading on the NYSE Arca. Brigadier, headquartered in Saskatoon, Canada, provides comprehensive security solutions to homes and businesses, government offices, schools and other public buildings throughout the province. Gerber is a prudent investor, with a long, suc-

cessful history of creating value for shareholders. In 1995, he founded and served as chief investment officer of the Ameristock Fund, which, under his leadership, beat the S&P500 with double-digit returns over its lifetime. Gerber believes that Concierge, which is still in its formative stages, represents a ground floor opportunity for shareholders and prospective acquisition candidates alike. “At our size, it is rare and gratifying to have achieved profitability,“ he said. “We are just getting started and believe Concierge has a bright future.” n For more information about Concierge Technologies, visit: www.conciergetechnology.net. The company paid consideration to SNN or its affiliates for this article.

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NASDAQ CM: OPRX

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OptimizeRx Corporation Delivering Results in Digital Health

arely do you find an emerging growth company that has taken a sea change in a major industry and turned it into a powerhouse of high-

margin revenue and earnings. This is OptimizeRx (Nasdaq: OPRX). Over the last few years, the U.S. healthcare system has become exceedingly complex and costly for everyone — not only for patients, but also for doctors and hospitals. Even Big Pharma is feeling the pain. Patients are facing an increasing cost burden due to expensive medications and record-high deductibles and co-pays. The Kaiser Family Foundation reports that deductibles have risen by 300 percent since 2006, while co-insurance costs have nearly doubled. Combined with fewer generic drug options, this has created a ‘perfect storm’ that is undermining patient adherence to their

Will Febbo, CEO

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doctor-prescribed medications. Patients simply cannot afford them, and doctors are increasingly frustrated. Fueling the frustration is the breakdown in doctor and patient education by pharma companies which has traditionally supported better adherence. Given how the healthcare system has changed in recent years, the traditional channels of patient education are no longer viable. Millions of dollars in coupons and vouchers from pharmaceutical manufacturers go unused due to patient lack of information and access. In fact, it has become increasingly more difficult for pharmaceutical companies — acting through their sales reps in the field — to get in front of the physicians they need to reach and provide clinical information, drug samples and savings coupons. Due to the Sunshine Act and similar reporting requirements, these days fewer and fewer doctors and now less than half the hospitals in the U.S. will allow pharma reps in the door. This contributes to higher costs for patients, as most have long relied on copay coupons and vouchers provided by the pharma reps to alleviate their out-of-pocket expense. 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 expenses. 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.

ENTER OPTIMIZERX OptimizeRx has emerged as the only public company that has been able to effectively address the challenge of escalating drug costs, patient adherence and pharma-doctor communication, while providing a simple solution right within a doctor’s everyday workflow. In fact, lowering co-payments, doctors can improve patient adherence, according to research published by the National Institutes of Health. 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

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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 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 www.stocknewsnow.com

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 providers 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 network 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 2017, revenue hit a record $12.1 million, growing at a 49% CAGR since 2011. For the second quarter of 2018, the company reported its seventh consecutive quarter of revenue growth and turned the corner to profitability. At $5.1 million, second quarter revenue was up 78% from the year-ago quarter and up 24% sequentially. On a trailing 12-month basis, revenue was up 79% to $16.3 million. These results demonstrated how the company’s low fixed-overhead model contin-

ues to support a highly-scalable financial opportunity, which was also evident in its expanding margins. In fact, at 56.1% for the quarter, the company surpassed its previously announced gross margin goal of 55%. The management team expects to exceed this margin goal again in the second half of the year as the company scales. 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 furtherIn In just the last yeaockOPhasmore thly tripleIt The stock climbed above $.1010 per share 5x 8x average daird volume the day afthisits recent quarterly report. But according to company CEO, William Febbo, they have only just begu “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, effiMicroCap Review Magazine

cient way, and generate high-ROI for our pharma customers.” For the second half of 2018, 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 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 com-

munication 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.yIt also plans to further expand into the hospital market, a new channel for OptimizeRx that also represents a significant growth opportunity. The company recently partnered with UK-based Patient Connect, representing the company’s first expansion into Europe. This strategic alliance will expand distribution of OptimizeRx’s digital health messaging to millions of new healthcare providers and patients through Patient Connect’s international pharmacy and EHR networks. Patient Connect’s European pharma clients can now also take advantage of OptimizeRx’s EHR network in the U.S. eThe companies have begun to cross-traid their respective sales and support team, and responding to sales opportunities. Revenue from this new international effort is expected to ramp up in 2019.

ship and increased the size of its software development team. A new data warehouse represents the underpinning of a 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 indevelopment solutions have tremendous market potential. This potential is President Miriam being realized more Paramore and more every day as OptimizeRx expands its client base and channel reach, and integrates deeper within the ePrescription workflow and point-of-care. n For more information, please visit: www.OptimizeRx.com CONTRIBUTING PHOTOGRAPHERS Isabella Febbo and Tito Febbo

PLATFORM DEVELOPMENT OptimizeRx continues investment in the underlying technology that powers it solutions and is investing in a broader data strategy. It has hired new technical leaderThe company paid consideration to SNN or its affiliates for this article.

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TSX-V: GRG / OTCQB: GARWF / FRANKFURT: G6A

Golden Arrow Resources Corporation

olden Arrow Resources Corporation is an exploration company with a successful track record of creating value by making precious and base metal discoveries and advancing them into exceptional deposits. Golden Arrow owns a 25% share of Puna Operations Inc, a joint venture company operated by SSR Mining, an experienced precious metals miner. Puna Operations is producing silver concentrate from the Pirquitas operation and developing the nearby Chinchillas silver project, which has more than 8 years of forecast production and upside potential.

Why Argentina Management at Golden Arrow considers Argentina to be an under-explored country with highly promising geological potential stemming from its direct border with some of the world’s most prolific mining areas including the El Indio belt, the Maricunga belt and the Bolivian silver-zinc-tin belt. Management’s long tenure in Argentina and positive track-record of community and government relations has led to Golden Arrow’s portfolio of projects containing over 200,000 hectares of properties. These projects are strategically located near major mines and within well-known mining districts.

Key Management Mr. Joseph Grosso EXECUTIVE CHAIRMAN, CEO & PRESIDENT Mr. Grosso became one of the early pioneers of the mining sector in Argentina in 1993 when mining was opened to foreign investment, and was named Argentina’s ‘Mining Man of The Year’ in 2005. His knowledge of

Argentina was instrumental in attracting a premier team which led to the acquisition of key properties in Golden Arrow’s portfolio. He has successfully formed strategic alliances and negotiated with mining industry majors such as Barrick, Teck, Newmont, Viceroy (now Yamana Gold) and Vale S.A., and government officials at all levels. Mr. Grosso’s specialty is financing, negotiations, corporate and marketing strategy, and he was an early and passionate adopter of best practices in environmental protection and socio-economic development through mineral exploration. He is the founder and president of Grosso Group Management Ltd.

Brian McEwen PGeol. VP EXPLORATION & DEVELOPMENT Mr. McEwen is a professional geologist with more than 30 years of exploration and production experience in open-pit and underground mining projects and operations. The extent of his experience is global in managing numerous projects in Canada, US, Europe, Asia, Africa and throughout Latin America. Mr. McEwen›s previous roles include more than a decade with MRDI (AMEC Peru) where he was responsible for project management, economic resource and reserve calculations for various precious and base metal companies worldwide, including BHP Billiton, CM Antamina, Teck, Hochschild and Phelps Dodge among others. Alf Hills DIRECTOR Alf Hills has over 35 years of international mine evaluation, development and operational experience. From 2006 to 2013, he was the CEO and a director of Kobex Minerals Inc. and its predecessor company, International Barytex Resources. Prior to that he spent 26 years with the Placer Dome group. He was involved in the development of the CIM Best Practice Guidelines for Mineral Resource and Mineral Reserve Estimates. Mr. Hills is registered as a Professional Engineer and is a graduate of the University of British Columbia in Mining and Mineral Process Engineering. n For more information, please visit: www.goldenarrowresources.com The company paid consideration to SNN or its affiliates for this article.

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PINK: UCLE

US Nuclear Corp.

ood News for Cancer and Heart Disease Patients: US Nuclear Partner Achieves Critical Milestone Proving New Way to Fill Multi-Billion/Year Shortage of Radioisotopes for Diagnostics and Treatments •

•

Bob Goldstein, CEO

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The National Academies of Sciences, Engineering and Medicine warns about severe shortages of radioisotopes that are required to non-invasively diagnose heart disease, cancer, other health issues, and to treat over half of all cancers Radioisotopes are largely made in only 5 outdated and unreliable nuclear fission reactors that are all located outside the United States Supply chain effects not yet known as major radioisotope supplier, NRU Chalk River Reactor, was permanently shuttered a few months ago and is now being demolished US Nuclear and their partner MIFTEC Laboratories, have developed a revolutionary new way to produce large quantities of radioisotopes at about half the cost of today’s outdated and unreliable methods Critical “1010” milestone toward producing radioisotopes recently achieved by MIFTEC at University of Nevada, Reno National Terawatt Facility

Medical isotopes are minute amounts of radioactive substances commonly used to diagnose and treat cancer, heart disease and a variety of health issues. Over 40 mil-

lion procedures using radioisotopes are performed each year. They are injected into the body to facilitate those targeted and whole body scans to enable doctors to determine (without the use of invasive, risky and costly exploratory surgery) whether the heart and cardiovascular system has adequate blood flow; whether cancer has spread to a patient’s bones or elsewhere; and to help diagnose gallbladder, kidney, thyroid, nerve, brain disorders, and more. When delivered into a malignant tumor, isotopes can kill the cancer cells minimizing damage to nearby healthy tissue.   Worldwide shortages of radioisotopes are already impacting the quality of healthcare globally and experts warn about the likelihood of further deterioration until a major new source for supply comes on line. Because they are largely produced in very expensive and outdated nuclear fission reactors, the availability of radioisotopes is susceptible to unexpected shut downs such as the recent breakdown and closure of the Lucas Heights radioisotope producing nuclear reactor in Australia and the permanent closure of the big Chalk River NRU Canadian reactor. An example of the extraordinarily high costs to build a nuclear fission reactor today, and the equally challenging length of time www.stocknewsnow.com

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

to build one is Georgia Power’s newest twin Vogtle reactor that may top initial estimates of $14 billion and reach $21 billion, according to recent Georgia Public Service Commission testimony. The first two Vogtle Units begun in 1971 took 18 years to build and were a decade over schedule at a final price of $9 billion — ten times the original budget. The Journal of Nuclear Medicine Technology says, “The production of medical isotopes is in crisis and is built on a house of cards; adequate production is dependent on 5 aging nuclear reactors that are being stretched beyond their lifetime operational capacities. In 2008, the president of the Society of Nuclear Medicine stated that the United States and other countries are not prepared to adequately deal with a shortage crisis, nor could they anticipate or prevent additional shortages. Since 2007, as reactor shutdowns have occurred, nuclear medicine practitioners throughout North America and Europe, in particular, have needed to ration medical isotopes, cancel or postpone procedures, and pay higher costs for medical isotopes. This has created ethical problems surrounding beneficent care for patients, and rationing decisions are frequently being made by individual practitioners who may not have sufficient knowledge or expertise in effective and sound priority-setting frameworks.” www.stocknewsnow.com

Now There is Good News for Cancer and Heart Disease Patients US Nuclear Corp.’s partner, MIFTEC Laboratories, Inc., has discovered a revolutionary new way to make commercial quantities of radioisotopes in their fusion power generators. The fusion based method they are developing is simple, safe, and cost effective. It uses an isotope of hydrogen as fuel, which is derived from seawater, and is simple, safe, and cost effective compared to the current method of using highly enriched or low enriched uranium (HEU/LEU) that results in dangerous, long-term radioactive byproducts. Jerry Simmons, MIFTEC CEO says, “Neutron flux of 1012 is required to make radioisotopes in commercial quantities, and the exciting achievement of 1010 by Dr. Hafiz Rahman, President and Chief Scientist and his staff at MIFTEC Labs and the University of Nevada, Reno National Terawatt Facility, tells us that our scientific predictions and device will work as designed. MIFTEC’s larger and more powerful machine currently in the design phase is expected to achieve, and even surpass, the minimum parameter of 1012 for radiopharmaceutical production.” US Nuclear Corp. and MIFTEC recently signed a definitive agreement which formally names US Nuclear as the exclusive manufacturer of MIFTEC’s revolutionary medical

“We are proud of the many accomplishments reached to date, including: • US Patent issue for radionuclide production using Z- pinch neutron source. • Ongoing collaborations with the University of California, San Diego and the University of Nevada, Reno National Terawatt Facility for laboratory experiments and advancement of MIFTEC technology And planned actions: • Planned production of Mo-99 using the safe, efficient, environmentally friendly and scalable Staged Z–Pinch technology, producing no long-term nuclear waste • MIFTEC technology with expected capability of providing the nuclear medicine industry with on-site isotope production at a cost savings of up to 50% of current facilities.” Bob Goldstein, the CEO of US Nuclear, graduated from MIT with a degree in Physics and also has a degree in Engineering from Stanford. He has authored more than 40 white papers and presentations on radiation measurement and his work has been met and approved by US Federal standards set by the EPA, FDA, and NRC. He also works closely with Los Alamos, Sandia and Jefferson National Labs. His family’s first MicroCap Review Magazine

experiences in nuclear physics go back to the 1940’s when his father was involved in the historic Manhattan Project that developed the atomic bomb. Mr. Goldstein founded US Nuclear and is known for delivering the most sensitive, accurate and reliable instruments in the world. The quality of their work is confirmed by a list of loyal and repeat customers such as NASA, the EPA, Department of Energy, U.S. Air Force, U.S. Army, U.S. Navy, MIT, Pacific Gas & Electric, General Electric, Lawrence Livermore, Oakridge National Lab and many more. US Nuclear has enjoyed a long-standing financial history of stable sales and modest profitability, but in 2017 the perfect storm

for new and sustained growth spawned a sales increase of 50% with several new very large opportunities blossoming in the large and underserved radioisotope market, and the environmental monitoring market that is forecast to hit $20 billion by 2021. For example, China is converting all of their coalfired power plants that are responsible for dangerous polluted air and water, to about 200 fission nuclear reactors that all require the best radiation monitoring equipment in order to insure safety. The Chinese nuclear agency claims that each individual nuclear power plant requires about $8,000,000 in the highest quality and most reliable radiation monitoring devices. With World Nuclear Power Organization’s forecast for a growing

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

number of nuclear power plants to produce electricity (none planned to produce radioisotopes), the demand for radiation monitoring devices also grows. Other large opportunities for US Nuclear are their unique products recently offered for radon mitigation in homes and offices and the use of drones to mount their sophisticated monitoring devices. Radon is commonly found in many homes and is one of the leading known causes of lung cancer. Goldman Sachs sees the drone market growing to a very large size by 2020. In conclusion, US Nuclear is enjoying strong growth from its core business, and on top of that, is well positioned to become a dominant supplier in a multi-billion-dollar healthcare market of radioisotopes. Goldstein says, “Given the failing state of essential medical isotope production facilities, this first-ever achievement to meet and exceed the 1010 milestone in fusion neutron production could not come at a better time. Additionally, the projected cost savings of up to 50% over the current imported resources; the idea of on-site production; the low cost and shorter time to build the generators, and the environmental benefit of a non-proliferating process that precludes the hazards of fission-based methods; should make for important upgrades ahead in the vital medical isotope supply chain.” n For more information, please visit: www.usnuclearcorp.com

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

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AC C O UN T IN G COR N ER

There’s a New SEC in Town

“T

here’s a new Sheriff in Town.” Those are words that have sent chills up the spines of micro- and small-cap companies for almost a decade. But the winds have shifted. Companies can take a breath of fresh air. Major regulatory change is happening, but, it’s OK. Nowhere is that more evident than at the Securities and Exchange Commission, where its recently seated chairman, Jay Clayton, has set into motion a new way of doing business. More conscious of the intended as well as the unintended consequences of its actions, the new SEC is fully committed to protecting the public, but intends to so without chocking the life out of the capital markets. Both are possible.

n By Corey Fischer, CPA

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That was fully on display when the SEC Commission adopted amendments earlier this year that changed the definition of a “Smaller Reporting Company (SRC);” a filing status that requires less reporting compliance. Simply said, a lot of bigger companies will now be smaller companies in the eyes of the SEC. And, that’s a very good thing. Under the SEC’s new definition, a company now can qualify for SRC filing status if it has public float of less than $250 million (formerly $75 million) or alternatively, if it has less than $100 million (formerly $50 million) in annual revenues and a public float of less than $700 million (formerly no public float). Companies that qualify as a SRC do not need to comply with the stiffer disclosure rules required by their larger company brethren. The scaled disclosure requirements for smaller reporting companies permit less extensive narrative disclosures, particularly in the description of executive compensation. It also permits them to provide audited financial statements for two fiscal years, instead of three. Although qualifying as a SRC does not automatically make a registrant a non-accelerated filer, Mr. Clayton has directed his staff to formulate recommendations to the Commission for possible additional changes to the “accelerated filer” definition that, if adopted, would reduce the number of accelerated filers and provide a healthy reduction in compliance costs. Until that happens, it should be noted that changing filer status to smaller reporting company does not necessarily exempt companies from section 404(b) of the SarbanesOxley Act, which requires an auditor’s

attestation of the adequacy of a company’s internal financial statement and disclosure controls -- something deregulation advocates wanted changed, but did not happen. Upon adoption of the new rules, Chairman Clayton said, «Expanding the smaller reporting company definition recognizes that a one-size regulatory structure for public companies does not fit all. These amendments to the existing SRC compliance structure bring that structure more in line with the size and scope of smaller companies while maintaining our long-standing approach to investor protection in our public capital markets.» It is encouraging to hear the head of a regulatory agency speak about fostering economic growth and more efficient markets while concurrently committing to protecting the public. It is a very different posture for an agency that for too long measured its success by the number of its enforcements and the fines it collected. Unlike many of his recent predecessors, Chairman Clayton comes to the position from the business community, not as a former prosecutor. It should not be surprising that he would seek solutions in the marketplace rather than the courthouse. n Corey Fischer, CPA, is Firm Managing Partner of Weinberg & Company, a multi-office, PCAOB and CPAB-Registered firm specializing in the audit, assurance and tax needs of micro and small cap companies. He has more than 25 years of experience, having worked with the Big 4 accounting firms, and as an SEC reporting officer for a number of NASDAQ-listed companies. Based 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

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NASDAQ CM: MTBC

Medical Transcription Billing Corp. Consolidator in the Healthcare IT Market

ost people don’t think about the Healthcare IT market very often, but it plays a crucial role in the U.S. healthcare system. Every patient encounter needs to be documented in a way that ensures privacy but allows all healthcare providers to access relevant information on a patient. Equally as important, the charges need to be billed in a timely manner, with sufficient support to ensure payment is prompt and reimbursement maximized. Finally, healthcare IT is the key to reducing the estimated $90 billion of waste which “administrative complexity” adds to annual U.S. healthcare spending. There are more than 1,500 niche companies providing healthcare IT services similar to MTBC, none of whom have a market share greater than 5%. The sector is highly fragmented and cluttered with competitors that lack viable business models. This is an attractive opportunity for a consolidator like MTBC, which offers an industry leading software platform, an experienced and costefficient team, and a strong track record of acquiring and integrating companies in this sector.

MTBC (Nasdaq: MTBC)(Nasdaq: MTBCP), based in Somerset, NJ, was started in 1999 by a former American Express executive, Mahmud Haq, based on the needs he saw first-hand. His wife is an internist, and was the Company’s first client, and the business has since grown by focusing on improving outcomes for doctors like her. The business went public on Nasdaq in July, 2014, acquiring three smaller competitors on the day of the IPO. The vision was simple. MTBC developed an integrated technology platform, including the electronic health record used by doctors, a practice management system to schedule patients and check insurance eligibility, mobile apps for the doctors and patients, coupled with a revenue cycle management (a.k.a. medical billing) solution,

utilizing a team of low-cost, highly skilled employees in the Company’s offshore locations, including more than 300 IT and R&D team members. MTBC was small for a public company, but intent on growing organically as well as via acquisitions. The first two years as a public company were spent integrating the businesses acquired at the time of the IPO. “Management focused on building a scalable platform and doing a series of smaller acquisitions to perfect its integration process without diluting investors, which is important to us since our executive team and board together own approximately 50% of MTBC’s common stock”, stated Bill Korn, Chief Financial Officer. The late 2016 acquisition of MediGain, the largest before Orion, helped the Company demonstrate proof-of-concept as it success-

Bill Korn, CFO

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fully integrated the acquired assets, significantly enhanced the acquired division’s core technology and operations, and eliminated its losses as it began generating positive cash from operations and adjusted EBITDA within six months. “We did this by transitioning work from MediGain’s five offshore subcontractors into our operations, improving service while reducing costs. We turned several large clients, who were unhappy with the quality of work being performed by MediGain’s subcontractors, into happy, longterm clients. A year later, generating record www.stocknewsnow.com

profitability, MTBC was ready for another major acquisition”, added Bill Korn. On July 1, 2018 MTBC closed its biggest acquisition to date, acquiring the assets of Orion Healthcorp, Inc. and 13 of its affiliates (together “Orion”), in an all cash closing for $12.6 million, thereby avoiding dilution and debt. The Orion transaction, which represents more than twice the potential revenue of MediGain at a very attractive price, is an even more compelling opportunity to add value for shareholders. “The Orion deal marks an inflection point for MTBC in several ways,” explained Bill Korn. “It will nearly double the Company’s size. We expect revenues in the second half of 2018 to be $32 ‒ 33 M, compared to $17 M in the first half of 2018. This will bring MTBC to a scale where we expect to be significantly increasing our profitability in the future.” MTBC generated positive adjusted EBITDA for the last five quarters, once the Company was able to reduce costs from the MediGain acquisition. Adjusted EBITDA for the first half of 2018 was $2.5 million, which was more than adjusted EBITDA for the full year 2017. Typically, the Company allocates six months of time to integrate major new

acquisitions, during which it has duplicate expenses which depresses adjusted EBITDA. So management has provided guidance to expect adjusted EBITDA for the whole of 2018 to be $4 ‒ $5 M. The Orion acquisition opens multiple new complementary lines of business, including the following: • Practice management. MTBC now manages medical practices through multi-decade management services agreements. The Company employs nurses, medical assistants, receptionists, practice managers and other practice personnel in five locations. This is an attractive new line of business and may provide opportunities for growth in the future. • Group purchasing organization. MTBC now enables thousands of physicians to purchase vaccines from leading pharmaceutical companies at discounted rates. As they purchase discounted vaccines, the Company generates referral fees from its pharmaceutical industry partners. In the coming months, MTBC expects to make this service available to all existing customers and investing marketing and sales resources to expand the user base, while also crossselling its other solutions. • Niche hospital services. MTBC now provides innovative solutions to community hospitals that are beyond the scope of its traditional revenue cycle management offerings. For example, with the Orion acquisition, the Company now has employees who work onsite at hospitals to assist clients and their patients in effectively addressing insurance eligibility and related needs. MTBC’s employees also provide other unique consulting and revenue cycle management solutions to hospital clients. “We look forward to offering these unique solutions to our existing hospital revenue cycle management clients and exploring additional opportunities for growing this line of business,” stated Stephen Snyder, Chief Executive Officer. Since Orion brings MTBC new services, it opens the door to cross-selling opportunities. For example, MTBC could offer MicroCap Review Magazine

the discounts of its new group purchasing organization to existing clients, and offer revenue cycle management and electronic health records to its GPO members. The Company can market its new hospital services to its existing hospital clients. Another promising source of future growth will be talkEHR™, MTBC’s next generation SaaS EHR solution, which utilizes natural language processing and artificial intelligence to automate key components of patient charting and reduce manual tasks and errors. talkEHR features Allison, a voice-activated virtual assistant that lever-

ages artificial intelligence to provide “smart” navigation and contextual responses to physicians’ queries to reduce administrative burdens and improve the patient experience. Mahmud Haq, MTBC’s founder and Executive Chairman stated “our vision with Allison is to enable healthcare providers to practice more efficiently and deliver a higher level of patient care. talkEHR is offered completely free of cost to U.S. healthcare providers. talkEHR users are also eligible to upgrade to MTBC’s premium, end-to-end medical billing solution, which is offered at one of the lowest price points in the industry.”

MTBC has financed its recent acquisitions by selling shares of its publicly-traded non-convertible preferred stock (Nasdaq: MTBCP). Bill Korn explained: “the preferred shares, originally issued in November 2015, pay monthly cash dividends at an 11% annual rate. Preferred shareholders are comfortable with our track record of making monthly dividend payments for nearly three years, and common stock holders appreciate that there is no fixed redemption requirement, no covenants to jeopardize the Company, and that the preferred shares are NOT convertible, so they minimize dilution.” Having two Nasdaq-traded securities gives MTBC more flexibility with financing than most small cap businesses. For more information about MTBC, please visit ir.mtbc.com/events. You will be able to listen to videos by the management team, download the investor presentation, or listen to the most recent earnings call. n For more information, please visit: www.mtbc.com This article may contain forward looking statements. See MTBC’s periodic filings with the Securities and Exchange Commission for more complete information.

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

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TSX: FCU / OTCQX: FCUUF

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Fission Uranium Corp. Focus on Acquisition and Development of Minerals Properties in Canadaâ&#x20AC;&#x2122;s Athabasca Basin

Dev Randhawa, CEO

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ission Uranium Corp (Fission) is a mineral exploration company engaged in the acquisition and development of evaluation assets. Fission discovered and owns the award-winning PLS project located in the worldâ&#x20AC;&#x2122;s most prolific region for high-grade uranium - the Athabasca Basin in Northern Saskatchewan, Canada. Fission is one of, if not the most, successful exploration companies in the uranium sector led by a highly decorated team including CEO and Chairman Dev Randhawa and President, COO & Chief Geologist Ross McElroy. PLS contains the Triple R deposit which includes five mineralized bodies and approximately 140 million lbs (indicated and inferred) of uranium making it one of the largest undeveloped discoveries in history. Fission is classified as an advanced stage

junior now focusing on developing the project after making the discovery in 2012. The company completed a robust preliminary economic assessment (PEA) in 2015 highlighted by a $1.02 billion after-tax net present value at a 10% discount rate and a 34.2% after tax internal rate of return, assuming a long-term price of u308 at $65/lb. Currently, Fission is working toward a prefeasibility (PFS) and expects that to be released sometime before the end of 2018. Many tangibles and intangibles separate Fission from its uranium counterparts. From a project perspective, the deposit is located near surface and is shallow which enables the company to develop a cost-effective, hybrid mine plan utilizing both open pit and underground methods. Another key tangible of the project is how rich the deposit is, which again, is attributed to being in the

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Athabasca basin. Global uranium grades are approximately 0.20% u308, while the Athabasca basin is host to approximately 2% u308 – a staggering ten times more valuable. The province of Saskatchewan is also a mining friendly jurisdiction, evidenced by the Fraser Institute consistently ranking it in the top three jurisdictions globally. This point should not be discounted as governments globally have been known to add risk and uncertainty to projects often moving the goal posts and subsequently creating capital destruction. This isn’t the case in Saskatchewan as there is a 60-year history of extracting uranium from the province, primarily from the eastern side of the Athabasca basin. In addition to that, this area has roads, water and existing infrastructure which will eventually aid in lowering overall costs. Fission’s management team is in a league of their own when is comes to mineral exploration and development. While many market participants and conventional wisdom was focused on the eastern side of the basin – an area that has been host to the world’s richest uranium mines, Fission thought outside the box. The company came up with an innovative strategy to fly an airplane directly above the tree canopy covering the western edge of the basin using radiometric and magnetic surveys. This technology and strategy yielded a boulder field that eventually Fission tracked back to the west shore of Patterson Lake. On November 5th, 2012, Fission had discovered Triple R and have not looked back. Randhawa and McElroy had created wealth changing shareholder value once again, for the fourth time. Management’s experience is fundamental in mining and mineral exploration due to the inherit boom bust cycles commodities experience. Fission’s experience is second to none as Randhawa is a 22-year veteran CEO in the uranium space, while McElroy has made been involved in five major discoveries already in his 30-year career including two for Fission. Mineral exploration is arguably the hardest ‘game in town’ and despite anecdotal evidence that may suggest there should be a deposit here

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or there, this team has proven their expertise by taking a shell in 1996 called Strathmore Minerals and turning it into four existing companies today. Fission’s success has not gone unnoticed by sophisticated investors and strategic partners. In Randhawa’s and McElroy’s previous companies they built the trust of some industry giants and savvy resource investors. Specifically, Rick Rule and his team at Sprott are believers in Fission and are existing shareholders. For any investor unfamiliar with Rick Rule, he claims to have made his initial life changing fortune from a previous uranium bull market (more on that later). On the institutional side, Randhawa and McElroy have a history of making a discovery, finding an Asian partner to invest and develop the project, and then later sell it. With Fission, the erudite Chinese General Nuclear Power Group (CGN) became a 19.99% owner with a massive CAD $82.2 million-dollar deal in Q4 2015, paying a 25% premium to the share price at the time marking the first time a Chinese company directly invested in a Canadian uranium company. Déjà vu all over again as this is exactly what this team did with previous exploration and development assets such as Sumitomo of Japan through Strathmore Minerals and

Kepco of Korea through Fission Energy Corp. Management, jurisdiction, government, technical teams, and geology are all very important, but the spot price of uranium ultimately sets the market and things have been unsustainable for a while now creating a perfect storm for investors. The industry’s average all in cost is roughly $40 - $45 per pound u308. Uranium prices have not been achieving their cost of capital for at least five years, as the spot price has been below $45/ lb since 2013 and was as low as $18/lb in Q4 2016. How is that even possible one might ask? Uranium is unique in that buyers are typically utility companies procuring supply for base load power, also known as the power grid, as well as governments for matters of national security. These buyers secure supply by buying long term contracts at fixed prices directly from producers, historically between five and ten years. If buyers secure enough supply for the next 5 – 10 years, the spot market can become irrational and an unrealistic proxy for the market. To give you a quick sample of spot prices in recent history, in the early 2000’s the price was less than $10 dollars per pound. By 2007 prices peaked at almost $140/lb, while today they rest at approximately $25/lb. This volatility www.stocknewsnow.com

can be attributed to both the long-term contracts, as well as how little uranium fuel rods represent in the cost of running a nuclear reactor. Fuel rods (enriched uranium) have historically accounted for roughly 2% - 5% of running a nuclear reactor, thus the market fosters these surpluses and shortages that directly distort the spot market like we see today. From an investors standpoint however, this should be seen as an opportunity as not a single producer, or future producer regardless of how rich the grade is would be able to make money sub $40 dollars. This does not factor profit margins required for future investment which is paramount in creating a sustainable market for exploration and development when demand increases. In other words, the uranium spot price in inelastic.

Uranium is often associated with the stigma of nuclear warheads and weapons of mass destruction, but that is an elementary viewpoint completely missing how vital this metal is to humankind and the accustomed higher standard of living experienced in today’s world. As an example, many would be surprised to know that 20% of U.S. electricity is sourced from nuclear reactors. On a global scale, uranium still supplies between 15% and 17% of electricity and has maintained that weighting despite the recent advancements from other forms of energy. Uranium is an attractive energy source for several reasons. First, it is a form of base load power – an attribute “in vogue” renewables do not possess such as wind and solar. For many heavy populated areas of the world that experience rolling blackouts, base load

The fundamentals for uranium have finally crossed as 2018 will mark the first-year demand has outstripped supply by a meaningful margin, suggesting the lengthy bear market is over and a new bull is a born.

power is a necessity. Secondly, the world is pushing for a ‘greener and cleaner’ mandate of which uranium can support because reactors do not emit any carbon like other cheap forms of base load power such as coal. Third, it is a very cheap form of energy separating itself from other substitutes such as renewables that are significantly more expensive that also absorb large land masses. Quite simply nuclear reactors are efficient, reliable, cheap, and clean. The fundamentals for uranium have finally crossed as 2018 will mark the first-year demand has outstripped supply by a meaningful margin, suggesting the lengthy bear market is over and a new bull is a born. Due to the overinvestment made by utilities at peak prices roughly a decade ago a glut of inventory in the secondary market pushed the spot price from $140/lb to where it is today but those inventories have been drawn down to levels requiring action from market participants. Couple that with the fact most of the long-term contracts are maturing in the next few years and you have the potential for a ‘rip your face off ’ bull market where the price slingshots back to sustainable levels, putting the industry back into equilibrium. Much of this demand can be credited to both the numbers of new reactors being built globally right now, predominately in India, China and Saudi Arabia. That is in addition to the record number of reactors operating globally right now. After a very difficult past decade the uranium market presents an accretive opportunity for investors looking for value or diversification in their portfolios. Prices are at unsustainable levels for both explorers and producers at a time when demand is outstripping supply, which is what value investors should look for when allocating capital. Fission Uranium has a world class asset, with an award-winning team, in a stable jurisdiction, in the biosphere’s most fertile region for high grade uranium deposits. n For more information, please visit: www.fissionuranium.com The company paid consideration to SNN or its affiliates for this article.

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MicroCap Review Magazine

au s tralia corner

Undiscovered Down Under T

he Australian equity market provides a plethora of undiscovered microcap companies for US investors who invest time researching stocks listed on the Australian Securities Exchange (ASX).

This piece provides a brief overview of the Australian microcap market and highlights 6 ASX microcap stocks which exhibit some of the diversity, found on the ASX.

ASX Microcap Market Overview The ASX has circa 2,100 stocks listed on the exchange. The S&P/ASX 200 Index is widely used as the main barometer for the performance of the Australian equity market. However, outside of the top 200 largest stocks is an extremely long tail of microcap stocks for investors to delve into. 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. Comprising of 156 stocks currently with a median market cap of AUD$204m/USD$150m. The index is heavily weighted to both the materials and technology sectors which make up 27.2% and 15.7% of the index respectively. Other sizeable sectors include Consumer Discretionary, Healthcare and Energy. The S&P/ASX Emerging Companies Indexes composition differs vastly to that of the S&P/ASX 200 Index which has a sector weighting of 33% to financials, causing the performances of both indexes to differ widely from each other. Notably, the S&P/ASX Emerging Companies Index has outperformed the S&P/ASX 200 Index over the last 1, 3 and

n By mark tobin

MicroCap Review Magazine

5 years. The incumbent ASX CEO Dominic Stevens has endeavored to a drive an increase in the number of international stocks listed on the ASX. In an attempt to showcase the ASX as an alternative listing venue to either the Nasdaq or the AIM in London. He has, I would say had moderate success and a number of international microcap stocks have listed on the ASX in the last 2 years. These stocks have come primarily from the US, Israel and Europe.

Lack of broker research Australian microcaps lack quality research coverage from broking firms much like their US counterparts. Research coverage has actually been falling in the last few years despite the good performance of microcaps stocks versus large-cap stocks. An analysis conducted on the breath of broker coverage for ASX microcaps stocks in 2017 found that outside the top 100 ASX stocks approximately 70% of stocks have no current broker coverage whatsoever. Equating to roughly 1,400 ASX listed stocks with no current broker coverage. Research released earlier this year by Goldman Sachs Australia highlighted some salient points about small cap stocks listed on the ASX. I would contend the results would prove similar for ASX listed microcap stocks, if not even more pronounced. • Stocks with less broker coverage had lower valuations when measured on a price to book or price to sales basis. • The total number of stocks with any broker coverage is falling. • The total number of stocks with multiple brokers covering them is also falling. In other words, brokers are

starting to converge around a small group of stocks leaving others with only one broker providing coverage or no broker coverage at all.

Increasing Information Asymmetry This dearth of coverage by the broking community means there is an increasing level of information asymmetry to be exploited in order to generate alpha for investors. I can also point to some empirical evidence to back up this assertion. The S&P Dow Jones SPIVA Scorecard for Australia is the gold standard in my view of tracking if active managers as a cohort actually outperform their relevant benchmarks. While the SPIVA scorecard does not segment Australian microcap equity funds as a specific cohort it does segment Mid and Small-cap equity funds. The 2017 SPIVA Australia scorecard found that 60% of Mid and Small-cap equity funds outperformed their benchmark on a ten-year basis. The equivalent US figure for Small Cap equity funds was less than 5%. IIR itself tracks the performance of 23 different Australian microcap funds of which 15 have a 3-year track record or longer. Within this subset, the average Australian microcap fund manager returned 17.7% annualized after fees over the last 3 years. 11 of the 15 (73%) funds outperformed the S&P Emerging Companies Index which returned 15.8% annualized over the last 3 years.

Six ASX Microcap Stocks Scout Security (SCT: AU) Mkt Cap AUD$14.7m is a US company newly listed on the ASX. SCT seeks to disrupt the residential security industry by retailing Wi-Fi enabled www.stocknewsnow.com

security cameras and associated products. Their products are then linked to a monitoring app on your phone. The monitoring app requires a monthly subscription so SCT has been building a recurring revenue base over time. SCT’s product integrates with Google Nest, Amazon Alexa and Samsung Smart things. Its US resale partners include COPS Monitoring & Zega. It also retails on Amazon and is an Amazon Alexa portfolio company. Fertoz (FTZ: AU) Mkt Cap AUD$19.1m is a US organic phosphate fertilizer company supplying the burgeoning North American organic farming industry. Fertoz exceeded its goal of 10,000 tpa in sales for CY2018 by the end of April 2018 and is targeting sales of 100,000 tpa within the next 3 years. It is also working closely with organic cannabis growers in Canada ahead of regulatory changes envisaged in that market in the next year. Kip McGrath Education (KME: AU) Mkt Cap AUD$26.1m is an elementary and high school tutoring franchise providing individuals with the opportunity to open their own tutoring business. KME currently operates in Australia, New Zealand, United Kingdom and South Africa. It has recently concluded a major capex expansion project for its core operating system and online tutoring platform. KME is also working on the USA curriculum as part of a plan to enter the US market in the medium term. Veem (VEE: AU) Mkt Cap AUD$74m is a 50-year-old Australian company which recently listed on the ASX. VEE supplies propellers, fin systems, gyrostabilizers and other specialist components to an array of industries but primarily to shipbuilding companies. VEE has a particular focus on gyrostabilizers for defence vessels and superyachts. VEE recently concluded sea trials with Dutch shipbuilders Damen (2nd largest in Europe) for the use of VEE’s new generation gyrostabilizers on one of Damen’s new fast crew supplier vessels. Sea trials were a success and Damen are progressing commercial discussions with VEE on orders. Given that Damen delivers 160 vessels annually, employs 10, 000 staff globally and supplies vessels into 100 different market around the www.stocknewsnow.com

world this marks a significant vote of confidence in VEE new product offering. iSignthis (ISX: AU) Mkt Cap AUD$137m provides remote online identity verification and payment services to a host of e-commerce and bricks and mortar merchants both in Australia and Europe. It recently became a principal member with Mastercard for Australia following on from principal member status with Visa and Mastercard in Europe. ISX received membership of the interbank SWIFT network and certification for Eurosystem Central Bank facilities and account earlier in 2018. These developments allow ISX to avoid having to overlay their services on partner bank infrastructure and networks. All which should improve ISX’s costs of goods sold moving forward. PWR Holdings (PWH: AU) Mkt Cap AUD$280m is a world leader in the design, development and production of automotive cooling solutions. PWH manufactures highperformance aluminum radiators, intercoolers and oil coolers. Its race cooling solutions are used by leading race categories and teams such as F1, NASCAR, IndyCar, V8 Supercars and World Rally Championship. PWH acquired US-based C&R racing in 2015 and has invested AUD$3.5 to grow its US business. The majority of PWH’s revenue comes from high-performance racing but is currently diversifying into the auto aftermarket and OEM market with its products.

Conclusion Hopefully, US investors will recognize the latent opportunity which exists in ASX microcaps. Similarly, I believe it would be of great benefit to ASX microcaps to actively engage with US investors given it is the largest capital market in the world leading to a mutually beneficial outcome.

IIR Corporate Bio For IIR I think we can use the previous bio used in the Microcap Review Spring 2018 edition when John did his article.

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. n For more information, please visit: www.independentresearch.com.au Mark Tobin Disclosure Mark personally I don’t own or have never owned any of the stocks profiled. IIR disclosure IIR may have provided research services to some or all of these companies in the past or may do so in the future. Regards Mark Tobin Senior Analyst Independent Investment Research Level 1, 350 George Street, Sydney, NSW 2000 Sydney Ph: +61 (2) 8001 6693 Main Sydney Ph: +61 (2) 8091 5216 Direct 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.

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ASX: BUD / PINK: POTTF

Buddy Platform Limited ASX-listed microcap making spaces smarter around the world

he Internet of Things (IoT) has entered the mainstream vernacular and its transformative effects can be seen across all industries and regions. One company, Buddy Platform Limited (“Buddy”, ASX:BUD), is tapping into the IoT to bring simple and affordable solutions to its customers to increase energy efficiency, create smarter infrastructure and apply more proactive, data-driven decision making. Based in Seattle – the global ground zero for cloudtech, and featuring Microsoft Corporation amongst its earliest investors and closest partners – Buddy is a prime vehicle for investing in smart city based IoT technologies. Worldwide spending on the IoT is set to reach $772.5 billion in 2018, a 14.6 percent increase over the $674 billion spent in 2017 and is expected to surpass the $1 trillion mark in 2020 and reach $1.1 trillion in 2021. Against the backdrop of the global movement toward more energy efficient practices (Paris Climate Agreement, United Nations’ 17 Sustainability goals, etc.) and with buildings consuming 70 percent of all electricity and emitting 40 percent of all greenhouse gases around the world, Buddy saw an opportunity to develop engaging technology to make it easy for people to gain insights and make more informed decisions that positively impact their businesses, their communities and the environment. “Simply put, Buddy’s vision is to make every space smarter,” said David McLauchlan, CEO of Buddy Platform. The company’s Buddy Ohm resource

monitoring solution is used by commercial building operators, schools, hotels, and others to simplify building operations and provide peace of mind by harnessing realtime utility and operational data to reduce or mitigate risk, improve operations, savings and sustainability. The product is distributed around the globe by the world’s largest technology distributor, Ingram Micro. The backbone of Buddy Ohm is the Buddy Cloud that enables ubiquitous access to and storage of data from any environment in support of smarter, healthier spaces. Any spaces. Originally developed to connect disparate systems within smart cities and buildings, Buddy’s technology is now inside Airstream’s 2019 Classic travel trailer coordinating communication between the trailer, Buddy Cloud and the RV owner. It enables functions such as lighting, air conditioning, awnings, water, propane, battery levels and more to be controlled and monitored remotely, transforming the user’s experience and comfort. The company attributes much of its success to the stable of talent it has managed to attract. The company boasts former Microsoft, Amazon and Google employees amongst its ranks, including a former manufacturing executive from Microsoft’s Xbox division and later Sonos, with responsibility for manufacturing the Buddy Ohm hardware product line. In an industry where engineering, business and strategic talent make all the difference, Buddy is punching well above its weight. From connecting functions and amenities within trailers to monitoring energy resources within buildings, to unifying city infrastructure, Buddy offers affordable, smart connectivity and monitoring solutions for many IoT use cases.

The Buddy Ohm solution is made up of IoT class hardware, secure and scalable data infrastructure, an operations portal, engaging occupant-facing dashboards and a mobile installation app.

About Buddy Buddy Platform Limited (BUD.ASX) provides simple, affordable and engaging solutions for customers of any size to make their spaces smarter and their occupants more efficient, environmentally-aware and informed. Buddy Cloud, Buddy Ohm and Parse on Buddy are the company’s core offerings that empower its customers to fully leverage digital technologies and their impact in a strategic and sustainable way. Buddy Cloud enables ubiquitous access to and storage of data from any environment – recreational vehicles, schools, commercial buildings or an entire city – in support of smarter, healthier spaces. Buddy Ohm is a resource monitoring solution that simplifies building operations and provides peace of mind by harnessing real-time utility and operational data to reduce or mitigate risk and improve operations, savings and sustainability. Parse on Buddy is a mobile backend as a service (mBaaS) built on the world’s most popular BaaS technology. Buddy Platform is headquartered in Adelaide, Australia, with offices in Seattle, Washington. n For more information, please visit: www.buddy.com The company paid consideration to SNN or its affiliates for this article.

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ASX: TMP

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Tech Mpire Limited T ech Mpire Limited (ASX: TMP) provides a global business-tobusiness (B2B) software-as-a-service (SaaS) patent-pending product called TrafficGuardTM, which addresses the rapidly growing global problem of mobile advertising fraud. Having already secured its two initial SaaS clients - Canadian-based ClearPier (http://clearpier.com/) and US$15 billion NYSE-listed Omnicom (http://www.omnicomgroup.com/) - TMP is now focusing on growing SaaS sales through North America and APAC. Advertisers are forecast to lose US$19bn to digital advertising fraud in 2018, increasing to US44bn in 2022 (Juniper Research). Advertising fraud is becoming increasing sophisticated, with the rise of “human click fraud farms” and other techniques designed to defraud advertiser budgets. TrafficGuardTM’s solution is disruptive because it prevents mobile phone app install fraud at the “click level”, as opposed to the existing industry practice of analyzing the quality of mobile app installs “after the event” through companies called mobile measurement platforms. TrafficGuardTM is based on unique intellectual property. It has been fully developed, tested and operated in-house by a team of

“We are proud of our team of 15 data scientists who have analysed trillions of advertising campaign data points to develop TrafficGuardTM . We are looking forward to helping advertisers globally to fight back against digital advertising fraud.”

data scientists who have analysed the data of millions of advertising campaigns. TMP was previously an Advertising Network, which allowed the company to directly observe the global fraud epidemic and feel compelled to develop an anti-fraud solution. The Company is not aware of any other comparable offering which stops fraud at the click level. COO and Co-Founder Luke Taylor said, “Previously, we had been operating as an Advertising Network for many years and observed that our clients were increasingly concerned about the growing digital advertising fraud epidemic. We are proud of our team of 15 data scientists who have analysed trillions of advertising campaign data points to develop TrafficGuardTM . We are looking forward to helping advertisers globally to fight back against digital advertising fraud.” TrafficGuardTM was launched as a global SaaS solution on 1 July 2018 and is now ready to scale globally, targeting three key customers segments: Media Agencies, Advertising Networks and Direct Advertisers. Media Agencies are diversified, global corporates with multi-billion dollar advertising services revenues. TMP’s first Media Agency client is Omnicom Media Group, who has initially licensed the SaaS technology for 1-year.

Mobile Advertising Networks help advertisers find mobile app installs through the mobile app ecosystem. TMP’s first Advertising Network client is Canadian performance marketing business ClearPier. Direct Advertisers are businesses promoting their own apps without an agency. TMP has developed a “user-driven” TrafficGuardTM software interface which allows Direct Advertisers to prevent app install fraud. CEO Mathew Ratty said, “Ad fraud is becoming increasingly sophisticated in order to evade detection by conventional anti-fraud tools. TrafficGuard’s multi-point fraud verification blocks fraud before it impacts our clients’ budgets. This is vital in not only protecting media spend from fraud, but reducing the time it takes to manually adjust accounts with delayed fraud reporting. After having developed and tested our technology internally, we are pleased to have the validation of our initial clients. We now look forward to enabling more customers globally to prevent mobile advertising fraud and grow their businesses with genuine mobile app installs.” n For more information, please visit: www.techmpire.com The company paid consideration to SNN or its affiliates for this article.

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ASX: RAC

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Race Oncology Ltd. R

ace Oncology (ASX: RAC) is an ASX-listed company specializes in de-risked drug assets that have a fast pathway to market. Race’s first asset is a cancer drug called Bisantrene, which shows great promise in a difficult-to-treat blood cancer called Acute Myeloid Leukemia (AML). Each year, around 20,000 people in the US are diagnosed with AML and 75% of people die within 5 years. The standard of care for AML is old-fashioned chemotherapy and although it leads to a remission in most cases, unfortunately, the cancer often returns (the AML relapses) and the disease can be resistant to further chemotherapy treatment (‘refractory’). 20-30% of adult AML patients can end up as relapsed and/or refractory (r/r) AML patients. It is for these r/r AML patients that Bisantrene is targeted: In five Phase 2 studies, Bisantrene produced a remarkable 48% new remission rate in r/r AML patients. Race’s goal is to conduct the final Phase

Peter Molloy, Chief Executive Officer

Bisantrene 250mg in vials

3 registration study for Bisantrene in order to hopefully see the product approved by the FDA for the treatment of r/r AML in adult patients. While AML is considered an ‘orphan disease’ because of the relatively small number of patients, the market potential for a drug like Bisantrene is still substantial. Race believes that a successful approval in adult r/r AML could make Bisantrene worth several hundred million dollars to a potential licensee or acquirer. The next milestone for Race is to file an IND (Investigational New Drug application) with the FDA, under which it can complete the final steps towards FDA approval of Bisantrene for the treatment of adult AML in the US. That IND could be filed as early as Q1 2019. The multinational trial could take 3-4 years to complete, but RAC may seek a pharmaceutical partnership prior to trial completion. In addition, Bisantrene has been designated by the FDA as a potential treatment for rare pediatric (childhood) forms of AML. This ‘Rare Pediatric Disease’ designation means that Bisantrene could qualify for a Priority Review Voucher (PRV) which is

Bisantrene lyophilized powder and reconstituted solution for administration

awarded by the FDA as a mechanism to stimulate development of drugs for rare diseases that would not otherwise justify the development cost. Importantly, the PRV be sold to other pharmaceutical companies and in recent years, PRVs have sold for more than $80 million per voucher. Finally, outside the US, RAC is pursuing clinical usage of Bisantrene under early access programs known as Named Patient Programs (NPP). NPPs allow doctors to obtain access to drugs that are unlicensed (not yet approved) in their country, but are needed for life-saving treatment of diseases like AML. In some countries, mechanisms exist for reimbursement or payment for the drugs, leading to modest sales revenues. RAC is exploring the opportunity for NPP revenues in France, Italy, UK and other markets outside the US. n For more information, please visit: www.raceoncology.com The company paid consideration to SNN or its affiliates for this article.

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Tinybeans Group Limited Happy memories for every family

inybeans was born in 2012 in Sydney, Australia and much like the babies in its journals, has grown tremendously, hitting major milestones along the way. Entrepreneurs Sarah-Jane Kurtini and Stephen O’Young created a platform where parents could save and share milestones for their kids in a more secure way than traditional social media. They were quickly joined by Eddie Geller, who came on board as a founder, investor and CEO in 2013. “Our vision is to create a space where millions of families can effortlessly capture and share their kids’ stories. In the beginning we were focused on private photo sharing, but over time it’s grown to so much more. Every moment with your child is worth remembering and Tinybeans makes that easy and convenient,” said Geller. From that small sprout in Sydney, Tinybeans has grown to add headquarters in New York and is now a must-have app for every new parent, with 5-star reviews in the Apple App and Google Play stores. Popular with millennials who want to keep their children away from the prying eyes of Facebook, Tinybeans helps families organize all their children’s firsts using photos and video, text and more in one spot with

unlimited safe and secure storage. Tinybeans also automatically shares with extended family like grandparents, in a platform-agnostic way, with no smartphone required. “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.” Tinybeans has built a deeply engaged user base serving 2.5 million, primarily in the U.S, but reaching over 200 countries. Along with user growth of 41% year-overyear, Tinybeans has exhibited strong revenue growth. Thanks to hyper-targeted advertising, premium upgrades at $50 USD per year, printed products, affiliate revenue and specialised research, Tinybeans revenue grew by 65% last year. Premium subscription revenue has grown by over 30% and advertising has more than doubled. “We allow advertisers to reach families at the moment they’re researching what they need for the next stage of baby’s development. And we speak to entire family, so parents, but also grandparents, and aunts and uncles. Oftentimes grandparents are

looking for advice on what to buy and we’re there with age-appropriate recommendations,” said Geller. Looking ahead, TInybeans has cash in the bank and solid runway, thanks to a recently closed round of funding, and it is working towards enhancing time in-app, engagement and increasing revenues across all lines. With the advertisers in place like Amazon, Canon and Macmillan Books to name a few, Tinybeans is well positioned for a successful future. Tinybeans is traded ASX: TNY / PINK: TNYYF n For more information, please visit: tinybeans.com/investor

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

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ASX: FZO / PINK: FMZNF

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

Family Zone

amily Zone was founded by an experienced team of global telecom executives who identified a massive unsatisfied cyber safety marketplace and a truly disruptive solution. Family Zone has developed a world first ecosystem that enables a parent-set access policy to roam with a child and be enforced across any device and any network. At home, on mobile devices, at public hotspots and schools. Family Zone’s innovation is a universal approach, delivered through a cloud-based policy platform and a suite of apps, applications, access points and network appliances. Developed in Australia in late 2016, Family Zone’s ecosystem approach is rapidly gaining traction across consumers, telcos, schools and device manufacturers throughout Australia, New Zealand, South East Asia, India. Family Zone has recently entered the United States of America. In operation for less than 24 months the company has achieved remarkable success including: • Family Zone is now the leading cyber safety provider in independent Australian & New Zealand Schools; • Family Zone has wholesale partnerships with some of the largest telecommunications providers in the world including Vodafone, Telkomsel (Indonesia), Maxis (Malaysia), Smart (Philippines); • Family Zone technology is now being pre-loaded in Android smart devices across Australia & India; and • Family Zone has won numerous awards including StartUp of the Year and Top

Rapidly growing, global cyber safety provider!

Businesses of Tomorrow.

Why is cyber safety such an exciting opportunity? The average age a child views their first pornographic video is 81. Suicide is now the second leading cause of death among teenagers2. The majority of children today have been exposed to inappropriate material and cyber threats and bullying. These are the clear impacts of uncontrolled or moderated access to technology and the internet. Parents, schools and the media are now starting to take notice and whilst fast growing, the current cyber safety industry is estimated to be merely US$1.5Bn/a 3. Unsatisfied demand however is estimated at potentially US$70Bn!4

Family Zone’s unique, proven and exciting strategy to own the space Family Zone’s ecosystem approach is innovative, disruptive and gaining significant traction across the globe. Features to support the needs of parents with comprehensive yet simple parental controls to filter content, manage screen time and access to apps; and more A world first integrated technology sup1 https://lutheranyouthroom.org/talking-kidspornography-parent-resource/ 2 https://www.cdc.gov/nchs/fastats/adolescenthealth.htm 3 https://www.absolutemarketsinsights.com/news/ Global-Parental-Control-Software-Market 4 https://www.parksassociates.com/blog/article/ mid-year-2014-update-on-the-parental-controlssoftware-market - based on Park’s estimates of 2% penetration today.

MicroCap Review Magazine

porting filtering across all devices children use plus home, enterprise and telecom networks; A world first common platform for schools & parents; supporting school duty of care, school digital citizenship programs and parenting needs; A world first platform for telecoms providers to re-sell and embed Family Zone’s comprehensive suite of services into their offerings; A world first platform for hardware manufacturers to join the ecosystem by pre-loading Family Zone technology on cell phones, tablets, Chromebooks, computers and networking equipment.

Why Family Zone? Management team: An impeccable executive and management team including former senior executives from Blackberry, SAP, major telecoms providers, retailers and technology vendors. Market opportunity: A vast and poorly addressed global marketplace. Cyber safety as in industry is growing fast, and is a topic of increasing importance and interest to the community, media and governments. Product: A unique, patented and now proven universal approach to cyber safety. Family Zone’s ecosystem offers the only workable solution to the challenges parents and schools face in the digital age. Strategy: A demonstrably successful business strategy sees Family Zone the leading provider in Australia & New Zealand and the go-to provider for Asian telecos. n For more information, please visit: www.familyzone.com The company paid consideration to SNN or its affiliates for this article. www.stocknewsnow.com

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Legal Corner

Don’t Blame it on Reg A L

ately, it seems like every article that I read about Regulation A is negative. Most of these articles point to the trading price of the dozen or so Reg A

offerings that successfully listed on Nasdaq or the NYSE. Yes, it is true, if you look at these offerings and compare their IPO offering price to their current market price, things look a bit gloomy. Reg A poster children, Myomo, Adomani, Chicken Soup for the Soul and Level Brands are all currently trading below their IPO prices. Even LongFin Corp. (OTC: LFIN), a FinTech company powered by Artificial Intelligence (AI) and Machine Learning, that delivers foreign exchange and finance solutions to importers, exporters and small to medium sized enterprises, whose stock jumped from an IPO price of $5 a share to over $14 a share is now down below its IPO price and delisted from Nasdaq due to a regulatory cloud that has developed regarding alleged insider trading and the unregistered sale of securities. As a result of the poor performance of some of the Regulation A offerings, cli-

ents have begun asking whether they should engage in a traditional IPO using an S-1 registration statement instead of using the Reg A offering process. But, Regulation A really has nothing to do with it. The offering method – best efforts Reg A or firm commitment S-1 offering – has nothing to do with how a particular stock will perform in post-IPO trading. The Reg A stocks that are performing poorly in post-IPO trading would be performing just as badly if they did a firm commitment underwritten offering using a Form S-1 registration statement. The problem is not the offering methodology. Instead, the problem is valuation. It seems that many issuers and perhaps even their underwriters are under the impression that since investors in a Reg A offering will mostly be comprised of non-accredited retail investors, they can “get away” with a higher

n By Louis a. Bevilacqua, Esq.

MicroCap Review Magazine

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MicroCap Review Magazine

valuation. These companies successfully raise capital at higher valuations, but then the stock price plummets post-IPO as more sophisticated institutional investors short the stock or investors in the original offering seek some liquidity in a narrowly traded stock. According to Gordon McBean, the Chief Executive Officer of Cambria Capital, an investment bank that offers issuers wide retail distribution for their Reg A offerings, “We are huge believers in Regulation A+ and its ability to get growth capital into the hands of entrepreneurs in an efficient manner. It is unfortunate that many of the Reg A+ IPOs have performed so poorly (even though we feel that many of them are great businesses) but we feel it is fairly obvious why this has happened and the fix is quite straightforward. Issuers and their respective underwriters have to find that right balance in valuing the business to where it is a fair deal for the issuer and a good deal for the investor. Unfortunately the majority of the Reg A+ deals were priced more than fairly for the issuer and left the investor with little chance of seeing the share price rise on a sustained basis. The “crowd” has been viewed as an investor audience that is less sensitive to valuation and deals were priced accordingly. The problem starts when professional investors see a valuation on a stock that is significantly higher than its public peers and the stock quickly trades to a level at or below its peers.” Mr. McBean added “The issuer may have obtained valuation that it was happy with but now two significant problems emerge: First, you now have a disgruntled shareholder base (and remember many of these deals were bought by customers of the issuer), and second, your ability to raise additional capital has been severely hindered by the fact that you are now an orphaned microcap with tired shareholders.” According to Mr. McBean, “In working with issuers Cambria Capital hammers on a very important point – the IPO is likely to be the smallest capital raise that the company will undertake through the rest of its

MicroCap Review Magazine

life. With that in mind make sure that you price the deal to where the crowd has a real shot at seeing the value of its shares rise. Proper valuation always has been the way to attract investment in an IPO, it shouldn’t change just because it is the crowd getting involved and not professional investors. An offshoot of this strategy is that professional investors will likely become more interested in the offering. We have seen a lot of larger investment funds taking interest in microcaps recently and there is no reason that they should avoid Reg A+ deals when valued appropriately.” Mr. McBean concluded by saying that “at Cambria we are excited about what the future holds for Regulation A+ and we are positioning ourselves to be part of it.” Companies should not shy away from Regulation A, especially if they plan to trade OTC before uplisting to a national securities exchange. Reg A is significantly more flexible and streamlined than the traditional S-1 process. Under a traditional IPO process, companies cannot do any marketing before the registration statement is filed (other than limited marketing to institutional accredited investors) and if the company is not listed on a national securities exchange like Nasdaq or NYSE at the closing of the offering, then it must not only satisfy the SEC’s comments but also those of state regulators in the states where it sells securities. Regulation A eliminates this issue by allowing companies to generally solicit and advertise their offering (known as testing the waters) before the offering statement is filed. State blue sky regulations are also preempted in the case of a Tier II Regulation A offering, thus eliminating regulatory reviews at the state level. Finally, the requirements of Form 1-A compared to S-1 are less involved and the Staff of the SEC is making a real effort to reduce the review period for Reg A offerings, which seem to take at least a month less than when Form S-1 is used. Companies considering an IPO should not dismiss Reg A. It is a more flexible and streamlined approach that will save them time and money. Instead, these companies

should spend more time getting valuation right and taking steps to support the stock price post-IPO through transparent reporting and investor relations activities. Reg A is not the reason deals fail. It is a great new tool that can result in the return of the mini-IPO so long as new Reg A issuers learn from the mistakes of their predecessors. Investors should also take notice of Reg A offerings. Although the Reg A issuers may be earlier stage than those that raise capital in a traditional IPO, Reg A also offers unique opportunities to invest in businesses that would not otherwise be able to access the capital markets. However, investors in Reg A offerings must do their homework, especially when it comes to valuation. As more companies use Regulation A to IPO over time, the initial problems with Regulation A will work themselves out and the quality of the Reg A deals will improve. So, investors should keep Reg A offerings on their radar and not miss potential opportunities just because a company is using Reg A instead of the traditional IPO process. n Mr. Bevilacqua is the founding member of Bevilacqua PLLC (www.bevilacquapllc.com), a boutique transactional corporate and securities law firm. Mr. Bevilacqua counsels companies of every size ranging from entrepreneurs with just an idea to established companies whose securities trade on the NYSE or NASDAQ. He has broad experience representing issuers in public offerings and private placements of securities (including private placements under Rule 506(c) of the Securities Act, crowdfunding offerings under Title III of the JOBS Act, and Regulation A+ offerings), Exchange Act compliance, angel and venture capital financings, other areas of equity and debt financing and mergers and acquisitions.

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ASX: NEW

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

New Energy Solar Ltd.

he global shift towards renewable energy is underway, and New Energy Solar (NES) stands at the forefront of this exciting transition. NES was established in 2015 with the purpose of identifying investment opportunities in this rapidly growing sector to build a thriving portfolio of large-scale solar power plants that generate emissions-free power. Now an award-winning, ASX-listed solar infrastructure business, NES has already invested more than $1 billion1 in solar power plants across the United States and Australia, and in doing so, has helped clients access investment opportunities otherwise unavailable to them, as well as achieve positive social impact and long-term, risk-adjusted returns. The NES management team has a strong investment and asset management focus, harnessing their many decades of combined experience in high-level positions across the power, utilities and infrastructure sectors to identify, acquire and operate solar assets with attractive risk-adjusted returns. The team’s disciplined approach to acquiring high-quality, low-risk assets has led NES to become one of the top five listed renewable investors in solar PV plants in the world.2 “NES is focused on generating consistent financial returns for our investors alongside positive social impact in the renewable energy sector,” says CEO John Martin. “Behind this mission is our dedicated team, whose knowledge, industry expertise and collaborative efforts have driven the business’s success to date.” In 2018 alone, NES’ seven operating plants are anticipated to generate more than 700,000 megawatt hours (MWh) of electrici-

ty.3 However, once all 22 plants are operational, the portfolio will have an anticipated combined capacity of 840 megawattDC, which can generate more than 1.7 million MWh of electricity and displace an estimated 1.15 million tonnes of CO2 – the equivalent to removing 282,000 cars from the road.4 And once all plants are commissioned through 2019, the portfolio will generate enough energy to simultaneously power every household in Newcastle and Wollongong in

the state of New South Wales.5 Looking ahead, the team will focus not only on ensuring its remaining plants under construction progress smoothly to commercial operations, but also identifying further opportunities for growth. Following rapid progression in this sector and with renewable energy fast becoming the lowest cost source of unsubsidised electricity, the team anticipates a strong pipeline of future investment opportunities and a bright future for solar. n

1 Quarterly update – June 2018

3 NEW Expands its Australian portfolio with acquisition of Beryl Solar Power Plant – 23 July 2018

For more information, please visit: www.newenergysolar.com

2 Ibid

4 Ibid

5 Quarterly update – June 2018

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MicroCap Review Magazine

F E AT U R E D A RT ICL E

What is a SPAC? S

PACs represented nearly 20% of the US IPO market in 2017.

So what is a SPAC? A SPAC is an acronym for a Special Purpose Acquisition Corporation or what is more easily understood to be a single purpose, publicly-held, private equity-like vehicle. A sponsor of a SPAC is typically either a private equity fund (or individual professional), venture firm or former CEO of an S&P 500 company, who are required to put up and are “at risk” of losing nearly 5% of the amount raised in the SPAC IPO if they fail to identify and close on an acquisition within a finite amount of time, typically 18-24 months. Through the SPAC IPO, the public co-invests with the sponsors with the expectation that the sponsors will identify and close on the acquisition of a private company that is interesting in being publicly-listed. The public’s capital remains in a trust account for the benefit of the public, until the closing of the proposed acquisition, and is subject to an automatic right of redemption. The public has the opportunity to approve of the acquisition candidate or require a full return of their capital at the closing. The overall market impact is even more significant since the size and type of acquisition candidates tends to be significantly greater than the amount

n BY doug Ellenoff, Esq.

MicroCap Review Magazine

raised in the IPO. Simply, the SPAC program is increasing the number of investible companies that are publicly-traded. In 2017, there were a total of 34 SPAC IPOs, which raised slightly more than $10 billion dollars. In the first half of 2018, there have been 17 SPACs, which have raised $4.5 billion dollars. According to SPACanalytics, there have been a total of 300 US SPAC IPOs since 2003; 159 of which have closed their business combinations, 9 more have announced deals, 51 are continuing their search $13 billion) and 81 have liquidated and given back their money. In the last 7 years though, the number of SPACs that have liquidated has been very few and the percentage that have closed on successful business combinations is quite high. A meaningful percentage of the 81 liquidations happened between 2003 and 2011/12. Since that period of time, working with the bankers, other lawyers, accountants and investors in the SPAC industry, we collectively recognized that the dilutive impact of the earlier generation of SPACs was discouraging potential target’s from pursuing a sale to a SPAC, and thereby, unnecessarily forcing the liquidation of those SPACs. To reduce the impact of the dilution, we repriced the warrants issued as part of the IPO to investors to be above market and also subjected them to price appreciation. Over the years, the regulatory tension that existed back prior to 2010 has also dissipated (old news) and both the IPO and proxy process are now normal and timely processes--- the SEC, FINRA and Exchanges treat SPACs as

just any other public companies. With respect to current themes in the SPAC industry, the vast majority of issuances are done by PE funds and serial SPAC sponsors. The most prevalent theme has been Oil and Gas, although there are numerous general industrial and technology acquisitions as well. The average SPAC IPO is in excess of $250 million dollars. For some of your readers you may be asking yourselves “wow, SPACs are back”- “I didn’t realize”, so I appreciate your taking the time to read this article and learning about how the industry has evolved. n Douglas S. Ellenoff, a member of Ellenoff Grossman & Schole LLP since its founding in 1992, is a corporate and securities attorney with a focus in business transactions, mergers and acquisitions and corporate financings. In the last several years, he has been involved at various stages in numerous registered public offerings and hundreds of private placements into public companies. Along with other members of his Firm, Mr. Ellenoff has been involved at various stages with over 100 registered blind pool offerings (commonly referred to as “SPACs”); In addition to our IPO experience with SPACs, he has been involved with more than 30 SPAC M&A assignments. The Firm represents nearly 60 public companies with respect to their ongoing 34 Act reporting responsibilities and general corporate matters. He also provides counsel with regard to their respective ongoing (SEC, AMEX and NASD) regulatory compliance. Like the other innovative securities programs, the Firm has taken a leadership role in the emerging crowdfunding industry, which was signed into law by President Obama on April 5, 2012. The Firm actively participates in many discussions with the SEC and FINRA with respect to the proposed rules which went into effect May 16, 2016. The Firm has sponsored conferences, webinars and has been invited to speak at numerous events on the topic. The Firm is already actively engaged with clients (funding portals, broker-dealers, technology solution providers, software developers, investors and entrepreneurs). www.egsllp.com www.stocknewsnow.com

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Continental has Been Dominant in the SPAC Market for A Reason: We offer best-in-class, tailored solutions, unique legal and processing expertise next to none, and a dedicated team of professionals who are available 24/7 when you need them most! The SPAC conference offers an unmatched forum for discussion and analysis of recent deal activity and the ever-changing models of the SPAC product which is now a major player in the overall IPO market.

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

TSX-V: GXU / OTCQB: GVXXF

GoviEx Uranium Inc.

oviEx Uranium Inc. (TSX-V: GXU; OTCQB: GVXXF) is a mineral resource company focused on the exploration and development of its uranium properties in Africa. GoviEx has two fullypermitted uranium projects: the Madaouela Project in Niger, and the Mutanga Project in Zambia. With the uranium market currently on the uptick, GoviEx is positioned to transition from exploration and development to production, subject to a uranium price that supports the development of new mines. 2018 represents a change in fortunes for the uranium market. Demand continues to grow; the World Nuclear Association’s

Daniel Major, CEO

recent report highlighted the increase in global nuclear electricity output to 2506 terawatt hours (TWh), an increase of 29 TWh compared to 2016, and 160 TWh higher than in 2012. At the end of 2017, the global nuclear capacity encompassed 448 operable reactors, with 59 reactors under construction. Both 2015 and 2016 showed additional nuclear power plant grid connections, with ten each, and there have already been more grid connections in 2018 than in the whole of 2017. The supply side has reacted aggressively to sustained lower uranium spot prices, with additional cutbacks to Kazakh production and the placement of Paladin Energy’s Langer Heinrich mine on care and maintenance. The biggest supply-side development has been Cameco’s decision to indefinitely suspend operations at its McArthur River operation in Canada. This move not only eliminates a significant amount of forward production from the market (16 to 21 million pounds (Mlb) U3O8 annually), but will also compel Cameco to purchase additional inventory to meet forward sales commitments, thus further reducing supplies. According to Ux Consulting, 2018 uranium production is forecast to total 136 Mlb, and secondary supplies are estimated at 48 Mlb. Demand is estimated at 191 Mlb, thus projecting a deficit of 7 Mlb. Together, these factors are creating optimism in the uranium market, and GoviEx Uranium is poised to take advantage of what comes next. GoviEx’s board of directors includes CEOs of major listed companies, representing both mining in general and the uranium sector in particular. These directors have the required skills in capital markets, legal, debt, and project development, and the experience working in Africa to help advance the Madaouela and Mutanga uranium projects to production.

Cameco, Ivanhoe Industries, and Denison Mines are GoviEx’s key, strategic shareholders, and their continued commitment provides GoviEx with a solid foundation. GoviEx is following a multi-pronged strategy that includes the further optimization of the Madaouela project in Niger. GoviEx has quotations from a number of consultancy companies for the final feasibility study. As soon as that costing is secured, GoviEx will announce who will finish the study on Madaouela. GoviEx also has been working on the debt financing for the Madaouela project with a number of banks that have provided expressions of interest GoviEx will continue to advance these and other progressive strategies, and, as the uranium market improves, the company intends to accelerate project improvement and development accordingly. Changes are ahead, and GoviEx offers a gateway into what is likely to be an exciting time in the uranium industry. n For more information, please visit: www.goviex.com The company paid consideration to SNN or its affiliates for this article.

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

SRAX

NASDAQ CM: SRAX

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

Chris Miglino, CEO

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RAX is at the forefront of a new digital era where the commercial web is powered not by machines – but by consumers. The recent events between Facebook and Cambridge Analytica, and new regulations like the European Nation’s General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA) have finally shed light on the value of data and people are taking notice. Founded in 2010, SRAX’s machinelearning technology has enabled brands and content owners to reach and reveal their core consumers across marketing channels. Capitalizing on its considerable track record and experience, SRAX is launching a new blockchain solution that supports the newlyempowered users of the web: consumers. SRAX’s blockchain identification graph, BIG platform, found online at www.bigtoken.com, is revolutionizing advertising by offering consumers choice, transparency and compensation for their data. The company’s vision for BIG is to create an equitable relationship between corporations and consumers to fundamentally restructure the digital advertising and data ecosystem.

SRAX has built a platform that serves all sides of the digital advertising ecosystem. SRAX CEO and Co-founder Christopher Miglino believes 2018 will continue to be a year of tremendous strategic change as the company grows and monetizes its verticals as well as launches its new blockchain consumer data management system, BIG.

BETA TESTING NEW BLOCKCHAIN SOLUTION In the fourth quarter of 2017, SRAX unveiled its blockchain initiative, BIG, which enables consumers to own, verify, and sell their data while staying connected to their community. Through BIG, consumers earn rewards when they create or add data to the system, opt into sharing their data, and when that data is purchased. Consumers also control what pieces of data are for sale and who can buy them. For advertisers and data buyers, BIG unlocks valuable consumer-verified and informed-opt in data for targeting and enhanced campaign performance. BIG also supports third-party application integrations to help marketers learn more about their customers and earn revenue through data sales. SRAX released the BIG Alpha version in spring to test functionality, reward mechanisms, and blockchain mechanics. This summer, the company entered the Beta testing phase for BIG, which includes new gamelike features, social-oriented elements, and a contest to incentivize participation and consistent engagement. SRAX’s new product takes advantage of the data and digital advertising market to return people to the core mission of the web. “The BIG platform solves challenges for both consumers and businesses. Most importantly, the ability for consumers to verify their MicroCap Review Magazine

existing data and create new data through BIG, represents a significant milestone in enabling consumers to own and manage their data,” said SRAX COO and Principal of BIG, Kristoffer Nelson.

STRENGTHENING A MULTIVERTICAL STRATEGY Over the past several years, SRAX’s multivertical approach has proven successful in more ways than one. In August 2018, SRAX announced the sale of its healthcare and pharmaceutical business, SRAXmd, to private equity firm, Halyard Capital, for up to $52.5 million. Management believes SRAX’s other verticals including consumer packaged goods, sports, auto and lifestyle, can each achieve similar or greater valuations as SRAXmd. SRAX plans to invest the SRAXmd proceeds in the further development of these verticals as well as the BIG platform. While the company monetizes one business, it continues to take great leaps with its other businesses, strengthening the multi-

vertical strategy that’s proven successful time again. Launched this year, SRAX’s CPG vertical, SRAXshopper, targets shoppers visiting advertisers’ key retailers by layering social and shopping data with media buying to enable marketers to message a single, verified shopper across multiple devices and inventory sources. Recently, SRAXshopper introduced a new video ad unit that creates real-time responsive product videos, targeting shoppers through local and personalized data. Product page messages coupled with the right combination of sight, sound, and motion from our unique Natural Language Processing platform is used to generate a one-of-a-kind ad experience for shoppers. In addition, SRAX Social, a social media management tool that makes it easy for agencies, businesses and individuals to grow their digital presence, also released new features, specifically to its boosted Facebook post tool. This tool, which enables marketers to promote posts beyond their Facebook Page communities, has added an Intelligent Budget and an Auto Boost feature. Intelligent

Budget allows users to load funds and easily allocate budgets to multiple teams, while Auto Boost allows users to automatically promote all Facebook posts based on rules and parameters set by the user. After reaching a specific metric(s) in a Facebook post, such as 25 likes, the rule triggers a launch of a boosted campaign for that post. Users can also A/B test different audiences and rules to maximize performance and guide future campaigns. 2019 is set to be an exciting year for SRAX, as it continues to grow its verticals and launch its blockchain identification graph, BIG. In addition to being named a 2017 Deloitte Fast 500 winner, SRAX was added to 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

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

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ASX: SEN / PINK: SNESF

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

Senetas Corporation Ltd.

enetas Corporation Limited (Senetas) is a leading developer of data encryption solutions; from certified high-assurance encryption hardware and virtualised encryption for carrier Ethernet Metro and Wide Area Networks, to the most secure encrypted file sharing and collaboration application, providing data sovereignty control. Senetas is an Australian public listed company (ASX:SEN) and a global leader in the development of advanced encryption technologies. The Company’s CN Series hardware encryptors, CV Series virtual encryptors and SureDrop, secure file sharing application, share a common high-performance encryption platform and are used to protect high-speed network data in more than 35 countries. Senetas encryption solutions leverage state-of-the-art encryption key management and are crypto-agile by design; providing long-term data protection in a post-quantum computing world. They protect data without compromising network and application performance, or the user experience.

Senetas Products CN Series – certified high-assurance hardware encryptors, ideal for core IT and network infrastructure. The CN Series features crypto-agility, uncompromising performance and certifications by multiple independent authorities (C.C., FIPS and NATO), providing Senetas customers with the added confidence that CN Series solutions are state-of-the-art and provide maximum security and performance essential for today’s infrastructure. CV Series – strong encryption for largescale extended and virtualised WANs. The CV Series virtual encryptor provides up to 5Gbps performance and is transport Layer agnostic. The CV Series enables rapid scalability, flexibility and cost-effective data protection, all the way to the virtual edge. The CV Series encryptor uses the same high-assurance Senetas CN Series hardware encryption platform. www.stocknewsnow.com

SureDrop – the most secure, encrypted “box”-type file sharing application with 100% data location control. SureDrop leverages Senetas’s state-of-theart encryption security to provide secure file collaboration and data sovereignty. SureDrop provides the same Senetas crypto-agility, scalability and ease of use as the network data encryption solutions. It is also an ideal solution for service providers’ large-scale deployment as a “Security-As-A-Service” customer solution. Senetas encryptors have been trusted to protect much of the world’s most sensitive information for more than 20 years. They are used to protect everything from government and defence data and secrets, to intellectual property and business data, to financial transactions, CCTV networks, SCADA critical infrastructure control systems and citizen identities. Senetas CN and CV Series encryptors provide optimised encryption security for everything from modest bandwidth requirements of 10Mbps to the ultra-fast 100Gbps networks required for aggregated Big Data, Cloud and data centre applications. Senetas encryption solutions are used and supported in more than 35 countries. They are distributed and supported internationally by Gemalto, the world’s largest data security company, under its SafeNet Identity and Data Protection products. Senetas customers include enterprise, government, defence and telecommunications and technology service providers: Government Senetas high-speed data encryptors are often the first choice of governments around the world. Why? leading near-zero latency, multi-certified, dependable, scalable and interoperable encryption. Security without network performance compromise! Healthcare Health sector advances are driven by adoption of new technologies that depend on high-performance data networks. Because

data protection is essential – privacy, compliance and data integrity – the health sector demands security without compromise. Financial This banking and financial services sector highlights the criticality of secure highspeed transmission of banking transactions and general business operations data around the globe. Banks are highly dependent upon secure high-performance data networks without compromise Defence Defence and military organisations have among the most demanding data network security requirements and information security classifications. Senetas protects government, defence force and military data in motion in more than 25 countries. Commercial Commercial organisations’ adoption of technologies such as Cloud computing and database services, expose them to serious data security risks. Perceptions that data networks are inherently safe have been proven wrong. Privacy and damages risks demand secure data transmission. n

Management Andrew Wilson was appointed CEO of Senetas on 15 August, 2012. He was formerly Senetas’s Company Secretary and Chief Financial Officer. Throughout his 14-year career with Senetas, Mr. Wilson has had a significant role in most of the important stages of the company’s development since it was first listed on the ASX. Julian Fay has been CTO of Senetas for 10 years. Julian was a co-developer of Senetas’s hardware encryption technology that is used in more than 35 countries and holds multiple testing authority certifications for use in government and defence. Senetas has a strong commitment to R&D and testing authority certifications. Advanced product development continues to identify and meet the increasing market demand and use cases for secure data in motion and opportunities to increase Senetas’s addressable markets.

For more information, please visit: www.senetas.com MicroCap Review Magazine

F EAT UR E D ARTICL E

Rick Rule: Three Themes for Mining Investments in 2018

n this Wall Street View, our host caught up with Rick Rule, President and CEO Sprott U.S. Holdings, Inc. TSX: SII at the Sprott Natural Resource Symposium 2018 in Vancouver, BC. Shelly Kraft: It’s good to have you, let’s tell our audience an overview of what you do. Rick Rule: Sprott Inc. is a natural resources finance house we manage about 12 billion dollars in investor funds across a broad spectrum of resource opportunities including resource equities and of course resource lendings. In addition to that we’re the sponsor for New York Stock Exchange traded passive investment trusts which assist investors in making U.S. investors making tax-advantaged investments in gold silver and platinum and palladium. Shelly Kraft: Now what’s the history behind the company? Rick Rule: We’ve been investment managers really based on Eric Sprott’s and then more laterally my track record for 40 years in natural resource based businesses. Well there are many places to invest in the world we’ve limited ourselves to the ones that we understand, which are specifically mining oil and gas agriculture timber and water.

n By rick rule Sprott U.s. holdings

MicroCap Review Magazine

Shelly Kraft: Rick, what’s unique about Sprott? Rick Rule: I think first of all the fact that we stick to our knitting, we only do one thing we do the thing that we’ve done for 40 years. We don’t try and be all things to all people. When you invest with Sprott or you invest in Sprott, you’re investing in a team of 160 investment professionals including geologists, engineers and finance people with a long history and resource businesses that do just resource businesses. Many submit financial services firms flit sort of from what is popular to what is popular to what is popular. Never developing any expertise in anything other than marketing. In Sprott through good times and bad we’ve been the resource business. Shelly Kraft: Sprott’s name is on the door of this conference, so what are you speaking about to the audience? Rick Rule: I speak about a variety of investment topics. Here at this conference with natural resource loyalists; I don’t have to be a generalist. So, here specifically I’ve been talking about the the three themes in mining investment which I think are attractive. The first is merger and acquisition targets. We’re coming into a phase where mining companies are going to have to acquire other mining companies because they have under invested in their development pipelines. We see that as being fairly easy money for the next 18 to 24 months. The second are the royalty and streaming companies which despite the fact that they have valuations which are larger than the sector at whole, still, we think have a more attractive outlook, and present what is in a very risky

sector lower risk opportunities to participate. The third is that we’re moving back into an exploration market. We haven’t had an exploration market for 20 years and mankind as a whole has under invested in exploration. Remember Shelly, despite the fact that other sectors are more popular than natural resource sectors, everything in the world is grown or mined. If it wasn’t grown or it doesn’t - wasn’t mine, it doesn’t exist. And the truth is the stuff of mankind, the thing that makes, things that make your life good and my life good are all mined. And we haven’t been looking for them for 20 years. Shelly Kraft: So, what do you tell the common investor the ordinary investor person - what do you do in this sector today? Rick Rule: Ours is a cyclical capital-intensive business. So in our business if you’re not a contrarian you’re going to be a victim. You have to buy the business, this business, these businesses, when they’re out of favor, and right now they’re in fact out of favor. This is a fairly good entry time for people who want to be in natural resource based businesses. All the hot money is in crypto and marijuana and various technology applications that I personally can’t pronounce or spell. So, if you are going to be in basic businesses you want to be in basic businesses when they’re out of favor and this is such a time. Shelly Kraft: The mantra when I was on the street was buy low sell high, how do you go wrong you can’t lose money doing that. So, for people who are not and who have no knowledge or basic knowledge of the mining and resource business, what would you say to them to get them started in the business today?

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Rick Rule: Well, it’s a great mantra; certainly you can’t buy low in a sector that’s popular. So, if you want to buy low, you have to look across the spectrum of financial press and see something that never makes headlines. Technology is making the headlines, Real estate is making the headlines, Cannabis is making the headlines, Blockchain is making the headlines; whatever is popular is expensive, whatever is unpopular is inexpensive and you never see headlines on The Wall Street Journal or Forbes about natural resource-based businesses. Ergo relative to other sectors they’re cheap.

the local level, the pension level, the consumer level, my suspicion is that either we see a default cycle in the United States or we default the old-fashioned way by inflating away the net present value, value of the obligation. Hence, I feel good about gold.

Shelly Kraft: So, we haven’t mentioned the price of gold in this entire interview, but I think it would be remiss if we didn’t, tell me about it, what do you think?

Rick Rule: Well, understand that natural resource conferences you’re always going to hear bullish things about natural resources. So, take half what you say and throw it out the window, okay.

Rick Rule: Gold is a unique natural resource asset in the sense that it’s not part of the necessary stuff of mankind except for its transactional capabilities. I personally own a lot of gold and I own it for insurance purposes. It is at once a medium of exchange and a store of value. Now ironically it’s the only asset class that I own a lot of that I hope doesn’t go up in price, if you look at gold not as an investment but rather as an insurance policy, shall I think about an insurance policy that you want to get paid off on - Auto insurance means you had a wreck, life insurance means somebody died. So, well, I encourage every investor to have a holding in physical gold, I would also encourage them ironically to have that as the one asset that they own that they don’t want to see rapid price appreciation in. Having said that ,I think we are going to see price appreciation in gold. Gold moves broadly, inversely with faith in the U.S. dollar. My own belief is that the current U.S. dollar strength is more a function of the weakness of competing currencies than it is the underlying strength in the U.S. economy. When I look at the price of the dollar, relative to the encumbrances the debt carried by American Society at the federal level, the state level, www.stocknewsnow.com

Shelly Kraft: Now, let’s take that feeling about gold and let’s specifically talk again about these juniors and exploration and expansion outside of Canada and all over the world and you know I’m hearing some very interesting stories and I want your comments on that.

Shelly Kraft: You mean half what I hear? Rick Rule: Half what you hear, yeah. Shelly Kraft: I’ll take the other half of what I say; you throw that out of the window also. Rick Rule: Take half what you hear the resource conference and throw it out the window like you would experience in any other industry conference. But the truth is that mankind has under invested in exploration for the last 20 years. And the consequence of that is that that dog is going to come bite us. The exploration sector as a whole is one where the expectation in every individual decision is failure. What’s lovely, however, is that the games that you experience on your successful efforts can often be sufficient to more than offset your losses in unsuccessful efforts. Once you learn how, once you learn that value is associated with a fairly small group of people, there are three thousand public exploration companies worldwide and all of the real performance is generated by about two hundred of three thousand. Once you begin to learn to separate the wheat from the

chaff, when you come into periods like the one we’re coming into when you come into an exploration bull market they last four or five years and the upside that individual selective investments can make is mind-boggling. Shelly Kraft: You know, I just want to finish off with your take on M&A and my view of consolidation in the industry. So, I think that they’re part and parcel to one another, aren’t they? Rick Rule: Absolutely. The last bull market that we had in resources last decade the industry made some absolutely idiotic acquisition decisions. There were two consequences of that: one of the appreciation for the whole industry was diminished and there was a dearth of M&A activity. But M&A needs to happen and as a consequence of that it’s beginning to happen again. Mercifully, the bad decisions of the last decades still weigh on the minds of investors and managers. And so the acquisitions that you’re seeing take place right now are uniformly good acquisitions and acquisitions are always good. Bigger companies have lower general and administrative expense relative to AUM that’s a good thing you spend less money running the business more money on the business. And secondly, if you are a participant in a merger, an intelligently constructed merger, benefits the seller because of the immediate premium and it benefits the buyer too. We’re coming into a circumstance that’s going to last I think for eighteen months to two years where both the buyers and the sellers are materially benefited by M&A. So, I think you’re exactly right in your description of mergers and acquisitions being an intelligent way to play the game for the next 18 to 24 months. n For more information about Rick Rule and Sprott U.S. Holdings, please visit: www.sprottglobal.com 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. MicroCap Review Magazine

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Identifying Promising Opportunities in MicroCap Investments

nvesting in Microcap companies has many similarities to investing in larger companies – though certain unique risk factors more applicable to Microcaps require savvy investors to supplement their normal investment process.

n By sam namiri

MicroCap Review Magazine

Some of these considerations more applicable to smaller companies include the following: • They are underfollowed and less regulated • Tend to have weaker reporting systems and controls • Have fewer resources in time and money than larger companies At Ridgewood Investments, we have been investing in Microcap opportunities for many years and through our experience have come to develop our own five point investment process to help us focus on the most promising opportunities: 1. Focus on quality companies

2. 3. 4. 5.

Perform extensive due diligence Pay the right price Monitoring results Implement A Sell Discipline in advance Focusing on quality companies is an important initial step in MicroCap investing because in smaller and lower quality companies, the business model sometimes just doesn’t work and a checklist helps you eliminate these investment traps ab initio. For example, customers may not want to buy the company’s product or perhaps the product is one for which they can easily switch to a competitor or a new entrant into the market. Owning “quality” companies helps

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lower these risks. At Ridgewood we use a checklist of over 20 items to help us measure if a potential microcap investment candidate passes this initial quality test. These checklist items range from financial ratios to qualitative aspects of the business such as barriers to entry and competitive analysis. (email us to get a copy of our checklist – note that the idea of having a checklist is inspired, in part, by Atul Gawande’s book the Checklist Manifesto which we highly recommend) Once a company passes the quality test, the next step is to perform intensive and thorough due diligence. We start off by comprehensively reading the company’s SEC Filings (including footnotes!), conference calls and press releases. This is the time to be looking for buried red-flags and hidden pitfalls. For example, is the amount of options and/or warrants a company has issued reasonable and reflect positively on management’s capital allocation abilities? We once identified a clean coal technology company that had a great product and seemed to have investment promise, but upon closer examination we noticed this company had a habit of regularly diluting the current shareholders by issuing an egregious amount of options and warrants. In this step we also scrutinize the totality of the company and management’s history of past decisions and communications to see if they have a strong track record of capital allocation and strategic decisions or the opposite. After the above initial stage of diligence, if the company still looks interesting, we start to have more extensive conversations with management, competitors, customers, suppliers and anyone else that can help verify and give more insight on the business and industry. We often travel to visit the company as well as attend trade shows and read industry publications if applicable. Not many microcap investors do this much due diligence on their investments, and even fewer sell-side analysts that cover smaller companies do so – partly because they don’t typically have the budget to travel and invest in such deep diligence. As investors willing www.stocknewsnow.com

to go the extra mile, this step is one where we can develop “an edge” on the upside while also reducing the risk of investing in a poorly run or even fraudulent company on the downside. In the last three years, I’ve avoided two potential investments that ended up being frauds later – in both of these cases the companies refused my request to let me visit their operations. Another key to reducing risk when investing in very small companies is maintaining valuation discipline. The cheaper that one can purchase a company’s shares, compared to what its intrinsic value is, the less risk is being taken. In other words, purchasing a dollar for 50 cents is less risky than purchasing a dollar for 90 cents or even worse 150 cents. Rather than having a trader’s mentality we focus on cultivating a business owner’s mentality. Once we identify a good company that we want to own, even if we own some shares already, we get excited not dejected, if the price of a company’s stock goes down and creates more compelling value for us to take advantage of. Although it can be psychologically tough to buy more of a stock as it is dropping, by doing extensive primary research and developing strong conviction on the value of a company, it makes it easier to pull the trigger. Remember that there can be many reasons why someone wants, needs or is forced to sell a stock, however only one reason why someone would buy, which is that they think that it is worth more. After buying, we continue to monitor and perform ongoing periodic due diligence updates on the business and the industry. This update process is continuous and lasts as long as the stock is in the portfolio. We continue to read all the news, press releases, SEC filings as well as have meetings with the companies, competitors, suppliers, customers and so forth. Finally, always make sure to maintain and update price targets for each investment upfront (though targets can be updated in light of information). Once the company has hit its fair value, be happy selling the posi-

tion. Also, if things change and the target price falls to where the prospective return is no longer attractive, look at selling the position as well. It’s important to consistently revisit and re-check the original investment thesis to see if it still holds. This process has helped us reduce the risk of investing in microcaps. While no one can be right one hundred percent of the time (only liars), the hope is to have a good batting average for which one of the keys is to be selective based on a sound investment process and not swing at most pitches. 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. n www.ridgewoodinvestments.com 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.

MicroCap Review Magazine

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

Why Canada! P

op Quiz! Which country has produced – on a percentage basis – more microcap 5-baggers over the past five

years?

The United States Canada

n By Brandon Mackie

The answer may surprise you. The US OTC had 113 companies whose shares rose 5x over the past five years, or 1.1% of the 10,584 listed companies. Meanwhile on Canada’s Toronto Venture Exchange (TSXV), 54 of the 1,980 listed companies, or 2.7%, reached five-bagger status during the same time period. That means if the future is anything like the past, you are more than twice as likely to find a 5-bagger in Canada vs the US OTC. That statistic is no coincidence. Once only a mining mecca, the Toronto Venture Exchange has transformed itself into the world’s most efficient public venture capital marketplace. So if thinking about Canadian investing conjures up an image of a slick back haired man holding an ore deposit, we suggest you look take a closer look. Here you’ll find a vibrant technology and healthcare sector that has outperformed nearly every global market this year. Here’s David Wolf, CEO of US-based but Canadian-listed Hamilton Thorne: “The [TSX] Venture [Exchange] can be a good place for a development-stage company to access capital, along with solid regulatory framework and reasonable costs.” Hamilton Thorne is a healthcare company we have owned since 2014. Once completely undiscovered, it has become a microcap blue chip today. Shares have gained 820% in just

MicroCap Review Magazine

over 3 years. David’s story – along with many other Canadian microcaps we have found – have led us to believe: if you are a US microcap investor and not thinking about Canada, you are crazy. Today, we’ll share our Top 4 reasons why.

1) Undiscovered Good treasure hunters know there is no point searching where others have looked. The riches are gone. You’ve got to look in undiscovered places. The US is the world’s premier stock market. If it wasn’t competitive enough, investors all over the globe also want to invest there. But in Canada, you’ll find far fewer eyeballs on microcaps. And even within Canada, the whole brokerage industry is built around one thing: the resource sector. These are after all the companies that need to raise tens of hundreds of millions to bring a project to life. That’s a lot of fees for the brokers and bankers! What incentive do firms have to research small, profitable companies outside of this sector? Let their neglect be your opportunity. One of our biggest winners was XPEL Technologies (DAP-U:TSX-V). When we invested in 2013 at $0.17, it was growing 100% year-over-year while trading at 4 times earnings. Shares trade over $5.00 today. It was a gem hiding in plain sight.

2) Access to Growth Companies Intel (INTC) went public in 1971 at a $8.2 million valuation. Imagine investing in Intel as a microcap. A $10,000 investment in Intel’s IPO would be worth $302 million today. www.stocknewsnow.com

It’s the American dream. Well, at least it was. Now companies are staying private longer – opting for a waterfall of VC money over the headaches of going public. Take SnapChat. At a valuation over $30 billion, most of the upside – you could argue – is already gone. Uber has raised capital at a $70 billion valuation, yet is still private. What is great for the VCs, is bad for you as a public markets investor. Since 2000, the average number of US smallcap IPOs (<$100M) has fallen a staggering 74% since the 1990’s. Canada has fared better. The VC and private equity industry is less mature compared to the US. Going public is still the route of choice for many innovative, high-growth companies. Catamaran Corp (CRTX), Lions Gate Entertainment (LGF), and IMAX (IMAX) all got their start as Canadian-listed microcaps. We invested years ago in a company called Bowflex, which made home exercise equipment. It traded at CAD $0.10 (yes, ten cents) and after many years of growth, moved onto the NYSE renamed as Nautilus (NLS). Accounting for splits, shares trade at USD $230 today.

3) Regulatory Protection & Transparency Despite what the media would have you believe, Canada’s regulatory framework offers microcap investors as much or more protection than the US. On the TSX Venture, you cannot do a financing under $0.05 (except under extraordinary circumstances). This means you can’t structure a deal where 100M shares are issued at a fraction of a penny to insiders – only to list at $0.10 or $0.20 a few months later. You also can’t do financings lower than 25% of the last trade. This protects investors from the dreaded “death-spiral” financing where shares are issued continuously at ever lower prices.

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Lastly, the venture requires full disclosure of ownership and share structure. There is no hiding the faces behind each deal.

Disclosure: Paul Andreola and Brandon Mackie are long HTL:TSX-V and DAP.U:TSX-V. No position in any other securities mentioned.

4) Built for Small Companies

About SmallCap Discoveries: Smallcap Discoveries is a newsletter dedicated to uncovering Canada’s premier emerging growth stocks. Smallcap Discoveries focuses on growing smallcaps with positive cash flow that have gone undiscovered by the broader market. Smallcap Discoveries was created as platform to share actionable ideas and help investors get an edge in the markets. Smallcap Discoveries’ mission is to bring the world the best original research, on-theground due diligence, and profitable ideas in the smallcap space. If you’re an avid smallcap investor, Join Us. n

In our opinion, The TSX Venture is the most efficient public venture exchange in the world. This is because the entire infrastructure – from the lawyers to the accountants to investment bankers – is built around bringing small – and we mean really small – companies public on the exchange. From the fees that service providers charge to less onerous filing requirements, small companies have it easier when it comes to listing in Canada relative to the United States. US investors expect companies to be worth billions before listing, and the whole financial infrastructure has evolved to make that expectation a reality.

Conclusion Because of Canada’s thriving ecosystem of speculative industries – think mining, crypto, and cannabis – there will always be reasons to be cautious of investing in Canadianlisted securities. But investors who can look through the noise can find innovative companies like Shopify (SHOP:TSX), which has returned 897% since its IPO in 2015 or Covalon Technologies (COV:TSX-V) which has returned over 4100% since 2013. We believe Canadian investing gives Americans the best of both worlds – you get the valuation arbitrage of international investing without the headaches – time zones, language barriers, and immature regulations to name a few. Over just the past 5 years, we’ve had the good fortune to invest in 7 companies that increased over 10 times from our purchase price. We believe Canada’s non-resource sector is one of the market’s best kept secrets. And it’s only a matter of time before international investors figure it out.

About Brandon Mackie: Brandon Mackie is currently Head of Research for Smallcap Discoveries. Prior to joining Smallcap Discoveries full-time, Brandon was VP of Financial Planning & Analysis for venture-back food technology company Soylent. Brandon got his investing start from the value investing teachings of Warren Buffett and Benjamin Graham, which inspired him to write a microcap-focused blog called Moatology. When not researching stocks, Brandon can be found surfing and making music. www.smallcapdiscoveries.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.

MicroCap Review Magazine

F E AT UR E D A RT ICL E

Investing in Electricity Conservation I

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

Combating Electrical Line Loss: The Over-Voltage Problem

electricity distributed with the farthest endpoint in mind. The result being higher than needed voltage across the entire system.

The electricity we depend on every minute of every day is generated from a variety of facilities including coal and natural gasburning power plants, hydroelectric dams, nuclear power plants, wind turbines, and solar panels. From its point of generation to the point of consumption, electricity goes through several changes. Electrical energy is wasted as it as transmitted over distance, primarily due to conversion to heat and electromagnetic energy. To minimize energy loss, electricity from generating stations is converted to higher voltage/lower amperage, and then, at the point of consumption it is converted again to lower voltage/higher amperage. Despite best efforts to reduce waste, up to 6% of electricity generated is lost in transit across the grid, and loss attributable to distribution is not constant—it varies with distance. In order to compensate for line-loss, utilities increase the voltage of the

Typical Energy Saving Solutions

n By sean peasgood

MicroCap Review Magazine

To help conserve energy, the Rockefeller Foundation estimates some $279 billion could be invested in retrofitting the residential, commercial, and institutional market segments in the U.S. with window treatments, energy efficient lightbulbs, energy efficient motors, and other solutions. These solutions do work, but they only address part of the problem. Consider the problems for machinery posed by poorly conditioned electricity. A machine performs optimally when it is operated at its specified rated voltage. Machines operated using electricity outside of prescribed tolerances are subject to reduced efficiency and increased wear. In the event of machine failure, the biggest

cost isn’t always the repair of the machine itself; it can be the opportunity cost of the machine’s downtime. Moreover, an electric current which exceeds the machine’s operating range could also damage internal components. High voltages can also cause damage to machinery as magnets become saturated and overheat. Conservation Voltage Reduction (CVR) is a tried-and-true practice of producing energy savings by reducing voltage in an electrical system. It tends to be most effectively deployed in electrical environments where the voltage to the end customer is difficult to control due to aging infrastructure and the layout of the distribution system.

An Innovative Way to Save Energy Legend Power® Systems (LPS-TSX-V) is an innovative provider of energy conservation solutions. It developed and patented

Figure 1. Source: Union of Concerned Scientists www.stocknewsnow.com

the Harmonizer™, a product which reduces electrical energy consumption in commercial buildings. The Harmonizer is installed in a building’s electrical room at the point where power enters a building, and then works to automatically optimize incoming voltage. It is non-invasive in that, unlike some energy saving alternatives, there is no requirement to close floors or sections of buildings to implement the solution. This is also an important consideration for historical and protected buildings where physical alterations are not permitted. The Harmonizer can be thought of as an ‘industrial dimmer switch’, where voltage can be dialed to a level that allows equipment to run with greater efficiency and save energy while reducing costly premature equipment failure and extending equipment life expectancy. As well, if the incoming voltage drops, the Harmonizer automatically switches to a bypass mode, allowing the existing line voltage to enter the building unimpeded. Legend Power® believes a typical commercial facility can expect to save between $14,000 to $20,000 per year with payback in less than 3 years. The product comes with a 10-year warranty. The Harmonizer™ is not a prototype or concept; it is an energy savings product (and a new category) that Legend Power® has deployed in more 250 locations across 13 markets including office buildings, multiresidential units, prisons, government buildings, industrial facilities, education facilities, lodging, and recreational facilities. Across the markets described above, there are approximately 759,000 buildings in the United States that would likely be strong candidates for achieving material energy saving benefits with Legend’s Harmonizer.

recommenders including utility Con-Edison, a top 10 U.S. utility serving the five boroughs of New York and Westchester County. Outside of New York, there are at least 10 other U.S. states where the intersection of comparatively expensive electricity costs, aging infrastructure and older buildings provide opportunities for Legend Power Systems’ Harmonizer solution, including California, Oregon, Washington, Colorado, New Jersey, Minnesota, Maryland, Connecticut, and others on the east coast. Legend Power’s management has estimated that North America presents a market opportunity of $38 billion.

Conclusion

Figure 3. Legend Power’s Harmonizer ™

On October 13, 2016, Legend Power® announced its first sale of a Harmonizer unit in New York City to an unnamed Fortune 500 company. New York City is a strategic market for Legend Power, given the number of older buildings in the city and the city’s comparatively high energy costs. To help drive Harmonizers into this market and the broader North-Eastern and Mid-Atlantic regions, Legend Power has forged relationships with key

Although Conservation Voltage Reduction (CVR) is a tried-and-true practice for producing energy savings by reducing voltage in an electrical system, it tends to be addressed as a set of solutions rather than a single-point solution. Legend Power® Systems (LPS:TSX-V) is attempting to change this with a solution that automatically regulates distribution line voltages and bypasses the entire system in the event of line voltages falling too low. By using Harmonizers, property owners can realize significant reductions in their electricity bills, with as little as a 3-year payback. Legend Power Systems is set for growth, targeting an estimated $38 billion market opportunity. 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/

Figure 2 www.stocknewsnow.com

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. MicroCap Review Magazine

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Invest and Make Money with the Power of Knowledge “Behavioral Finance Is Central To Value Investing” Jim Kelly

Behavioral Finance – Emotions Can Affect Your Investment Decisions

ehavioral finance is central to value investing. This is a quote that Jim Kelly, director of the Gabelli Center for Global Security Analysis at Fordham University, stated leading up to a presentation given by Professor Andrew W. Lo on January 24, 2018 at the Museum of American Finance. The Gabelli Center for Global Security Analysis at Fordham University was established in 2013 to support and promote investment analysis in the tradition of Graham, Dodd, Murray and Greenwald. The center offers a variety of programs and events designed to promote collaboration among its constituencies and to foster dialogue between the academic community and practitioners. I recently came across this a video highlighting Professor’s Lo’s presentation titled: “Adaptive Markets: Financial Evolution at the Speed of Thought.” You can view the video and transcription transcribed here. Please note that the video did not capture the slides that went along with the presentation, but I obtained them from Mr. Lo, which you can view here.

If you have ever let emotion impact or threaten your investment decisions, or if you have an opinion on the Efficient Market Hypothesis, I think you will find this video presentation enlightening. Andrew W. Lo: …is the Charles E. and Susan T. Harris Professor at the MIT Sloan School of Management and director of the MIT Laboratory for Financial Engineering. He has published numerous articles in finance and economics journals, and has authored several books including • Adaptive Markets: Financial Evolution at the Speed of Thought • The Econometrics of Financial Markets • A Non-Random Walk Down Wall Street • Hedge Funds: An Analytic Perspective and the Evolution of Technical Analysis. His awards include the Alfred P. Sloan Foundation Fellowship, the Paul A. Samuelson Award, the American Association for Individual Investors Award, the Graham and Dodd Award and numerous other awards and honors

Presentation Highlights

n By maj soueidan

MicroCap Review Magazine

Andrew explains how he starts with an acceptance of the old school Efficient Market Hypotheses (EMH) and he then takes you through his journey of why he concludes it is not invalidated, when it appears the EMH does not hold. Specifically, he argues that the EMH is not necessarily an incorrect way to

view the financial markets, but rather that during dynamic or unstable environments, the assumptions that make up the EMH are unrealistic. He expresses an opinion that the old financial models are based on static environments and need to “adapt”, as the environment changes. From there, they must take into account how investors react (behavior) to these changes. This is his basis for his “Adaptive Market Hypothesis.” Some key conclusions include: (slides 8 and 9)

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He ends with a discussion how Artificial Intelligence (AI) plays a big role in our decision-making process and how AI can lead a charge to create financial products that take into account an individual’s behavioral footprint. He even touches on how record low market volatility will not last forever, and this is very interesting, given that the stock market is beginning to experience more volatility. Professor Lo’s delivery is articulate, and the analogies he makes to non-financial situations as it relates to behavior may surprise you. For example, he references a study by economist Sam Peltzman, that shows over the long-run, U.S. regulation requiring that new cars should be made safer (reinforced www.stocknewsnow.com

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

Volatility Will Revert to The Mean Of course, what goes up eventually does come down and so as we start adapting to this kind of a new low level of volatility there is a rude awakening that we are facing. Something to keep in mind. That is one important implication of adaptive markets. Markets are not the same over time and the population of investors they are not the same over time. They have changed and they adapt and sometimes that adaptation is positive and beneficial, but other times that kind of adaptation can be quite dangerous and detrimental. bumpers, airbags and so on) essentially had zero impact on “saving” lives: “So what he concluded is that every time one of these safety regulations was imposed, initially it reduced the number of deaths and then people adapted because there were driving safer cars they simply drove faster and more recklessly and so his conclusion was, if you want people to drive more safely, what you should do is to take way all of these safety devices and install sharp spikes on the dashboards pointing at the driver.” Here are a few notable passages from Professor Lo’s January 24, 2018 presentation:

Impetus for the book And the state of affairs, I suspect most of you know, is the fact that most of us who grew up in this kind of a “Neoclassical financial economics” type of a paradigm, were taught the Efficient Market Hypothesis. The idea that www.stocknewsnow.com

prices fully and everywhere and always reflect all available information. And at the opposite end of that spectrum is the fact that people are people and we engage in all sorts of human biases foibles and irrationalities. There is a pretty wide gulf between these two schools of thought and as a graduate student, I was introduced to both of them and it was really difficult to choose, you know it’s kind of like a child listening to his or her parents arguing, you know, you just want to stop and get along and you know that they love each other but they just you know can’t come to terms. So, I decided over the course of probably now going on 25 years to try to reconcile these two warring parties and that is really the nature of this book. What I wanted to do was to describe the different paths that I have ended up taking to try to reconcile these two schools of thoughts and really that path started off as a graduate student when I started reading a lot of the

Adaptive Market Hypothesis The adaptive market hypothesis begins with the acknowledgement that the traditional paradigm of investment analysis, what we know and love and use in our day-to-day practices is not wrong, but it’s incomplete. It doesn’t capture the fact that in a very dynamic environment, we are not going to see the same king of relationships as in the static environment. So, when the things are stable, then stable investment policies make sense. But when things are highly dynamic, well then actually things don’t stay the same and people adapt to those kinds of changes and the fact is that right now we are living a very dynamic economy with lots of things changing even day-to-day and so the reason that many of these theories look like they are not working is not because they are wrong, but because they are not being applied to the right context and MicroCap Review Magazine

we need a meta theory to allow us to integrate all of these ideas. That is the idea behind the adaptive markets hypothesis.

Changing Environments This is a graph of the cumulative performance over $1 investment in the S&P 500 from 1926 to the present. Now the reason you don’t recognize this, it is because I have plotted it on a semi logarithmic scale and the reason I did that was because on a log scale, it turns out that equal vertical distances correspond to equal rates of return and so if you have got an investment that has roughly the same rate of return over the time, it looks like a straight line on this graph and when you look at this graph, you see that the United States Stock market has been one of the most consistent investment in the history of capital markets . For a period of about five or six decades, the US stock market looks like a straight line. It turns out that during this period, the assumptions that I showed you on the previous page were an excellent approximation to this much more complicated reality. Does not much matter where you invest during that period of the 1930’s to the early 2000’s, you would have earned approximately a risk premium of about 8% with an approximate standard deviation of about 15-20 %. Pretty reliable risk reward trade-off during that period of time. But take a look at the last 15 years. Do you believe that the last 15 years is just like the previous 50? If you do then you don’t need any other theories, the traditional efficient markets hypothesis, Cap M and all of the various different implications are just fine. But I would argue that the last 15 or 20 years, it does look a little bit different and there are reasons that I will give you in a few minutes why I think there are very different. And in case you want to see a better example of this kind of a difference, let me show you Japan. So, this is the Japanese stock market form 1940’s to the present. They also had their period of about 20 or 30 years of very, very stable performance in the Japanese stock

MicroCap Review Magazine

market. But starting in the 1980’s, they ran into a problem, as I am sure all of you know, and the lost decade became the lost two decades and now we are running on the lost three decades in Japan. So once again, you look at this and you ask yourself well do you think that the last 30 years was just a minor blip in an otherwise upward trending curve or did something change? I would argue that something has changed and so the adaptive market Hypothesis takes change seriously and asks the question, what are you going to do about that change. How are you going to respond? How will you adapt to that change? The basic idea behind the adaptive market hypothesis really follows that of evolutionary biology – and the great evolutionary biologist Theodosius Dobzhansky once said that nothing in biology makes sense, except in the light of evolution and so I am going to steal his phrase and repurpose it for our current context, which is that nothing in the financial industry makes sense expect in the light of adaptive markets and I am going to try and convince you of that by giving you some examples.

Alternative Take on EMH as it relates to GARP Microcaps Many of us do not accept the tenets of the efficient market hypothesis when it comes to investing in microcap and nanocap stocks (market capitalizations less than $300 million). At times, I will even attempt to exploit inefficiencies in stocks with market caps up to $1 billion. Peter Lynch handily beat the market by investing in stocks with market capitalizations up to $5.0 billion. You can see Lynch’s stock picking guidelines here. As a microcap and nanocap investor, I found Professor Lo’s topic to be extremely interesting. We can poke holes in the traditional definition of the EMH because microcap returns have been proven to beat out bigcaps and the market over time, by a wide margin. Here is the classic definition of the EMH:

“The efficient market hypothesis (EMH) is an investment theory that states it is impossible to “beat the market” because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information.” This definition is fairly strict. I think most of us would insert “quickly reflect all relevant information.” Mr. Lo’s presentation can inspire us to inspect the EMH a little more thoroughly than we may have in the past. It’s standard practice to presume that the higher than “market” returns we are able to get by investing in microcaps are due to a variety of factors, such as risk aversion, low liquidity aversion, lack of institutional interest and a less fluid flow of information when compared to bigcaps. However, after viewing Lo’s presentation, one could start to at least consider this subject from different angles. A question that popped into my head included: How should we be defining ‘efficient’? Is it really inefficient that microcaps should offer investors higher rates of return? With Lo in mind, the answer could depend on how much of the arbitrage is due to lack of fluid information flow (information arbitrage) and misinterpretation of business risk factors compared to how much is due to behavior, regulation and environmental factors shaping attitudes about overall risk aversion and appetite for certain asset classes. I would argue that it’s quite efficient that, over the long-term, some factors should allow growth at a reasonable price (“GARP”) microcaps to exceed the returns of the market or large caps. These two forces work together to give you opportunities and to determine how long it takes the market to reward you for your hard research. How is it be possible to buy Evans & Sutherland (OOTC:ESCC) at valuations ($0.14 in 2014) indicating bankruptcy when SEC filings clearly indicated that liquidity issues would be favorably resolved well ahead of its huge multi-bagger move to $1.98; or to buy Zynex Inc (OOTC:ZYXI) ($0.40 in www.stocknewsnow.com

2017) weeks before it began its monster move to $5.50, when press releases had been clearly indicating sustained profitability and de-risking balance sheet moves? The inefficiencies in the microcap universe provide tremendous information arbitrage chances. It makes perfect sense that information arbitrage and gaining a better understanding of a company’s growth and risk profile than your peers exploits the “inefficiencies” of the EMH. It’s also clear that the less participation by investors in the microcap space compared to large caps helps create this opportunity. This “lack of participation” has always been a factor. But how much of the alpha is from inefficiencies. Maybe, what is efficient, is how behavior changes over time to add to or subtract from the pool of microcap investors and impact their attitude towards related stocks, thus influencing how long it takes for stocks to react to positive developments and investors’ required rates of return. Before 2008, I would have told you that prices would adjust upward to the information arbitrage identified through great GARP research in a reasonable time frame, once the market found vital information. In essence, enough inefficiency existed to give you time to buy stocks early, but eventually, enough market interest (efficiency) would build to allow you to earn a nice return on your research in a reasonable amount of time. At times, I would hold of hundreds of stocks, Peter Lynch style, and easily beat the market. Since the Global Recession, it has been my observation that the performance of quality GARP microcaps have often underperformed speculative “get rich quick” microcaps and their larger counterparts. My biggest takeaway is that it has been taking longer for these GARP stocks to rise to fair valuations. How is it possible that it takes longer to be rewarded for your good research, when information is more available than it has even been? The answer takes me back to a presentation I had the pleasure of giving at Fred Rockwell’s microcap conference event on www.stocknewsnow.com

April 11, 2016 in Toronto that could tie neatly into Professor Lo’s logic. The global recession has, no doubt, impacted the way investors act and react in the stock market. Reduction in Pool of Investors: • Many microcap investors disappeared from the market and/or never came back to invest in microcaps. • The rise of ETFs and passive investing has reduced the number of investors using stock picking as a strategy, a dagger in the heart to microcaps. • ETFs typically are not investing in true microcaps (market cap less than $300 million). Changing Attitudes to Risk: • Some investors don’t want to deal with the perceived risk inherent in microcaps, so they think they can take less risk in large caps. • Large cap returns have been sufficient (due to Fed policies) to keep investors satisfied • Investors don’t want to hold stocks long-term (holding period of retail investors has gone from 6 years to 6 months). • Aversion to time, ironically, has investors looking for highly speculative (non-GARP) microcap plays like biotechs and pump and dumps to make big money fast. These trends are both good news and bad news. It’s great to be able to buy all the stock you want of some really undervalued names, but there is a price to pay other than dollars and cents. GARP investors have needed to wait longer to get paid. If you are a longterm investor, you might not be phased, but if you have been spoiled to be accustomed to achieving quick returns, then you may have felt a high level of frustration for the

last 10 years or so. As for me, my behavior has changed in a few ways. I am “adapting” to be a more patient, longer-term investor, and employ a more concentrated investment style. Because I know I may need to be invested longer in some of my stocks, I take deeper dives into their stories, which I think has made me a better investor.

Conclusion The pendulum swings both ways. The time it takes for many GARP microcap stocks to reflect their true value is taking longer than other cycles I have gone through, but GARP investors are finally beginning to get paid sooner. Overall, I think examining the EMH is an interesting exercise, but reality will often diverge from hypothesizes and theories. One thing is for certain: information arbitrage chances in the microcap world are both real and widely present, and wont’t change anytime soon. 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. MicroCap Review Magazine

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

Why Family Offices Should Be Your First Choice For Capital Investment Five Steps to a Successful Raise

s our third article on family offices for Microcap Review, we’re sharing a deeper dive into some of the secrets to successfully completing transactions with family offices based on our own investment practices and analysis of deals presented to us over the last 12 months. The family office investor segment has established its presence as a significant global alternative to traditional institutional capital sources. According to a recent report by Campden Research which surveyed a pool of 262 family offices the average assets under management was $921M in 2017. And these assets were highly diversified. As more FO’s begin to report their specific investment practices, the portfolio diversity of this investor segment is increasingly revealed. The results are staggering, and clearly point to opportunities within the microcap sector. It is clear that given the steadily increasing quality level of microcap companies, and family offices aggressively in search of investment opportunities, we expect to see convergence between the two groups. The high-quality end of the microcap spectrum i.e semi-liquid NASDAQ listed companies of less than $100M, offers “semi-public” oppor-

tunities to invest in direct venture and private equity, an ideal family office feeding ground. According to the Campden Report, in 2017 direct venture capital and private equity investments represented 9.3% of portfolios. Direct investments are investments where the investor invests directly in a company rather than investing through a blind pool venture capital fund or private equity fund. We reported previously that direct investing is a central theme, as family offices seek to reduce fees and gain greater control of risk exposure. This is now confirmed by the report. Where 9.3% may not seem large on first glance, consider that number represents over $1 trillion dollars globally. And at 9.3% it’s the second largest percentage in the alternative investment segment behind direct real estate investment which still holds the highest position allocation at 16.2%. As family office investors ourselves, we routinely compare notes with other offices. We are seeing increased corroboration of the

Campden report. For example, in a recent discussion with a co-investor which we had assumed was exclusively in real estate, we learned that they had recently invested in a cobalt mine in Africa, and were in the process of rolling out an ABL debt portfolio. It is our belief that armed with such data, companies in the microcap sector should market to family offices as their first choice. In favor of the issuers, family offices offer many benefits which we’ve covered in other issues. Some of the primary benefits are: • • •

Long term equity and debt capital. Typically do not have finite investment horizons. Tend to be anchor investors which create stability for follow on investors and also for business development and credit.

Similarly Microcap companies offer many of the key ingredients that interest family offices:

n By Karl Douglas

MicroCap Review Magazine

www.stocknewsnow.com

• • • • •

High growth potential Liquidity Transparency Venture Exposure Private Equity

5 ways to be successful As part of our deal sourcing activity we attend a number of conferences each year. We also have relationships with many of the investment banks. We prefer conferences because we get to interact directly with management teams and hear first hand the growth strategy for the companies. Based on recent interactions we’ve highlighted five factors that contribute to successfully raising capital from family offices.

Understand Family Office Drivers – 1. Family offices tend to be fundamental investors. They are much more interested in your balance sheet and cash flow statements than in your VWAP. Even though you are public, they look at your company as a private company with a liquidity option, nothing more. They are interested in your business model, market potential and execution plan. The typical family office investor will seek to become an anchor investor bringing balance sheet stability to your company, which reduces investor uncertainty and increases creditor and vendor confidence. 70% of microcap companies go out of business because they run out of capital. CEOs and CFOs that attend microcap conferences have fallen into a groupthink model of “I need to create volume in my stock, so I should hire an IR firm and pitch the buy-side”. That’s all well and good, and serves a purpose, but when sitting with a family office, they are unlikely candidates to purchase common stock on the open market, or even through a private placement. Failure to adjust your presentation for the audience is a fatal mistake that we have seen many managers commit. www.stocknewsnow.com

Family offices are unlikely to participate in a syndicated deal. They won’t invest on the same terms are a $1,000,000 HNW investor. Why should they? When the going gets rough and the quick money and market driven money disappears, family offices are generally willing to weather the storm provided that the fundamental business model makes sense. To get family office capital help them to understand the merits of the business model. Only then will they consider investment in a preferred share or debt round. And more often than not they will require a custom designed round offering a significant array of shareholder rights and protections. 2. Lead with Management Family offices tend to invest in management. The impression you create is 51% of the decision. We’re always surprised at the lackluster way management are portrayed in written materials. Prior successes and failures should be well described. Don’t cut and paste an old description from 10 years ago. Hire a professional writer if necessary. We’ve read many plans where management successes are poorly described, only to learn more about positive experiences during due diligence. Share your wins and your losses. Losses to the family office are examples of what you won’t repeat again. So they are of as much value as the wins. 3. Competitive Market and Marketing Plan This is a real area where most microcap managers fail. It is critical to have a full understanding of market size and competitive landscape. These are not just lines in a business plan, this is your revenue and earnings growth potential! And family offices are aware of this point. We have seen NASDAQ company presentations where management describe less than 25% of their competition. We’ve also seen scenarios where the market size is described as X, and the entire competitive landscape is only 25% of market size claimed. Do your homework in this area and have a clear execution plan which describes how your company will gain market share.

4. Governance Structure Family offices are driven by preservation of capital. Governance and transparency are two components of risk mitigation that allow family offices to understand what’s happening at the company. Although NASDAQ companies have this as a rule, managers tend to underutilize the board of directors and don’t solicit directors that can have a major impact of this business. Attract major talent to your board of directors and showcase it. Value-add directors can make a huge difference and send a message to your investors. Ability to attract an iconic retired industry executive also speaks loudly about the business potential and management acceptance in the community. 5. Financial Plan A well thought out financial plan is critical to the family office. Understanding when major cash calls will be required and understanding the capital stack in total is also important. Although liquidity is not usually a driver, liquidity for risk mitigation purposes is important. So articulate the various liquidity options thoughout the plan timeline. 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. The author does not own shares or any equity or debt interest in any companies mentioned in this article before or at its publishing.

MicroCap Review Magazine

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Help a child or widow who’s loved one answered the call of duty. Make a charitable donation, become a mentor to a child, fundraise, or simply call us and tell us how you’d like to get involved. The families need your support.

For more information, please call 212-332-2980 or visit our website at www.tuesdayschildren.org. MicroCap Review Magazine

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Cannabis corner

Investors Warm Up to U.S. Cannabis Companies

n past columns, I have discussed how Canada, which has now formally legalized for adult access beginning October 17th, has been leading the global cannabis industry, suggesting that “anyone who cares to invest in the global cannabis industry must pay attention to these Canadian companies.” The U.S. cannabis industry is far bigger, but federal illegality and concerns that the status quo might persist or even revert have left many investors on the sidelines. In the words of the Bob Seger, “Against the wind, we were runnin’ against the wind.” In April, though, things changed dramatically for the better. Out of the blue, Senator Corey Gardner, a Republican from Colorado, announced that he and President Trump had come to an agreement after Gardner had held up Department of Justice nominations that would allow Gardner to introduce legislation to protect the rights of states to oversee cannabis regulation with Trump’s support. He followed through in June, introducing with Senator Elizabeth Warren, Democrat of Massachusetts, the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act. Formally, this is known as S. 3032, and a companion bill, H.R. 6043, was introduced by Ohio Republican David Joyce in the House of Representatives. While the chances of passage are not very high, the pendulum had swung too far in the direction of negativity, and the signal that the cannabis industry won’t be trampled by the federal government has lifted the spirits of investors as well as operators. Recall that the industry had faced enormous uncertainty following the appointment of Jeff Sessions as

n alan brochstein

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Attorney General, and his rescission of the Cole Memo, a guidance letter from 2013 that created a temporary safe harbor for operators and regulators, had had a profoundly negative impact on sentiment earlier this year. With the chill lifting, indeed capital formation has taken a turn for the better. Both private and public companies are finding the flow of capital to be more favorable as we have seen the emergence of investment funds who are able to write big checks. For example, Gotham Green Partners in New York City invested $50 million into iAnthus Capital (CSE: IAN) (OTC: ITHUF), which operates in Colorado, Florida, Massachusetts, New Mexico, New York and Vermont. It also invested $15 million into privately-held Flow Kana, a California-based company that provides craft cultivators with distribution, compliance and other services. Several other funds are deploying capital as well as they are apparently having an easier time raising funds. In a sign of how important the U.S. capital markets will be globally over time, Tilray, the fifth largest Canadian licensed producer, announced in June that it would be conducting a NASDAQ IPO. In fact, the company, which is controlled by Seattle-based private equity fund Privateer Holdings, won’t be pursuing a dual listing in Canada. U.S. investment bank Cowen was underwriter of the IPO along with BMO Capital Markets. As I have mentioned in the past, the valuation gap is quite large between Canadian companies and their cheaper counterparts in the U.S. While federal illegality and some issues like the punitive federal taxation of the industry, which is known as 280E, certainly justify higher prices in Canada, all things equal, the gulf remains too wide, especially if the U.S. policy is going to be more laissezfaire. Of course, a single tweet could change the sentiment again, but, for now, the industry appears to be taking advantage of the better political environment that is evolving by raising larger amounts of capital than ever before. Not surprisingly, a lot of the capital is still

coming from Canada. Two recent go-public transactions highlight how the path to going public runs through Bay Street, including MedMen (CSE: MMEN) (OTC: MMNFF) and Green Thumb Industries (CSE: GTII) (OTC: GTBIF), both of which debuted in June. While California-based MedMen struggled following the initial trade, the company, with operations in California, Nevada and New York (and soon Florida) raised over $110 million just prior to going public. The company provided projections of sales in 2019 of over $450 million. GTI, on the other hand, which reported sales of almost $11 million in Q1, doubled following its debut. Since 2014’s big bubble and crash following the Colorado legalization, real cannabis companies have been very cautious about going public. This remains the case, for now, with respect to the OTC, but going public on the Canadian Securities Exchange has become quite fashionable. Investors in the public markets can finally invest in cannabis companies that represent the true industry by buying the stocks in Canada or through their dual listings on the OTC. n Editor’s Note: Alan Brochstein, CFA, began his career as a bond trader in NYC in 1986 with Kidder, Peabody and worked with CS First Boston and Criterion investments until transitioning to equities as a analyst/portfolio manager in 2000. In 2007, he began AB Analytical Services, where he provided research and consulting to several investment advisors while also becoming one of the most popular contributors at Seeking Alpha. In 2013, Alan launched 420 Investor, an online community focused on publicly-traded companies in the cannabis sector, and, more recently, he began New Cannabis Ventures, a news & information platform that highlights the most promising companies and influential investors in the cannabis industry. Disclosure: I own no stocks mentioned. iAnthus is a client of mine at New Cannabis Ventures. www.420investor.com 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. MicroCap Review Magazine

B elt way corner

Regulation of Crypto at a Crossroads B

efore the summer of 2017, cryptocurrencies had yet to enter the mainstream consciousness, much less the crosshairs of Capitol Hill. That changed with record-smashing prices and the massive proliferation of initial coin offerings (“ICOs”). By the start of summer 2018, the sleeping giant of government intervention had begun to stir in the form of coordinated enforcement actions by the U.S. and Canadian governments. Next came rhetorical rumblings by regulatory agencies. Then the growl of hearings on Capitol Hill. Now, as the summer of 2018 draws to a close, the beast is fully awake and showing signs of hunger, with its gaze fixed squarely on crypto. At the moment, it is torn between viewing the industry as a companion for the hunt or a prey to be consumed. Crypto’s next moves will likely determine its fate.

Money Laundering Counter Narratives

n By Dina Ellis Rochkind, esq. and Joshua Samuel Downer, Esq.

MicroCap Review Magazine

What appears certain is that Congress and the regulatory and enforcement agencies are poised to take significant steps in the coming months to decisively shape the crypto industry. The most critical issue driving government action is money laundering and the financing of terrorism and organized crime. So far, the government’s strongest impulse has been to see crypto as the enemy in this regard. Congressional hearings have been conducted that focus on the negative impact of cryptocurrencies on money laundering. Prominent voices, such as Chairman

of Federal Reserve Board Jerome Powell, argue that money laundering is the primary use of cryptocurrency. The Department of Justice released a report presenting virtual currencies as an enabler of financial crime and formed a Digital Currency Initiative to increase money-laundering prosecutions. The Financial Crimes Enforcement Network has reported a significant uptick in suspicious activity reports regarding cryptorelated activity. Viewed in this light, one proposal would be for Congress to simply ban trading in cryptocurrencies altogether. But of course, there is a counter narrative to be told, which is that crypto is the most effective means of not only transferring value digitally, but of tracking it as well. The great virtue of this story is that it is true. A member of the Drug Enforcement Administration’s Cyber Investigative Task Force noted that cryptocurrencies actually give law enforcement “a lot of tools to be able to identify” money launderers, and that she “actually want[s] them to keep using them.” It is critical for the crypto industry to make this case clearly and emphatically to Capitol Hill. The focus should be so-called “privacy tokens.” A strong distinction must be made between them and coins such as Monero that appear explicitly designed to facilitate criminal activity, and which the government will inevitably devour. www.stocknewsnow.com

Steps Towards Positive Regulation The encouraging news is that many in Congress are eager to be educated about the nuances of the crypto industry, and there is movement on the Hill toward positive regulation. In a hearing in May, several members of the House Financial Services Committee assertively pressed a positive case regarding cryptocurrencies to the representatives of the Securities and Exchange Commission (“SEC”) who were testifying. More recently, numerous members have drafted or signed on to a letter that they plan to send the SEC seeking clarity on a range of issues related to initial coin offerings, including greater transparency on what would justify an enforcement action. The SEC is showing signs of softening its stance. In a rare rebuke of its own staff, the Commissioners stayed a decision to deny a rule change that would have permitted the listing of bitcoin-related exchanges on NYSE Arca. If the SEC Commissioners ultimately reverse the denial, that would be a milestone in integrating the trading of cryptocurrencies with the traditional financial markets.

Security or Not a Security This summer also saw a significant, if limited, victory for the non-classification of cryptocurrencies as securities, when SEC Commissioner William Hinman declared in a speech that the “present state” of Ether and the Ethereum network “are not securities transactions.” In an encouraging sign to the market that a token could “evolve”, Hinman indicated that the SEC viewed Ether as not a security without taking a position on whether the fundraising that accompanied the creation of Ether had caused it to initially be a security. However, Commissioner Hinman also cited Ethereum’s current “decentralized structure” in coming to the SEC’s decision, which raised doubt whether the SEC’s position would apply to “consensus” transaction models used for other coins, such as Ripple’s www.stocknewsnow.com

XRP, which are arguably more centralized. The stakes of whether to consider the generality of blockchain-based tokens to be securities are increased by the perception of widespread fraud among ICOs. On the other hand, the impulse for regulation is mitigated by the countervailing case for the overall social benefit of the crypto industry. The SEC is at a moment of decision on this issue, which underscores the importance of the industry assertively making the case for its socially transformative potential.

Energy and the Blockchain Another increasingly sensitive regulatory issue is the incredible amount of energy that is used to mine tokens in the traditional “proof-of-work” models used by bitcoin, ethereum and others. The Senate Energy Committee recently held a hearing to consider the energy efficiency of bitcoin and related currencies. The high energy usage of these traditional cryptocurrencies, and the concentration of their mining operations in China, presents a challenge to the industry. On the other hand, those liabilities also provide Ripple an opportunity to make the case that the consensus model is more sustainable and secure. Whether those attributes will persuade the SEC to refrain from declaring XRP and other consensus-based tokens to be securities may depend on how compelling a case is made for their overall social utility. • • • Congress and the U.S. regulatory and enforcement agencies are poised to impose significant regulations on the crypto industry in the coming months. The future of the industry depends significantly on whether the government perceives crypto to be an ally or an enemy in the fight against money laundering and organized crime. Regulatory agencies are also highly sensitive to the threat posed by fraud in initial coin offerings, particularly to retail investors. It is a critical juncture. If there were ever a moment for the industry to make its case in Washington, it is now. n

Dina Ellis Rochkind is Of Counsel in the Paul Hastings Government Affairs practice www.paulhastings.com and is based in the firm’s Washington, D.C. office. Her practice focuses on representing clients before Members of Congress on Capitol Hill and the Executive Branch. Ms. Rochkind represents clients in matters involving regulatory initiatives, policymaking and legislation, and enforcement actions. Ms. Rochkind has over 20 years of experience on Capitol Hill, lobbying, and working for the Executive Branch. Prior to joining Paul Hastings, she served as Washington Director in the office of Rep. Mike Coffman (R-CO). Other Capitol Hill experience includes serving as senior staff for various Congressional Committees and for Senator Pat Toomey (R-PA). Ms. Rochkind also served in the George W. Bush Administration as Deputy Assistant Secretary at the Treasury Department. She has been involved in drafting major pieces of legislation over the last two decades, including: the 2005 bankruptcy reform legislation, the FACT Act, E-Sign, Check 21, Federal Deposit Insurance Reform Act, Gramm-Leach-Bliley Act, and, most recently, the comprehensive and bipartisan JOBS Act, for which she was the lead staffer in the Senate. Ms. Rochkind has worked across party lines on both sides of the aisle to achieve key legislative successes and has a reputation for “getting things done” in Washington. She is also experienced in crisis management. During the auto industry crisis, Ms. Rochkind led the lobby to rescue Chrysler and handled the consequences and fallout from its bankruptcy. She has led legislative advocacy on behalf of major corporate entities and advised congressional leaders on issues such as banking, bankruptcy, insurance, other financial services, and economic development. Prior to leading Rep. Coffman’s office, Ms. Rochkind served as Vice President of Federal Government Affairs for a leading mortgage lending company. Joshua Downer is an associate in the Bank Regulatory and Global Banking and Payment Systems practices of Paul Hastings. His practice focuses on regulatory and transactional matters relating to banking, fintech and payment systems. Mr. Downer regularly represents traditional and non-traditional financial institutions in transactions and matters before federal and state bank regulatory agencies. He also advises clients on blockchain and cryptocurrency matters, including government affairs, initial coin offerings and the development and expansion of services on various cryptocurrency exchanges. Mr. Downer received his A.B. in Government from Harvard University, his MSc. in International Political Economy from the London School of Economics, and his J.D. from Vanderbilt University, where he graduated Order of the Coif in 2013. Mr. Downer clerked for the Honorable Samuel H. Mays, Jr. on the United States District Court for the Western District of Tennessee. Prior to joining Paul Hastings, he worked at another multinational law firm in Washington, D.C. 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.

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ASX: CPH

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

Creso Pharma Ltd.

reso Pharma was founded by a team of highly-experienced pharmaceutical executives who saw the huge potential in the cannabis industry. The team bring years of pharmaceutical expertise as well as the associated methodologies and rigour to successfully harness the potential of cannabis for people and animal health. Creso’s mission is to bring the best of cannabis to better the lives of people and animals. To do this, Creso uses the latest in science and research to develop, register and commercialise innovative cannabis and hempderived products. Since inception and as a global operation, Creso’s experienced leadership team, as well as its diverse geography, has enabled its expansion into different markets. Since launching, Creso has delivered a number of firsts in the cannabis industry; it was the first to import medicinal cannabis into Australia, the first to launch innovative hemp derived products into Switzerland for humans and animals and recently became the only Australian-listed medicinal cannabis company with direct exposure to the opportunity-rich Colombian cannabis market. Dr. Miri Halperin Wernli, Creso Pharma’s CEO and co‐founder said: “I truly believe that the beneficial properties of cannabis deliver better health outcomes in people and animals.

By using my 30 years’ experience in the pharmaceutical and biomed industries and partnering with pharma experts with long pharma and scientific expertise, we have been able to leverage our scientific knowledge to deliver the highest quality, trustworthy cannabis and hemp products across a range of areas spanning therapeutics, topical applications, animal health, lifestyle and nutraceuticals. “Our business model means we will continue to partner with experts to help launch our innovative products into new territories. These partners benefit from our un-paralleled expertise in this area and we benefit from their in-market reputation and ability to open doors for our ever-expanding product line in human and animal health.” Conservative estimates predict the nutraceutical and medicinal cannabis industry could grow to US$31 billion in the next three years.1 Creso’s global footprint positions it perfectly to seize market share in the industry, drawing on its highly experienced leadership, diverse geographic spread and strict adherence to pharmaceutical rigour.

Creso is currently expanding its presence in North and South America – two leading markets for the cannabis industry and forecast to be worth $48 billion by 2028.2 Creso’s expansion in this market is coming to life through the construction of Mernova Medicinal’s Nova Scotia-based state of the art fully GMP cannabis growing and extraction facility – due for completion by Q4 2018 - the completion of Creso’s acquisition of Kunna S.A.S. in Columbia, and the appointment of a Chief Operations Officer for the Americas. Creso’s recent product launches of anibidiol® and cannaQIX® in Switzerland resulted in initial revenues as well as confirmed reorders and commercial agreements signed with partners to commercialise Creso’s human and animal health products across key European countries, the Middle East and Latin America. At the same time, the Creso lifestyle portfolio is growing with the first samples of its chocolate and beer products in market for testing. n For more information, please visit: www.cresopharma.com (Endnotes) 1 Brightfield Report cited in Financial Post 2 Forbes Magazine, Legal Cannabis Industry poised for big growth in North America and around the world (source: Arcview Market Research & BDS Analytics)

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ASIA CORNER

Hong Kong Exchange Attracting Chinese Unicorns and Biotechs

ince changing its listing rules earlier this year, Hong Kong is seeing an escalation in listings from China’s new-economy and biotech companies. The Hong Kong Exchange expanded its listing rules in April to allow companies with dual-class share structures and prerevenue biotechnology firms to list on the exchange in an effort to attract blockbuster Chinese tech and new economy companies as well as become the IPO destination for biotech startups. Long thought of as the place where east meets west, Hong Kong is perfectly positioned to provide access to one of the fastest growing regions of the world. With the new listing reforms, the SARS has become more competitive with the US for the IPOs of China’s mega technology and biotech firms. Previous to the new rules being implemented, these companies would likely go to the US for listing, but now can enjoy the advantages of geography and language through a Hong Kong listing.

n by leslie richardson

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Approximately 220 companies are anticipated to go public in Hong Kong this year, with total funds-raised by IPOs forecasted to be in the range of HK$200 billion to HK$250 billion, according PwC. For the first half of 2018, Hong Kong maintained its ranking as the third largest IPO destination with 108 new listings raising a total HK$50.4 billion of which the GEM board recorded 50 IPOs and HK$3.4 billion of total fundraising. Telecommunications firms represented 41.4 per cent of the IPO funds raised in the first half which includes US$4.7 billion raised by Xiaomi, followed by financials at 19.8 per cent and technology at 11 per cent. Despite the pressures in the Hong Kong stock market from trade tensions, slowing global growth and tightening U.S. monetary policy, some analysts believe that Hong Kong can regain its top position this year as more technology companies and biotech firms apply for a listing. They believe that Hong Kong may even benefit from the ongoing trade dispute between the US and China as it could discourage mainland companies from listing in the US. Charles Li Xiaojia, CEO of the HKEX, said he expects over a dozen technology companies to list in Hong Kong this year under the new dual-class share structure rule. Demonstrating the resiliency

of Hong Kong›s IPO market, China Tower, the world’s biggest operator of mobile phone towers, raised US$6.9 billion on the Hong Kong exchange making it the largest IPO in two years at a time when the market was down about 14 percent from its January peak. Additionally, Sinochem Energy, a unit of state-owned Sinochem Group Co Ltd, filed for a US$2 billion Hong Kong IPO at the end of July.

Chinese Unicorns to Change Hong Kong’s Capital Markets Rapidly expanding tech start-ups are the future of China, driving innovation and fueling the country’s growth while obtaining record speed success. In China it takes an average of four years to go from gestation to unicorn status, according to Boston Consulting. Even more impressive, 46 percent of Chinese firms broke through the US$1 billion valuation in just two years from launch. With many of these companies turning to the equity markets to support their continued growth, the number of unicorns seeking to tap the IPO market has become an unprecedented phenomenon in global capital markets. This historical trend is www.stocknewsnow.com

expected to bring fundamental changes to Hong Kong’s capital market. While the term “unicorn” was coined in order to express the rarity of a startup company valued at over US$1 billion, they are getting more common, especially in China where they are being created at a much faster rate than US counterparts. A joint study issued by a Ministry of Science and Technology affiliate and a Beijing-based consultancy issued the 2017 China Unicorn Enterprise Development Report which shows China has 164 unicorns, worth a combined US$628.4 billion and the number is growing exponentially. In fact, China’s top 10 unicorns all have individual valuations of more than US$10 billion, which are sometimes referred to as “super unicorns”. Furthermore, four out of every 10 unicorns picked Hong Kong as the preferred market for an IPO according to a survey of 101 companies by PwC. Five sectors account for 92 of the 164 Chinese unicorns – e-commerce, internet finance, health, cultural and entertainment and logistics. Many of these unicorns are backed by industry titans such as Alibaba and Tencent Holdings. These start-ups have the advantage of enjoying huge success in an unusually short period of time due to a unique environment of a vast and growing population of internet users with high mobile penetration rate and mobile-first consumer habits. www.stocknewsnow.com

Subsequently, China’s e-commerce market has grown to over a trillion-dollars. Encouraged by President Xi Jinping call for national, mass entrepreneurship in 2014, China has created a vibrant start-up scene supported by government policies such as tax incentives and billions in start-up funds. Venture capitalists are more than happy to participate by investing billions as they search for the next Baidu, Alibaba or Tencent Holdings, known collectively at BAT. Funding for start-ups in China in the first half of this year topped 2016’s record with Chinese entrepreneurs raising a total of 368 billion yuan (US$54.1 billion), according Shanghai DZH. China’s fin-tech enterprises received the majority funding, raising around 230 billion yuan (US$35 billion), with Ant Financial, Du Xiaoman Financial and JD Finance (financial arms of Alibaba, Baidu and JD.com Inc. respectively) raising about 120 billion yuan in total. Additionally, China has become a top destination of venture capital in sectors such as virtual reality, autonomous vehicles, robotics, drones and artificial intelligence. The next multibillion dollar tech float expected this year is Beijing-based Meituan Dianping who is aiming for a US$60 billion valuation in its initial public offering, in what could be one of the most highly valued listings for a Chinese technology company

in 2018. The company has become China’s biggest online-offline services group where consumers can order food, check for reviews for restaurants and bars, rent bikes, book hotels or purchase movie tickets, all on one mobile app.

Growing Pipeline of Biotech Firms Seeking HK IPO China’s Biotech is an industry that’s exploding, yet still in its infancy. With pre-revenue biotechnology firms allowed to list for the first time, the Hong Kong Exchange has received filings from around 16 biotech firms pursuing IPOs this year, seeking to raise upwards of US$3 billion. Through the Shanghai and Shenzhen stock links, mainland investors can also buy shares of Chinese biotech companies listed in Hong Kong. China’s pharmaceutical sector has long been dominated by low-cost generic medications, with little focus on developing innovative products. While annual spending on prescription medicines has crossed US$100 billion in China as diseases typically associated with the western lifestyle are on the rise, the country is facing significant unmet medical needs, particularly in cancer, neurology and diabetes, along with a rapidly ageing MicroCap Review Magazine

population. In an effort to improve the country’s healthcare and medical services, China is executing a comprehensive strategy to accelerate the development of new drugs and therapeutics with the intention to grow the biotech sector to over four percent of GDP by 2020. The country is building 10-20 science parks for biomedicine where it will incubate national and global champions by helping them gain leading technologies and expanding their commercial capabilities. They are also investing in graduating large numbers of university-trained Chinese scientists. The government is particularly interested in seeing smaller, innovative biotech companies emerge and has made biotech along with other innovative businesses eligible for greater government backing. They are streamlining regulatory procedures for new drug approvals and expediting the addition of new and more effective drugs to the approved list for public hospitals to get reimbursement under the state health care insurance scheme. With the new measures to speed up new drug approval, pharmaceutical sales are expected to grow by 15 percent from 2019 to 2021. Overall, China›s biologics industry is forecasted to double in size to US$52 billion by 2021 compared with a global growth rate of 60 percent, according to JP Morgan. At the end of July, Ascletis Pharma, a maker of HIV and liver-cancer drugs was the first pre-revenue biotechnology firm to complete its IPO in Hong Kong under the new listing rules. The company raised US$400 million, making it the largest biotech IPO in terms of dollars raised and valuing the company at US$2 billion. The IPO was widely seen as a test for the new biotech sector as a gold rush is expected in Hong Kong with fund raising shifting into overdrive. However, the company struggled in its first week of trading with the Hong Kong market down 3.9 percent for the week as market sentiment continued to deteriorate due to escalating trade tensions between China and the US. Additionally, Chinese drug stocks have been under pressure in Asia as a result of an ongo-

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ing scare about the safety of pediatric vaccines in China. Despite the company’s rocky start, industry professionals remain confident that Hong Kong will become a top listing destination for mainland biotechnology companies. Following Ascletic Pharma’s listing, NASDAQ-listed biotech, BeiGene, also completed its secondary listing on the HKEX raising just over $900 million, near the top of its range but under the $1 billion target. With strong optimism, a string of Chinese life science companies continue to file for IPOs. Earlier this year, Chinese biotechs, Innovent Biologics and Ascentage Pharma, canceled plans to list in New York choosing instead to list in Hong Kong. Ascentage with a focus on therapeutics for cancers, hepatitis B and aging-related diseases is targeting to raise up to $300 million. While Suzhoubased Innovent, which is backed by Fidelity and Singapore state investor Temasek, is looking to raise between US$300 million and US$500 million in its Hong Kong IPO. Tianjin-based Tasly Pharmaceutical Group is planning to list its biopharma unit, Shanghai Tasly Pharmaceutical, in Hong Kong as it is targeting to raise about US$1 billion, which could make it the largest funds raised for a biotech. Other biotech companies in the queue include Shanghai Henlius Biotech, a subsidiary of Shanghai Fosun Pharmaceutical, U.S.-based cancer detection start-up Grail and CanSino Biologics, a Chinese developer of vaccines. JHL Biotech Inc, a Taiwan developer of low priced biosimilar therapeutics, which delisted from the Taiwan Exchange in February, plans to relist in Hong Kong stating Hong Kong will provide higher trading liquidity and better valuation for its shares enabling it to raise funds for its expansion plans. While biotech companies are eager to join the Hong Kong exchange, some professionals question if Asian investors are adequately able to cope with the complexities of biotech sector investing, especially pre-revenue companies. Hong Kong has long been dominated by traditional companies such as Chinese state firms, financial and property groups

which make up around 60 percent of the Hang Seng Index. Traditionally, the Hong Kong market pays a lot of attention to earnings and market size and lacks experience evaluating firms before they start recording earnings. As Asia’s biotechnology industry is in its infancy, analysts and investors in the region have little experience or knowledge in analyzing early-stage drug firms with no profits, revenues or cash flow. Specifically, having to predict and make decisions about the future success of drugs that are not yet approved by regulators and market potential can be challenging for inexperienced analysts and bankers. Subsequently, global banks are under pressure to hire biotech experts to cover the new listing in Hong Kong. Still many companies believe that while it may take time for Hong Kong to build expertise, its links to mainland China could help outweigh the shortcomings. In the meantime, the combination of a stream of new biotech listings and Asian investors adjusting to valuing pre-revenue biotech companies could create an opportunity to find undervalued biotech companies in Hong Kong. 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. 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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CSE: CYBX / OTCQB: CYBXF

Hilltop Cybersecurity, Inc.

illtop Cybersecurity, Inc(CYBX) is a software company focused on creating products which are specifically for cybersecurity and the security of cryptocurrency. The company is disruptive in that it has patents regarding threat orchestration, cryptocurrency storage and cyber-enabled project management. The products were created by a seasoned team of ex-military and intelligence professionals with a focus on the small and medium business enterprise. Because of the complexity and depth of the software it has taken the company over 3 years of development to mature the product portfolio to launch in the market. The cyber-security market is estimated to approach 170 Billion by 2020 *, however, there are some sources that put the total cost at closer to 1 Trillion and increasing. Regardless of which figures are accurate the cyber-war will be fought on the battlefield of businesses not like a traditional war. Cryptocurrency further accelerates the risk because of the ability to steal large sums of money effortlessly and quickly relative to physical currency, an example being the compromise in Japan wherein a hacker stole over 500M USD worth of Bitcoin. CYBX has three primary products, CyberEPM, Vauban, and CryptoKEEP. Each product has a specific role in protecting a customer and each is designed to reduce the

cyber-vulnerability of the businesses which deploy them. CYBX management has held roles in companies such as Informatica, NIKU, Department of Treasury, UPS, SAP, and others. Our channel partners include company like Guardsight an MSSP, Twin-Soft a reseller in MENA and others. Our strategy is to focus on building the market’s best cybersecurity products and work with other firms that focus on sales and marketing thereby becoming complementary to other cyber products and initiatives. There are several “white-label” distribution deals being discussed and we feel that we should see signif-

icant sales from other companies adoption and re-distribution of our core products. We are differentiated in that we are product focused unlike many “cyber-security” firms and our goal is to not only protect our customers but also to reduce their dependency on outside services firms. We want our customers to do a better job keeping themselves safe in Cyberspace with the limited budgets and personnel that they have, to do the job. The company has 3 patents, one that is issued 2 that are pending and continues to work on innovation. The products are built with maximum interoperability and open standards where possible to ensure and which most customers can use in their security plan. CYBX uses blockchain in order to make security logs immutable because it is the best way to make this particular aspect of the application safe not because it is the flavor of the day like many firm. n For more information, please visit: www.hilltopcybersecurity.com

CYBX has three primary products, CyberEPM, Vauban, and CryptoKEEP. Each product has a specific role in protecting a customer and each is designed to reduce the cyber-vulnerability of the businesses which deploy them. 76

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F E AT UR E D A RT ICL E

Harnessing Regulatory Initiatives & Targeted Rulemaking to Improve Transparency and Further Market Efficiency

ver the past 10 years, the reputation and recognition of the OTCQX Best Market and OTCQB Venture Market has grown.

This positive transformation, stemming from our technology platform driving greater market transparency, coupled with the competitive evolution of our broker-dealer community, has fostered vibrant, data-driven, electronic public markets. The improved standards we have implemented have led regulators to recognize the important role of our OTCQX and OTCQB markets in fostering efficient secondary trading for public companies. Based on the price transparency and current public information available for free on our website, these markets are recognized by the SEC as “Established Public Markets” and have Blue Sky secondary trading exemptions in 30 states. Of course, we see regulatory recognitions and rule modernizations that support capital formation as a core practice in providing effective and efficient secondary markets for public companies. Through constructive dialogue with regulators, and the submission

of comment letters and rule proposals, we continue the conversations to achieve regulatory streamlining and targeted rulemaking that will increase transparency and improve market efficiency. In March 2018, I participated in the SEC Investor Advisory Committee (IAC) featured panel “Discussion of Regulatory Approaches to Combat Retail Investor Fraud.” This public platform provided an opportunity to share my thoughts and insights on how regulators can improve retail investor protection while lowering the barriers to capital formation. In conjunction with the panel, OTC Markets submitted a series of regulatory recommendations which underscore the need to increase disclosure and drive further transparency. The team at OTC Markets proactively advocates on behalf of our issuers, the broker-dealer community, the investing public and the stakeholders we serve. We continue to engage regulators and lawmakers on how to improve our public markets by updating restrictive and outdated regulations, driven by our belief that there needs to be a more holistic approach to targeted rulemaking and related legislation For the remainder of 2018, we are focused on the following initiatives:

Blue Sky Exemptions n By cromwell cOULSON

MicroCap Review Magazine

State Blue Sky laws impact all companies trading on our markets. Over the past two

years, we have worked with state regulators towards achieving our goal of nationwide Blue Sky recognition for our OTCQX and OTCQB markets. As of June 2018, we have achieved secondary trading exemptions in 30 states – with 27 states recognizing both the OTCQX and OTCQB markets and 3 states solely recognizing the OTCQX market. Each state adopted a tailored approach to granting these exemptions, using no-action letters, rule changes, administrative orders and existing statutory exemptions.

JOBS Act Online Capital Raising We believe that the future of capital raising is online, and we support changes to make the JOBS Act more efficient and accessible. Regulation A+ allows small companies to raise up to $50 million online, transparently and directly from the public without the extensive cost burden of a full SEC public offering. However, the SEC initially did not allow SEC reporting companies to raise capital through Regulation A+. In 2016, we filed a Rulemaking Petition with the SEC, advocating that SEC reporting companies be permitted to conduct an online public offering under Regulation A+. Experienced reporting companies with comprehensive disclosure and investor relations processes in place are ideal candidates to use Reg A+. www.stocknewsnow.com

In 2017, the House of Representatives passed the Improving Access to Capital Act, based in large part on our SEC Petition for Rulemaking. On May 24, 2018 the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) was enacted into law-- Section 508 of the bill incorporated the Improving Access to Capital Act. As a result of this key legislation, SEC reporting companies are now eligible to raise capital under Regulation A+. We will continue to support other legislative proposals aimed at strengthening the JOBS Act.

Regulations Impacting Small Public Companies: Margin Eligibility and ESOPs Our modernization efforts often target decades-old regulations that were adopted during a time when OTC trading was conducted via printed quotes and phone calls, and company information was scarce. Our markets have changed dramatically since the pre-internet days, and outdated laws now impose unnecessary restrictions on small company capital formation and limit the value of investors’ holdings in these companies. We are working with lawmakers to adopt common-sense legislative amendments that would allow qualified securities on our markets to become margin-eligible. Updating these rules would allow shareholders to access additional value by borrowing against their holdings and would have a direct impact on the issuer’s ability to raise additional capital. Access to sensible margin financing allows long-term investors to continue to hold securities in established companies and community banks. Employee share ownership is a great way for companies to build stable investor bases and better align interests of employees and shareholders. We also want to see a more efficient pathway for OTCQX and OTCQB issuers to offer Employee Stock Ownership www.stocknewsnow.com

Plans (known as “ESOPs”) to their employees. Current IRS regulations force public companies quoted on our premium OTCQX and OTCQB markets to treat their stock as “private” for ESOP purposes. As a result, despite having a publicly-quoted price that is recognized as a Level 1 price source by the Financial Accounting Standards Board (FASB), current regulations require OTCQX and OTCQB companies to use an independent appraisal to establish the value of their securities. The cost and risk involved ultimately deters many smaller public companies on our markets from offering ESOPs to their employees. A robust roster of 72 established U.S. companies* trade on our OTCQX Premier market, with an aggregate market capitalization of over $8.7 billion and employing over 20,000 employees. These companies and their employees should not be prohibited from accessing these benefits that come with being a public company, simply because they are not listed on an exchange.

Investor Protection: Stock Promotion and Share Ownership Disclosure Our transparency-focused mission to improve market efficiency closely ties to our ongoing efforts to combat securities fraud. We recognize the damage that can be created by fraudulent “pump-and-dump” schemes and other manipulative activities involving anonymous paid stock promotion. In our experience, disclosure and transparency most effectively combat and deter fraudulent activities in the public markets. In 2006, OTC Markets Group submitted a Rulemaking Petition to the SEC seeking to increase disclosure obligations for paid stock promotion activities under Section 17(b) of the Securities Act, including disclosure of the parties paying for the promotion and the amount of such payments. Our recent submission to the SEC’s Investor Advisory Committee reiterates this proposal. Similarly, we continue to champion

increased regulation and disclosure requirements for transfer agents, company affiliates and insiders. Bringing greater transparency to the share ownership and transfer history would go a long way to deter bad actors. These achievements underscore our continued commitment to engage regulators and lawmakers. As we continue to push ahead with these policy initiatives, we encourage issuers, investors, advisors, regulators and other market participants to contact us to explore how you can help. (* Data as of April 18, 2018) n R. Cromwell Coulson - President, Chief Executive Officer and Director of OTC Markets Group R. Cromwell Coulson is President, Chief Executive Officer and Director of OTC Markets Group, Inc. responsible for the company’s overall growth and strategic direction. Since acquiring OTC Markets’ predecessor business in 1997, Cromwell has transformed the company from a privately-held publisher of broker-dealer quotations into a publicly-traded company operating three public markets for 10,000 U.S. and global securities. Cromwell is a strong advocate of efficient public markets, improving access to capital for small companies, supporting a diverse ecosystem of broker-dealers, and empowering investors with information. He has testified before Congress and spoken on these and other issues at numerous industry conferences. Prior to OTC Markets, Cromwell was an institutional trader and portfolio manager at Carr Securities Corporation. He holds an OPM from Harvard Business School and received his BBA from Southern Methodist University. Cromwell is Chairman of the FINRA Market Regulation Committee that advises FINRA on rulemaking and trading issues. About OTC Markets Group Inc. OTC Markets Group Inc. (OTCQX: OTCM) operates the OTCQX® Best Market, the OTCQB® Venture Market and the Pink® Open Market for 10,000 U.S. and global securities. Through OTC Link® ATS and OTC Link ECN, we connect a diverse network of broker-dealers that provide liquidity and execution services. We enable investors to easily trade through the broker of their choice and empower companies to improve the quality of information available for investors. To learn more about how we create better informed and more efficient markets, visit www. otcmarkets.com. OTC Link ATS and OTC Link ECN are operated by OTC Link LLC, member FINRA/SIPC and SEC regulated ATS. Subscribe to the OTC Markets RSS Feed

For more information please visit: www.otcmarkets.com

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Digital Currency 101 Key Considerations to Help You Lay the Groundwork for Success

hile regulatory and accounting uncertainties remain, understanding critical aspects of the rapidly evolving digital currency landscape before you invest will help keep your business compliant.

What should I keep in mind when it comes to accounting for digital currency? There’s no one-size-fits-all approach when it comes to accounting for digital currency. The lack of guidance under generally accepted accounting principles in the United

States (“US GAAP”) makes it challenging to navigate without the ongoing support of an advisor. Companies investing in or holding digital currencies in their business must resort to applying existing GAAP by analogy to their digital currency transactions. This indirect approach is both time consuming and mentally taxing when trying to understand the underlying transaction to select the appropriate accounting treatment. A key consideration is whether to measure digital currencies at fair market value or historical cost for financial statement presentation.

Considerations for measuring your digital currencies at fair market value: •

•

n By Robert Graham, CPA

and Joshua Santos, CPA

MicroCap Review Magazine

Entities who qualify as investment companies will be required to record digital currencies at fair value. This can be challenging considering there is no active clearinghouse or regulated exchange. As such, there are varying market prices across multiple markets at any one point in time. Under the fair value framework, consider if there are markets that are regarded as having active trading volumes for estimation of fair value. This may be challenging for newer or less popular digital currencies. Your company will need to develop accounting policies in accordance with GAAP to identify a principal market to value digital currency transactions. Keep in mind that there is no formal closing price in the digital currency markets as they typically

trade 24 hours a day 7 days a week.

Key details for measuring your digital currencies at historical cost: •

•

You may conclude that it’s necessary to report digital currencies at cost in accordance with existing GAAP. Tracking the historical cost of investments in digital currencies can be complex. For example, an entity could directly exchange bitcoin for ethereum with a counterparty and there would not be a fiat currency to benchmark the transaction price. Tracking historical trades can be a time consuming process depending on the technical resources available and whether the company is engaging third party specialists that can extract trading data efficiently and accurately from digital currency exchanges.

What should my company consider when developing accounting policies? Knowing which questions to ask will help keep your company compliant. Be sure to consider the following: • You’ll want to address significant events including hard forks and air drops. A “hard fork” is a dramatic change to the protocol that validates or invalidates previous transactions. An “air drop” is the process under which cryptocurrency enterprises distribute digital currency to users’ wallets free of charge. For example, www.stocknewsnow.com

•

a hard fork occurred on August 1, 2017 when the bitcoin network was modified so that certain participants continued using a pre-modified software which continued as the bitcoin network and other participants began using a modified network known as the bitcoin cash network. Following a hard fork or air drop such as the bitcoin network, holders of the digital currency tokens typically receive a new token simply as a result of holding the original digital currency. Financial statement classification of digital currencies will depend on how your company employs digital currencies. You’ll need to explore digital currencies as financial instruments, inventory, intangible, assets, etc. to determine what works best for your organization’s financial statements.

What details should I be aware of when it comes to planning for income tax for digital currencies? Many traders use multiple exchanges to trade and move digital currencies. Come tax time, this can complicate record keeping. There are plenty of websites available that allow traders to import trading activity directly from the exchanges they use, and traders can download a tax form directly from the website. It’s important traders keep track of trading activity and the exchanges they use to ensure returns are filed correctly. The IRS was successful in collecting the information from over 14,000 Coinbase.com accounts in 2018 and appears to be keeping a close eye on digital currency trading activity. Laying the foundation for accurate reporting will help you get tax season-ready and avoid unwanted surprises. For tax purposes, you should be aware of the following: • In 2014, the IRS stated digital currencies are treated as property for United States federal tax purposes. www.stocknewsnow.com

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Therefore, general rules for property transactions apply. Companies who pay contractors or service providers in digital currency should issue Form 1099 for the value of digital currency paid for values in excess of $600. The character of gain or loss from the sale or exchange of a digital currency depends on whether it is a capital asset in the hands of the taxpayer. However, digital currency trading activity does not qualify for like-kind exchange treatment in the eyes of the IRS. Therefore, most taxpayers should pay capital gains taxes similar to how they pay taxes on stock trading activity. In response to this emergence and outdated guidance from the IRS, the “AICPA Virtual Currency Task Force” developed a list of frequently asked tax questions and their suggested answers to those questions. Accurate record keeping is crucial. Websites will only use the information downloaded or manually added and it is rare that websites provide a complete tax form without manual input and possibly manipulating the information.

What safeguarding tips should I keep in mind? “As with any fast-paced, emerging technology security gaps form. Hackers and malicious actors are constantly looking for new ways to gain access and steal virtual assets. There are certainly best practices that you can add to your toolbox, including hardware wallets and two-factor authentication; however, there is no singular step and repeat process. Cyber security in the digital currency space requires ongoing monitoring from expert advisors who understand your business’s unique needs given a myriad of factors from your industry to your overall business structure,” says Jacob Lehmann, Managing

Director of Friedman CyZen. If you are interested in learning more about how you can get cyber-ready before you invest in digital currency, contact Jacob at JLehmann@ friedmancyzen.com or 212-897-6422. If your company is contemplating using or investing in digital currencies, you should engage knowledgeable professionals in the industry to help you navigate the regulatory, cyber security, legal and accounting landscapes as they continue evolving. n About Robert Graham: Robert Graham, a partner at Friedman LLP, is the Firm’s Digital Currency Practice Leader. He has over 10 years of experience serving clients in a range of industries, including digital currency/ fintech, telecommunications and technology, consumer & industrial products and life sciences. Bob specializes in helping private companies go public. Robert has an extensive concentration in the digital currency industry and has an in depth knowledge of the accounting issues that companies in this industry face. Robert also has developed expertise in the issues private companies face as they go public. This includes analyzing complex equity instruments involving preferred stock, convertible debt, warrants, share-based compensation and other financial instruments. About Joshua Santos: Joshua Santos specializes in providing audit, tax and accounting services to clients in the Digital Currency industry at Friedman LLP. Joshua helps clients with the adoption of complex accounting policies and supervises audit, review and compilation engagements, culminating in the issuance of financial statements, and prepares corporate, partnership and individual tax returns. About Friedman LLP: Friedman LLP has been serving the accounting, tax and business consulting needs of public and private companies since 1924. Our industry-focused practice features concentrated areas of expertise and understanding of the economic environment. We have the ability to be innovative in our approach, act quickly in our decision-making and be flexible in our delivery of services. Our clients have the advantage of working with a mid-size accounting firm that combines the staff and resources of a large firm with a philosophy of personal responsibility for our clients.

For more information please visit: www.friedmanllp.com 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. MicroCap Review Magazine

FEAT UR E D A RT ICL E

Communication Pitfalls in the Crypto Era

n my legal career, I have represented, and continue to represent, principals of many companies who were not born in the U.S., and

who are sometimes difficult to understand when they speak, or when they or their advisors write letters, emails or, especially, documents.

n By John Lowy, Esq.

MicroCap Review Magazine

I’ve been involved with, and completed transactions, with companies whose CEOs speak Korean, Turkish, French, Chinese, Portuguese, Spanish, Italian, German, Hebrew, and more. And, sometimes, to be clear, those foreigners might even be English-speaking all of their lives. For example, many years ago, when involved in a reverse merger with a Londonbased company, at a time when there was a misunderstanding about an accounting issue, that company’s CEO, a born and raised Brit, said to me, which I have repeated many times, “John, we are divided by a common language.” So, understanding what is said by others to you, and by you to others in a financial transaction, is critically important. And that’s true in all walks of life, which reminds me of a true event that took place many years ago, about not understanding one another: I was raised in suburban New Jersey, before sushi became people’s favorite Asian food, when Sunday night was family dinner night at one’s favorite restaurant. So, my cousin told me what happened this particular night, when his family went to their favorite Chinese restaurant. He (I’ll call him Robert, because that’s his name) was sitting at the table with his parents when his sister

said, “Did you see the people at the others tables? I saw the Goldbergs, the Bernsteins, the Sternheims and the Pearlsteins.” (brief quiz: guess my religion). “It’s amazing”, she said, “A Chinese restaurant can’t survive around here without us Jews.” Her brother Robert readily agreed, and then speculated out loud, “Hey, I wonder if a Chinese restaurant can survive in China without Jews as customers.” His conjecture was met with approbation from his family, and a suggestion that he explore the question further. Not having access to Google (it was the 1960’s), he called the waiter over and asked, him “Tell me young man, are there Chinese Jews?” The waiter appeared somewhat confused, paused for a moment as if trying to grasp the meaning of what he was asked, and then said, “I will ask the owner.” They then watched the waiter have an animated conversation with the restaurant owner, before he returned to the table where my aunt, uncle and two cousins were seated. As the waiter was standing near him, Robert then asked the waiter, “So, what did the owner say? Are there Chinese Jews?” To which the waiter confidently replied, “The owner says there are no Chinese Jews, only apple juice and tomato juice.” www.stocknewsnow.com

The moral of the story (assuming that this true story has a moral), is that it’s extremely important to make yourself clearly understood, in both written and oral presentations, that you clearly understand what is said to you or written to you, and, that each speaker/writer acknowledge that they understand the other. The moral of the story (assuming that this true story has a moral), is that it’s extremely important to make yourself clearly understood, in both written and oral presentations, that you clearly understand what is said to you or written to you, and, that each speaker/writer acknowledge that they understand the other. Here’s another true story about how language—or (in this case) the lack of it—can be decisive. It also happened a long time ago, when my friend Steve (in this case, not his real name), had a serious regulatory problem: dozens (maybe hundreds, I don’t recall) of unpaid New York City parking tickets, for which he was hauled into Court to appear before a magistrate. The stakes were high— my friend Steve was a professional (not an attorney), who stood to possibly do jail time as a scofflaw. He and his attorney stood before the Judge, who asked, “Counselor, what, if anything, is your client’s defense to his many unpaid parking tickets, stretching back several years?” To which Steve’s attorney replied, “Your Honor, m-m-y c-c-c-client p-p-p-pleads n-n-not g-g-g-guilty, and w-ww-wants a t-t-t-trial n-n-now.” Steve had intentionally retained an attorney with a severe stutter. The Judge looked over the courtroom, packed with dozens of looming cases, and realized that a trial with this attorney would be a monumental time-consuming disaster. So, he quickly asked, “Counselor, how much www.stocknewsnow.com

money did your client bring to Court today, to extinguish these tickets and dismiss this case?” The attorney briefly consulted with Steve, and then said, “Judge, my client has $700 with him, which he will deliver to the Court if this case is dismissed with prejudice.” It took the Judge a nanosecond (a period of time which did not then exist), to bang his gavel and shout, “Case dismissed, with prejudice.” But here’s the punchline: why did Steve have his attorney tell the Judge that he had $700 in his pocket (which he did, and which he paid)? Why didn’t he say he had $200? Or maybe $300? With his stuttering attorney and an exasperated Judge, maybe as little as even $100 and an apology, might have worked? Well, a few of his friends had told Steve before his Court appearance that he was in deep (to use the vernacular) ca-ca, and that he would be convicted and end up wearing stripes. He bet them, and they gave him 3-1 odds, that he wouldn’t go to jail. So, because of his stuttering attorney, Steve’s $700 fine turned into $2,100! (Maybe he should have brought $5,000 to Court.) Moral of the story: sometimes—even when negotiating--less is more. I hope you found these two true recollections about communicating amusing. But what’s happening sometimes in the cryptocurrency world is not amusing, in fact, in many cases it’s alarming. Here and there,

we see wannabe entrepreneurs trying to raise capital, and sometimes succeeding, by communicating to investors the flimsiest of so-called businesses, which unfortunately arouses the interest of the regulators, and makes it more difficult for the real crypto companies, of which there are many. Some of these self-proclaimed cryptocurrency deals haven’t even reached the stage of being pre-revenue; they are actually “prestartup,” an oxymoron; and many of them should more accurately be called “craptocurrency” deals. It’s up to you, the reader, to make an informed decision whether to invest in— or even consider investing in—a particular cryptocurrency company. And what are the important considerations? No surprise, the usual: who are the principals—their experience and reputation, in this sector and others? Who is on their team—have they assembled well-respected professionals? Is this a credible business plan (even if prerevenue), or is it pre-startup? All investors should remember that it’s not what you make, it’s what you keep. n 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 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.

MicroCap Review Magazine

www.stocknewsnow.com

MicroCap Review Magazine

R e s ource s C orner

Major Mining Companies Looking for Quality Junior Assets

n this Wall Street View, our host caught up with Brent Cook, Editor/Geologist of Exploration Insights at the Sprott Natural Resource Symposium 2018 in Vancouver, BC. Shelly Kraft: So, Brent, I want to start off by asking you what’s going on in the resource markets?

Brent Cook: Well, like much of the world right now it’s pretty chaotic. Base metal prices have been coming down rapidly the past months since this whole tariff issue came about. The stocks themselves are languishing but looking further out I think what’s important to keep in mind what I’m really excited about is that we know the major mining companies are not finding enough new deposits enough new order place to put their mining. Consider for every pound of copper they produce if they don’t find one they’re going out of business. So, that’s a real key here is that we’re seeing these companies start to go out and acquire assets, quality assets and the junior mining sector the ones that are finding them. All we’ve got to do is own the right ones and identify them because they’re real cheap right now and wait for the take out and that’s going to happen it is happening so I’m pretty excited.

Shelly Kraft: You know, we’ve known each other a while and you predicted this event taking place of the majors running out of resource to mine, that’s consistent with what you’ve said, now how does this affect all the base metals if you would? Brent Cook: Well, I think it may actually put a squeeze on that metal prices if there’s not enough supply. Certainly what it’s going to do is make the deposits that are found, the new deposits, much more valuable and we’re seeing that right now with Lundin Mining taking out Nevsun Mining for their project in Serbia and Eritrea. We’ve seen a number of instances this year where a major mining company comes in and takes out a junior company that has an asset that they feel is worthwhile. So, we’re going to see that happening regardless of metal prices and in fact I think metal prices being low like this is going to instigate a lot of this acquisition activity.

n By brent cook, Independent Exploration Analyst, Geologist

MicroCap Review Magazine

www.stocknewsnow.com

Shelly Kraft: Is there an essence of looking more closely at project generators or does it matter, I mean, how do you pick the ones that you want to talk about? Brent Cook: It’s a long process, I mean, I’ve got 30 odd years of geologic background. I’ve been to 60 odd countries looked at hundreds of deposits and projects. So, I’ve got that experience so to me it’s number one it’s the geology. Is the geology conducive to the development of a major gold deposit? Once we’re there, okay, how would you going to take to actually find this? What how much money is it going to take to prove or disprove a concept? Is this management team capable of doing it? Do they know how to not just geologically but financially run a company? So there’s a lot that has to go right and we’ve made good money in the letter on stocks that eventually failed because we recognized something at this level this looks like it might work. But as we follow the results we started saying here’s an issue, here’s the fatal flaw. The stock share price is up we sell out before it collapses again. So, we’ve, you know, you can make money both ways on a failure or a success you just had to be very diligent. Shelly Kraft: Does this give you an indication that there’s actually more value in an exploration company today then there is let’s say on a producer or a development company? Brent Cook: For a producer there is much more value in the exploration companies right now in terms of you know valuing companies themself it comes down to you know what’s their cash flow or the profitable or not know what was their asset. So, that’s individual. Shelly Kraft: For exploration companies, they’re drilling, and that’s money out the door, and money is not coming in yet, right? Brent Cook: Right, that’s why you need www.stocknewsnow.com

to be very, very careful that when you invest in these companies, make sure what they’re drilling the work they’re doing confirms your thesis your investment thesis or geologic concept, if it doesn’t just get the hell out of there quick. Shelly Kraft: Are exploration companies able to raise money in this market? Have that freed up a little bit? Brent Cook: It’s been tight, it’s been very tight, I mean, companies are doing it. But again for the most part money is now going to the better companies and the better people a lot of the garbage, a lot of the low-grade small whatever they’re not getting financed and that’s positive too really. Shelly Kraft: Is there a wave of mergers and acquisitions coming? Brent Cook: No, I don’t think there’s a wave because there’s not that much quality out there but the few that are the quality will be acquired. Shelly Kraft: So, when your investors are reading your newsletter, what are they looking for in particular - just to follow what you’ve done as far as due diligence on projects or is it something that they gain so much information that they can compare it to their own thoughts and their own essence of their own research? Brent Cook: That, you know, Joe Mazumdar and I we write this together now and that’s our long-term goal I mean we talked about we bought this talk because its XYZ and we think this is going to happen, the results come in and we like them, we don’t like them. But we go through more than that hoping to give them our subscribers insights that they can use on their own when they’re evaluating their own results a company coming at to them and with a drill hole because I recognize this from something that Brent and Joe said and I can evaluate. That is our

ultimate goal and educating them as well. Shelly Kraft: So, what would you say to someone who’s not a traditional metals investor? Brent Cook: Be careful and buy my newsletter. n For more information about Brent Cook and Exploration Insights, please visit: www.explorationinsights.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 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. 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.

MicroCap Review Magazine

GAMING CORNER

How to Play PASPA from Canada ntil recently, the Interstate Wire Act of 1961, combined with the Professional and Amateur Sport Protection Act (PASPA) of 1992, prohibited sports betting in the U.S. in all but four grandfathered states (Montana, Oregon, Nevada, Delaware). Despite its illegal status, sports betting has been a thriving underground business, with the American Gaming Association (AGA) estimating that in 2015, $149B was wagered illegally on U.S. sports – the 2016 Super Bowl 50 alone attracted $4.1B in illegal wagers, with only ~$100M placed legally. In mid-May 2018, the U.S. Supreme Court overturned PASPA in a decision that found PASPA unconstitutional in a 7-2 decision. What this means is it will be up to individual states to decide whether to allow its residents to bet on sports. Many are expected to move quickly to establish sports betting as a means to increase their respective coffers. We have since seen a number of states pass legislation to allow online gambling. We believe the U.S. market will take 3-5 years to fully develop.

vices, and civilians aren’t permitted to offer or use private gambling services. At present, the Canadian Criminal Code explicitly prohibits Canadian civilians from marketing or offering betting services to other Canadians. Provincial governments are permitted to offer a variety of gambling services, including parlay betting on sports. In practice, the vague nature of Canadian gambling laws and the limited sports betting options offered by provincial governments have resulted in extensive online sports betting activity. It’s estimated that Canadians bet over $2B with offshore bookmakers every year. Brian Masse, NDP MP of Windsor West, tabled Bill C-221 in 2016 to repeal paragraph 207(4)(b) of the Criminal Code to make it lawful for the government of a province, or a person or entity licensed by the Lieutenant Governor in Council of that province, to conduct and manage a lottery scheme in the province that involves betting on a race or fight or on a single sport event or athletic contest. Bill C-221 was defeated on September 21, 2016; 156 “nay” votes to 133 “yay” votes. We expect a revisit or a new Bill to be tabled in due course in light of the recent SCOTUS ruling on PASPA.

Online Gaming Update — Canada

How to Play PASPA from Canada

The legality of online betting in Canada is currently a grey area. Provincial governments have a monopoly on gambling ser-

We believe the best way to play PASPA from Canada is through the Stars Group (TSGUS, Buy, US$43 PT) and Newgioco Group (NWGI-US, Spec Buy, US$1.80 PT). Sportsbook represents 50% of the global online gambling market. The Stars Group officially rolled out its sportsbook product, BetStars, in a limited capacity in December 2015 in anticipation of the Euro 2016 soccer competition. The sports betting product will launch within the PokerStars poker client in certain markets, and PokerStars will gradually add more markets as well as web and mobile versions over time. We think the CrownBet,

Online Gaming Update — United States

n by Ralph Garcea

MicroCap Review Magazine

William Hill Australia and SkyBet acquisitions are a meaningful expansion in this vertical, with focus now on integration and growth in their respective markets. TSGI reported Q218 revenue of $412M (EWP: $385M) (Cons: $381M), Adj. EBITDA of $168M (EWP: $156M) (Cons: $152M), and Adj. EPS of $0.60 (EWP: $0.56) (Cons: $0.54). Its newly segmented International and Australia divisions contributed $350M and $61M, respectively, to revenue. Organic growth in the Q was 15%. Consolidated Poker, Casino and Sportsbook revenues in the quarter were $217M, $102M, and $81M, respectively. International and Australia quarterly real-money active uniques (QAUs) were down 5.2%. 2018 guidance was updated including the recent CrownBet, WMH Australia and SkyBet acquisitions with 2018 revenue between $1,995-2,145M (prev. $1,390-1,470M), Adj. EBITDA between $755-810M (prev. $625650M), and Adj. EPS between $1.99-2.22 (prev. $2.33-2.47). International net deposits were $322M in the quarter, an increase of 19.3% y/y. If the three sportsbook acquisitions were considered from the beginning of 2017, the revenue mix by product would have been: Poker (37%), Sportsbook (34%), and Casino (26%), with 75% of 2017 revenues from locally regulated or taxed markets. TSGI is strategically evaluating opportunities to partner with various gaming operators and media companies in New Jersey (extended existing poker/casino partnership with Resorts Casino to launch an online and mobile sportsbook in the near future) and Pennsylvania (announced a partnership with Mount Airy Casino Resort to offer betting and gaming products subject to regulatory approval). As the US market evolves, TSGI will seek to secure leading market positions by combining its expertise and brand awareness with strategic focus on: (1) selectively partnering with land based gaming operators and/or lotteries in key U.S. states; (2) providwww.stocknewsnow.com

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

ing a multi-vertical offering of poker, casino and betting; and (3) following CMA approval of the SkyBet acquisition, TSGI intends to export to the U.S. SkyBet’s deep expertise with respect to the integration of media and sports. Newgioco engages in the operation of licensed gaming, providing retail web-based and land-based gaming services in Italy. The Company offers online casino, sports betting, virtual sports betting, horse racing, and physical slots. The Company was founded on August 26, 1998, and is headquartered in Toronto, Canada, with wholly owned subsidiaries in Italy and Austria. Subsidiaries include: Multigioco Srl (acquired on August 15, 2014), Rifa Srl (acquired on January 1, 2015), as well as Ulisse Gmbh and Odissea Betriebsinformatik Beratung Gmbh (both acquired on July 1, 2016). NWGI had a strong Q218 which included 15 days of the 2018 World Cup – Q218 revenue was $8.8M, with adj. EBITDA of $1.1M (excl. the non-cash derivative liability related to the convertible debenture and share price volatility through Q218). Non-GAAP betting turnover in Q218 was $100M (+101.6% y/y), and $190.6M (+86.3% y/y) for the H118. NWGI is on track to exceed its 2018 projected turnover target of ~$300M. NWGI has obtained final SOGEI certification just in time for the start of the 2018/2019 Italian soccer season. Odissea is now independently connected to the regulator and completely free from third party processing. Several reasons why we like Newgioco are: www.stocknewsnow.com

(1) NWGI currently has the 20th largest share of the Italian online market – a tremendous opportunity exists in rolling up smaller operators beneath it while staying under the radar of the larger players. (2) With over 150,000 events per season and more than 90,000 events in Live mode, Newgioco has a highly competitive game offering for bets and sporting events through its Odissea platform. (3) Newgioco’s management team has a combined 100+ years’ experience in gaming and technology development. An extensive network in the Italian marketplace among operators and government regulators should be beneficial as Newgioco expands in the region and seeks opportunities abroad. (4) Newgioco launched the first phase of its Artificial Intelligence (AI) technology on its ELYS Odissea gaming platform with the release of CHATBOT – CHATBOT is an AI betting technology using customized pattern recognition and machine-learning algorithms to determine the relevant features of customer interactions and to develop a comprehensive customer betting profile. (5) We expect Newgioco to start showing business-tobusiness (B2B) revenue on white-labelling its platform by the end of this year, and use it as a vehicle for international expansion – including the US sports betting market.

Is an Amendment to the Federal Wire Act of 1961 Next?

to bet across state lines – even if the respective states in question have legalized online sportsbetting. Evidence has shown that a high number of gaming and gambling companies have used blockchain technology to raise money and fund startups. In total, more than $4B has been raised via ICOs, according to Autonomous NEXT. Business Insider reported a $500M ICO to build a floating cryptocurrency casino in Macau. Gambling with cryptocurrencies – as opposed to fiat money – can currently be conducted without the need to provide identification documents, or in some cases, without the need to create an account. Demand for anonymous gambling is evident in the relatively high use of pre-paid cards – such as the paysafecard– on gambling websites, and in consumer behaviour surveys. What about setting up a blockchain platform, to allow sports betting across state lines via smart contracts between the bettor, operator and respective states involved where betting is legal and taxes are collected. We note that both Stars Group and Newgioco have blockchain and AI capabilities already in place. n 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.

Despite the PASPA ruling, it would still be illegal MicroCap Review Magazine

F EAT UR E D ARTICL E

TSX Venture Exchange Update

he beauty of venture stage investing is that we are supporting companies that are in the early stages of their journey.

n By Brady Fletcher

MicroCap Review Magazine

Whether it’s developing a new mine, permitting a marijuana cultivation facility, commercializing technology or developing a new pharmaceutical, these are companies that have step function valuation changes tied to achieving milestones. These businesses raise money to finance a drill program, which either helps prove out a resource or doesn’t. These businesses raise money to finance the next phase of clinical studies, which proves efficacy of a new drug or doesn’t. These businesses raise money to finance the build out of a cannabis cultivation facility, which will receive a license from Health Canada and enter production or not. In any scenario, venture stage companies are pursuing milestones which result in step function valuation increases. Generally speaking, there are two mechanisms of facilitating this growth - private venture capital, modeled after Silicon Valley where companies receive large rounds of capital to grow privately, with the hope that the company may turn into a success by either being acquired or undertaking a high profile IPO; or public venture capital - what we deliver through TSX Venture Exchange (TSXV). The public venture capital model is built on individual retail investors, family offices and small cap funds with a risk appetite for participating in the potential growth of a new business. Canada’s unique two-tiered capital markets, consisting of public venture capital on TSXV combined with a streamlined ability to graduate to the senior TSX, has truly evolved into a leading platform financing and supporting the growth of

companies. Since 2000, over 650 companies have graduated from TSXV to TSX, now constituting almost one fifth of the S&P/TSX Composite Index. A study conducted by the Haskayne School of Business demonstrated that graduations from TSXV to TSX exhibited positive long-run, buy and hold abnormal returns, outperforming private venture capital—backed IPOs by 31.2% in the three years following listing. Every year we recognize those companies that are growing with us by leveraging public venture capital with our Venture 50 Awards. These awards recognize the top 10 companies in five industry groupings based on equal weightings of share price appreciation, market capitalization growth and liquidity in the previous year. For the 2018 winners, we saw an average share price appreciation of 279% and market capitalization growth of 631%. By evaluating companies on both share price and market capitalization, we recognize those companies that are using publicly quoted share currency to raise capital or make acquisitions - resulting in new share issuances. Increasingly, the momentum demonstrated by companies listed on TSXV with over $4.8 billion raised by TSXV listed companies in 2018, as of July 31, has driven strong new listing activity, with 120 new listings in the same period. Current market statistics for TSX and TSXV can be found in our MiG Reports here: www.tsx.com/mig In addition, international issuers are now recognizing the value of accessing public venture capital through TSX and TSXV.

www.stocknewsnow.com

2018 Venture 50 Winners Cleantech & Life Sciences

Technology

Diversified Industries

Energy & Energy Services

Mining

Emerald Health Therapeutics, Inc.° (EMH)

Reliq Health Technologies Inc.° (RHT)

Radient Technologies Inc.° (RTI)

GEN III Oil Corporation (GIII)

Garibaldi Resources Corp. † (GGI)

Cronos Group Inc.° * (CRON)

Identillect Technologies Corp. (ID)

Mission Ready Services Inc.° (MRS)

PetroShale Inc. (PSH)

Novo Resources Corp. (NVO)

Revive Therapeutics Ltd.° (RVV)

Millennial Esports Corp.° (GAME)

Hempco Food and Fiber Inc.° (HEMP)

Molori Energy Inc.° (MOL)

Metallis Resources Inc.° (MTS)

VentriPoint Diagnostics Ltd.° (VPT)

BTL Group Ltd.° (BTL)

StorageVault Canada Inc.° (SVI)

SDX Energy Inc. (SDX)

First Cobalt Corp. (FCC)

PyroGenesis Canada Inc.° (PYR)

NexOptic Technology Corp. (NXO)

Uniserve Communications Corporation (USS)

Renaissance Oil Corp. (ROE)

Standard Lithium Ltd. (SLL)

Lexagene Holdings Inc.° (LXG)

AnalytixInsight Inc. (ALY)

Wellness Lifestyles Inc.° (WELL)

Questor Technology Inc. (QST)

Liberty One Lithium Corp. (LBY)

BlueOcean NutraSciences Inc. (BOC)

NYX Gaming Group Limited* (NYX)

Grande West Transportation Group Inc. (BUS)

Pentanova Energy Corp. (PNO)

Wolfden Resources Corporation (WLF)

Xebec Adsorption Inc. (XBC)

Edgewater Wireless Systems Inc. (YFI)

Perlite Canada Inc. (PCI)

Seaway Energy Services Inc.° (SEW)

Tinka Resources Limited (TK)

Aurora Solar Technologies Inc.° (ACU)

Siyata Mobile Inc. (SIM)

Imaflex Inc. (IFX)

MATRRIX Energy Technologies Inc.° (MXX)

Power Metals Corp. (PWM)

NeutriSci International Inc.° (NU)

Photon Control Inc.*** (PHO)

Quantum International Income Corp. (QIC)

Eco (Atlantic) Oil & Gas Ltd.° (EOG)

NRG Metals Inc. (NGZ)

° Went public via Capital Pool Company® Program

†Number 1 company overall

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

A Computer Engineer by background, Brady spent almost a decade in investment banking, primarily focused on financing and advising technology and diversified issuers through strategic transactions, before leaving to found Coastr. With Coastr, Brady successfully took a concept through ideation, building a development team, and launching the platform. We successfully sold a network of almost 30 venues locally while using 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

Learn more about Canada’s two-tiered markets and TSXV’s capital formation platform, and listing requirements here. n 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, www.stocknewsnow.com

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.

MicroCap Review Magazine

C ommoditie s C orner

Introduction to the Futures Markets

he futures markets may seem like a new idea to some in the investment community. However, the futures markets have been around for a very long time. The futures markets in some form or another have existed since at least the middle ages. Some historians may argue it can be traced back to ancient China. In the U.S., 1848 could be considered a starting point when the Chicago Board of Trade began. In the U.S., futures contracts were initially developed for agricultural hedging by producers and endusers to offset market volatility.

Defining Futures Contracts: Futures contracts represent a wide array of sectors and markets traded at futures exchanges around the world to include: Equity indices; fixed income; currencies; energies; softs such as orange juice, cotton, sugar, and coffee; metals; grains; meats; single stock futures; volatility indices such as VIX futures and VSTOXX futures. As of December 2017, bitcoin futures joined the list of futures contracts. Some of the benefits of futures markets include: 1: Centrally located on an exchange. Therefore the contracts offer price discovery derived from bid / ask spreads. 2: Ability for producers or end-users to hedge or offset their risk. 3: Usually, easier liquidity versus the spot market. Futures are a legal and binding standardized contract with delivery dates, delivery locations and grades of the underlying market to deliver.

n By Mark Shore, MBA

MicroCap Review Magazine

Some contracts such as the E-mini S&P 500 and Eurodollars are cash-settled instead of delivering an actual product. A cash-settled contract does not include delivery of the underlying contract. Instead, a debit or credit is applied to the futures account when the contract expires. The majority of futures contracts are not delivered at expiration.1 Instead, traders may either unwind their position or may rollover their position from the expiring month they are currently positioned in, to a farther back month (expires at a later time). The process of rolling over a position may cause either a positive or negative roll yield depending on the current shape of the forward curve as either in backwardation or contango. I’ll leave the discussion of forward curves for another time. But keep in mind, contango (not a dance from Argentina) occurs when the spot (cash) price is lower than the futures prices. Backwardation occurs when the spot price is higher than futures prices. A futures contract is derived from an underlying market such as crude oil, gold or treasury bonds. Futures markets allow traders to sell short without the need to borrow such as short sellers in stocks have to borrow shares of a given stock. There is no uptick rule to short.

Margin In equities, the term margin, are funds borrowed from a brokerage firm to purchase shares of stock. The investor pays an interest rate for the borrowed funds. In the futures world margin refers to the required amount needed in an account to trade in a given futures market. Think of it as a good faith deposit a trader will retain in their account to enter and maintain a position. If the market moves against a trader and the value of the account decreases, a trader may need to add funds to their account to meet the required margin. Because futures contracts are designed to be a leveraged product, only a percentage of the contract’s value is required for margin. For example,

if a corn futures contract trades at $3 per bushel and each contract is 5,000 bushels. The value of the contract is $15,000. However, a trader may be required to only maintain $500 to $1,000 in their account as margin to enter and continue the position. Margins vary from market to market. Any extra funds could be invested in T-bills and earning interest. The margin to equity ratio may be used to determine the account leverage. The ratio calculates the dollars needed in the account to meet the margin divided by the assets held. For example, if an account is required to maintain $10,000, but the size of the account is $100,000 the ratio is $10k / $100k = 10%. The higher the ratio, the greater the account’s leverage. The Securities and Exchange Commission (SEC) regulates the securities industry. In 1975 the Commodity Futures Trading Commission (CFTC) became the futures regulator due to the Commodity Futures Trading Commission Act of 1974.

Difference between Futures and Forward contracts In the managed futures course I teach at DePaul University and the workshops I teach on managed futures, I’m frequently asked the difference between a futures contract and a forward contract? The table below demonstrates some of the differences.

Open Interest Open interest is a term frequently used in the futures industry. It represents the entire amount of futures contracts outstanding at the close of a trading day for either the longs or the shorts. Since each futures transaction has a buyer and seller, only one side of the transaction is counted to calculate open interest.2 Open interest will either increase, decrease or remain the same dependent of futures positions increasing or decreasing www.stocknewsnow.com

Futures

Forwards

Standardized

Customized

Exchange traded

Privately negotiated

Exchange clearinghouse is the counterparty

Individual counterparty risk

Market to market daily

P & L may be realized at settlement

Margins required to be posted

Margins are not required

Regulated

Not regulated

Source: https://institute.cmegroup.com, http://www.theoptionsguide.com/difference-between-futures-and-forwards.aspx

in a given market. As a futures contract gets closer to the expiration day, the open interest will usually decline, and it will grow in the nearby month as traders reduce their positions in the front month and enter new positions or roll into the nearby expiration.

Methodologies of Trading There are primarily two schools of thought on how to trade the futures markets. 1) Trading fundamental or discretionary methods to include supply and demand, economic reports, commodity reports, and government policies, traders judgment, and other possible factors. 2) The quantitative technique involves factors such as price, volume open interest, volatility, risk management and quantitative formulas (aka “algos”) or other factors. Thus creating a rules-based methodology of trading frequently referred to as systematic trading. There are three types of market participants: 1) hedgers who use the market to hedge their production or use of a given market. For example, a farmer or food company may use futures to hedge. 2) An individual trader, who trades their account. 3) A professional trader, trading on behalf of clients (often referred as Commodity Trading Advisors or CTAs) or for a proprietary firm.

Risk Management: Some forms of risk management include, but are not limited to: 1. Utilizing buy stops and sell stops. They may be used to get into a long or short position. Once a position occurs, the stops may be used to unwind a posiwww.stocknewsnow.com

tion if the stop is touched. 2. Profit targets: When a certain price level is reached, a position is reduced or closed. Frequently a price level or percentage level is utilized. 3. Size of the position may be adjusted to adhere to the market environment. 4. Hedging the position with other futures contracts or utilizing options on futures contracts.

Trading will include some of the following: Directional: Going long a futures contract and selling at a higher price. Or shorting a futures contract and repurchasing it at a lower price. Spreading: Spread trades are the same concept as relative value strategies. A trader may buy the spread if the trader believes the price difference in the two futures contracts will widen. Or sell the spread if the price differential is perceived as too wide and will narrow over time. Each component of the spread is called a “leg”. The process includes buying a futures contract in one market and selling a futures contract in a different market with the same expirations (Intermarket spreading). Or purchasing a contract in one expiration month of a market and selling a different expiration month of the same futures market (Intra-market spreading). Margins are often lower for spread positions versus directional positions. This article introduces many basic concepts of the futures markets. However, for anyone interested in futures trading, a deeper understanding of the futures markets is needed

before entering into futures trading. n (Endnotes) 1 Hull, J. (2014). Fundamentals of Futures and Options Markets (8th ed.). Upper Saddle River, NJ: Pearson Education, Inc. 2 https://institute.cmegroup.com/support/glossary 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 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 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. MicroCap Review Magazine

O P I N ION

Aussie Companies I

t is hard to believe that so many emerging USA based businesses could remain undiscovered for so long. This issue contains 8 Australian listed stocks with most of their assets and business in the USA and many of their shareholders in Australia. The inevitable result is that the Australian markets can never fully appreciate the value of these businesses and up until now US investors have had no direct means of participation in their own time zone and markets. Additionally, these 8 profiled companies are extensively and fully covered by Independent Investment Research* which produces first class research under its license issued by the Australian Securities and Investment Commission, Australia lists a lot more than resources stocks. There is a strong appetite in Australia for investment in foreign businesses. Most of these public companies are in varying stages of development and have spent time and money to have themselves listed on the

n By john kimber

www.stocknewsnow.com

Australian Securities Exchange which is well received internationally for its recognition of GAAP accounting, continuous disclosure and governance standards that mirror the best offshore markets. As fully reporting ASX listed companies there is a clear path to listing on the US markets. The missing links for many of these companies in the past has been 1. lack of market awareness and investor visibility to the right audience, 2. few interested US market makers, 3. difficulty buying and selling ASX listed stocks through US brokers/dealers, and 4. lack of available information in the US. Thanks to SNN Inc., publishers of MicroCap Review Magazine, StockNewsNow. com, and hosts of the Planet MicroCap Showcase, Australian companies with US operations have begun sharing their stories with North American investor audiences. It is also worth mentioning that US retail investors have been starved of good IPO participation in the past few years. Fewer companies are going public and there are fewer opportunities for participation in good microcap stocks at the ground floor. Household names like Uber and AirBnB remain unlisted for years and years with fewer companies wanting to run the gauntlet of legal fees and US investor activism. Australian companies with their entrepreneurial can-do spirit are filling the gap for investors seeking ground floor opportunities in a wide range of US based businesses that just happen to be listed on the ASX. It is more than 30 years ago now but don’t forget that it was an Australian yacht skippered by John Bertrand that snatched the America’s Cup away for the first time in 200 years in 1984. We like to think the same thing could happen in the financial markets in the next few years. n

*Independent Investment Research: “Independent Investment Research (IIR) is the largest independent equities research house in the small/ microcap space for in Australia for listed companies across all sectors - (the large caps equities part of the business was sold to Morningstar in 2009) - its business is regulated like broker/ dealer focuses on supporting research needs to brokers, family office and Institutional entities globally. It does not deal in stocks nor does it undertake any investor relations or like promotional activities. In fact any promotional activities for its researched clients are prohibited It has complete editorial independence on its research outputs. John Kimber – Executive Director - Americas John Kimber is the Executive Director in North America of Independent Investment Research. After graduating in Economics from University of Sydney John spent several years at Coopers and Lybrand (now Pwc) as an accountant and then changed career and was employed as a financial journalist and economics correspondent in South Africa and London for the Financial Times and finally with Reuters Economic Services. He then changed his career path again and commenced work as a research analyst and later became a full Member of the Sydney Futures Exchange. John was employed for many years in Sydney with Prudential Bache Securities, BT Alex Brown (Bankers Trust) and then with Ord Minnett (JP Morgan) where he specialized in offshore investments and the local subsidiaries of foreign corporations in Australia. He is married to an American from Denver and located there in October 2012 to further pursue his career with IIR He maintains close links with the Colorado mining industry and with the biotechnology and medical device industry in Colorado. John takes an active interest in all aspects of Denver business, sporting and cultural life. He is an active member of the Denver Athletic Club, The Colorado Mining Association, the Society for Mining and Exploration, the Denver Petroleum Club and the Colorado Bio Science Association and attends most of their meetings. He is an active participant with graduates from the Colorado School of Mines. John is a regular attendee at the PDAC conference in Toronto and maintains close links with the Australian Stock Exchange, Bank of New York, various brokerages and investment institutions, and the various Exchanges in the United States which provide listing facilities for Australian companies. Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. The author does not own shares or any equity or debt interest in any companies mentioned in this article before or at its publishing. MicroCap Review Magazine

OPINION

The DJIA and the USA Economy: Past, Present and Potential Future CORNERSTONE GLOBAL GROUP “T-REPORT”

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Economic Commentary •

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The “Great Experiment” in Democracy began on 2 July 1776 with the Declaration of Independence, approved by the Continental Congress on 4 July 1776 and signed on 2 August 1776 Since that time, much has transpired economically, socially and geopolitically in the USA and around the world. History records a wide variety of cyclical trends in diverse areas, to include the well-known and documented Cycle of Nations The Cycle of Nations is a summary of many repetitive cycles that, in the aggregate, reflect the rise and fall of empires throughout recorded history

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

MicroCap Review Magazine

Why do such cycles reflect the demise of so many great nations? The German philosopher Hegel (1770-1831) stated it most succinctly, “Just because men and women learned about the past, that didn’t mean they’d make better decisions about the future. What experience and history teach us is this—that people and governments never have learned anything from history, or acted on principles deduced from it.” That is a profound statement as he was born and lived through the beginning stages of the current Revolutionary Cycle that is topping now and will soon to be trending to the bottom of the current cycle to begin again In summary, many great nations have progressed through a cycle of stages in which they expanded, matured, declined and collapsed. Far from a surprise to financial market observers, many great companies have followed the same cycle, to be discussed at a later date. To be clear, that does not mean that the USA and other nations must continue the cycle, which is a reflection of repetitive human behavior and might be considered “Behavioral Economics.” What would break that cycle is an understanding of the past; accurate assessment of the present; and forward looking actions founded on historical lessons learned As the great British Prime Minister and noted historian Winston Churchill observed, “The farther backward you can look, the farther

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forward you are likely to see.” I suggest that the history of the USA Stock markets, especially the Dow Jones Industrial Average and other charts presented in graphical form below, are worthy proxies by which to witness and learn from the past, present and potential future of the USA First, consider the following The USA’s current indebtedness stands at $21.2 Trillion or 107.1% of GDP and rising every minute That is the tenth largest ratio of debt to GDP in the world, just behind, Japan (1), Lebanon (2), Italy (3), Eritrea (4), Portugal (5), Cape Verde (6), Bhutan (7), Libya (8) and Jamaica (9) Federal debt, as a percentage of GDP, has almost doubled since the turn of the century The big jump occurred during the 2007–2009 recession and the debt has continued to grow This is a consequence of a fiscal policy of higher spending; lower than historical GDP growth; a prior USA central bank monetary policy of Quantitative Easing (QE); and continued artificially low rates The recent blips up in GDP growth have not established a confirmed trend as of date In fact, the words, “TRADE WAR”, may very well indicate that a peak in GDP growth may be behind us, as history may suggest per the “250 year Revolutionary Cycle” Some Sovereign debt around the world is being held at even lower historical levels of interest rates, due to Global Central Bank monetary policy, but for www.stocknewsnow.com

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how long can that continue without adverse and unintended consequences? In the meantime, the USA Fed has stated that they are moving “toward” normalization through Quantitative Tightening (QT) However, “moving toward” suggests they are not normalized as of date and the market mechanism to allocate scarce resources, such as capital at market established interest rates or equity values, are still impaired As interest rates rise, the impact of the increased borrowing costs would not be a positive for the USA government issuing Treasuries, corporate bond market issuers, and the stock market The reason for concern is that USA corporate debt, due in part to stock buy backs and low interest rates, as well as, stock margin and household debt are at or near all-time highs Additionally, many USA cities are heavily in debt, as well as, government and private pensions and household retirement accounts are severely underfunded? Additional upside pressure on rates would eventually come from more Quantitative Tightening and additional corporate bondholder compensation for default risk It is logical that the bond holders of USA Treasury debt will be paid through eventually higher taxes and reduced government programs and not an inflation bail out Inflationary policies have been applied in the past by select nations, as a means to inflate their way out of excess debt However, such policies have had little success, considerable negative impact on the country and its citizenry and ultimately resulting in deflation, which “wrings” out the excess debt As for the USA, the $21 Trillion of indebtedness does not include the unfunded liabilities of Medicare and Social Security

www.stocknewsnow.com

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Per a Forbes article, the net present value of the US government’s 75-year future liability for Social Security and Medicare is $210 Trillion That amount exceeds the net present value of the tax revenue designated to pay those benefits by $46.7 trillion This $46.7 trillion will logically come from higher taxes and reduced programs, given the runaway indebtedness of the USA government, corporations and households Tax cuts, in this time frame of the Long Wave Cycle Winter, along with increased federal spending, is leading to a point of “debt reckoning” Given this scenario, perhaps a concern is that fewer will want to buy US debt, pushing up rates even more Currently, China and Japan are the top two countries owning US debt, most ironic in this time of Trade Tensions, a characteristic of the economic “Winter Season” It is not a surprise that both countries are allegedly manipulating their currencies, devaluing them to the US Dollar, so that the value of their US Debt holdings and yields becomes greater So far, with the USA being the world’s reserve currency, its credit standing and safety given the rest of the world, attractive treasury rates and it’s still strong consumer economy, USA Treasury debt is in demand so far

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The long wave cycle, 250 year Revolutionary Cycle, and more converging cycles are pointing toward a Grand Reset, a debt “jubilee” This reset is cyclical and is quite healthy to rid an economy of excess debt and capacity With all the various bailouts and monetary fiscal policies, this reset was not allowed to occur during the Great Recession, thus, creating increasing historic debt If the reset were encouraged, it would bring forth a new economic “spring season” It is plausible that if this naturally economic cleansing was fostered within a positive monetary and fiscal environment, it would have the potential to break the rise and fall cycle of a nation’s demise? Although unpopular and painful as it may be, this course of action should be considered The charts and commentary below add clarity regarding where the USA is economically and financially, as well as, the DJIA’s potential trends going forward

Global Dow Monthly Bar Chart •

The Global Dow tracks 150 stocks selected from leading companies in all indus-

Global Dow Monthly Bar Chart MicroCap Review Magazine

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Dow Jones Industrial Average Monthly Bar Chart

• tries globally including emerging and developed markets selected for current size, reputation and potential, as well as emerging sectors like alternative energy • It’s a comprehensive barometer of the global equity trend • This elegant chart portrays a very compelling visualization that a major top has likely occurred, awaiting a decisive reversal down or, conversely, one more move up to a lasting crest, most likely well under the January high and, ideally, in 2018 • The Global Dow also portends of a substantial global decline in equi-

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ties, once a top is confirmed but not all individual stocks will decline the same percentage, nor will other index averages that they may comprise Interesting, year-to-date, the S&P is up more than 4% while world stocks (excluding the U.S.) are down more than 4%, indicating a “fractured” global market

Dow Jones Industrial Average Monthly Bar Chart

Foundation for the Study of Cycles “Super Bear” report •

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DJIA history since 1980 Thanks to the historic extraordinary global monetary and fiscal policy, global equities have had quite the ride However, who will mention or deal with the debt bomb, comprised of historic margin, household, corporate and sovereign wealth debt? It’s getting bigger by the day and history is clear, it is most difficult to inflate it away, as many have tried, it usually ends in deflation – a Grand Reset Turkey is likely just the beginning, as Italy or another country or company or bank may be next “trigger” event

This chart is a “factual” snapshot of

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The above chart is from the FSC, which I have been a member and supporter since the 1970’s It is the most recent update regarding long term DJIA cycles, and most impressive It is depicting a top in January 2018 and perhaps the current August crest or, as an alternative, a double top at a higher level than present The take-away is that this is another credible analysis indicating a long term and very important top has occurred or is about to occur, followed by a dramatic decline For more information regarding the Foundation, go to https://timingandtrading.com/

Dow Jones Industrial Average 20 Year Average Rate of Return •

Foundation for the Study of Cycles “Super Bear” report Courtesy of the Foundation for the Study of Cycles (FSC), https://timingandtrading.com

MicroCap Review Magazine

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This chart depicts the current Long Wave Cycle in terms of the DJIA, which began in 1949 and is comprised of 4 economic seasons Spring Season: 1949 to 1962 Summer Season: 1962 to 1982 www.stocknewsnow.com

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mean reversion would take the DJIA well below its current mean and for a considerable duration This provides more historical evidence of the potential for a substantial decline and cleansing of excess debt and over capacity

Dow Jones Industrial Average Monthly – 1885 to Present •

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Dow Jones Industrial Average 20 Year Average Rate of Return Courtesy of Thechartstore.com, July 2018

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Fall Season: 1982 to 2000 Winter Season: 2000 to 2020-2030? The chart indicates that when the Long Wave Cycle winter season is over, the DJIA 20 year average return will be under 0% and perhaps by a great deal more (mean reversion) Note the move up on the chart from 2009 to 2014 (end of QE), the evident impact of QE and so is the decline from 8% to the 31 July 18 rate of 5% For all the monetary policy and fiscal policy expenditures during that time frame, resulting in enormous debt, that was a short lived impact and now the resumption of the downward trend in the 20 year average return

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asset managers and investors, “mean reversion” With the DJIA so far above its historic mean for such a long time, a typical

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Sources that influenced the creation of this chart by the author in MetaStock: general internet searches; Foundation for the Study of Cycles, https://timingandtrading.com; Elliott Wave International, www.elliottwave. com; MetaStock International, www. metastock.com. This is a very long term view of the DJIA, which portrays the topping process at the very top of the upper trend channel, a top that may be in but cannot be confirmed at this time

Dow Jones Industrial Average Monthly with Mean Average Since 1885 •

The DJIA monthly mean average chart is quite telling in regards to two currently dreaded words to

www.stocknewsnow.com

Dow Jones Industrial Average Monthly with Mean Average Since 1885 Courtesy of Thechartstore.com, July 2018

MicroCap Review Magazine

Steven M Shelton CFP®, CLU, ChFC, TEP, CIMA®, CMT Cornerstone Global Group LLC Office: 773-697-8021 Cell: 773-294-8174 steven.shelton@cornerstoneglobalgroup.com www.cornerstoneglobalgroup.com

Dow Jones Industrial Average Monthly – 1885 to Present

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There can be many labelings of this long term chart, as witnessed per internet searches but, in my opinion, this is the most likely, given the Revolutionary 250 year cycle, Brenner’s research, Long Wave Cycle and intermarket analyses Once the pending decline is over, look carefully at the chart, as the final bottom for the Grand Super Cycle IV is not likely until at least 2062-2066, all an extreme estimate I have depicted a very simple structure but it can take many different forms depending on market action dictates Until the final bottom occurs, expect high volatility, wide swings and a personality opposite the great bull market of the early 1980s to 2000

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In Summary •

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A Grand Reset is likely on our horizon and with it bringing a close to the Economic Winter Season How it is embraced and handled through monetary and fiscal policy, may well impact whether the USA will break the cycle of the rise and fall of nations It is equally true of other developed and emerging market economies, as this is global, with all the attributes that come with this time frame, to include trade wars, populism, proMicroCap Review Magazine

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tectionism, military aggression, civil unrest, revolutions at the ballet box and more The USA has the opportunity to come quickly into the economic Spring Season, unencumbered by the excess debt of past monetary and fiscal policies and rise to new heights of prosperity The past polices, as well meaning as they were, did not learn from the past and, thus, placed a heavy debt burden on the USA and its citizenry This analysis is stated in full realization that so many of the current economic indicators, such as consumer confidence, are fundamentally bullish, as is the current long term technical trend of the DJIA, which remains up as of date However, in my analysis, the growing global technical evidence that tends to “precede” the fundamentals, warrants a current increase in awareness and defensive preparedness, as we move into October and the balance of 2018 One may not know the day nor the hour of the Grand Reset but we do know we are in the Winter Season in which it historically occurs, caveat emptor n

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 and general marketing, distribution and product/service development to and for institutional use only, without contact with any of a consulting firm’s individual clients 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.

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

Tracking Micro Cap Debt in Southeast Asia T

hrough our years of experience analyzing Asia’s markets, we’ve developed a proprietary economic model known as the Asian Capital Development model (ACD) to track capital flows in Asian debt markets.

Through extensive back-testing, we have identified debt fluctuations as key indicators for profiting off Asian stock markets, using the debt cycle for maximizing our gains.   In brief, while using ACD, governments pour large amounts of cheap debt influxes into state-selected industries or companies, thus turning their economic agendas into realities. Governments direct their banking system and capital distribution through the private sector. As a result, there are clear cycles of debt and credit throughout the region. And the “hot spots” absorbing the debt injection at preferential borrowing rates have had the

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road cleared for them to skyrocket.   In other words, you as an investor possess a significant advantage by understanding debt cycles and knowing where the next boom will occur. At One Road Research, the research firm I run, we track exactly that. Our team of Asiabased researchers are constantly on the lookout for new opportunities, and in the developing economies of East and Southeast Asia, a lot of this opportunity is to be found in companies that fall within the micro cap category.

The Emerging Market of Government-backed Industry A big part of our day to day work involves developing and testing investment theses that track the region’s micro and large cap stocks, using our ACD model as a tool for isolating opportunities that we can highlight and provide to our clients. Our strategy for our portfolio is long term growth through well-timed exposure to companies benefiting from government-protected expansion. This means we are looking for well-priced stocks that benefit from stable management, good market prospects and are protected by governments that have committed – officially or otherwise – to ensuring that these homegrown entities do well. The role of government in Asian econo-

mies, particularly in state-centric economies of China, Japan, Korea and Vietnam, is key to understanding the way in which certain sectors and industries develop. The success of government-backed industries in Asia’s developing or developed economies serves a range of purposes, from the narrow, self-serving interests of politicians looking to line their pockets, to the wider political legitimacy that is afforded to governments that are seen to be doing a good job at running the economy. What we realized, was that there was a way to basically join the party without an explicit invite. As the region’s stock markets begin to develop and liberalize, opportunities arise for private, non-connected and also foreign investors to get a piece of the action, benefiting from the embedded connections between government and business in the region. So, instead of just sitting back and watching governments and their business associates line their pockets, at One Road Research we investigate where governments have instructed their capital markets to direct cheap credit flows to, and then use this information to provide our clients with clearly profitable, low-risk investment opportunities. Using our ACD model as a basis, we develop solid economic models for profiting off both micro and large cap companies in the region. We have back-tested this model across a www.stocknewsnow.com

range of Asian economies, from the developed Northeast to the developing Southeast. The cheap credit stream has proved itself again and again as an effective investment indicator across the board, even in vastly different industries and economies. While many of the companies benefitting from these government-instigated debt cycles in the developed Northeast Asian economies are unsurprisingly large-cap, many in the developing countries of the Southeast would be considered micro cap.

Vietnamese Real Estate Groups – Micro Caps with Mega Potential Vietnam is expected to become a very appealing ‘alternative property market’, as neighboring real estate markets like China, Japan, and Hong Kong freeze up. The government has conducted various stimulus policies to excite the domestic real estate market. The number of foreigners buying in Vietnam has doubled since 2014. Coupled with speedy economic expansion and eased entry barriers, property investments in the two largest cities — Ho Chi Minh and Hanoi — have exhibited tremendous profitability in recent years.   www.stocknewsnow.com

Debt growth our Vietnam portfolio was very significant in 2017 (at roughly 500%). This surge in debt was fueled by the real estate and consumer discretionary sectors. Positive economic results in 1H18 and rising incomes across the board have also encouraged the growth of consumer discretionary companies, notably mobile phone retailers. Similarly, Vietnam’s real estate sector continues its steady growth, with no sign of a slow down, while fears that the expanding sector was a bubble and not a tough balloon seem to have faded as the overall economy develops in tandem. GDP growth of 6.8% in 2017 made it one of the fastest growing economies in Asia. Although the growth pace has slowed down compared to previous years, a key supporting factor is the government’s continued investment in large-scale infrastructure projects, which helps make the country’s trajectory to a middle income status, advanced manufacturing economy almost guaranteed. Vietnam is one of the largest investors in infrastructure in the region, spending more than 5% of its GDP on big projects such as roads, metro networks, power grids and ports, making it second only to China in this regard. So, our microcap stock pick from Vietnam

– Nam Long Investment Corporation – is from the real estate sector, whose growth is forecast to continue steadily well into the next decade. But that being said, it’s just the tip of the iceberg of the range of companies across Asia that we’ve isolated as fulfilling all of our tried and tested requirements for projected upward trajectories across a whole range of sectors in this exciting new economic environment. For example, in Malaysia, its newly-elected government bodes well for the country’s politics and economy. It has changed the guard at market regulators and state-owned firms, boosting confidence in initially-jittery stock markets as investors take a shine to the prospect of better governance and an end to decades of patronage politics. The bullish factors for Malaysia now also rely on higher oil prices, a recovering currency, and a quickly-narrowing deficit. One of our picks from the country – Wah Seong Corp Bhd – has a market cap of just under US$300 million and had debt growth of 100% over the last year. This infrastructure company, which is well-positioned to serve Malaysia’s expanding oil export capacity, is also quite cheap to buy with a P/E ratio of 10. If you’d like to find out more about other MicroCap Review Magazine

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emerging Asian micro caps that are benefitting from government-led cheap credit, feel free to contact me directly using the email below, or sign up to our newsletter and/or premium subscription service. We offer free content via our email newsletter, Decoding Asia, to anyone who wants to truly understand the region, as well as premium paid content via our exclusive publication, Asia Insider, which provides more detailed insights and reports into specific industries, sectors, stocks and recommended actions. Good investing, n

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Peter Pham www.oneroadresearch.com research@oneroadresearch.com Peter Pham is an author, researcher and investor. Pham’s book, The Big Trade: Simple Strategies for Maximum Market Returns, was published in 2013 by John Wiley and Sons. Pham has contributed investment advice on different media platforms, including Seeking Alpha, CNN Money Trading Markets and Forbes. He is the creator and editor of “One Road Research”, a website focused on decoding Asia for international investors. He also presents a podcast that was launched on iTunes in 2014, which has featured guest appearances from experts such as Ron Paul, Jim Rogers, Robert Kiyosaki, Marc Faber, John Perkins, and Kevin Kelly, to name a few. Pham is currently the managing director and principal fund manager of the award winning Phoenix Capital Group and serves on the board of Wisdom and Founder Girls.

Under Pham’s management, Phoenix Capital created the VN30 Equal Weight Index, which tracks the total performance of the top 30 large-cap, liquid stocks listed on the Ho Chi Minh City Stock Exchange. All index constituents are equal-weighted, helping investors with foreign ownership, liquidity, and state-owned enterprise issues in Vietnam. The index is the first index in Vietnam to be affiliated with S&P Dow Jones Indices for updates and calculations. Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. The author does not own shares or any equity or debt interest in any companies mentioned in this article before or at its publishing.

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O pinion

il prices continue to rise on as increased global demand and U.S. efforts to shut out Iranian output through the use of sanctions outweighed drilling data suggesting that U.S. shale production would climb. The United States new Administration says it wants to reduce oil exports from Iran, the world’s fifth-biggest producer, to zero by November 2018 in a move that will oblige other big producers such as Saudi Arabia to pump more. But Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries (OPEC) have little spare capacity and oil demand has risen faster than supply over the past year. The oil industry risks a supply crunch as big energy companies focus on US shale and other short-term efforts over the long-term mega-projects seen in years past, the head of Saudi Arabia’s state energy giant said. Energy majors are prioritizing cutting costs and returning money to investors through dividends and share buybacks after a brutal industry downturn. At the same time there has been a decline in exports from several OPEC producers, including Libya. Libya’s national oil output has fallen to 527,000 barrels per day (bpd) from a high of 1.28 million bpd in February, according to the Libyan National Oil Corporation U.S. oil output is increasing but is unable to fill the supply gap if U.S. sanctions successfully block Iranian exports. Technological advances in hydraulic fracturing have unlocked vast amounts of oil from “tight” rock formations, and ExxonMobil, Chevron and Royal Dutch Shell are among those investing heavily in US shale fields, which generate cash quicker. But the world will still depend on conventional oil such as that

n by frederic scheer www.stocknewsnow.com

Oil & Gas Turmoil But Steady Growth in 2018 from Saudi Arabia, the world’s biggest exporter. Saudi Arabia’s willingness and preparedness for a stock market listing of Saudi Aramco is now in doubt amid concerns about legal exposure and an inability to generate the $2 trillion valuation sought by the kingdom’s powerful crown prince, Mohammed bin Salman. American energy companies increased the number of rigs drilling for oil by five to 863, up 100 year on year, reported by Baker Hughes in early July. The U.S. rig count, an early indicator of future output, is much higher than a year ago because companies have ramped up production in response to higher prices. But the U.S. oil market is still tightening. Crude inventories at Cushing, Oklahoma, the delivery point for U.S. crude futures, have fallen to their lowest in 3-1/2 years, data shows. Are we going toward a crunch and peak on oil price? OPEC, Russia and other producers agreed in June to a modest increase in output to dampen oil prices. A rise in supply will reverse some of the output cuts that OPEC and other major producers put in place in early 2017 to end several years of glut. Brent crude, the global oil benchmark, is up settling in the high $70 since mid-April and flirting with $80 a barrel on London’s ICE Futures exchange and West Texas Intermediate (WTI) futures is trading in the low to mid $70 a barrel. Unplanned supply outages like Libya and Canada, which started earlier this month, are helping support the market with prices holding near more than three-year highs. Expectations that U.S. sanctions against Iran and the continued economic crisis in Venezuela could further deplete global oil supplies were also bullish. So, the price is and will remain high, which could become a stunning block for a continued growth of the economy. The developing trade war between the U.S. and China is unsettling as both countries are bickering at each other, introducing tariffs on each other’s exports. So far crude has been kept of China’s list of goods it imports from the U.S. but it has indicated this could change.

US president Donald Trump has called on the Kingdom to ramp up output by 2m b/d to calm rising oil prices, amid outages in Venezuela and an impending drop in Iranian supplies after the re-imposition of oil sanctions. The US, despite the shale boom, is still reliant on foreign oil but Saudi Arabia cannot be relied upon alone to keep the oil market in check over the long term. The International Energy Agency (IEA) has said insufficient investment into new large-scale projects will lead to a supply shortfall in the early 2020s just as US shale production plateaus. Capital expenditure by energy groups is expected to fall by nearly half from the 2010-15 level. The industry needs about $500 Million in new investment that none of the Majors are willing to do as they are making their investors happy after the crunch of the Obama era. On the short-term prices seems to be settling in the $70, may peak to $80 due to some topical issues (hurricanes, or other unexpected shut down) but what would happen in 2020 remains to be seen and will be largely a function of geopolitical decision. One interesting development could be a significant increase in Gaz export toward the EU as the Trump Administration is trying to obtain from its European “Allies” to switch from Russian to American gaz. This also could have an impact in the energy industry as well and eventually could trigger the Majors to re-start investment in large oil infrastructure projects to keep up with the 2020 supply crunch to come. n I wrote this article myself in reviewing public disclosures, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Please be aware of the risks associated in investing in public stocks and this Article should not be considered as an invitation to purchase any stocks. Frederic Scheer is CEO of L6NRG is an independent Oil & Gas company, Montana based corporation working on drilling exploration in East Montana, North Dakota and Wyoming. He is also the CEO of Libra6 Management, Corp, a small private equity company operating in new alternative technology, media and chemicals. Scheer was the Ceo of several public companies including Cereplast a biomaterial company, the Cannon Group, an entertainment company and Imperials Hotels a hotel management company. Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. MicroCap Review Magazine

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OPINION

2020 BioPharma Expansion and the Opportunities of Heading East How do we hitch our wagons?

he geographical distances may be vast, but the regulatory steps and cross-border collaborations are bringing the markets closer.

The joint poll by management consultants L.E.K and US trade body, Biotechnology Innovation Organization (BIO), found 86% of biopharma firms are interested in China Drug regulatory reform, pro-biotech trends, new intellectual property rights protection and increased public and private investment within China are contributing to the Chinese market’s attractiveness.

A report jointly published by the social development department of the Ministry of Science and Technology and the China National Center for Biotechnology Development, stated that the output of China’s biotechnology industry will rise to 8 to 10 trillion yuan (1.21 to 1.51 trillion U.S. dollars) by 2020. This added value of the biotech industry will account for over 4 percent of the country’s gross domestic product (GDP) by 2020. As one of the most dynamic and influential industries in the 21st century, the biotech industry has become a major emerging sector of strategic importance in China. With all these factors considered, the

emergence of US Chinese owned start-ups, Chinese-American Associations and a plethora of state side investors or partners are growing steadily! Developing a presence in this movement is key and understanding “who and how” can have a dizzying effect! As with all things, making the “contact” and starting the discussion of partnering are primary. Several Chinese/Sino-American Associations, such as SAPA, CABS and CABA, have grown in membership Nationwide. These Associations provide Networking and Educational events that bridge some of the gap. Events ranging from Investment platforms to Employment fairs, bring the presence of Chinese based

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Mitigating the uncertainties and difficulties of expansion in China and national policies, it is now seen as highly advantageous and most efficient for foreign Biopharmaceutical companies to partner with local Chinese companies when bringing a drug into the Chinese market. BioPharma, US BioPharma, start-ups and Funding partners from Angels, VC an Equity groups. Participation in presentations or Roundtables, offer exposure and introduction to a varied audience. Before seeking a partner and developing a strategy for funding approach, taking an inventory of the strength of your team, technology presentation and plan for next steps are essential. Far too often, the plan or technology presentation are not clearly portrayed. This is the challenge for all, whether it is US companies, Chinese owned US Companies and Chinese based Companies. The comfort zone tends to be within “like company” and stepping out of that comfort zone can seem like a daunting feat. Truly, it is not. Simple steps to improve your “message” and understand the right path to take can be easily achieved. Identifying Financial Advisors that specialize in acting as a bridge between the North American and Asian markets. One steadily growing Company based in New York is Haitong Securties USA, LLC (HTUS). HTUS is a SEC and FINRA registered US broker dealer wholly owned by Haitong International, the largest listed Chinese investment bank and brokerage house in Hong Kong (665:HK). The parent of Haitong International is Haitong Securities, headquartered in Shanghai and the second largest investment bank and brokerage house in China. HTUS focus on biopharma sector results from the experience and knowledge from its direct parent who has supported many companies raising capital and listing in Hong Kong and www.stocknewsnow.com

has specialized teams to this industry. Mitigating the uncertainties and difficulties of expansion in China and national policies, it is now seen as highly advantageous and most efficient for foreign Biopharmaceutical companies to partner with local Chinese companies when bringing a drug into the Chinese market. Chinese companies that have the knowhow, experience, manufacturing capacity and are very familiar with Chinese law and the regulatory environment. The latter is of extreme importance not only in establishing drug development strategies but also in tracking the latest updates on regulations and obtaining preliminary recommendations and progress of a drug’s registration. Efficient communication with government bodies (CFDA, local FDA and the CDE) may also avoid misguided product R&D. Moreover, cultural and language challenges are often mitigated when partnering with a local company. In China, policy measures initiated at the national level to redress the institutional voids impeding innovation and entrepreneurship cascade down to more local levels — the province level, city level, district level, and so on — through what are often entrepreneurial and creative actions taken by local government officials. For multinational partners, this can represent an opportunity to tap into ecosystem intermediaries that help enhance the efficacy of their startup partnering efforts. This may take the form of district governments within a large city like Shanghai incentivizing corporations to participate in efforts such as Incubation Platforms or to establish

accelerators of their own. Other policy efforts may be less obvious (yet effective) as a means to foster startup partnering. In summary, while any emerging market requires a distinct strategy, in the case of China the distinctiveness of the strategy will likely be greater because of the profound role of the state in influencing ecosystem orchestrators, participants, and intermediaries, Western corporations’ efficacy in tapping the unprecedented opportunities to engage with startups in emerging markets such as China will, in part, be determined by how well they approach these markets with Strategic Partners and a defined plan for the Chinese Market. 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. Jaesly@gmail.com 410-920-4483 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. 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.

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

What Are Gold Royalty Companies and Why Do They Matter?

old has been used a trusted hedge in many successful portfolios for decades. Traditionally, if investors wanted exposure to gold they would choose between physical gold as a low-risk option or invest in a gold exploration or mining company if they were eager for higher returns. However, over the past decade, a new way to invest in gold has emerged in the market in the form of gold royalty companies and such companies have quickly become the go-to way to invest in gold because they typically have far more upside than investing in gold bullion, and far less risk than investing directly in mining companies. Traditional gold investments just donâ&#x20AC;&#x2122;t cut it anymore. Physical gold, while histori-

cally a safe bet does not at all yield a return and as an investment, bullion (or ETFs that track bullion) is restricted to the current price of gold with no leverage or upside. For those comfortable with a little more risk, gold mining companies can provide plenty of upside. Some of the biggest investment wins over the last 50 years have come out of the gold mining industry. Unfortunately, some of the biggest investment flops have also come

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out of this industry. Investing in gold mining can bring plenty of risk. A recent internal study of over 60 mining companies showed that almost 80% of the projects scheduled for production did not start on time. Once they did commence production, the majority went over budget and on average, produced less than half of the expected amount during the first year. As a result many mining companies have trouble paying back the debt they borrowed to build the mine, resulting in substantial losses for equity investors. So, what’s the alternative?

The Gold Royalty Model Gold royalty companies such as Sandstorm Gold Royalties (the company that I cofounded and am CEO of) purchase royalties on gold mines around the world. This typically includes a single upfront payment in exchange for the right to a percentage of the gold production for the life of the mine. Once a project moves into production, we sell our percentage of gold and add the revenues to our free cash flow. Sales from gold production are then returned back to shareholders or invested in more royalty purchases. Simple as that. Since 2009, Sandstorm has been building a royalty portfolio with assets on nearly every continent. As of this writing, we have nearly 190 royalties on mines around the world including 20 mines in production.

Less Risk, More Upside Unlike mining companies, royalty companies don’t operate mines. This removes the common risks associated with direct investments in mining operations. If a project runs over schedule or budget, or is forced to pause production temporarily, royalty companies are not responsible for the overhead costs incurred. Once the upfront royalty payment is made, the money received from any operation is clear and free to use on future investments. One of the main attractions of investing in www.stocknewsnow.com

a gold mine is the potential for exploration upside – that is, the potential for more gold to be discovered at an existing site or operation. The technical teams at royalty companies include geologist and mining engineers that carefully sift through hundreds of projects each year, selecting only the opportunities with the most exploration upside potential and since the acquisition cost of buying a royalty is paid upfront, with no ongoing costs, royalty portfolios get all of this exploration upside as a free benefit to their shareholders. This can lead to increased mine life and more gold production to the royalty company and its shareholders.

scape of gold investing. Through a diversified portfolio of carefully selected assets, royalty companies provide leveraged exposure to gold, while minimizing many of the common risks. n

An Industry Ready for Growth

Nolan Watson – CPA, FCA, CFA Since co-founding Sandstorm Gold in 2008, Nolan Watson has led the company’s transformation from a small startup into a diversified royalty company with a billion-dollar market capitalization. Prior to co-founding Sandstorm, Nolan was Chief Financial Officer of Silver Wheaton Corp. (now Wheaton Precious Metals Corp.) where he gained the experience that he needed to make Sandstorm a reality and a success. During his time there, Nolan developed the silver streaming business model and helped raise more than US$1 billion in debt and equity to fund the company’s growth. Nolan is a Fellow of the Chartered Professional Accountants of British Columbia (Valedictorian). He holds the designation of Chartered Financial Analyst and received a Bachelor of Commerce degree, with honours, from the University of British Columbia. Nolan’s professional and charitable achievements are not without their honours either. He was named the EY Entrepreneur of the Year, recognized as one of Canada’s Top 40 under 40, awarded CEO of the Year by Business in Vancouver, and received the Queen’s Diamond Jubilee Medal. In 2014, Nolan was recognized as a Young Global Leader by the World Economic Forum. He is also the President of Nations Cry, a charity focused on education-based development in Sierra Leone, West Africa.

Mining is a tough business, and it seems to be getting tougher. For mining companies, raising capital has become increasingly difficulty over the past several years. With more and more capital being moved from active to passive investors, brokers and bankers disappearing or switching industries, and capital moving into other parts of the capital structure, mining companies are often left with little options for financing when they need it. The gold royalty industry is helping fill that gap. Over the last 10 years, gold royalty finance has become a mainstream funding source for resource companies of all sizes, and Sandstorm has been a significant part of that evolution. During the last five years, close to US$14 billion in royalty transactions were completed in the mining industry. It is an attractive financing option to companies since it does not dilute shares and is less restrictive than debt financing. An investment from Sandstorm Gold Royalties provides mining companies with a strategic partner whose incentives are aligned.

Hundreds of Mines in a Single Investment

Company Profile Sandstorm is a gold royalty company that provides upfront financing to gold mining companies that are looking for capital and in return, receives the right to a percentage of the gold produced from a mine, for the life of the mine. Sandstorm has acquired a portfolio of 188 royalties, of which 20 of the underlying mines are producing. Sandstorm plans to grow and diversify its low cost production profile through the acquisition of additional gold royalties. For more information visit: www.sandstormgold.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. 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.

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fi x ed income C orner

Fixed Income F

ixed income investing is tough going right now. Through June 25, the Bloomberg Barclays High Yield Index posted a paltry year-to-date return of +0.7% compared to a -3.6% loss for investment grade bonds and a -1.4% drop for Treasuries. There is little reason to expect these returns to improve as long as central banks are tightening, and when they stop tightening it will be because the economy is slowing and stocks will then come under pressure. But all is not lost â&#x20AC;&#x201C; there are still ways to earn a decent return on your capital in yield investments without losing money or placing your money at undue risk. The key is understanding the economic environment and knowing where to look. The Federal Reserve is going to keep raising rates well into 2019 until it lifts the Federal Funds Rate (the rate at which banks lend to each other overnight) to roughly 3.5%. That level is higher than the yield on

30-year Treasuries. This means that the Fed will eventually raise the cost of overnight money higher than the cost of 10 and 30 year money. This will have profound effects on the financial system, not just in the United States but around the world â&#x20AC;&#x201C; and it will put downward pressure on the prices of all fixed income instruments because their prices drop as interest rates rise. It is also likely to put pressure on stock prices for a variety of reasons. Ten of the last thirteen recessions were caused by the Fed raising interest rates, and many observers believe the Fed will again raise interest rates too high and push the U.S. economy into a recession. With the U.S. economy carrying roughly $65 trillion of public and private sector debt, a recession would cause a lot of stress for heavily indebted borrowers including consumers, businesses and governments. There are also concerns that the Treasury

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Why would you lend money to the U.S. government, which spends money like a drunken sailor, for ten years or thirty years for a lousy 3% return? yield curve is signaling that the economy will slow down sometime in 2019 or 2020. The shrinking gap between short term and long term Treasury yields - what is known as curve flattening - used to signal an oncoming economic slowdown and likely recession in the period before the Great Financial Crisis of 2008-9. The yield curve has been flattening sharply over the last year and is now at its flattest level since 2007. Now many people question whether that is still what it means since central banks play a much larger role in markets and own trillions of dollars of government bonds. With $9 trillion of global bonds still yielding below zero, it is hard to know if the yield curve is actually predicting a recession, but we can say with certainty that (1) current yields are very unattractive and (2) rates are rising which is bad news for anyone holding a fixed income piece of paper. Why would you lend money to the U.S. government, which spends money like a drunken sailor, for ten years or thirty years for a lousy 3% return? And that’s the nominal return – if you adjust it for inflation, the return is actually negative. Other investments like junk bonds may add three or four percent to that return (annualized) but you have to take a lot of risk for that extra yield and you may not get paid back all of your principal if the company defaults. And if you invest in the riskiest parts of the junk market like Business Development Companies (BDCs) and other direct lenders that provide financing to smaller, riskier companies, you can get higher yields but expose yourself to even higher odds of borrowers defaulting when the economy slows down. That is why it is so tough to make money in bonds and www.stocknewsnow.com

other fixed income instruments today. The other problem with these corporate bond investments – as well as floating rate corporate bank loans that pay around 5% - is that they lack strong covenants that provide lenders with rights to prevent borrowers from taking advantage of them. As a result, when borrowers do default in this credit cycle, lenders will recover only a small portion of their principal. In order to earn a positive risk-adjusted and inflation-adjusted return on your cash, you need to look for investments that produce returns in the high single digits to low double digits, and that requires doing some serious homework. You also need to be creative and think out-of-the-box. Avoid large mutual funds and ETFs that by their very nature are forced to buy the broad market. Look for unique investments that may be out of favor with the mainstream but have merit. Right now I have two such investments that I recommend and own in my hedge fund, The Third Friday Total Return Fund, L.P. The first is Chimera Investment Corp. (CIM). Chimera is a mortgage REIT that borrows money on a short term basis to buy mortgages. It hedges its interest rate risk and does this very effectively. As of July 22, Chimera paid a 10.6% dividend. I have owned this stock for years and it consistently produces strong total returns. The second is Colony Capital Inc. (CLNY). Colony is a real estate and investment management company and has been a terrible investment since merging with NorthStar Realty and NorthStar Asset Management last year, leading the stock to drop more

than 50% to under $6.00. But that was then and this is now. The company is led by real estate investor Tom Barrack who has a lot of his net worth wrapped up in the company and has a lot to prove to investors (and himself). The stock is now trading at a 50% discount to book value and paying a $0.44 per share annual dividend while owning a strong and diverse real estate portfolio. This may not look like a fixed income investment but it has the attributes of a high yielding dividend play with equity upside and significant collateral coverage. I think the downside on this investment at the current price is extremely limited and the stock will eventually move toward book value. Among its large holders is hedge fund legend Seth Klarman. n Michael Lewitt is the Manager of The Third Friday Total Return Fund, L.P., a topperforming options hedge fund with a 10+ year track record that has never experienced a losing year (including during the financial crisis in 2008) (www. thirdfriday.com). He is also the editor of The Credit Strategist (www.thecreditstrategist.com), a widely read financial newsletter and of two books, The Death of Capital (2010) and The Committee to Destroy the World (2016). Mr. Lewitt was one of the few people to predict the 2001-2 credit crisis and the 2008-9 financial crisis. www.sandstormgold.com Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. The author does not own shares or any equity or debt interest in any companies mentioned in this article before or at its publishing.

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OPINION

Why is the Cryptocurrency Revolution Good for Gold?

n this Wall Street View, our host spoke with Doug Casey, Founder of Casey Research, at the Sprott Natural Resource Symposium 2018 in Vancouver, BC. Shelly Kraft: Let’s get started with a little explanation as to what you do and then we’ll go from there. Doug Casey: Well, I have opinions on the markets all the markets all around the world. And I write books a couple of New York Times bestsellers most recently a couple of novels “Speculator” and “Drug Lord”. Shelly Kraft: So, what are you speaking on at this symposium? Doug Casey: Well, I’m going to talk about

why the Bitcoin and crypto revolution is actually going to be very good for gold. So, that’s going to be my main speech courses mania on and crypto’s. The bubble is partially deflated now I’m not exactly sure what’s going to happen next. I first got involved in Bitcoin when I was given one, when it was worth $13 I still have that Bitcoin today and I bought more and sold some over the years so on. Bitcoin, the wave of the future they say. Shelly Kraft: Now how does that relate to gold and silver? Doug Casey: Well, here’s the thing, the actual value the Bitcoin in my opinion is mostly as a transfer mechanism, that’s why, however, not just millions but billions of people in third world countries in Africa,

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in South Asia that have currencies that are blocked and that are worth little within their countries and nothing outside their countries; if people want to save it’s pointless to save Kwacha’s and Pula’s and Naira’s. So, these people who all have smartphones now after they buy a used t-shirt the next thing they buy is a smart phone. They are all going to get into Bitcoin and I think it’s going to become the International currency. It’s going to replace the dollar because in order to have dollars you essentially need banks and banks in these third-world countries are almost as bad as the currencies themselves. So, I’m even though Bitcoin has gone from $20,000 to down to what 6500 today I guess something like that. Shelly Kraft: It’s over 7,000 today. Doug Casey: Oh it’s up, good, I haven’t checked. Well, excellent. I’m cautiously optimistic about the future for Bitcoin at least until version 2.0 comes out but the big thing one of the most important things about Bitcoin and the other crypto currencies is it’s drawing people’s attention to the fact that the U.S. dollar and all other currencies are just floating abstractions. And people are saying, well, wait a minute, why do I have to own dollars I can own Bitcoin. But since Bitcoin has another set of problems I think it’s going to draw a lot of attention to gold because gold is the only financial asset that’ not simultaneously somebody else’s liability and it’s real; it’s tangible unlike a Bitcoin which has use but gold has more use. Shelly Kraft: So, what do you see going forward in terms of like sovereigns, some are into Bitcoin, some are more into gold. Where do you think the direction is? Doug Casey: My guess is that Bitcoin probably hit the bottom at around $6,000 and it’s probably going to go back up. Now whether that’s a dead cat bounce or we’ve just had another pullback in a long bull market, I’m not exactly sure. But the fact that Bitcoin www.stocknewsnow.com

is hurting confidence in the dollar drawing attention away from the dollar eventually this is going to draw attention towards gold. So, I guess I’m bullish on both Bitcoin and gold and I own both. Shelly Kraft: What do you see in gold particularly trading in around 1200 and change down from its high, it’s sort of leveled off at this point, where do you see it? Doug Casey: That’s a good question, we have to look at how much gold is there in the world, maybe six billion ounces have been mined since the dawn of history most of it almost all of it’s still exist in someplace. In other words, that’s less than an ounce of gold for every man woman and child on the planet, that’s one argument for gold being higher. But look we need a reliable money in the world and the dollar is no longer reliable money because the U.S. government is creating them, has been creating them since 2007 by the trillions. And when the economy goes back into a recession, well, it’s not going to be a recession; it’s going to be much, much worse than a recession. Later this year, next year, it’s long overdue. The dollar’s going to lose value rapidly where are people going to go? Are they going to buy any other government currencies? I think not, I think there’s going to be a panic back into gold. Shelly Kraft: So, you would be advising if you had clients, you would be advising them to buy Bitcoin, cryptocurrencies, not only Bitcoin obviously there’s other cryptocurrencies, and gold at this point? Doug Casey: Yes, I would. What are your alternatives? The stock market is in a bubble and I think it’s rolling over. Real estate is in a bubble certainly in major cities around the world and I think it’s starting to roll over. And the bond market is in a hyper bubble - that’s the big disaster out there because it’s bigger much bigger than the stock market. So, where are you going to put your money? The only things that are cheap in the world

today are commodities and gold along with being money in its most basic form is also a commodity. So, yeah, I’m very bullish on gold. Shelly Kraft: So, what do you do when you meet someone in the market, like, let’s say walking around at this symposium and they come over to you and they say, we’re longing gold, we’re long crypto currencies and Bitcoin, should we buy juniors? Is that something, is that a question you can field? Doug Casey: Well, foolishly, because I’ve been playing in the junior part of the mining market the Exploration Companies and the Development Companies for 40 years now. They’re the most volatile class of securities on the planet. They are not investments there are speculations, your timing is critical - that and choosing the right company because 90% of them are, well, at least burning matches or worse than burning matches. But it is now a good time to buy them? I believe it is, because I’m bullish on gold and bullish on all the other metals, Uranium, Nickel, there’s 92 elements in the periodic table. Now it’s an excellent time to buy these things and I think it’s the U.S. government and other governments create trillions and trillions more dollars. This is - they’re going to some of them it’s going to flow into this this - isn’t even a microcap area of the market. It’s a Nano-Cap; in fact it’s a Pico-Cap area of the market. They’re volatile, I like them, and timing is good. Let’s see, if I can make ten to one on my money over the next couple of years. n For more information about Doug Casey and Casey Research, please visit: www.internationalman.com and www.caseyresearch.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 U R E D A RT I C L E

Junior Mining Why Royalty Companies and Project Generators

drian Day Asset Management is the business name of Global Strategic Management, a “boutique” asset-management firm founded by Adrian Day in 1991. The firm was created to serve the needs of individuals, families and small institutions who believe in the merits of investing with a global, value perspective. In this Wall Street View, our host spoke with Adrian Day, President of Adrian Day Asset Management at the Sprott Natural Resource Symposium 2018 in Vancouver, BC. Shelly Kraft: So, what are you speaking on at this conference?

because they have to keep replacing the ounces that they produce and it’s difficult and expensive to find ounces. For exploration companies, it’s very difficult because frankly the odds are stacked against you and you have to keep raising money because you don’t own anything; it’s an exploration company. So, I’m speaking on, well, is there a better way? And I think the royalty business model; the royalty companies at the high end against the producers and the prospect generators, the business prospect generator model are better ways of making money in this business. Shelly Kraft: And why is that?

Adrian Day: One of the problems in the mining business is it’s a very, very difficult business. For miners it’s very difficult

Adrian Day: That’s a huge subject as you know - royalty companies essentially

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give money, invest money and it can be in producers, it can be in development companies or even in exploration companies. But they invest money in these companies in exchange for a piece of a pie in exchange for royalty when they produce. The benefit of the model is that they never have to deal with the problems; now things can go wrong, of course, if the mine never comes into production they never get their royalty. But they don’t have to deal with the governments; with the NGOs; with the mine collapse; with the wall collapses; with the flooding’s of mines; they don’t have to deal with the unions; they don’t have to deal with all of that. And so of a business via royalty model tends to be a much lower risk business model and therefore a lower risk investment. Shelly Kraft: But at the same time you must agree that they have to do a very special level of due diligence to find the right people to invest in. Adrian Day: Absolutely, due diligence of course is the key to their investments. They are making investments just as you and I when we invest our money are making investments and they do an incredible amount of due diligence to make sure that they think the property is going to be what they think it is going to be. Also very important is the way they write these contracts. So, some contracts for example when it’s a huge investment, Cobre Panama, which is a cup of mine being built by First Quantum in Panama, believe it or not, Franco Nevada has a royalty on the silver off take on the silver stream. And, sorry, they have a stream on the silver production a huge investment 1.2 billion dollars and they wrote the contract. So, they staged those investments depending on the hurdles that First Quantum had to meet. So, that was a clever way of minimizing their risk but still getting the exposure. Shelly Kraft: So, obviously for full disclosure, do you own any in that company?

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Adrian Day: Oh yeah, Franco Nevada I own personally my family owns but it is also our largest position in the money management firm of a clients. I’ve always said to people if you want to own one gold stock it’s Franco Nevada. And we can talk more about Franco if you want but, yeah, I own it. In fact any company that I mentioned favorably here we’re going to own.

have a piece of lots of lottery tickets. So, your odds of having a success are much greater.

Shelly Kraft: So, let me ask you a question on if a prospect generator or a royalty arrangement with a company exists and that underlying company is then taken over, does the royalty move with the new company?

Adrian Day: Yeah, it definitely has an impact; it has an impact because first of all it makes it more difficult to more expensive to raise money both more difficult and more expensive to raise money. And prospect generators still need to raise money they just don’t need to raise as much as often as exploration company. Certainly, when the price of gold is down if you look last year the year before, the senior companies very few of them were interested in doing deals with the prospect generators. So, yeah it does affect them, there’s no question. But the key to me is that because of a prospect generator model, which we could talk about for four hours because of a prosperous generator model these companies are more able to withstand a downturn because of the capital structure. A prospect generator doesn’t blow his brains out on a single property. So, they tend to be better financed they tend to have better balance sheets. Other people are spending the money the famous OPM. Other people spend the money on developing the projects - exploring and developing the projects, and so in a downturn there may be less money spent on that projects but they still had their own balance sheet to keep going. n

Adrian Day: Yeah, good point, the royalties are always on the property. Streams, which are something a little different, the streaming model was developed by Silver Wheaton originally now Wheaton precious metals, which we also own, and a stream is a little bit different from a royalty. Streams sometimes are with the company so you have to be very careful about that. With a royalty you’re basically looking at the ground so you’re looking at the geology and of course the politics but you don’t worry too much I’m exaggerating a little bit about the company. Shelly Kraft: So, I always looked at prospect generators or sometimes called project generators as literally having a diversified portfolio in an exploration portfolio. Do you agree with that statement? Adrian Day: Yeah, no that’s absolutely correct and that’s really the main reason that I like and when you’re looking at a traditional exploration company, typically, unless you’re looking at a very large one; typically they have one or maybe two projects but they’re developing. So, your risk is very, very focused with a prospect generator you might have anywhere from 10, 20, 30, different properties that they own. So, I like to save it instead of having all of one lottery ticket you

Shelly Kraft: Does the price of gold currently down from its hights, I’ll say that kindly, does that price of the underlying commodity have the same effect on a prospect generator then it would on a single exploration company?

For more information about Adrian Day and Adrian Day Asset Management, please visit: www. adriandayassetmanagement.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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Accounting Corner Column on Page 21