MicroCap Review Summer/Fall 2015 by Planet MicroCap Review Magazine

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$5.00

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Highpower International, Inc. Page

HemoSure, Inc. Retweet Page

F E A T U RDigg ED ARTICLES

mbleUpon

18 Where are the Unicorns for Small Investors? By Charles Payne

microcapreview.com

NASDAQ: HPJ George Pan, CEO www.highpowertech.com

Private Company Dr. John Wan, CEO www.hemosure.com

Provectus Biopharmaceuticals, Inc. Page

Finjan Holdings, Inc. Page

58 Importance of Great Management in

a MicroCap Company By Robert Kraft

29 Preparing for the Inevitable By Rick Rule 65 Getting Closer to Capitalizing on Cannabis By Alan Brochstein Technorati that Favor MicroCap 54 Are New Exchanges Issuers on the Horizon? By David Weild IV 71 What I Am Buying By Chris Lahiji 74 Biotech Investing By Karl Douglas www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

NYSE MKT: PVCT Peter Culpepper, CFO/COO www.pvct.com

NASDAQ: FNJN Phil Hartstein, President and CEO www.finjan.com

The Premier Event in Emerging Growth Finance May 3-5, 2016 Caesars Palace Resort & Casino, Las Vegas

The Growth Capital Expo brings together the best ideas, the most promising companies and the top dealmakers in emerging growth finance for three days of education and networking in the nation’s premier destination for meetings and entertainment. Join a select group of emerging growth company executives, investors and finance specialists at the premier U.S. event focused on the pre-IPO and public microcap market. > 500+ public and private equity investors, emerging growth company management teams, investment banking, accounting and securities counsel professionals, by invitation only. > Presentations by 100 selected pre-IPO and public microcap growth company management teams offering some of the best undiscovered opportunities in the emerging growth market. > More than 18 hours of educational panels and presentations by the leading investors and advisors active in the finance of late-stage private and early-stage public emerging growth companies. > Analysis of legal and regulatory trends in public and private securities offerings: marketing offerings online, the Reg A+ process, institutional Reg D crowdfinance, distressed debt/equity swaps, accredited investor qualification and secondary market trading of emerging growth stocks. > Deep-dive discussions of the top emerging growth investment strategies including patent monetization, activism, pre-IPO rounds and convertible debt. > Capitalizing on the hot sectors in microcap investment: mobile media, gaming, wearable tech, cybersecurity, medical tech, networked devices and legalized marijuana. > Opportunities for on-the-spot and pre-arranged one-on-one meetings with investors, management, and finance professionals. > Nightly entertainment and networking receptions, and dedicated concierge services to facilitate private meetings and entertainment. For complete information and to register go to: http://growthcapitalexpo.com

info@growthcapitalexpo.com 888.895.6807 GrowthCapitalExpo.com

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E D I T O R I A L In Loving Memory of Our Precious Daughter, and Sister, Sammi Kane Kraft Published Since 2006 www.microcapreview.com www.stocknewsnow.com Follow us: @StockNewsNow SNN Inc. 5839 Green Valley Circle Suite 205 Culver City, Ca. 90230 www.snnincorporated.com PUBLISHER Sheldon “Shelly” Kraft SNN Chairman/Founder/CEO skraft@snnwire.com Wesley Ramjeet SNN CFO wesley@microcapreview.com EXECUTIVE EDITOR Lynda Lou “Lulu” Kraft SNN President Robert Kane Kraft SNN COO rkraft@snnwire.com ASIAN PACIFIC CORRESPONDENT Leslie Richardson SNN COMPLIANCE AND DUE DILIGENCE ADMINISTRATION Jack Leslie CHAIRMAN OF SNN ADVISORY BOARD Dr. Leonard Makowka ADVERTISING and SALES info@snnwire.com 424-227-9018 GRAPHIC PRODUCTION Tony Vibhakar Tony@unitronmedia.com GROWTH CAPITAL EXPO FINANCIAL CONFERENCE info@growthcapitalexpo.com

rom our inception, MicroCap Review has delivered the most complete and comprehensive information in the MicroCap stock market. Each featured company has its own unique story, corporate history and exciting potential. In all markets, there are winners and losers, and knowing when to buy, sell or hold, is always a test of our knowledge, diligence, judgment and investment strategy. Many articles in this issue provide insights, opinions and “words of wisdom” from some experienced MicroCap investors and experts. Our increasing readership now includes a growing number of new investors to MicroCaps and a younger millennial investor audience. We embrace the challenge to educate, inform, and introduce our readers to the MicroCap market. Investors can look forward to reading market updates, sector reviews and predictions by well-known writers, articles by market influencers, and learn about tools to help provide investors with a better understanding of the nuances in the MicroCap market. We know investors are always searching for the next big MicroCap stock opportunity. In this issue, our four (4) front cover featured companies are Finjan Holdings, a cyber security company, Highpower International, a rechargeable batteries company, HemoSure, Inc., a diagnostic products company and Provectus Biopharmaceuticals, Inc., who are developing oncology and dermatology therapies. Also featured in this issue are SINO-Global Shipping, Unified Signal, Burey Gold, Millrock Gold, First Mining Finance, and Orgenesis Inc. This summer has not been quiet with

markets influenced by world events from the near collapse of Greece and the subsequent $93 Billion dollar bailout to the 10% devaluation of the Yuan. The metals markets which had been decimated reaching 5 year lows in July to the oil sector which has been hovering at around $40 a barrel down from their own record highs. Through it all biotech stocks continue to show strength although secondary aftermarket prices have been anything but robust. We travel throughout the year to conferences near and far to meet new companies and the unique people in the MicroCap market. Our goal is to help provide insight and tools for building a successful MicroCap investment strategy by reading stories as told by experienced investors in order to limit making the same mistakes. In this issue our writers are a who’s who in MicroCaps with articles by David Alsup, Alan Brochstein, Jim Collins, Brent Cook, Todd Davis, Anthony Desir, Karl Douglas, Brett Goetschius, Nick Hodge, Robert Kraft, Chris Lahiji, John Lowy, David Morgan, Charlie Payne, Fred Rockwell, Rick Rule, Alan Soutenet, David Weild IV, Jeff Wilson and our Columns:, Life Sciences Corner by Seth Yakatan, Asia Corner by Leslie Richardson, Ombudsman by Jack Leslie, and the Green Tech Corner by Darren Eng. Please continue to give us your feedback and follow us on our Facebook, Twitter and LinkedIn. Whether you are reading this issue on the web at www.stocknewsnow.com or our printed version, many thanks to you for your support and encouragement. Please enjoy! Shelly Kraft n

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Micro-Cap Review Magazine is published periodically. POSTMASTER send address Changes to Micro-Cap Review Corporate Offices. ©Copyright 2015 by Micro-Cap Review Inc. All Rights Reserved. Reproduction without permission of the Publisher is prohibited. The publishers and editors are Not responsible for unsolicited materials. Every effort has been made to assure that all Information presented in this issue is accurate and neither MicroCap Review Magazine or any of its staff or authors is responsible for omissions or information that is inaccurate or misrepresented to the magazine. Micro-Cap Review is owned and operated by SNN Inc.

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

MicroCap Review Magazine

CONTENTS WWW.MICROCAPREVIEW.COM Summer/Fall 2015

67 Seed Capital Finds Private and Public Cannabis Markets By Alan Soutenet and Todd Davis

MicroCap Stock Selection By Fred Rockwell

16 Don’t Fear the Market Maker By Jeff Wilkins 18 Where are the Unicorns for Small Investors? By Charles Payne 29 Preparing for the Inevitable By Rick Rule

69 New Formations By David Alsup 71 What I Am Buying By Chris Lahiji

46 Principal Advantages of a Reverse Merger By John Lowy

72 Online Reg D and Reg A+ Deal Platforms Ride Growth of Digital Capital Market By Brett Goetschius

50 Exploration Insights By Brent Cook

74 Biotech Investing By Karl Douglas

54 Are New Exchanges that Favor MicroCap Issuers on the Horizon? By David Weild IV

78 Looking for the Next Great MicroCap Stock By Jim Collins

58 Importance of Great Management in a MicroCap Company By Robert Kraft 60 Snake Oils Salesmen & Gold Buffs By Anthony Desir 65 Getting Closer to Capitalizing on Cannabis By Alan Brochstein

Green Tech Corner 24 The Roller Coaster Ride of

86 Silver: Dry Kindling Awaiting a Spark By David Morgan 90 What are the Best Targets for Activist Investors? By Elizabeth Kopple 92 The Beginning of a Uranium Turnaround By Nick Hodge 94 Don Calvin Memorial

Accounting Corner 80 Are You Ready for Lease

Clean Tech By Darren Eng

Accounting? By Corey Fischer

Life Sciences Corner

Comic Strip

34 Biotech: Year to Date 2015 By Seth Yakatan

Commodities Corner 36 Trends in U.S. Oil Production By Mark Shore

Asia Corner 40 Shanghai Markets Swift Rise Loses Steam While Hong Kong Ranks Number One in IPO Funds Raised

82 WallStreet Chicken - Episode 12 “Payday”

Viewpoints 84 Ombudsman By Jack Leslie

Proﬁled Companies 6 Provectus Biopharmaceuticals, Inc. NYSE MKT: PVCT 10 Unified Signal, Inc. OTCQB: UNSI

12 Finjan Holdings, Inc. NASDAQ: FNJN 21 Sino-Global Shipping America, Ltd. NASDAQ: SINO 26 Highpower International, Inc. NASDAQ: HPJ 32 Burey Gold, Ltd. BYR-AX 42 First Mining Finance Corp. TSX-V: FF and OTCQB: FFMGF 43 HemoSure, Inc. Private Company 53 Millrock Resources, Inc. TSX-V: MRO 64 Orgenesis Inc. OTCQB: ORGS

By Leslie Richardson www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

MicroCap Review Magazine

PROFILED cOMPaNIES

Provectus biopharmaceuticals Advancing a new front in the war against cancer nyse Mkt: Pvct

utsiders to the pharmaceutical industry, three award-winning research scientists from the Department of Energy’s East Tennessee-based Oak Ridge

National Laboratory embarked on a path of their own in the 1990s to develop a better way to fight cancer. Hailing from the nationally recognized federal government science and technology facility with a rich history of discovery and innovation, these three technology inven-

Peter Culpepper, CFO/COO

MicroCap Review Magazine

tors had been searching for a drug candidate capable of killing cancer cells safely, specifically, completely and quickly. By the end of the decade Drs. Craig Dees, PhD, Timothy Scott, PhD and Eric Wachter, PhD had rediscovered what could turn out to be the ideal cancer killer: Rose Bengal, a molecule with a long and diverse medical history. Ironically the compound had lain around in plain sight of the global pharmaceutical industry for nearly 85 years before Dees et al. began their journey of demonstrating Rose Bengal’s cancer fighting potential. Safely and effectively engaging the body’s immune system and its natural anti-cancer defenses, instead of destroying or misusing them, underscored the Tennessee trio’s approach to defeating the disease. They believed killing cancer tumors in the correct way held the key to successful medical treatment because a proper approach could enable the immune system to stimulate cancer-killing cells throughout the body.

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Dees, Scott and Wachter eventually founded Knoxville, Tennessee-based Provectus Biopharmaceuticals, Inc. (NYSE MKT: PVCT) in 2002 with the goal of developing Rose Bengal-based drugs to treat cancer. The founders’ vision was to have the company’s lead investigational oncology drug PV-10, an injectable 10% solution of Rose Bengal in saline, employed in the treatment of all solid tumor cancers before, during and after surgery, in combination with other therapeutic agents and therapies, and after all else fails. Rose Bengal is the active pharmaceutical ingredient in PV-10. A water-soluble dye first created in 18821, it is a small molecule that has been used in the clinic for more than a century, as an additive to safranin victoria yellow for ocular pneumococcal infection2, a stain for visualizing corneal ulcers3, a marker for impaired liver function4 and now a cancer therapeutic. Prior to Provectus’ founding Rose Bengal already had an established FDA safety profile as an intravenous hepatic diagnostic called Robengatope®, and as a topical ophthalmic diagnostic under the trade names of Rosettes® and Minims®. Rose Bengal’s therapeutic benefits remained hidden until the 1980s when sufficient quantities were administered orally in preclinical studies carried out by Japanese researchers.5 Ironically, while investigating the tumorigenicity of red food dye No. 105 (also made from Rose Bengal) they observed dosedependent survival increases in test mice. In the view of Dees, Scott and Wachter properly destroying cancer tumors meant killing only tumors and doing so completely, quickly and, very importantly, safely (that is, leaving healthy tissue unharmed). They believed this approach was the only effective way of sustainably stimulating a person’s natural anti-cancer defenses. Instead of bathing the entire body or even parts of

Selective targeting by Rose Bengal minimizes side effects. Unlike many other cancer drugs, PV-10 does not rely on a single pathway to work and also has no known resistance. it with radiation, or filling the bloodstream with oral or intravenous chemotherapies or present-day immunotherapies, Dees et al. firmly held the position that stimulating the immune system was best achieved through treating tumor tissue by injecting into it a drug capable of destroying the entire tumor as quickly as possible without damaging surrounding healthy cells. Completely also meant everything from visible tumor tissue to occult or hidden cells in and immediately around the injection site. Quickly meant having the drug processed through and excreted from the body in short order. Antigens generated from the tumor destruction caused by drug injection then could be presented to the body’s cells responsible for selecting the best and most relevant antigens in order to encourage cancer-killing cells to replicate themselves throughout the body. Importantly, tumor antigens had to be

viewed in context; physical tumor destruction techniques such as heating or freezing tissue destroyed fragile antigens and disrupted their relevant contextual structures. Disruption of cell membranes and removal of lipids, proteins, and complex carbohydrates destroyed the antigens’ context, which is to what immune system cells responded. Thermal destruction denatured potential antigens, changing their chemical structure so that they were no longer representative of the tumor cell. In order to work rapid destruction of tumors had to preserve both antigenic structure and biological context. Provectus’ lead investigational oncology drug PV-10 has a two-prong approach to fighting cancer. First, the “local effect” of tumor ablation (destruction) sees a patient’s tumor burden rapidly reduced after injection of PV-10 into his or her accessible cancerous lesions. Selective targeting by Rose Bengal

1 Gnehm R.Ueber Tetrachlorphtalsäure. Justus Liebigs Annalen der Chemie 1887; 238:318–338 2 Feenstra RPG and Tseng CG. Arch Ophthalmol 1992; 110:984–993 3 Norn MS. Acta Ophthalmol 1970;48(3):546-559 4 Delprat GD. Arch Int Med 1923; 32(3):401–410 5 Ito A, Watanabe H, Naito M, Aoyama H, Nakagawa Y, Fujimoto N. J Natl Cancer Inst 1986 Jul; 77(1):277–81 www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

MicroCap Review Magazine

Clinical trials to date and an ongoing expanded access program have treated more than 240 cancer patients (recurrent breast cancer, hepatocellular carcinoma and metastatic liver cancer, melanoma). minimizes side effects. Unlike many other cancer drugs, PV-10 does not rely on a single pathway to work and also has no known resistance. Second, the “systemic effect” of a tumor-specific immune response causes regression of untreated tumors, potentially prolonging progression-free survival and possibly enabling PV-10’s combination with immunomodulatory drugs and other systemic therapies for use in lesions that are inaccessible to a direct injection. PV-10’s potential clinical value proposition to patients and their physicians is multi-faceted: It is simple to store, handle, and use and reuse. The drug thus far has shown modest local and transient toxicity that is predominantly confined to the injection site and minimal-to-no systemic toxicity. In regards to local efficacy PV-10 injection may lead to rapid, durable, complete tumor destruction, and induction of antigen release in injected lesions. It may promptly heal injected lesion sites completely after tumor destruction. In regards to systemic efficacy the drug may reliably, reproducibly induce regional and systemic immune effects potentially capable of destroying occult tumor cells, “bystander” lesions and distant metastatic lesions regardless of prior treatments. PV-10 may have multi-indication viability. Clinical trials to date and an ongoing expanded access program have treated more than 240 cancer patients (recurrent breast cancer, hepatocellular carcinoma and metastatic liver cancer, melanoma). It may be orthogonal, potentially having a low risk of clinically relevant drug-drug interactions. The drug may be agnostic, possibly compatible with all disease presentations. PV-10’s pharmaco-

MicroCap Review Magazine

kinetics may be comparable and consistent. Researchers at Moffitt Cancer Center in Tampa, Florida and the University of Illinois in Chicago have reproduced Dees et al.’s original preclinical work that first demonstrated PV-10’s two-prong approach and ability to fight cancer in multiple indications: e.g., the tumor ablation (the local effect) through the destruction of injected tumors, a tumor-specific immune response through the destruction of non-injected tumors and tumor-specific IFN-γ production in melanoma, breast cancer and colorectal cancer. Provectus’ clinical development program is spearheaded by a pivotal trial currently being conducted in melanoma, and an early stage trial hepatocellular cancer (“HCC”) and metastatic liver cancer. In a Phase 2 trial that formed the basis for the current pivotal Phase 3 trial (registration study), 80 patients with stage IIIB-IV melanoma refractory to a median of six prior interventions received injections into their melanoma lesions up to four times over a 16-week period and were followed for 52 weeks.6 The overall response rate for the 28 patients who had all their existing melanoma lesions injected with PV-10, was 71% with 50% achieving a complete response. This subgroup of 28 patients who had all their lesions injected achieved a progression free survival of 9.8 months, which according to the Phase 3 trial’s principal investigator Dr. Sanjiv Agarwala, M.D at St. Luke’s Hospital and Health Network of Bethlehem, Pennsylvania compares favorably with historical progression free survivals of less than 2.5 months for systemic chemotherapy dacarbazine and temozolomide.

The company’s current early-stage study of 6 patients with non-resectable HCC (primary liver cancer) and 7 patients with other forms of cancer metastatic to the liver (secondary liver cancer) saw then undergo a single percutaneous injection of PV-10 guided by CT to one target lesion in the liver.7 At up to 54 months follow-up 10 out of these 13 initial patients were alive, with one death due to cardiac comorbidity, one to serious adverse events and one to HCC progression. Adverse events were generally limited to injection site reactions and photosensitivity and resolved without sequelae, with elevated liver enzymes observed during the first week after treatment. As with melanoma, PV-10 is believed to have a local chemoablative effect in HCC and metastatic liver disease where the agent enters lysosomes causing tumor necrosis that can stimulate immunological effects. Studies in melanoma patients injected with PV-10 have shown increased T cells in peripheral blood following injection including CD8+, CD4+, CD3+ and NKT. Provectus recently announced the signing of a letter of intent with Boehringer Ingelheim China to collaborate in bringing PV-10 to market in mainland China. 7 Janet Fricker, New chemoablative approach for hepatocellular carcinoma and metastatic liver disease, Pharmiweb.com, July 13, 2015 n The company paid consideration to SNN or its affiliates for this article.

6 Janet Fricker, PV-10 delivers greatest effects when all lesions are injected, Pharmiweb.com, October 14, 2014 www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

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

MicroCap Stock Selection

’ve been researching and picking stocks for quite some time. But selecting companies for the upcoming MicroCap Conference has given me an opportunity to review my process for finding ideas. The following is a rundown of my methodology. There are three main sources of my ideas: 1) conversations with other investors often met at investor conferences, 2) stock screens, and 3) reviewing company filings. First, I tap into my network of investor and analyst friends to identify which companies they are interested in and why. Second, I regularly attend other investor conferences to discover up-and-coming companies. Third, I use screens to narrow down the list. The microcap space contains over 12,000 different companies, and screens reduce that number to a more manageable level. Lastly, I monitor filings for significant events. Once I have compiled a list of micro-cap stocks through the above methods, it is time to dig deeper. How do I narrow down the list to 25 conference attendees? What do I look for at

n FRED ROCKWELL

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this point? First, I look at the basics: business quality, growth potential, intrinsic value, and strength of management. I carefully analyze companies’ income statements to assess their prospects for longterm profitability. I look for companies with robust streams of recurring revenue and high gross margins. Another way companies can gain favor in our selection process is through their growth potential. As we evaluate market size and key drivers, we identify trends—not fads. Meanwhile, I manage the uncertainty in my assumptions by evaluating the range of potential outcomes and weighing the potential upsides and downsides. Next, I compare companies’ valuations with industry counterparts and identify companies that may be undervalued by the market. But I don’t stop there—I also identify one or more catalysts that may drive the companies’ prices to their intrinsic values. Otherwise, the companies could remain undervalued for the foreseeable future. All of the companies attending The MicroCap Conference have been inspected for the quality of their management. A company’s management should be not only experienced but hardworking—that is, actively promoting the company’s interests rather than sitting back and collecting paychecks. Furthermore, I examine the past

decisions made by management and evaluate whether they demonstrate sound judgement. A company with strong management is more likely to remain competitive and withstand economic downturns. Still, it’s not enough to look good on paper— a company needs to have a good product or service. More specifically, it must have an edge over the competition. When selecting companies to invite to The MicroCap Conference, I assess their products and services for quality as well as differentiation, even trying the products and services myself when possible. Overall, The MicroCap Conference’s objective is to give attractive companies a platform to voice their story. The conference will be a valuable experience for investors and analysts too. There will be panel discussions by prominent investment managers, activist investors, and financial bloggers. There will also be plenty of time for networking and sharing ideas with colleagues. Fred Rockwell is the President of Tarsier Capital Management. He is a Chartered Financial Analyst, Certified Public Accountant, and a University of Michigan MBA graduate. The MicroCap Conference will take place on November 5th at the Philadelphia Marriott Downtown. Register at www.microcapconf.com n

MicroCap Review Magazine

PROFILED cOMPaNIES

Unified signal, inc. otcqb: Unsi

nified Signal Inc, is a SaaS (software as a service) based billing and back office platform, which enables companies in virtually any industry sector to

launch cellular and mobile wallet services using their existing brand. Unified Signal’s turnkey telecom and mobile wallet billing platform allows its clients to sell, provision, fulfill, and care for services such as pre and post-paid cellular, domestic and international long distance, Internet, and most recently a mobile commerce product linked to a prepaid debit MasterCard.

Unified siGnAl’s ProdUct evolUtion

Paris Holt, Founder and CEO

MicroCap Review Magazine

Unified’s Founder and CEO, Paris Holt, started in the telecom industry in 1992 with Southwestern Bell Mobile where he headed up pricing and the MVNO (Mobile Virtual Network Operator) channel. MVNOs service the telecom industry by re-selling wireless services using the carriers’ wireless networks, but launch their own brand of ser-

vice. The MVNO segment of the market has grown to over 25% penetration in the U.S. Over 70 Million Americans have activated their wireless phones with MVNOs, inclusive of brands like: Virgin Mobile, Tracfone, Net 10, Simple Mobile, and Choice Wireless. Mr. Holt was later recruited to build an MVNO called Ameritel and within 18 months of its inception, Ameritel became the 2nd largest MVNO in the U.S. In building Ameritel, Mr. Holt noticed a large gap in the billing industry as there were 15 billing systems that serviced various market segments, but none of these systems adequately serviced the MVNO segment. Mr. Holt exited Ameritel to design and build telSPACE (www.telSPACE.com), which is now one of the industry’s most feature rich billing and operating system for the MVNO industry.

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In 2012, Mr. Holt decided to diversify and create Unified Signal (www.unifiedsignal. com), which is an MVNO enabler using the core telSPACE billing platform to support its 23 MVNOs. Unified Signal has added unique functionality to the platform, including support for all major U.S wireless carriers, cross carrier family plans, and a powerful wallet product which has the ability to be a very disruptive technology in the mobile wallet market segment, which is one of today’s hottest technology sectors.

Unified’s Acquisition Growth Strategy In 2014, Unified Signal acquired a data only MVNO called DataJack. For the last 4 years DataJack developed a proprietary data only (MiFi) billing system which was very unique and synergistic to Unified Signal’s core billing platform. DataJack was a public company and through a reverse merger, Unified became a fully reporting public OTCB company. Over the last year, a core Unified Signal strategy has been to close additional acquisitions that would provide the company with increased revenues and distribution. In June of 2015, Unified Signal acquired the assets of InterMar, LLC a strategic sales, marketing, and distribution company which focused primarily on the ethnic consumer and unbanked markets since 1999 and services over 50,000 retail points of distribution across the country. The strategy behind the acquisition is for Unified Signal to create a new MVNO brand of cellular service which would be owned and operated by Unified Signal and distributed into the InterMar distribution. As an MVNE, Unified Signal accrues revenue of $1.50 to $2.25 per customer per month and nets $.50 per customer per month in profit. This strategic pivot into Unified Signal’s new MVNO, called MyTime Wireless (www.mytimewireless.com), will accrue $40-$45 average revenue per customer per month and increase net profit to well over $5 per customer per month.

MyTime Wireless’ target market is the ethnic communities in the larger metropolitan cities on the east coast. The product bundles $5 of international long distance (ILD) into each rate plan every month and a FREE prepaid debit card. International long distance calling rates have been priced far below anything consumers have ever seen in the prepaid calling card marketplace. These low calling rates allow people living in the U.S. the ability to call family and friends or anyone else in other countries at a fraction of the cost they are paying today. The MyTime Wireless product set also allows its customers to move money to friends and family for FREE compared to a typical 10%-15% transaction fee.

Mobile Wallet Product Suite The Unified Signal Mobile Wallet product enablement suite is comprised of two core feature sets that service the banked and unbanked market segment. Mobile Wallet “m-Wallet” Program (Virtual Savings Account): This product set is a simple private label PayPal type of service, where customers can load money from a credit card, checking account, and receive money from other m-Wallet users. Customers can move funds from their m-Wallet to: other checking accounts; m-Wallet users; make ILD calls; pay bills; or move money to their debit MasterCard. Debit MasterCard Program (Virtual Checking Account): Customers can choose to add an additional prepaid MasterCard which provides users access to global ATM networks, as well as the ability to use their card anywhere MasterCard is accepted. Money can be FREELY moved from the m-Wallet account to their debit MasterCard in real time, using a state of the art data app. Customers can opt to order a companion card and mail that card to someone abroad. Once they receive that companion card, money can be freely moved from the m-Wallet to the companion card in real time and

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with no transaction costs. Funds can then be used anywhere MasterCard is accepted and funds withdrawn at any ATM.

International Expansion Unified Signal has secured a Serbian client called Go4Yu and has been approved by the Central Bank of Serbia to launch its mobile wallet technology into the entire country of Serbia. Go4Yu wireless customers will be able to move money using Unified’s m-Wallet technology. Money will be deposited onto the Serbian customer’s local debit card account where customers can use their funds locally. Unified Signal will also be integrating its Pending Payments technology into over 200,000 merchants in Serbia. This will allow customers with smartphones the ability to quickly and securely purchase goods and services using Unified’s m-Wallet data app technology, which has been deployed on the IOS and Android operating systems.

Unified Signal Future Unified Signal is looking to grow revenues and profits through 3 verticals: 1) additional strategic acquisitions; 2) it’s existing 23 MVNOs; and 3) through its newly launched MyTime Wireless MVNO. The company’s end-game strategy is to find an acquisition partner in 2016/2017 that will allow the company to further expand its reach to additional international markets. The ultimate mission of the company is to provide its end customers a product that will bring their friends and family closer together where ever they may be in the world. From voice and data services, to mobile wallet and money transfer technologies, Unified Signal’s team is committed to continued innovation and ensuring that its product suite is always on the cutting edge of technology. Website: www.unifiedsignal.com; www.mytimewireless.com n The company paid consideration to SNN or its affiliates for this article.

MicroCap Review Magazine

PROFILED cOMPaNIES

finjan holdings, inc. nAsdAq: fnJn

injan is a Leading Innovator of Cybersecurity Technology, with a Comprehensive Patent Portfolio Covering Various Aspects of Dynamic, Proactive Behavior-

Based Technology to Limit Malicious Breaches and Theft of Electronic Data, a Top Concern of Companies Worldwide.

Phil Hartstein, President, and CEO of Finjan Holdings, Inc.

MicroCap Review Magazine

Finjan (NASDAQ: FNJN) is a pioneering cybersecurity company founded in the mid90’s by security sector serial entrepreneur Shlomo Touboul. Finjan invented the concept of dynamic, proactive real-time web and network security with behavior-based content analysis technology, among others. It is now one of the world’s leading data security experts. Its patented technologies are helping consumer and enterprise-level customers and clients avoid identity and data theft, spyware, malware, phishing, trojans and other online threats. Finjan’s patented technology proactively identifies threats by uncovering patterns and behaviors of online viruses and other malicious code as they move into and out of networks and across the Internet. While disruptive at the time, today it is widely integrated into modern security architectures, including enterprise systems as well as mobile devices. Finjan has a robust global portfolio of more than 40 issued and pending patents and continues to make its technology available through its licensing program. The company is committed to preserving and enhancing the value of its patent portfolio for its existing licensees, investors, and shareholders. Additionally, the Company has become a trusted advisor on the issue of patent reform to lawmakers, propounding balance and fairness for all patent owners to legitimately enforce their patent rights. Some

pushing patent reforms overlook the fact that patents are the investment foundation for venture capital to finance innovation and technology development, which has been critical to Finjan’s development.

GrowinG MArket for cybersecUrity ProdUcts Founded in Israel and now headquartered in California’s Silicon Valley, Finjan is among the top cybersecurity companies. Cybersecurity breaches are a serious risk, and extremely costly for businesses, governments, and consumers to resolve. Effective prevention, therefore, is a top priority. The 2015 Travelers Business Risk Index shows that cybersecurity is near the top of the list of concerns for business leaders. Its data show that 29% of companies surveyed cite cybersecurity problems as risks they are least prepared to handle. Its latest poll showed computer-related issues as the second most important concern for all businesses (58%), compared to 2014, when it was ranked fifth. Some one in 10 businesses and one in five large companies believe they have fallen victim to a cyber attack. Some sectors are woefully unprepared. For instance, while 58% of healthcare companies surveyed cited cybersecurity as a concern, only 37% have a plan to respond to an attack or data breach.

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YEARS

Your trust. It’s what we work for. It's not just part of our name, it's what we're all about. Our number one goal is to give you the confidence that you are working with a committed premier solutions partner with a strong focus on individualized customer service. Whether it's corporate actions, IPOs, public and private issuer record keeping or stock plan administration, you can rest assured that you and your shareholders’ priorities are being expertly handled. With more than 50 years of experience serving emerging and growth companies, we've made it our business to exceed your needs and expectations. Transfer Agent Services. Contact Karri Van Dell 212.845.3224 ContinentalStock.com

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Costs of Breaches Increasing Worldwide The cost of cybersecurity-related crime is high and rising exponentially. Costs are calculated on a direct (cost to reproduce or repair data) and an indirect (cost to restore consumer confidence) cost basis. The Ponemon Institute’s and Verizon’s annual data breach reports calculate these costs in great detail. According to the Ponemon Institute’s study on the economic impact of data breaches, sponsored by IBM, respondents globally reported an increase of the average data breach cost per victim to nearly $154 per compromised record, an increase of 9% since 2012. The study also found the average cost of a data breach increased about 15% from 2012, reaching $3.79 million. The root causes of data breach globally are malicious or criminal attacks, accounting for nearly 42% of breaches. Some 30% of data breach is related to faulty operations of negligent employee or contractor (human factor), and 29% involved system glitches (IT and business process failures).

Stopping Breaches Before They Occur The advent of cloud computing has increased the need for this behavior-based threat detection. Finjan’s innovative patented software (later imbedded in hardware security appliances) proactively monitors network and Internet traffic looking for abnormal file behaviors. The technology can flag content for review, marking it as malicious or even pulling it into a contained environment to detonate without impacting a network or computer (i.e., “sandboxing”). As data is analyzed and categorized, a record of the analysis can travel with the content or be forwarded ahead to reduce the duplicative scanning process. This allows real-time efficiencies given realworld limitations on memory, processing, and bandwidth.

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Robust Patent Portfolio Finjan has an impressive portfolio of patents and pending patents in the areas of dynamic and proactive behavior-based security, with new patents continuing to issue through its continuing development efforts. Licensees include Microsoft, M86 Security, Trustwave, Webroot, Secure Computing, McAfee (Intel Security), Websense, and recently, international licensee, F-Secure. The company has a number of pending litigations against companies it believes are violating its patents. Finjan recently received a favorable verdict in its patent infringement lawsuit against Blue Coat Systems. The jury found all 6 of Finjan’s asserted patents valid and enforceable, and 5 of the 6 patents infringed, awarding Finjan over $39.5 million in damages, exclusive of pre- and post-judgment interest. On July 15, 2015, Finjan filed a second patent lawsuit against Blue Coat (Blue Coat II). Finjan has a total of six pending cases pending in the Northern District of California.

ground zero” for advancements in cybersecurity. Finjan grew to 150 employees internationally before it spun off its hardware division to M86 Security in 2008.

Spinoff In 2008, the original software and hardware divisions were spun off and acquired by M86 Security, which merged with Trustwave, which was recently acquired by Singapore Telephone, who continue to manufacture and sell licensed product. Finjan retained its patent portfolio for purposes of licensing its valuable cybersecurity technology to third parties.

Trading on Nasdaq Finjan went public in June 2013 at an accelerated pace through a reverse merger. The original investors funded the company with approximately $30 million. Finjan completed a listing on NASDAQ in May 2014 under the symbol FNJN.

Founding and Investments

Current Investments

In 1996, Finjan was formed in Israel to cultivate proprietary technology that focused on proactively detecting threats to online security Following the development of these security technologies and subsequently receiving world-wide patent protection, Finjan provided secure web solutions, including security software and hardware, to the enterprise and endpoint markets. After locating its headquarters in San Jose, CA in 1997, Finjan raised funding from top tier investors including Cisco, Microsoft, Bessemer Venture Partners, Benchmark Capital, HarbourVest Partners and Israel Seed Partners. Prior to Finjan going public, these funds invested approximately $65 million in cash to develop the technology, now protected by the patents. The firm started with a few employees in Israel at a time when the country was beginning to be recognized as an “international

Finjan has an active investment in Jerusalem Venture Partners’ Cyber Strategic Partners Fund VII, which focuses on next-generation cybersecurity innovations. Specifically, the JVP fund that Finjan is invested in is developing technology to show how viruses are likely to mutate. By predicting threats, IT specialists can build stronger, safer networks. Investing in next-generation technologies that will meet growing threats is the best defense for continued data security. Release from Non-Compete and New Product Development Until very recently, Finjan was excluded from producing and selling its competitive products in the security space by a noncompete and confidentiality agreement with its former licensee, M86, now Trustwave, which had the exclusive right to make cybersecurity products using Finjan’s patented behavior-based technologies.

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This March 2015, the final terms of that agreement expired, and Finjan re-entered the market, developing and producing its own cybersecurity products for the consumer market.

as the oversight and advisory board for the US Patent and Trademark Office. There are only 9 members of the public nominated to serve in this prestigious post at any given time.

A Return to Operations

Creating Transparency for Patent Ownership Worldwide

Finjan’s first product focused on consumers, including the Finjan Mobile Secure Browser available at http://mobilesecurebrowser.finjan.com. Tim Shipman, Strategic Director at Yeti, a San Francisco-based hardware integration, virtual reality and data visualization firm, called Finjan’s mobile secure browser a “compact, elegant solution for protecting your mobile device from malicious Internet content.” This June, Finjan launched CybeRiskTM Security Solutions to provide cybersecurity risk advisory services to meet growing customer needs worldwide. Yoram Golandsky, who previously led Cisco’s Cyber Security Center of Excellence as General Manager, was named CEO of the new company, based in Tel Aviv. Finjan’s investment in mobile applications and CybeRisk is in line with its strategy to reinvest proceeds from successful cybersecurity investments while continuing its profitable patent licensing program. Licenses to major technology customers have brought in more than $150 million to date.

Active in Patent Reform Discussions and Member of PPAC The company has been very active in patent reform discussions, by educating lawmakers on how certain proposed patent reforms are unfair to small and individual patent holders, and, importantly, contrary to the original purpose of the U.S. Patent system. Further, Julie Mar-Spinola, Finjan’s Chief Intellectual Property Officer and Vice President of Legal Operations, is a member of the Patent Public Advisory Committee (PPAC) of the U.S. Patent and Trademark Office. PPAC serves

Finjan is a founding member and among leading companies that participated in the launch of the world’s first Open Register of Patent Ownership, or ORoPo. ORoPo is a voluntary non-profit that makes its data freely available online. Other members include Microsoft, ARM, BAE Systems and Patent Properties. The goal of ORoPo is promote patent ownership transparency and to provide information on who owns the patents granted by the world’s 180 patent offices. Those involved in the issue estimate that 25% of the information is inaccurate, incomplete or out of date. This has serious consequences, as IP assets are estimated to account for up to 70% of enterprise value.

Corporate Leadership The company remains leanly staffed, with approximately 15 employees in the US and Israel. Finjan is led by Phil Hartstein, President and CEO, who joined the company with deep experience in maximizing the value of patent assets. A leader in the field, Hartstein was once again this year named one of the world’s leading IP strategists by Intellectual Asset Management. The IAM Strategy 300 annually ranks the nation’s top portfolio monetizers. As Chief Intellectual Property Officer and VP of Legal Operations, Julie Mar-Spinola is responsible for building the company’s IP assets, leading its legal operations and overseeing Finjan’s enforcement program, and the company’s public policy work, including patent reform and cybersecurity. Michael D. Noonan serves as CFO and Treasurer, and is an experienced financial

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executive. Previously, he served as a senior director in the finance department of Forgent Networks, an IP company that generated over $140 million in licensing revenues. The Board of Directors includes: Chairman Daniel Chinn, former Venture Partner at Israel Seed Partners and now a Partner of the Israel-based law firm Tulchinsky Stern; Eric Benhamou former CEO and Chairman of 3Com and Palm and Founder of Benhamou Global Ventures; Glenn Daniels former Managing Partner at Houlihan Lokey; Michael Eisenberg, former Venture Partner of Benchmark and now with Aleph; Harry Kellogg, former Vice Chairman of Silicon Valley Bank; Alex Rogers, Managing Partner with HarbourVest, and Michael Southworth, CEO of Contact Solutions. “Given the increase in cybersecurity breaches and the increase in the cost of those breaches to businesses, we believe Finjan has a bright future, and will continue to be a leader in the data security sector,” said CEO Phil Hartstein. “Malicious hackers who disseminate spyware, malware, trojans and other breach software are continually becoming more sophisticated. Finjan’s innovative products help businesses stay one step ahead to prevent damaging breaches and theft of soft data, and are an important element of any company’s risk management strategy.” “For Finjan, our current patents and pending patents continue to be the keystone of our licensing programs,” continued Hartstein. “We intend to promote and protect the value of our patent portfolio, preferably through licensing,; enforcement through litigation is less preferred. We have recently received a favorable verdict in our infringement case against Blue Coat and we remain confident our licensing program will lead to greater shareholder value.” n The company paid consideration to SNN or its affiliates for this article.

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

Donâ&#x20AC;&#x2122;t Fear the Market Maker T

he term market making strikes fear in many retail traders due to the constant stream of negative press market mak-

ers have received over recent years. The cold hard fact remains that market makers are the backbone of the financial markets. If it were not for market makers, liquidity across every financial sector would be horrendous. There simply is not a buyer for every seller at any given point in time. Market making is synonymous across every tradable instrument, but is particularly prevalent in foreign exchange. The forex industry has been in the headlines often recently, and not for good reasons.

Stories of fraud, market manipulation, broker bankruptcies, and lost customer funds have damaged the reputation of the industry globally and left some traders wondering if it is a safe market to enter. In some cases and in some circles, the analysis has been reduced to a distinction between market making brokers and ECN or no dealing desk brokers. The distinction rings true across all market made products. Market makers are often portrayed as unsafe and working against the

n JEFF WILkINS

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interests of traders while ECN’s or matching engines are portrayed safe and transparent places for clients to trade. While the distinction between the two is important, it should not be used as a defining line when choosing where to trade. Neither model is “safe”, each has its own set of advantages and disadvantages. My goal here is not to defend market makers or discredit ECNs, but simply to shed some light on the differences between the two and what they mean for traders. First, let us start with the basics. A market maker is the counterparty to every trade placed by a client. The market maker then decides, based on its internal risk management policies, when to offset the risk created by client trading by hedging that exposure in the broader market. ECN or no dealing desk brokers are also the counterparties to client trades, but the client’s execution is based on the broker first receiving offsetting execution with its counterparties. The ECN broker, therefore, has no market exposure. This basic difference has a number of ramifications, but I will elaborate on the two biggest for the average retail trader.

Broker Stability and Safety of Funds Many believe that because ECN brokers do not take market risk, the firms are shielded from the risks of market volatility. Many ECN firms have perpetuated this in their own marketing materials. This has never been true, and that was proven following the SNB decision in January. While it is true that ECN brokers do not have any market exposure in the traditional sense, risk can take many different forms. The SNB’s decision to lift the controls it had in place on CHF prices caused dramatic price moves in CHF pairs. On the surface, this shouldn’t be an issue for an ECN broker, but it was. A closer look at the relationship of a broker’s trades with its clients to its trades with its own bank or prime broker reveals the underlying risk to the broker when markets move quickly. Clients have funds on deposit

with the broker to margin their trades just as the broker has funds on deposit with its counterparties. The swift price movements caused many client accounts to be liquidated at rates leaving the accounts with large debit balance. The brokers own positions were also closed at similar rates and with similar losses. Even if the brokers account did not itself go debit, it did not have the funds to cover the losses in its account until it collected on the debit balances from customers. Collecting from hundreds or thousands of customers around the world can be a lengthy and often fruitless pursuit. In the case of the SNB decision, the result was a number of ECN brokers immediately becoming undercapitalized and forced to close, sell to a competitor, or to seek outside financing. The same was not true for market making brokers, depending on how they managed their exposure. If the broker did not have a client account’s position hedged, the debit balance in the customer account may be just as uncollectible as it was for the ECN, but there was not a loss in the broker’s account that needed to be offset by the collection. There were, of course, market makers done in by the SNB move as well. But the ability to manage risk of this type rather than attempting to eliminate all market risk allowed many to survive. The key point here is not that one model is better than the other, but to remember that neither is “safe”, in spite of what they may tell you.

offer. This allows them to price at spreads tighter than what is available in the broader market if they choose to do so. It also means they can honor stop losses within the slippage parameters they choose, and liquidate trades at the rates they determine. This flexibility can be a double edged sword. While it can mean more favorable execution for client trades, it also leaves open the possibility the broker will cheat the client and execute at unfavorable rates. The takeaway here though is simply that ECN based execution does not implicitly mean better execution. In many cases it is not. Searching for a trading venue is like shopping for anything else, research is needed to find the best solution at the best price. But what traders need to keep in mind when searching, is that overly simplified statements that ECN brokers are better simply are not true. Jeff Wilkins, Managing Director, ThinkLiquidity As a recognized leader in the capital markets industry, Jeff has an extensive background in risk management and trading in every asset class. His vast experience, passion for excellence, and strong sense of commitment are why he was chosen to lead ThinkLiquidity. Jeff has built and directed global risk and trading teams around the world and has an intimate understanding of the trials and tribulations these teams have to constantly endure. Jeff is building ThinkLiquidity around one core principal; Risk management should always drive technology. n

Pricing & Execution Here again, many traders believe that ECN brokers are always the better option. The commonly held belief is that because pricing and execution are based on the broker’s own execution with larger counterparties, trades are always done at the best rate available in the market. While it is true that this form of execution ensures that the rate was a “real” market rate, it does not mean that it was the best rate a client could get. Market making brokers are doing just that, making the market in the products they

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

Where are the Unicorns for Small Investors?

top me if you’ve heard this before but a privately held company is raising more money and in the process its valuation

has increased.

Yes, this week Uber announced its raising even more money from investors including $137 million from Microsoft that brings its current valuation to $51 billion. This makes the 12 round of funding for the company that went live on July 5, 2010 in San Francisco and raised its first funds in October of that year. By the start of 2011 the company was valued at $60 million. These days once a privately held company reaches a valuation of $1.0 billion it’s labeled a unicorn. Just think that that suggest

these companies or their valuations might be unrealistic.

u·ni·corn

A mythical animal typically represented as a horse with a single straight horn projecting from its forehead. Of course throughout antiquity the unicorn, while mythical, represented purity and

n cHaRLES PaYNE

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grace. These days the Silicon Valley version of unicorns represents something else: dollar signs and greed. I have no problem with the private sector feasting on the hot names in technology but I think it’s time to stop seeing Silicon Valley as a cool place that cares about humanity versus Wall Street’s image as greeddriven destroyer of everything in its path. Ever since the Facebook initial public offering tis been clear to Silicon Valley their incubation system that produces the hottest companies and products could also capture the lion share of profits as the company evolves. Even though the Facebook IPO was an initial disaster because it gobbled up all the money before the first trade it’s since been a stock juggernaut paving the way for more largesse and the herd is huge. There are more than 100 unicorns lining up to go public.

Use the App Skip the Stock Thus far 2015 has been a year when lots of hot IPOs have lived up to the hype including names that have been around for more than a decade like Google and Amazon. But there have also been disasters like Twitter. So when do you buy the next hot IPO that will surely be a gadget or service or applications you use often or even on a daily basis? It’s good to know if these companies are making money or are only one-trick ponies. But there’s another element I want you to consider. How many times have these companies gone to the well and you didn’t get invited to the party. So what happens when you are invited? It reminds me of the Groucho Marx joke about resigning from the club because any club that would accept him as a member he didn’t want to belong. By the time these unicorns become hot IPOs billions of dollars in valuation have been baked into the cake and much of it will come to fruition (read from paper wealth to real money they can bank and spend) at the expense of new buyers… you! Last year the super-hot IPO Alibaba established all kinds of records but very few

individual investors that bought the stock made money- most are losing. Consider how many rounds of funding Air BNB have gone through and there will be more before Main Street gets a bite at the apple. This could be a hot IPO but I doubt I will be chasing. Air BNB Funding History 2009

20,000

2009

600,000

2010

7.2 million

2011

112 million

2013

200 million

2014

475 million

2015

1 billion

Total

1,794,820,000

On the other hand I did recommend Fit Bit after it began trading even though the stock popped 50% on the first day of trading from the IPO price. Because management didn’t suck valuation dry in the private space there was opportunity left for regular folks also known as their customers? I respect management for that and the 56% return we made in a matter of weeks. Fit Bit Funding History 2008

2 million

2010

9 million

2012

12 million

2013

43 million

Total

66 million

Consider Ground Floor Opportunities w/Out Hype Of course there’s another option for individual investors and that’s really becoming early investors. There are so many small cap names that will eventually become giants including real life unicorns based on fundamentals and execution of management. It still takes work, due diligence and patience but not getting sucked into the hype machine that has become

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the marriage of Silicon Valley and Wall Street long term investors could find true purity and grace and make a lot of money along the way. It’s no myth. Charles Payne Wall Street Strategies, Inc. CEO and Principal Analyst Charles V. Payne is the Chief Executive Officer and Principal Analyst of Wall Street Strategies, Inc. (WSSI), which he founded in 1991. With less than $10,000.00 in start up capital and working from his apartment, he launched WSSI to provide a unique brand of stock market advice. Through this service, subscribers (money managers and individual investors) began to reap sizeable profits and the firm developed a national reputation as provider of timely and effective equity analysis. Today, WSSI provides information to over 120,000 registered subscribers, in more than 60 countries as well as several of the largest bank/brokerage firms. Charles oversees a team of stock analysts that cover specific industry groups, in addition to monitoring the entire market and individual sectors on his own. Charles’ passion for the stock market began when he was 14 years old. He told his mother then that one day, he would work on Wall Street. Charles got his start in the industry in research at EF Hutton in 1985. After two years, he switched gears and accepted a position with boutique brokerage firm, Greentree Securities. It was there that he first saw a niche for independent and timely equity advice, which led to the creation of Wall Street Strategies. Due to the success of his guidance and stock selections, Charles has become well sought after by many highly respected finance-oriented radio, web and television programs. He is widely recognized in the media as a leader among the analyst community, and is routinely contacted for his market opinions by several prestigious news organizations. On June 2, 2014, Fox Business Network launched Charles’ new show “Making Money with Charles Payne” which is featured daily at 6pm EST. He is a member and occasional host of “Varney & Co” and in addition, he is a guest-host on several shows including “Cavuto on Business” and “Your World”. Over the years, opinions and articles on Charles Payne have been featured in prestigious news organizations such as Reuters, the Wall Street Journal, and the New York Times. He has been the keynote speaker at numerous investment conferences, grass roots events and educational gatherings worldwide. Charles is author of “Act Fast, Be Smart and Get Rich” debuted in April 2007. Charles was awarded the Congress of Racial Equality (CORE) Man of the Year Award in 2009. Charles attended Minot State College and Central Texas College during his time in the Air Force and Majored in Criminal Justice. Hobbies include drawing and painting along with reading non-fiction books. WALL STREET STRATEGIES, Inc., 61 Broadway, Suite 1425 NY, NY 10006 TEL: 212-514-9500 FAX: 212-514-9582 WWW.WSTREET.COM n

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P R O F I L E D CO M PA N I E S

sino-Global shipping America

nAsdAq: sino

A Vertically Integrated Transportation Company with a View Towards LongTerm Sustainable Growth

isted on the Nasdaq stock exchange under the ticker “SINO,” Sino-Global Shipping America, Ltd. has developed a vertically integrated platform of services within the transportation industry. Headquartered in New York, Sino-Global is run by an experienced management team and is established in shipping markets worldwide -- with business operations spanning the globe. Sino-Global’s diversified service platform is consisted of the Inland Transportation Management Services, Shipping and Chartering Services, Shipping Agency Services and Ship Management Services. The Company’s experienced management team is dedicated to growing Sino-Global both organically and through complimentary acquisitions that will enhance and expand its current services. Led by Mr. Lei Cao, the founder and Chief Executive Officer of Sino-Global, who has 30 years of experience in the shipping and transportation industry, including the shipping agency business, giving him a unique understanding of the modern transportation industry landscape, and how it should be navigated.

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Figure 1: Sino-Global’s Footprint

diversified services PlAtforM-leverAGinG strAteGic PArtnershiPs Sino-Global’s business strategy has been shaped by its pursuit of sustainable earnings and profitability. The Company’s initial focus up to the end of fiscal year 2013 relied solely upon the shipping agency business that generated higher revenues but with significantly higher operating costs and expenses. Recognizing this as an unsustain-

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Figure 2: The Rong Zhou

Figure 3: The Rong Zhou

Figure 4: The Rong Zhou

able path, management developed a more diversified platform of services, with the goal of reducing its dependency on the shipping agency service business, while streamlining operations to improve operating efficiencies through effective planning, budgeting and cost controls. Among these changes, Sino-Global exited unprofitable service agreements, including one associated with a former major customer that once drove approximately 60% of the Company’s shipping agency revenues. Also during fiscal year 2014, Sino-Global leveraged its relationship with its strategic partner, Mr. Zhong Zhang, the largest external shareholder of Sino-Global, and the Chairman of the Zhiyuan Investment Group, in the expansion of its service platform by adding two new services: shipping and chartering services and inland transportation management services. These two new services were added to service the specific business needs of the Zhiyuan Investment Group. Sino-Global plans to further monetize this relationship, while creating a larger customer base to increase the profitability of its services platform.

significant scale than ever before.

nificant contributions to its revenue growth going forward.

ENTRY INTO SHIP MANAGEMENT BUSINESS In an effort to broaden Sino-Global’s service platform and prepare itself for eventual vessel ownership, the Company acquired Longhe Ship Management, a Hong Kong company that provides ship and crew management services for a number of dry bulk ships that are built and owned by Qingdao Zhenghe Shipping Group Limited. The acquisition directly enables the Company to manage and service commercial ships at a greater, more

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SHIP OWNERSHIP WITH ATTRACTIVE FIXED LONG-TERM CHARTER ARRANGEMENTS Sino-Global’s shipping and chartering service is now being advanced by the acquisition of the M/V Rong Zhou (“RZ”), a 13,000 dwt Handysize oil/chemical transportation tanker, for total consideration of $10.5 million, a discount of its current market valuation of $11.9 million. At the same time, SinoGlobal has time-chartered the vessel from its seller, for two years at a daily rate of $3,500 per day, and, at the same time, chartered the vessel out to a third-party for the same twoyear period for $7,500 per day. The timecharter agreements are expected to generate profit of $1.8 million after factoring in the non-cash compensation expenses related to common shares issued to technical consultants. Effective May 2015, the time-charter agreement has been generating net revenues of $225,000 and net profit of $120,000 to Sino-Global on a monthly basis. Sino-Global chose to acquire the RZ because of its stable and growing charter rates in the expanding specialty shipping industry. This large growth potential is a result of high demand for its underlying cargoes, such as palm oil and other chemical products, from emerging markets. In this market, RZ is expected to generate $2.3 million in revenues in the 2016 fiscal year. At the same time, this acquisition demonstrates Sino-Global’s commitment towards growing and expanding its business from strictly being a service provider to an asset owner with an integrated, scalable service platform in the transportation industry, making sig-

OPTIMAL FINANCIAL POSITIONING & CAPITAL STRUCTURE FOR GROWTH WITH NO DEBT Sino-Global has successfully produced seven consecutive quarters of net profitability, including the most recent quarter that ended on March 31, 2015. Total revenues increased 20.8% to $2.5M in the latest quarter from a year ago, with inland transportation revenues growing 49.5% to a record $1.3 million. This can be attributed to the new services and higher margin strategy initiated by the Company. With a wider platform of vertically integrated services, Sino-Global has a range of profitable opportunities upon which it plans to continually expand. Sino-Global has an attractive capital structure, in addition to anticipated future cashflows from its upcoming operations, to meet its near-term capital needs. This is important, as it allows Sino-Global to opportunistically evaluate future acquisitions similar to RZ that are accretive to the Company. In its most recent filings, Sino-Global reported having no current or long term debt, with $1.1 million in cash and equivalents and $6 million in working capital, up from $900K in cash and $3.7 million in working capital at the end of fiscal year 2014. The Company aims to further enhance its net profitability, as it examines potential asset acquisitions in the small chemical tanker or Panamax dry bulk segments to create a fleet of critical mass. n The company paid consideration to SNN or its affiliates for this article.

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Tuesday’s Children serves children and families who lost loved ones on September 11th, 2001; the Rescue and Recovery Workers; Families of the Fallen; as well as young people impacted by terrorist incidents worldwide. With experience forged in the aftermath of Tuesday, 9/11, and expertise gained over the following 14 years, years. Tuesday’s Children knows how to serve these traumatized communities. We know how to reach out to the right people, how to be flexible in our approach, how to nurture resilience in children and families, and how to work with other groups to do the most good. We need the support of generous people like you to help us be there when tragedy strikes. Provide an internship for a child who lost a parent, 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. Help us Keep the Promise.

For more information, please call 212-332-2980 or v i s it w w w.t u e s d a y s c h i ld r e n . or g www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

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GREEN TECH CORNER

The Roller Coaster Ride of Clean Tech What a Rush!

the two hottest AttrActions of 2015 And A PeAk At 2016. As a scientist, I keep rediscovering that I experience the world from a skewed perspective. For me it’s a world of intermittent certainties scattered about a landscape of partially answered questions and an assortment of quests to answer them. It’s a world in which not a single aspect escapes the influence of evolution in its many forms. Often the evolution is so slow, like gradual erosion along a rocky riverbank, we’re fooled into certainty. The rock underfoot feels certain and solid, yet is slowly being worn by rushing waters and winds. Other times evolution is a landslide of disruptive change. That seemingly solid rock suddenly givesway and the river carves a new path. Thus is the challenge of investing and in no other industry is this more evident than in Clean Tech. What could be more exciting? This article is an introductory exploration of what I see are the top evolving Clean Tech trends midway through 2015: energy storage, a solar revival, and waste diversion/ conversion.

enerGy storAGe: A rock hAs broken free n BY DaRREN ENG

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Let’s start with the biggest recent news, first.

Tim Cook may have successfully stepped into Steve Job’s place as CEO of Apple, but the person walking in Job’s shoes inspiring the masses with innovative thinking and new “must have” products is Elon Musk. Could Tesla be the new Apple (at least for those who can afford their products)? Musk recently announced the launch of the Powerwall, a new product line of “home battery storage” (there’s a commercial version too). For the many reviews of the Powerwall’s specifications discussing what it can and can’t do just “google” it or check your social media “news feed”. Let’s ask instead what it “means” to the clean tech sector: the answer is A LOT. Much like Sony’s Walkman launched a whole industry of on-the-go personal music, the Powerwall will finally establish an industry of home (aka localized) energy storage. The iPod of this space is yet to come, and will likely come from the world of current startups and microcaps. And from that pool the iPhone of the space will follow, along with a myriad other smartphones. This is just the beginning, both conceptually and actually, of a whole new industry. Five years from now we’ll have our choice of size (dimensions, power consumption), application (residential, commercial, rural, urban, on-grid, off-grid), and aesthetic (commercial, practical, artistically designed status symbol). In the interim, starting now, there will be a lot of great bets to place.

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More than solar, a whole suite of other tech will be soon to follow. Consider other forms of small scale localized energy generation like wind, hydro, anaerobic digestion, and geothermal. Solar: The Multi-hill Flume Ride

Food Waste: A Loose Rock Underfoot

Much like personal music devices and the subsequent smart phone proliferation spawned a whole plethora of accessories – from cases to mounts, specialty lenses to head phones, backup-batteries to wearables – so too will the Powerwall and other energy storage devices. Already, “solar” is the first and most obvious pairing Musk highlighted. Solar has seen a variety of ups-and-downs as adoption rates and its various technologies have evolved. Recently solar seemed stalled on a steady slow climb. But a proliferation of affordable storage devices, like the Powerwall, greatly improves the economics and the practicality of “going solar” – especially in areas with either high amounts of sunlight or large variations in peak vs off-peak electricity rates (natural gas prices may play a role too). More than solar, a whole suite of other tech will be soon to follow. Consider other forms of small scale localized energy generation like wind, hydro, anaerobic digestion, and geothermal. And then there’s software and specialty hardware that controls and manages the distribution of the energy being stored and consumed to maximize efficiency in both directions. Plus, don’t forget the service providers and installers for all this new tech. While we are likely to see an evolution of the current A/V and home tech installers, expect a few new kids on the block who specialize in energy efficiency and “greening” the home or office to take off. Some of those already exist.

So what is the next rock to come loose? In two words: food waste. Yes, that’s right. Food waste. The developed world takes food for granted. In big cities, in mid-sized cities, even in most USDA designated “Rural Areas”, virtually ANY food product we desire is sitting in a store within a 20-minute drive waiting to be purchased. In most cases its looks perfect too. To accomplish this miracle… the US produces more than four times what it consumes. Globally over 1/3 of all food produced is wasted. Historically most food waste has gone to landfills – a problem because of methane and other emissions produced. Only recently have we started diverting a portion of food waste away from landfills. With many cities, counties and even whole states (VT, CT, MA) now banning commercial food waste from their landfills, expect to see even more to come. My sources suggest food waste may be on political legacy radars too (note the recent executive order requiring 50% reduction in landfill wastes from all federal facilities). With all the new regulations, the costs associated with food waste are rising. So where are the opportunities? Consider the entire food supply chain, from crops to kitchens and remember the three R’s. Reduce: For example, farmers use scanners on UAVs (aka drones) to obtain realtime crop health data thus decreasing crop loss. Reuse: A sophisticated collection service for bakery waste supplies the pet food industry. Recycle: Because there will always be wastes generated, a host of “conversion” solutions

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abound ranging from in-home composting systems, to in-restaurant units converting wastes into biochar, to municipal organic waste pelletization, to biofuel production, to anaerobic digestion, to old school composting. The winners in this vast market will be solutions that economically balance the costs of capital expense, transportation, and conversion process with output product values. In future articles I’ll pose more in depth questions to consider when evaluating particular clean tech sectors. In the meantime, enjoy the ride. Darren Eng is Chief Executive Officer and President of Greenbelt Resources Corporation. Prior to his appointment to CEO, Eng served as a Board Director starting in December 2008, and performed the role of Secretary for the Board from April 2009 to September 2009. Eng has over 20 years of experience in executive leadership roles and entrepreneurial endeavors. As founder and President of The Sponsorship Group, he has been titled Executive Director or Senior Vice President of a number of professional organizations operated and managed by The Sponsorship Group staff. Other past senior management positions include Operational Director of Los Angeles Venture Association and Executive Vice President of the Digital Evolution Center. Prior to running various upstart companies and organizations throughout Southern California, Eng worked for nearly a decade in the environmental industry. From 1994 to 1998, he led teams of scientists and engineers at AECOM (formerly ENSR) as a project and team manager and served as a level III associate scientist. His work included regulatory compliance and liability assessments of Southern Natural Gas facilities and other large bank-financed industrial properties in the eastern U.S. from Maine to Louisiana. Eng earned a Bachelor of Science degree in biology (environmental tract) from Yale University in New Haven, Connecticut. Eng is Chairperson of the GreenLAVA SIG for LAVA.org. He is also a current member of both the Men’s Guild for Children’s Hospital Los Angeles and the Yale Science and Engineering Association. n

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PROFILED cOMPaNIES

highpower international A look at highpower and the world of batteries nAsdAq: hPJ

n the past 20 years we have experienced an unprecedented growth in the demand for mobile electronic devices. Digital cameras, computers, mobile

phones, tablets; these products are no longer something consumers want, they are something that they need, to exist in the world as a modern human being. But how is it that we have moved into this brave new world? Not so long ago, devices such as these were completely impractical and difficult to comfortably fit on a table, let alone in someone’s pocket. However, the sleek, trendy gadgets found in science-fiction, even as far back as Star Trek: The Original Series, with its legendary flip out communicator, had already embedded the idea of amazingly light, portable devices in the public consciousness. Soon after the digital revolution, there was a feeling that the old 20 pound computers could not cut it anymore. Once the initial buzz of the PC boom wore off, the public were saying: “These devices are great, but now make them one tenth the size and portable.” As Moore’s Law predicted, electronics got smaller and smaller as time went by. But there was something missing, that final piece of the puzzle, without which it would have been impossible to create any kind of device which was portable and still light and slim enough to match the consumers wildest dreams. And then it happened. In 1991 the key that would free us up from our wall sockets was released: The lithium ion battery. These days lithium batteries permeate every aspect of our lives. Because of them, electronic devices have quite literally entered our minds, in the form of VNS implants in

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the brain which help to control diseases such as epilepsy and Parkinson’s. In the process of finding their way into every part of our lives, they have captured our imaginations as well. It was amidst this backdrop of expansion and growth that I began to learn about Highpower International. In terms of diversification, the company has a wide range of products all across the battery sector; they produce batteries for electric cars and buses, bicycles, wearable devices, phones, laptops, right down to simple consumer batteries for small electrical items. And Highpower

CEO George Pan

certainly isn’t a one hit wonder, with a healthy client list which includes Apple, Nokia, Energizer, Acer and China Southern Power Grid, to name just a few. Founded in 2001, they have enjoyed many years of successful, sustainable growth and have been a publicly listed company since June 2008 on NASDAQ under the ticker symbol HPJ. Having already pioneered the landscape in leading clean energy technologies in China, Highpower is positioned to benefit from growing demand and continues to lead in battery and clean energy solution markets around the world. I was invited to take a look around one of Highpower’s factories and try to come to grips with how these batteries work. The Company produces every type of battery you can imagine, in all shapes and sizes. Batteries are even custom built based on the needs of a specific customer. These specifications range from small aesthetic needs to huge industrial ones. Highpower produces both lithium polymer and cylindrical batteries. I learned that one of the most important and widely used batteries in the industry is 18650 cylindrical battery (18mm diameter, 65mm height). They are essentially oversized AA batteries and have been used in products for many years. They are robust, safe and of high capacity for their size. And if a further capacity is needed, they

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Inside Highpower Factory

can simply be packed into greater numbers. The cylindrical shape is essential for its functionality, which allows the battery to withstand high internal pressures without deforming. However, this also comes with limitations. Most of this relates to aesthetics; their shape makes them difficult to fit into devices like laptops, phones and cameras, for example. For these, Highpower makes polymer cells because they are flat they can also be powerful and give smart phone finish that everyone wants. But there’s more to lithium battery production than that. There are different anode and cathode materials and the metal used is not just lithium, it can be lithium cobalt, or iron, or manganese. The engineers often tinker around with the “lithium soup” until its electrical properties are as needed. Because of the many different variations of the makeup, the possibilities are endless, with as many different types of battery existing as the products they are used in. What all of this adds up to is that, Highpower is not reliant on one particular industry or product. Companies in the battery manufacturing industry, have very little demand side risk. If, for example, we all had to stop using mobile phones tomorrow, the battery industry wouldn’t crumble overnight. Highpower are insulated in ways many companies can only dream of. There are little seasonal fluctuations in demand and no pioneering technology around the corner to replace them. It’s true that we live in a rapidly changing market. A company can bring out a new product which is the best thing since sliced bread, within months it is copied or made

obsolete by a new one. You need only cast your mind back to the lovable fax machine, or the pager. Such issues do not affect the battery industry. If you’re looking for an industry with little demand side risk there are fewer better examples than that of batteries. Laptops, phones, tablets, cameras. Nothing short of some kind of trans-global apocalyptic scenario is likely to affect demand, but what about the future? Where is the next exciting development in the industry? Where might we expect large growth in demand for lithium ion batteries? Where is my exoskeleton suit? No one is going to be looking like Iron Man or Tom Cruise in Edge of Tomorrow, Dancers who dance on battery powered prosthetic limbs, pacemakers, keep hearts beating and Google glasses, project digital displays into our field of vision. It’s hard to say where man ends and machine begins but the technology is just not economic right now. Maybe you haven’t driven an electric vehicle yet but I’m certain you will have come across the electric bus or taxi. You’d be forgiven for thinking there was some pioneering new technological breakthrough making it all possible. Before looking into the industry, I very much thought the same. But most of the success of this technology is down to the industry’s golden child, the 18650. Yes, nothing more than oversized AA batteries! And the technology has existed for decades. It has improved though every year; the batteries have increased in efficiency by around 8%. This, coupled with advanced software was enough and the tipping point where it was cost effective to produce electric vehicles finally came. BMW, Ford Fiat, Honda, Mercedes, Nissan, Porche, all the big players in the automotive industry are now entering the electric vehicle market. This is the part when it gets really futuristic. Some of the vehicles being released even have the capability of driving themselves, although the technology is being shelved within the vehicles firmware until all the legal implications for insurance

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are worked out. It seems electric vehicles are likely to become synonymous with selfdriving technology. Where does Highpower fit into all of this? Well, they have fulfilled a contract to provide 157 buses in the Shanghai region with batteries. Why is this important? New legislation requires that 10% of all bus renewals have to be electric. On top of that, all buses must be renewed after a period of 8 years. To meet this mandate, the Chinese government requires 4000 new buses from 2016 onwards. For Highpower to have already put itself forward and begin meeting this demand puts the company in a very strong position. Seeking big government projects within China is the pillar stone of Highpower’s business strategy. The need for electronic buses exists not only in China but in the whole of South East Asia and as far as India. With China’s preference for homegrown companies, this is a very exciting time for Highpower indeed. As well as this, there has also been progress with solar power. China and other governments around the world are massively increasing their reliance on solar energy. China alone installed 12 GW of new photovoltaic (PV) generation capacity in 2013, a massive 232% increase on the previous year. Companies like SolarCity have teamed up with Wall Street to begin the process of installing solar panels on people’s homes and feeding the electric back to the grid. For anyone who is unsure as to what happened with the solar industry, the short version is this: China decided to help facilitate the mass production of solar panels, crippling many Western companies. Sadly, a lot of these went bust. However, the ones that were left had to innovate and re-think their business models. So now solar cells are more economically viable and affordable to consumers than ever before, with the reduction in cost meaning demand has skyrocketed. And so too has the demand for batteries to store the energy that they create. This was one of the biggest problems holding solar power back. Every solar panel MicroCap Review Magazine

Battery production machine

and every power plant needed huge batteries to manage and store energy. Those huge, toxic lead batteries were just not going to cut it financially. But, as with the electric vehicle, it was only a matter of time. The price of lithium batteries fell, their capacity increased and again the threshold of viability was passed. With the slow march of technology and the increase in efficiency, solar is no longer the plaything of the rich and famous, wanting to one-up their neighbors and keep up with the Joneses. Now, those with average, middle, to lower incomes can afford to go to companies like SolarCity. And they go there not to save the planet, or to get one-up on their peers, but because it saves them money on their monthly electricity bill. For the battery industry this was like Christmas coming early. Instead of a chicken in every pot, think of a 10kwh electronic storage system (ESS) lithium battery in every home. And these batteries, used everywhere from individual homes to massive solar power plants, have the implications to grid energy distribution as well. This is something that the battery industry is very excited about. ESS, are pretty sophisticated pieces of equipment. You need a big, relatively intelligent battery when using solar energy. It needs to be able to manage the storage of electricity when light conditions are good and then safely, reliably and quantitatively release it when it is in need. The reason this has implications for grid energy suppliers is that it’s hard to regulate the distribution of energy over a large area. Power traditionally comes from one source

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and sometimes has to travel a large distance to reach a home. There is also the problem of “bottle necks” or specific times where energy demand is very high. Distributing ESS across and area allow grid operators to get a lot more efficiency out of their power distribution Governments are already rolling these out in preliminary stages with the intention of scaling up. Highpower made its most recent mark on this market in its latest victory, by securing a contract to produce 100KWH (ESS) for China Southern Power Grid Co., Ltd. (CSPG), the world’s largest utility supplier. This is part of a wider project to modernize China’s national power grid. Highpower is positioning itself to take part in these huge projects, and with China’s history of undertaking massive infrastructure upgrades and what it spends on them, it’s a fantastic position to be in. How did Highpower get here? How did it make a splash in an industry where many other companies have failed? The answer is research and development, economies of scale and having a modern management style. The best example of how this has worked for them is the issue of battery safety. Battery safety is something that has always plagued the industry and is something that has held a lot of companies back, especially in China. But Highpower has taken western investors and management teams and cherry picked researchers and employees from all over the world to come up with a labor force that has insulated itself against problems that can come from working in this high-tech industry. Needless to say, it is incredibly important to produce safe batteries. If one of your batteries melts down and causes a fire, or even falls short of the mark in capacity, the huge OEM tech industry that dominates the consumer market will not touch you. In the complicated world of lithium ion battery production, safety is an area where so many companies have fallen short. However, through careful planning and design, Highpower has managed to avoid

these issues. Let’s take a quick look at some of the people who have made Highpower such a strong leader in the market. Having set the bar in R&D and power storage innovations, Highpower’s award winning team of experienced leaders have made a huge contribution to the success of the company. Over the years, they have continued to employ a diverse range of experts, combining many years of expertise and innovation to build a company truly deserving of its place at the forefront of battery production. A shining example of this impeccable leadership is the company’s chief scientist, Peter Cheng. With over 10 years of experience in R&D of lithium batteries, polymer cell, cell materials and electrochemical systems, he holds an impressive background. Peter had worked on cooperative projects with the likes of Apple, Motorola, Samsung, Nokia and Microsoft to name a few, and has contributed to leading innovations in battery design and storage. Highpower clearly sees battery production as not only being profitable, but also a highly worthy cause, one which holds great promise for reducing our impact on the environment. Highpower is setting its sights on these huge national contracts within China, with its strong track record, even a single one of these contracts would land the company millions of dollars in revenue. While still having its roots in safe reliable companies like Philips, Sony, Foxconn, Acer, Logitech, Nokia to name but a few. n The company paid consideration to SNN or its affiliates for this article.

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

Preparing for the Inevitable Y

ou probably have a sense that things are cheap today. But pushing yourself to act accordingly in a bear markets requires courage.

PAy Me now or PAy Me lAter The resource industry is in liquidation, and is “de-capitalizing” itself, meaning that it’s not making enough to cover the sunk costs of production. These situations end in two ways. A low price for commodities might make them more attractive to fabricators and users -- or general economic growth could stimulate demand – so that demand picks up and prices rise. This is a recovery driven by new demand. These types of recoveries tend to be shallow recoveries. The price of the commodity

sees a moderate increase because producers can step up their output as demand rises. The second type of ending to a bear market is supply destruction. This happened in the oil business during the 1980’s. The oil price fell from around $30 to $10.1 The price of oil and gas stayed so low for so long that productive capacity around the world was destroyed. Oil fields shut down. New technologies for increasing production were shelved. It went on for so long that the oil industry was unable to respond to increases in demand later on. As a result the increases in demand in the 2000’s took the oil price from a low of around $20 a barrel to a high

in excess of $100 a barrel.2 When you destroy productive capacity in a capital-intensive business -- when you’ve shut oil fields – it takes five, six, or seven years to develop new supply when demand returns. At around $40 to $50 per barrel today, I expect that we will see a resolution over the coming three or four years.3 If we see higher demand during that period, the price might go to $65 or $70 a barrel. In that case, the oil industry should avoid too much damage to its productive capacity, allowing it to keep up with future demand increases. The price five or six years from now might be $80 or $85 a barrel.

n RICK RULE

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If no demand recovery occurs, we could see destruction of productive capacity instead. In that case, we may see decreased capital spending in the oil sands of Alberta. We could see a shut-in of the North Sea. The industry would lack the ability to increase production in response to higher demand. As a result of the destruction in productive capacity, we could see an oil price of $125, $135, or $150 as demand slowly returns. You can pay me now through demand creation. You can pay me later through supply destruction. The supply destruction scenario takes longer to play out but the responses are more violent. What we saw at the beginning of the 2000’s was a consequence of supply destruction throughout the 1990’s. It is what happens in the face of increased demand and supply destruction. We also saw the copper price go from 65 cents a pound to $4 a pound.4 You saw the gold price go from $250 an ounce to $1,900 an ounce.5 You saw the national gas price go from around $2 per thousand cubic feet to $10.6 You saw the oil price go from $20 to $100.7

Commodities Can’t Be Out Forever – Let the Market Work Is a recovery going to happen soon? Probably not. Is it going to happen? Absolutely positively. There’s no way around it. However badly the resource business has performed for your own portfolios recently, it is the stuff of life. Seven billion of us want to increase our living standards. And we are adequately supplied or oversupplied at present. But if the industry doesn’t earn its cost of capital over time, the prices will have to go up or those commodities will become unavailable. Let’s think about those materials. What happens if copper becomes unavailable? It

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means the light goes off. What’s the probability of that? I would say it’s nil. I can’t tell you that copper is going up right away. But I can tell you that a commodities market where prices have fallen by 50% is substantially more attractive than it was before. Ironically the industry is less attractive when it is earning very large profit margins. That’s when we’re getting close to a market peak. High prices encourage people to conserve. They’re consuming less. Meanwhile, high cash flows are encouraging companies to increase supply. That’s magnified by the fact that investors are becoming more bullish, even though we’re investing in products that are being consumed less and less because they are expensive. It’s truly perverse. We want psychological reinforcement for our act of buying resource stocks when they have performed so poorly for the last 4 years. We need prices to rise immediately after we decide to buy. But the market doesn’t care about what we need. The market could turn 6 months from now or 2 years from now. It’s important to size how much of your portfolio to invest according to your financial and psychological ability to endure risk and volatility. Otherwise, you’re going to get shaken out at the bottom and risk coming back into the sector at the top. Remember how terrified you were in 1998 and 1999. Remember how elated you were in 2004, in 2005. Remember names like Arequipa, Diamond Fields, Lumina, Silver Standard. A whole litany of things were cheap back in 1998 and 1999. We were terrified when we bought those stocks. But we were eventually very happy that we made those purchases. Day follows night. I can’t tell you when day will come. And I can’t tell you how. But remember that you make money buying low and selling high. And to do that, you need to buy low. P.S.: Read more from Rick Rule, Eric Sprott, and other “thought leaders” in natural resources and precious metals by subscribing

to Sprott’s free e-letter. Subscribe here. http://www.wsj.com/articles/back-to-the-future-oilreplays-1980s-bust-1421196361

http://www.eia.gov/dnav/pet/hist/LeafHandler. ashx?n=PET&s=F000000__3&f=A

http://www.bloomberg.com/energy

http://www.infomine.com/investment/metalprices/copper/all/

http://charts.kitco.com/KitcoCharts/index.jsp?Sy mbol=GOLD&Currency=USD&multiCurrenc y=true&langId=EN&utm_source=kitco&utm_ medium=banner&utm_content=20110407_ iCharts_gold_chart&utm_campaign=iCharts

http://www.eia.gov/dnav/ng/hist/n9190us3m.htm

http://www.eia.gov/dnav/pet/hist/LeafHandler. ashx?n=PET&s=F000000__3&f=A

Mr. Rule has dedicated his entire adult life to many aspects of natural resource securities investing. In addition to the knowledge and experience gained in a long and focused career, he has a worldwide network of contacts in the natural resource and finance worlds. As Director, President, and Chief Executive Officer of Sprott US Holdings, Inc., Mr. Rule leads a highly skilled team of earth science and finance professionals who enjoy a worldwide reputation for resource investment management. Mr. Rule is a frequent speaker at industry conferences, and is interviewed for numerous radio, television, print and online media outlets concerning natural resource investment and industry topics. He is frequently quoted and referred by prominent natural resource oriented newsletters and advisories. Mr. Rule and his team have long experience in many resource sectors including agriculture, alternative energy, forestry, oil and gas, mining and water. Mr. Rule is particularly active in private placement markets, having originated and participated in hundreds of debt and equity transactions with private, prepublic and public companies. Sprott US Holdings, Inc. is a holding company made up of three separate and distinct companies: Sprott Global Resource Investments, Ltd., a FINRA Registered Broker/Dealer; Sprott Asset Management USA Inc., an SEC Registered Investment Adviser offering managed accounts; and Resource Capital Investment Corporation, an SEC Registered Investment Adviser managing partnerships. These three companies make up the US Subsidiaries of Sprott Inc. and are active in securities brokerage, segregated account money management and investment partnership management involving both equity and debt instruments, across the entire spectrum of the natural resource industry. n

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burey Gold’s Giro Project targeting 2 Million ounces of Gold ticker: byr.Ax

he Giro Project in the Democratic Republic of Congo is comprised of two exploitation permits with a surface area of 610km2 lying within the Kilo-Moto Belt, a significant under-explored greenstone belt which hosts Randgold Resources’ 17-million ounce Kibali group of deposits within 30km of Giro. Kibali is targeting production of 600,000 ounces of gold in 2015 with shaft and decline development ahead of schedule confirming a favourable mining environment in the region. The team which discovered Kibali (formerly) Moto Goldmines is trying to repeat its previous success in the same belt. Early indications are that the success can be repeated again. The focus of the company’s exploration to date has been on drilling and geochemical sampling in areas mined historically during Belgian rule and currently mined by artisanal miners. Initial work supports numerous high grade ESE and ENE trending structures including the Giro vein cross-cut the Giro Prospect. One drill hole under the workings reported 8m at 7.3g/t Au from 52m including 3m at 18.3g/t Au from 52m in GRRC037. Channel sampling of a similar vein at Peteku reported 5m at 17.4g/t Au within granite. A second broad zone of mineralisation associated with a soil anomaly of roughly 2,000 metres by 900 metres extends for more than 3km in a NNW orientation on the prospect area and is referred to as the Kebigada Shear Zone. Significant RC drilling results at the Kebigada target included 97m at 2.56g/t Au from surface in GRRC058, 47m at 4.13g/t Au from 25m including 15m @ 5.17g/t Au from 25m and 7m @ 12.99g/t Au from 46m in GRRC075, 16m at 3.95g/t Au from 15m and

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Figure 1: Giro Project located within the Moto Belt, NE DRC

35m at 2.28g/t Au from 81m in R02 and 33m at 1.59g/t Au from surface including 19m @ 2.28g/t Au from surface and 56m at 2.39g/t Au from 64m including 54m @ 2.45g/t Au from 66m in GRRC068. A major northwest trending structural corridor is interpreted to transgress both tenements over at least 30km. The Giro deposits mined historically lie within this corridor while a number of extensive alluvial workings were identified to the north within the structural corridor. The Company will expedite soil sampling programmes for complete coverage of the corridor to identify additional zones of mineralization which potentially sourced gold in alluvial workings. To the north the Belgians mined two deposits on PE 5049 up to the end of the colonial era in the 1960’s. These were the Mangote open pit where historic drilling results included 0.6m at 37g/t Au and 0.35m at 485g/t Au. Only quartz veins were sampled historically by the Belgians although subsequent sampling of wall rock adjacent to quartz veins currently mined by artisanal miners confirmed potential for a broader zone of mineralization surrounding high grade quartz veins. The area will be followed up

Figure 2: Locality Map showing significant mineralised intercepts and artisanal workings.

Figure 3: Geology map showing areas of potential mineralisation on PEs 5046 and 5049

with diamond drilling under the Belgian workings at Mangote and Kai-Kai once the initial diamond drilling programme has been completed at the Kebigada target. With all the blue sky along that trend one can expect further good exploration results which should yield a substantial resource in due course. For more information: www. bureygold.com n The company paid consideration to SNN or its affiliates for this article.

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LIFE ScIENcES cORNER

Biotech: Year to Date 2015 F

or each of the last three years it appeared that the Biotech Train might stop. It is clear that 2015 was one of the best

years ever enjoyed by the Biotechnology industry, in the financial markets, ever.

eqUity MArkets Through August 2015 biotechnology is still far out performing almost any other sector and biotechnology equities out-performed the broader financial markets. Both the AMEX and NASDAQ Biotech indexes almost doubled the performance of the broader exchanges. The share prices of 126 biotechnology companies more than doubled thus far in 2015. When is a bubble not a bubble but a fundamental and lasting shift in investor sentiment towards a sector? This has been

intelligently asked by many in the industry thus far during 2015. Despite continued pessimism from the biotech bear camp that the end is in sight, it continues to enjoy a burst of IPOs, fundraisings and M&A deals. Through June 2015, 29 drug developers had gone public in 2015, according to RBC analyst Michael Yee, and, as Investor’s Business Daily notes, the $2.9 billion they’ve raised surpasses 2014’s first-half haul. And still to come is an expected big week for biotech, as Seres Therapeutics, Glaukos, Catabasis and Pieris are all scheduled to price before the end of June, lining up to heap another $400 million

n BY SETH YakaTaN

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tions and with $6 billion in venture capital invested in biotechnology startups last year, it is likely that the IPO momentum will persist for the foreseeable future

Private Financings

or so onto 2015’s IPO total. Investors aren’t holding back: In the first half of this year, $6.2 billion poured into mutual funds and exchange-traded funds with the word “biotechnology” in their name, according to Morningstar. That compares with net inflows of $3.5 billion for all of 2014. The Nasdaq Biotechnology Index has risen more than 26% in the year to date,

compared with a 1.7% rise for the S&P 500. In the short run, newly public biotech companies outperform other industries. The average three-month return for pharmaceutical IPOs was 33% last year, compared to 22% for other sectors, according to Dealogic. And the biotech index is up 46% since last July, when Fed chairwoman Janet Yellen warned of “substantially stretched” valua-

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Overall biotech venture funding levels are amongst the strongest in the sector’s history, however first time venture funding continues to be difficult. A grand total of $2.1 billion was pumped into biotechs in Q2 in 126 deals, which is the largest dollar count since the group began keeping records in Q1 1995, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters. The cash number edges out a blockbuster $2 billion invested in the last quarter of 2014, bringing the total to $3.8 billion for the first half and putting the industry on track to crush last year’s record $6 billion haul. Seth Yakatan is currently serving as Vice-President of Business Development for Invion, Ltd. (ASX:IVX). Seth has been professionally involved in the biotechnology industry for over 15 years through his work with Katan Associates. Invion is a clinical-stage drug development company focused on the development of treatments for major market opportunities in inflammatory diseases including asthma, chronic bronchitis and lupus. n

MicroCap Review Magazine

cOMMODITIES cORNER

Trends in U.S. Oil Production

f you think you know U.S. oil production, some of these facts may surprise you. Let’s begin in the early days of U.S. crude oil production. According to the United States Energy Information Administration (EIA) the U.S. produced about 2,000 barrels of oil

in 1859. By 1900 production increased to 63 million barrels a year (as the red line notes in Chart 1) until it peaked in 1970 at 3.517 billion barrels a year.

Chart 1: Yearly Percentage Change & Field Oil Production 1862 to 2014

Source: EIA. Left axis (percentage change). Right axis (annual production of barrels of oil in thousands)

n BY MaRk SHORE

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Chart 2: 4 Week Average U.S. Daily Crude Oil Imports

Source: EIA, in thousands of barrels per day

From 1863 to 2014 the United States increased production on average of 5.32% per year. Calculating the average from 1900, when the industry was more developed; the yearly average production increases by 3.88%. This includes periods of decreases and increases. The small production of oil in the 1800s causes larger volatility of the yearly percentage changes that could easily be positive or negative by 30% to 40% (as noted in the blue line). From 1950 to about 2010 the percentage change remained within a range of about -7% to 7%. Beginning in 1986 every year experienced a decline in production to 2008 with the exception of 1991 with a 0.83% increase equivalent to only 22 million barrels for the year. For all practical purposes 1991 could be considered a flat year of production. From 1986 to 2008 the average decrease of production was -2.63%. An average reduction of production by 2.63% a year for 22 years over time equates to more than a 42% decline in oil production. 2009, 2010 and 2011 experienced the first back to back years of U.S. oil production expansion since 1985. 2012, 2013 and 2014 witnessed percentage changes at 15%, 14% & 16% respectively versus the single digit expansion in the previous three years.

Frequent discussion in the last few years focused on the U.S. becoming a major player in oil production again. In Chart 1 U.S. oil production peaked in 1970 at 3.517 billion barrels and declined to 1.83 billion barrels a year in 2008. This is a decline of 48% in 38 years. 2014 produced 3.179 billion barrels. Not breaking the previous production highs yet, but quickly recovering within a few years what took several decades to reduce produc-

tion. This begs the question, going forward will production continue to increase? Since 1990 the four week average of daily U.S. Crude Oil imports is 8.341 million barrels per day. The maximum daily crude import was 10.816 million on June 23, 2006 (red circle). Since then the average has trended lower as noted in Chart 2. As of June 12, 2015, the four week average was 6.94 million barrels per day. You have to go back to March 29, 1996, almost 19 years ago, to reach that low of a crude oil import level. Over the 9-year period of June 2006 to June 2015, U.S. daily crude oil imports fell by 38%. In the 1990’s the percentage change of the four week average was more volatile. Since the early 2000’s the percentage change range has narrowed usually within a range of -5% to 5%. The exception of September & October 2008 when the changes were outside of + or – 7%.

Regional U.S. oil production The EIA breaks the country into regions called PADD. There are five PADDs (Petroleum Administration for Defense Districts). In 1942 the Petroleum Administration for War

Chart 3: Percentage Change of 4 Week Average of Daily U.S. Crude Oil Imports

Source: EIA

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MicroCap Review Magazine

Table 1: List of states by PADD districts

than the West Coast. The Rocky Mountains may soon surpass the West Coast in the near future. In Summary, the U.S. oil production increased for over 100 years until 1970 when it peaked and began a long decline of production and specifically from 1986 to 2010. Since 2011 production has rebounded, but how long will that continue? In conjunction with the oil production increasing, imports have been decreasing. Lastly the shift in regional oil production as the West Coast production continues to decline while other regions are in the rebound mode of increasing production.

Source: EIA

was established by executive order dividing the country into five districts for gas rationing purposes. In 1950 the U.S. Congress passed the Defense Production Act of 1950 and once again divided the nation into the same five districts. PADD 2 (Midwest), 3 (Gulf Coast) & 4 (Rocky Mountains) have bottomed out and continues to show increased production. The Gulf Coast is probably expected by many to be leading in oil production. However PADD 2 (Midwest) may be a sur-

Chart 4: Oil Production Level by PADD

prise to many readers. The other side of the production equation is P5 (West Coast). It may be a surprise to some that oil is produced in many parts of the country. Since 1987 Alaska production continues to decline. In 1981 Alaska was about 60% of PADD 5 production. California was 38% of PADD 5 production. By 2014 the roles of the states changed as Alaska equated to 44% of PADD 5 production and California equated to an estimated 50% of the production. The Midwest is now producing more crude oil

Copyright ©2015 Mark Shore. Contact the author for permission for republication at info@shorecapmgmt.com Mark Shore has more than 25 years of experience in the futures markets and managed futures, publishes research, consults on alternative investments and conducts educational workshops. His research is found at www.shorecapmgmt.com Mr. Shore is also an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business where he teaches a graduate level managed futures/ global macro course and a frequent speaker at alternative investment events. He is a contributing writer for the Eurex Exchange, Seeking Alpha, and the CBOE Futures Exchange. Prior to founding Shore Capital Research, Mr. Shore was Head of Risk for Octane Research Inc ($1.1 billion AUM) in NYC, where he was responsible for quantitative risk management analysis and due diligence of Fund of Funds. He chaired the Risk Management Committee and was a voting member of the Investment Committee. Prior to joining Octane, he was the Chief Operating Officer of VK Capital Inc, a wholly owned Commodity Trading Advisor unit ($250 million AUM) of Morgan Stanley. Mr. Shore provided research and risk management expertise on portfolio construction, product development and business strategy. Mr. Shore graduated from DePaul University with a degree in Finance. He received his MBA from the University of Chicago. Past performance is not necessarily indicative of future results. There is risk of loss when investing in futures and options. Futures can be a volatile and risky investment; only use appropriate risk capital; this investment is not for everyone. The opinions expressed are solely those of the author and are only for educational purposes. Please talk to your financial advisor before making any investment decisions. n

Source: EIA

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What Does It Take to Change the World?

YOU.

Think sports aren’t important? Think again. All kids deserve the right to grow up playing sports and being active. Sports teaches them the fundamental values needed to succeed in life. All too often, kids with physical challenges are left on the sidelines. For 21 years, CAF has supported over 9,500 athletes worldwide with grants for equipment, competition, training and mentoring, providing the tools they need to get in the game.

Learn how you can help CAF change lives, one athlete at a time:

www.challengedathletes.org MicroCap Review Magazine 39

aSIa cORNER

Shanghai Markets Swift Rise Loses Steam While Hong Kong Ranks Number One in IPO Funds Raised

fter a 15 month pause, China Securities Regulatory Commission (CSRC) reopened the IPO market in January 2014 which immediately

led to Shanghai’s IPO market skyrocketing to the second largest market in terms of funds raised, just behind Hong Kong, for the first half of 2015. From the start of the year, 79 companies raised 103.1RMB ($16.6 bln) in IPO funds in Shanghai. Investors lucky enough to receive IPOs shares have been nicely rewarded with exceptional performance as regulatory pressure on companies to keep offering prices low has led to instant gains with half of all IPOs through mid-May increasing more the

300 percent in the first month. Concerns of a bubble had been steadily growing as the Shanghai Stock Exchange (SSE) was up almost 60 percent at the market peak on June 12 from the start of the year while the Chinese economy remained in a cooling off period. However, starting in mid-June, the SSE experienced a nearly 30

percent decline over just three weeks. The rapid drop prompted a multitude of measures from Beijing in an effort to stabilize the market. The central bank first cut interest rates which was shortly followed by the China Securities Regulatory Commissions (CSRC) move to halt IPOs and the country’s 21 largest brokerage firms launched a “bal-

n LESLIE RICHARDSON

MicroCap Review Magazine

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ance fund” worth Rmb120bn (US$19.3bn) to support the market. Additional measures included suspending trading in shares accounting for 40 percent of market capitalization and banning stockholders with more than five percent of a listed firm from selling shares along with a crackdown on short selling. China has also made 2.5 trillion yuan to 3 trillion yuan (US$483 billion) of funding available for government agency China Securities Finance Corp. to support the stock market. The funding is to offer liquidity support to brokers and to purchase stocks and mutual funds. While, the government’s quick reaction to the stock market decline may have prevented a crash, it also created concerns that Beijing is undermining its pledges to move to a more market-based economy. Over the past few years, President Xi Jinping has been moving towards liberalizing China’s financial system and internationalizing its currency. Giving foreign investors more channels to invest in China is seen as an important part of building the renminbi into a global currency. In a historic move toward opening up its $4.2 trillion capital markets to foreigners’ investment dollars, last November the country launched the much anticipated Shanghai-Hong Kong Stock Connect which allows foreigners’ access to Chinese listed companies. Yet foreign investors still account for less than 1 percent of the mainland equity market. While investors wait for Beijing to take steps to rebuild confidence in the market, the current turmoil reinforces Hong Kong’s position as a proven, transparent market and safer venue for those wanting exposure to China in their investment portfolios.

Hong Kong Number One IPO Market For First Half of 2015 The Hong Kong market regained its position as the number one listing venue in terms of funds raised for the first half of 2015. Additionally, accounting firm PwC increased

its prediction for the amount of capital raised in Hong Kong’s IPO market to HK$250 billion ($32.2 bln) this year, up from a previous prediction of HK$200 billion ($25.8 bln). For the first six months of the year, 51 companies raised HK$129.4 billion (US$16.7 bln) on the HKEx and GEM, up 58 per cent year on year. The move was driven by the year’s three biggest IPOs to date: Huatai Securities (HK:6886), GF Securities (HK: 1776), and Legend Holdings (HK: 3396), the parent of computer giant Lenovo Group, which raised US$4.5 bln, US$3.6 bln, and US$2.0 bln, respectively. Huatai Securities, also known as HTSC, was the largest IPO in Hong Kong and the world’s third largest. The listings of two Chinese securities companies GF Securities and Huatai Securities had an oversubscription of 180 times and 280 times, respectfully. Red Star Macalline (HK:1528), a Chinese home-improvement mall operator, raised US$931 million and Universal Medical Financial & Technical Advisory Services (HK:2666) raised US$546 million in June. More recently, Chinese lozenges maker Golden Throat (HK:6896) raised US$107.7 million and Guolian Securities (HK:1456) the joint-venture partner of Royal Bank of Scotland Group PLC in China, raised US$457 million in a Hong Kong IPO. The IPO pipeline remains promising as at least four sizeable deals are expected to list on the HKEx in the second half of 2015. China Railway Signal & Communications Corp (CRSC) began pre-marketing for a $2 billion HK IPO as it meets with investors in midJuly and is expected to list on the Hong Kong stock exchange on Aug. 7. China Railway Signal is the world’s largest railroad controlsystem provider by revenue. Additionally, a number of financial companies are planning to list in Hong Kong in the second half of this year, including China Merchants Securities Co. , the country’s sixth-largest brokerage by assets, which is targeting to raise up to US$5 billion. Beijing investment bank, China International Capital Corp (CICC) has filed for a US$1 billion IPO in a Hong Kong offering planned for the fourth quarter that

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could value the company at US$4 billion. China Zheshang Bank Co, a lender based in eastern China is planning a Hong Kong IPO as early as the fourth quarter to raise US$1 billion. Once completed, it will be the sixth Chinese bank to go public in Hong Kong since October 2013. China Reinsurance, the nation’s largest reinsurer is planning to raise about US$2 billion, while a share offering by Huarong Asset Management, one of the big four managers of bad assets on the mainland, is targeting to list in September and could raise up to US$3 billion, making it the largest IPO in Hong Kong. Smaller IPO’s in the pipeline include Xinte Energy, a Chinese company that operates in the photovoltaic industry that recently filed for a preliminary prospectus US$500m IPO and is expected to list in the fourth quarter. Xinte Energy is a subsidiary of Tebian Electric Apparatus Stock Company Limited (SH:600089, “TBEA”), China’s largest energy equipment manufacturer and a global leader in the power transmission and distribution sector. IMAX Corp.’s China division has also filed to raise around US$300 million in a Hong Kong IPO which is expected as early as the third quarter. 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 n

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PROFILED cOMPaNIES

first Mining finance corp. ticker: tsx-v: ff and otcqb: ffMGf

ith current metal prices near 10 year lows, three key people have created First Mining to take advantage of the amazing opportunity this low price

environment has created. While many resource companies are struggling to raise financings and stay afloat, First Mining’s team raised CDN$5M in April 2015 and they believe this is the perfect time to start acquiring assets at rock bottom prices. First Mining is focused on acquiring highquality precious and base metal assets in the Americas and management is currently evaluating multiple projects. Ultimately the Company’s goal is to deliver significant value to shareholders by entering into earn-in agreements with third-parties who would then move the assets to production while First Mining would hold the residual interest in the form of a royalty, metal stream, minority interest, and/or equity position partnerships. Keith Neumeyer co-founded First Quantum Minerals Ltd. (“First Quantum”) in 1992, First Majestic Silver Corp. (“First Majestic”) in 2002, and most recently First Mining Finance Corp. (“First Mining” or the “Company”) in 2015. First Quantum (NYSE: AG and TSX: FM) currently has a market capitalization of US$4.5B and First Majestic’s (NYSE: AG and TSX: FR) is just under US$400M but was $1.5B just late last year. Keith started those first two companies during bear markets for commodities and both went on to become billion dollar plus

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companies. As readers may know, we are now in the fourth year of another bear market cycle and Keith has recently created First Mining Finance Corp. to take advantage of current market conditions that are ripe for mergers and acquisitions. First Mining was started by Keith Neumeyer as Chairman, Dr. Chris Osterman as CEO, and Patrick Donnelly as President and the Company commenced trading on the TSX Venture Exchange under the symbol FF in April 2015 and on the OTCQB under the symbol FFMGF in July 2015. Dr. Chris Osterman, is a geologist/mining engineer with over 30 years of experience in the production and exploration of minerals. He was instrumental in discovering and developing the San Jose silver mine in Oaxaca, Mexico but his area of expertise is the reconnaissance projects which has resulted in him travelling extensively throughout the America’s, Asia and Africa to view various properties. Patrick Donnelly started his mining career 20 years ago as a project geologist and he has worked in many of western and northern Canada’s remote areas. After spending numerous years working in the bush he went on to become a mining analyst at Salman Partners Inc. where he saw countless mining companies promoting their projects. During this time, Patrick visited and assessed numerous resource projects throughout the world. First Mining currently holds a portfolio of 19 mineral assets in Mexico, United

States and now Canada. On July 7, 2015 the Company completed its first major acquisition through the takeover of Coastal Gold Corp. which held a 100% interest in the Hope Brook Gold Project located in southern Newfoundland. This acquisition added approximately one million ounces of gold to the First Mining mineral bank and going forward the Company aims to make another one to two major acquisitions before yearend. The Company seeks to eventually build its portfolio to 40-50 mineral assets which would be comprised of gold, silver, copper, lead, zinc and nickel. First Mining Finance is supported by Keith Neumeyer and First Majestic which is one of the World’s largest silver producers. First Mining shares office space and certain staff with First Majestic in order to keep salaries and overhead costs minimal as the Company gets started. For more information, please contact Derek Iwanaka, Vice President of Investor Relations for more information at 604-6398824 or at derek@firstminingfinance.com. Alternatively please visit www.firstminingfinance.com or follow the company on Twitter at @FirstMining. First Mining Finance Corp. Suite 1805 – 925 West Georgia Street Vancouver, BC Canada V6C 3L2 n The company paid consideration to SNN or its affiliates for this article.

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PROFILED cOMPaNIES

hemosure, inc. diagnostic for colorectal cancer screening

emoSure, Inc. is a privately-held medical device company based in Irwindale, California. Founded in September 2003 by Dr. John Wan (CEO), the company

quickly established itself as a worldwide recognized tradename (Hemosure¨) in Immunological Fecal Occult Blood Testing (iFOBT) for colorectal cancer screening. Hemosure manufactures and sells the fastest growing iFOBT and have established its place as an industry leader. Hemosure has continuously researched, developed, and produced high quality rapid test systems that have not only revolutionized the medical industry, but have also set new industry standards and guidelines. With extensive marketing and through close interaction with end-users, Hemosure is able to continually improve upon its products and packaging to fit an array of needs for its customers. By using Hemosure products, doctors, hospitals, and laboratories are able to provide quick, easy, and accurate testing to help improve the lives of their patients.

the risinG issUe Colorectal cancer (CRC) is the third most common cancer diagnosed in both men and women in the United States. CRC is preventable through regular screening. However, unlike many other types of cancer, CRC is easily curable if found early. The fecal occult blood test (FOBT) is one of the most commonly recommended CRC screening methods by the National Cancer Institute, National Institute of Health, and the American Cancer Society. The FOBT has widely been used as an effective screening tool for CRC by Medical Laboratories. Studies have shown that FOBT, when performed every one to two years in people aged 50 to 80, can help reduce the number of deaths due to CRC by 15 to 33 percent. If everyone aged 50 or older had regular screening tests, at least one-third of deaths from CRC could be avoided.

risk fActors for colorectAl cAncer

Dr. John Wan, M.D., President, CEO of Hemosure www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

The lifetime risk of developing CRC is about one in 20 (5.1 percent). This risk is slightly lower in women than in men. The exact causes of CRC are unknown. However, studMicroCap Review Magazine

ies have shown that certain factors are linked to an increased chance of developing this disease. In addition, some evidence suggests that the development of CRC may be associated with a sedentary lifestyle; smoking; and high dietary consumption of red and processed meats and low consumption of whole grains, fruits, and vegetables.

The Market Currently, there are two types of FOBT available. A traditional, chemical-based FOBT (CFOBT) uses the chemical guaiac to detect heme in stool. Heme is the iron-containing component of the blood protein hemoglobin. The other type, called immunochemical FOBT (iFOBT) uses antibodies to detect human hemoglobin protein in stool. In comparing the two tests types, the newer iFOBT has some significant advantages. The iFOBT is designed to detect human hemoglobin and is also specific for blood in the lower gastrointestinal (G.I.) tract rather than blood originating from other sources

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higher up in the G.I. tract. The CFOBTs exhibit false positive results due to the presence of plant and animal materials. In order to get more accurate test results, the test requires that patients avoid certain foods, drugs, vitamins, and many other substances three to seven days before testing. In spite of this, false-positive results remain as high as 30 percent. In addition, a major drawback to the traditional, chemical-based FOBTs as a screening technique is poor compliance. Only about 38 percent of patients in large trials completed all planned tests. The complexity includes patient preparations, inconvenience, facilities and equipment needed, as well as patient discomfort.

In February 2009 the American College of Gastroenterology, with a dramatic change of direction, released its first update in CRC Guidelines in almost a decade. The new ACG Guidelines state: “The American College of Gastroenterology supports the joint guideline recommendation that older guaiac-based fecal occult blood tests be abandoned as a method for CRC screening. The ACG recommends the FIT as the preferred cancer detection test.” (Macmillan Publishers Ltd: The American Journal of Gastroenterology (2320970223955) Copyright © 2009 Recent support of Dr. Rao, a diagnostic surgical/cytopathologist and established investigator in cancer biomarker studies with over 30 years of experience in cancer biomarker study, comparing IFOB vs DNA Stool Testing: “DNA stool testing may add some sensitivity to IFOB based stool test for detecting precancerous and cancerous lesion; [however,] the problem is the cost. Just like IFOB, a positive DNA test will still need a colonoscopy for confirmation/therapeutic intervention, but the cost of DNA test is obviously much higher than IFOB. In addition, previous studies have shown that testing of two to three consecutive stool samples may reach the same level of sensitivity as DNA based stool test. Therefore, the overall cost effectiveness of DNA based stool test for colon cancer screen remains to be determined.” (Jian Yu Rao, MD; Professor; Chief, Cytopathology – Ronald Reagan Medical Center, University of California, Los Angeles)

Colorectal cancer (CRC) is the third most common cancer diagnosed in both men and women in the United States. CRC is preventable through regular screening. www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

The Product Compared to traditional testing, Hemosure has developed the latest technological breakthrough in iFOBT. Approved by the U.S. Food & Drug Administration (FDA) and CLIA waived, Hemosure employs a unique combination of monoclonal and polyclonal antibodies to detect only human and blood in stool. In addition to the inherent specificity and sensitivity, the Hemosure test can be performed by health care providers in hospitals, Medical laboratories, and private practices. It is not necessary to send fecal samples to the laboratory. Hemosure’s clear accurate reading of one or two bands is comparable to interpreting a pregnancy test. Doctors can easily, quickly, and accurate read Hemosure’s test in 5 to 10 minutes. Guiac chemical tests, conversely, show a blue color that is often difficult to interpret. This new technology has greatly improved specificity, sensitivity, accuracy, and costeffectiveness of FOBTs. Hemosure’s test provides greater than 96 percent lower gastrointestinal tract specificity, which is much higher than chemical-based testing. Regarding clinical sensitivity, Hemosure’s test has greater than 87 percent sensitivity. In comparison, the Guaiac chemical test only offers 50 percent sensitivity. Another benefit of Hemosure’s test is that it provides greater than 97 percent accuracy; traditional tests are less than 86 percent accurate. Establishment as THE Market Leader With Hemosure’s dedicated in-house and outside sales staff, Hemosure quickly established itself as a market leader in the iFOBT industry, even surpassing larger, publically traded companies. Hemosure has partnered with the Dedicated Distributor Partners in order to the iFOB Test into the top doctor’s offices, hospitals and laboratories. Some of our Partners include: Novation, Amerinet Choice, HealthTrust Purchasing Group,

MedAssets, and the U.S. Department of Veterans Affairs. Faced with future challenges, Hemosure, Inc. continues to provide excellence to its distributors globally. With increasing demand on product quality, Hemosure’s strong management team continues to implement best practices that help win continual business from its competitors.

Future Outlook - Dr. Wan As President, Chairman, and CEO of Hemosure, Dr. Wan oversees the company’s technical and business strategy. He introduced and developed a high quality rapid test systems which revolutionized the In vitro diagnostic (IVD) industry, strategic planning initiative for the organization, created a business development culture, and focused on trade show and convention opportunities. Under his leadership, Hemosure dramatically scaled its infrastructure and diversified its products offerings while maintaining a strong culture of innovation. Dr. John Wan is well qualified to launch and oversee the company’s growth and success in the market place. He has been involved in the growth and prosperity of the industry for more than 20 years. He earned his bachelor degree of Medicine from Capital University school of Medicine, Beijing, he completed Anesthesiology training program in Chaoyang Red Cross Hospital of Capital

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University, Beijing; he was also approved by American College of Medical Examiners certificated in both Clinical Science at 1993 and Basic Science at 1994. Prior to joining Hemosure, he has extensive clinical experiences in Beijing Red Cross Chao Yang Hospital and served as physician assistant in Department of Neurosurgery Western Medical Center Irvine; He played as clinical research assistant in Department of Vascular Surgery, University of California Los Angeles and Norris Cancer Hospital, University of Southern California. He also completed LAC+USC Medical Center anesthesiology post-graduate physician residency training program. He has many publications and holds four US patents. Dr. John Wan is an excellent physician with a solid base in academic knowledge and excellent entrepreneurs. He has shown good judgment in variety of complex situations and challenging cases. n The company paid consideration to SNN or its affiliates for this article.

MicroCap Review Magazine

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

Principal Advantages of a Reverse Merger M

y article in the Spring 2015 issue of MicroCap Review discussed the advantages of going public via a reverse merger as opposed to an IPO. Indeed, as I noted in that article, there are very few broker-dealers these days that will underwrite IPOs that intend to raise less than $40,000,000. So, a reverse merger is very often the only way to go public. So, if your company is considering going public as the next big step in its corporate history, and if-quite likely—that the IPO route is unavailable—you should be aware of the many good reasons why a private company would want to go public. Here are several: • Higher valuation. Public companies almost always trade at a premium to the valuation of similar private businesses. In certain sectors this discrep-

•

ancy is dramatic. There have been many industry reports showing that, all things being equal, publicly-held companies are worth as much as 3-4 times the value of similar privatelyowned companies. The ability to use stock in a public company as a form of currency. This provides leverage for making acquisitions, and allows a business to grow more quickly, without incurring debt.

n BY JOHN LOWY

MicroCap Review Magazine

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•

Stock options. Stock options in a public company are very useful in hiring and retaining key employees, especially in industries where competition for qualified staff is intense. Liquidity for the Principals. To state the obvious, there’s nothing wrong, and a lot of good, in being liquid on a personal basis. Once a company is publicly-traded, and after a brief holding period, principals of the now-public company may legally sell their shares to the public in accordance with SEC Rule 144. Prestige. The prestige of being a public company usually results in winning more and larger accounts, attracting better employees, and negotiating better rates from vendors. Easier access to capital. This might be the most important reason for becoming a public company. Almost all companies have a continual need for capital, and being public significantly increases the availability of capital. Below are some of the methods by which the newly-public company can raise capital; the principal advantage is that, because investors can see the exit strategy, the ability to raise capital is significantly enhanced, the time required is minimized, and the equity dilution is substantially reduced.

5. Here, briefly, are some of the many ways by which a public company can raise capital—debt and/or equity—to grow the company’s business: 1. What is probably most common for newly-public reverse merged companies is the PIPE financing (Private Investment in Public Equity), by which a financing source invests directly into the public company. PIPE transactions are often structured as convertible debt instruments, so that the investor can protect itself against the downside while enjoying www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

the benefits of the upside when the company prospers. Other forms of traditional financing, such as bank loans, which can be secured more easily by the stock of the principals. A secondary public offering. This has the potential advantage of being a combination of raising capital for the company and also allowing the company’s principals to publicly sell some of their shares. As noted above, there’s no shame in being liquid! Standby Equity Distribution Agreement (“SEDA”). This is a variation of the secondary public offering. In a typical secondary, the underwriter commits to purchase all of the shares at a given price, on the day that the registration statement is declared effective by the SEC. In a SEDA, shares are registered with the SEC, but sold to the public only if and when the company requests that any of those registered shares be resold, i.e., when the company needs capital. The disadvantage of a SEDA is that it can be a continuing offering until all the shares are resold, thus making stock price appreciation more difficult. The advantage of a SEDA is that the timing of the capital raise is totally within the company’s discretion. Regulation S offering to non-U.S. persons. An increasing number of non-US companies are reverse merging into U.S. public companies, with the intent of raising capital in the United States. Those companies often retain ties with investors and investment bankers in their home country. In general, provided that no investor is a “U.S. Person” (as defined in that Regulation), any U.S. public company can raise an unlimited amount of capital in a Regulation S offering. In my experience, although Reg. S investors will be receiving

“restricted securities,” with a required holding period before they can be publicly resold, a reverse merger into a U.S. public company, followed by a Regulation S offering, provides those non-U.S. investors with the advantage of the U.S. securities market when they resell their securities. So, given the many advantages of being a public company, especially the increased ability to raise capital at higher valuations, private companies, no matter where they are based, should consider becoming publicly traded in the United States, via a reverse merger. John Lowy is the founder (in 1993) and CEO of Olympic Capital Group, Inc. (www.ocgfinance. com), and is the principal of his law firm John B. Lowy PC, both based in New York City. John is a highly-respected and acknowledged expert in reverse mergers, capital formation, financial consulting and initial public listings. He is also a licensed FINRAregistered representative with Transnational Capital Corporation, a New York-based broker-dealer. As an attorney, an advisor or as a principal, John has led or participated in more than 200 such transactions, creating market value in excess of $5 billion. He has been instrumental in leading the process by which many companies have reverse merged and achieved listings on the NASDAQ or the AMEX. In addition to the U.S., John has completed transactions for clients based in Australia, Brazil, Canada, the Caribbean, China, Hong Kong, India, Korea, Philippines, Singapore, South Africa, Turkey, UK, Vietnam and other nations. The sectors in which these clients are engaged range from high tech to low tech, real estate, pharmaceuticals, medical devices, oil and gas, mining, solar power and other renewable energy, entertainment, food, forestry, agriculture, education and retail, among others. John received his B.A. from Tufts University and began practicing law after graduating from the University of Pennsylvania Law School. n

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F E aT U R E D a R T I c L E

Exploration Insights Today we begin where our last rant left off. the rAnt But then metal prices began to decline, economies slow, and profits slip away. What went wrong this time Dad? Will mining boom again? Don’t hold your breath kid. It’s bleak out there and we have a 10-year super commodity bull to work off this time. I think what ultimately killed the recent boom was the slow realization by investors that most mining companies really couldn’t make money. Those savvy investors got the commodity boom and gold price right, and bought into the thesis that mining companies’ profits would soar with the rising metal prices. The share prices did soar, for a while, but. . . Instead of profits they got production costs rising in tandem with metal prices; capex blowouts; companies issuing equity and taking on debt whenever they could to cover the multitude of stupid acquisitions (supported by dubious, but 43-101 sanctioned, technical reports and financial projections) all piled

on top of an eat-what-you-kill banking/ brokerage community fronted by inexperienced or compromised analysts faced with the tall task of feeding the global frenzy of very short-term hedge fund gamblers with no skin in the game, trading stocks based on microsecond blips up until the shine wore off and, well, here we are today—busted again. Of course on the junior side, they always soar higher and crash harder—the junior gold index (GDXJ) is down about 86% from its high in early 2011. Ouch. The allure of a pot of gold at the end of the rainbow, and the sense of greed that instant riches inflame is very powerful and primal. It’s easy to overlook the fact that the overall odds of finding an economic mineral deposit are extremely low, as I’ve said many times before. That one-in-a-thousand shot at an easy score led investors (large and small) into overfunding more than 3,000 exploration companies to the tune of billions of dollars, chasing that pot of gold. As in all booms, expectations and blind faith overshot an otherwise obvious reality—gold doesn’t sell

n BY BRENT cOOk

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(Share prices Teck [black], Rio Tinto [blue] and Goldcorp [gold], 1999 to July 2015)

for $1,200 an ounce because it’s easy to find. We know that legitimate large discoveries (meaning ones that are probably economic) have declined significantly over the past 10 years-- still, there have been successes. Problem is, when you spread those limited successes over the 3,000-odd companies exploring tens of thousands of prospects through the 10-year bull market, one’s optimism fades. And fade it has. Volume (liquidity) in junior mining stocks has collapsed: the action is elsewhere for gamblers chasing a ten bagger. Proof comes via a recent screen by Ian Cassel of ten baggers over the past five years on the US and Canadian exchanges, which turned up 120 companies. On that list were only three mining related equities: Reservoir Minerals (RMC.V), Abitibi Royalties (RZZ.V), and Dynacor (DYN.V). No wonder the miners’ gambling hall is empty, kid. I think the reality has finally set in that around 90% of the juniors will never find anything of value. Further, that even when successful maybe half the deposits are sidelined by 1) metallurgical problems, 2) geotechnical issues, 3) capital costs, 4) jurisdictional/political realities, or 5) metal prices. We can’t seem to win even if we win.

But hasn’t this always been the case? Not so much. At the start of the 2002 boom and throughout the previous ones, most of these issues didn’t surface so early in a discovery’s history. Today we are unfortunately much better informed. We have instant access via Google and 43-101 technical reports to a project’s past failures and a promoter’s questionable history, plus unregulated bloggers and virtual chat rooms that allow anyone (informed or not) to expound and rant at will. The classic quote, generally attributed to Mark Twain, that a mine is a “hole in the ground with a liar standing on top of it” is so much easier to prove nowadays that brokers, promoters, and liars are all at a serious disadvantage compared to their mentors. Add to those promotional problems the very real fact that it is flat-out getting harder and harder to find new mineral deposits. The recent booms coincided with an era in

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which much of the world was just opening up to modern exploration techniques. Satellite imagery and a search through historical records allowed geologists to walk on to outcropping mineralization or alteration that had never before been drilled. Those days of an easy pump or outcropping orebody are, for the most part, gone. Today we are usually looking under cover through barren rock for deposits that will be more expensive to drill test, develop, and mine. Additionally, it seems that whenever a discovery is made NGOs, politicians, and excitable locals turn up to either throttle or steal a project. (Ecuador, Venezuela, Argentina, El Salvador, Mongolia, China, Russia, Pakistan, Alaska, Zambia, South Africa, and Thailand come to mind.) The discovery success rate will certainly continue to decline; and we are currently faced with slowing economies across the world, which translates to slower metal consumption, which translates into lower metal prices, which translates into less money coming into the sector. We are now experiencing another bust phase of the commodity cycle. Is this worse than usual Dad? This is, like, getting really depressing. Hard to say. As we discussed ealier, the 1997 bust was absolutely horrible. The 1987 crash came fast and furious; I spent the resultant bust taking hydrology classes and soil samples—not fun. The late ‘70s boom was killed when Volker took the Fed’s target rate to 20%: the gold price collapsed, recession ensued, and, except for uranium, mining was dead yet again. Then the uranium price crashed too, just as it had done in the early 1960s after the US government stopped supporting the price.

I think the reality has finally set in that around 90% of the juniors will never find anything of value. MicroCap Review Magazine

But boy, that 1950’s uranium boom was spectacular. Charlie Steen kicked it off when he found the Mi Vida mine near Moab, Utah in 1950. Your grandpa was out there roaming the desert with a case of beer, a box of dynamite, and a Geiger counter stuffed into the back of a Cadillac. At the height of the uranium boom, the Salt Lake City penny stock exchange traded more shares in a day than the NYSE. It was a promoter’s dream, and millions were made and lost on rumors and tips from a small-time radio show host and some guy in a dirty Cadillac. The early 1960’s base metal mining boom was built on the back of the Kidd Creek discovery in Ontario, and broken by Viola MacMillian and the Windfall scam, which took the share price from $0.56 to $5.60 and back again. In Australia, the 60’s mining boom (link) followed a short but severe recession, and came about due to a number of major discoveries (Kambalda, Mount Newman). This boom came crashing down in 1970 when Poseidon’s nickel discovery, which had taken the share price from $0.80 to $280, turned out to be of minor value. In both cases, confidence in the mining and exploration markets went to zero, as did most of the previously highflying penny stocks. No one wanted any part of a liar standing over a hole in the ground anymore. The cycles of boom and bust in the commodity markets goes back to at least the

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Bronze Age collapse (now that was a bust), and probably to the salt trade in 6000 BC. It’s just the nature of things. Rising demand causes rising prices, which cause increased exploration, which results in more discoveries that go into production, causing oversupply and therefore declining metal prices, which are usually correlated with economic recessions, then decreased supply, which eventually results in rising prices (again). The same holds true for mining shares. Greed follows fear and vice versa. When everyone wants in there is no shortage of new paper and new stories, when everyone wants out, stocks go no bid. Despite how bad it feels out there today, it could get worse. Metal prices are still at historically high levels and production cuts have been minimal--so far. Most mining companies have been chopping their sustaining costs and have managed to remain cash flow positive, at least at the operational level. The rapid drop in energy prices and near-global currency devaluations may have saved us from the final leg down-- or just put the inevitable off for a year or two. As for gold, it still faces a possible pounding as (if) the Fed begins increasing interest rates-- and it’s hard to see what could take it higher that hasn’t already happened. So yes, it could easily get worse and drag on for some time. There are still hundreds of zombie juniors that have to fade away, and a

number of resource funds still in liquidation mode. There are no catalysts on the horizon to take the mining sector higher; and nearly everything I see says mining is dead. It is hard to imagine how things could look much worse, which is another way of saying this is how the bottom looks every time, before it eventually and slowly gets better. But when? I don’t know when; I don’t think anyone really does. It’s the events that come out of left field--the black swans-- that usually seem to kick the resource sector into gear, and out. In my opinion, it will be the fact that we are not finding enough metal to replace what we are mining that puts the sector back in front of investors—but who knows. So all you’re really saying Dad is that this happens all the time and it’s simply supply and demand that moves metal prices, and fear and greed the stock prices? Yeah, I suppose that’s about it, from 30,000’. It looks pretty dismal and scary out there in Mining Land, just like it did in 2000 and at the bottom of every previous bust. And like then, the hardest thing to do today is to put on your dust goggles and head into the abyss to buy another doomed junior mining company. So don your googles, we’re going in--fortune favors the bold… That’s the way I see it. Brent Cook Author and Economic Geologist Additional articles and media available at: www.explorationinsights.com n

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PROFILED cOMPaNIES

Millrock resources finding success in a down resource Market tsx-v: Mro

his isn’t the first time Millrock has battled adverse markets.

Founded in late 2007, it wasn’t long before Millrock found themselves navigating through the depths of the great 2008 recession. But as a former Inco Ltd. geologist, CEO Greg Beischer has experienced much of what the cyclical mining business has to offer. After nearly 20 years in mineral exploration, he had learned enough to realize that it isn’t sustainable for a company to rely solely on the volatile markets to fund highrisk drill programs that all too often produce nothing of significance. That insight led him and business partner Philip St. George - a former Cominco geologist who had played a leading role in two of Alaska’s most significant mineral discoveries including the massive Pebble coppergold-molydbeum deposit and NovaGold Resources Inc.’s Donlin creek gold find - to choose a less traditional exploration model: the Project Generator Model.

Rather than raising large sums of money, which can be next to impossible in markets like these, and betting it all on a single high-risk drill program, project generators increase their chances of discovery by advancing multiple projects at once, using funding from multiple joint-venture partners to pay for exploration. For the generator, it provides a sustainable way to fund operations and gives multiple opportunities to discover an ore body. For investors, it means exposure to the upside of multiple exploration projects while minimizing the risk of any single project failing or dilution from multiple financings to fund exploration. While the model can, at times, seem less glamorous than the stories told by single project drill plays, it’s in times like these that we really see the model paying off. Having raised $4.0M last year, Millrock is in a much different position than many juniors, over 60% of which have less than $200,000 in the treasury. As bad as times are for large sections of the junior resource sector, the Millrock CEO says “Life has rarely been better for companies like Millrock, and I have never been more optimistic for the future. We are judiciously deploying some of our cash resources to build out our property portfolio. It is definitely a buyer’s market!”

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“Finding a gigantic ore body takes time, good science, quality execution and a little luck always helps” said Beischer. “Following the model has put time on our side and pulled out the market risk. We are making a little luck for ourselves by taking some chances. And it is up to us to continue to execute excellent exploration programs that can result in discoveries and a dramatic share price increase. While most juniors are sitting dormant, hanging on to whatever little cash they have, Millrock is in the midst of executing on a $2.0M drill program. Funding for the program is coming from earn-in partner First Quantum Minerals Limited. Millrock also recently announced a strategic alliance with a large gold producer to explore for highgrade gold deposits in Alaska, as well as just recently acquired the West Pogo property from Raven Gold. “We all know that investing success is simple.” Mr. Beischer said. “Buy things when they are low. Sell them when they are high. Whether we are talking stocks or mineral properties, they don’t get much cheaper than they are right now. Now is the time to buy!” For more information: www.millrockresources.com n The company paid consideration to SNN or its affiliates for this article.

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

Are New Exchanges that Favor MicroCap Issuers on the Horizon?

hat if we were to start with a blank slate? Forget about everything that currently exists in the public markets for

MicroCap and emerging growth companies. How many more times do we have to hear investors complain about liquidity? How many more times do we have to hear about how much red tape issuers have to overcome in order to become and maintain a public listing? Investors are clamoring for new and interesting ideas, and yet, management of these companies are reluctant to look to the public markets to raise capital, not because there’s no aftermarket support dedicated to getting their stories to retail, rather, the

maintenance required to stay public as a small MicroCap, emerging growth company is not equitable anymore. AND YET! (wait for it)… the SEC and regulators have put these listing requirements in place in order to protect investors! Aye, there’s the rub. Is there a middle ground? In our most recent video interview with David Weild, he discussed his thoughts on creating a venture exchange for small, emerg-

n DAVID WEILD IV

MicroCap Review Magazine

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ing growth companies; a new construct that would, as he explains, “eliminate a lot of the basic requirements that have caused the collapse in support for MicroCap and NanoCap issuers. We think that if we can basically start with a clean piece of paper and create new stock exchanges that are optimized around the needs for small-cap companies, we can get America back into business.” A huge statement and undertaking – but, is that what it takes to fix the issues that have been affecting this market? Ideally, the logic is sound: create a favorable infrastructure to support both MicroCap and NanoCap issuers, as well as, investors feeling secure that there is protective measures in place so their dollars are being put into actionable ideas, thus generating more capital for issuers to create more jobs, and make a better America for all. In theory, easy, right? Perhaps…but, let’s ask Mr. Weild himself to understand this concept more. 1. Why do you hear so often about liquidity problems in small- and microcap stocks? The US went to a one-size-fits-all market structure that works only for large cap stocks that are naturally liquid but is a disaster for small cap stocks that trade in a lumpy fashion – big buyer, no seller or big seller, no buyer. Those less liquid stocks need market makers and those market makers must be able to make money. Back in the ‘70s, ‘80s and ‘90s, the US IPO markets were the envy of the rest of the World. When the United States went to electronic stock markets (1998) and electronic brokerage and later penny trading increments (2001), it caused the collapse of the entire “ecosystem” of smaller broker dealers that investors depended on for small cap research, sales and market making support. Lots of bad things happened: • The numbers of small IPO book runners went from 162 in 1994 to only 32 in 2014 • Small- and Microcap research was cut • Capital was taken off of trading desks

•

(market makers could no longer earn a return) The number of publicly listed companies in the US dropped from over 9000 to less than 5000. The number of start-ups in this country went from nearly 15% of all companies to only 8%. Labor participation rates dropped (except for people over 65 who are working more because they can’t afford to retire) Unemployment increased. (We think more than 10 million jobs were lost since 2000) Poor people, who don’t have money in markets and derive no benefit from public markets probably suffered the worst.

2. What are the benefits to issuers of Venture Exchanges? Venture Exchanges would provide the essential economic incentives for Wall Street to invest in and increase aftermarket support to issuers. People don’t understand but the small- and micro-cap equities business loses money for most firms – it’s been made overly “efficient” in the small- and microcap markets. When a bad investment banking market occurs, investment banks that are serving the small- and microcap markets go out of business. This is what happened to Thomas Weisel Partners, Keefe Bruyette and Woods and numerous other investment banks. Venture Exchanges would bring back the critically needed economic model for Wall Street firms to create capacity (infrastructure) in investment banking, equity research and market making to support corporate issuers in the public markets. 3. What are the benefits to investors and consumers of venture exchange? More deals creates more investment opportunities for investors. More capital to support market making will bring back liquidity and that in turn will help attract institutional money into these markets. More institutional money means better prices which in turn

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drives returns. The only downside is that investors will have higher transaction costs which of course favors long-term investors over short-term traders. However, as I’ve testified in Congress, poor people don’t have money in the market so they derive no benefit from low cost trading. They need jobs. And, consumers benefit broadly from the increased competition (lower price of goods) and innovation (choice) that comes from many smaller companies accessing public markets. It frustrates me to no end when the Consumer Federation of America’s Barbara Roper comes out against higher tick sizes or incentives to support small- and micro-cap stocks because she really doesn’t understand that she is hurting consumers broadly. We helped to bring back the biotech market through the JOBS Act’s “Testing the Waters” provisions. These companies need support. At Weild & Co. we are currently working to help medical devices, biopharmaceutical and drug delivery companies come to market. You tell me what’s more important? Saving pennies in commissions or finding cures to cancer, Alzheimer’s, diabetes, global warming, and creating jobs and tax revenues to lift kids out of poverty? 4. What is the relationship of Venture Exchanges to the almost non-existent IPO market? If the authorizing legislation is crafted properly, Venture Exchanges might single handedly bring back the “non-existent IPO market.” It could be the most important legislation to come out of this or any other Congress. However, it would take time to take hold. Venture Exchanges would need to be developed, approved by the SEC and launched. They would need to provide adequate incentives to bring back the capacity of smaller investment banks that went out of business due to the collapse in economic incentives. If we do build back the ecosystem, we could be back at 950 IPOs a year – which is what we think a country the size of the US should be doing on a GDP adjusted basis versus the paltry 150 IPOs a year since 2000. MicroCap Review Magazine

review will create a barrier to entry. As a result, some of the better Venture Exchanges are likely to be launched by established and well-capitalized Wall Street firms, assuming they are permitted.

I believe that when the aftermarket works to support small- and microcap companies, financing “windows” stay open longer and more companies raise capital. 5. How would you describe the aftermarket trading of stocks listed on a Venture Exchange? The recent draft of the “Main Street Growth Act” that Chairman Scott Garrett (R-NJ), Chairman of the House Subcommittee on Capital Markets, has circulated would amend the Stock Exchange Act of 1934 to create “Venture Exchanges” which would be exempted from the series of regulatory changes that improved large cap trading but harmed the small- and microcap markets and ecosystem. As a result, we could see an essentially blank canvas that creates a wave of innovation and a variety of new “Venture Exchange” structures that all would be designed with the corporate issuer in mind. 6. What are the listing requirements as compared to OTC Markets or NASDAQ for example? The short answer is that we won’t know until Venture Exchanges are established and the Exchanges file their listing requirements with the Securities & Exchange Commission (SEC) and those listing requirements are approved. As currently drafted, the legislation would exempt companies from Blue Sky filings. I suspect that if that were to be the case then the low-end listing requirements would probably adopt Tier II of Regulation A+ from the JOBS Act. 7. What is the relationship of crowd funding to venture exchanges? Crowdfunding speaks to the manner in which capital raises are conducted for companies. Venture Exchanges speaks to the aftermarket support model. I believe that when the aftermarket works to support small- and microcap companies, financing “windows” stay

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open longer and more companies raise capital. So, everything else being equal, Venture Exchanges will help drive securities Crowdfunding. 8. How do the regulators look upon Venture Exchanges? SEC Chair Mary Jo White has openly questioned America’s “One-size-fits-all stock markets.” She gets it. All four of the other SEC Commissioners seem to understand that capital formation in this country needs to be improved. All four seem to be embracing the idea of Venture Exchanges. However, they are clearly concerned about investor protections. Given that there has been interest in the US Senate and the US House of Representatives, and at the SEC, I suspect that something will get done. The real question is “What?” and “When?” My bet is that we won’t see major legislation until after the Presidential election so this is not imminent. 9. Will there be as many Venture Exchanges as there are crowd funding platforms? I have been bowled over by the number of Crowdfunding platforms that have sprouted and the way the Crowdfunding community seems to have adopted Reg. A+ as the new way to Crowdfunding of securities since that was never the intent – the intent was to create a less costly way for a company to IPO. I’ve been humbled by the number of people that literally have come up to me at conferences and thanked me for their job. I suspect however, that the process for approval of a Venture Exchange at the SEC may be more stringent than a Crowdfunding platform. If that turns out to be correct, higher costs and regulatory

10. What are your concerns regarding Venture Exchanges? This is potentially the single most important piece of pro-growth legislation that can be passed by this or any Congress. We have to get it right. The future of innovation, U.S. economic leadership and job growth depends on it. 11. We hear Weild & Co., which you founded last year, is starting to get some buzz with corporate issuers and other investment banks. Tell us what’s going on. We serve the needs of corporate issuers and other investment banks. We have a better approach to help companies reach a broader range of long-term institutional investors and we help corporate issuers attract the support of other Wall Street firms. We are currently engaged with corporations on private placements of pre-IPO companies and M&A advisory, while we are rewriting the book on public markets and how to work with Wall Street to drive better results for our corporate clients. David Weild is the “Father” of the JOBS Act – the Act that created everything from the new category of “Emerging Growth Issuer” to equity crowdfunding through Regulation A+ and “general solicitation.” A former vice chairman of NASDAQ and head of Equity Capital Markets at a major Wall Street firm, Weild founded Weild & Co. to bring capital raising services and aftermarket support to public companies that is currently lacking but that issuers desperately need. Weild and his company are recognized as the leading advocates for corporations, capital formation, innovation and job growth. He has spoken at the G-20, the OECD and is a regular before Congress and the SEC. What is less well known is that David is also the “Father” of the upcoming SEC pilot to increase tick sizes (the smallest increment that stocks can be quoted in) and the recent move to create a new type of stock exchange focused on the needs of small- and micro-cap issuers. n

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

Importance of Great Management in a MicroCap Company Excerpt from the Planet MicroCap Podcast “Episode 1 – Ian Cassel, MicroCapClub: So you want to be a MicroCap Investor?”

y personal favorite anecdote when it comes to management is, “I’d rather have ‘A’ management running a ‘C’ company, than ‘C’ management running an ‘A’ company.” Seasoned investors, not just MicroCap investors, will all agree, talking with management, having a relationship with the CEO, is an important part of the due diligence process. I recently launched the Planet MicroCap Podcast with the goal of educating the next

generation of MicroCap investors to help them develop a successful investing strategy. My first guest on the podcast was Ian Cassel, Founder of the MicroCapClub.com, and I wanted to share an excerpt from our talk regarding management.

n ROBERT KRAFT

MicroCap Review Magazine

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RK: ….How do you assess great management? Ian: It is tough, and like you said, everybody does…quantitative due diligence. I mean looking at publicly accessible, whether that’s SEC Filings, PR’s, the Internet – what I found is everybody does that. You really need to find an edge in investing, and that’s why you need to dive a little bit deeper and do, what you’ve talked about, which is qualitative due diligence, which is talking to management teams. I spend an inordinate amount of time talking to management teams and really trying to understand their businesses and their strategies. The key thing is to really have an edge in the market, and even in the companies that you own in your portfolio, your edge is knowing your companies better than most. So what I always say is you want to talk to management and, like you said, it’s very prevalent in the MicroCap space to have management teams that say too much and do too little, and so what I have learned through the years…when I first got started into investing I used to…talk to management, was enamored by them and took a position. That strategy works when it

works, and then it really doesn’t work when it doesn’t work… After a few learning lessons of investing in a few companies that, let’s just say, management didn’t do 1% of what they told investors they would do, it let’s you take a step back and say, ‘ok, what’s a better

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way of doing this?’… How my investment philosophy has evolved is I usually talk to management, really get a good feel for them, I even travel out to their facility to meet with them and usually their board as well, do a tour of their facility if they have one, and really that helps me get a conviction level about this management team and their ability to execute their plan. And, usually I buy a starter position in the company at that point in time, and then what I do then is I really track the company’s performance and I buy more as I see the management team execute, and then I will buy more once they execute more. I have no problems with averaging up in a company. In fact, all my biggest winners that I’ve had, whether they are companies that went up 500% or 1000% or 1500% over several years, I was averaging up in those companies constantly… The best advice I can give somebody is once you find a company you like, and once perhaps you have a conversation with management… let them execute, let them prove themselves to you before you take a substantial position in the portfolio. n

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

Snake Oils Salesmen & Gold Buffs MidAs, liArs, And low-lives John Hays Hammond was a larger than life post depression era figure famous for his success in mining, drilling, government service and philanthropy. This “Man with the Midas Touch” emblazoned his literacy legacy with a quote in his 1935 autobiography which he attributed to his old friend Mark Twain. “A mine is a hole in the ground owned by a liar”. Twain had seen his fill of shady gold buffs, greasy oil men, and sweet talking snake oil salesman in his travels through the Wild West. He managed to slip these dubious progenitors into the permanent cultural landscape of his writing, and his one liner about miners is a common closing salvo at mining conferences around the world. The familiar image of Shady Medicine Man touting his miracle elixir is also a set piece for comic relief in any theatre production of the Western era. Our shifty miner and toxic pharmacists have been interchangeable characters representing the dregs of the investment world, and cast with the same reticence, humour, and expected opprobrium. One conman is bad enough, but what happens when we wrap two in one?

sPeAk no evil

n ANTHONY DESIR

MicroCap Review Magazine

So you can you imagine me with my head in my hands when our editor asked me to pen a piece about the parallels between

mining and drug development! Not only was he backing me to have the talents of the liar standing over his hole in the ground; he managed to credit me with also knowing a thing or two about concocting home-brew salves with magical properties. My only way to get back at him was to actually put this together and keep you smiling all the way to the end, but keep a tight hand on your chequebooks.

A MininG fUnd At work So first some background, before we get to the fun. Since 2007 we have run a global corporate finance and private equity business where we provide development services for large investors — sorry only accredited players please— who are looking at resource investments in Sub-saharan Africa. Our business involves finding early stage opportunities where we fund, and prepare the feasibility studies to complete the project. Our work includes finding investment and off take partners for our clients. Our most successful client began with a US$7 million general exploration contract and today is a highly regarded and verifiable listed company with returns in shareholder value totalling US$1.3 billion. Success is magnetic, and we’d love to tell you that every drill hole we saw was a strike. Not so; most deals we see never get past our due diligence, and many of these barren holes still have slick proprietors standing next to them, with

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even slicker pitch decks waiting to entice you. We credit our technical team with being able to understand the resource development process, in turn helping us to know how to scratch a patch of dirt into a world class mine, and how to avoid putting our money into a cesspit. Today we run a US$250 million infrastructure fund that focuses on developing opportunities from the concept stage to a functioning project. Our returns are better than know brands and we succeed by remaining small and staying focused. In our time we have learned a thing or two about turning an idea, and a hole in the ground into a functioning mine, and turning documents into dollars in our partner’s pockets.

mining opportunities appeared to be identical. During preparation for an investors presentation I discovered that the same charts that we were using to show the evolution of the feasibility process could also be used for the same purpose on the drug development cycles, with only the product names being changed. The parallels were too uncanny to ignore, and so I made the very big mistake of telling all this to our editor before he smiled and pegged me to take on this dual role being both a snake oil salesman and a shady miner. Before you run me out of town, let’s see if I can convince you that this makes sense. If it helps, I can promise you that I was skeptical when this was first suggested to me.

Knowledge at work

Mining 101

Our experience with drug development was hardly a case of us being willing bridegrooms. A few years ago, a group of investors familiar with our understanding of early stage investments asked us to look at a project with untested immuno-oncological cancer treating properties. Our own doubts about the sector and our understanding of it disappeared when we realised that the development process seemed to be an exact parallel to what we were used to dealing with in the resource sector. What was really surprising was that even the number of explored projects to qualified

During my Freshman year at college in Hanover N.H, we were often lucky enough to

find an enlightened and gifted professor who realised that our higher purpose in university should not be corrupted complex explanations. These 101 courses got to the point so that we could move on to other indulgences that would be far more important to us as industry leaders were were expected to become. Let’s take try that approach. In 2012 Dr. Elena Clarici, Chairperson of the Association of Mining Analyst made a presentation in London where I was in the audience. She, prepared the following chart showing the evolution of the total number of non-ferrous mining projects from exploration permits, through the feasibility process, and then eventual listing as functional mines. The brilliance of Dr. Clarici summary is that she identifies the 200,000 initial exploration projects from prior years that would eventually be filtered down to only 1,000 eligible feasible opportunities. Overall the

During preparation for an investors presentation I discovered that the same charts that we were using to show the evolution of the feasibility process could also be used for the same purpose on the drug development cycles, with only the product names being changed.

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Mining Development v. Drug Development

exploration / feasibility / pre-feasiblity process consumes about $8 billion to identify less than 1% these early stage deals that become eligible for junior - mining designation and evaluation by the markets and funding partners. Of the roughly 1% exploration project making it to feasibility study about 1 in 3 become mines, but at this point the capital support jumps to about US$40 billion on offer to turn them into full fledged mines. The world’s 2,500 non-ferrous projects are backed by over US$100 billion in development funds and the 500 smelters can count another US$20 billion in available develop-

ment funding. A quick summary of the industry as a whole shows a high count exploration process with limited funding, a sharp drop off in qualified opportunities with reasonable capital backing, and an endgame with few players and very good funding options.

drUG develoPMent 101 When we began preparing our pitch deck to explain the drug development process we began with a very simple Google image search for data cross referencing. The volume of material was surprising, because we

The world’s 2,500 non-ferrous projects are backed by over US$100 billion in development funds and the 500 smelters can count another US$20 billion in available development funding. 62

MicroCap Review Magazine

were new to this field, but more surprising was consistency of the material showing the development process beginning with 10,000 R&D experiments leading to one FDA approval. Here is one example: The parallels between this drug development chart and the one prepared by Dr. Clarici for winning cannot be overstated. Of course there is an obvious difference in specific number of R&D projects, leads etc. and their equivalents in exploration projects and feasiblities, but it was our next step that made us look at this differently.

stick hockey Our first risk chart picture was designed to show give a very quick glimpse of drop off rate between the 200,000 exploration permits issued and the 5,000 eventually made it to drilling. Our drug development of 10,000 leads leading to 1 drug looked so much alike we decided to put them together just to have some fun. For this chart we assumed around 180,000

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research projects globally based on grant applications. I’d like to stress at this point that the point of these charts is not the actual numbers but the curve emulations running across the same basic lifeline from initial exploration permit / R&D to the final mine certification / FDA approval process. If we remove the names and numbers from one chart or the other, it is impossible to read which one represents mining and which one represent drug development. Our basic rule on doing project planning so to run separate teams for risk analysis and for profitability and to then pull these together later on as a project credibility test. In both cases we expect a reverse of the above hockey stick curve, and again it is virtually impossible to tell which represents drug development and which represents mining. I decided not to show the value index charts because we certainly do not wish to provoke a cautionary letter from the FDA. What we are simply saying is that there are very strong industry parallels on both sides that cannot be overlooked.

Risk and Reward A good huckster knows when to make a run for it, and if you haven’t lit your fire brand yet then I am in good shape, so its probably a good idea to whistle up my pony and head for the hills. We are not trying to sell you our mines and you don’t need to purchase our ointments. The only purpose here is to encourage you to look beyond the specific issue of industry

specialisation if your focus is on risk, values and the rewards that go with that. If you happen to be sold on one industry, your risk profile naturally fits the other. If you are like us, you’d find that you may not have knowledge that translates from one side to the other, but that’s why we have partners who know what we do not know. At the end of the day investing is still about deciding on your appetite for risk and from there making an informed decision. But the best way to be informed is to have insider knowledge within the rules of the

game. Our solution is to always work with experienced partners, and hold hands with people we trust. And if you are looking for someone to blame when this the mine turns out to be a salt pit and the hair gel makes you bald, blame Shelly— he’s the editor. I’ll still be in my office trying to decipher if the latest deck to come is really a hockey curve up or just a hole in the ground. n

At the end of the day investing is still about deciding on your appetite for risk and from there making an informed decision. But the best way to be informed is to have insider knowledge within the rules of the game. www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

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

orgenesis

otcqb: orGs

leading the race Against type 1 diabetes

urrently, there is no cure for Type 1 Diabetes—but that may soon no longer be the case.

The history of the treatment for diabetes has been a long and winding road. It has been filled with enlightened breakthroughs beginning in 1910 when British physiologist Sir Edward Albert Sharpey-Schafer discovered insulin. Since then, science and technology has advanced dramatically, enabling Type 1 Diabetics to greatly extend their lives. However, a cure has been elusive and the medical industry has focused its efforts on disease management or improving disease treatments, such as providing better insulin administration possibilities or better diagnosis tools. Orgenesis, a cell therapy and regenerative medicine company based on the work of Pr. Sarah Ferber, is leading the charge. Out-ofthe-box thinking to develop an innovative solution has been required. The Orgenesis approach differs from others in the field because it is focused on providing a cure and enabling the patient to have his or her own insulin-production and regulation capabilities so they do not have to depend on external insulin injections. With more than a dozen years of research and development under its belt, Orgenesis has developed a novel therapeutic technology dedicated to converting a patient’s own liver cells into functioning insulin-producing cells as a potential cure for diabetes. This ground-breaking, patented technol-

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ogy will provide insulin-dependent Type I diabetics a new means of producing adequate levels of insulin, thereby mitigating or eliminating the need for external insulin injections. The process involves a patient coming into a clinic to have a liver biopsy (a very small amount of liver cells being taken out of the patient’s body). The patient goes home and the cells are sent to a central facility for expansion (the small amount will increase to a large amount) and, with the use of Orgenesis’ technology, are transformed (through a process called trans-differentiation) into insulin-producing cells. This process of expanding and transforming the cells requires unique manufacturing know-how. Orgenesis recently acquired a Belgium company, MaSTherCell, which is one of the few companies in the world with this expertise. The cells are then packaged

and sent back to the clinic for reinfusion into the patient’s liver. After reinfusion to the patient, these cells function as a replacement for the malfunctioning pancreatic cells. Pre-clinical animal testing has established a proof of concept (i.e. this approach has been proven to work in animal studies). Now, Orgenesis is gearing up for Phase 1 human trials in the US and Europe. Type I diabetes is a life-long disease that often begins in childhood, requiring insulin injections up to eight times per day. Orgenesis is working to develop a cure that eliminates this need and bring with it a number of benefits including long-term insulin independence, a single course of therapy, no need for concomitant immunosuppressive or immunomodulatory therapy and a return to near-normal quality of life. Orgenesis: (OTCQB: ORGS), www.orgenesis.com n

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

Getting Closer to Capitalizing on Cannabis

he global media frenzy surrounding the opening of Colorado’s legal marijuana market in early 2014 set off a bull market of magnitude that is rarely seen. By my measure, the stocks that represented the cannabis space went up by more than 600% on average in ten weeks, with several 20-baggers. The rally was fueled by a mismatch between a flood of interested investors looking to get in on the “Green Rush” and the limited number of companies to buy. Ironically, none of the companies that benefited from the bubble made a single dime in Colorado. In fact, most of these companies weren’t particularly leveraged to the emerging growth of a legal cannabis at all. A year and a half later, the market has suffered a brutal downturn, losing over 90% of its peak value. At the same time, though, the industry itself has advanced dramatically, with Colorado exceeding expectations, Washington progressing and Alaska and Oregon about to implement legal use for adults. In 2016, California and Nevada voters

n ALAN BROCHSTEIN

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will get a chance to weigh in. Additionally, medical marijuana program adoption continues to proliferate across the country. The “Green Rush” is very real. Now that pre-season or perhaps even the first inning is over, I believe that we are getting closer to a market that could attract long-term investors. Before I address the many positive dynamics, I want to point out that the current market isn’t quite there. First, the stocks are almost entirely on the OTC. Second, the vast majority of the 300+ publicly-traded companies look to be opportunists at best and not reflective of the real industry. Finally, federal illegality remains a huge challenge for the industry, particularly with respect to banking and taxation issues, and it also creates a risk that many investors don’t want to assume. Despite these challenges, I have seen some improvements on several fronts this year. First, quality is improving, as there have been a couple of companies go public through the S-1 route (rather than via reverse merger). The new Reg A+ could pave the way for more legitimate companies to enter the market as well. Second, at least some of the marijuana companies are actually in the marijuana business, with several holding state licenses to grow or dispense. Additionally, technology plays are emerging. Finally, the political landscape has improved, with an historical piece of legislation, the “CARERS Act”, introduced earlier this year into the Senate. It is clear that medical marijuana will be a topic of discussion in the Presidential election next year.

For those investors who are interested in the theme, there is a federally legal cannabis market that may be more attractive for now: Canada. The country rolled out a new medical marijuana program in April, 2014, and, despite a slow start, it is now showing strong growth. The government has awarded a limited number of licenses, and several of the licensed producers trade publicly (mainly on the TSX Venture). There is also an investment company that owns stakes in several of the private companies. Investors have the opportunity to invest in revenue-generating marijuana producers in a program in its early days, and I expect the growth will be torrid, with an outside shot at full legalization in the next few years offering a nice call option as well. The get-rich-quick market of 2014 came and went, but it appears to me that we are now moving towards a more sustainable investment opportunity in the public markets. Institutional and high net worth investors are moving into the market, as several private deals in excess of $10mm have closed. The transition from a black market to a legal one will likely afford investors and entrepreneurs tremendous financial opportunities in the years ahead. 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. www.420investor.com n MicroCap Review Magazine

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

Seed Capital Finds Private and Public Cannabis Markets Meteoric rise of PrivAte fUnds To date, 23 states have legalized medical marijuana and 15 states have legalized the use of Cannabidiol, a non-psychoactive cannabis compound, for the treatment of epilepsy and other conditions. The cannabis industry is predicted to grow to $8 billion dollars by 2019 from just $2.7 billion in 2014. In 2014, according to CB Insights data, cannabis businesses raised a total of $104 million from institutional and non-institutional investors who funded 59 deals, in contrast with $51 million invested in cannabisrelated businesses nationwide over the past five years. From the start of this year, deal activity and funding has increased dramatically, driven by private investment firms. Publicly traded companies grew from just 13 at the end of 2013 to about 300 today, 40 of which have raised a total of $95 million. The meteoric rise in the amount of capital available for funding start-ups and expansions has led Douglas Leighton of Dutchess Capital to remark: “There is too much money and too few deals”.

gap as savvy and successful business entrepreneurs are expanding their growth models from grow ops and products to ancillary products and services and related services. Often, little information is made public as to the companies that are being funded by these groups or the amount actually invested by the funds.

sumer consumption devices and consumer use companies. Dutchess has a portfolio valued at over $25 million and anticipates to add another $10 million in 2015. Dutchess has invested in the beverage company Dixie Ellixirs and the marijuana social media site Mass Roots (MSRT), which recently went public. Poseidon Asset Management is a marijuana hedge fund established in 2014 with the goal to raise $25 million. Poseidon is focused on software for point of sale, seed-to-sale, lighting software and ways to help patients. High Times Growth Fund was launched in 2014 and plans to raise $300 million in 2 years. Investments are expected to be in the $2 to $5 million range with a focus on ancillary services. Greeenleaf Joint Ventures provides capital for hemp products and has invested in Hemp Inc. (HEMP) and $250,000 in CrowdFundConnect. Mentor Capital has authorized $23 million to invest in Cannabis companies. Salveo Capital is a private equity fund with a target to raise $16 to $25 million

the leAders: too few deAls

too MUch Money To fuel the projected 37% annual growth, venture capital and cannabis focused private funds have emerged to fill in the funding

n ALAN SOUTENET

AND TODD DAVIS

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Privateer Holdings. In January, Paypal co-founder Peter Thiel’s investment firm Founders Fund made a multimillion-dollar investment in Privateer Holdings, a cannabis investment company, which raised $82 million to support Canna-businesses. Privateer operates a Canadian medical marijuana growing facility (Tilray), a data driven online resource (Leafly) and a global brand of cannabis products (Marley Natural) Dutchess Capital Markets targets con-

While we witnessed last year a concentration of capital in the cannabis grow facilities and infrastructure, capital has since then shifted to a new ecosystem of social media, technology startups and ancillary services. More noticeably, based on available information, the scope of funding actually disbursed to cannabis companies seems to pale in comparison to the amount raised by investment groups. MicroCap Review Magazine

The Rise of Social Media Venture capital is being funneled to B to C startup companies that provide services through apps that bridge suppliers with customers and whose early success depends on the acquisition of unique users and the creation of a community based on social media models. Cannabis users, both medical and recreational, form a close-knit community that thrives on social media sites. Those sites are able to gather invaluable data that can be analyzed and leveraged to target customers based on their preferences and increase their user base. A growing number of data centric, social media companies are driving the latest investment rounds: Eaze, a privately held cannabis delivery company, announced in April a $10 million Series A funding from a handful of venture capital firms. The lead investor in Eaze’s funding round was DCM Ventures with participation from Casa Verde Capital, a VC firm backed by rapper Snoop Dogg who himself seeks to raise $25 million to fund new cannabis ventures. Massroots, a social networking app, is trading as of April in the OTC Markets after raising $1.3 million in funding through the sale of securities to accredited and nonaccredited investors with the participation of Chardan Capital. The company claims to have over 275,000 users and has a valuation of $57 million on negligible revenue. This compares with Leafly’s $9 million annual revenue and a valuation of $425 million and Weedmaps’ $25 million annual revenue with a $300 million valuation Meadow, another young delivery startup company, received $120,000 in seed funding from Y Combinator in return for 7% equity. Another startup accelerator program called CanopyBoulder is offering $20,000 seed capital for 9.5% stakes in the startup. Ancillary Products and Services Ancillary product companies include advanced lighting technologies, soil and

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grow mediums, cultivations systems, energy management while ancillary services include alternate banking solutions, consulting, accounting, auditing, seed to sale inventory control and tracking, law firms, public relation firms, marketers, insurance companies. Medmen, a marijuana management and consulting company targeting licensed operations nationwide, raised $3.75 million from investors last fall. Flowhub, a next generation seed-to-sale platform for the cannabis industry, recently announced it closed a seed round led by Poseidon Asset Management, as well as a private placement by MassRoots, raising a total of $500,000. Funksac makes child resistant packaging raised $600,000 Oil Slick makes non-stick materials used to store cannabis concentrates and has raised over $1 million Edibles company Auntie Dolores has raised $500,000 through Arcview members Medicine Man, a Denver dispensary raised $1.6 million to finance grow facilities expansion.

Legal and Political Hurdles The reputational and legal risks associated with investing in cannabis companies is still keeping most institutional investors away. Private equity is very sensitive to the legal and political hurdles the industry still faces: banking options are limited, tax laws are punitive and eat away profit margins, the federal ban on cannabis limits public companies’ operations to ancillary products and services, as they are unable to realize revenue from the sale of cannabis products. As a result, the companies that get funded, with very few exceptions, are the ones that do not touch the cannabis plant and do not derive revenue from the sale of federally prohibited products. The political climate is shifting inexorably and the scale will most likely tip in favor of the legalization movement during the 2016

election cycle where 6 states are expected to have ballot measures for adult use of cannabis. Recent polls show that 85% of the adult population supports a level of legalization. A number of US senate initiatives have been proposed to de-schedule or reschedule Cannabis from the schedule 1 FDA classification, to de-fund DEA enforcement actions in legal marijuana states and to allow for the funding of medical research. Recently, the departure of DEA Chief Michele Leonhart has been viewed as a step in the right direction. Federal enforcement action is still a very present reality for cannabis entrepreneurs and investors are well aware that while the current administration keeps a non-committal stance, the electoral tide will eventually force Congress’s hand. The early stage seed capital infusing private funds is a precursor to an expected surge in main-stream funding over the next one to three years. Todd Davis Bio: Education: Northern Arizona University Bachelor of Science - Administrative Communications. CEO Endexx Corporation 1993-Present Investment Banker/Stock Broker 1990-2000 CEO/Consultant for multiple Small Cap companies 2000-Present Developer/ Analyst Pro17 market and stock forecast model 2008-Present As a Broker, Consultant and CEO Todd has participated in and managed/structured over 100 IPO’s, private placements and convertible debentures raising in excess of 100 million in the Small and Micro Cap arena over the last 22 years. Alain Soutenet Bio: Education: Nantes Law University, France, 19701974 Government Contractor, Embassy, South Africa, 1995-1997 Business Development Director, construction management software, 1998-2002 Real Estate Developer, renewable energy consultant, 2003-2009 President Global Solaris Group, renewable energy developer, 2010-Present General Manager, Endexx Corporation, 2013 to Present Strategy driven, experienced entrepreneur with over 30 years of management positions in multiple fields of industry for governments, corporations and private investment groups. n

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May, 2015 adds & subtracts off FINRA Member Firms irms

compiled by DAVID ALSUP

Financial Industry Broker Dealer Data Aggregator

6 New Formations... and 14 Withdrawals.

*Equities Firms Freefall ad nauseum. Total firms Replacement Ratio drops from 58 to 54% (New Formations:Three-‐year average is 10.4↓ per mo. BDW three year average is 20.9↓Closures per mo) 6 New Firms were admitted in May • 10 were equities trading firms. • 3 were Private Placement firms • 2 Firms admitted were equities oriented • •

• 1 firm was classified as Mutual Funds • 4 firms were closed due to mergers • 7 of these firms had less than Ten reps

3 firms admitted were Private Placement firms 1 Firm admitted was Mutual Funds

14 Firms Withdrew in May 18 month chart showing the number & types of firms admitted

20 15 10 5

Pvt

Mut F,

Other

EquiJes

0 5

11 10 20 17 15 12 11 19

11 12

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

18 month BDW Chart showing the number & types of firms that are closing

35 30 25 20 15 10 5 0 12 25 36 16 15 14 15 17

EquiJes

Mut F,

Other

Pvt

15 10 20 24 29 29 33 14 14

Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May

==========================================================================

As of May 31, 2015, there are 4089 FINRA Member firm CRD Numbers. (Note: There are some bankrupt firms still carried in CRD, such as Lehman Bros, & MF Global.) =========================================================================== The above data has been sourced from regulatory agencies publications' and statistics, along with some independent third parties. While it is believed to be reliable there can be no guarantee of the accuracy of the data. The numbers have been cross-checked for accuracy, and they should be within plus/minus two percent. For example, there may be as many as 8 firms NOT included in these statistics and NOT reported that filed for a BDW prior to May, 2015.

A David Alsup 949-468-0111 • david@fishbowlstrategies.com

Detailed analysis (or Customized) is available by Subscription.

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“Solving Tomorrow’s Problems Today”

“We believe

that profit can come with purpose, that companies can empower a community, that products can serve a greater good,

and that every business can beat

with a heart .”

Empowered By www.thebrewergroup.com

#SolveTomorrow 70 MicroCap Review Magazine

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

What I am Buying trAvelzoo (tzoo) Here is a company that has been public for over 12 years, that has seen some major highs and sadly some precipitous lows. You know I would not be writing on it, if this thing was at an all time high :-) Travelzoo is a relatively easy business to understand on the surface. It operates several web sites, none more famous that its own namesake, Travelzoo. They have over 25,000,000 subscribers that are looking for the best deals while traveling. Whether its hotels, air travel, or rental cars, Travelzoo is the place to go to when searching for great deals. As a parsimonious man myself, who likes to squeeze every dollar to the max, I have been a subscriber for years. Bottom line, its an awesome web site that has saved me thousands over the years.

As an investment, it is the opposite of awesome. For shareholders, its been downright lousy. The stock is at a ten year low, because management can not grow the top line. Being an Internet company in the white hot travel space means that you need to make more money year after year. In my eyes, the company has a unique niche and would have a significant amount of interest from the larger players in the space (Expedia, Priceline, some other big company flush with money). With the founders owning most of the shares, they run the show. In the meantime, here is a profitable company, that has a very unique product, with some things in the pipeline to jump start

top line again trading for a very inexpensive valuation. If you take out cash ($3.80 a share), you are paying $75 million for the entire company (at $8.95 per share). In my eyes, TZOO is the most undervalued public Internet company today, and should be on radar screens. Chris Lahiji is the founder and president of LD Micro, which is an investment newsletter firm that focuses on finding undervalued companies in the microcap space. Since 2002, the firm has published reports on select companies throughout the year. LD Micro concentrates on researching and investing in companies that are often overlooked by institutional investors. The firm also hosts the LD Micro “Invitational” and LD Micro “Main Event” MicroCap Growth Conferences for investors in June and December of each year, respectively. It is a non-registered investment advisor. n

n CHRIS LAHIJI

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

Online Reg D and Reg A+ Deal Platforms Ride Growth of Digital Capital Market

hile evangelists of “democratic capital” still await the rollout of retail investment crowdfunding promised three years ago in the JOBS Act, the other more institutional-leaning reforms of the emerging growth equity markets have largely been codified and introduced into the capital markets. The muchhyped revolution in small company finance and investment has arrived. Now we’re just waiting for the deals. Panelists discussing online Regulation D platforms recently at the Growth Capital Expo 2015 in Las Vegas indicated that deal distribution remained one of the industry’s primary challenges amid a plodding adoption rate among cautious investors. But they emphasized optimism about the fledgling industry’s prospects for success and an increase in the average deal size, which in early days has typically been around $5 million. They also predicted that platforms providing access to privately marketed Rule 506(b) and publicly marketed Rule 506(c) offerings would increasingly engage in partnerships with each other to create investor groups. And they expect the platforms to market Regulation A+ offerings in the near future.

n BRETT GOETSCHIUS

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“I think the future of this industry is the interconnectivity of platforms and the creation of not only a larger domestic marketplace, but also a global marketplace for investment,” said Chris Tyrrell, CEO of Princeton, N.J.-based OfferBoard Group, in a follow-up interview after the conference. “It’s already something that’s being done.” Tyrrell noted that a Los Angeles-based media firm was using OfferBoard and CrowdFunder to raise $2 million in a Rule 506(c) transaction, for example. He added that OfferBoard expects to announce other arrangements in which it will share deal flow with other platforms in order to increase the number of potential investors exposed to its deals. Since launching a year ago, OfferBoard has facilitated more than $25 million in private Reg D deals and is marketing roughly $475 million in current offerings. Similarly, Digital Offering, an affiliate of Newport Beach, Calif.-based Euro Pacific Capital that has secured $17.7 million in five Rule 506(c) transactions since launching in September 2013, is building out a private label technology package that would allow investment advisors and placement agents to display deals to their clientele, said Lou Bevilacqua, president and general counsel for the firm, before a packed room of EGC executives and investors at the Expo, held in mid-April at Caesars Palace in Las Vegas. In one of the many creative applications of the JOBS Act’s capital reforms, Torontobased InvestX is offering retail investors a chance to participate in later round deals alongside institutional private equity firms with which it has partnered, said Marcus New, founder and chief entrepreneur of the company. The private equity partners typically provide InvestX with a small slice of

the transactions, which it fractionalizes to its online investors – expanding the reach and size of the round. Like many of the digital capital startups, InvestX came to the Expo to both promote its platform and raise capital itself. InvestX was one of three emerging growth companies that competed in the conference’s “Lion’s Den” pitch event before a jury of growth equity investors led by Kevin Harrington, star of the TV’s “Shark Tank” show. “The education of potential investors is critical,” New said at the conference. Indeed, the idea of publicly marketing private placements is so foreign to some market professionals that they’re unable to embrace it, said Barry Grossman, a partner with the law firm Ellenoff Grossman & Schole, who moderated the panel. He recalled a recent seminar in which the firm provided a large investment bank with an overview of the rules governing Rule 506(c) and noted that participants eyed the concept warily. “The idea that you can do a public offering for a private deal just makes some people nervous,” Grossman said in an interview after the conference. “It’s just not something that people are used to, so in some cases it’s even about educating the major banks.” Although platforms have distribution channels from which to draw potential investors – Digital Offering has access to Euro Pacific clients, for example – to date issuer executives often find much of their financing from investors with whom they have relationships, Bevilacqua said. Visit GrowthCapitalExpo.com to learn more about next year’s Growth Capital Expo 2016, to be held May 3-5, 2016, at Caesars Palace in Las Vegas.] n

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Award Winning Business Lawyers for Over 25 Years

We make it so easy, even this baby gets it. See what some of our clients are saying about Lynne Bolduc: "We know, all too well, the difficulties involved in generating a following, backing and support in the Microcap space. I also want to commend you as well with the fact that you have earned tremendous respect and credibility with this network and b the brokerage community as a whole." - Clifford Grossman, CEO & Chairman, Ford Allen, Inc.

"I can't believe how lucky we are to have you on board. We really appreciate your conscientious effort, timeliness and most helpful professional advice." - Glen Var Rosenbaum, President, Corvus Technologies, Inc.

"I am a big fan of hers and she is someone that I would wholeheartedly endorse. She is the exception to the rule and a great lawyer for this kind of securities work." - Fred Newcomb, Owner & President, Newcomb & Company “Best, and least painful, unexpected legal process I have experienced” - Carl Costigan

Contact Lynne Bolduc Phone: 949.788.8900 | Email: lbolduc@fyklaw.com | Fax: 949.788.8980 16148 Sand Canyon Avenue, Irvine, California 92618 www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

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

Biotech Investing Five Basic Questions to Ask

here have been 51 healthcare IPO’s this year, nearly triple the amount of IPO’s of the next most active sector, technology. This is partially symptomatic of the market environment, as the NASDAQ Biotechnology Index has nearly doubled since 2012, attracting many new investors to the sector. However, the run up is leading to many questions, not the least of which is sustainability. Is this a classic bubble, characterized by issuers taking advantage of frothy multiples? Or is it a function of much more fundamental and profound changes in the sector? And how is the risk matrix in the sector changing? For new investors interested in biotech exposure, here are some basic things to consider: We believe the growth is a function of

n KARL DOUGLAS

MicroCap Review Magazine

fundamental changes in the way research is being conducted. In terms of drug discovery, three major factors have contributed to unprecedented advances. And all three are available because of historically cheap and dramatically increased computer processing power. These technologies have played a key role combined with genome sequencing to significantly increase the rate of medical biotechnology innovation. HTS or High Throughput Screening is a

1NASDAQ Biotechnology Index (NBI) 7/24/2013 - 6/23/2015, Source: Edgar Online www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

markets and completing microcap financing rounds through reverse merger transactions, SB1 and EGA IPO filings. We anticipate that Reg A+ will become a popular public financing pathway as the structure gains acceptance with buy-side investors and the SEC approval cycle is better understood. With fundamental industry changes accelerating the rate of discovery, and more and more biotech companies popping up in the microcap markets, how can microcap investors take advantage of these trends? First and foremost, address the basic fundamentals.

Five Basic Questions to Ask?

2Source - MSUWEB.MONTCLAIR.EDU – TYPICAL HTS LAB SYSTEM

concept that has been around for decades. It basically involves testing a vast number of synthetic or biological compounds for ability to modulate a biological target using a quantitative assay. HTS has been adopted by researchers as a standard protocol as they sift through a daunting number of compounds looking for the next “blockbuster drug”. The difference between HTS of thirty years ago and HTS of today is the level of technological innovation that has reduced the testing cycle time for a single compound from over one year to as little as four days. HTS is one fundamental change that has contributed to the increased number of potential drugs being identified, correlating directly to biotech capital markets activity. Bioinformatics is a second major factor contributing to acceleration of drug discovery. Imagine data mining of large networked databases that contain everything from genome sequences to detailed pharmacological properties of virtually every known compound. Bioinformatics software allows researchers to access vast amounts of information about molecules curated from published and unpublished bench research to understand the characteristics of specific

compounds for potential modulation of a biological target. For example, bioinformatics gives researchers access to pharmacokinetic data to “model” potential interactions with targets and to predict potential toxicity. The third major innovation is increased efficiency in genome sequencing. Genome sequencing is the foundation which has enabled researchers to make tremendous strides in understanding advanced biomolecular functions. The net effect of these three capabilities is increased efficiency in the research process resulting in a fundamental increase in drug discovery and therefore, capital markets activity. Many early stage R&D companies are taking advantage of momentum in the public

“What’s the burn rate?” That’s the infamous question always asked by VC’s, but for most early stage biotech companies that means cash on the balance sheet available to keep the company running to the next milestone. This should be a key critical risk indicator when considering any biotech investment. For issuers and investors alike, the primary risk in biotech is cash. With the full FDA clinical trials cycle often exceeding $800 million dollars, it’s one of the first due diligence items an investor should consider. Major biopharma companies such as Merck, Pfizer, Novartis and Sanofi, typically carry several billion of cash on their balance sheets. Pfizer for example carried roughly $35B as of 12/31/2014 and for the same period Merck, Novartis and Sanofi carried $15B, $14B and $11B of cash, cash equivalents and short term investments respectively. And to put the tremendous R&D cost in even better

Many early stage R&D companies are taking advantage of momentum in the public markets and completing microcap financing rounds through reverse merger transactions, SB1 and EGA IPO filings.

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MicroCap Review Magazine

capital infusions at competitive multiples when the funds are needed. Where this can be considered a risk mitigant, it makes sense to take a close look at financing documents, investment intent etc. to understand the investors longer term commitment to subsequent rounds. Rights of first refusal in term sheets are possible indicators of future intent. Of course it’s stating the obvious that if the companies fail to achieve their goals, it’s safe to assume the money will not be there regardless of original intent.

3Bioinformatics Data Output Source - Bioinformatics.cenicafe.org

perspective, keep in mind that they maintain those cash balances even though they are all already profitable. Some of the more exciting recent IPOs such as JUNO and KITE carry significant cash and maintain a market cap and trading profile that ensures continued access to capital. Although these companies are R&D companies, they are not microcap companies by any means. As of 12/31/2014 for example, Juno had roughly $355M of cash on the balance sheet. And Kite had roughly $368M of cash and short term investments as of 12/31/2014. In addition to liquid trading profiles, in many cases these companies have effective shelf registrations and powerful alliances such as the recently announced

Juno – Celgene alliance. By contrast, microcap biotech companies defined as those with market caps less than $300M, maintain substantially less cash. As a result when analyzing potential targets, future dilution should be considered a major risk. Who are the institutional investors sponsoring the deal? Dilution can be mitigated if a target has strategic agreements in place with larger biopharma companies. Additionally, several early stage biopharma R&D companies have gone public with significant equity investors such as VC’s on board. In many cases, these equity partners can serve as sources for R&D

Understanding the regulatory pathway is critical. Not all pathways are the same. For example, testing drugs for cardiac therapeutics are notoriously complex and expensive. 76

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Are partnerships in place or being considered? Strategic joint ventures and licensing are additional risk mitigants that can address low balance sheet capital for microcaps. We like strategic partnerships and joint venture partnerships a lot! Not only do they provide microcaps with a way to potentially finance the regulatory process, they provide management access to significant knowledge capital in terms of best practices in areas that many small companies lack experience in, such as manufacturing and commercialization. What are the costs of Phase 2 & Phase 3, and how will that be financed? Many biopharma companies are purchasing their pipeline in lieu of in-house research. And licensing deals are being cut earlier in the R&D cycle. If management are intending to out-license IP to a major during phase 2 or earlier, evidence of those discussions can verify likelihood of this type of deal. Licensing is becoming more and more popular, and in 2012, roughly 25% of licensing took place during phase2. Understanding licensing terms will also provide an understanding of financial viability, and provide a basis to understand forward valuation. Understanding the regulatory pathway is critical. Not all pathways are the same. For example, testing drugs for cardiac therapeutics are notoriously complex and expensive. Does management have a comprehensive plan post phase 1? What are projected costs

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4Source - BioPharm Insight - Q3 2014 League Tables

for Phase 2, 2b and Phase 3? And what are management’s plans for financing those activities? What is the competitive landscape for the specific therapeutic focus? Understanding the science is also a key due diligence point. Molecular biology is becoming increasingly complex, and there is an information asymmetry between biotech and finance which significantly impedes ability to effectively price risk. Hence we recommend that investors contract expert networks to do the scientific analysis. The broader the network’s expertise, the more likely the ability to provide specific insight and comprehensive understanding of investment risk. A “PhD” doesn’t necessarily qualify as an expert unless the PhD is in the specific therapeutic focal area. There are several expert networks that can provide the necessary insight.

With a clear knowledge of cash on hand, sponsorships and partnerships, financing milestones, regulatory pathway and the underlying science, the risk matrix starts to become much clearer. There are approximately 163 sub $300M microcap biotech companies listed in the US, almost half of which have market caps under $100M. And there are many private biotech startups, some of which will inevitably take the microcap pathway to obtain capital for R&D. Compared with the multi-billion dollar plus market caps of Juno, Kite and other, the microcap subsector of the biotech market clearly has its allure for some as they search for therapeutic analogs. Armed with some basic fundamentals, here are a few areas to further stack the odds in your favor. Orphan drugs, re-purpassed drugs and biologics represent areas where investors can potentially find value. Re-purpassed drugs offer developers the

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benefit of significant clinical data from prior studies to shorten the regulatory approval cycle for a particular therapeutic application. Orphan drugs, which are designed to treat rare disorders are also an interesting area. The Orphan Drug Act, ODA has provided many incentives for biotech developers. And the clinical trials are less costly than nonorphan drugs due to trial sizes. Biologics, defined as anything derived from or synthesized from biological sources, are also making major headway. Several CAR-T developers have reported significant efficacy for certain type a leukemia such as ALL. CAR’s are chimeric antigen receptors. This type of exciting breakthrough therapy reprograms a patients own immune system to attack specific types of cancer cells that were not recognized prior to reprogramming. Larger companies such as JUNO, KITE and Novartis are all working on areas such as CAR-T. And there are a number of microcap and small private companies working on similar therapeutic approaches. TCR’s or T Cell Receptors, Mab’s or monoclonal antibodies and certain stem cells based therapeutics are also biologics that hold significant potential. Global leader and co-founder of the BioCelerate Center for biotechnology research acceleration. Founded in Startup-Lab, BioCelerate is a biotechnology accelerator dedicated to helping leading global researchers access funding and tools to accelerate development of research translation. n

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

Looking For the Next Great MicroCap Stock I

t’s always been interesting to me that as investors move down the scale in market capitalization they tend to lower the amount of due diligence they perform on potential investments. Every minute detail of quarterly earnings from giants like Apple and Exxon Mobil is analyzed intently, but for microcaps the analysis often begins and ends with “it’s a good story.” But it is precisely those details that we love to pore over from the big boys that make any stock a good story. When those details are

not present, a stock can be a blow-up waiting to happen. Smaller companies provide less data to dissect than larger ones, but that actually makes the process of analysis easier and more straightforward. It’s just a matter of sticking to core investing principles. I only purchase stocks for my asset man-

agement clients at my firm Portfolio Guru, LLC that meet four key criteria. For inclusion in my portfolios a company must: • Participate in a large and growing market • Gain market share in that market • Have defensible intellectual property • Have a clear pathway to profitability

n JIM COLLINS

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I attend more investment conferences than any sane man should, and always remaining true to those four key principles saves me a great deal of time. The ability to instantly exclude three out of every four stories I hear allows me to fully focus on the worthy 25%. How do I perform the analysis? Let’s go through the four criteria individually and I’ll share some tips I’ve learned from 25 years of looking for the next great stock.

Market size and growth rate: The first source for this data should be management of the company in question. If the management team can’t instantly answer the market size/growth rate question--I experience this more than you might imagine--than you should be moving onto the next idea. Even if you don’t attend investment conferences, just head to the company’s website and download its most recent investor presentation. If the target market is not clearly delineated, than management is either trying to hide a less attractive opportunity or simply doesn’t know exactly what they are attacking. One note: third-party data is always most valuable. Usually this will come from an industry association, trade group, etc. If a management’s market data is sourced from “our own calculations” an investor must watch the inherent tendency to exaggerate, especially on the estimated long-term growth rate of the target market.

Market share data: Following on from the last point, an investor should look for independent sources to verify a company’s market share data. That is, assuming management is asserting market share growth. If the tone of the company’s public presentations is “we’ve lost some share, but we’re hopeful to regain it in the next few quarters”, I’m onto the next idea before that sentence has been completed. But, again, I want independently verifiable data to prove market share gains. Also, I want

to know from whom this company is taking share and why. Watch out for short-term market share gains driven by price-cutting. I’m looking for sustainable share growth driven by a superior product and that should manifest itself in steady, prolonged market share growth not quarter-to-quarter spikes. And don’t forget to fact-check. If Company A says “we’re taking market share from Company B” you must head to Company B’s website and make sure they are not making the same claim about Company A. Numbers can be twisted and data can be massaged, so always do your due diligence.

Proprietary intellectual property Due diligence is especially important when measuring intellectual property. I want to see issued patents, preferably ones that have been successfully defended in court. Infringement is the sincerest form of flattery! Obviously all patents begin as patent applications, so I don’t discard data on patents filed, but I certainly subordinate it to the company’s patent estate. Patent data is readily available from the U.S. Patent and Trademark Office, so go online an check it out. Also, most companies have a product that in some way shape or form needs approval from a regulatory body. Whether it is the FDA, FCC, FTC, etc. or private standards bodies like Underwriters Laboratories, you must investigate whether that company has received the necessary approvals to market its product. Also, remember it’s an interconnected world, so make sure to check whether that company is seeking/has won approvals from foreign regulatory bodies.

Pathway to profitability If a company participates in a growing market and is gaining share through a proprietary product or process, the company should be able to make a profit, right??? Small companies rarely have current profitability and GAAP accounting rules force

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companies to account for future expenses upfront. So, I’m not looking for a $20 million revenue company with $2 million in reported net income. I just want to make sure that when they hit $200 million in revenues that profitability is there. When I was a sell-side research analyst Fidelity was our firm’s largest client. Fidelity requires its analysts to use a very basic financial modeling technique. A company’s income statement should always be disaggregated into three factors: • Units • Price • Cost How many widgets can they make? How much does it cost to make one? Knowing those two factors and adding in fixed operating costs gives a very simple calculation for break-even. From that benchmark it is easy to ascertain what the company’s profitability will be once revenue rises above that breakeven level. Obviously those factors are easier to identify in some businesses than others, but, honestly, I have never found a company that I couldn’t model using Units/Price/Cost methodology. I started in equity research at Lehman Brothers as a 21-year-old and I’ll never forget the self-described job description of one of that firm’s highly-ranked analysts. He called himself a professional cynic, and to be a successful investor, you should be one, too. Use my four key criteria, don’t ever make excuses for companies that fail any/all of those tests, and your portfolio will be disaster-free. Jim Collins is the Founding Partner of Portfolio Guru< LLC. (www.theportfolioguru.com.) Collins preaches the gospel of income investing via his newsletter, The Portfolio Guru Post, and uses income investing principles to manage money for individuals on a fee-only, separately-managed account basis. Previously, Collins spent 10 years as an equity analyst in New York and London covering the automotive sector for Lehman Brothers, Donaldson, Lufkin & Jenrette and UBS. He holds an A.B. in Economics and History from Duke University and has completed the academic requirements for the CFA designation. n

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ac c O U N T I N G c O R N E R

Are You Ready for Lease Accounting?

ne of the most significant changes in accounting in recent history is about to occur. The long discussed goal of recording lease liabilities on the balance sheet is now almost certain. Other than a determination of the transition and effective date, the Financial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) have wrapped up their joint discussions on lease accounting, with final lease accounting rules expected to be issued by the end of the year. This means the liabilities for leases will be interest expense. Simultaneously, companies recorded as liabilities on a company’s balance sheet (leases under a year in duration are exempted). The liability will be reduced as payments are made, with the payments being allocated to principal reduction and

will record a leased asset upon inception, and such asset will be amortized to earnings over the life of the lease. Business and the world of financial reporting have been functioning quite well for

n BY cOREY FIScHER, cPa

MicroCap Review Magazine

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years without having the lease liabilities on the balance sheet, so why the need to change now? Well for one, there has always been a storm brewing within the accounting rulemaking community that something just did not seem right. Since leases are real contractual obligations requiring the use of cash, the regulators have been questioning whether the financial position of a company could be accurate without inclusion of these liabilities. As the years rolled on, and spurred on by the joint convergence project with the IASB, the move to bring leases on the balance sheet gained momentum. Secondly, while issuers were happy with the existing method, many analysts and other users of the financial statements always considered leases as real liabilities, and often had to do their own calculations to determine actual debt of the company. The FASB and IASB boards have finally acted on the requests of users and analysts to require the balance sheet reflect these liabilities. Almost every issuer of financial statements will be affected by this change. Most significantly, this change will affect companies that have significant real estate leases in multi-locations such as restaurants, retail stores and office units. Up until this point, most real estate and other leases were considered to be operating leases, and were not recorded on the balance sheet. Only a disclosure in the footnotes was made regarding the payment obligation. Other types of typical leases, such as major equipment leases whose terms were similar to ownership, will not be affected by this change because current accounting rules already provide for the recording of liabilities for capital leases. Management needs to analyze what effect the new accounting will mean to the investment community. The change in the accounting will mostly affect the balance sheet, which will now include a long term lease asset, and a long term lease obligation. The change to the statement of operations and earnings should be minimal as the new calculations of amortization of the leased asset and the interest on the lease obligation

Almost every issuer of financial statements will be affected by this change. Most significantly, this change will affect companies that have significant real estate leases in multi-locations such as restaurants, retail stores and office units. will generally emulate the straight line rent expense used now for operating leases. Long term projections should not be significantly affected by the change. However, management should start the process now of recasting its projections to ensure such changes do not materially affect previously disclosed forecasts and goals. In addition, management needs to consider how the inclusion of the new lease liabilities on the balance sheet will affect the calculations of leverage and other ratios used to monitor liquidity and performance of a company. Companies may find themselves in violation of existing bank or other financing covenants. Management will need to carefully analyze and identify what affect the new accounting will have on those indicators, and address those issues with lenders as soon as possible. The implementation could have been much worse. The changes in the new pronouncement only pertain to Lessees. It does not affect Lessor accounting. The initial exposure drafts included significant recording requirements for Lessors that would have been extremely onerous from both the preparer and user perspective. The initial drafts also included what could have been very complicated provisions for leases in determining lease term (renewal options) and impairment considerations. The FASB did a great job listening to the feedback, and eliminated most of those requirements. What is left is a pronouncement that is more practical and less theoretical. Lease accounting is on the horizon. It is not too early for management to start the

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process of addressing the issues that the impending new accounting requirements will bring. Most importantly, management should determine if it has the processes in place, and the human resources within its current accounting department to handle the increased reporting requirements. As often happens when implementing new accounting rules, preparers often encounter hidden complexities that may require the help of outside consultants. Once you have mastered the lease accounting, there is no rest for the weary. New revenue recognition rules are on the way too! Corey Fischer, CPA, is Firm Managing Partner of Weinberg & Company, a multi-office, PCAOBRegistered 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. He is based in Los Angeles, and is an expert in financial reporting, SEC compliance, raising debt and equity, mergers and acquisitions, and structuring accounting operations. Email: coreyf@weinbergla.com or 310601-2200. n

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DENNIS CABANTING, WOUNDED WARRIOR

HE LEFT TO DEFEND FREEDOM. NOW HE’S FIGHTING FOR INDEPENDENCE. Wounded Warrior Project® long-term support programs provide these brave men and women whatever they need to continue their fight for independence. At no cost. For life. Help us help more of these warriors in their new life-long battle. Find out what you can do at findWWP.org. www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

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V I E W P O I N T S

n BY Jack Leslie

Ombudsman F

INRA (Financial Industry Regulatory Authority) originally named SIRA (Securities Industry Regulatory Authority) which is a merger of a member organization called The National Association of Securities Dealers (NASD) and the New York Stock Exchange’s (NYSE) regulation committee.

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I have writen this Ombudsman because my friends at FINRA and many broker dealer member associates have asked me to bring to light concerns that have grown out of the control exerted by a private entity with far reaching powers beyond any judicial court, FINRA. I recommend the formation of a new and different Self Regulatory Organization (SRO) which should be in line with the principal that all of its dues paying members have input regarding new recommendations for sensible changes within the SRO. I write in the name of the Ombudsman to help resolve unfair practices. As Ombudsman I write in the interest of fair treatment and honorable decisions for all parties. FINRA is a private entity with limited information available regarding its power to control. Although FINRA is a non-governmental agency, it often acts in secrecy like a governmental agency. In fact the only ruling governmental agency is the SEC (Securities and Exchange Commission). The boundaries that FINRA has exceeded since its inception is cause for my concern. I am not alone when I say that FINRA is acting beyond its realm of authority. Why is it that FINRA limits one’s rights outside of a court of law? Why are FINRA employees given access to personal and business records of clients without conducting a full background check of these very same FINRA employees? In an era of unregulated crowd funding where a company raising money can advertise, solicit, and not be accountable, why does a broker dealer, a FINRA member, go through enormous lengths for simple business approvals from an entity that employs untrained and unregistered individuals? I was told by a high ranking person at FINRA that if they required them to be licensed that most employees would leave their jobs, require higher salaries, or would not pass a required test. Within FINRA there is system of adjudicating differences between various parties and this method of out of court settlement is called arbitration. Each arbitration panel is made up of an array of individuals that come from many walks of life. While this can seem positive the true fact is that the lawyers at the office of resolution have an input on all decisions. This influence often leads to judgements that walk a fine line of fairness. For instance; if a broker dealer is going through an examination by FINRA, the odds are that the unregistered, unqualified examiner has been told to find something wrong whereby a fine is issued by FINRA simply for FINRA employees costs of showing up. An SRO should concentrate on education, working with broker dealer members for improving skills, reporting procedures, continue the reminders of business ethics, and disclosure to make sure any new rules are explained without pointing fingers. I have been a consultant at arbitrations, asked to be an arbitrator, and have decided to withdraw from participation at this time. I have observed firsthand the enormous costs to a broker dealer, registered representatives, and supervisory personnel when required to attend an arbitration. Unfortunately there are usually no winners on either side except the lawyers who make money regardless of the outcome. It may be time to restructure FINRA to be a more transparent and accountable organization or eliminate them entirely. Has anyone done an accounting on the money spent by FINRA or what it is used for? Members must be careful and not outspoken for fear of retribution therefore as Ombudsman I feel it necessary to share my viewpoint. n www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

匀䔀䌀䘀椀氀椀渀最猀 ⴀ 堀䈀刀䰀 ☀ 䔀䐀䜀䄀刀 ⴀ 唀渀氀椀洀椀琀攀搀䄀渀渀甀愀氀匀攀爀瘀椀挀攀昀漀爀㄀䘀椀砀攀搀刀愀琀攀唀渀氀椀洀椀琀攀搀䔀䐀䜀䄀刀 ☀ 堀䈀刀䰀

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倀攀爀猀漀渀愀氀匀攀爀瘀椀挀攀

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

Silver: Dry Kindling Awaiting a Spark

or over four years, gold and silver have been in a cyclical bear market, within a larger secular bull trend. A number of times since silver’s May 2011 high at just below $50, they have swooned, built a base that should have held, yet dropped again. With silver at this writing, printing the lowest close since 2009, the few remaining bulls can be excused - as we often say - for “either being scared out or worn out”. The best way to make significant money with defined risk is to spot an investment vehicle that is out of favor, trading below production cost, moving into longer term deficit, yet needed and desired by people around the globe. A vehicle like silver. Our premise is that silver today is like dry kindling. Even as global demand driv-

ers India and China massively import, as Canadian Maple and American Silver Eagles notch record sales, even as producers at best make bleak profits - silver slumbers. In the harsh climate of Patagonia, where every variety of shrub is festooned with spines, the neneo plant goes one better. In summer it can dry out and lose color, which might lead you to assume that it’s...dead. But you would be wrong!

A Gold And silver shortcoverinG rAlly in the offinG. Counter-intuitively as silver prices have declined, physical buying and premiums on bars and bullion coins have increased . So,

what’s really going on? In the short term, silver’s “market price” is set by paper futures contract trading on the COMEX. Currently, gold and silver short sales are sitting at record levels, betting that prices will continue to decline. But at some point, those contracts have to be closed out. This is done by (reverse) offsetting . A short seller closes by going long (purchasing) an equal number of futures contracts. Remember, though, that adding contracts contributes to supply! Just as in the early days of the goldsmiths, when perhaps only ten percent of the people ever requested their gold, in futures markets, less than one percent actually stand for delivery! The recent Commitment of Traders (COT) Report shows a record 179,000 gold-futures

n DAVID MORGAN Patagonian plants in the background, dead?

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Not so!

contracts have been sold short. Silver short sales rose to record levels too. When the piper is finally paid, short offsets combined with new buyers going long more contracts have the potential to position silver and gold for an explosive rally. The mining sector is an additional pile of tinder for this volatile mix. The best producers have been beaten down 70 - 80% from their 2011 highs. Even exploration stocks with a viable resource estimate have been eviscerated by 90 - 95%. Several primary silver miners with additional working mines and mills over the last few years are producing near break-even at today’s prices, yet trade at a fraction of 5 year ago levels. One stunning example - A Yukon producer having some of the world’s richest silver grades - with operations in hiatus pending a silver price above $20 - sells right now for $US 0.34. This same company with one less mine a few years ago, sold for over $10, yet has cash in the bank and earns several million dollars a year from a subsidiary performing mining site restoration work. In mid-July, the Canadian TSX Venture Exchange (TSX.V), home to hundreds of miners, closed under 630, beneath the low posted at the height of the 2009 global melt-

down. (In 2011 it traded near 2,500, and in 2007 challenged 3,500.) What’s interesting though are the number of quality miners still trading 15 - 30% above their early 2015 lows - does the “smart money” know something most others do not? Adam Hamilton, looking at the landscape, concludes that, Radically-greater upside exists in the beaten-down gold and silver miners! This week, their leading index slumped to an astounding 12.1-year low. The last time gold and silver stocks traded at these dismal price levels, gold and silver were near $350 and $5! These miners are priced at fundamentally absurd levels today with gold and silver 3.3x and 3.0x higher - adding great leverage to the metals’ gains. By some calculations, gold sentiment is lower today than it was in 2001 - when gold was at $275/ounce. The Morgan Report published an in-depth study this year showing that $15 silver in inflation-adjusted dollars is as cheap now as it was at the beginning of the current secular bull run around 2002.

Bullish straws in the wind: * Silver is inflation sensitive - The new $15 minimum wage sweeping the country

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will elicit similar demands by workers higher up the food chain. * Silver prices “look ahead” - Silver anticipated QE2, which was in part responsible for causing it to surge from the $26 level to almost $50 the ounce. * The ‘Grexit’ issue remains unresolved - with other wannabe’ countries waiting in the wings to air their insoluble financial concerns to the ECB. * The “Dollar flight to safety” is merely a stop - on the way towards a flight from the dollar. The Exeter inverted financial Pyramid demonstrates that the next and last financial instrument rotation of this cycle will be into precious metals. *1980 was a “limited in scope” precious metals’ bull market. This time around, it will be a global phenomenon, with literally billions of new players/gamblers - all able to trade metals’ ETFs and mining stocks at the touch of a mouse - accessing instantaneous communications across the world in markets that never sleep - a run that could end up being one for the record books. * Alternate and Social Media bring increasing clarity - to what has long been an opaque trading process involving derivatives, re-hypothecation, High-Frequency Trading, central bank manipulation, pricing collusion, and more.

Don’t expect your bank to “ring a bell” at the next financial crisis. Even as the Greek financial “disease” heads toward our shores, U.S. banks have placed agreement language into your accounts, restrictions on cash withdrawals, “bail-in” terms which would force you to help pay for their mismanagement with a “hair cut”, ATM limits, and deposit box access restrictions as well as what you can keep in it. Stu Thomson understands what motivates “the government” and how they regard gold. Hint: It’s not what’s in your best interest. He writes: “In the fear trade, gold functions as an MicroCap Review Magazine

alarm. More importantly, if used as money, even in a limited way, it functions to limit government power from growing. That’s why governments hate gold more than they hate anything else; it stops their insatiable lust to grow bigger. Obviously, as the debt crisis arrives in America and other Western countries, YOU don’t want to be standing outside an ATM machine for hours every day, like everyone else will be doing. Hold some cash, some gold, some physical stock certs and book-entry stock certs, some bitcoin, and keep a rotating supply of things like powdered milk, water, vitamins, and a generator. American G-men are less likely than Greek G-men to give US citizens any advance notice of bank closures. Keep that in mind.” Other “straws in the wind” support the contention that the metals are priced well below where they “should” be. But given that today’s metals’ market is currently in a “show

MicroCap Review Magazine

me” mode, it will turn when and where if feels like doing so. But there is one thing we’re pretty sure of. When gold and silver decide it’s time to head North on a sustained, multiple-year basis, the biggest, lowest-risk profits are going to accrue to those investors who picked up some physical metal at modest premiums priced around current levels, a few carefully-chosen producers and streamers, and perhaps a “speculative” exploration play. If necessary, add scale down in tranches, with powder left over to pick up a crazy-cheap miner that gets knocked to the mat as the last of the “perma-bulls” coughs up the position. In hindsight the precious metals bulls were correct for 11 consecutive years, the bears for 4 years. But the ball game is not over, so you might check the score and prepare for the end of the game. Based on trends already in place, this outlook gives every indication of

becoming the End Game of all end games. Yogi Berra supposedly said - “Predictions are difficult, especially about the future.” But there’s one thing we’re pretty sure of. In a few years, we’ll be hearing from many of the people reading this report, and from a whole lot more - at the top. David Morgan, The Silver Guru, is Editor of The Morgan Report: Money, Metals and Mining. He presents frequently at conferences in North America, Europe and Asia, and is a regular on financial talk shows across the U.S. and Canada. You can learn more about his service at http://www.silver-investor. com/ and follow his perspectives at http://www.youtube.com/user/silverguru David H. Smith is Senior Analyst for The Morgan Report and a contributor to moneymetals.com He investigates and writes about precious metals mines and exploration sites in Argentina, Chile, Mexico, Bolivia, China, Canada, and the U.S. n

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

What are the Best Targets for Activist Investors?

here are two types of targets for an activist investor. The first type of target requires a simple and obvious solution. The second type of target requires a more complicated and detailed solution. Both types of targets can offer the investor rich returns, and we will look at both types here. tArGets with A siMPle And obvioUs solUtion These types of targets require that the activist win control of a board and implement changes with a narrow scope. In these cases, the activist selects the target, researches the target, figures out who the right people are to serve on the board, runs an election campaign to get the right people elected and then the activist steps back while the new board implements the needed simple changes. Overall, the new board will be implementing simple, tactical solutions that are narrow in scope. Such solutions include returning excess cash to shareholders in a dividend, share buy-back or debt refinance or restruc-

turing. The new board can also prevent management from wasting cash on foolish acquisitions. In these targets with a simple and obvious solution, the activist usually has an opportunity to end excessive corporate spending and to streamline corporate functions. Few things anger investors as much as lavish corporate spending. I assessed a target that had costly executive office space in New York City even though the firm and its management team were headquartered hundreds of miles away. The offices were rarely used. Another company I analyzed bought a

private jet and used it to fly the CEO and his family on vacations. The corporate jet was rarely used for a legitimate business purpose. A third firm hosted a corporate retreat for over a hundred executives and their spouses. The corporate retreat took place at a super luxury hotel in Europe. No business was conducted during the retreat. Inappropriate spending can take many forms. One management team I targeted built a swimming pool at corporate headquarters and insisted that only their family members could use the pool. Another CEO expensed his children’s private school

n ELIZABETH KOPPLE

MicroCap Review Magazine

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tuition. When an activist can identify such abusive patterns in advance, the activist can usually win the election by simply highlighting the abuses in the activist presentation and showing the presentation to ISS and to the shareholders. Nepotism can also be a problem. One microcap I studied in detail had nepotism at all levels. The board meetings looked more like family reunions. There were also transactions with outside suppliers owned by the family members of the top executives. Another company rented real estate at inflated prices from related parties. At all of these companies the path for activism was simple and clear cut. Show the shareholders proof of the inappropriate behavior, win the election, and then step back as the new Board of Directors fixes the problems.

Targets that require a more complicated and difficult solution To illustrate an activist target that required a complicated and difficult solution, we will highlight the example of Metropolitan Health Networks, Inc. (formerly, NYSE: MDF). This activist target required much more work to turn around, but fortunately the activists were able to recruit a superstar team to get the job done. An activist investor group installed a new Board at MDF in the spring of 2010. The stock was trading at $3.04 at the time with an enterprise value of $121MM. Activist shareholders had increasingly become disenchanted with a long history of poor decision-making, self-dealing and a lack of strategic direction at the Board level. The incumbent Board, in particularly, became at odds with the CEO, Michael Earley, and forced his resignation. Activist shareholders, along with a team of activist Board members, sided with Earley to take back control of MDF and institute a strategy for growth. Earley was rehired. Mark Stolper was one of six directors appointed to the new MDF Board. He was a key member of the www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

activist team. Stolper is the CFO of RadNet (NASDAQ: RDNT), the country’s largest owner and operator of medical diagnostic imaging services. His healthcare expertise along with his knowledge of financing and M&A added a great deal to the MDF Board. Once the new Board was established, the fortunes of MDF began to change. Earley’s management team and the New Board constructively evaluated the strategic opportunities and alternatives of MDF. Earley and his team were encouraged with the support and involvement of the New Board to reach out to industry players, evaluate business proposals and look at financing strategies. Board committees were established to investigate merger and acquisition opportunities, financing strategies and strategic expansion plans. In June 2011 MDF acquired Continucare. Continucare gave MDF an expanded contract with Humana and new relationships with United Healthcare, Coventry, and Wellcare. It nearly doubled revenue. By 2012, the combined entity was at a run rate of $700-$800 million in sales. Stolper worked in conjunction with Early and other Board members and advisors to structure the acquisition and related financing of Continucare. This acquisition was instrumental in ultimately attracting Humana as an acquirer, as the combination created the clear leader in Florida (the nation’s largest Medicare Advantage marketplace) in providing medical services to the senior population. MDF’s CEO Michael Earley and his activist-appointed Board worked together to improve key areas: Compensation • Re-engineered management compensation and option grants • Focused compensation on long-term operational success Operations • Expanded customer base beyond Humana M&A • Created the opportunity to acquire Continucare, one of MDF’s large • competitors in the Florida marketplace Financing • Negotiated a fully underwritten

• • •

$355MM financing from GE Capital related to the Continucare acquisition Supported an increased share buyback Gained equity research coverage Increased trading volume and improved liquidity

The successes of the team resulted in MDF being acquired by Humana in December of 2012 for $11.25 per share --a deal valued at $850MM. Annual revenue had grown from $350MM to over $700MM. Net Income, EBITDA and free cash flow increased significantly during this period. The value creation was made possible by the complex and involved work of the CEO and turnaround board. It was a huge success for investors. In any activist campaign, whether simple or complex, there are likely to be plenty of unknown elements. Learning to like surprises is a key driver of success. Elizabeth Kopple is the co Executive Director of the Activists Association. The Activists Association is a clearinghouse for activist ideas. If you have a stock that falls in to either of the two categories discussed above, and you would like to see an activist come in, make dramatic changes and unlock shareholder value, contact Elizabeth n

MicroCap Review Magazine

F E aT U R E D a R T I c L E

The Beginning of a Uranium Turnaround W

hen it comes to uranium, all the good news is buried beneath the headlines. You’ve no doubt heard that uranium prices – and stocks – are depressed. They have been since the 2011 Fukushima disaster. But have you heard that uranium prices have risen 30% over the past year? Have you heard that uranium demand is set to outstrip supply starting as soon as this year year? Have you heard that China alone has 28 nuclear reactors under construction, and another 100 planned? Or that it’s spending $2.4 trillion to expand its use by as much as 6,600% in the years ahead? These are just a few of the catalysts that will spur the bull market in uranium. And once that bull market gets going – I mean really gets going – it’s going to run on for at least a decade. Make no mistake, a 30% price spike is just

the start. Over the next ten years, we’re going to see uranium prices more than double, surging from less than $40 per pound today, to more than $80 per pound in just a few short years. How much higher it goes from there is anyone’s guess. But if you look at the underlying supply/demand dynamics, it’s not hard to foresee a persistent r!!br0ken!! Indeed, most analysts agree on a 40% increase in uranium demand over the next 10 years. But at current levels, uranium prices are too low to make mining the metal worthwhile. Worse than that, the five-year price swoon we experienced has been devastating for producers. There’s been a wave of mine closures and bankruptcies these past few years. There are just 20 companies mining uranium today,

n BY NIck HODGE

MicroCap Review Magazine

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down from more than 500 at peak production. That’s right. The crash in uranium prices wiped 96% of suppliers from the market. Now, 80% of the world’s primary uranium supply comes from just 10 mines. And future global supply is dependent on just five newly proposed projects. That hasn’t been a problem up until this point, because the world had adequate reserves to cover for declining production. But 2016 marks a huge inflection point for the industry. This is the first year that demand will actually exceed supplies, creating a 60,000-tonne shortfall by 2018. And that shortfall will only grow from there, as more and more nuclear reactors come online. That’s the demand part of this equation. See, the Fukushima crisis was enough to pause nuclear power development, but it didn’t stop it. It was just a brief hiatus. And now nuclear power projects are coming out of hibernation. Globally, 71 nuclear reactors are currently under construction, 165 are planned, and 315 are proposed. All those figures are greater than they were pre-Fukushima. China – a country whose pollution problem has become a domestic health crisis and an international embarrassment – is leading the way. It’s got 17 reactors in operation, another 28 under construction, and more than 100 planned. As a result, China’s uranium demand is set to soar 167%, from 6,296 tons per year now to 16,800 tons, by 2025. To put that in perspective, China only produces about 1,650 tons of uranium each year, or one-tenth of what it will soon need. It’s not alone, either. India is in a similar situation. It’s pledged to grow its nuclear power capacity from 5,000 megawatts, to 63,000 megawatts by 2030. And Russia aims to boost the share of electricity it gets from nuclear power to 25% in that time, up from 16% now. Great Britain and France — which already

get 75% of their power from nuclear plants — recently signed a joint declaration of cooperation on nuclear energy. And Poland has plans to build two plants that will contribute 15% of its power supply. Even Japan is restarting its reactors. Yes, despite the horrible aftermath of Fukushima, Japanese policymakers say the country will still count on nuclear power for a quarter of its energy supply. And right here at home, the U.S. has 99 operable reactors (the most in the world), five under construction, and 18 planned. What all of this adds up to is soaring demand for uranium in the years ahead. Industry consulting group UXC Consulting believes uranium demand will grow 61% by 2035 to 238 million pounds, up from 173 million pounds in 2014. And that may even be low-balling it. An early-2015 Morningstar report declared: We expect global uranium demand to rise 40% by 2025. Annual growth of 2.8% might not sound like a lot, but is massive for a commodity that has seen precious little demand growth since the 1980s. Consider that average annual copper demand growth of less than 3% from 2002 to 2012 was enough to drive a 336% price increase.

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Mined supply of uranium will struggle to keep pace amid rising demand and falling secondary supplies. Low uranium prices since Fukushima have left the project cupboard bare. We expect a cumulative supply deficit to emerge by 2021. These shortfalls should begin to have an impact on price negotiations in 2017 because utilities tend to secure supplies three to four years prior to actual use. We estimate prices must rise from $50 a pound to $75 a pound to encourage enough new supply. Mined supply must rise. And in order for that to happen, prices must rise. And they will, persistently, over the next decade. Now is the time to get in. Founder and President of The Outsider Club, and Investment Director of Early Advantage, Nick Hodge has been in the investment publishing business since graduating Loyola University in 2006. Known for a “call it like you see it” approach to money and policy, his insights have led to numerous appearances on television and in various outlets on the Web, including the Business News Network and Yahoo!’s Daily Ticker. n

MicroCap Review Magazine

ORI

P A G

Don Calvin D

onald L. Calvin, Founder and head of International Stock Exchange Executives Emeriti, Inc. (ISEEE), passed away on July 9, 2015 after a short illness. He was 83. Through his consulting firm, International Business Enterprises, Inc., Don was an advisor to many leaders in the financial services field around the world. He also served as Chairman of the Board of Directors of the National Stock Exchange until 2007. Don spent a significant part of his career at the New York Stock Exchange, rising to become a member of the Office of the Chairman and Executive Vice President. He retired from the NYSE in January 1987. Prior to joining the NYSE in 1964, Don had been a syndicate manager with the Chicago investment bank A.C. Allyn & Co, after becoming Securities Commissioner of the State of Illinois at age 26. Don attended Eastern Illinois University as an undergraduate, and obtained his law degree from the University of Illinois College of Law. Don was a Second Lieutenant in the U.S. Marine Corps during the time of the Korean Conflict. During his 23 years at the NYSE, Don was involved in the many changes that occurred in the securities industry during that time, such as the abolition of fixed brokerage commissions, the changes in the governance structure of the NYSE in the 1970’s, the implementation of the national market system dictated by the 1975 amendments to the Securities Exchange Act, and the formation of The Depository Trust Company (DTC), with Don serving as the NYSE representative on the DTC board for a number of years. Don was proud of the positive rela-

MicroCap Review Magazine

tionships he was able to maintain with the Commissioners and staff of the Securities and Exchange Commission during these often-contentious times. Don is one of the financial market influencers included in the oral history project of the SEC Historical Society. One of Don’s contributions to the business of the NYSE was his creation of the system of advisory committees, comprised of major influencers from various segments important to the Exchange. The International Advisory Committee, for example, enabled the NYSE to establish relationships with chief executives of large non-U.S compa-

nies, many of which ultimately listed on the Exchange. Don was also involved on behalf of the NYSE with the FIBV, the global trade organization of stock exchanges (now the WFE). This afforded him exposure to many exchange chief executives, a number of whom became his advisory clients following his retirement from the NYSE. Don continued to bring together international influencers by founding the ISEEE in 2009. It is a global educational organization of those who have held senior executive positions at, or been advisors to, stock or derivative exchanges. ISEEE facilitates the exchange of information among experts in finance and financial regulation, technology, and exchange management and operation. Don’s wife of 64 years, Louise, accompanied him on many of his overseas travels when meeting members of the global financial community and their spouses, which helped to fortify these relationships. In addition to Louise, Don is survived by his brother Kenneth, daughters Jane and Sally, and four grandchildren. Don was predeceased by his brother Robert and his son-inlaw, Frank Salvaterra. n

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   

      

             

 

      

   