MicroCap Review Winter/Spring 2016 by Planet MicroCap Review Magazine

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The Official Magazine of the MicroCap Stock Market Since 2006

WInter/sprIng 2016

Bellerophon Therapeutics, Inc. Page

NASDAQ: BLPH Jonathan Peacock, CEO www.bellerophon.com

Minerva Biotechnologies Corp. Retweet Page

Private Company Dr. Cynthia Bamdad, CEO www.minervabio.com

Delcath Systems, Inc. Page

BG Staffing, Inc. Page

F E A T U RDigg ED ARTICLES

mbleUpon

34 How Cool is This? Charles Payne 52 2016 MicroCap Trends – Why India? Wesley Ramjeet 40 How to Raise Money Under the 74 Natural Resources Overview Q&A with Rick Rule JOBS Act Georgia Quinn 80 Planet MicroCap Podcast – What I’ve Learned So Meets Technology Far Robert Kraft 44 Where Mining Technorati Jay C. Kellerman 88 CRISPR, Gene Editing Possibly the Biggest Biotech Advance Since Mapping the Human Genome Karl Douglas

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NASDAQ: DCTH Dr. Jennifer K. Simpson, President and CEO www.delcath.com

NYSE MKT: BGSF Allen Baker, Jr., CEO www.bgstaffing.com

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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 Lyons tony.lyons@msn.com GROWTH CAPITAL EXPO FINANCIAL CONFERENCE info@growthcapitalexpo.com 888-895-6807

ince the MicroCap Review magazine first published and printed in 2006, the magazine has focused its coverage on the Microcap stock market. Over this span of time the microcap stock market has certainly emerged and expanded in size and market capitalization with an estimated 10,000 microcap publicly traded securities currently listed in North America, listed on NYSE/AMX, NASDAQ, OTC Markets, Toronto Stock Exchange, TSX Venture and the Canadian Securities Exchange respectively. Yes the microcap market has come a long way from the printed Pink Sheets hand delivered each morning before 10:00 AM New York time to market makers. Over the years microcap investors have become a diversified growing community of educated consumers demanding and getting increasing transparency and regulatory oversight which has added more security to securities. Most investors have come a long way from buying 10 random stock picks chosen on rumor, hearsay or hunch, expecting that at least one of the 10 will be a winner and make enough money to cover the other 9 losers to a more sophisticated investor choosing a more thorough due diligence process using screeners, software, portfolio performance tracking, listening to experts on podcasts, subscription to newsletters, attending conferences, interviewing C-level execs and of course subscribing to www.stocknewsnow. com and reading MicroCap Review. Since the passage of the Jobs Act, private company capital formation is growing exponentially and in 2016 Crowdfunding is expected to surpass Venture Capital at over $34B per year. We can expect further growth of the equity market as venture capital continues to move online. Georgia Quinn’s article provides an expert comparison of Title ll, lll and lV, and is followed by our first Title lV,

Micro-Cap Review Magazine is published periodically. POSTMASTER send address Changes to Micro-Cap Review Corporate Offices. ©Copyright 2016 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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E D I T O R I A L Reg A+ equity crowdfunding ad page featuring XTI Aircraft. In 2015, we noted the Life Sciences sector had another comparatively strong bullish year while the Resource sector including commodities dependent companies like junior exploration precious metals companies continued in a multi-year bearish market. After the MicroCap Review’s team decides the issue’s theme, the layout, and collects all of the content, it’s my pleasure to write the editorial. This process is ongoing and is only finished after every story, ad, commentary, viewpoint and column is read and put to bed. We all recognize our responsibility of delivering poignant information, market matters, interesting featured companies and our expert’s insights to you, our readers. We recently received reviews and comments we are proud to share. Someone referred to us as the “Forbes of Microcaps”. We have been called the “MarketWatch of Microcaps” and a banker said to us at a recent conference, “I just want you know that my firm uses StockNewsNow.com and your digital magazine every day for microcap company information and market due diligence”. So whether you are a veteran or new comer to microcaps, MicroCap Review magazine is designed and dedicated to you. Thank you for your readership, subscription, support, feedback, sharing and for following us on social media. On behalf of the MicroCap Review magazine, StockNewsNow.com, and all of us at SNN Inc. we wish you a Happy & Healthy & Prosperous New Year in 2016. Shelly Kraft n

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

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May 3-5, 2016 | Caesars Palace, Las Vegas

Produced by SNN, Inc., publisher of MicroCap Review, and MarketNexus Media, publisher of Growth Capital Investor, the Expo will feature a full slate of educational programming, starting with the ever-popular Public Company Boot Camp, a half-day workshop for senior management and directors of emerging growth companies that are preparing to go public, or have recently completed a going-public event. The Boot Camp has become the must-attend program of the Expo for company management teams, and all indications are that this limited-seating workshop will be standing-room only again this year. The Expo begins in earnest the morning after the Boot Camp, when more than 600 emerging growth investors, advisors, and management teams gather for two full days of education, networking and investment presentations at the Caesars Palace Conference Center. Chief executives from 100 of the most-promising public and pre-IPO emerging growth companies will present to investors over the two-day period. Adjacent to the company presentation rooms, more than 600 one-on-one investor–management meetings will take place in our meetings lounge, facilitated by dedicated meetings managers and the Expo’s online scheduling app. Nearby, a full slate of expert panels will provide deep-dive analysis of market trends and issues impacting the emerging growth market, from regulatory and enforcement, to investment and trading strategies, deal structuring, hot sector niches and new sources of capital coming into the market. All of these activities will be connected by the Expo’s networking hall, the central hub for all attendees seeking to connect with a colleague, explore a new trade service being demonstrated, or grab a refreshment on the way to their next session or meeting. Last year, the Expo featured over 50 exhibitors in the networking hall, which buzzed with conversation and dealmaking the entire conference. Each day of the conference concludes with a fully-hosted networking reception – just the ticket to transition from business to fun in the nation’s entertainment capital, Las Vegas. Attendees can enjoy top-shelf libations and snacks hosted by Expo 2016 Premier Sponsor Friedman LLP while the Expo’s dedicated concierge secures a table or two for dinner at the city’s top dining spots to carry the good times into the warm desert night.

Early discounted registration for The Growth Capital Expo 2016 is available until March 1. Special discounted rates available as always for accredited investors. For more information and to register, go to GrowthCapitalExpo.com or scan the QR code with your phone. Produced by

MicroCap Review Magazine

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Fintech, Reg A and Online Offerings Promise to be Hot Topics at this Year’s Growth Capital Expo Opportunities in online public and private offerings, the white-hot financial technology and therapeutic cannabis product sectors, turnaround plays in the energy sector, and an expected acceleration of the small cap IPO market after last year’s second-half pause await emerging growth company investors as they usher in 2016. A resurgent equity private placement market funneled record amounts of capital into publicly traded emerging growth companies, raising $14 billion in 782 deals into companies of less than $500 million in market cap – a 16% increase in deal closings and a 30% increase in capital investment over the prior year, according to PlacementTracker. Financial sector issuers lead the way in 2015, attracting 32% of the capital raised in the EPP market, followed by energy-related companies, with 21% of new investment dollars, healthcare with 13%, and tech with 9.3%. EPP Investment 2015 New equity offering options became available last year that will fuel growth in the nascent public venture market in the U.S. Reforms of the Regulation A and Reg D exemptions have opened up the emerging growth capital markets to technological innovation that promises to transform the way capital is raised by young companies. The new Reg A+ rules have been effective for just six months and already several young technology, life science and fintech companies have qualified public offerings seeking to raise nearly $100 million according to The Reg A Report.

■ Financial ■ Energy ■ Healthcare ■ Technology ■ Communications ■ Industrial ■ Basic Materials ■ Consumer ■ Utilities

Source: PlacementTracker, Sagient Research

Meanwhile, in the private emerging growth equity market, the repeal of solicitation bans on Rule 506 offerings has opened the door to online marketing and execution of equity raises by pre-IPO companies that is transforming how investment in young growth companies will take place in future. Private growth companies raised some $870 million in solicited Rule 506 offerings tracked by crowdfinance research firm Crowdnetic thru September 2015, putting online crowdfinance on a track to becoming a new billion-dollar source of capital for small growth companies. The excitement around retail crowdfinance has fueled institutional investor interest in financial technology plays that support the scores of companies that have sprung up to serve as online markets for these offerings. It has made fintech one of the hottest sectors for new investment in the emerging growth sector. Marijuana industry market cap, daily close

Another area of investor focus in 2015 that is garnering increasing interest from institutional investors in 2016 is legal marijuana-related companies. Bloomberg reports that the 55 largest publicly traded marijuana companies collectively total over $3 billion in market value. Despite often wild volatility in this sector, investor enthusiasm for this nascent industry, combined with an insatiable appetite for capital by the largely development-stage companies within it, assure continued attention in 2016.

$8b

Source: Bloomberg 2012

2013

2014

2015

These emerging growth investment opportunities and themes will be the focal point of three days of expert presentations and discussion panels at The Growth Capital Expo 2016, the third annual conference on market for emerging growth company finance, on May 3-5 at the Caesars Palace Resort and Casino in Las Vegas.

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MicroCap Review Magazine

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 nationâ&#x20AC;&#x2122;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 RegÂ A+ process, institutional Reg D crowdfinance, distressed debt/equity swaps, accredited investor qualification andÂ 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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CONTENTS WWW.MICROCAPREVIEW.COM WINTER/SPRING 2016

F E AT U R E D A RT I C L E S 69 New Formations By David Alsup

34 How Cool is This? By Charles Payne

38 Will Virtual Reality Really Replace the Smartphone? 74 Natural Resources Overview Q&A with Rick Rule By Sean Peasgood 40 How to Raise Money Under the JOBS Act By Georgia Quinn

78 MicroCap Outlook 2016 By Jim Collins

52 2016 MicroCap Trends – Why India? By Wesley Ramjeet

80 Planet MicroCap Podcast – What I’ve Learned So Far By Robert Kraft

54 A Cutting-Edge Gold-Recovery System with Game-Changer Potential By David Morgan

88 CRISPR, Gene Editing Possibly the Biggest Biotech Advance Since Mapping the Human Genome 64 Comparing Different Ways to Go Public in the U.S. By Karl Douglas By John Lowy

Resources Corner 28 Digging Deep to Find the

Asia Corner 62 Hong Kong Equity Market

Bottom By Nick Hodge

Update: Hong Kong Top IPO

Compliance Corner

Market in 2015

33 Go Public or Stay Private By Larry Washor

Green Tech Corner 36 The D-Word By Darren Eng

Cannabis Corner 50 Cannabis Investors Have Reasons for Optimism in 2016 By Alan Brochstein

Commodities Corner 56 2015 Commodities in Review By Mark Shore

Life Sciences Corner 60 2015: The Year in Review Top 10 Biotech / Life Science Stories By Seth Yakatan

By Leslie Richardson

Legal Corner 66 Ask the Legal Experts By Eric Hellige and Francesca Djerejian

Accounting Corner 82 Auditing the Auditors By Corey Fischer

Comic Strip 84 WallStreet Chicken - Episode 13 “Compliance Dilemma”

Opinion 44 Where Mining Meets Technology By Jay C. Kellerman 86 It’s All About the Debt, ‘Bout the Debt, no Cash Flow

Proﬁled Companies 8 Minerva Biotechnologies Corp. Private Company 12 BG Staffing, Inc. NYSE MKT: BGSF 16 Delcath Systems, Inc. NASDAQ: DCTH 20 Bellerophon Therapeutics, Inc. NASDAQ: BLPH 24 Ironclad Performance Wear Corp. OTCQB: ICPW 30 The Singing Machine Company, Inc. OTCQB: SMDM 47 Sonasoft Corporation OTC PINK: SSFT 68 Powerstorm ESS Modular Energy Storage Solutions (MESS) OTC PINK: PSTO 70 DelMar Pharmaceuticals, Inc. OTCQX: DMPI 91 Provectus Biopharmaceuticals, Inc. NYSE MKT: PVCT

By John Brda www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

MicroCap Review Magazine

PROFILED COMPANY

minerva Biotechnologies Corp. private Company

inerva Biotechnologies is a small company doing big company science toward curing cancer. The Company discovered what are arguably the two

most important targets for a cancer drug, and has issued patents nailing down the corner stones of this drug-target space.

Dr. Cynthia Bamdad CEO

MicroCap Review Magazine

Minerva’s approach is very different from what anyone else has ever attempted. Instead of trying to kill cancer cells, the Company is developing drugs that reprogram the cancer cells to make them healthy again. Sound like science fiction? Dr. Shinya Yamanaka and Sir John Gurdon won the Nobel Prize in 2012 for their discovery that a person’s adult skin cell could be reprogrammed to go back in time and become that person’s own stem cell just by temporarily re-activating four genes. We already knew that stem cells mature or ‘differentiate’ and become adult cells. In combination these two discoveries led us to the conclusion that the pathway from stem cell to mature adult cell is bi-directional, and is triggered, in either direction, by altered expression of just a few genes. Minerva discovered that cancer cells and stem cells grow by exactly the same mechanism. The same two molecules (a growth factor receptor and its activating growth factor) make stem cells grow, and make cancer cells grow. This finding argues that cancer is caused by the accidental activation of a Yamanaka-like program that brings adult cells back to the stem cell stage. This predicts that the most aggressive, metastatic cancers would look like the very earliest stem cells, called ‘naïve’ stem cells. These exist only for the first few days of embryo life. The paradox is that stem cells cease replicating, but cancer cells do not. The question is how do stem cells know when it’s time to

stop self-replicating and mature, but cancer cells do not? By studying cancer cells and stem cells in parallel, Minerva scientists elucidated, at the molecular level, how stem cells limit their self-replication. This discovery led us to the mechanism cancer cells use to override the stem cell’s natural ‘shut off ’ switch permitting cancer cells to continue self-replicating forever. These fundamental insights into the basic science of cell growth led Minerva to a novel approach to treating cancer. Simply put, the key to curing cancer is to induce cancer cells to mature; in the absence of a Yamanaka-like process, mature cells don’t keep dividing. Minerva discovered the mechanism by which a growth factor receptor known as MUC1* (pronounced muk 1 star) drives the growth of both stem cells and cancer cells. MUC1 is a transmembrane protein that is naturally found on epithelial cells. However, on stem cells and cancer cells, an enzyme clips it at a position that releases most of its extracellular domain into the bloodstream. MUC1* is the transmembrane portion that remains. Importantly, cleavage and shedding of the bulk of the extracellular domain unmasks a binding site for a powerful growth factor that binds to and activates MUC1*. Activated MUC1* stimulates growth and blocks differentiation. MUC1* is expressed on over 75% of all solid tumor cancers. At Minerva, we developed an antibody that specifically binds to

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Minerva discovered that cancer cells and stem cells grow by exactly the same mechanism. The same two molecules (a growth factor receptor and its activating growth factor) make stem cells grow, and make cancer cells grow. MUC1* and blocks the binding of its activating growth factor, which in turn blocks cancer growth. Minerva scientists showed that this antibody inhibits the growth of any cancer that expresses MUC1*. Antibodybased drugs, also known as biologicals, have fewer side effects and are more effective than chemical-based drugs. When our antiMUC1* antibody is injected into animals bearing human cancers, tumors growth is inhibited. Closer examination of the excised tumors revealed that treatment with the anti-MUC1* antibody made the cancer cells initiate differentiation the way that stem cells naturally mature.

the biomolecules that cancer drugs target are just expressed more on cancer cells than on healthy cells, which could be a safety concern for immunotherapy approaches. However, Minerva believes it has discovered two novel cancer targets, which should not be expressed on normal cells but are abundantly expressed on cancer cells, making them ideal targets for cancer immunotherapy. We are currently developing cancer immunotherapy constructs that target novel antigens in the MUC1* pathway.

Minerva has AntiMetastatic Drugs in the Pipeline

Cancer Immunotherapy Minerva’s lead antibody candidate drug will be a straight monoclonal antibody and similar technology will also be incorporated into one or more of the emerging cancer immunotherapies systems, such as CAR T (Chimeric Antigen Receptor T cell), BiTE (Bispecific T cell Engager), and ACT (Adoptive T Cell Therapy). Cancer immunotherapies activate the patient’s own immune system to attack the cancer cells. Their technologies have had great success in treating blood cancers. However, solid tumor cancers (which make up about 90% of all cancers, 75% of which are MUC1* positive) pose unique challenges that cancer immunotherapies have not yet been able to conquer. A key challenge in the development of cancer immunotherapies is the lack of a clear drug target that is expressed on the cancer cells but not on the healthy cells. Usually,

Blocking metastasis is essential to curing cancer. Many cancer treatments have rid the patient of the primary tumor, yet the patient succumbs to a recurrence, usually at a distant site. Many lines of evidence support the notion that within the tumor, there are cancer stem cells also called tumor initiating cells. In theory as few as one of these cancer stem cells that breaks free from a tumor is sufficient to cause a metastasis. Surgery can-

not guarantee that all the cancer cells have been removed and it appears that cancer stem cells have enhanced motility which increases the likelihood they can break free from the original tumor, lie dormant, then come back years later to kill the patient. Minerva identified a single growth factor that when injected into animals bearing human tumors, causes them to metastasize. The Company has also developed antibodies that block the transition of regular cancer cells to the metastatic cancer stem cells. Minerva is currently developing these antimetastatic antibodies to treat and prevent cancer metastasis.

Stem Cell Reagents Recall that Minerva discovered that cancer cells and stem cells use the same two molecules to grow and that cancer cells override the stem cell shut off switch so that they self-replicate forever without differentiating (maturing). Minerva has taken advantage of the tricks that cancer cells use to keep self-replicating to develop a product line of next-generation stem cell reagents that make human stem cells grow in the Holy Grail state, called ‘naive’. Scientists believe that having stem cells in the elusive naïve state is essential for the full realization of human stem cell therapeutics. Minerva discovered the primitive growth factor that makes stem cells grow in the naïve state for the first few days of an embryo. It alone is sufficient to make human stem cells grow in the true naïve state. The Company can make this primitive growth factor,

The Company has also developed antibodies that block the transition of regular cancer cells to the metastatic cancer stem cells. Minerva is currently developing these anti-metastatic antibodies to treat and prevent cancer metastasis.

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It is most likely that the striking similarities between the growth and other characteristics of stem cells and cancer cells is not coincidental, and Minerva’s success in controlling stem cells is proof of principle of its novel approach to controlling cancer cells.

Minerva has developed the ability to grow, differentiate and manipulate stem cells in a way that was heretofore thought impossible. It is most likely that the striking similarities between the growth and other characteristics of stem cells and cancer cells is not coincidental, and Minerva’s success in controlling stem cells is proof of principle of its novel approach to controlling cancer cells. NME7AB, inexpensively and at industrial scale. Minerva’s discovery and the science behind it is described in a peer-reviewed research article, “A Primitive Growth Factor, NME7AB, is Sufficient to Induce Stable Naïve State Human Pluripotency; Reprogramming in this Novel Growth Factor Confers Superior Differentiation”, which will be published in the January issue of the journal Stem Cells, which is also available online (DOI: 10.1002/ stem.2261). Minerva’s sells a line of stem cell products on its website, including its proprietary growth factor NME7AB, a xeno-free stem cell adhesion surface that replaces the need for mouse feeder cells and a synthetic peptide that blocks the pluripotency signal and forces the stem cells to differentiate when desired so eliminates the risk of teratoma formation in patients receiving stem cell therapies. In addition to stem cell growth reagents, the Company sells human naïve state induced pluripotent stem (iPS) cell lines. Under license agreements with iPS Academia Japan and ID Pharma, Minerva has the right to generate and sell naïve state human iPS cells, as well as adult cells, such as cardiomyocytes, hepatocytes and neural cells that have been differentiated from them. Further, Minerva has the right to perform fee for service commercial activities, such as generating stem cells for personalized banking, and using stem cells and cells differentiated from them

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Business Strategy

for research and drug toxicity testing. Minerva Biotechnologies is the first and only company to generate human stem cells in the naïve state using a single, naturally occurring human stem cell growth factor. Previous attempts to grow human stem cells in the elusive naïve state, which used cocktails of expensive biochemical inhibitors and mouse growth factors, developed abnormal karyotype. Naïve stem cells generated with Minerva’s primitive growth factor have stable karyotype and are made with defined components so they can be FDA compliant. Although Minerva doesn’t need FDA approval for any of its commercial activities, the Company plans to apply for a special designation from the FDA so that companies engaged in treating people with stem cells can use stem cells grown with the Minerva system without having to get separate approval for the stem cell growth reagents. The Minerva system is free of feeder cells, conditioned media, exogenously added cytokines or growth factors, other than NME7AB. Stem cells cultured in the Minerva system remain essentially 100% pluripotent, requiring no manual dissection or other manipulations that would interfere with large scale production and automated stem cell culture. Minerva has developed the ability to grow, differentiate and manipulate stem cells in a way that was heretofore thought impossible.

Minerva currently sells its stem cells and stem cell growth products to the key opinion leaders in stem cell research. The Company is actively pursuing out-license agreements for research use of the stem cell growth factor as a media component, and use of the entire stem cell growth and differentiation system for the creation of various stem cell therapeutics worldwide. Therapeutically, the Company is squarely focused on getting FDA approval to test in humans its anti-MUC1* anti-cancer therapeutic, first as a straight monoclonal antibody and secondly integrated into a cancer immunotherapy format such as a CART. Minerva is developing a third anti-cancer drug that specifically inhibits or prevents metastatic cancers. With our broad understanding of the growth of cancer cells, we expect our platform to generate other novel oncology targets in the future. Minerva intends to seek a development partnership with a larger biotech or pharma within the next few years as we obtain clinical data in humans. n The company paid consideration to SNN or its affiliates for this article.

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MicroCap Review Magazine

PROFILED COMPANY

Bg staffing, Inc. nyse mKt: Bgsf

G Staffing is a significant provider of temporary staffing services in the U.S. across a diverse set of industries. It was selected by Staffing Industry

Analysts (in three of the past four years) as one of the fastest growing companies in a large and growing industry. The Company currently pays a $0.25 quarterly dividend (a 7.2% yield as of 11/30/16).

Allen Baker, Jr., CEO

Temporary Staffing is a significant sector within the Staffing Industry. Temp Staffing is both a large ($121 billion) & growing (5%) industry, according to 2016 industry statistics. In 2007, when BG Staffing was purchased by a private equity group, it had the basic ingredients upon which a much larger and profitable business could be built. By 2009, with the Company underperforming, the investor group brought in 17-year industry veteran L. Allen Baker, Jr. as the new CEO, and refinanced the Company. With a dynamic and highly experienced executive now guiding the Company, BG Staffing has consistently executed on what is thus far a successful five-year growth & diversification profile. BG Staffing is delivering on its business model --and views both organic growth (15+%) and accretive acquisitions as equally important contributors to the continued success of the Company. BG

continues to actively diversify its temporary staffing offerings - both in terms of skill sets and geography served. Baker had previously built, grown and successfully sold a temporary staffing company, before embarking on a seven- year period making accretive acquisitions for a company in another industry – before again successfully selling that business. In 2009 he sought to return to temp staffing and build his second successful staffing company. His business plan, like many good business plans, was simple…all it needed was great execution. The plan was to take the existing business -- which provided Temporary Staffing in only one market segment and only one geographic area -- and to grow not only that segment (“Commercial”), but to expand both the skill sets offered by the Company, and also its geographic footprint. One of the criteria for choosing skill sets was

BG Staffing recently received its first independent research coverage by a highly regarded industry analyst. The report has a BUY rating and an $18 per share 12-month price target. 12

MicroCap Review Magazine

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Revenue

1 2

Adjusted EBITDA2

Includes organic growth and growth from acquisitions Non-GAAP Financial Measurement

to select those which have higher gross margins than the Commercial segment. Over the next five years, in addition to achieving significant organic growth, Baker made seven accretive acquisitions and successfully integrated them - resulting in a new BG Staffing. The new BGSF generated $193 million in revenue in the LTM and recorded $15 million in adjusted EBITDA. The Company presently operates in 19 states and provides Temporary Staffing in three distinct segments. And…it pays a $0.25 quarterly dividend. Baker points out that the skill set and geographic diversification strategy not only provides a growth opportunity, at the same time that diversification also has defensive benefits. If one area of the country is experiencing financial difficulties or contraction, another section may be growing. The same applies to skill set offerings and availability of temporary workers. When the expansion program was initiated, “Commercial” workers were the only temporary staffers provided. This category of business generates a relatively low gross profit margin. The “Professional” and the “Multifamily” segments, while delivering skill set and geographic diversification, also generated significantly higher gross margins.

Multifamily Segment Owners of large apartment complexes have a need for temporary workers. When an apartment complex is built, the units need to

be rented and require several leasing agents/ staff. Once the complex is mostly rented, there might be a continuing need for only one rental agent. Also, in the summertime, there is often is often a need for a number of temporary staffers to deal with air conditioning problems or other maintenance issues. BG Staffing supplies temporary personnel including: managers, assistant managers, rental agents, maintenance staff, supervisors, HVAC, grounds keepers and painters. Having entered the Multifamily segment in 2010 with one office in Texas, the Company believes that it is now the single largest supplier of Multifamily temporary workers in the country. This segment has grown to now have 21 offices in 12 states. Through Q3 Multifamily generated approx. $32 million in revenue (21% of revenues with 35.3% gross profit margins).

Professional Segment While the Professional segment of temporary workers is fairly broad, BG Staffing currently provides staffing in two professional areas, Finance & Accounting, and

Information Technology (IT). In the Finance & Accounting area, BGSF provides controllers, accountants - from clerks to managers. It also provides temporary staffers in purchasing, HR and administration. The strong growth in the temporary Finance & Accounting field is expected to continue. The clients in this area may be described as small to medium to Fortune 500 companies. The Information Technology (IT) subsection of the Professional segment has also been a sector in which BGSF has seen strong growth. National accounts are served by ‘Have Skills –Will Travel’ professionals with skill sets including SAP, Workday and Oracle Gold Partner. This Professional segment services the entire country from five offices in five states. Through Q3 the Professional segment generated approx. $56.7 million in revenue (37.6% of revenues with 23% gross profit margins).

Commercial Segment Supplying temporary workers in the Commercial Segment was the Company’s

Having entered the Multifamily segment in 2010 with one office in Texas, the Company believes that it is now the single largest supplier of Multifamily temporary workers in the country.

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BG Staffing up-listed to the NYSE MKT in October 2014

first line of business in 2009. BGSF places fork lift operators, production workers and pickers & packers to its Commercial clients. It also provides clients with light assembly and light manufacturing workers as well as general laborers. While one of the goals was to diversify both BGSF’s geographic footprint and the skill sets provided, Baker still saw value in growing the commercial segment. And grow they did. Commercial staffing has grown from two locations in two states, generating $32.2 million revenue in 2010 to $62.3 million revenue through Q3.

Formula For Success – “Keep Doing What We’ve Been Doing” Having enjoyed five extremely successful years, the questions posed to Baker is, “What do you see for the next two or three years?

What can you change or improve on to make things better?” Baker replies, “For the foreseeable future, I don’t see major changes in the economy or impact on the growth of the Temporary Staffing industry. I think the general economy will continue to show weak to moderate growth. The Staffing Industry Analysts forecasts that our industry will grow by 5% next year.” Continues Baker, “You ask what we can change to improve our results and I say ‘If it’s not broke, don’t fix it.’ Having said that, we are constantly working to organically grow and improve our operations. We focus every day on making our operations more efficient. Our plan is to continue to do so. “We will continue to look for acquisitions that 1) are accretive (gross margins above 22%), 2) which grow & diversify our business geographically or by skill sets offered… or both, 3) where we can add and retain

skilled and experienced management, and 4) fit within our corporate culture.” Even with its five-year record of successes in building its business, BG Staffing presently flies below the radar of the financial community. The principle reason for this is that the instead of taking the traditional IPO path to become a publicly traded company, in November 2013 BGSF went public by way of the Jobs Act (by filing the necessary financial information and paperwork with the SEC). BGSF did not have the benefit of an IPO - wherein typically an underwriter introduces the Company to the financial community. BG Staffing is making progress to overcome this lack of exposure issue and believes that the recent research report and Buy recommendation published by a highly regarded analyst is part of that solution. n The company paid consideration to SNN or its affiliates for this article.

BG Staffing is making progress to overcome this lack of exposure issue and believes that the recent research report and Buy recommendation published by a highly regarded analyst is part of that solution. 14

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PROFILED COMPANY

Delcath systems, Inc. nasDaQ: DCth

elcath Systems, Inc. (NASDAQ: DCTH) is a specialty pharmaceutical and medical device company focused

on the treatment of primary and metastatic liver cancers.

Dr. Jennifer K. Simpson, President and CEO

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The Company’s proprietary product---Melphalan Hydrochloride for Injection for use with the Delcath Hepatic Delivery System (Melphalan/HDS)---is designed to administer high-dose chemotherapy to the liver while controlling systemic exposure. Delcath is in late-stage clinical development in the United States with initial commercial activities in Europe, where the Melphalan/HDS is marketed as a CE Marked device under the trade name Delcath Hepatic CHEMOSAT® Delivery System for Melphalan (CHEMOSAT). The Company’s commercial strategy for CHEMOSAT is to steadily grow clinical adoption in major European markets and utilize physician experience to support appeals for reimbursement. Since launch over 250 CHEMOSAT treatments have been performed at over 20 leading European cancer centers, and investigators have begun to produce a steady flow of published and presented clinical data. In 2015, the Company received its first national reimbursement coverage when German authorities granted a dedicated procedure code for CHEMOSAT scheduled to take effect in 2016.

Delcath’s clinical development pipeline is focused on development of the orphan indications metastatic ocular melanoma, hepatocellular carcinoma and intrahepatic cholangiocarcinoma. The Company’s development program is designed to validate the safety and efficacy profile for Melphalan/ HDS observed in Europe, support clinical adoption and the expansion of reimbursement for CHEMOSAT in Europe, and to support regulatory submissions and approvals in various jurisdictions including the U.S. The orphan designations Delcath has for melphalan in these tumor-types create barriers to entry as well as the potential for high gross margins and the basis of profitable long-term business model. Cancers in the liver represent an unmet medical need and a multibillion-dollar market opportunity. Approximately 1.2 million patients are diagnosed annually with primary or metastatic liver cancer. Prognosis after liver involvement is poor, with overall survival generally less than 12 months. Delcath believes that the Melphalan/HDS is uniquely positioned to meet the needs of

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these patients as a stand-alone or complementary therapy.

Development History The therapeutic concept behind Melphalan/ HDS originated with isolated hepatic perfusion (IHP), an open surgical procedure that permits the administration of high dose chemotherapy directly to the liver. Though the use of melphalan in IHP has shown efficacy, it is a demanding 6-8 hour surgery that can be performed only once, and is associated with significant co-morbidities. Treatment with Melphalan/HDS is performed in a minimally invasive procedure known as percutaneous hepatic perfusion (PHP). Catheters placed percutaneously temporarily isolate the liver from the body’s circulatory system, administer a high dose of melphalan hydrochloride directly to the liver, and route blood exiting the liver to our proprietary filters. The filters absorb the majority of the chemotherapeutic agent in the blood, reducing systemic exposure and related toxic side effects before returning the filtered blood the patient’s circulatory system. PHP is a 2-3 hour procedure and is repeatable. Patients treated in both clinical trial and commercial settings have received as many as six treatments. Delcath’s Melphalan/HDS product and the PHP procedure have been improved through early clinical development and initial commercialization of CHEMOSAT in Europe. Results observed in Europe provide the Company with confidence that the efficacy and safety can be validated in the studies that comprise its Clinical Development Program and will ultimately allow for more widespread adoption.

The Pipeline Delcath’s clinical development program for the Melphalan/HDS includes a Global Phase 3 overall survival trial in ocular melanoma metastatic to the liver and a Global Phase 2 trial in hepatocellular carcinoma and intra-

Results observed in Europe provide the Company with confidence that the efficacy and safety can be validated in the studies that comprise its Clinical Development Program and will ultimately allow for more widespread adoption.

hepatic cholangiocarcinoma. The Company has also initiated a prospective registry of commercial treatments in Europe and is supporting Investigator Initiated Trials in select tumor types.

Patient Population (GFX – Market Opportunity Table) Ocular melanoma originates in the eye and has a high likelihood of metastasizing to the liver. Once ocular melanoma has spread to the liver, current evidence suggests median overall survival is generally 6-8 months. The American Cancer Society and other international health agencies estimate that approximately 8,600 cases of ocular melanoma are diagnosed annually in the U.S. and Europe, with over half of these patients developing metastatic disease and approximately 90% will have liver involvement. There currently is no standard of care for the treatment of ocular melanoma metastatic to the liver. Delcath believes that ocular melanoma liver metastases represent a high unmet medical need. Delcath expects to initiate its pivotal Phase 3 ocular melanoma trial near the end of 2015. This trial builds on learnings from a prior Phase 3 study completed in 2010 that demonstrated statistically significant hepatic

progression free survival (primary endpoint) in ocular melanoma, the results of which were published in the Annals of Surgical Oncology in 2015. Delcath believes that pursuit of an indication in this disease state may be the fastest path to potential approval of the Melphalan/HDS in the U.S. Hepatobiliary cancers such as HCC and ICC are among the most prevalent and lethal forms of cancer. According to GLOBOCAN, an estimated 76,000 new cases of primary liver cancers are diagnosed in the U.S. and Europe annually. Excluding patients who are eligible for surgical resection or certain focal treatments, approximately 15,000 patients with HCC and 6,500 patients with ICC may candidates for treatment with Melphalan/ HDS in the U.S. and Europe. Delcath has commenced patient enrollment in its global Phase 2 HCC/ICC trial and expects interim data in early 2016.

Experienced Pharmaceutical Management Team Executing Data-Driven Plan Jennifer K. Simpson, President & Chief Executive Officer – Dr. Simpson is a distinguished pharmaceutical industry executive, oncology nurse practitioner and educa-

Delcath expects to initiate its pivotal Phase 3 ocular melanoma trial near the end of 2015.

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Delcath anticipates a number of value-creating milestones in 2016 and beyond. Initiation of the pivotal Phase 3 trial in ocular melanoma is expected near the beginning of the New Year. tor. Dr. Simpson was named President and CEO of Delcath in May of 2015 and to the Company’s Board of Directors in October 2015. Previously Dr. Simpson has served as Delcath’s Interim President and CEO, and as Interim Co-President and Co-CEO. She first joined Delcath in 2012 as Executive Vice President of Global Marketing. Prior to joining Delcath Dr. Simpson held several leadership positions in product commercialization and late-stage asset management at ImClone Systems, Inc., and Ortho Biotech (now Jansen Biotech). Dr. Simpson earned a Ph.D. in Epidemiology from the University of Pittsburgh, an M.S. in Nursing from the University of Rochester, and a B.S. in Nursing from the State University of New York at Buffalo. John Purpura, Executive Vice President Regulatory Affairs, Quality Assurance – Mr. Purpura has been Delcath’s Executive Vice President for Regulatory Affairs and Quality Assurance since November 2009. Prior to Delcath, Mr. Purpura was Executive Director of International Regulatory Affairs at Bracco Diagnostics, Inc. Earlier in his

career Mr. Purpura held senior leadership positions at Sanofi-Aventis, Eon Labs Manufacturing, Luitpold Pharmaceuticals, and Bolar Pharmaceuticals. He earned a MS in Management & Policy and BS degrees in Chemistry and Biology at the State University of New York at Stony Brook. Barbra C. Keck Senior Vice President, Finance – Ms. Keck is an experienced manager and financial executive that has served Delcath in positions of increasing responsibility since 2009. She first joined Delcath as Controller in January 2009, was promoted to Vice President in October 2009 and to Senior Vice President in 2015. Prior to joining Delcath, she was an auditor with Deloitte & Touche, LLP. Earlier in her career, Ms. Keck served in management and executive positions with several non-profit organizations. She earned her M.B.A. in Accountancy from Baruch College and Bachelor of Music in Music Education from the University of Dayton.

The Future – Compelling Data & Near-Term Valuation Drivers Delcath anticipates a number of value-creating milestones in 2016 and beyond. Initiation of the pivotal Phase 3 trial in ocular melanoma is expected near the beginning of the New Year. Interim data from the Global Phase 2 HCC/ICC trial is also expected in early 2016, as well as from an initial cohort of patients enrolled in the European prospective registry. Reimbursement coverage in Germany is expected to support continued increases in European sales and procedure volumes, and the steady flow of published and presented data will support appeals for reimbursement in additional European markets. Delcath is building on an exceptionally productive period and looking toward an exciting future. The Company’s dedicated team is executing a data driven plan with clear milestones, combining a growing revenue base with disciplined financial management. Delcath is committed to establishing Melphalan/HDS therapy as the standard of care for certain cancers in the liver, and to providing access to this to this important treatment to patients worldwide. n The company paid consideration to SNN or its affiliates for this article.

Delcath is building on an exceptionally productive period and looking toward an exciting future. The Company’s dedicated team is executing a data driven plan with clear milestones, combining a growing revenue base with disciplined financial management. 18

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PROFILED COMPANY

Bellerophon therapeutics, Inc. nasDaQ: Blph

ellerophon Therapeutics, Inc., based in Warren, NJ, is developing innovative therapies at the intersection of drugs and devices for

patients with severe cardiopulmonary and cardiac diseases.

Jonathan Peacock, Chief Executive Officer and Chairman of Bellerophon Therapeutics

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Bellerophon’s lead product is the novel, patented and proprietary INOpulse®, a portable nitric oxide delivery system being developed for two lead indications -- pulmonary arterial hypertension (PAH), now entering Phase 3 trials, and pulmonary hypertension (PH) associated with chronic obstructive pulmonary disease (PH-COPD), in Phase 2. Currently, there are no FDA-approved nitric oxide-based therapies for the treatment of PAH or therapies to treat PH associated with COPD. The company is also planning to begin testing of INOpulse for PH associated with idiopathic pulmonary fibrosis (PH-IPF), among others. Most of us are unaware of the critical role that nitric oxide plays in our daily lives and how important it is to people with any type of PH-related condition. This molecule is naturally produced in the endothelial lining of blood vessels and helps to open the blood vessels, including those in the lung, which are narrowed in people with PAH and PH-COPD.

cessor company, Ikaria, Inc. (now part of Mallinckrodt). Ikaria received FDA approval in 1999 to market its flagship product, INOMAX®, a continuous-flow inhaled nitric oxide delivery system used in hospitals for treatment of newborns with hypoxic respiratory failure associated with pulmonary hypertension. INOMAX has proven to be a vital therapy for these vulnerable patients and has been embraced by the medical community in the U.S. and abroad (where it has also received regulatory approval in several countries) for its ability to improve patient outcomes. According to Ikaria, more than 450,000 patients have been treated with INOMAX therapy to date. Building off of this success, Ikaria began expanding the indications for the technology, initiating clinical programs in PAH and PH-COPD. In 2014, Ikaria transferred certain of its R&D programs to Bellerophon Therapeutics and then spun out Bellerophon as a private company. Bellerophon completed its IPO in February 2015.

leveragIng a WellunDerstooD therapeutIC agent

targetIng patIents WIth feW treatment optIons

The original technology behind INOpulse was developed by Bellerophon’s prede-

PH is a rare and debilitating lung disorder in which the arteries that carry blood from

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the heart to the lungs become dangerously narrowed. Blood pressure in the pulmonary arteries then rises far above normal levels, straining the right ventricle of the heart causing it to expand in size. Overworked and enlarged, the right ventricle gradually becomes weaker and loses its ability to pump enough blood to the lungs, which eventually leads to heart failure. Bellerophon’s lead indication -- PAH -- is a rare, chronic disease in which the arterial walls of the lungs tighten and stiffen over time forcing the right side of the heart to work harder to pump blood through narrowed arteries in the lungs. There is no ‘cure’ other than lung transplantation, which comes with its own risks and is not an available option for every patient. Median survival after diagnosis with PAH is less than five years. Bellerophon currently estimates that approximately 20,000 patients have severe to very severe PAH and are treated with multiple therapies, including long-term oxygen therapy. According to a 2013 CVS Caremark Specialty Analytics report, the annual per patient cost for many existing treatments in the U.S. is approximately $100,000 - $150,000. Non-specific symptoms including dizziness, fainting and shortness of breath during exercise, and when combined with the rare nature of the condition, can affect diagnosis such that many patients are not identified until the disease has progressed. The daily lives of many patients with PAH are spent just trying to catch one’s breath. Routine activities such as climbing stairs, walking a few steps or a few blocks, going to work or school, are often difficult or impossible. PAH occurs in both children and adults, but most often affects women between the ages of 30 and 60 according to the REVEAL registry. Although many people with PAH may not ‘look’ sick, these patients are fatigued, anxious and may be prone to sudden death. While current therapies provide benefits, many also have significant side effects. Industry research and Bellerophon’s prelimi-

nary clinical data have shown that patients on long-term oxygen therapy may benefit materially from treatment with inhaled, pulsed nitric oxide, which relaxes the smooth muscles, reduces blood pressure in the lungs and reduces strain on the right ventricle of the heart -- giving weight to the potential value for INOpulse therapy to this patient population. COPD, another chronic progressive disease, is caused by inflammation and destruction of the airways and lung tissue, and occurs chiefly among smokers. Chronic exposure to toxins in tobacco smoke and a resulting lack of oxygen can cause changes in pulmonary circulation, leading to development of PH, especially in patients with late-stage COPD. These patients, who tend to be older in age and chiefly male, have high hospitalization rates as well increased risk of death, with median life expectancy of four years. There are currently no approved therapies for treating PH-COPD, and the only gener-

ally accepted treatments are oxygen therapy, pulmonary rehabilitation or a lung transplant. Certain drugs used to reduce PH can cause other conditions, most notably a worsening of low blood oxygen levels. This may be because certain of these drugs act across a wide portion of the lungs’ blood vessels and can reverse the body’s natural protective mechanism against areas of low oxygen in the lungs. In contrast, the INOpulse system has the potential to offer a safer alternative since it delivers nitric oxide in a targeted fashion.

Therapeutic Benefit + Convenience = Enhanced Quality of Life In addition to its potential therapeutic benefits, the portability of INOpulse is what makes it most unique. Intended for daily use by ambulatory patients, INOpulse allows patients to go about their daily activities while receiving the benefits of the thera-

In addition to its potential therapeutic benefits, the portability of INOpulse is what makes it most unique. Intended for daily use by ambulatory patients, INOpulse allows patients to go about their daily activities while receiving the benefits of the therapy.

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Bellerophon’s team has recently completed development of its second generation INOpulse device, the Mark2. The Mark2 is as small as a paperback book, weighs only about 2.5 pounds, has a simpler and more intuitive user interface and a battery life of approximately 16 hours when recharged, which can be done in around four hours while sleeping.

py. The device is programmed to adjust automatically based on individual breathing patterns, thereby delivering a constant and accurate pulsed dose of inhaled nitric oxide over time, regardless of activity level. Bellerophon’s team has recently completed development of its second generation INOpulse device, the Mark2. The Mark2 is as small as a paperback book, weighs only about 2.5 pounds, has a simpler and more intuitive user interface and a battery life of approximately 16 hours when recharged, which can be done in around four hours while sleeping. Because these patients must ‘take’ their therapy (which can include an oxygen tank) with them wherever they go, the Mark2’s small size directly addresses patient needs, providing therapeutic relief as well as convenience. The Mark2, which can be carried in a small bag, will be utilized in all of Bellerophon’s upcoming trials, and if approved, for the commercial market.

movIng aheaD WIth ClInICal trIals After data from a Phase 2 trial in PAH showed a sustainability of benefit to patients on long-term oxygen therapy whose disease was progressing despite taking one or more existing PAH therapies, Bellerophon finalized the protocol with the FDA for the Phase

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3 trial through a Special Protocol Assessment. Under the Special Protocol Assessment, the primary endpoint of the trial is a statistically significant improvement in the distance walked by patients in six minutes after 16 weeks for patients receiving inhaled nitric oxide therapy compared to those receiving placebo. This protocol for approval of the therapy has also been agreed to with the European Medicines Agency through their Scientific Advice Working Party process. The Phase 3 program will include a total of 450 patients in two confirmatory clinical trials and Bellerophon intends to enroll the first patient by the end of 2015. In PH-COPD, Bellerophon completed acute, dose-confirmation Phase 2a testing of INOpulse for PH-COPD in July 2014. Phase 2 testing to demonstrate the potential benefit of reducing PH on improving exercise capacity in these patients is planned for 2016. In September 2015, an oral presentation of late-breaking data from a clinical trial sponsored by Bellerophon and presented at the European Respiratory Society International Congress 2015 in Amsterdam, showed that INOpulse improved vasodilation in patients with PH-COPD. Looking ahead, management also plans to begin clinical testing with patients suffering with PH-IPF. In September 2015, Bellerophon made several key changes to its leadership team

to align with its strategic focus. Notably, Dr. Deborah Quinn, former medical director of Novartis Pharmaceutical’s PAH and heart failure programs and Instructor in Medicine at Massachusetts General Hospital, was named Bellerophon’s Chief Medical Officer. Martin Dekker, now Head of Device Engineering and Supply, comes with 20 years of experience in the design and manufacture of electro mechanical medical devices at Spacelabs Healthcare. Peter Fernandes, Chief Regulatory and Safety Officer, has 25 years’ experience in working with the FDA and European Medicines Agency in respiratory medicine. “Our objective in developing and commercializing INOpulse is to bring clinically meaningful improvements in quality of life to those suffering from these chronic, progressive and debilitating diseases, and through this to improve clinical outcomes for these patient populations. Guided by our experienced and expert team, we are progressing our INOpulse platform and intend to actively explore opportunities to acquire or invest in new activities that will broaden our portfolio and leverage the team’s strong capabilities,” stated Jon Peacock, Chairman and Chief Executive Officer of Bellerophon Therapeutics. n The company paid consideration to SNN or its affiliates for this article.

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PROFILED COMPANY

Ironclad performance Wear Corp. otCQB: ICpW

ronclad Performance Wear is a global technology leader in performance and safety hand wear.

Based in Farmers Branch, Texas, Ironclad is recognized as the global industry’s “go-tosource” when addressing their toughest hand safety and performance challenges in the toughest environments. Ironclad is exceptionally well positioned to benefit from the growth in a $6.0 billion global market for technology driven safety and performance hand wear. For more than 17 years, Ironclad has been at the forefront of developing products that provide optimum protection for workers’ hands while also making it easier for them to do their jobs. Ironclad was the first manufacturer to introduce performance work gloves to the market. When Ironclad began in 1998, workers relied on one-size-fits-all leather gloves that offered marginal protection for

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workers’ hands and were cumbersome with little dexterity. Through new technologies in materials, product engineering and production techniques, the company created an entirely new standard for fit and durability as well as overall performance and safety in work gloves.

teChnology, engIneerIng anD Development leaDershIp: Ironclad’s forward looking development and use of new technologies in their products

created a revolution in industrial hand protection. Ironclad brings an unparalleled level of innovation to the marketplace, and the brand has become known for having the most advanced intellectual property in the industry. Today, competitors strive to copy and improve upon what made Ironclad successful. Ironclad’s continuous development of new materials and technologies when coupled with its current patented technologies, partnerships and concentration on its core strengths, reinforces Ironclad’s position as a leader.

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Increased Awareness In a Growing Global Market: The global market for personal protective equipment (PPE) continues to record significant growth as companies and governments work to improve safety and performance. The multi-billion dollar PPE hand protection market, is one of the largest aspects of PPE. This is a critical time for hand safety in the industrial world. Hand injuries account for nearly 70 percent of all work injuries today. HSE professionals in the industry have realized that hand safety is their most pressing challenge and Ironclad is providing their solution.

New Management Positions Company for Growth: Ironclad has gone through a significant transformation since early 2014. After a change in senior management and relocation to Texas, Ironclad’s new management team began to transform the business in a number of key ways. The management team has built a global supply chain expanding its reach and capabilities in terms of production and development. Ironclad today claims a dramatically improved speed to market, expanded capacity, and competitive product cost position as well as the developwww.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

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ment of new technologies. The company has brought to market new technologies that are gaining both key placement and strong customer acceptance.

vIBram teChnology DrIves neW stanDarDs for performanCe anD DuraBIlIty: This technology has opened new doors and growth opportunities for Ironclad. Ironclad’s most recent venture involves the world leader in shoe sole technology, Vibram Industries. Ironclad has adapted Vibram’s coveted rubber sole technology for use on the palms of work and sporting gloves. These are truly some of the most revolutionary and high performance products ever created. The polymer-based product will replace the synthetic leather used on the palms of Ironclad’s gloves creating a quantum increase in the durability and grip of its gloves, both highly sought after attributes of industries worldwide.

IronClaD eXpanDs Base of gloBal DIstrIButors: Today, Ironclad sells to more than 2500 distributors and merchants around the globe. Ironclad’s fastest growing area involves large industrial distribution groups. Ironclad was recently selected by WW Grainger as their strategic supply partner for performance and impact gloves across North America. At the beginning of 2016, Ironclad joined forces with industrial leader WESCO to expand their glove offerings and develop new technology for the electric arc protection for public utility workers. The company continues to expand its base of distributors as well in Canada and other parts of the world. n The company paid consideration to SNN or its affiliates for this article.

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Digging Deep to Find the Bottom

’ll spare you the clichéd end of year opening and just say this: the junior mining sector has been decimated. The Market Vectors Junior Gold Miners ETF (NYSE: GDXJ) — which holds companies as small as $10 million — lost over 20% of its value in 2015. It’s lost 87% of its market capitalization over the past five years. Decimated. And some have met even more dreadful fates. Global X launched a junior mining fund in September 2012 with the clever ticker JUNR. But you won’t find that fund exchangetraded anymore. The New York-based ETF sponsor decided to shut the fund down less than three years later. Dissolved.

Back in 2012 when JUNR debuted, CEO of Global X Bruno del Ama said his firm saw “value in junior miners at current valuations.” Little did he — or many others, including myself — know metals prices had already peaked. Four of that fund’s original top ten holdings are now bankrupt, circling it, or otherwise defunct. We now know late 2011 and early 2012 was the top of the commodity cycle. It was not a buying time, though many of us — again, myself included — bought. Four years later, four years wiser... what have we learned? The High-Price Trap

n NICK HODGE

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We learned the hard way that past is not prologue. Basing your gold mine’s economics on a price of $1,500 gold when gold had never been at that price before was an obvious peak-cycle mistake. We now know better. Some of the companies that rushed headlong into junior mining and based their projects on unsustainable prices are now gone. More soon will be. Look for projects that have economic models that will not break if their underlying commodity falls more than 15% in price. The Moose Pasture Trap I got suckered into more than one deal that has turned out to be nothing more than cheap paper and flyover country. Now we know not to give immediate credence to prospective properties or upstarts with a good-looking land package. Drill-hole plays are no more. Companies with proven assets economic at today’s prices are on sale at a ~90% discount. The Me-Too Management Trap There were gold companies in 2011 that were housing companies in 2007. There were graphite companies in 2013 that were gold companies in 2011. See how that works? You wouldn’t believe how fast a suit will rename a shell company, print out some cheap paper, and say it’s going after the asset du jour. Rare earths, anyone? Graphite? The Cheap Paper Trap Speaking of cheap paper, we are now much more keen to take more than a cursory glance at the capital structure of a company. Who owns how much at what price? Does management have skin in the game? Did they participate in the last financing? Is the company trying to get you to buy the stock three-and-three-quarter months after the last financing that was done at a discount to market? You know what they say about knowing who the sucker is. End of the Rainbow

We are now nearing the end of the rainbow. That’s gold prices, silver prices, the SPDR Metals & Mining, and the Market Vectors Junior Gold Miners. In the past seven or so years — since late 2008 — the commodity cycle has gone nearly full circle. Prices have troughed, peaked, and now they’re troughing again. If the months in late 2011 and early 2012 were the worst buying time, it’s my belief these current months will be looked back on like 1976 or 2000. The pot of gold is coming. But only if you employ the lessons learned of the past decade... The commodity prices used in economic assessments and feasibility studies matter. The people running the company must have done it before. There are seasoned geologists and mining executives out there who have made major discoveries, who have taken projects from drill hole to tailings pond, and who are now at the helm of junior companies with quality assets. The jurisdiction matters. You can now buy assets in safe, proven, and mining-friendly jurisdictions for which you’d normally have to pay a premium. But here near the bottom, they have been tossed out with the bathwater. The Ship & Tide Thing Rising tides, we know, lift all ships. And that’s true of mining stocks as well.

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You can bet that if gold started screaming back toward $1,600 an ETF basket of junior gold stocks would take off as well. But we aren’t ETF investors are we? This is MicroCap Review. We want the best leveraged bang for our buck. And that’s exactly what quality, wellrun junior miners offer in the current climate. A mentor of mine once told me he and his six-year-old daughter could each pick 100 mining stocks and that during a screaming bull market they’d each be up similar percentages. But I don’t want to buy 100 mining stocks and be up a similar percentage to a six-yearold. I want to buy five of them that are extremely well-vetted and that will dwarf the gains of the rest of the ships just floating in the tide. Those ships are out there right now. n 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.

MicroCap Review Magazine

PROFILED COMPANY

the singing machine Company, Inc. otCQB: smDm

oud music booms down the hallway outside the Singing Machine Company’s Fort Lauderdale headquarters. Inside, the Company is testing out the latest

Singing Machine “Carnaval” their latest product in a new line of Digital Download karaoke machines.

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It is quickly apparent that the new “Carnaval” is fully loaded to achieve maximum fun. It’s loaded with the latest tech and filled with all the features to make it a roadshow warrior -- big, loud speakers, a lithium-ion battery and travel wheels and trolley handle for portability. And to really emphasize fun, the company built in disco ball lights. Lots and lots of room-filling, dazzling lights that bathe any room in color. All of this is designed to emphasize the idea that this company and its products are all about fun. The Singing Machine Company has been creating joy through music for over 32 years and has been publicly traded since 1994. The Company now trades on the OTCQB under the ticker “SMDM”. Over the last four years, the Company has been on a growth tear, posting 5 consecutive years of profits and double-digit growth in sales. This year is no exception as the Company recently released its 2nd quarter ended September 30, 2015 results, boasting a 31% increase in sales compared to the prior year and quarterly net income of almost $2 million dollars, or $0.03 cents per share. The Company is currently trading at a P/E ratio of 6 for the second quarter ended earnings results. Singing Machine sells their karaoke www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

The Singing Machine Company has been creating joy through music for over 32 years and has been publicly traded since 1994. The Company now trades on the OTCQB under the ticker “SMDM”. machines through all major big box retailers in North America like Wal-Mart, Target, Toys ‘R’ Us, Costco, and Sam’s Club and Amazon. com. The Company also sells internationally to countries like Australia, South Africa, and the United Kingdom. The Company reports its products can be found in over 25,000 retail stores world-wide and last year announced it had sold over 1,000,000 karaoke machines in its 2015 fiscal year. Gary Atkinson, Company CEO, laughs as one of his staffers belts out a poorly done out of tune version of Adele. “It doesn’t matter how well you sing as long as you can have fun with friends,” commented Gary Atkinson. Mr. Atkinson, a former licensed attorney and MBA graduate, who has shifted gears significantly to lead the Singing Machine’s transition over the last 7 years. The Company’s North American strategy has been to push out competitors but occupying all of the retail shelf space allocated for karaoke products. The Company produces over 30 models of karaoke machines ranging in price points from $49 up to $299 and has the range of features and price points to lock

up most of the big box retailers in North America. The strategy has worked as the Company has seen its sales surge over the last 5 years from approximately $19.0M to almost $40.0M in its most recent fiscal-year ended results. Now as the market share leader, the Company is setting its sights on transforming itself from a primarily hardware based Company to a hardware and music distribution company. This year Singing Machine released a new line of Digital Download karaoke products with the goal to enter into the karaoke music distribution business. Previously, the main way to access music on any home karaoke machine was to buy a karaoke CD+G, which is essentially a special music CD that has graphical lyric files on it. Outside music content companies dominated the sales of karaoke CDs as Singing Machine did not have the licensing relationships to sell its own karaoke content. Going forward, the Company is betting that consumers are willing to ditch their antiquated CDs in favor of picking and choosing their favorite songs from the Company’s library of

digital karaoke content. Atkinson comments, “It’s the old razor and razor-blade business model that we think will transform this Company. Singing Machine is already the most trusted brand in home karaoke and we currently do not take full advantage of our position as the market leader status. We believe over time we can convert all of our machines into a recurring revenue stream where our machines can provide the gateway to karaoke music downloads or subscriptions.” Atkinson added, “We now have 10% of our machines able to play digital downloads from our online music store. In addition, 40% of our lineup is able to stream karaoke content via Bluetooth using our Mobile Karaoke App, available on the iOS App Store.” The Company charges $2.00 per digital download or offers subscription packages to stream any song from its online library for either 48-hours, 1 month, or 1 year. A Singing Machine staffer nails a tough Whitney Houston song and the room erupts with applause. As the Company moves into the holiday season, which has always traditionally been its strongest quarter, it hopes there will be a lot more to applause in its future. Third quarter results are expected to be announced by February 15, 2016. n The company paid consideration to SNN or its affiliates for this article.

Now as the market share leader, the Company is setting its sights on transforming itself from a primarily hardware based Company to a hardware and music distribution company. This year Singing Machine released a new line of Digital Download karaoke products with the goal to enter into the karaoke music distribution business. www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

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COMPLIANCE CORNER

Go Public or Stay Private

e live in a world where going public is the Holy Grail of company development. Accordingly, there are many practicing securities lawyers who have the technical skills necessary to take a company public. Experienced securities lawyers generally ask their clients certain questions prior to taking the client’s retainer check. The purpose of this article is to set forth the basic issues which should be asked and considered. The first question to be asked is why does the company want to go public? There are many good reasons to go public, but there are also many bad reasons. Among the bad reasons are that being public will raise money for the company and that there is huge prestige in being public. Unfortunately, being a public company does not cause large hordes of investors to rush forward to hand money to the company. Recently, I have been consulted by two companies that have been taken public by a technically competent securities law firm without a viable plan to raise capital. Both companies quickly failed. Unfortunately, being a newly public undercapitalized company generally leads to the company’s failure. As to the prestige of being public, a company cannot be built with prestige alone. Furthermore, once a company has determined its reason for going public, the com-

pany must determine any steps necessary to maximize the company’s position in going public and the right time to go public. In other words, before going public, a company should consider whether there are any negatives that can be corrected or improved, whether to strengthen the company through adding new management or advisors, and whether there are any positive developments that can be finalized prior to going public? The second question is how does the company intend to raise the capital necessary to build a business? There are many ways to raise funds, including private placements, public offerings, crowd funding, and the use of venture capital and investment banking professionals. Being public can provide an exit strategy for many investors, giving them a sense of comfort with the company. On the other hand, most venture capitalists and investment bankers, would prefer that the company not be public when they start to work with the company. However, a compa-

ny should understand the purpose that going public serves in its overall development plan before doing so. The third question to be asked is whether the client is aware of the cost of going public? For example, just acquiring a quality shell to go public through a reverse merger, should cost anywhere from $250,000 to $350,000. Even a quality pink sheet show is running $150,000 to $200,000. Additionally, there are related attorney’s fees and accounting fees which can be quite expensive. An initial public offering will generally exceed $150,000 in legal, accounting, and filing fees. Therefore, a company needs realistically to plan where, and when, the necessary capital will be obtained since going public cannot be paused due to a lack of funds. Going public requires an understanding of the company’s growth strategy and business model. In short, it is important to know what can be done, but it is more important to know what should be done. n

n LARRY WASHOR

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

How Cool is This? O

n November 12, 1955 the popular television show The Honeymooners aired an episode called “Better Living through Television” where the latest get-rich

scheme where Ralph Kramden comes across an all-in-one gadget that has an assortment of featured that could make all kitchen utensils obsolete. His marketing plan foresaw the Home Shopping Network and infomercials but also underscored a key issue with (potentially) great products that lack the right management to make it a success. During the commercial Ralph froze from the pressure being on live television but things went a lot further downhill from there as the Chef of the Future failed to prove the device worked. The one scene that sticks out for anyone that ever watched the program featured the line: “can it core an apple?” The product and commercial were a bust but if it wasn’t Ralph and Ed Norton had a warehouse filled with the product ready to fill orders. Fast forward to the second most successful money raised in the history of crowdfunding and at least the bumbling duo from The Honeymooners were smart enough to meet demand- if it materialized. Last year the Coolest Cooler took off like a rocket. Setting crowdfunding efforts and becoming a pop culture icon during the process the Coolest Cooler is known to most US households even if very few actually have the

product. No, it cannot core an apple but it does just about everything else. Blender Speaker Tie-down Straps Wheels USB Charger Light Opener Built-in Storage Did I mention this thing it cool. But a not-so-cool thing has happened since 62,000 folks chipped in to power a raise of $13 million (originally the backers were looking for $50,000 from 250 backers).

open to the puBlIC • There are several different types of crowdfunding which is only the logical extension of that ill-fated television ad on the Honeymooners. • Reward-based- funding receive a tangible item(s) or service in return • Lender-based funding – funders repaid over time • Donation-based funding- essentially charity-giving • Equity-based funding – funders receive a stake in the company Backers of the Coolest Cooler expected a discounted cooler in return- before at summer now many wonder if they’ll receive

n CHARLES PAYNE

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mind there are two questions you should always ask. Can it core an apple? Can you deliver the product on time? Buckle up its going to be a real cool ride. n Charles Payne Wall Street Strategies, Inc. CEO and Principal Analyst

it before next summer. Management has blamed a motor factory strike yet kept a commitment to deliver a limited supply to Amazon Launch customers at $500.00. Thus far the best backers have gotten are apologizes (at least 50,000 emails personally replied to) and new delivery dates. This is an important lesson for all to understand as we enter a new phase in the Jobs Act that has made it a lot easier for companies to raise money from the general public.

Jumpstart our Business Start-up Act (JOBS) The first step of Title I allowed for select disclosure for emerging growth companies – those with less than $1.0 billion in revenue during any fiscal year. Title II saw exemptions from certain broker-dealer rules. Beginning on October 30, 2015 Title III of the Jobs Act kicked in which means nonaccredited investors get a bite at making investments that may have been deemed too risky or placed under greater scrutiny before. The Act was designed to remove hurdles for companies and potential investors looking to get quicker funding. Some rules for equity crowdfunding include ise of funding portals that are restricted from acting like brokerdealers:

Cannot offer investment advice Solicit purchases Compensate others for solicitation Hold or manage investor funds or securities Generate leads or compensate promoters Some equity crowdfunding offerings can go through broker-dealers but not portals. Here’s the reason this is going to be huge- a piece of the action. Some industry experts anticipate equity crowdfunding to raise more the $40 billion achieved in traditional venture capital in 2014 Companies can raise $1,000,000 over a 52-week period and non-accredited investors can invest based on the following. Income $100,000 can invest $2,000 or 5% of income- whichever is greater Income above $100,000 can invest 10% if income or 10% of net worth This is going to be an amazing market with mindboggling success stories over the next few years. Many people are going to hear of them down the road and wish they got involved. There will also be losers and tales of caution, too. My suggestion to would-be investors is to build a portfolio of such investments that represent 10% of your total investing dollars. The hard part will be separating hype from the ability to deliver. With that in

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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 MicroCap Review Magazine

GREEN TECH CORNER

The D-Word Y

ou heard right - I said the D-word Bonjour Le Monde Vert! At the time of this writing, COP21 is in full swing in Paris, France and all eyes are watching. Despite the early release of a draft agreement, much is still left to debate. However, regardless of the literal outcome negotiated, regardless of the commitments first world countries pledged to the third world, and regardless of how much impact human activity actually has, or does not have, on global warming, there already appear to be several obvious forgone conclusions to consider as an investor: The global warming debate is over Arnold Schwarzenegger doesn’t give a **** if you agree Climate adaptation is inevitable It’s time to divest from fossil fuels

the gloBal WarmIng DeBate Is over The major premise behind COP21 is that climate change is not only occurring, but will continue to occur, and that citizens of less developed (less wealthy) communities suffer the most. Moreover those deleterious impacts are expected to get exponentially worse. While the data remains inconclusive, albeit strongly suggestive, whether or not human activity caused global warming, overriding consensus appears to accept global warming itself is a fact. A fact which necessitates action and lots of monitoring.

arnolD sChWarZenegger Doesn’t gIve a **** If you agree. Not one to mince words, the Governator, Arnold Schwarzeneggar, continues his work

alongside California’s current Governor Jerry Brown leading a global group of over 50 economically powerful states from a full range of countries, collectively committed to a cleaner future and to influencing COP21 from the sidelines. Arnold recently posted a poignant piece to his Facebook page titled “I don’t give a **** if we agree about climate change” in which he responds to vocal naysayers. He poses three questions that have merit regardless of whether you believe in the science of climate change. First he asks if 19,000 daily fossil fuel pollution related deaths are acceptable. That’s 7 million per year! Second he asks whether fossil fuels will be the fuel of the future, emphasizing two facts: that fossil fuels are a limited resource and that a strong renewable energy policy helps drive California’s economy faster than the rest of our nation (40% of California’s power is renewable). He left out that today solar generates power

n BY DARREN ENG

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less expensive than fossil fuels. And third he poses the question of which sealed room you would choose to be in for an hour. Each room contains a running vehicle: one gas powered, the other electric. In effect, Arnold points out that the earth is one big sealed room in space. Moreover, renewable energy policy is good for the economy. Clean tech is good business.

tion). Air quality degradation creates a need to produce clean air in the living environment. Green walls and the science of integrating specific plant life into our homes and work place transitions from aesthetic nicety to necessity.

fuels and redeploying that capital into solid green / clean tech investments remains not only the right thing to do, it’s the smart investment choice too.

It’s Time to Divest from Fossil Fuels

Climate Adaptation is Inevitable

Generally speaking, I prefer to look forward than backwards. Focusing on assessing solutions produces better results than complaining about the problems. But sometimes the doctor has to stop the bleeding before grafting on new skin. This is one of those times. Consider your investment allocations and ask yourself Arnold’s questions. Then consider: would you want to have been the last investor still holding buggy and bullwhip stocks once the automobile was invented? If you decide to invest in clean/green tech, does it make sense to support companies proactively involved with turning that investment into a loss? Not only are oil companies competing directly for business, they are working behind the scenes, in the courtrooms, in the board rooms, and in the legislatures against every aspect of opportunity. Even worse, oil is one of the primary drivers of international territorial conflict, and along with drug traffic, is the primary funding source for middle-east based terrorism. At a time when we as a nation have challenged ourselves to vote for a lesser of evils in our presidential elections, we have a clear opportunity to vote with our wallets. If our elected leaders all choose to be reactionary instead of visionary, then it’s up to us to proactively make the right decisions for them through our investment allocations. I doubt any of the big oil companies would pivot without a push. Startups do it and survive on no resources. Imagine if a company with a billion dollar war chest and deep government influence were to pivot to clean tech. One can only dream. Back in the real world, divesting of fossil

Monitoring, solar, electric-vehicles, levies, ground-level elevation, floating-cities, desalination, condensation, water recycling, green-walls n

Acceptance of global warming leads to a whole new category of technologies and ideas designed to enable us to adapt to the impacts of climate change. Some call it climate adaptation. For example, if global warming is a fact, then water levels will continue to rise. If water levels continue to rise, significant land mass will submerge without human intervention, like levy construction or ground-level elevation. Thus, a new industry spawns to help below sea-level communities cope. Sure some futurists and sci-fi writers have predicted it for decades, but now investors are sinking (pardon the pun) real money into what would have been considered hair brained ideas less than a decade ago. Heard about new “floating city” technology currently being designed and modelled? If not, then you probably have not heard that some of the funding comes from crowdfunding. Thousands of people have applied to be pioneers to move and live there. To succeed, ideas like floating cities require the advancement of the whole gamut of self-recycling, self-perpetuating technology currently pigeon-holed as either fanatically green or designed for a NASA space colony. Accepting the inevitability of climate adaptation also suggests increasing mainstream dependence on technologies currently considered “green”. Prolonged drought requires expanding technologies for desalination, local ambient condensation (yes, that means literally getting water out of the air), and water recycling (wastewater purifica-

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Technologies mentioned:

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.

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

Will Virtual Reality Really Replace the Smartphone? O

culus founder Palmer Luckey seems to think so. Or does he? Regardless, I know how I’m investing in VR.

Have no doubt, virtual reality (VR) will be a multi-billion dollar market. These mysterious, bug-like headsets that immerse us into computer-generated worlds could disrupt numerous verticals including: real estate, education, medicine, and entertainment. Gaming will likely be the first commercial market; I attended three gaming conferences in 2015 and the increased number of VR hardware companies “wowed” me. Gamers want VR; major consumer electronics vendors like Samsung, Sony, Microsoft, Facebook (who bought Oculus for $2 billion) and HTC want VR; the only thing that seems to hold back gaming VR is the lack of content. That and only a handful of companies (including Samsung, Google, and Vuzix) have commercial head-mounted devices (HMDs) available for sale.

vr KIlls the smartphone? I may be dating myself, but I remember when I carried a phone, camera, and MP3

player in my pocket. I still marvel at how these three critical tools have consolidated into one smaller, lighter, and faster device. Unless smartphones integrate 3D cameras, I don’t think many people will carry those bulbous, multi-lens cameras to record reallife events. Nor do I envision many people wearing a HMD in public to watch their content. Even if you disagree, it doesn’t make sense that VR will eliminate smartphones, especially when HMDs like Samsung’s Gear VR and Google Cardboard use smartphones to work.

the Key to mr. luCKey’s Quote Several media outlets and bloggers interpreted Mr. Luckey’s remarks (bottom right) to mean that VR is the death knell of smartphones. I’m the first one to admit that Palmer Luckey is a VR legend who’s lived and breathed more VR in his short 23-year life than I will over my next few decades. I could be completely wrong here, and I offer full apologies to Mr.

n BY SEAN PEASGOOD,

PRESIDENT & CEO OF SOPHIC CAPITAL, INC.

MicroCap Review Magazine

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to the electronics. And we haven’t addressed another problem – cables are thick and heavy. Those HMD audio, video, data, and power cables –they weigh down your head and make you look like Medusa.

Enter Spectra7 Microsystems

Luckey if I am, but I don’t believe he was predicting that VR will eliminate smartphones because he references two little letters – “AR” or “augmented reality.”

Why AR is Important AR is kind of the opposite of VR. AR is the projection of computer-generated images and info into our world. It uses clear glasses. VR requires a dark screen to block us from the real world. High-end HMDs also have integrated headphones to eliminate realworld audio. Will people slip on VR HMDs in public to game or watch content? If so, then police departments and hospitals around the world should anticipate increased tourist muggings and car accidents.

I Think AR Will Kill Smartphones I value my safety and wouldn’t leave my physical self vulnerable to the real world while my mental self immerses into an imaginary universe. But integrating AR into a VR HMD allows me to conduct all of my affairs through a clear screen. I could film my family’s vacation then wait until I am in a safe place to watch the VR replay. You guffaw? This type of technology already exists - I’ve met with three companies doing exactly this. But although AR is a bigger market than VR, it’s years away from adoption because con-

sumers will want form factors aren’t right. Consumers will want AR glasses to look like reading glasses. They’ll also want integrated phone, camera, video, music, and VR functionalities - magical glasses with lenses that change from clear to dark and back again so that we can switch between AR and VR with ease. Goodbye smartphone.

A Way to Invest in VR AND AR Believe it or not, cables represent a way to play the VR and AR markets. High-end gaming HMDs will be tethered to gaming computers or platforms by a cable (wireless HMDs using smartphone processors won’t be able to handle high-end gaming). Highend AR glasses will be cabled to a wearable computer. However, those lengths of shrouded copper are a big problem in these disruptive technologies. The issue is a standard, engineering problem: the faster the data, the shorter the distance it can travel without distortion. For HMDI data, VR HMDs could get away with maybe a meter of passive copper cable before pixilation and video lag causes motion sickness. But playing an immersive shoot-‘em-up game with a threefoot cable connecting your head to a PC on the floor isn’t a great experience. ”Amplifying the signal will fix the signal,” you may reply. True, but this adds more complexity and cost

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Palo Alto’s Spectra7 Microsystems, a Sophic Capital client, doesn’t build VR HMDs or cables. Their specialty is interconnect chips that make electronic products smaller, lighter, clearer, faster, and less expensive. Spectra7’s VR7100 chip, geared to the VR industry, consolidates 4 cables into one smaller diameter yet longer (up to 7.5 meters) cable without compromising signal integrity. Although Spectra7 doesn’t disclose customers, an iFixit teardown of Oculus’s DK2 uncovered the VR7100. CEO Tony Stelliga is an industry veteran with a history of building and selling companies. Bob Dobkin, a Linear Technology co-founder and legendary analog semiconductor designer, is a Spectra7 Director and investor. Ron Pasek (Altera’s CFO) is Spectra7’s Chairman. And as an added bonus, Spectra7 also has its AR7050 cable equalizer for AR systems. So it doesn’t matter which gaming VR HMDs survive or what percent of market share each OEM wins. It seems Spectra7 has a key component that each cabled VR OEM needs. This makes Spectra7 a VR industry gatekeeper. Should you agree and choose to invest, the company trades on the Toronto Stock Exchange under SEV. SPVNF is also its over-the-counter ticker. n Sean Peasgood founded Sophic Capital after a successful career as a sell-side technology analyst for almost a decade. Sophic Capital is a capital markets advisory firm for public and private companies in the technology and clean technology sectors. We specialize in developing complete capital markets strategies for companies across all stages of development, with a focus on micro and small cap companies.

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

How to Raise Money Under the JOBS Act Deciphering Titles II, III and IV

he passage of the JOBS Act of 2012 started a chain reaction that unlocked three new avenues of private capital formation and revolutionized US securities law. To assist with the numeric and alphabet soup of regulations, this article will describe the basics of each of these three new avenues of capital raising and highlight some of the pros and cons for companies looking to raise money.

tItles anD regulatIons The JOBS Act has seven titles or chapters. We are going to focus on Titles II, III and IV, which address capital raising for private or pre-IPO companies. Title II deals with raising money from accredited investors and allows for what is called a general solicitation. The SEC regulations that contain the details of Title II are called Regulation D. Title III deals with retail investor crowdfunding, and the SEC regulations that set forth the specifics of this section were recently finalized and are called Regulation CF. Title IV addresses larger quasi public capital raises, and the SEC regulations that detail these types of offerings are called Regulation A.

tItle II

n GEORGIA QUINN

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Title II allows a private company to conduct a “general solicitation” or advertise to the general public that it is raising money and seeking investors. Until Title II and for

over 80 years, companies were not allowed to publicize that they were raising money and had to communicate through special channels such as broker dealers and accredited investor networks. This both created a constraint to the flow of capital to small and startup businesses, who might not be privy to such networks, and similarly prevented the majority of US citizens from participating in the private capital markets. With the change in the law, companies can now advertise far and wide that they are seeking capital, using new mediums such as the internet, but can only actually sell securities to (allow investment from) accredited investors. With respect to individuals, accredited investors are defined by the SEC as a person who has $200,000 or more in income for the past two years (or $300,000 including their spouse) with a reasonable expectation of meeting that threshold in the current year or has $1 million of net worth, not including his or her primary residence. Accredited investors, as defined, make up roughly 7% of the US population. Thus, the vast majority of citizens are still not allowed to participate in Title II offerings. Regardless when you consider that prior to Title II only 3% of all accredited investors actually invested in private companies, you see the potential flood of capital that could be unleashed. Some important things to keep in mind when considering whether to raise money for your business pursuant to Title II and Regulation D are that there are no limits on

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the amount of money that you can raise for you company or from each investor. You will have to take “reasonable steps” to ensure that each investor you accept money from is indeed accredited. The SEC has provided certain safe harbor actions that if taken, will be deemed to be reasonable. Those actions are the review of tax returns for the past two years showing the requisite amount of income, the review of a bank statement or brokerage statement showing assets that when netted against outstanding debt from a third party credit report exceed $1 million, or a letter from the investor’s attorney, accountant or broker confirming they qualify as accredited. A company may take other steps to ensure that investors are accredited, but these will suffice according to the SEC. There are also several third party service providers that will perform accreditation checks. In addition, Title II raises do not have specific disclosure requirement or require the pre-filing of any documentation with the SEC. A company only has to file a Form D, which is a one page notice, with the SEC within 15 days of the first closing of its offering. Of the three options, Title II is by far the least burdensome and is well suited for companies that have accredited investor networks or access to accredited investors or who can use a general solicitation to reach accredited investors. I always counsel my clients that if you can conduct a Title II offering successfully, that is the way you should go, but for companies who cannot reach or interest accredited investors or who fundamentally want to access retail investors, there are other options.

Title III One such option is Title III, also known as Regulation CF, which was finalized on October 30, 2015 and will be effective on May 16, 2016. Title III allows a company to raise up to $1 million on a rolling 12-month basis from retail investors or ordinary citizens regardless of their income or net worth, subject to certain investment limwww.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

its. Individuals with annual income of less than $100,000 or net worth of less than $1 million, can only invest the greater of $2,000 or 5% of their annual income or net worth, whichever is lower, on an annual basis in Title III deals. If they have both annual income above $100,000 and net worth greater than $1 million they can invest 10% of their annual income or net worth, whichever is lower, up to $100,000, on an annual basis in Title III deals. There are a lot more requirements to use Title III, such as the completion and filing of a Form C with the SEC. This disclosure document requires the preparation of financial statements, which must be reviewed by an auditor if the company is raising over $100,000. Importantly, the Form C does not have to be reviewed or declared effective by the SEC. Simply by filing and waiting 21 days a company may begin soliciting and accepting investments. The company will also have ongoing reporting requirements with the SEC. In addition, the company must use an online intermediary to conduct the offering. The intermediary is responsible for the information flow between investors and the company and performs functions similar to what Indiegogo and Kickstarter perform for the rewards crowdfunding space. The intermediary will either hold investor funds or engage an escrow agent to hold the funds until the target amount of money the company is attempting to raise is reached. If the amount is not reached within the deadline set by the company, the money will be returned to investors. If the target is reached, the funds will be released to the company to be used as disclosed in the Form C. Title III has a lot of requirements and will work best for companies needing to raise relatively smaller amounts of money, who want to tap into their customer base or other unaccredited investor networks to raise funds.

Title IV Title IV, also known as Regulation A, simi-

larly allows companies to raise money from retail or unaccredited investors, subject to investment limitations. Importantly, Title IV allows companies to raise up to $50 million in a rolling 12-month period. Individual investments for Tier 2 deals, as described below, are capped at 10% of an investors’ annual income or net worth. In order to raise money using Title IV, a company must file a disclosure document called a Form 1-A with the SEC, which must include financial statements, and depending on the amount of money being raised will need to be audited by a public accounting firm. The Form 1-A is similar to, though less comprehensive than, the registration statement that must be filed when conducting an IPO, and thus Title IV deals are sometimes referred to as “baby IPOs.” Once the Form 1-A is filed, the SEC will conduct a review process and must formally qualify the offering, after which the company can solicit and accept investor funds. Prior to filing and approval of the Form 1-A, a company may “test the waters” which means they can solicit indications of interest from potential investors (but not funds) to determine the likelihood of the success of their offering before expending time and energy on the qualification process. The company must provide all materials used in a testing the waters campaign to the SEC. Title IV is divided into two tiers. Tier 1 allows a company to raise up to $20 million and does not require audited financial statements to be provided. Tier 2 allows a company to raise up to $50 million and requires audited financial statements. Tier 1 offering must be approved by each state in which the company offers its securities, while Tier 2 offerings are exempt from state registration. Tier 2 has ongoing reporting requirements with the SEC, while Tier 1 does not. Tier 2 offerings may also be conducted on an open or continual basis, meaning they can have multiple closings and can continue to accept funds over a prolonged period of time. Title IV works best for a more advanced company that is looking to raise a sigMicroCap Review Magazine

nificant amount of money from retail investors. Although there is a lot more time and expense involved with Title IV, it is a great stepping stone to becoming a public company as it allows a company to take some of the steps required to be a full blown reporting company, such as audited financial statements and annual reporting, but not all of the more cumbersome requirements such as quarterly reporting and internal controls. Unlike Titles II and III, Title IV securities are immediately freely tradeable, and may provide investors with liquidity.

Other Considerations In addition to the requirements listed above, all three titles prohibit certain “bad actors” from participating in the offerings. Bad actors have a legal definition but basically

PROS

•

• • • • •

•

Unlimited Fundraising Amount General Solicitation No Requisite Financial Statements/Specified Disclosure No Ongoing Disclosure Formal SEC Approval Not Required State Preemption

Only Accredited Investors Must Take Reasonable Steps to Ensure that Investors are Accredited Restricted Securities

Title III (Reg. CF)

• • •

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Title IV (Reg. A)

Can Offer to General Public No Formal SEC Approval Required State Preemption

• • • • •

• •

• • •

in financings for six years at Weil, Gotshal & Manges, one of the top ten law firms in the world, and then for over two years at Seyfarth Shaw, a leader in legal technology. As a globally recognized thought leader in the crowdfunding space, she has been a featured speaker at multiple conferences and has presented to such authorities as the Securities and Exchange Commission (SEC) and the American Bar Association (ABA).

Georgia P. Quinn is the CEO and co-founder of iDisclose, an adaptive web-based application that enables entrepreneurs to prepare customized institutional grade private placement documents for a fraction of the time and cost. Heralded by ThomsonReuters as a Top Female Attorney in New York City, she also serves as of counsel at the leading firm in crowdfunding, Ellenoff, Grossman & Schole, specializing in facilitating financial transactions and compliance with JOBS Act regulations. A foremost expert in corporate finance, she has worked on over $1 billion in business transactions over the course of her legal career. Prior to founding iDisclose, Georgia represented several Fortune 500 companies

Title II (Reg. D 506(c))

• •

CONS

include individuals who have been involved in financial fraud or sanctioned by the SEC or FINRA. Also as with all securities offerings, these deals will be subject to state and federal anti-fraud provisions. The table below sets forth some of the pros and cons of each type of offering, to help companies begin to determine which financing alternative is right for them. n

Fundraising Amount Capped at $1M Reviewed/Audited Financial Statements May Be Required Ongoing Disclosure Investment Amount Capped Restricted Securities

•

• • • •

Can Offer Up to $20M or $50M General Solicitation Can Offer to General Public Freely Tradeable Securities State Preemption for Tier 2

Audited Financial Statements for Tier 2 Formal SEC Approval Required Ongoing Disclosure Investment Amount Capped No State Preemption for Tier 1

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this changes everything

XTI Aircraft is on a mission to change the way we fly — and our Reg A+ equity crowdfunding campaign is an important part of the company’s funding strategy. With over $17 million in expressed interest to date, the general public is fully on board — and the TriFan 600 is off to a flying start. To join our mission, visit startengine.com/startup/xti. www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

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OPINION

Where Mining Meets Technology A View From Another Angle

t has always struck me how similar, notwithstanding how different they may appear at first blush to be, the junior resource sector is to the start up technology sector. These similarities include, but are not limited of course to the following:

n JAY C. KELLERMAN

MicroCap Review Magazine

• Both are based fundamentally on the ability to own and exploit property - mining being real property and technology being intellectual property; • Both have an insatiable appetite for capital, whether it be exploration dollars or R&D dollars; • Both are generally run by entrepreneurial people who believe passionately in what they are doing and what they are developing; • Both are inherently risky ventures where the likelihood of success is at the end of the day, rather small; • If successful, a significant number of founders see their companies sold to larger concerns, many times before the commercialization of their assets; and • The good founders and developers are what I refer to as “serial capitalists” in that they will do it over and over and over again. Where the analogy breaks down in my view comes back to the underlying basis of property rights. For a junior mining company, once you have secure property rights, management wants to tell the whole world

what it is that they have. Yes there are some very famous exceptions, but tile is generally very secure. In the technology sector, where property rights are not referenced by boundary lines on a map, but rather contained in the brains of those who leave the workplace every day, I find management a little more guarded and at times somewhat less collegial with one another. I am an optimist though. I hope that over time that will change as well. People in industries need to stick together. They are small and everyone knows one another. What goes around comes around. There are also some similarities that I believe those in both industries should work hard to change, most specifically truly engaging in diversity. These two sectors continue to be very much male dominated bastions. Don’t get me wrong, in that there is good work on this being done, but there needs to be more. Another area which both could improve is public perception and government lobbying efforts – but most industries would fall into this bucket as well. And so I sit and ask myself what is going

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on now and what can be learned from the past. Post Bre-X in 1997, overnight I saw junior resource companies become tech companies, and some of their founders trading in suits and/or overalls for the ubiquitous black turtle neck and goatee. A very years later, they went back into their closets, retrieved their old clothes and personas and went back to mining. And, in the category of “everything old is new again” we are seeing the same thing replay itself now. This time around though, it feels a bit different to me. Something is going on in Canada and I can feel the vibe. I feel it in the Kitchener Waterloo area, I see it through the lens of colleagues in the Ottawa area and I feel it sitting in the cafes in Vancouver when I am there. Perhaps it is a new breed of tech entrepreneurs who have great ideas, are prepared to take risk and are able to find financial backing. And it is perhaps not a coincidence that the recently sworn in Federal government of Prime Minister Justin Trudeau has formed or reformed a number of different ministries that now contains the word “innovation” or “science” or “technology”. It is all around it and we cannot escape it. And when not practicing law but being involved in the management of a significant Canadian law firm, we cannot escape it either. It is and will continue to effect what we do and how we serve our clients And maybe, there are a few lessons from the mining sector to be learned from the technology sector. Here are a few thoughts, all of which in one way or another all come back to engagement. • In March every year, Toronto plays host to the PDAC, the Prospectors and Developers Association of Canada Annual Convention. In the good years, over 20,000 people involved one way or another in the mining sector from around the world attend. It is part trade show, part social event, and part industry gathering where technical matters are discussed. But at its root is the “Investor Exchange”, a convention sized space lined by booths where mining companies engage with their investors and potential

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In the technology sector, where property rights are not referenced by boundary lines on a map, but rather contained in the brains of those who leave the workplace every day, I find management a little more guarded and at times somewhat less collegial with one another. investors. Retail investors to the most astute fund managers and mining legends walk the floor to engage in discussions with the company representatives staffing the booth. Often, these are the most senior executives in the Company. It is that important. How about the tech sector doing something similar and invite the similar rainbow of investors to come and engage with management and demystify what it is that they are doing. No, it will not attract 20,000 people in its first year or years, but you have to start somewhere; locally and then nationally, and then internationally. • As noted above, technology, science and innovation seem to be priorities of our new Federal government. It is time to strike while the iron is hot and engage with the ministries and have a dialogue with what is on the mind of our technology entrepreneurs. No doubt one thing is capital raising. Some of the provincial securities regulators (including Ontario) have recently announced that a crowd funding regime will be adopted. Good start. But what about taking a page out of the mining book and engage the federal government on the idea of investor incentives such as a “technology flow through share”, where certain R&D expenses could be directly flowed through to investors. • The technology space is filled with small “angel investor” clubs and groups. It is a great start. How about broadening that by actively seeking out and engaging traditional and yet disillusioned resource based investors to participate in these angel clubs. It will be

part educational for the investors and real untapped pools of capital. None of this will happen overnight. It is all measured and incremental, but vital. And I suspect that there would be some appetite with other market participants such as the Canadian investment banks and perhaps the Toronto Stock Exchange to participate in the growth and development of this important Canadian industry. Again, it all stems with engagement, and I firmly hope that these musings of capital markets lawyer who has proudly participated in both the mining and technology sectors can be a start. n

Jay Kellerman is a Partner of Stikeman Elliott LLP, and is based in their Toronto office. Jay C. Kellerman Tel : (416) 869-5201 jkellerman@stikeman.com

STIKEMAN ELLIOTT LLP Barristers & Solicitors 5300 Commerce Court West, 199 Bay Street, Toronto, ON, Canada M5L 1B9 www.stikeman.com TORONTO • MONTREAL • OTTAWA • CALGARY VANCOUVER • NEW YORK • LONDON • SYDNEY

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sonasoft toDay Sonasoft made a strategic decision to focus on a rapidly emerging industry need for an archival and eDiscovery solution. Growing legal, governance, and regulatory requirements demand easy implementation, secure archiving of big data, and instant retrieval of information. The company developed its flagship product, SonaVault, to deliver email archiving and eDiscovery solutions as standalone software or an appliance using Dell and HP servers. Recently, the company leveraged its www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

core competencies to provide IT services to customers wanting to migrate from a competing archive platform or upgrade to a new release of Microsoft Exchange Server.

sonasoft’s future In 2016, Sonasoft will announce details of SonaCloud 2.0, a market-changing archival and eDiscovery Platform as a Service (PaaS) product designed to securely archive email, files, social feeds, instant messages, audio, video, and images on distributed storage systems that can instantly scale without limit. Based on next-generation cloud technologies, SonaCloud 2.0 will fill a market void by providing critically needed scalability, availability, fault tolerance, continuous software delivery, auto healing, and advanced eDiscovery logic. SonaCloud 2.0’s unified multi-tier platform will allow the company to expand its business model from direct sales to include white labeling opportunities from OEM’s, resellers, and distributors. SonaCloud 2.0’s architecture lets resellers enter any number of users and implement archiving without installation delays. SonaCloud 2.0 will establish Sonasoft as a cloud technology leader; it also will allow the company to grow its customers exponentially. The company forecasts a significant sales

increase with its existing archiving product and a disruptive penetration into new markets with SonaCloud 2.0. With its experienced team and enthusiastic customer base already in place, the company expects revenue to jump. Sonasoft is a public company and trades as SSFT on OTC Markets. The company recently completed a two-year audit with MaloneBailey, LLP. Monthly subscription revenue from its new cloud offering will combine with an increase of sales from the company’s revamped standalone software solutions that include yearly maintenance agreements. The company anticipates it will be profitable in 2016. n The company paid consideration to SNN or its affiliates for this article.

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CANNABIS CORNER

Cannabis Investors Have Reasons for Optimism in 2016 2

015 proved to be a huge disappointment for the publicly-traded cannabis stocks. As I conveyed in the Summer/ Fall Edition, the big decline from the peak in early 2014 extended into this year as fundamentals for the stocks didn’t justify prices. While the price action, which saw stocks lose, on average, well over 50% of their value, was of great concern, the most troubling development was the lack of new legitimate companies entering the space. I track about 350 companies now that purport to be in the industry, almost all of which trade on the treacherous OTC. The overall market

has declined over 95% from its peak value in early 2014 as measured by the 420 Investor Marijuana Index. We saw a handful of interesting companies begin to trade publicly this year, and, encouragingly, some of these have begun trading after going through the S-1 process of filing with the SEC rather than the more typical but risky reverse merger. Still, the universe of cannabis stocks is largely uninvestable. The liquidity in the sector continues to dissipate and is concentrated, for the most part, in companies with catchy names with tickers to match like “ERBB”, “HEMP”

n ALAN BROCHSTEIN

MicroCap Review Magazine

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or “MJNA”, all of which appear to be massive insider enrichment schemes. Events like the recent elections in November, which included an initiative that failed to legalize cannabis in Ohio, seem to draw investors in briefly, but, absent temporary improvements in sentiment, the sector is weighed down by negative cash flows and the dilution that covers it. While the overall cannabis market is unlikely to perform well due to the plethora of undercapitalized and ineffective companies that have crowded into it, the industry is poised to continue to advance. I expect to see a few winners among the publicly-traded stocks, and we could also see improving sentiment. An interesting development in 2015 was the crossing of the “green line”, with several public companies beginning to actually grow, process or dispense cannabis. Until this year, that hadn’t been the case, as the companies were involved in the ancillary part of the industry but not directly touching the plant. These early movers represent just a small fraction of the overall industry and serve as canaries in the proverbial coal mine. For now, there have been no government interventions into any of these companies, which do file with the SEC. One of the foundational flaws of the entire cannabis industry is that the federal government considers the legalization efforts solely an “experiment.” The “Cole Memorandum” in the summer of 2013 laid out rules for the industry that would allow businesses to operate without the fear of facing enforcement of federal laws, but these were not new laws. The 2016 Presidential race, then, is very important to the future of legal cannabis, as it is possible that our next President could reverse the position of Obama’s administration. At this point, it appears that the Democrats would be neutral to positive, while a Republican White House is likely to be neutral with respect to the continued expansion of legalization on a state-by-state basis. 58% of Americans favor legalization according to a recent Gallup poll, with sur-

veys suggesting that over 80% believe that medical marijuana should be permitted. It seems unlikely that our nation will reverse the trends towards legalization. In fact, it is possible that some of the huge barriers to the cannabis industry could be addressed at the federal level without legalization on a federal level necessarily taking place. One huge issue has been banking. The Obama Administration made an effort to permit banks to take on the industry as customers, but this was never codified into law. Consequently, banks haven’t been comfortable that they aren’t subjecting themselves to issues with the regulators and have, for the most part, refused to accept deposits. Another big challenge has been the DEA scheduling of cannabis as “1”, meaning that it has no inherent health benefits and is highly addictive. This characterization has stifled academic research. The good news is that Congress, which is contemplating several pieces of legislation that address these and other concerns, could move to provide clarity. The most promising development has been in Canada, which has a federally legal medical marijuana program, MMPR. Initially restricted to just dried cannabis flower, Health Canada opened up the market to extracts following a Supreme Court ruling this summer. This could expand the market and also improve profit margins as the producers can now use more of the cannabis plant. More importantly, the landslide by the Liberal Party in October could lead to outright legalization, though this could take some time to play out. In the near-term, though, the medical marijuana program is likely to be dramatically improved going forward, with substantial support from the government as opposed to the reluctant oversight role forced upon Health Canada previously. The Canadian market exploded in price following the elections, and the outlook is strong. This is a market that appeals not only to retail investors but also institutions. One big change in 2015 was the entry

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of institutional investors into the cannabis industry. There have been several highly publicized investments, including the participation of Founders Fund in a $75mm capital raise by Privateer Holdings, but even more encouraging has been the proliferation of what I call “marijuana money managers”. The Green Rush following the legalization in Colorado was so quick to develop that professional investors hadn’t yet really focused on the industry. I now count over a dozen institutional advisors that are running accelerators, private equity funds or other investment vehicles that are helping to raise the industry by holding companies to high standards. This should lead to smarter capital allocation and also allow high net worth investors to participate more easily. It will also pave the way for better companies to ultimately trade publicly. Public investing in the early days of the cannabis industry has been a complete disaster. Since the flood of demand in early 2014, we have seen the proliferation of publiclytraded companies that will never be serious contenders. Fortunately, the industry is strong. With some of the recent changes that I have noted, I am optimistic that investors could find it worthwhile in 2016 to focus on the cannabis industry. n Editor’s Note: Alan Brochstein, CFA, began his career as a bond trader in NYC in 1986 with Kidder, Peabody and worked with CS First Boston and Criterion investments until transitioning to equities as a analyst/portfolio manager in 2000. In 2007, he began AB Analytical Services, where he provided research and consulting to several investment advisors while also becoming one of the most popular contributors at Seeking Alpha. In 2013, Alan launched 420 Investor, an online community focused on publicly-traded companies in the cannabis sector, and, more recently, he began New Cannabis Ventures, a news & information platform that highlights the most promising companies and influential investors in the cannabis industry. www.420investor.com

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

2016 MicroCap Trends – Why India?

ccording to Goldman Sachs Global Research, the top three performing economies for 2016 will be India, China and Indonesia in that order.

Figure 1:

n BY WESLEY RAMJEET

MicroCap Review Magazine

Source:http://www.goldmansachs.com/our-thinking/pages/outlook-2016/index.html

China is obviously already well established in US capital markets, with roughly 198 ADR (American Depository Receipt) listings and a plethora of other issues listed directly on US exchanges. All sizes of Chinese companies are represented, from Large Cap to Micro Cap. Indeed there is no shortage of supply for institutions seeking China exposure. By contrast, what we find shocking, is the world’s top performing growth economy, India, is totally underrepresented in US markets. Actually there are only 12 Indian ADRs listed in the US totaling roughly $440B of market cap. And of that, roughly $308B is contributed by one issue, HDFC Bank Ltd.,

NYSE-HDB. We expect institutional thirst for Indian equity exposure to increase substantially based on the China slow down and the relative decimation of commodity based BRIC economies such as Brazil and Russia. This supply demand imbalance, combined

Figure 2: Bombay Stock Exchange

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with inefficiency of capital availability in India domestically, should naturally create a flow of companies seeking the advantages of US listings. The Bombay Stock Exchange is the major trading venue for Indian companies and their stocks. It’s the world’s 11th largest stock exchange with more than 5,000 companies listed. Aggregate BSE market capitalization exceeds $1.7 trillion. Where liquidity in the top 100 issues is quite respectable, liquidity becomes a challenge in the smaller company equities. These companies would be well served to consider level II ADR listings in the US. ADR listing of this class of security would attract US institutional investors that have resisted buying domestic Indian issues due to currency risk, added costs and in certain cases, exposure to non-US securities laws and taxes. Although the listing standards on the BSE are quite rigorous, the vast majority of US investors prefer the governance and transparency requirements of the US exchanges. For companies already listed on the BSE, the ADR process is quite straight forward. The basic ADR listing process is the Level I listing process. And although there are some benefits such as providing a transition path for companies ultimately seeking national exchange listing, Level I does not provide the depth of investor access since securities under Level I are restricted to trading OTC. However, the level II ADR listing process allows companies to trade domestic share equivalents on a US national exchange. For qualified issuers, this listing process is the quickest path to achieving improved liquidity and eventually more efficient price discovery. With Indian ADR’s in particular, quite often because of the under supply, Indian company ADR’s trade at a premium to the ordinaries. Level III ADR process actually combines national exchange listing with a capital raise. For lesser known companies, the processes inherent in “IPO securities offering activities” for example the roadshow, serve to not www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

Figure 3:

McKinsey Research - EMC

only raise capital, but to educate buy side investors on the merits of owning the equity. Overall, the ADR listing strategy is an excellent way to attract a much broader investor base into a particular security. Listing on a US national exchange will also contribute to the prestige of lesser known Indian equities and promote more efficient price discovery. Where the American Depository Receipts processes require that a company is already listed on an exchange locally, those companies that are privately listed, have the option to list domestically and pursue the ADR process, or they can consider a direct offering to the US markets. It’s this last category that quite possibly will create the best investment opportunities for US investors. Private equity investors have enjoyed a significant pool of mature cash flowing companies from which to choose in India. High returns have been consistently generated from the significant number of competitively priced private equity deals that are available in India. There are numerous sectors where multiples are considerably lower than their US equivalents. Another factor that may contribute to a wave of Indian

IPO’s is the desire to monetize growth and take money off the table. According to McKinsey Research, of the $51 B invested in private equity, only $16B has actually exited. US markets may offer an alternative to limited exit opportunities in India. With the improved liquidity for US investors and improved price discovery, PE investors may be able to exit at competitive multiple directly into the public companies. All of these factors lend themselves to support for more Indian companies preparing ADR and IPO transactions for early 2016 and beyond. And for MicroCap investors and issuers, we expect to see stepped up activity in the asset class for 2016. n Wesley Ramjeet is CEO of PPMT Strategic Group, Inc., a Tax and Business Advisory Firm. PPMT is actively representing Indian companies considering the ADR listing process. Email: wramjeet@ppmtgroup.com

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

A Cutting-Edge Gold-Recovery System with Game-Changer Potential The Mobile Mill Gold-Producing Technology Imagine if someone built a gold extractionproduction mill that could: • Be set up in a few days, on any property accessible by road. • Have no need for Cyanide/Mercury. Reuse 90% of the processing water/cycle. • Use water treated with a proprietary, non-toxic coagulant-flocculant formula. • Side-step most of the permitting due to a small operational environmental footprint. • Refine gold from ore at an All-InSustainable-Cost of less than $400 per ounce. • Be trucked to a site, set up in a few days, and produce gold - and profits - from Day 1. You are one of the first to know that this technology already exists…it’s being extensively tested and refined as we speak! Earlier this year, The Morgan Report team went to Nevada, in order to see first-hand, a proto-type mobile-gold mill in opera-

n BY DAVID MORGAN

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tion. The multiple-patent-pending process inventors have signed an Agreement with an existing mining company, and are awaiting exchange-listing approval.

in line-pressure jigs, 60% recovery rates may be possible.

an operatIonal portaBle mIll prototype

hoW It’s Done: Gravity separation is a method whereby gravity (weight) is used to separate heavy metals (gold, silver, lead etc.) from waste material. Particle separation, based upon specific gravity characteristics, is one of the oldest and most commonly used separation techniques. The Company estimated retrieving roughly 55% of contained gold, but on our visit, the yield was more than expected. When this procedure is fully optimized, using Knelson and Falcon concentrators or

(The Company’s) Business Model posits AISC of roughly $350/ounce Gold. The business model will have a customer sign an agreement whereby it processes x amount of tons per year and receives a % percentage of the revenue, usually about 75%. Currently, all-in-sustaining-costs (AISC) are estimated at $300-$350 per ounce of gold. However, economies of scale (i.e. a larger portable mill) could lower production costs. Small water and toxic waste operational footprint. If the Company can successfully

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Mobile Gold Mill

implement its business model, water and toxic-production issue solutions could make them a mining processing standout. The public has never been more concerned about mining impact on the environment, especially in regard to our water resource. At The Morgan Report, we have long favored covering/recommending companies who have shown themselves to be “good neighbors” and environmental stewards in their host countries. Potential Target Markets down the line. Though the current focus is on small-scale gold ore-bearing deposits or tailings’ containing gold amenable to gravity separation, the portable mill processing concept is potentially workable - and economically feasible - for remediation problem-solving in other categories as well. Once current goldore processing mobile mills have been fully tested, other kinds of projects beckon. See Report here In the Military sector, mobile mills could be used to clean up training and testing sites, firing ranges, depleted uranium (DU) sites, and other military operation clean ups. Environmental Remediation. Mine tailings, industrial and government-related mineral soil contaminations projects could

be attractive targets for this technology. Conclusion: We want to state up front that The Morgan Report staff owns shares in this company - purchased primarily in the open market at more than twice the current price. We truly believe this technology could have a significant impact on the junior mining industry. It may just provide the investor-interest spark which the sector

so badly needs at this time. Nevertheless, our crystal ball cannot tell us right now how robust the through-put-to-gold yield will be. The portable mill is definitely operating and producing gold values, but vindication as to the level of sustained production is yet to be fully determined. On-paper assumptions must be formulated into a real-world project acquisition and production model. Before clicking the button to subscribe to The Morgan Report, consider the following information carefully. First, this is a speculation, and things may take longer to “pan out” than expected. Second, as we said, TMR team does own shares in the original situation. And, if you own a junior mining company with gold ore that will gravity feed, you owe it to yourself and the company to make them aware of this technology which could potentially make the difference between success or failure for them! For this reason we encourage you to forward this report as you see fit. www.TheMorganReport.com/SNN n

Mobile Gold Mill

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COMMODITIES CORNER

2015 Commodities in Review

n the world of commodities, 2015 appeared to be a continuation of 2014.

It was another year of declining commodity prices. A few commodity markets were higher for the year, but an overwhelming majority were declining and reaching lows not seen in several years. Once again the sector leading the decline in 2015 was our old friend the energy sector. The one commodity market with the largest year to date rally was cocoa. If you are a chocolate fan, higher cocoa prices is not a good thing. However sugar prices fell a little in 2014 offering your sweet tooth and wallet some happiness. Chart 1 shows over 30 years of the S&P GSCI monthly spot prices for commodities. After the peak of the commodity market in the summer of 2008 due primarily from the energy sector where West Texas Intermediate (WTI) crude oil reached over $140 / barrel the commodity market quickly collapsed as the global financial crisis was in full swing by the fall of 2008. Commodities bottomed in February 2009 and peaked again in April 2011. The S&P GSCI slowly grinded sideways with a downward bias until May 2014 when commodities fell off the cliff as the commodity index reached lows not seen since 2004. Since April 2011 the commodity index has declined by 59.7%. Since June 2014 the commodity index has declined by 53.6%

Chart 1: S&P GSCI Monthly Spot Prices Sept 1984 to Dec 17, 2015

Source: Bloomberg

Chart 2: Frequency of SPGSCI Spot Monthly Returns Sept 1984 to Dec 17, 2015

n BY MARK SHORE Source: Bloomberg

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Chart 3: US Dollar Index Monthly Spot Price Jan 2000 to Dec 17, 2015

Source: Bloomberg

Table 1: Year to date price moves for commodities and new highs or lows reached in 2015 Sector

YTD %

New Highs Since

Cocoa

Softs

11.29%

2014

Canola

Grains

9.66%

2013

Orange Juice

Softs

4.78%

2014

Cotton

Softs

2.1%

2009

Sugar #11

Softs

-5.23%

2008

Soybean Oil

Grains

-9.18%

2006

Ethanol

Energy

-9.82%

2005

Gasoline RBOB

Energy

-11.01%

2009

Gold

Metals

-11.24%

2009

Soybeans

Grains

-12.01%

Corn

Grains

12.25%

Feeder Cattle

Meats

-12.33%

2013

Silver

Metals

-12.5%

2009

Rough Rice

Grains

-13.42%

2010

Soybean Meal

Grains

-14.19%

2010

Wheat

Grains

-18.9%

2010

Live Cattle

Meats

-19.51%

2012

Lumber

Softs

-20.19%

2011

Lean Hogs

Meats

-22.47%

2009

Copper

Metals

-27.51%

2009

Oats

Grains

-27.58%

2010

Platinum

Metals

-30.08%

2008

Palladium

Metals

-30.62%

2010

Coffee

Softs

-34.27%

2013

Crude Oil WTI

Energy

-38.42%

2009

Heating Oil

Energy

-42.95%

2004

Crude Oil Brent

Energy

-44.12%

2008

Natural Gas

Energy

-48.85%

2010

Source: finviz.com, Barchart www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

New Lows Since

2012

2009 2014

pointing out most of the commodity decline occurred in just the last 1 ½ years. These two numbers are a good summation of what the commodity markets have experienced in the last several years. (Learn more about commodity markets click here) Chart 2 shows 90% of the S&P GSCI spot monthly returns are found between -6% and 11.99%. The largest monthly loss was Oct 2008 of -27.77%. The largest monthly gain was May 2009 with 21.10%. As I’ve noted in past articles macroeconomic factors including the strength or weakness in the global economy influences commodity markets as commodities are about supply and demand. The movement of the U.S. dollar also influences commodity markets as many commodities are quoted in dollars. The U.S. dollar consolidated in the first half of 2014 and rallied into 2015. As of this writing the dollar may be on the verge of breaking into new highs that have not been seen since the early 2000s. As the dollar moves higher commodities become more expensive in local currencies around the world and it can dampen demand. As the U.S. dollar falls, commodities often become cheaper in local currencies and it can strengthen global demand. Could an upward breakout in the dollar further depress commodities? (Learn more about currencies click here). As Table 1 points out most of the commodity markets were falling in 2015. In some cases by 20% to almost 50%. During 2015 many markets were reaching lows not seen in several years.

Energy: The energy sector experienced major declines in 2015. From ethanol declining only 9.8% to crude and natural gas declining from 38% to 49%. With the exception of ethanol, the energy sector has been in declining mode since 2014. The energy sector has received most of the headline attention in 2015 and for good reason as it is a major component of the U.S. economy. The energy sector is estimated at MicroCap Review Magazine

5.9%1 of the U.S. GDP. However most of that attention has been focused on crude oil. In November OPEC voted to keep production at current levels. With bans being lifted on Iran, supplies will probably increase as Iranian oil re-enters the global market. Currently the U.S. is the largest consumer of crude oil and is second only to Saudi Arabia in oil production. Some estimate the U.S. may soon become the largest oil producer and on the brink of becoming a major oil exporter due to the very recent legislation passed in Congress and signed into law by the President to appeal the oil export ban from the 1970s. As I stated last year, falling oil prices are good for consumers of petroleum based products, but may hurt producers of the product. As energy prices declined since 2014, over 200,000 jobs have been lost world-wide.2 Can the reduction of oil prices be both good and bad for the U.S. economy? (Click here for more information on crude oil)

Softs: (Coffee, Cocoa, Cotton, Orange Juice, Sugar and Lumber) Softs were the only commodity sector to experience any upward bias this year, as small as the increases were, it should be noted. Of the sector, cocoa, orange juice and cotton increased 11%, 5% and 2% respectively. On the other side, coffee had the largest decrease in the softs sector, as it declined 34%. Very different from the 2014 movement. With the exception of 2014, coffee has been declining since 2011. (Click here for more information on coffee).

Meats: (Feeder Cattle, Live Cattle & Lean Hogs) The meat market has rallied since 2012/ 2013. At the end of 2014 lean hogs began to decline. In 2015 live cattle and feeder cattle peaked and began declining. In 2015 lean hogs had the largest decline surpassing 22%. Some of the reasons for declining lean hog prices is due to increased production from 2014,

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reduced overseas demand and a published study in the fall of 2015 claiming processed meats could increase the chances for cancer.3

Grains: (Soybean Oil, Soybeans, Corn, Rough Rice, Soybean Meal, Wheat & Oats) The grain sector is a mixed bag of results over the last few years as the sector peaked somewhere between 2011 and 2014. The exception being canola which peaked in 2015. The oats market was the largest mover of the grain sector as it declined over 27%. The market peaked in March 2014 at little over $5.50 a bushel and then quickly declined to just above $2 a bushel by August 2015. Since 2009 the market has gradually grinded higher until its peak in 2014. In 2012 both corn and wheat peaked around $8 and $9 a bushel respectively. There is a growing supply of grains as production is outstripping demand. If you think back to your Econ 101 course supply > demand = lower prices. The last two years have seen record world production of soybean and wheat.4 (Click here to read more about soybeans).

Metals: (Gold, Silver, Copper, Platinum & Palladium) It’s pretty safe to say the metal sector has been declining since 2011. Palladium is the one exception as it bottomed in 2012 and peaked in 2014. Historically copper has the nickname of “Dr. Copper” because it is an industrial metal and may offer some insight to the health of the economy. Copper bottomed at the end of 2008 and quickly rallied to new highs by the beginning of 2011. It is still at relatively high prices compared to the 1990s, but does it foretell the recent health of the economy? It is estimated the previous growth in copper was primarily impacted by the growing Chinese economy. If global demand for copper is calculated without China, the demand

may appear flat or possibly falling.5 The 2015 declining commodity markets proved a continuation of the last few years. Each commodity sector has its own nuances of reasons to move higher or lower. But ultimately it comes down to supply and demand. Which of these two factors are stronger and why for each commodity market. In that mix of factors is also the U.S. dollar. Stay tuned for the 2016 commodity markets. n (Endnotes) 1 www.statista.com 2 http://www.wsj.com/articles/cutting-staff-payto-keep-workers-1444690841 3 http://www.nasdaq.com/article/us-livecattle-futures-fall-on-demand-worry-hogsdecline-20151029-01428 4 http://agrinews-pubs.com/Content/Default/ Illinois-News/Article/World-drowning-ingrains-/-3/78/13847 5 http://www.mining.com/copper-price-lower-forlonger/ 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 at Shore Capital Research LLC. 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 and undergraduate level managed futures/ global macro course. He is a board member of DePaul University’s Arditti Center for Risk Management and a frequent speaker at alternative investment events. He is a contributing writer for the Eurex Exchange, CBOE, Micro-Cap Review, Swiss Derivatives Review and Seeking Alpha. Mr. Shore hosts the popular internet talk show on alternative investments “Skewing Your Diversification”. Prior to founding Shore Capital Research LLC, 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.

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t s u j ot

n s ’ t I

wi d l r o w s on ti g! a n c i o ow r 62 l g and

Email us at CEO@ChanticleerHoldings.com and receive a Chanticleer Gift Package and tell us your favorite Hooters or Chanticleer location worldwide. www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

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LIFE SCIENCES CORNER

2015: TH E Y E A R IN R EV IEW

Top 10 Biotech / Life Science Stories ZAFGEN: A Wall Street darling developing an anti-obesity drug had not one, but two patients die in the late stages of a Phase III clinical trial. The news blasted the company’s share price causing major concerns and questions within the investor community. ANTIBIOTICS: After President Obama announces he wants to allocate $1.2 billion to the fight against antibiotic-resistant bacteria in early 2015, a spate of companies Macrolide/AmpliPhi/Allergy Therapeutics/ Nabriva cash in IPO. ORPHAN DRUGS: There are several companies raising big dollars in this vertical including Orphazyme/Innovent/ Celldex/ Xbiotech/Retrophin, while industry veteran Jeremy Levin starts Ovid. NASH: Nonalcoholic steatohepatitis (NASH) gets bolstered when Gilead buys

n SETH YAKATAN

MicroCap Review Magazine

assets for $470 million and Boehringer Ingelheim snaps up an assets for $250 million with Genfit launching its Phase III study of the NASH drug elafibranor. VALEANT: Valeant was one of the hottest stocks on Wall Street for the past few years, but during 2015, allegations surfaced that Valeant’s incredible success was built on a bad foundation of price gouging; along with a clandestine network of specialty pharmacies; aka a big fat fraud. SECTOR CORRECTION: After three years of madness, biotech finally corrected. Concerns about drug pricing and a few major clinical failures set off a long-overdue correction in the fall of 2015 that dragged down biotech share prices across the board and extinguished investor support for IPO market. CRISPR: Cas9 gene editing became flaming hot by the funding of several companies out of nowhere with huge dollars and even larger backers. Caribou Biosciences (Novartis/Fidelity)/ Editas(Gates Foundations/Deerfeild)/Intellia(Orbimed)/ CRSPR Therapeutics(Celgene/Bayer) put in excess of $500.0 million to work in this area. IPO’s, IPO’s IPO’s Tracon/Spark/Imotek/ Flex/NextVet/SteadyMed/CEllectis/CErenis/ O p s on a / Su m m it / C o Lu c i d / Mu lt i Vi r / Gelesis/Merus/ Adaptimmune/ Carbylan/ Aduro/ Collegium/ Blueprint/ Galapagos/ aTyr Pharma/ Axovant Sciences/ Seres Therapeutics/ Axovant Sciences/ CytomX/ Nabriva/ Nivalis / Gensight/ Aimmune/

Neos/ NantKwest/ Chiasma/ Erytech/ Global Blood Therapeutics/ ReGenX Bio/ Edge Therapeutics/ Mirna/ Cortendo/ Dimension / AnaptysBio/ MyoKardia / Aclaris / Voyager/ Strongbridge / MyoKardia/ Dimension/ Mesoblast CAR-T: Nothing could seem to slow down this area this year without Kite/Cellyad(nee Cardio3 BioSciences)/Cellectis/Juno leading the way. The area got so hot that the Molmed and MaxCyte buy in with asset acquisitions and Juno and Kite both undertaking deals to enable more discovery. The madness intensifies as Celgene does a $1.0 billion deal with June and Pfizer does a $110.0 milion deal with Cellectis. MARTIN SHKRELI: Outspoken, brash and the poster-child for everything that is “wrong” with social media, Retrophin sues him for $65 million in damages, the BIO board kicks him out of the industry organization after he raises the price of Daraprim by more than 5000% and he is arrested in December 2015 on charges of securities fraud for running a Ponzi scheme. What else needs to be said ? n 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.

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For nearly 15 years, Tuesday’s Children has been committed to serving all those directly impacted by the events of September 11, 2001 and terrorist incidents worldwide. Tuesday’s Children’s time-tested, long-term approach—forged in the aftermath of Tuesday, September 11, 2001—enables families, children and communities torn apart by acts of terror and violence to heal, recover and thrive for a lifetime. Since 2001, more than 10,000 individuals have benefited from their evidence-based programs, including: families of 9/11 victims, responders and military service members; international youth; global victims of terrorism; and local communities, such as Newtown, CT, that are recovering from tragedies. Help us Keep The Promise to those we serve.

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ASIA CORNER

H O N G KO N G E Q U I T Y M A R K E T U P DAT E

Hong Kong Top IPO Market in 2015 H

ong Kong is set to top the global IPO market for the first time since 2011 with 15.7% share of world’s IPOs in 2015. Over 70 companies

raised HK$250 billion (US$32.26 billion), US$1.5 billion more than companies raised last year, according to Dealogic data. The finance sector pushed the exchange into the top spot as ten Chinese banks and brokers raised nearly US$15 billion through IPOs, accounting for nearly half of the deals by value. Two notable IPOs not in the finance sector debut on October 8, IMAX China Holding Inc. (01970.HK) and Regina Miracle International (Holdings) Ltd (2199:HK). IMAX China rose over 30 percent after its debut. The company has 221 Imax theatres in mainland China, four in Hong Kong and eight in Taiwan with a backlog of 217 theatre systems. Propelling IMAX China’s growth is the expectation that China will overtake the US as the world’s largest movie market by 2017 with boxoffice revenues of US$11.7 billion. Lingerie

manufacturer Regina Miracle International Ltd (2199:HK) is up 89.2 percent since its October debut. The leading global intimate wear manufacturer has 1 percent of the market share of the world’s women lingerie and derives 35 percent of its sales from L Brands Inc., Victoria’s Secret parent company. The company also has solid relationships with numerous internationally recognized

intimate wear and sporting goods brands including Under Armour, Adidas, Reebok and Calvin Klein Inc. Along with the strong momentum in the Hong Kong Exchange, Hong Kong’s second board, the Growth Enterprise Market (GEM), experienced renewed excitement with thirty one listings this year for the largest number of listings in over a decade.

n LESLIE RICHARDSON

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Established in 1999, the GEM is still a small exchange with just over 200 companies listed compared with 1,700 in the main board. It was created for small and mid-sized firms to raise small chunks of capital without the cost and time involved in a formal initial public offering. However the GEM has been a disappointment with turnover and market cap representing less than 1 per cent of the Hong Kong market’s total. Looking at ways to reposition the GEM, the Securities and Futures Commission (SFC) has been considering restructuring the market as a special listing venue for high-growth technology firms to list with special shareholding structures. Traditionally Hong Kong has been a difficult place for smaller technology companies to raise capital through an IPO. As technology in becoming an increasingly important sector in China and Hong Kong, the region has been losing out to the US in terms of attracting listings by tech firms. Many proponents believe the GEM could attract new technology firms by allowing companies to list with dual shareholding structure, the main reason stated for Alibaba’s NYSE listing. Top performing GEM listings for the year include two companies targeting China’s growing baby market, online parenting portal China Parenting Network Holdings (8361:HKG) which is up 100 percent since its July IPO and baby monitor manufacturer On Real International (8245: HKG) which is up 33.8 percent since its September 30th listing. Entertainment company Creative China Holdings Ltd (8368: HKG) is up 81.2 percent since its November IPO. The company provides television and online broadcasting program content and organizes events for China’s rapidly growing entertainment market. Rare wine merchant, Madison Wine Holdings (8057:HKG), raised net proceeds of HK$ 56.3 million (over US$7.2 million) by placing 100 million shares on 8 October and is up 33.7 percent. In 2008, Hong Kong removed all wine duties making it the Asian hub of rare wine collecting, constantly setting auction records and pushing rare wine prices to stratospheric levels.

Overall it has been a wild ride for Hong Kong stocks with the Hang Seng Index hitting a seven year high in April after China Securities Regulatory Commission (CSRC) partially lifted restrictions, allowing mutual funds to be invested in Hong Kong through the Shanghai- Hong Kong Stock Connect. China’s stock market also hit a seven-year high in June but then the Shanghai Index suddenly plunged 40 percent over fears of a market bubble. Along with mainland China’s stock slide over the summer, Hong Kong’s market pulled back as well. While the market started to show signs of regaining ground by the fourth quarter, selling pressure resumed in December on expectation a hike in US interest-rates for the first time in a decade will prompt investors to flee emerging markets. Additionally, once rates are up, a new wave of uncertainties could affect markets including capital outflows as the interest rate gap may prompt investors to move their Hong Kong dollar assets to the US dollar.

What to look forward to in 2016 The forecast for the Hong Kong market is mixed with the 2016 outlook depending on three factors; monetary policy in developed countries, China’s macro economy and commodity prices. China is likely to continue its easing cycle to boost the economy in 2016 with monetary and fiscal stimulus. Additionally, picking up slack from traditional economic drivers are Chinese consumers who are fueling the economy’s shift towards a greater consumption and servicesdriven market. The service sector has been expanding rapidly, driving wage growth and supporting consumption with online shopping revenues increasing at an annual rate of more than 50 percent and cinema box office revenues at a rate of more than 40 percent. The strength of China’s consumers can be seen on November 11th, China’s Single’s Day, a day when online retailers offer steep discounts. Last year China’s Single’s Day surpassed the U.S.’s Black Friday to become

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the world’s largest shopping day. This year Alibaba brought in US$1 billion in the first eight minutes and US$14.3 billion for the full 24 hours. After being delayed by the mainland stock market turmoil last summer, the ShanghaiHong Kong Stock Connect is expected to launch the Shenzhen stock trading link by the second quarter in 2016. As the Shenzhen Stock Exchange is dominated by small and medium-sized companies, small-cap stocks and exchange-traded funds (ETFs) targeting retail investors will be some of the main features in the Shenzhen-Hong Kong stock connect. At the same time the Shenzhen link is launched, additional enhancements to the Shanghai scheme will be introduced such as expanded trading quotas and the range of stocks covered by the Shanghai-Hong Kong Stock Connect scheme, increased cross-border regulatory and law enforcement cooperation along with a push forward with the mutual recognition of funds. As for the Hong Kong’s exchange 2016 IPO outlook, expectations are for another strong year. Many mainland companies still prefer listing in Hong Kong as the market has more international investors. Seven to eight companies are planning to each seek tens of billions of dollars and close to dozen other companies planning to seek HK$5 billion to HK$10 billion are expected to list next year. n Ms. Leslie Richardson has over 20 years of investment management and equity research experience. She operates a boutique investor relations firm in Hong Kong for Asian companies listed in the U.S. and Hong Kong. She also assists private companies develop investment material and build an investor following in preparation for a public listing. Additionally, she is the Asian Correspondent for Micro-Cap Review, www.microcapreview.com, a financial magazine focused on mirco-cap companies. Previously, she worked for CCG Elite in assisting Asian-based, U.S. listed clients formulate key communication strategies. Ms. Richardson began her investment career at U.S. Trust Company then went on to join Odyssey Advisors as a portfolio manager and Director of Research. Ms. Richardson specialized in high growth sectors such as bio-tech, alternative energy, IT and telecommunications. She earned her M.B.A. from the University of Southern California. Ms. Richardson is based in Hong Kong. www.elite-ir.com. MicroCap Review Magazine

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

Comparing Different Ways to Go Public in the U.S.

t’s well-documented that publicly-held companies are worth considerably more than similar private companies. There are good reasons for the disparity-liquidity, of course, is paramount. There are other advantages to becoming public: it’s much easier to raise capital, because investors see the exit strategy; and, public companies can use stock options to hire more qualified employees, whose talent enables public companies to increase revenues, profits and value. So, how can a privately-owned company become publicly-held in the United States? This article is a brief overview of those ways to become public, and some of the pluses and minuses of each. First, in the traditional Initial Public Offering (“IPO”), the private company retains an underwriter for the S-1 offering,

which will agree, subject to certain conditions, to raise an agreed-upon amount of money in exchange for an agreed-upon percentage of the company’s shares. The most desirable type of S-1 is a firm commitment offering, in which the underwriter agrees to purchase the shares being offered, and then resell them to investors. Thus, when the offering is declared effective, the company is assured of receiving the offering proceeds— unless a negative event occurs in the few days between the effective date and the closing. The advantage of a firm commitment IPO is clear: assuming it is successful, the company will be publicly-traded, and is often immediately listed on an exchange— NASDAQ, AMEX or even NYSE, depend-

n BY JOHN LOWY

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ing upon the size of the company and the offering. The principal disadvantage of a firm commitment IPO is that the large majority of firm commitment IPOs are for companies which raise $40,000,000 or more, which significantly limits the number of companies that can even contemplate such an IPO. Another important disadvantage of a possible IPO is that it is subject to market conditions—if the stock market is declining, the underwriter can either delay or even cancel the offering. Or, if the company’s business softens, or its business sector suddenly goes from hot to cold, e.g., biotech deals recently, the underwriter may cancel the deal. Not discussed here: either a self-underwritten IPO, in which the company attempts to go public by selling its shares without an underwriter, or the new so-called “Regulation A+,” which allows companies to raise up to $50,000,000 without using Form S-1. In my opinion, unless the company has access to a large base of potential investors, self-underwritings usually result in the company raising only a small amount of money, with no liquidity. And given its brief existence, it’s too early to determine if Reg A+ offerings will be successful, either with or without an underwriter. A new term, “Slow PO,” is being used to describe an old method by which private companies become publicly-traded: a private company can raise money from investors over the years, building its shareholder base, and then make those shares publicly tradable. In a Slow PO, after a company has established a shareholder base, an attorney issues a legal opinion that those shareholders may publicly resell their shares without registration, pursuant to the exemption provided by Section 4(a)(1) of the Securities Act of 1933. The company also engages a broker-dealer to file an application with FINRA to obtain a trading symbol for the company’s shares. In this scenario, the company is not necessarily required to become a reporting issuer; instead, it could trade as a non-reporting

issuer. Candidly, I do not advise using this Slow PO route to become a non-reporting public company, because with such minimal public information, trading will probably be sporadic. In another “Slow PO” scenario, a private company with an aged shareholder base files a Form 10 with the SEC to become a reporting issuer, which, as a matter of law, becomes effective 60 days after it is filed. The company and its principals are then required to file periodic reports with the SEC—Forms 10-K, 13d, etc. The advantage to this type of “Slow PO” is that when FINRA authorizes the broker-dealer to publish quotations for the shares, the company will be a publiclylisted (OTC) reporting issuer. There are many disadvantages to the second type of Slow PO: first, it obviously takes a long time, even years, before the private company has enough shareholders with the required holding period. Second, there are significant legal and accounting costs in filing the Form 10, plus company officers being diverted from company business to ensure the accuracy of the FINRA and SEC documents. Moreover, it is common that there is a lapse of time between when the Form 10 becomes effective and the company’s stock is cleared for trading, during which period the company must continue to file reports with the SEC, but with no trading market for its shares—the worst of both worlds. Which brings me to reverse mergers: Starting with the negative, the principal disadvantage of a reverse merger is that, unless it is coupled with a simultaneous PIPE [Private Investment in Public Equity] the reverse merger itself does not raise capital for the company, and in fact costs money—to purchase the shares from the principals of the public company, plus legal and accounting fees, etc. But, in my opinion, the advantages of a reverse merger significantly outweigh the negatives: (1) a reverse merger is faster than an IPO, and significantly faster than a Slow PO; (2) it is far less expensive than an IPO, even including purchasing the shares of the

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public company’s principals, because of the substantial legal, accounting, underwriting, road show, etc. expenses of an IPO; and, (3) perhaps most important, a reverse merger is far more certain to be successfully completed than an IPO. As noted above, the underwriter of an IPO can “pull” the deal at any time before the offering closes, for many reasons. By contrast, in a reverse merger, the private company is the master of its destiny: as long as it abides by the terms of the merger agreement with the public company, the deal will close and the private company will then be publicly-held. So, on balance, if a private company intends to become publicly-held quickly, I recommend doing so by reverse merging with a publicly-held issuer. n 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, or have been sold to larger companies. 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.

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LEGAL CORNER

Ask the Legal Experts W

ith the global economy in apparent recovery and markets thawing, many “micro-cap” companies -- typically publicly-traded companies in the U.S. with a market capitalization of between approximately $50 million and $300 million – and ”small-cap” companies – typically public companies that have a market capitalization of between $300 million and $2 billion -- are looking for opportunities in the U.S. capital markets. Their goals may include enhancing their company’s profile, increasing liquidity for their securities and raising additional capital. Accordingly, many issuers want to know if they can or should be uplisting to a major exchange. Eric Hellige and Francesca Djerejian, attorneys with Pryor Cashman LLP, recently sat down to outline the requirements to uplist to the Nasdaq Capital Market and the NYSE MKT exchanges, typically viewed as the next progression from one of the OTC markets. Q: What are the benefits and potential drawbacks of uplisting to Nasdaq or the NYSE MKT?

n BY ERIC HELLIGE AND

FRANCESCA DJEREJIAN

MicroCap Review Magazine

A: Listing on a national exchange can offer an issuer a number of benefits, such as greater liquidity, access to capital markets to fuel growth, market recognition, research coverage and enhanced corporate reputation and prestige. An uplisting to an exchange may also provide an issuer with regulatory oversight in terms of monitoring against

potential trading violations by unscrupulous investors. In addition, when engaged in merger or acquisition negotiations, an issuer’s stock is viewed as a more attractive bargaining chip if it is listed on a national or global exchange. Uplisting can also provide a foundation for establishing stock optionbased incentive plans that in turn attract key personnel. However, companies considering uplisting must be aware of the listing requirements applicable to each exchange, as well as the extensive corporate governance and disclosure requirements that result from trading on one of the major exchanges. The expenses of maintaining an exchange listing also are typically greater than those of maintaining trading on the OTC markets. Q: What are the conditions that have to be met for an issuer to uplist? A: To be listed initially, an issuer must meet certain minimum financial and nonfinancial standards, including with respect to total market value, stock price and the number of publicly-traded shares and shareholders, and must be a reporting company under the Securities Exchange Act of 1934. A listing application with the appropriate exchange must be filed and approved. After a company’s stock starts trading on a major exchange, it is subject to additional, less stringent requirements that must be met in order to avoid potential delisting. Companies considering uplisting should be informed

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about both the initial and continued listing requirements of the applicable exchange. Q: What are the fees for listing on Nasdaq or the NYSE MKT? A: Entry fees for the various Nasdaq tiers are based upon the number of total shares outstanding and range from $50,000 for the Nasdaq Capital Market for companies with up to 15 million total shares outstanding to $225,000 for the Nasdaq Global Select Market and Nasdaq Global Market for companies with over 100 million shares outstanding, including a $25,000 application fee. Initial listing fees for the NYSE MKT also are based upon the number of shares outstanding and range from $50,000 for companies with less than 5,000,000 shares outstanding to $75,000 for companies with more than 15 million total shares outstanding. An issuer also is required to pay an Initial Application Fee of $5,000 in connection with applying to list shares of common or preferred stock on the NYSE MKT. An issuer must also pay annual fees to the NYSE MKT ranging from $35,000 for issuers with up to 50 million shares outstanding to $50,000 for issuers with more than 75 milion shares outstanding. Q: What are the disclosure requirements that result from uplisting? A: Companies listing on the major exchanges must make their annual and interim reports available to shareholders, either by mail or electronically through the company’s website. Listed companies are also required to hold an annual meeting of shareholders no later than one year after the end of the fiscal year and must solicit proxies for all shareholder meetings. Quarterly and annual financial statements must also be prepared and are due relatively soon after each period end. Companies considering uplisting should assess whether their internal control environments have the capacity

Companies listing on the major exchanges must make their annual and interim reports available to shareholders, either by mail or electronically through the company’s website. Listed companies are also required to hold an annual meeting of shareholders no later than one year after the end of the fiscal year and must solicit proxies for all shareholder meetings. to handle growth and the more extensive SEC reporting requirements. Q: What are the corporate governance requirements that are mandated by Nasdaq and the NYSE MKT? A: Companies that are traded on the NYSE MKT or Nasdaq exchanges are mandated by the listing rules of the respective exchanges, the Dodd-Frank Act, the Sarbanes-Oxley Act of 2002, the Securities Exchange Act of 1934 and the rules of the SEC and the Public Company Accounting Board to comply with certain corporate governance requirements, including requirements that independent directors comprise a majority of the board, that all members of the audit committee be independent, and that compensation committees and nominating and corporate governance committees meet certain independence requirements. Listed companies also must adopt codes of business conduct and ethics applicable to all directors, officers and employees and must conduct appropriate review and oversight of all related-party transactions. If you have any questions regarding uplisting, or would like greater insight into specific conditions or additional details, please feel free to contact Eric at ehellige@pryorcashman.com, or via phone at 212.326.0846.

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A premier, midsized law firm with headquarters at 7 Times Square and a satellite office in Los Angeles, Pryor Cashman is known for getting the job done right, and doing it with integrity, efficiency and élan. Over 145 attorneys strong, we are dedicated to our clients’ long-term success, advising them on everything from day-to-day issues to the most complex investments, mergers and acquisitions (M&A) and financings. With an experienced partner as their primary point of contact, clients always have someone available to them who is devoted to understanding their businesses, industries and cultures. For more information, please visit www.pryorcashman.com. n

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

powerstorm ess modular energy storage solutions (mess) otC pInK: psto

ESS is a patent pending modular gies to meet the individual’s business needs. ESS initial target market is the telecom towers design, allowing cost efficient The MESS design is patent pending. in the rural emerging markets. The company “pay-as-you grow”. has a pipeline of over 150 sites in regions Powerstorm ESS is an emerging player poWerstorm ess aDvantage such as Nigeria, Cameroon, Tanzania, El in the rapid growing and high demand Salvador, and the United States. renewable energy market. Powerstorm ESS MESS offers low CAPEX, small footprint, highwas developed by focusing in areas where er storage capacity, modular and scalable. In poWerstorm ess future electricity is in greatest demand. The com- contrast to equivalent traditional diesel system, pany’s core focus is to provide complete, it saves more than 70% in operational expenses Beginning in January, with an aggressive growth plan for 2016, Powerstorm ESS will cost-effective energy storage solutions that and 40% reduction in green house emission. Their experienced management team, have five additional pilot systems entering elegantly integrate into their comprehensive thea fast market including their patent Freni, Chairman/ CEO, istechnologies an innova- in modular architecture. The company address- Mike Our Competitors areJ.still bringing yesterdays emerging industry where pending tomorrow’s outlook stra- digital brain. During February, the comes every segment of the energy storage solu- tive corporate development specialist & imperative tion including battery chemistry (lithium), tegic architect. Dr. Shailesh Upreti, CTO, is an pany will showcase in Barcelona, Spain at the power conversion, voltage transformation, expert in energy storage and former member GSMA’s Mobile World Congress. With stragrid communications, algorithmic prediction, of the U.S. Dept of Energy’s Frontier Research tegic partnerships in both the United States and operating logic. Their ultimate goal is to Centers at Binghamton. Ana-Maria Pruteanu, and overseas, a full market launch is set to make their energy storage solutions intuitive, President, is a telecom industry dealmaker in begin in March. Future expansion includes industrial, military, agriculture, and commuthe emerging market for two decades. easy to use, affordable, and elegant looking. nities. Powerstorm ESS projected revenue is mess DesIgn marKet potentIal & estimated at 100+ million with a 32% to 43% eXpansIon gross margin by 2020. In 2014, Powerstorm ESS created the proof At Powerstorm we redesigned the Hybrid energy storage for the next decennium. brings substantial significantly efficiency and productivity. projected marketcost forsavings energy and storage n of concept of their MESS when it was evidentThisThe Website:improves www.powerstormess.com that Telecom Operators required a cost effi- solution by 2020 is $60 billion. Powerstorm The company paid consideration to SNN or its affiliates for this article. We took our system and cut in 3 to be really a modular system more capacity smaller footprint cient, scalable, clean energy solution. Their competitors are using archaic technology in a fast emerging industry, Powerstorm ESS’s MESS is designed for the next decennium. In 2015, the company designed the MESS to be modular, the hybrid energy storage solution consists of a Genset and energy storage units. This revolutionary “pay as Our Competitors are still bringing yesterdays technologies in a fast emerging industry where tomorrow’s outlook imperative you grow” modular solution delivers more energy storage per square foot and is able to function continuously by hot swapping their Lithium tray batteries without losing energy, which makes the system always on. The system offers proven flexibility to incrementally scale in power and energy capacity, by integrating with existing infrastructure, and working seamlessly across battery technolo www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com 68 MicroCap Review Magazine At Powerstorm we redesigned the Hybrid energy storage for the next decennium. This brings substantial cost savings and significantly improves efficiency and productivity.

November, 2015 adds & subtracts of FINRA Member Firms , 2015 adds & subtracts of FINRA Member Firms

compiled by DAVID ALSUP

Financial Industry Broker Dealer Data Aggregator

6 New firms admitted & 12 firms withdrew Also see the RIA formations chart. (New Formations:Three-year average is 10.2↓ per mo. BDW three year average is 20.5↓Closures per mo)

6 New Firms were admitted in Nov

12 Firms Withdrew in Nov

•

• 5 were equities trading firms.

•

1 Firm admitted was a Govt broker 4 firms admitted were Private Placement firms 1 firm admitted was Mutual Fund oriented

• 4 were Private Placement firms • 2 firms were classified as Mutual Funds (1 was: Other) • 11 of these firms had less than Ten reps

18 month New Formations chart showing the number & types of firms admitted

20 15 10 5

Pvt

Mut F,

Other

EquiJes

0 12 11 19 5

9 11 12 8 17 7

6 13 8

8 14 6

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

RIA Net New FormaJons Monthly 200 150 100 50 0

RIA FormaJons Monthly

11405 11474 11524 11611 11615 11765 11918 11986 12026 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May June July Aug Sep Oct Nov

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

As of Nov 30, 2015, there are 4058 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 November, 2015. David Alsup 949-468-0111 david@fishbowlstrategies.com www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

A Detailed analysis (or Customized data) is available by Subscription. MicroCap Review Magazine

PROFILED COMPANY

Delmar pharmaceuticals, Inc. otCQX: DmpI

teve Jobs, one of the greatest visionaries of our time, once said, “You can’t connect the dots looking forward; you can only connect them looking

backwards. So you have to trust that the dots will somehow connect in your future.”

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Founded in 2010, DelMar Pharmaceuticals applies this philosophy to cancer drug discovery and development. Prior research sponsored by the United States National Cancer Institutes (NCI) provides the historical dots and DelMar uses modern biological science to connect them. DelMar is currently conducting clinical trials with its lead drug candidate, VAL-083 (dianhydrogalactitol), as a new treatment for glioblastoma multiforme (GBM), the most common and deadly form of brain cancer. Dr. Dennis Brown, DelMar cofounder and Chief Scientific Officer, is a Ph.D. with more than 30 years of experience in cancer drug discovery and development. As part of the original NCI effort over 20 years ago, Dr. Brown had the insight to know that there

might be promising drug candidates ‘on the shelf ’ whose value might have been overlooked. Dr. Brown went back to the archives to mine old data looking for opportunities that had already demonstrated activity against cancer in prior human clinical trials. In the late 1990s he started a company called Chemgenex which employed modern genomic tools to dig deep into the mechanism of drugs that were already known to work. Conceptually: The drug hasn’t changed; the tumor hasn’t changed; what has changed is scientists’ knowledge about biology of the tumor and the new tools that they have to explore genes and biological pathways. This new-found clarity can point a drug that is

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DelMar recently presented interim data from its clinical trials that suggest the potential to significantly improve the survival of GBM patients who have already failed all other available therapies. The next step is to bring the drug to newly-diagnosed GBM patients as an alternative to the standard-of-care where it can offer the most benefit. known to work in a broad sense precisely toward the type of patient whose tumor will benefit most today. The Chemgenex drug, which was approved by the FDA in 2012 and now marketed by Teva Pharmaceuticals as Synribo®, used this approach to target a small niche in the leukemia market. When Chemgenex was acquired by Cephalon (who was subsequently acquired by Teva), the core scientific team stayed together and reformed as DelMar Pharmaceuticals around the next interesting drug on Dr. Brown’s hit-list. At the top of this list was DelMar’s lead product candidate, VAL-083, which demonstrated clinical activity in prior NCIsponsored clinical trials against a range of tumor types including solid tumors such as ovarian and lung cancer, brain cancer and hematologic malignancies. “By using modern science to connect the historical dots of clinical, toxicology and pharmacology data from the NCIs research we reduce the time, cost, and risk associated with drug development, said Jeffrey Bacha, DelMar’s co-founder, Chairman & CEO. “This also allows us to accelerate the advancement of new cancer therapies targeted toward specific cancer sub-types that are underserved by modern treatments.” Mr. Bacha, whose background is biophysics, started his biotech career in a research

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laboratory in the late 1990s. After seeking an MBA he joined KPMG Health Ventures where he served as a consultant to young biotech companies, some of whom have gone on to become today’s billion dollar biotech behemoths. DelMar’s first target market, GBM, represents one of the cancers that has not benefited from today’s modern therapies. One reason is that GBM is a cancer of the brain; therefore, it is difficult to reach with most drugs due to something called the bloodbrain-barrier. VAL-083 was known to cross the bloodbrain-barrier back in the era of Dr. Brown’s original NCI-sponsored research. It also demonstrated activity against GBM in NCIsponsored clinical trials of the era. However, other drugs with newer patents looked similar and VAL-083 was cast aside in favor of another drug candidate that went on to form the basis of today’s standard-of-care treatment in GBM. GBM is a highly invasive and aggressive tumor that affects about 15,000 persons per year in the United States. The median survival from diagnosis is about 15 months – unfortunately, a figure that hasn’t changed in decades. The current standard-of-care is effective in only about 1/3 of patients. “We now understand the basic biology of the tumor

that causes resistance to these treatments,” said Bacha. “The main culprit is a naturally occurring DNA repair enzyme called “MGMT”. Simply, MGMT causes resistance to the chemotherapies currently available to fight GBM.” That’s where DelMar’s team of researchers employs their expertise. DelMar first demonstrated that that the way that VAL-083 targets cancer is different than the standardof-care and that VAL-038 avoids the MGMT repair and resistance paradigm. Based on these discoveries, DelMar initiated new GBM clinical trials targeting patients who are resistant to currently available chemotherapies. DelMar recently presented interim data from its clinical trials that suggest the potential to significantly improve the survival of GBM patients who have already failed all other available therapies. The next step is to bring the drug to newly-diagnosed GBM patients as an alternative to the standard-ofcare where it can offer the most benefit. DelMar has taken VAL-083, a previously promising but ignored drug candidate, and used modern science to refine that promise into a potential new treatment for the majority of patients for whom current GBM treatments offer little or no benefit. In addition, DelMar’s research also suggests that VAL-083’s unique mechanism may also provide opportunities in hardto-treat subsets of lung cancer and ovarian cancer. It’s simple: Take a drug that you know works and use modern science to point it where it is needed most. n For more information, please contact Jenene Thomas, DelMar Pharmaceuticals Investor Relations at 604-629-5989 or at jthomas@delmarpharma.com Alternatively please visit www.delmarpharma.com or follow the company Twitter: https://twitter.com/DelMarPharma; Lin kedIn: https://www.linkedin.com/company/delmarpharmaceuticals; Facebook: https://www.facebook. com/DelMarPharma; and Google+: https://plus. google.com/113474949030419412972/about. The company paid consideration to SNN or its affiliates for this article.

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

Natural Resources Overview Q&A with Rick Rule Natural Resources Market Overview: Review of 2015, Looking Ahead to 2016 coal, uranium, but also, of course across the whole soft commodities complex, the agriculture commodities which are uniformity off 30%-50% in price. On a global basis, we had very very very soft demand. The consequence of very weak commodities prices is that we had weak cash flows to natural commodity producers and some of those producers have an awful lot of debt, which means that both debt, i.e. bond prices and equity prices, in natural resources businesses from the very largest like Anglo American which has fallen by almost 80% in 3 years to the very smallest as are characterize by the TSX-V that’s a resource index which is also astonishing 88% in nominal terms, has been a rout.

1. Can you review what happened in the natural resources market in 2015? Well that’s easy to sum up in one word: we had a DISASTER. On a global basis, I think it’s safe to say that there was a lack of demand for anything anywhere. There are discussions in the resource market that we suffer from over supply. The truth is that the supplies haven’t increased that dramatically in the last five years. What’s happened is that we have a sort of synchronous global decline, the relative strength of the U.S. economy notwithstanding. As a consequence of a lack of demand particularly for industrial materials, things like oil and gas, base metals, iron,

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2. Is there a point in time when markets are so beaten up, investors so distraught, that it just makes sense to be a buyer? The answer to that question is fairly nuanced and I think there’s three parts to it but I think the first over riding answer is ABSOLUTELY YES. The truth is that when you view the higher natural resource complex from the largest Oil and Gas company to the smallest viable development company on the TSX-V, five years from now you will look back to the end of 2015 to the beginning of 2016 as the “Good ‘ol Days” when things where cheap and in some senses absolutely, idiotically, insanely cheap. And you will say five years from now what was I thinking that

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I wasn’t buying. So, the first answer to the question is if you have a five-year time frame the answer is YES, YES, and YES. If, however, you have a twelve-month time frame or more problematically a three-month time frame, the answer to that question may very well be NO. It’s important that people understand that you come out of a commodities bear market one of two ways: either through demand creation, which rises price, or through supply destruction. And let’s talk about both of those. Demand creation itself happens one of two ways: either there is a broad base economic base recovery in response to the business cycle. Although I’m no economist, I see no broad base recovery taking place in the world today; the relative strength of the U.S. economy notwithstanding. The other way that demand can be created is because ultra-low commodity prices increases utility for a commodity so that the demand for the commodity increases irrespective of underlying economic conditions. We are beginning to see some evidence of that today. Examples would be gasoline consumption in the United States which is doing extremely well despite the increasing prevalence of things like electronic cars or duel powered cars, despite the sales of more fuel efficient cars. The truth is that gasoline demand in the United Sates is very strong relative to forecast, and I think that has lot to do with low gasoline prices. The second example would be natural gas demand in the U.S which is increasing, although manufacturing capacities isn’t increasing in the U.S. It’s happening because low natural gases prices discourage consumption and encourage the utilization of natural gas for things like feedstock chemical production and also to displace coal and other things in the power grid. So we are seeing a bit of demand creation in the natural resource business, but not enough in my experience to cause a recovery. The other way you come out of a natural resources bear market is by supply destruction. We are just coming to see that now. You will remember from previous interviews that my buzz word in

You will remember from previous interviews that my buzz word in resources because of its cyclicality is that you must be a contrarian or you will become a victim and that same cyclicality has to do with supply destruction. You see right now across the spectrum in natural resources in Oil and Gas, Uranium, Coal, Copper. resources because of its cyclicality is that you must be a contrarian or you will become a victim and that same cyclicality has to do with supply destruction. You see right now across the spectrum in natural resources in Oil and Gas, Uranium, Coal, Copper. At least the median part of the industry is producing at a loss. In Uranium, as an example, estimated cost to produce a pound of Uranium, including the cost of capital is about $65/lb. So you buy the stuff for $65 a pound and sell for $35 a pound or $37 a pound, losing $30 a pound trying to make it up on volume, this doesn’t last very long but it can last to 2-3 years. Remember that producing at a loss is a way of cannibalizing the capital that you built up in the good markets. Fortunately for the industry, but unfortunately for the recovery, the natural resource industry has built up an awful lot of surplus capital in the bull market that occurred in the period of 2002 thru 2012, and we need to eat through that capital before we have wholesale shut downs of supply. Wholesale shut down of supply is coming: they are coming in the iron business, they are coming the coal business, they are coming in the oil business, they are coming in the gas business, they are coming in the copper business, and when you shut the productive capacity down its very difficult, very time consuming, and very expensive to restart it. So what that means is when you have a price recovery, you don’t have a price recover up to the marginal cost

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of the production you have price recoveries that are dramatic because people can’t bring back supply as quickly as they could shut down supply. Those of you who were students of the resource market and remember the recoveries we enjoyed at the beginning of the last decade will see the dramatic nature of the price recovery that has happens over the consequence of supply destruction. Prices move like from Uranium $8 a pound to $130 a pound, natural gas moves from $1 per/NCF to $15/NCF, copper from $.75 to $4.50. You get the drift. Ironically the longer this bear market in resources lasts, the more the dramatic ultimate recover will be, and here’s why: at $40 as an example most oil production in the North Sea is uneconomic. The North Sea produces between 1.5 and 2 million barrels year. If this $40 price last for two years/two and half years, you start to shut in most of the North Sea production. 2 million barrels a day is the gap worldwide between supply and demand for oil. Just the North Sea itself coming out of production would put production in fact in balance with regards to demand, but $40 oil wouldn’t just shut in the North Sea, $40 oil would be terminal for most of the marginal for production most of the places like Mexico or Venezuela. Ironically, if two years from now oil is at the $60 level five years from now oil would only be at the $75 or $80 level. If two years from now you have oil at the $40 level my suspicion is that that five or six years MicroCap Review Magazine

The U.S dollar will continue strong and precious metals will continue weak. If by contrast, this 25 bases point increase can’t be made to stick and the subsequent interest rate hikes can’t be made to continue, then I would expect the U.S dollar to roll over, similar the way it rolled over in 2002, and in that case with a weaker U.S dollar the game will certainly be on in precious metals. from now you would see oil at the $100 or $125 level. I know it seems counter intuitive and I know that it’s ironic, but that’s the way the market works. The consequence of what I have just told you is that really in terms of where and when you participate in the natural resource market it has to do with your own sense of timing and your own willingness to endure risk. 3. What catalysts should investors look out for in changing metals markets? In this case one needs to segregate between base metals and precious metals. The catalyst for the increasing precious metals prices crisis is simple: a weaker U.S dollar. If the FED is able to make a 25 basis point interest rate ride stick and if they are able to get away with another couple of small interest rate rises that is if U.S debt markets, equity markets, and the U.S economy don’t respond negatively to an increasing interest rate. The U.S dollar will continue strong and precious metals will continue weak. If by contrast, this 25 bases point increase can’t be made to stick and the subsequent interest rate hikes can’t be made to continue, then I would expect the U.S dollar to roll over, similar the way it rolled over in 2002, and in that case with a weaker U.S dollar the game will certainly be on in precious metals. With regard to base metals the question is trickier. You will recall we talked about the

MicroCap Review Magazine

need for supply destruction in the answer to the previous question, and my suspicion is that supply destruction in base metals will take between 18-24 months to start to have some impact on metals prices, and hence, on equity prices of metals producers. 4. Despite the overall negative sentiment in metals and natural resources, what are some key characteristics investors should look for in MicroCap natural resources companies at this time? Interesting question; some of your readers will remember the depth of the 1997 to 2002 bear market. In the summer of 2000 we experienced an event that I call an issuer capitulation. Issuer capitulation is where the very best companies in the junior business, the very best promoters, the Ross Beedie’s, Bob Quartermain’s, Robert Friedland’s, Locos Londen’s, the best of the best, come to the realization that they cannot save their way to prosperity but they have to build their way to prosperity and that takes money. At that point in time the issuers come from the market despite how painful it is for them, and raise the money to advance their projects. Ironically despite the perceived illusion this does two things: you see in the first instance people are leery about buying stocks when they know they need to raise money because they are afraid that the process of raising money itself

will dilute their interest. Ironically, after the money raising takes place, the worry goes away. The circumstances that everybody was afraid of disappears and the reason not to buy the stock also disappears. More importantly the companies that have the courage to raise money in the bad market begin to do work and generate news in a news vacuum. It’s one thing to get the market’s attention when there are 1000’s of people clamoring for attention. It’s very different to be a part of group of 15 that are clamoring attention. So in the year 2000 in the middle of the last bear market the companies that came into the market doubled in 12 months and doubled again in the next 12 months. We had a 400% price rise in the select group of companies - a private bull market in a massive bear market. What I think the key characteristics that people should look for in this bear market are Issuer Capitulations, from the very very best investors in the market. 5. In 2016, there will be a US Presidential election. Will that have any notable effect on the metals markets? I would say almost certainly not. The only way it could have an impact on the metals markets is if the economy and the electorates discussed at the process and the discussion by the candidates offered up by both parties was so complete that it damaged confidence in the U.S dollar. In other words, the idiocy that we see on the television screens around the world of the U.S political process was so extraordinary that it began to cause people to fall off the dollar. Or, if the FED response to the politics of the 2016 election cycle would be yet easier money and to forestall an interest rise in an attempt to generate yet another for a short term fix of the economy, in other words, if the U.S. Presidential election, or the politics around the presidential cycle were so extreme that they damaged faith in the U.S dollar and began to damage the credibility and hegemony of the U.S dollar and U.S federal debt markets that would of course be very very bullish for gold.

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6. Can you discuss the relationship of metals markets to the overall economy? Leaving out the precious metals markets, the rest of the metals are extremely economically sensitive. An example of the effect of the overall economy in the metals market can be seen the third quarter report from Caterpillar tractor, which I consider to be a bell whether for basic goods manufacturers on a global basis, and it was a catastrophic quarter by any measure. The top line number, the bottom line number, but most importantly, the evaporation of the work back log at Caterpillar. That tells us that there is no life in the capital goods sector, which suggest the prognosis of the private sector for growth and demand is very very tepid. The consequence of that is people aren’t buying steel they aren’t making stuff out of steel, people aren’t buying copper because people aren’t making stuff from copper. So those part of the metals markets are extremely economically dependent. Although I am not economist I don’t see any near term recovery in any meaningful market on a global basis. 7. What do the experts predict for the resource markets in 2016? Now this is the one part that makes me bullish because everybody’s expectations of the 2016, those people who care enough to even make a prediction are overwhelming bearish. My experience has been that when people are this overwhelming bearish they have already made decisions with their funds in other words everybody who needs to sell has probably sold. The experts’ predictions for 2016 are so dire that you would expect the 7 billion people on Earth would stop procreating, and don’t want to eat and don’t want to drive cars. The most bullish part of resource markets for 2016 is that the overwhelming negative consensus of the experts which is as of itself a very bullish phenomenon. 8. What guidance are you giving Sprott clients for 2016?

Well, many. Value-oriented clients will probably be able to buy the best names in the middle of 2016. Income-oriented clients can begin to buy the infrastructure stocks; the pipeline stocks, as an example, which are up by 40% in the last 18 months right now. Speculators can buy the really good speculations; the guys who don’t need to raise money for next two years. Right now it’s amusing and I am not going to use any names, but there is a mining company out there a junior mining company that is selling at about a 200 million dollar premium to the cash it has in the treasury that generates about 200 million dollars in cash flow a year in other words enterprise value is about 1 times EBITDA with 10 year mine life and there is a 6% yield. This is like picking up a 6% bond for free this is an astonishingly good value, and they exist out there but there is no way of saying it won’t get better. In terms of other specific pieces of advice, with regards to speculators, pick your spots now but save a lot of dry powder for issuer speculation when you can participate in private placements and pick up warrants. And finally in the junior oil and gas space expect a blow up in quarter 2 or quarter 3 of 2016, where the annual reports come out with third party calculations of net asset value approved developed producing reserves. This will catalytic because the companies renew or don’t renew their bank facilities or lending facilities based on these net present values the fact that they haven’t been able to continue to invest this year means most of the production that they have gotten cash from this year hasn’t been replaced by drilling. At the same time the future value of those reserves is depressed by today’s low commodity prices. I will expect you will see real blow ups in the junk debt market in the bonds for oil and gas producers. You will see blow ups with regards to loans being termed or loans foreclosing and you will see extraordinary blow ups I think in the sub $300 million dollar market cap oil and gas space. These blow ups will scare investors about the whole sector, in other words, they will behave irrational and they

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will throw the good companies out with the bad ones simply because they are oil companies. This seems to happen once a decade. I remember it happening in 1984, I remember it happening in 1992, I remember it happing in 2002 and 2003 and it’s with us again it is something that happens once a decade and in my experience it has generated a once in a decade opportunity. So ironically I am looking forward to more chaos, more carnage in my businesses because like I said at the beginning of this discussion, five years from now you will look back at 2015-2016, if you are a buyer you’re going to say boy those were the good ole’ days I can’t believe how cheap stuff was. If you view today a year from now you probably won’t have that same opinion but if you view five years from now you will absolutely, positively from my point of view, you will have that opinion. n 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.

MicroCap Review Magazine

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

MicroCap Outlook 2016 T

he year 2015 must have been the most eventful “uneventful year” in the history of the U.S. stock market. As of this writing, two days before year-end, the S&P 500 has posted a gain of exactly 1% for 2015. Small potatoes, but certainly not a small amount of intrigue. At its peak in 2015, the S&P 500 had gained 3.6% for the year and at its nadir--during the late-August flash crash--the index had fallen 9.3% for the year. So, we saw peaks and valleys in the broad market indices in 2015, but the small and microcap world tends to have higher highs and lower lows. To measure the performance of the small and microcap sector I look at the the Russell Microcap Index (RUMIC.) As of this writing RUMIC has declined 4.7% in 2015. At its peak in June the RUMIC had gained 9.1% in 2015, but those gains quickly dissipated and the index fell as much as 10.9% during the August rout.

So the Russell Microcap Index not only showed much greater amplitude in 2015 than the S&P 500 (20 percentage points versus just under 13 percentage points) but also a materially weaker performance, with a nearly 6 percentage point underperformance for the year. That’s indicative of an investing theme for 2015. There has been a safety-in-numbers mentality with investors rushing to crowd into a small number of popular growth stocks. Pundits have even come up with a handy acronym for this group: FANG. Facebook, Amazon, Netflix and Google (now technically Alphabet Inc. but the acro-

n JIM COLLINS

MicroCap Review Magazine

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nym works better with its old corporate name) are dominating institutional investors’ portfolios at the expense of smaller capitalization names. There’s only so much money to go around, but obviously the risk is that “Mr. Market” is choking true emerging growth companies of the capital needed to become the next Facebook or Amazon. Small and microcap companies need the equity markets as a funding source, while bigger companies are using excess free cash flow to repurchase shares. There are opposite strategies at play given the contrasting points in company lifecycles implied by microcap versus megacap. If public equity market valuations are low relative to private market values emerging companies might never come public in the first place. That would be no fun! Really, why should M&A bankers and venture capitalists have all the fun? The opportunities for asymmetric returns are there in individual companies. Ignore the moronic newsletter pumpers with their tales of secret pipelines and marijuana millions. Cold, hard research can still produce huge returns, and that’s why publications like the Microcap Review are so important. The micro will always win in the end, but the macro is important. Smart investors must notice the broader market trends, and, clearly, 2015 was a year of underperformance for small stocks versus their large-capitalization brethren. Will the same trend hold true in 2016? I’m afraid it will. I see so many clouds on the horizon for the overall market. A Presidential election--which is already shaping up to be the nastiest in recent memory--here in the U.S. Rising interest rates. A stronger U.S. dollar. Continuing pressure on corporate margins, from that dollar strength as well as increasing labor costs in an environment of low unemployment. The growing threat of terror from ISIS and other radical Islamist groups. It’s just a witches’ brew of nastiness out there, and the herd mentality that has produced the FANG phenomenon shows no signs of abating. I really don’t think equity

There will always be room for a couple home run swings in your portfolio, but the key word there is “a couple.” I just don’t see 2016 as a year where a basket of microcap stock outperforms the broad market. I really do think it will be a year for singlestock winners. valuations properly reflect the risks facing U.S. companies as we exit 2015, but they will, eventually. Thus, I believe the best strategy for 2016 is to take shelter in corporate bonds, and possibly even U.S. Treasuries. But, as I mentioned above, that’s no fun. No one has a completely defensive portfolio. There will always be room for a couple home run swings in your portfolio, but the key word there is “a couple.” I just don’t see 2016 as a year where a basket of microcap stock outperforms the broad market. I really do think it will be a year for single-stock winners. So, when looking for microcap performance in 2016, just discard that tired, old ancient wisdom. Forget about diversification. Find a sector that is attractive and pick a couple companies with the strongest growth prospects. Often a sector that has performed poorly in the prior year can be outperform in the next year. I spent copious amounts of time in 2015 researching life sciences stocks and watched as that sector--and all of biotech, generally-fell out of favor in the third quarter. I believe that has opened opportunities for investment in companies with proprietary, patented lifechanging technologies in 2016. Similarly, I spent much time in 2015 following the decline in oil prices and the coincident pummeling of the now mostly microcap independent exploration and production companies (E&Ps.) While several E&Ps have filed for bankruptcy, the ones that have survived and have the requisite balance sheet strength to survive a “lower for longer” com-

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modity price environment will bounce back at some point in 2016. When it happens, it tends to happen very quickly, as those stocks will jump on any oil price increase. I believe oil prices will recover gradually in 2016 and head toward a level of at least $50/barrel. Current prices are simply too low to support incremental exploration, and the production declines that are occurring will alleviate the oversupply problems currently afflicting that sector as 2016 evolves. So, those are two ideas for sectoral plays in 2016. Remember, as always, that microcap stocks are much riskier than their FANG brethren. So, please, do your homework on any individual companies you in which you might invest. There are always several intriguing companies featured in the other sections of Microcap Review, so those are good places to start. Also, if you want to pick my brain on my current picks please do not hesitate to reach out to me at jim@portfoliogurupost.com Best wishes for a safe 2016, and I hope your investments are fruitful for this year and the years to come. n 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 a B.A. in Economics and History from Duke University and has completed the academic requirements for the CFA designation. MicroCap Review Magazine

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

Planet MicroCap Podcast – What I’ve Learned So Far

started the Planet MicroCap Podcast to both educate myself and friends who are curious about investing in MicroCap stocks.

As Editor-in-Chief of StockNewsNow.com, I have the opportunity to interview MicroCap C-level execs and experts often times providing our audience with a new view or revealing trends in the market. I see the podcast as my way to get into detail, hear new ideas and gain insight from experienced MicroCap investors our audience will appreciate. After 14 episodes, I wanted to reflect on some common themes I’ve learned about so far.

1. It’s all aBout management, management, management, management. During each episode, we talk about company management. It is clear to me that with investing, management is key. It reminds me of John Wooden’s 8 Laws of Learning: “Explanation, Demonstration, Imitation, Repetition, Repetition, Repetition, Repetition, Repetition.” One thing that has stuck with me is that in order to beat the market, to gain an edge investing in MicroCap stocks, you need to know the company intimately. Having a relationship

n BY ROBERT KRAFT

MicroCap Review Magazine

Jason Paltrowitz and Maj Soueidan, I learned a lot about how stock screeners work, defining select quantitative metrics, the importance of analyzing press releases and SEC Filings, and how OTC Markets works. Expect more of the same in 2016.

3. you’re never Done learnIng.

with management, being able to talk to management (which I dedicated a whole episode too with Chris Lahiji), and understanding management’s motives can only help during your investing career. Accordingly, at StockNewsNow.com we conduct in depth video interviews with C-level execs.

2. unDerstanD the tools at your DIsposal, anD use them! What is really important to me when considering guests and content for the program is incorporating tutorials to find the necessary information for your due diligence and research process. In my interviews with Ian Cassel, the “MicroCap Investing in Canada” episodes, Mike Schellinger, Scott Felsenthal, Nick Hodge and Chris Lahiji, they all speak to the importance of utilizing the tools at your disposal; that it is a crucial part of their processes. In my interviews with Tom Shaughnessy, Fred Rockwell, Bradley Smith,

The reason I started the podcast was because I wanted to learn more about investing in MicroCaps. My motivation for each episode is to uncover new information, strategies and advice that I could use in my MicroCap investing career. I wanted to share that journey with you, and one thing I can say is that it’s far from over. There is so much that I have yet to learn that I can’t wait to share with you. In 2016, I hope to talk with more interesting guests to discuss topics covering the MicroCap market. Developing your MicroCap investing strategy is a constant state of learning. My goal is to provide engaging content with experienced MicroCap investors. Each provides a unique perspective on the MicroCap market that new and old investors can learn from. You can follow the Planet MicroCap Podcast on Podbean.com – search for “Planet MicroCap Podcast”, and you can download the podcast on the Apple Store. There is so much that I have yet to learn that I can’t wait to share with you. Thanks again for listening and look forward to putting out the best content possible. n

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MicroCap Review Magazine

AC C O U N T I N G C O R N E R

Auditing the Auditors

our company’s outside auditor just got sacked by the Securities and Exchange Commission (SEC) or the Public Company Accounting Oversight Board (PCAOB).

It’s certainly bad news for your auditor, but it’s equally bad news for your company as well.

Aside from scrambling to find a replacement auditor, your new auditor will not be able to just pick up the ball and continue forward. They will be required to conduct a look-back audit of your company financials spanning the past year or two. Meantime, your company will be tainted in the eyes of all who read your financial statements including: lenders, shareholders and potential investors. Farfetched? No, it’s happening with increasing frequency, especially to the accounting firms that service micro-cap companies. Historically, the Accounting profession was a self-governed group—setting its own professional standards and practices and taking disciplinary action when necessary against its fellow professionals. That all changed in the wake of the Enron debacle with the enactment of the SarbanesOxley Act of 2002. The Act included the creation of the PCAOB—a private-sector, nonprofit corporation to oversee the audits of public companies and other issuers in order to protect the interests of investors and assure the preparation of informative,

n BY COREY FISCHER, CPA

MicroCap Review Magazine

accurate and independent audit reports. The PCAOB has four primary functions in overseeing these auditors: registration, inspection, standard setting and enforcement. But don’t let the “private-sector, nonprofit corporation” title fool you. The PCAOB is very much a federal regulator with sharp teeth; it is closely connected to the U.S. Securities and Exchange Commission. For example, the PCAOB’s five Board members are appointed by the SEC and its very powers, as well as its annual budget, must be approved by the SEC. It should also be noted that in addition to the PCAOB’s vast powers, the SEC also has stepped up its oversight over those accounting firms that service public companies. The SEC may directly initiate an enforcement action against a company, company management, and its auditors. SEC enforcements are typically more swift, immediate and punitive. One of the PCAOB’s most important powers allows it to conduct periodic inspections of PCAOB-registered public accounting firms. Think of these inspections as an on-site audit, where PCAOB auditors thoroughly review the quality and practices of an accounting firm’s audit work. The inspection report oftentimes will cite criticisms and defects found in the accounting firm’s audit work and quality control systems. Eventually the report is made public for all to see. A PCAOB report with many listed deficiencies may be a great indicator of impending PCAOB or SEC enforcement actions. The increasing number of accounting “restatements” by public companies, along

with the higher number of deficiencies found during inspections, has provided impetus and justification for the SEC and the PCAOB to continually raise the bar and become more punitive. As a result, several accounting firms have fallen by the wayside—some by regulatory enforcement actions, others by discontinuing their audit practice altogether and moving to other, less scrutinized areas of accounting. All in all, the number of auditors are declining and that decline is expected to accelerate rapidly over the next few years as regulators get even tougher. It is therefore incumbent for companies to carefully review PCAOB inspection records before they select and engage their audit firm. Don’t get blindsighted. A little due diligence up front can avoid a major disaster later. As the world of accounting and finance becomes more complex, accounting firms will increasingly be forced to step up, step out, or be kicked out. And that is not a bad thing. Our free-market economy cannot survive in the absence of public confidence in the system. That confidence can only come by way of integrity, transparency and a high and enforced level of quality work. n Corey Fischer, CPA, is Firm Managing Partner of Weinberg & Company, a multi-office, PCAOB-Registered firm specializing in the audit, assurance and tax needs of micro and small cap companies. He has more than 25 years of experience, having worked with the Big 4 accounting firms, and as an SEC reporting officer for a number of NASDAQ-listed companies. 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 310-601-2200.

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MicroCap Review Magazine

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JASON EHRHART, WOUNDED VETERAN

BECAUSE THEY SHOULDN’T HAVE TO SACRIFICE ANY MORE. 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. ©2015 WOUNDED WARRIOR PROJECT, INC. ALL RIGHTS RESERVED.

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MicroCap Review Magazine

OPINION

It’s All About the Debt, ‘Bout the Debt, No Cash Flow

ts no secret to anyone that the oil and gas sector has been incredibly hard hit in 2015. Bankruptcies in the space are skyrocketing, and drilling has slowed to a snails pace. Driven by OPEC’s game of chicken, oil prices have plummeted to lows not seen since 2008, the last crash. Unlike the many Microcap Exploration & Production (E&P) companies in 2008, microcap E&P’s today have become over extended due to cheap money provided by the policies of the Federal Reserve and the promise of hitting oil that could be sold at $100 per barrel. What we are seeing today is the bubble being burst by low oil prices combined with way too much debt, leading to a record number of bankruptcies.

Leverage is the double-edged sword of the Microcap E&P. In good times, it’s the cheapest source of capital. In bad times, it’s the capital that plays your hand for you. Because so many operators are highly leveraged, they have no choice but to keep producing barrels today at low price levels in order to stave off BK. Inevitably, if the price does not turnaround quick enough, there is no capital to be borrowed for capex, therefore the decline in barrels accelerates and thus the cash flow decelerates. Those that can’t stay on the treadmill long enough to weather the storm, will face the same fate as so many before them, the chapter 11 line. The banking industry too is not immune. Soon the bloodbath occurring in highly lev-

eraged Microcap E&P’s will trickle down to the banks. They too will have to write down loans due to lack of debt service and more importantly, lack of reserve value due to lower prices. Write-downs for public E&P’s are already in the billions and will continue for the next two quarters at least. So what is in store for 2016? First, a lot of praying for an oil price recovery into the mid 50’s or higher by 3rd quarter of 2016. Those Microcap E&P’s who have withstood the storm will be in excellent shape to take advantage of the rebounding commodity while keeping the cost of drilling and the cost of operating lower. Second, you should see continued de-leveraging. E&P’s with clean balance sheets will end up being the winners in the space. Lastly, don’t be surprised if the M&A activity does pick up in 2016 as strong players look to pick up undercapitalized players or leveraged players who are sitting on excellent assets. n John Brda, CEO Torchlight Energy Resources, Inc. (ticker: TRCH) Torchlight Energy Resources, Inc. (TRCH), based in Plano, Texas, is a high growth oil and gas Exploration and Production (E&P) company with a primary focus on acquisition and development of highly profitable domestic oil fields. The Company currently holds interests in Texas, Kansas and Oklahoma where their targets are established plays such as the Wolf Penn, Eagle Ford Shale, Mississippi Limestone and Hunton Limestone trends. For additional information on the Company, please visit www.torchlightenergy.com

n JOHN BRDA

MicroCap Review Magazine

John Brda, CEO Torchlight Energy Resources, Inc. www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

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

CRISPR, Gene Editing Possibly the Biggest Biotech Advance Since Mapping the Human Genome

015 was a prolific year for biotech IPO’s. The year however, culminated with a dip in fourth quarter pricing, and speculation that a biotech bubble was forming. In our last issue we opposed the “bub- the cost of gene sequencing, informatics ble idea” and put forth an alternate thesis that over the last fifteen years, three essential process technologies fundamentally changed the biotech industry, resulting in faster, more effective innovation: mapping of the human genome, informatics and HTS or high throughput screening. As

n KARL DOUGLAS

MicroCap Review Magazine

and HTS became dramatically lower, these technologies became ubiquitous resulting in increased potential for unprecedented biotech innovation. Consistent with our theses, we are seeing the full manifestation of this in today’s biotech industry. These disruptive technologies, which are

Figure 1 Diagram of the CRISPR prokaryotic viral defense mechanism. Horvath P, Barrangou R (2010). “CRISPR/Cas, the immune system of bacteria and archaea”. Science 327 (5962): 167–70. Bibcode:2010Sci...327..167H. doi:10.1126/science.1179555. PMID 20056882. www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

now industry standard, were foundational to the impressive drug pipeline that fed the 2015 crop of new issues, and will continue to provide an ever growing pipeline of pharmaceutical innovation for decades. We constantly encourage investors to review R&D processes as an essential component of due diligence, to understand if these methods of discovery are used to drive innovation within target investments. And we put forth the idea that investments that have relied on informatics and HTS in particular are likely to have increased probability of success. In general, biotech investors should gravitate toward companies that rely on these techniques. Just within the last two years, a fourth disruptive technology, possibly the most profound of all, was discovered which is spreading rapidly throughout the biotech community, the use of CRISPR. There is tremendous irony in the idea that the biggest biotech innovation in the last 15 years, arguably to date, was derived from a process developed over five billion years ago by our prokaryotic ancestors. Pronouned “CRISPER”, CRISPR is an acronym: Clustered Regularly Interspaced Short Palandromic Repeats. CRISPR is essentially a component of the immune defense of prokaryotes such as bacteria. CRISPR’s work with CAS enzymes, or proteins (CRISPR Associated Proteins, such as CAS1, CAS2, CAS3 & CAS9) to intercept invading DNA, e.g. viral DNA as depicted in Figure 1. The primary mode of action is the CRISPR guide RNA, which essentially transcribes invading “enemy” DNA to determine if the DNA is compatible. If the DNA is incompatible it is bound to CAS proteins which impede replication of the DNA, a process known as protein interference. But if the DNA is compatible or beneficial, it is cleaved and added to the bacterial DNA as an enhancement. Leveraging the ability to cleave and incorporate, scientists have adopted techniques to harness the CRISPR mechanism and modified CAS proteins for the purpose of gene www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

Figure 2: Crystal Structure of Cas9 bound to DNA, as solved by Anders et al in their 2014 Nature paper. Structural rendition was performed using UCSF’s Chimera software.

editing. Gene editing is not a new field, and there are other techniques. However, CRISPR gene editing holds tremendous promise for therapeutic application. Imagine being able to cheaply and easily “knock out” undesired genes such as the dreaded p53 cancer gene or Huntington’s HTT gene. As promising as gene editing is in the context of mammalian and human therapeutic applications, it will be many years before the complexity of this technique will see prime time application as a true gene editing tool in mammals. But CRISPR is quickly establishing itself as the gold standard for other research techniques, the most significant of which is use of CRISPR as a screening mechanism, to quickly and easily identify potential drug targets. Before CRISPR, HTS (High Throughput Screening) was the state of the art means to screen. And state of the art HTS robotics today are able to screen at a rate of one compound every 3 – 4 days. Even today this is considered a blinding speed compared to the methods as recent as two years ago. So the excitement about CRISPR is well deserved. Not only has this technology brought about a new level of therapeutic potential, it is currently leveraged as a much more efficient precursor to traditional robot-

ic HTS. By leveraging CRISPR to predict protein binding, the technique can eliminate thousands of potential protein targets in a single test process, shrinking years of trial and error to a single experiment. So rather than using HTS to screen for example 1,000 compounds over a period measured in years, CRISPR can reduce that group to hypothetically, 10 and HTS can then complete more specific testing in, again hypothetically 40 days. For the biotech industry, this is a leap forward on an unfathomable order of magnitude! Imagine the time, R&D cost reduction associated pipeline impact of eliminating so many candidates so easily. No doubt CRISPR is going to have a tremendous impact on the efficiency of drug discovery. In terms of the investment world, for investors searching for early stage blockbusters, targeting companies using CRISPR as a screening tool seems like a great way to hack the complexity of handicapping R&D success. In broader investment terms, there are two ways to look at CRISPR. The first is the profound application of true gene editing, for example to “knock out” a gene such as HTT (Huntington’s). And there are already many public and private companies involved in this aspect of CRISPR. We see gene editing triggering a number of biological and ethical issues that may take at least a decade to resolve. So exercise caution on swinging for the fences on this approach. The second, and what we see as more immediate term is the use of CRISPR as a screening tool to dramatically accelerate the identification of drug candidates. This aspect of CRISPR is a realistic use of CRISPR today. Companies leveraging CRISPR in this way are likely to have reduced R&D costs, accelerated discovery and overall more productive pipelines. And so we believe this is an excellent way for investors looking for the next blockbuster to hack the complexity of biotech due diligence. n Karl B Douglas is a management consultant to institutional investors in biotechnology and other sectors. He is a co-founder of Unify Biotechnologies, a NY based biotech incubator that works with early stage to pre-IPO biotech companies. Karl@unifybio.com MicroCap Review Magazine

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

Reproducibility, the Hallmark of Western Science

Provectus Biopharmaceuticals, Inc. NYSE MKT: PVCT

hen Provectus Biopharmaceuticals Chairman, CEO and co-founder Dr. Craig Dees, PhD, talks about his company’s investigational cancer drug, PV-10 (made from centuriess old Rose Bengal), he points to a history of reproducible therapeutic features, and reproduced preclinical and clinical results by multiple clinicians and researchers in multiple cancer indications. Craig refers to reproducibility as the hallmark of Western science. If a scientist cannot repeat an experiment’s outcome, and if another scientist cannot replicate that result, the veracity of the original work and claims made from it may be questionable.

Peter Culpepper, CFO/COO www.pvct.com

In drug research and development, though, there has been long-running and widespread lack of reproducibility. A 2011 Wall Street Journal article highlighted “This is one of medicine’s dirty secrets: Most results, including those that appear in top-flight peerreviewed journals, can’t be reproduced.”1 A 2012 Reuters story2 expanded on the two studies mentioned in the Journal article “During a decade as head of global cancer research at Amgen, C. Glenn Begley identi1 Scientists’ Elusive Goal: Reproducing Study Results, Gautam Naik, The Wall Street Journal, December 2, 2011 2 In cancer science, many “discoveries” don’t hold up, Sharon Begley, Reuters, March 28, 2012

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fied 53 “landmark” publications – papers in top journals, from reputable labs – for his team to reproduce. Begley sought to doublecheck the findings before trying to build on them for drug development. Result: 47 of the 53 could not be replicated”3 Some in the pharmaceutical industry may not care about irreproducible work. Drs. Arturo Casadevall, MD, PhD and Ferric Fang, MD observed in their 2010 paper that most scientists are not interested in reproducing the work of others, and therefore “only rarely is the reproducibility of 3 Drug development: Raise standards for preclinical cancer research, Begley et al., Nature 483, 531–533 (29 March 2012) MicroCap Review Magazine

His fact-based belief, however, belied the arduous, not so straightforward, lengthy and opaque FDA drug approval process all drug companies must traverse, irrespective of Craig’s further belief that approval did not require explanation of mechanism. More daunting was the reality of attempting to bring to market the chemical-oriented cancer therapy of this forgotten compound that had not only an unappreciated treatment delivery route (intratumoral or intralesional), but also two unrecognized mechanisms of action (one local and one systemic).

such work tested or known. In fact, the emphasis on reproducing experimental results becomes important only when work becomes controversial or called into doubt.”4 In Rose Bengal, PV-10’s active pharmaceutical ingredient5, Provectus’ co-founders discovered a small molecule lying around in plain sight of Big Pharma for more than 130 years. Explaining how PV-10 worked was a secondary consideration for Craig, who fervently believed Provectus had a ready-made drug product from the outset that worked very well. His fact-based belief, however, belied the arduous, not so straightforward, lengthy and opaque FDA drug approval process all drug companies must traverse, irrespective of Craig’s further belief that approval did not require explanation of mechanism. More daunting was the reality of attempting to bring to market the chemical-oriented cancer therapy of this forgotten compound that 4 Reproducible Science, Casadevall et al., Infect Immun. 2010 Dec; 78(12): 4972–4975 5 PV-10 is the drug product. Rose Bengal is the drug substance.

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had not only an unappreciated treatment delivery route (intratumoral or intralesional), but also two unrecognized mechanisms of action (one local and one systemic). Provectus had to generate more data that further argued for PV-10’s clinical value proposition. Another was to conclusively demonstrate the reproducibility of Rose Bengal therapeutic benefit. Provectus presented preliminary full study data of its Phase 2 trial of PV-10 in patients with advanced melanoma at the Melanoma 2010 Congress.6 Final data were presented at the European Society for Medical Oncology 2012 Congress.7 A 2015 peer-reviewed article about the data was published in the Annals of Surgical Oncology which stated “ For target lesions, the best overall response rate was 51%, and the complete response rate was 26%. Median time to response was 1.9

months, and median duration of response was 4.0 months, with 8% of patients having no evidence of disease after 52 weeks.”8 Eric, who has led all aspects of Provectus’ clinical development program, met with the FDA in 2010 for the first of three end-ofPhase 2 meetings related to the company’s melanoma work (the others were held in 2011). He was told a consensus Phase 3 trial randomized against a control was necessary.9 Eric continued to collaborate with the FDA on PV-10’s initial pathway to approval, ultimately reaching a 2013 agreement with the Agency on the indication of locally advanced cutaneous melanoma (Stage III disease).10 Despite denying Provectus’ request in 2014 for breakthrough therapy designation for this indication11, the FDA subsequently allowed the company’s pivotal Phase 3 trial that began treating patients in 2015.12 The hypothesis of this trial is that the spread of melanoma from Stage III to Stage IV may be forestalled or prevented if all disease is treated with PV-10. Provectus presented preliminary initial study data of the company’s Phase 1 trial of PV-10 in patients with hepatocellular carcinoma and cancer metastatic to the liver at the 2015 European Society for Medical Oncology World Congress on Gastrointestinal Cancer13 “For the first analysis of five patients (six tumors) who had longer-term assessment, two patients 8 Phase 2 Study of Intralesional PV-10 in Refractory Metastatic Melanoma, Thompson et al., Annals of Surgical Oncology, July 2015, Volume 22, Issue 7, pp 2135-2142 9 Provectus Reports on Successful End-of-Phase 2 Meeting with U.S. FDA and Gains Clarity for Licensure of PV-10 for Metastatic Melanoma, April 29, 2010 10 Provectus’s PV-10 Path to Initial Approval in U.S. Now Clear Per FDA Meeting Minutes, January 24, 2014 11 Provectus Biopharmaceuticals Inc. Reaffirms Its Commitment to Bringing PV-10 to Market Notwithstanding FDA Decision on Breakthrough Therapy Designation, May 23, 2014

6 Provectus Reports Full Phase 2 Study Data on PV-10 for Metastatic Melanoma, November 5, 2010

12 Provectus Biopharmaceuticals Opens Patient Enrollment; Begins Phase 3 International FDA Comparative Clinical Trial of PV-10 for Melanoma, April 15, 2015

7 Immuno-chemoablation of metastatic melanoma with intralesional rose bengal, European Society for Medical Oncology 2012 Congress, October 2012

13 Provectus Biopharmaceuticals’ Data on PV-10 for Chemoablation of Liver Cancers Presented at ESMO 17th World Congress on Gastrointestinal Cancer, July 2, 2015 www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

Maryland represents one of the largest biotechnology clusters in the U.S. with 500+ biotech companies, the nIH, the Fda, Johns Hopkins University, the University of Maryland, hundreds of biotech-related service providers, and plenty of funding and guidance resources. Maryland’s healthcare expertise and innovative culture makes the State a leader in Health IT with a number of growing companies focused on leveraging technology to improve health while lowering costs.

The Maryland department of Commerce’s Office of BioHealth Technology has resources to help you:

• Access capital • Refine your business strategy • Find a business location • Grow your workforce • Promote your business • Develop partnerships • Expand your network

Office of BioHealth Technology Maryland Department of Commerce 401 East Pratt Street Baltimore, MD 21202 410.767.0505 9600 Gudelsky Drive Rockville, Maryland 20850 240.314.6171

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At the 2012 annual meeting of the Society for Immunotherapy of Cancer, Craig, Tim, Eric and others presented data that showed PV-10 (10% Rose Bengal in 0.9% saline) has been used to chemoablate a wide variety of tumors in human clinical trials and in animal patients when delivered by intralesional (IL) injection. showed no evidence of disease at more than 40 months follow-up according to RECIST and EASL criteria… Furthermore, at up to 54 months follow-up 10 out of the initial 13 patients were alive, with one death due to cardiac comorbidity, one to serious adverse events and one to HCC progression.”14 Returning to melanoma, in 2015, Provectus began a Phase 1b trial combining PV-10 and Merck & Co.’s approved immune checkpoint inhibitor Keytruda (pembrolizumab) in patients with advanced melanoma (Stage IV disease). The approach of this combination study, where not all tumor burden is accessible to PV-10 injection, would be for the latter to enhance the systemic immune response generated by the former. PV-10 elicits a functional anti-tumor T-cell response in patients, while Keytruda increases the anti-tumor function of their T cells. Starting in 2010, Eric also commenced a parallel effort to elucidate PV-10’s dual mechanisms of action.15 During an ASCO 2010 investor presentation, Eric presented about the bystander effect, which is a tumorspecific response brought on by PV-10 treatment.16 He sought to have a translational cancer research organization undertake arm’s length reproduction of Craig’s original murine model work, and what was being 14 ESMO GI: PV-10 shows potential in hepatocellular carcinoma and metastatic liver disease, Janet Fricker, ecancernews, July 7, 2015 15 ASCO 2010 Investor Briefing Presentation, Clinical Program Overview, Provectus, Dr. Eric Wachter, PhD, slide 39 of 55 16 Ibid, slide 42 of 55

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clinically observed in human trials, to independently establish PV-10’s bona fides. This work commenced in 2011 when Provectus agreed to have Tampa, Florida’s H. Lee Moffitt Cancer Center & Research Institute carry out this necessary initial research (after also considering MD Anderson Cancer Center in Houston, Texas). In 2014, Eric added the University of Illinois at Chicago to his list of stringers. At the 2012 annual meeting of the Society for Immunotherapy of Cancer, Craig, Tim, Eric and others presented data that showed PV-10 (10% Rose Bengal in 0.9% saline) has been used to chemoablate a wide variety of tumors in human clinical trials and in animal patients when delivered by intralesional (IL) injection. At the 2013 annual meeting of the American Association for Cancer Research, Moffitt Cancer Center presented that intralesional injection (IL) of PV-10 has led to regression of injected lesions as well as distant metastases.17 At the 2015 annual meeting of the Society of Surgical Oncology, the University of Illinois at Chicago presented early phase studies using intratumoral injection of PV-10 (10% Rose Bengal) have shown regression of in-transit melanoma deposits

and non-treated bystander lesions..18 Moffitt Cancer Center and the University of Illinois independently, and independently from each other, reproduced Craig’s original work. Other affiliated and independent researchers around the world have noted the cancer-fighting benefits of Rose Bengal. Their observations and conclusions have been consistent with those of Craig (US), Moffitt Cancer Center (US) and the University of Illinois (US) as well as Delprat (US) and Ito (Japan): Koevary (2012, ovarian cancer cells, US)19, Nascimento et al. (2013, melanoma cells, Australia)20, Tan et al. (2013, clinical refractory scalp sarcoma, Australia)21, Zamani et al. (2014, gastric cancer cells, Iran)22, and Panzarini et al. (2014, cervical cancer cells, Italy)23. Provectus management has some way to go in their stewardship of the company to converge its market capitalization with its intrinsic value. There should be no disagreement, however, about the veracity of their claims about Rose Bengal/PV-10 and its therapeutic benefits for the treatment of solid tumor cancer. After all, Craig, Tim and Eric’s original work achieved [global] reproducibility, the hallmark of Western science. The company paid consideration to SNN or its affiliates for this article.

18 Intralesional Injection of Rose Bengal Induces an Anti-tumor Immune Response and Potent Tumor Regressions in a Murine Model of Colon Cancer, 2015 Society of Surgical Oncology Annual Cancer Symposium, March 2015: abstract 19 Selective toxicity of rose bengal to ovarian cancer cells in vitro. Koevary, Int J Physiol Pathophysiol Pharmacol. 2012;4:99–107 20 Rose Bengal - Phototoxicity versus intrinsic cytotoxicity [abstract]. Nascimento et al. Journal der Deutschen Dermatologischen Gesellschaft. 2013;11 21 Novel use of Rose Bengal (PV-10) in two cases of refractory scalp sarcoma. Tan et al., ANZ J Surg. 2013;83:93 22 Rose Bengal suppresses gastric cancer cell proliferation via apoptosis and inhibits nitric oxide formation in macrophages. Zamani et al., J Immunotoxicol. 2014;11:367–375

17 Intralesional injection with PV-10 induces a systemic anti-tumor immune response in murine models of breast cancer and melanoma, PilonThomas et al., Cancer Res. April 15, 2013 73; 1248.

23 Rose Bengal Acetate PhotoDynamic Therapy (RBAc-PDT) Induces Exposure and Release of Damage-Associated Molecular Patterns (DAMPs) in Human HeLa Cells. Panzarini et al., (2014) PLoS ONE 9(8): e105778 www.stocknewsnow.com • www.snnwire.com • www.MicroCapReview.com

NYSE MKT: PVCT

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 

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

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