MicroCap Review Winter/Spring 2017

www.stocknewsnow.com $5.
00
wiNter/spriNg 2017 The Official Magazine of the MicroCap Stock Market Since 2006
GoviEx Uranium Inc. TSX-V: GXU, OTCPink: GVXXF First Mining Finance Corp. TSX-V: FF, OTCQX: FFMGF
22 14
Page Daniel Major, CEO Page Keith Neumeyer, Chairman and Founder
www.goviex.com www.firstminingfinance.com
Delicious Flickr Twitter Retweet
BioLargo, Inc. OTCQB: BLGO Orion Energy Systems, Inc. NasdaqCM: OESX
28 18
Page Dennis Calvert, CEO John Scribante, CEO
Page Facebook MySpace StumbleUpon Digg
www. biolargo.com www.orionlighting.com
FEATURED ARTICLES Slash Dot Mixx Skype Technorati

8 MicroCap Guru Jim Collins, CFA 46 Five Keys to Attracting Chinese Financing 74 Planet MicroCap Podcast Robert K. Kraft
Drew Bernstein, CPA
24 The Russell Microcap Index, A Current View 75 Cannabis Legal Corner Mark J. Ross, Esq.
Steven M. Shelton, MS, MBA, CFP, CLU, 54 Regulation A . . . So Far Sara Hanks, Esq. 76 Where
Reddit Have All the Market Makers Gone?YouTube
FriendFeed LinkedIn
ChFC, TEP, CIMA, CMT
56 Investing Alongside Private Equity By Shelly Kraft with Mike Modeski-
32 Raising Capital in the MicroCap Market David Stein, MSc., CFA OTCMarkets & Greg Averyt -BMA Securities
Karl B. Douglas
66 Coming to America Margaret N. Rosenfeld, Esq. 82 Pricing,
Newsvine
People, and SlideShare
Politics Google Google Talk
36 An Interview with Rick Rule
www.stocknewsnow.com 72 Perritt Capital Management - History of Thomas Butler, MSC, MBA & Ramses Erdtmann
By Shelly Kraft Small Company Stocks Michael J. Corbett 84 OPEC and Oil Stocks in 2017 Frederic Scheer
otC piNK: Drus
Page 24
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PUBLIC SAFETY AND DEFENSE SECTORS
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E D I T O R I A L
I
In Loving Memory of Our Precious Daughter, f you have been around the MicroCap pening right now! You should keep reading
and Sister, Sammi Kane Kraft
stock market for as many years as I have because our expert writers will give you their
Published Since 2006 or even if you are new to microcaps, opinions.
it will be hard to forget 2016. The market In this issue we have profiled the following
www.stocknewsnow.com rocketed, stock prices soared, investors got companies:
Follow us: @StockNewsNow fat, fund managers earned their keep and First Mining Financial Corp. TSX-V:
although healthcare and resources had some FF, OTCQX: FFMGF, GoviEx Uranium Inc.
SNN Inc.
5839 Green Valley Circle spikes and dips and shaky moments most TSX-V: GXU, OTC PINK: GVXXF, Bio
Suite 205 are hanging in there and the strong have Largo, Inc. OTCQB: BLGO, Orion Energy
Culver City, Ca. 90230 gotten stronger. From Brexit to the surging Systems, Inc. NasdaqCM: OESX, Drone
www.StockNewsNow.com
dollar, from worldwide instability issues to USA, Inc. OTC PINK: DRUS, IsoRay, Inc.
PUBLISHER full scale abandonment of fixed income, the NYSE MKT: ISR, Strategic Metals Ltd. TSX-
Shelly Kraft perfect storm was created to own U.S. securi- V: SMD, OTC PINK: SMDZF, Neo Lithium
SNN Chairman/Founder/CEO
ties and global capital poured into the U.S. Corp. TSX-V: NLC, OTC PINK: NTTHF,
[email protected]
Donald J. Trump is now the President of Amplitech Group, Inc. OTCQB: AMPG,
Lynda Lou Lulu Kraft the United States! Historically Presidential Charles & Colvard Ltd. NasdaqGS: CTHR.
SNN President
election years usually wreak havoc on the Writers include Drew Bernstein, CPA,
EXECUTIVE EDITOR markets with volatility causing surges, dips, Alan Brochstein, Mike Modeski, Greg Avert,
Robert Kane Kraft and gyrations from minute to minute from Eric Hellige, Esq. Francesca Djerejian, Esq.
SNN Chief Operating Officer
rumors, reports of vital security hacks and David Alsup, Lou A. Bevilaqua, Esq., Kevin
[email protected]
information leaks but the 2016 Presidential (Qixiang) Sun, Esq. David Stein, MSc.,
Wesley Ramjeet Race will be long remembered indelibly as a CFA, Mark Shore, Leslie Richardson, David
SNN Chief Financial Officer
raucous, rough, tweeted, social media frenzy Morgan, Frederick Sheer, Jim Collins, CFA,
[email protected]
and the year end Trump Rally taking equities John Lowy, Esq., Karl Douglas, Robert Kraft,
ASIAN PACIFIC CORRESPONDENT to new record highs. Margaret Rosenfeld, Esq., Corey Fischer,
Leslie Richardson
As Microcap investors, we have been CPA, Michael J. Corbett, Joe Mazumdar,
SNN COMPLIANCE AND DUE DILIGENCE observing record breaking market highs Brent Cook, Thomas Butler, Ramses
ADMINISTRATION and wondering, are these new market highs Erdtmann, Rick Rule, Sara Hanks, Esq.
Jack Leslie
affecting microcap stocks? When do the Steven M Shelton CFP(r), CLU, ChFC, TEP,
CHAIRMAN OF SNN ADVISORY BOARD microcaps begin to participate? When will CIMA(r), CMT, and Shelly Kraft.
Dr. Leonard Makowka the trickle down to microcaps begin? We Thank you to the many who have contrib-
used to say that when the market was on a uted to this issue and to all our loyal sub-
ADVERTISING and SALES
[email protected] bullish run you could throw a dart and land scribers, readers and follow-
424-227-9018 on a winner! Have we seen the top? Which ers. We wish you all a Happy,
sector is undervalued? Should we cost aver- Healthy, Safe and Prosperous
GRAPHIC PRODUCTION
Unitron Media Corp age up and keep buying? Is the stock we own 2017!
[email protected] getting ahead of itself? Is it time to sell? Just
maybe the microcap bull market is hap- Shelly Kraft, Publisher n
SNN CONFERENCES
[email protected]
424-227-9018
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
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responsible for unsolicited materials. Every eort has been made to assure 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
that all Information presented in this issue is accurate and neither Micro- 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
Cap Review Magazine or any of its sta or authors is responsible for omis- 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,
sions or information that is inaccurate or misrepresented to the magazine. 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
Micro-Cap Review is owned and operated by SNN Inc. 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.
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CONTENTS
STOCKNEWSNOW.COM
WINTER/SPRING 2017
F E AT U R E D A RT I C L E S
8 MicroCap Guru By Jim Collins, CFA 56 Investing Alongside Private Equity Tips and
Pitfalls By David Stein, MSc. CFA
24 The Russell Microcap Index - A Current View
By Steven M. Shelton, MS, MBA, CFP, CLU, CHFC, 66 Coming to America By Margaret Rosenfeld, Esq.
TEP, CIMA, CMT
72 Perritt Capital Management History of Small
32 Raising Capital in the MicroCap Market By Karl Douglas Company Stocks
By Michael J. Corbett
36 Interview with Rick Rule By Shelly Kraft
74 Planet MicroCap Podcast 2016
40 High-Powered Gold and Silver are Ready to Shine in Highlights and Looking Ahead at 2017
2017! By David Morgan By Robert Kraft
46 Five Keys to Attracting Chinese Financing 76 Where Have All the Market Makers Gone?
By Drew Bernstein, CPA By Shelly Kraft with Mike Modeski- OTCMarkets &
Greg Averyt BMA Securities
50 Chinese Dj Vu
By Louis A. Bevilacqua, Esq. and Kevin (Qixiang) Sun, Esq. 86 Cannabis Sector Sentiment Strong Despite
Uncertainty of Federal Policy
52 Is a Public Company Eligible to Do a Reg A+ Offering? By Alan Brochstein
By John Lowy, Esq.
91 Looking Beyond Lithium By Nick Hodge
54 Regulation ASo Far By Sara Hanks, Esq.
Commodities Corner Life Sciences Section Proled Companies

58 Commodities in Review 82 Pricing, People, and Politics 10 Isoray Medical, Inc.
By Mark Shore By Thomas Butler, MSC, MBA NYSE MKT: ISR
and Ramses Erdtmann 14 First Mining Finance Corp.
Asia Corner
60 Hong Kong Shenzhen Stock Energy Section TSX-V: FF, OTCQX: FFMGF
Connect Launched 84 OPEC and Oil Stocks in 2017 18 Orion Energy Systems, Inc.
By Leslie Richardson By Frederic Scheer NasdaqCM: OESX
Accounting Corner Comic Strip 22 GoviEx Uranium Inc.

69 Get Ready the New Revenue 92 WallStreet Chicken - Episode 15 TSX-V: GXU, OTC PINK: GVXXF
Recognition Rules are Here Mickeys Birthday and an IPO 28 BioLargo, Inc.
By Corey Fischer, CPA OTCQB: BLGO
Legal Corner
70 New Formations 94 The Risks of Engaging 39 Strategic Metals Ltd.
By David Alsup Unregistered Finders in TSX-V: SMD, OTC PINK: SMDZF
Securities Offerings 42 Neo Lithium Corp.
Cannabis Legal Corner By Eric Hellige, Esq. and TSX-V: NLC OTC PINK: NTTHF
75 2016 was a historic year for Francesca Djerejian, Esq.
Cannabis 44 Drone USA, Inc.
By Marc J. Ross, Esq. OTC PINK: DRUS
64 Charles & Colvert Ltd.
Resources Section NasdaqGS: CTHR
78 Fatal Flaws and the Junior
Mining Sector 88 Amplitech Group, Inc.
By Joe Mazumdar and Brent Cook OTCQB: AMPG

F E AT U R E D A RT I C L E
MicroCap Guru
A s the markets whoosh upwards in the Trump Jump, its
important to remember the old Wall Street adage: Its a
market of stocks, not a stock market.
That axiom has come under attack in a We were all conditioned to believe a kets is a flashing red signal to me. I believe
top-down ETF-driven world. There are still Trump Victory would be the worst thing people are too happy, and that extends to
a few of us out there, however, who believe for the markets, but a funny thing happened microcaps as well as the blue chips.
that individual stocks can produce returns on the way to the Crash. This Trump Jump The Russell 2000s volatility index, RVX,
far in excess of the market. A good threshold has been a lightning move driven by gains has been just as deflated since the election
would be to double the markets returns in in financials and energy. It has rendered the as its cousin, the VIX, which follows moves
a given time period, and so far in the brief fears of most pundits as moot as the opinion in option pricing for the megacap S&P 500.
history of the Microcap Guru, we have had polls, which were once again wrong in call- RVX stands at 17.68 as I write this, down
two such winners, Navios Maritime and ing the election. But is it real? sharply from the 25 level that stood in the
Evolution Petroleum. So, thats when The Guru hits the road and days leading up to the election. So RVX has
starts doing the most fundamental part of collapsed as the VIX has, and actually tested
equity research: management due diligence. a 2016 low of 16 in early December before
Id love to have time to fly all over Creation recovering somewhat in later December.
and visit every corporate headquarters and But microcaps inherently are riskier than
manufacturing facility in the world, but Apple, J&J, JPMorgan and Exxon. Every
thats not feasible. investor at LD Micro knows that, and virtu-
So, investment conferences are the next ally every management team does as well.
best thing, and the Granddaddy of Them All Its the managements that dont understand
to me, LD Micro, happened recently in Los that, have the worst presentations, and I tune
Angeles. With 240 companies presenting, them out immediately. Its always good to
LD is a Microcap-palooza (or something have a few minutes to check e-mails or fan-
like that.) tasy football scores.
When I started out at Lehman Brothers But dont forget to make your macro
in 1992 we had a terrific industrials analyst, decision before you start picking stocks.
Bob Cornell. Bob referred to the job of equi- Valuations in the Russell 2000 have increased
ty analyst as professional cynic and I think sharply in the last month, just as they have
in these bull runs the analyst community in the S&P 500, especially the XLF. So dont
forgets that job description. let FOMO--Fear Of Missing Out--drive you
So, when management teams are exuber- into a buy-high scenario. n
ant, as many, but of course not all, were at
For more information and to subscribe to the MicroCap
LD Micro, I immediately ask myself if it Guru Newsletter, please visit: www.MicroCapGuru.com.
is time to take the other side of the trade.
Exuberance is healthy; irrational exuberance
is expensive.
n BY JIM COLLINS, CFA
The striking lack of volatility in the mar-
8 MicroCap Review Magazine www.stocknewsnow.com

Delivered to your inbox every month:
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recommendations on undervalued, underfollowed
and undiscovered MicroCap companies.
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Each month at least two companies will be
highlighted via detailed Wall Street quality
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PROFILED COMPANY Nyse mKt: isr
isoray medical, inc.

bringing Compassion and Hope to Cancer patients
A small company in Richland, WA is dedicated to making a difference in the lives of

patients diagnosed with different forms of cancer. Isoray Medical, Inc. [NYSE MKT:
ISR] has spent the last 10 years developing innovative treatments to help cancer patients
effectively treat their cancer while maintaining their lifestyles.
These efforts have focused on using of Joe M., a prostate cancer patient in north-
Cesium-131 brachytherapy, a technique that ern California.
delivers a targeted, personalized form of Joe was diagnosed with prostate cancer in
radiation therapy. The word brachytherapy April 2015: just one of an estimated 220,800
derives from the Greek prefix brachy, mean- American men newly diagnosed with
ing short or close, and describes how the prostate cancer that year according to the
treatment is implanted directly in or near the American Cancer Society.
cancerous tumor site allowing treatment of Joe responded to his sobering diagnosis
the region while limiting radiation dose to in the studious manner befitting an engi-
surrounding tissues. neer and CEO with a Ph.D. in Physical
This precise dose delivery balances ther- Oceanography. He sought multiple opinions,
apy and control of side-effects thereby pro- read the relevant scientific literature on treat-
viding patients with a compelling option for ment options and survival rates, and, most
their disease, as evidenced by the experience importantly, asked the most relevant ques-
Tom LaVoy, CEO

tions. What are my options and how can I
minimize side effects while generating the
best possible outcome at the same time?
He continued to pursue these questions
even when his initial consults all suggested
surgery.
Along his journey, Joe met Dr. Steve
Kurtzman, Director of Prostate Radiation at
the Center for Advanced Radiation Therapy,
El Camino Hospital in Silicon Valley, CA.
Dr. Kurtzman shared his results showing
lower recurrence rates and fewer side effects able seed in 1965, and it drew the attention work for Cesium-131. With this concept
with Cesium-131 brachytherapy with Joe, of physicians who treated prostate cancer. Isoray was born in the mid-1990s and
and as a result, Joe had Isorays Cesium-131 But some biologists considered the half-life soon developed the process for separating
seeds implanted in August 2015. Prior to of Iodine-125 (60 days) too long to treat fast- and purifying Cesium-131. FDA cleared
receiving Cesium-131 treatment, I thought growing cancers. In 1985, Palladium-103, IsoRays Cesium-131 brachytherapy in 2003
the side effects would be minimal and the with its shorter half-life of 17 days, was for use in all types of cancers and tumors
cancer would be gone, Joe said. That is introduced as a brachytherapy isotope and and was certified for EU sales in 2012.
exactly what happened. quickly became an alternative isotope, even Pioneers in brachytherapy theorized
In many ways, it is remarkable that as its energy was less than Iodine-125 about the use of Cesium131 for cancer
patients like Joe even have an option like meaning the radiation penetrated less deeply treatment, says Isoray CEO Tom LaVoy.
Cesium-131. The idea of implanting cancer into targeted tissue. However, scientific and economic limita-
with radiation (brachytherapy) is not new Cesium-131, with its short 10 day half- tions prevented development until the late
Alexander Graham Bell first speculated on life and energy comparable to Iodine-125, 1990s when Isoray scientists developed the
the idea in 1903. [1] And early brachytherapy seemed the ideal isotope. However, no one patented processes to make Cesium-131 a
showed promise, becoming an alternative was aware of a means by which to produce product.
cancer therapy in the 1930s. The problem high purity, medical grade Cesium-131. The Cesium-131 seed delivers a unique
was that the only radio-isotopes that were balance of therapeutic treatment and con-
available for cancer treatments at the time Cesium-131 by isoray a New trol, LaVoy continued. Because of its
emitted high energy gamma rays that made isotope, a New opportuNity shorter half-life and higher energy (30 keV)
working with them hazardous for both the than the other isotopes, Cesium-131 pro-
patient and for the healthcare worker. Chemists at the Pacific Northwest National vides a fast treatment delivery with low
That started to change in the 1960s, when Laboratory in Richland, Washington, had radiation exposure to surrounding tissue.
scientists identified a new generation of developed a means to chemically separate Since its introduction over 10,000
brachytherapy isotopes that emitted more highly radioactive Cesium-137 from con- patients have been treated using Isorays
controlled radiation. These isotopes would taminated water. The separation process had Cesium-131.
pose little hazard to health care personnel been developed at the Hanford Facility in While the majority of those patients have
and would achieve the objective of treating Richland where a large amount of aging been prostate cancer patients, the impact
malignancies more precisely than the higher nuclear material is stored. of Cesium-131 is gaining momentum for
energy isotopes. Since Cesium-137 and Cesium-131 are aggressive cancers in the brain, head and
The initial low dose rate radio-isotope, identical chemically, it was theorized that neck, lung, and gynecological tumors, as
Iodine-125, was introduced as an implant- similar purification procedures should also highlighted in several recent studies.
The most exciting new area is in the
treatment of metastatic brain cancer, which
impacts more than 100,000 patients a year.
Prior to receiving Cesium-131 treatment, I thought the side The team at Weill Cornell Medical College
effects would be minimal and the cancer would be gone, Joe said. noted that Patients with brain metasta-
That is exactly what happened. [1]

(citation: http://www.karger.com/Article/
Abstract/400869)

sis who received intra-operative permanent
[Cesium-131] brachytherapy implants saw We are seeing 95% local control of the treated tumors in
an improvement of their neurocognitive sta-
our study using surgery and Cesium implants. In addition, we
tus and self-assessment of [quality of life].
In addition to the excellent local control of
observed a very low rate of radiation injury, which has been a
metastasis, this approach may contribute to major concern in the past for patients who have undergone mul-
the improvements in cognitive function and tiple treatments for their brain tumors.
[quality of life.] [http://link.springer.com/
article/10.1007/s11060-015-2009-5]
The Barrow Neurological Institute has with surgery and/or radiation and standard months follow up, they are almost always
also published their experience on the use of care for retreatment would have been back to their baseline and have essentially
of Cesium-131 for the treatment of brain radical surgery with removal of all pelvic forgotten that they did it.
tumors. We are seeing 95% local control of organs. Instead Cesium-131 was implanted. For Isoray Medical, the passion extends
the treated tumors in our study using sur- Of the 26 implants, 21 cancer sites remained to both aggressive tumors like those being
gery and Cesium implants, says Dr. David visually free of can52cer at a median of 14 treated by Dr. Feddock and Dr. Brachman,
Brachman, Director of Radiation Oncology, months following Cesium-131 implantation, and for the thousands of men facing prostate
Barrow Neurological Institute, Clinical resulting in a local control rate of 80.7%. cancer treatments like those delivered by Dr.
Professor of Radiation Oncology, University These women were facing very radical Kurtzman.
of Arizona College of Medicine-Phoenix. In surgery to address their recurrent cancers Isoray remains fully committed to realiz-
addition, we observed a very low rate of radi- and it turned out that Cesium-131 therapy ing the value-based potential for Cesium-131
ation injury, which has been a major concern offered a much better solution for them, Dr. brachytherapy for cancer treatment, LaVoy
in the past for patients who have undergone Feddock said. This is the first study utilizing says. As its efficacy continues to reveal itself
multiple treatments for their brain tumors. Cesium-131 therapy for these gynecologic in the scientific literature for multiple cancer
Another area of excitement with cancers and we have followed these women types, in the improvement in the quality
Cesium-131 is for the treatment of recurrent closely in order to evaluate the effectiveness of lives for our patients and in the reduc-
gynecological cancers. In a presentation enti- of this treatment. We are very pleased with tion of associated hospital days and clinical
tled, Permanent Interstitial Re-Irradiation the results. visits required with other treatment options
with Cesium-131: A Highly Successful These initial results for treatment of including surgery, I am confident we will see
Second Chance for Cure in Recurrent Pelvic aggressive cancers provides more patients it near, if not achieve, standard of care status
Malignancies, Dr. Jonathan Feddock, MD, with hope for their cancer treatments. But for in multiple indications.
Assistant Professor of Radiation Medicine today, most Cesium-131 patients are like Joe, Isorays patented Cesium-131 technol-
at the University of Kentucky College of looking for a better option for their prostate ogy was named as one of 2006s 100 most
Medicine at the 2016 Annual Meeting of the cancer treatment. For these men, Cesium technologically significant products by R&D
American Brachytherapy Society and World is the ultimate solution between the Iodine Magazine. In 2010, the company was recog-
Congress of Brachytherapy, described 26 and Palladium choice in brachytherapy for nized within the IRS Qualifying Therapeutic
implants performed in 21 women who had prostate cancer, says Dr. Kurtzman. I find Discovery Program (QTDP), which is a
experienced recurrent cancers of the uterus, our patients tolerate the short term effects project of U.S. Department of Health and
cervix or vagina. of their treatment quite well, Dr. Kurtzman Human Services.
These women had previously been treated says. When I see my patients at two or three
On the web: www.isoray.com
Contact: Thomas LaVoy, Chairman and
CEO, [email protected]
Cesium is the ultimate solution between the Iodine and
(509) 375-1202 n
Palladium choice in brachytherapy for prostate cancer. I find our
patients tolerate the short term effects of their treatment quite The company paid consideration to SNN or its affiliates for this article.
well and when I see my patients at two or three months follow up,
they are almost always back to their baseline and have essentially
forgotten that they did it.

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MicroCap Review Magazine 13
PROFILED COMPANY
first mining finance Corp.

the building of a mineral bank tsx-v: ff, otCqx: ffmgf
F irst Mining Finance Corp. (FMF) [TSX-V: FF] was created

in 2015 to take advantage of one of the most severe bear
markets ever seen in the mining industry.
In April 2015, FMF was listed on the TSX benefited from similar market conditions
Venture Exchange with the goal of taking when he founded First Majestic Silver Corp.
advantage of the bear market and the com- and First Quantum Minerals Ltd., which,
pany aggressively embarked on its strategy of under his leadership, became multibillion
acquiring financially distressed junior min- dollar companies. During his time at First
ing equities which held high-quality min- Quantum, Mr. Neumeyer assembled the cur-
eral assets. According to Patrick Donnelly, rent management team and together they
President of FMF, The market was so bro- acquired greatly undervalued yet excellent
ken that it was cheaper to buy a million quality copper assets in southern Africa.
ounces of gold than it was to drill a million First Quantum was one of the first North
ounces. American mining companies to invest in
Mr. Keith Neumeyer, the Chairman, southern Africa and today its one of the
founder and visionary behind FMF, has a largest publicly-listed base-metal companies
track record of identifying the bottom of in the world. When Mr. Neumeyer created
mining cycles. In the past, Mr. Neumeyer First Majestic Silver in 2003, precious metal
Keith Neumeyer, Chairman and Founder
Figure 1: NI 43-101 Compliant Resources by Project 1

prices were severely depressed. Realizing the
opportunity to acquire highly undervalued
yet high-quality silver assets, Neumeyer went
about acquiring silver projects in Mexico.
Today, First Majestic is the second largest
silver producer in Mexico, which is the most
prolific silver producing nation in the world.
Knowing that the mining sector doesnt
stay depressed forever, Mr. Neumeyer took
advantage of those bear market conditions
and grew both companies into multi-billion
dollar producers.
Over a 14 month period during 2015
and 2016, FMF completed eight transactions
where the company accumulated 6.5 mil-
Figure 2: Market Cap and Share Price Growth Through Transactions (in
lion ounces of gold in measured and indi-
CDN$) 2
cated categories and 3.5 million gold ounces
in the inferred category, all of which are
NI 43-101 compliant. Additionally, in June per tonne). Additionally, the Hope Brook the Companys shares on the TSX Venture
2016, FMF acquired a 3.3 million ounce his- project has excellent exploration potential Exchange.
toric resource at the Goldlund project. The to add additional ounces. The Coastal Gold
company expects to complete a NI 43-101 acquisition put FMF on the map given the Key persoNNel
resource estimate at Goldund shortly and it quality of the asset and the low acquisition
also expects to complete updated resource cost of only USD$9 million in shares of FMF. FMF is backed up by an A-list of mining
estimates at its other projects. Within 18 months since being a publicly veterans with a history of successful mining
Based on NI 43-101 technical reports filed listed company, FMF now holds a portfolio ventures.
on SEDAR by First Mining Finance Corp., of 25 assets, all of which are at various stages Mr. Keith Neumeyer is the founder and
PC Gold Inc., Gold Canyon Resources Inc., of development in prime regions of Canada, Chairman of FMF. He is also the President
Clifton Star Resources Inc., and Chalice the United States and Mexico. The company and CEO of First Majestic Silver Corp.,
Gold Mines Ltd. has seen a steady growth in its share price which operates six producing silver mines in
FMF is very discerning when assessing and market capitalization, directly influ- Mexico and has a US$2 billion market capi-
possible acquisitions. Its acquisition criteria enced by its rapid resource growth and talization. He has extensive experience mak-
is based on the quality of the asset, location, addition of quality assets. The market capi- ing accretive deals and navigating through
existence or proximity of infrastructure, talization of FMF grew from approximately financial, regulatory, legal and accounting
security of land tenure, low holding costs US$27.5 million in April 2015 to US$328 issues that are relevant in the investment
and a low market valuation. million by December 2016. community.
In April 2015, when FMF first started Market capitalization calculations are in Dr. Chris Osterman is the CEO and a
trading on the TSX Venture Exchange, it had CDN$ and are based on closing prices of Director of FMF. He has a Bachelor of
already assessed over 80 projects of interest
and narrowed the list down to 10 targets
that met its acquisition criteria. The first
acquisition target was Coastal Gold Corp., FMF is very discerning when assessing possible
which owned the Hope Brook Gold Project
acquisitions. Its acquisition criteria is based on the
in Newfoundland, Canada. Hope Brook is
currently estimated to have an indicated quality of the asset, location, existence or proximity
resource of 840,000 ounces of gold (5.5 mil-
lion tonnes grading 4.77 grams per tonne) of infrastructure, security of land tenure, low
and an inferred resource of 110,000 ounces
of gold (836,000 tonnes grading 4.11 grams
holding costs and a low market valuation.

1. Based on FMFs aggressive acquisition strategy
over the last year and a half and the fact that its a
very young company, this is a story that is worth
following and investing in. An increase in stock
price with every new asset acquisition has taken
FMFs shares from US$0.22 per share to a high
of US$1.02 per share in its first 15 months of
existence.
2. Over the past ten months, readers may have

noticed that the gold price appears to have
started a recovery and there is already a
vast improvement in the investor sentiment
towards gold equities. Now that the market
has recovered to this point, FMF sees value in
advancing some of its assets by de-risking them
through additional drilling, metallurgical work
and conducting economic studies. Over the
coming months we can look forward to future
catalysts such as the release of drill results, new
resource estimates and further advancement of
FMFs projects. These activities should unlock
internal value for the company, irrespective of
the underlying price of gold. That being said, if
investor sentiment for gold continues to improve,
we see this company having the ability to
substantially reward its shareholders.
Science in Mining Engineering, a Master around the world. The company paid consideration to SNN or its affiliates for this article.
of Science in Geological Engineering and a

Ph.D. in Geology. Dr. Osterman has thirty featureD fmf projeCt:
years of experience in mineral exploration spriNgpole, oNtario,
and mining and played an integral role in CaNaDa.
the discovery of the San Jose silver deposit in
Oaxaca, Mexico and the Zuun Mod molyb- The most significant asset in FMFs current
denum deposit in Mongolia. Dr. Osterman portfolio is the Springpole project, which
is an expert in project reconnaissance and was acquired through First Mining Finances
assessment which has proven to be essential acquisition of Gold Canyon Resources Inc.
in assisting FMFs selection of the right proj- in late 2015. Springpole is one of Canadas
ects to acquire. largest undeveloped gold projects and it cov-
The FMF management team is bolstered ers a total of 32,240 hectares. The project is
by Mr. Patrick Donnelly, who is President of located in northern Ontario, about 110 kilo-
the company. Mr. Donnelly has a Bachelor meters northeast of Red Lake and it hosts an
of Science in Geology and a Masters of indicated resource of 4.4 million gold ounces
Business Administration. He comes with 10 (128.2 million tonnes grading 1.07 grams per
years of experience as a mineral exploration tonne) and an inferred resource of 0.69 mil-
geologist in Canada and he was a former lion gold ounces (25.7 million tonnes grad-
base metals analyst with a sell-side securities ing 0.83 grams per tonne). n
firm in Toronto where he had the opportuni-
ty to review and assess hundreds of projects
The most significant asset in FMFs current

portfolio is the Springpole project, which was
acquired through First Mining Finances acquisition
of Gold Canyon Resources Inc. in late 2015.

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PROFILED COMPANY
orion energy systems, inc.

NasdaqCm: oesx
O rion Energy Systems manufactures a cutting edge portfolio of award-winning

commercial and industrial LED lighting and Smart Building systems designed
primarily for the building retrofit market.
Many of the companys trade secrets and years were challenged by financial instability,
nearly 100 granted and pending patents fragmented product strategy, a major drop
relate to lighting systems that provide excep- in market demand for its legacy linear fluo-
tional optical and thermal performance, rescent product offering, and replacement of
driving financial, environmental, and work- its original founder and CEO. This put the
space benefits for a wide variety of custom- company on the brink of collapse.
ers. In September 2012, Orions Board appoint-
CEO John Scribante explains, My vision ed John Scribante CEO. Mr. Scribante was
is to build a company that uses digital light- previously the Division President credited
ing to solve the major business problems for a significant portion of the companys
companies face. Today, the digital ceiling early revenue generation including custom-
has become some of the most valuable cor- ers such as Coca-Cola and SYSCO. Scribante
porate real estate and Orion has developed knew a turnaround would require decisive,
the capability to bring convergence between deliberate action and rose to the challenge.
multiple building systems and solid state Historically, Orions core products consisted
LED lighting. We can eliminate the labor of fluorescent high bay lighting for facto-
cost and equipment needed for virtually all ries and warehouses. The product line was
access control, asset tracking, space utiliza- severely outdated and cash was tight.
John Scribante, CEO tion, security, fire, and safety systems and Recognizing the urgency of Orions pre-
build all of these capabilities into an intel- dicament, Scribante acted quickly to improve
ligent lighting system. working capital and generate cash flow. In his
Once considered a Darling of Wall Street, first nine months, he shored up the cash bal-
Orion enjoyed a period of positive media ances and acquired Harris Manufacturing.
and investor interest soon after its public This move provided Orion with a new solid
offering in 2007. However, the honeymoon state LED lighting platform, a seasoned and
period quickly passed and the next few talented management and sales team, and
In September 2012, Orions Board appointed John

Scribante CEO.

incremental cash flow that would acceler- commercial applications. operated facilities. Recognizing that LED
ate its speed to market. The acquisition also The next challenge was to address man- would require an entirely new supply chain,
provided the intellectual property needed to ufacturing strategy. Prior to 2013, Orion fab equipment, casting and extrusion tooling
expand LED offerings with the subsequently fabricated, coated, and assembled virtually investments, and assembly processes, the
patented LDR Troffer Retrofit fixture for all of its products in company owned and company quickly consolidated its operations
from Florida and Plymouth, WI into its
facility in Manitowoc, WI. At the same time,
the company began sourcing metal parts
An influx of orders pressured margins due to design from local metal fabricators.
An influx of orders pressured margins due
and supply chain inefficiencies, but Scribantes to design and supply chain inefficiencies, but
Scribantes focus on capital allocation, talent
focus on capital allocation, talent acquisition, acquisition, and financial discipline allowed
and financial discipline allowed the company to the company to turn around and position
itself for growth in a massive market adop-
turn around and position itself for growth in a tion punctuated by increasing sharehold-
er value. A LEAN production system was
massive market adoption punctuated by increasing implemented and the company exited all
shareholder value. non-core business endeavors, allowing the
sale of $3.5M in real estate with the resulting

its competitors could not. The Generation
III fixture was 20% higher performing than
Orions own industry-leading Generation II
fixture and 40% higher than virtually all its
competition. This performance gives Orion
customers a funding source (in the form of
energy savings) to invest further into Smart
Building technology that is integrated into
the Orion fixtures. As such, Orions custom-
ers benefit from insightful data and tracking
capabilities that are important to managing
a facility in todays competitive environ-
ment. Executive VP Scott Green, who over-
sees Product Innovation, tells us, Orion
LED products cost less to operate than our
competitors fixtures. If someone purchases
another companys LED High Bays, they
are simply choosing to spend more on their
utility bill. Base fixture performance is para-
mount. The more energy savings delivered
cash invested back into growing the busi- tinct customer classes with different needs from the fixture, the more cash flow is avail-
ness. By 2016, the company was realizing and purchasing priorities were developing. able to fund Smart technologies.
over 80% of its sales from solid state LED Quick to launch a three-tiered branding Orion has launched multiple expansions
lighting and returned to its historic profit approach, Orions line now offers products to its offerings including a patented modu-
margins. that meet key customer needs from those lar fixture designed to be upgradable and
looking for low cost, to those seeking a mid- compatible with developing third party sen-
HigHest performiNg leD tier line balancing performance and value, to sor technologies such as wireless, Bluetooth
ligHtiNg proDuCts iN tHe customers more concerned with long term and Internet of Things (IoT) architectures.
marKet total cost of ownership. These technologies can transform a com-
In 2016, Orion introduced a new line of panys lighting system into a platform that
In 2014, Orion launched its second genera- products to the underserved agribusiness captures real-time data like occupancy, day-
tion LED high bay fixtures, building on its and foodservice markets. Then the subse- light harvesting, thermal sensing and energy
innovative leadership in this market seg- quent launch of its third generation ISON consumption, and translates it into useful
ment. In 2015, LED offerings were expanded high bay fixture, which delivered industry- insights to help analyze data received and
to include task lighting, industrial strip fix- leading performance of 214 lumens per watt make smarter decisions about energy con-
tures and exterior product options to meet (LPW), was a real game-changer. To that sumption, space utilization, maintenance
the evolving needs of retrofit customers. point it was believed that an LED high bay requirements, security, climate control, and
Orion also recognized that as the LED mar- fixture would not be capable of delivering fire and safety systems.
ket became more established, three fairly dis- even 200 LPW, but Orion accomplished what
CompetiNg iN a fragmeNteD
marKet witH DomiNaNt
players
The Generation III fixture was 20% higher
Orion has unique competitive advantages.
performing than Orions own industry-leading First, the company predominantly sells into
the building retrofit market, a complex solu-
Generation II fixture and 40% higher than virtually tion that provides a natural barrier to entry.
all its competition. Retrofitting a building requires working in
occupied spaces and accepting the existing

building conditions, which may mean work-
ing with an electrical system that is decades
old. Orion provides custom labeling, packag-
ing and kitting, along with logistical services,
factory assemblies, returnable recycling con-
tainers, and custom mounting and bracket
kits to address these complicated facilities.
Moreover, Orion prepares and stages orders
for customers so they are labeled for the
area where they will be installed, allowing
contractors to move only the product needed
into the space where they are working. This
improves install times, increases contractor
profits, reduces waste and limits facility dis-
ruption. These services are rarely found with
other lighting companies who manufacture
overseas.
Second, Orion ships orders in less than
ten days when its competitors are quoting
months, delivering products with thousands
of options with a 97% or better on-time
reliability and allowing customers to real- market advantage over its competition. ingful increases, cash flow generation is
ize the benefits sooner. Executive VP Marc strong, and GAAP profitability is within
Meade notes, Our operation is committed explosive growtH iN tHe reach. Mr. Scribante says, Capital allocation
to delivering on-time, with high quality and leD marKet and cash flow generation are the primary
service flexibility, to meet the dynamic needs management priorities. Financial excellence
of our product development team and our Focus on shareholder value. There is a is a process and the company is well under-
customer base. renaissance at Orion. The company has way.
Third, innovation leads to pricing power. developed the best products for customers It should be clear - Orion has a bright
Orion delivers a higher ROI than any other with different budgets and different needs. future. The next time you go to the grocery
product for the same price. Since the pri- The price and performance of products lead store or the mall, look around. LED is every-
mary focus for retrofit is ROI, Orion benefits the industry in virtually all categories where where, but youll notice there is still a long
from its performance advantage. the company competes. Moreover, one of the way to go and Orion is a great way to get
Lastly, Orion typically develops its new most flexible business models of any lighting exposure to the next generation of intelligent
products in a four-month cycle from concept company allows it to flourish in the most lighting systems. n
to delivery, as compared with 15-18 months dynamic market segment - commercial and
for most LED manufacturers. Quickly iden- industrial LED retrofit lighting. The company paid consideration to SNN or its affiliates for this article.
tifying market needs and developing prod- Orions financial performance is back on
ucts to meet them gives Orion a key time to the rise. Gross margins are showing mean-
Orions financial performance is back on the rise.

Gross margins are showing meaningful increases,
cash flow generation is strong, and GAAP
profitability is within reach.

PROFILED COMPANY
goviex uranium inc.

the emergence of a multi-project african uranium Developer
tsx-v: gxu, otC piNK: gvxxf
G oviEx Uranium Inc. (GXU.V and GVXXF), since it acquired uranium licences
in Niger in 2007, the Company has completed over 600,000 metres of
exploration and resource development drilling, completed its pre-feasibility
studies (PFS) and had its environmental impact assessment (EIA) approved and
its first mining license granted by the Niger Government.
In June 2016, GoviEx acquired the African demand could grow by over 48% to as high In 2012, as the company transitioned
projects of Denison Mines (DML.TO) in as 266.8 million pounds U3O8 by 2030 from from exploration to development, Govind
exchange for GoviEx common shares, and an estimated 179.3 million pounds of U3O8 appointed Daniel Major as CEO. Mr. Major
now has a portfolio including four projects in in 2015. Over the same period uranium is a mining engineer who graduated from
four African countries: Niger, Zambia, Mali supply is forecast to decline 4%. As a result, the Camborne School of Mines in the UK.
and Namibia. With this acquisition, GoviEx many market analysts are forecasting ura- Daniels career spans over 30 years in the
obtained its second mining permitted project nium supply to go into deficit by 2020. mining industry with a solid track record
at the Mutanga in Zambia. According to a Fasken Martineau paper that includes: production and planning at Rio
The looming uranium supply deficit is the (a leading international law firm founded in Tintos Rossing Uranium Mine in Namibia
key higher prices in the uranium market. Canada), the permitting of Canadian ura- and chief planning engineer for the develop-
Global nuclear power capacities are project- nium projects has historically taken 7 - 23 ment of Amplats Mogalakwena mine. Other
ed to increase by 44%, from 376.6 gigawatts years to complete, causing a long backlog of leadership roles include Chief Executive
in 2015 to 540.6 gigawatts in 2030. Uranium Canadian projects that will not have their and later Non-Executive Chairman of Basic
development permits in time for the upswing Element Mining and Resource Division in
in uranium price that analysts are forecasting. Russia, responsible for 8% of global ferro-
GoviEx was founded by Govind Friedland, molybdenum production, and leadership
son of mining magnate Robert Friedland, positions in several Canadian-listed mining
whose family background and qualification companies with exploration and production
in geology from the Colorado School of assets in Canada, Russia and South America.
Mines enabled him to identify the oppor- GoviEx has built a strong shareholder base
tunity to acquire some of the most prospec- including some major players in the uranium
tive exploration ground in Niger, adjacent mining and nuclear energy industry. In 2008,
to Arevas mines (producing approximately Cameco, the worlds largest publicly traded
7% of global uranium supply for almost 50 uranium company became a shareholder,
years). From 2002 to 2011, Mr. Friedland investing US$28 million and is currently
was based in Beijing adding to his multicul- a 6% shareholder. In 2014, when GoviEx
tural background having lived much of his became a publicly traded company Toshiba
life in Asia immersed in the mineral explo- converted their US$60 million loan to equity.
ration industry, providing him a unique Toshiba, parent company of Westinghouse,
insight into Chinas requirement of clean is one of the worlds leading suppliers of
Daniel Major, CEO energy. nuclear technology, and represents about

mines is a very difficult task, taking up to 20
years in Canada.
While current uranium market conditions
are resulting is multi year low prices, with
the uranium spot price around US$20/lb and
the long term price, that accounts for 80%
of uranium sales, at US$32/lb, the forecast
move to a supply deficit around 2020 has
market analysts forecasting uranium prices
to exceed US$65/lb U3O8.
GoviExs corporate strategy has been to
GoviEx has one of the largest total resource bases amongst its peers with systematically de-risk the Madaouela project
197Mlb U3O8, with Madaouela in Niger having 117Mlb, Mutanga in Zambia since discovery while building a portfolio
reported at 49Mlb and 31Mlb at Falea in southern Mali. Within this, global
of advanced African uranium projects with
Measured and Indicated resources are 124Mlb.
the strategic acquisition of Denisons African
one half of the global reactor construction. value as its current market cap is less than projects. Management is taking a long-term
In 2015, Ivanhoe Industries, majority owned US$30 million despite a strong development approach to structuring financing for the
by Robert Friedland, an international finan- pipeline of projects with advanced metal- development of its project portfolio with
cier, a major player in the junior mining lurgical test work and engineering studies an initial sounding of global debt markets
industry, and the founder of Ivanhoe Mines, having been completed on its three principal returning a positive result for Export Credit
acquired a 10% stake in GoviEx. In 2016, development projects. Agency (ECA) covered debt project financing
Denison Mines acquired a 25% shareholding GoviExs acquisition strategy has targeted for Madaouela. A systematic and integrat-
in exchange for its advanced African proj- well-established and pro-mining jurisdic- ed process to structure Madaouelas project
ects. These A-list institutions, together with tions such as Mali and Zambia, which are financing has begun, including dialogue with
management and the Board, currently own major gold and copper producers respec- ECAs, commercial banks, uranium off-takers
approximately 64% of GoviExs common tively, as well as Niger, which is the 4th larg- and, potentially, strategic equity investment at
shares outstanding. est uranium producer globally (uranium the project level, stated Mr. Major.
GoviExs acquisition of Denisons African exports account for up to 70% of Nigers Despite holding one of the largest ura-
projects has transformed the company into annual exports). Given the pedigree of these nium resources of its peer group, and two
an advanced African uranium champion mining jurisdictions, GoviExs projects are fully permitted uranium projects in rec-
with a clear pipeline of three advanced, large- located in regions with excellent infrastruc- ognized mining districts with substantial
scale development projects, two of which are ture and access to skilled, mining labour. infrastructure GoviEx, is currently trading
fully licenced. GoviEx has two fully-licenced uranium at a 76% discount to the development peer
With over US$220m invested in its proj- projects ready for development. As the mar- group average. GoviEx trades at $0.18 per
ects to date, GoviEx presents a compelling ket has taken note of, permitting uranium lb. of U308 in the ground versus the average
development stage uranium company trad-
ing at $1.00 per lb. in the ground.
Govind added, GoviEx is working hard
towards its intended goal of producing ura-
nium before the end of 2020. One of the few
companies of its size capable of making that
transition, because of the combination of
one of the worlds largest uranium resourc-
es, good costs and grades, diversification
through the African continent, two mining
permits and an A-list of shareholders with
significant stakes add to the uniqueness of
the GoviEx story. n
The company paid consideration to SNN or its affiliates for this article.
Figure: Total Mineral Resource (Mlb U3O8)

F E AT U R E D A R T I C L E
The Russell Microcap Index
A Current View a CORNERSTONE GLOBAL GROUP T-REPORT
iN brief 2016 low would confirm the long since the 80s and has yet to bottom; an
term trend to down event characterized by personal and corpo-
Russell Microcap Index has enjoyed a peri- To well establish these takeaways, the report will rate bankruptcies, debt write-downs, severe
od of over performance to the S&P 500. comment on the economic and general mar- economic contraction and so on that purg-
However, various technical indicators and ket outlook, monthly, weekly and daily charts, es the global economies, governments and
cycles are warning that a probable top is Russell Microcap index, Indexs performance, commerce of over indebtedness and excess
expected in 1st quarter 2017, if not sooner. technical analysis, as well as a conclusion. capacity.
This major crest will likely lead to a final NOTE The bottoms for the Long Wave
volatile ratcheting trend down to a lasting eCoNomiC aND marKet Cycle and Debt/Credit cycle are approxi-
long term bottom. CommeNtary mately due 2020+-2 years. This naturally
The exciting news is that once the antici- occurring cleansing process creates the
pated low occurs, it will be one of the most From an economic perspective the equity foundation for the next long term upward
exciting times in modern financial history markets, such as the DJIA, are reflecting the trend.
to buy equities, especially microcap equi- cresting, a long term topping process, of a Looking back over the years, I believe a
ties, a virtual fire sale to take advantage of! 250 year cycle. recession tends to occur after every 8 year
It began in the 1700s around the time of presidential incumbent leaves office. If true
Given this technical outlook, the T-Report the American Revolution and the French again, that would fit nicely with an expected
contains these major takeaways: Revolution, a time of great change that major 1st quarter top and a return to an
Index is in a topping process that has somewhat the look and feel of today. economic and equity market decline. Such
takes time to complete, unlike a bot- Currently we are witnessing an ongoing a decline should be the end of a secular bear
tom which is an event revolution in many parts of the world: market that began in 2000 and has yet to
The Preferred Scenario has Index *a revolution at the ballot box (BREXIT, crest, over 16 years and counting. Remember
approaching a major top, ideally Trump, Dec. 4 Italian referendum, etc.) and that the 1966 to 1983 secular bear market
mid to late 1st quarter or per the *a familiar cyclical revolution from glo- lasted approximately 16 years but that was
Alternative Scenario, mid/late - balism to nationalism with an increasing not a 250 year cycle crest. Please note the
December to early 1st quarter disdain for the so called elites. following charts and accompanying analysis.
As for the final low, it is expected Truly this is an era that has moved from NOTETherefore, one would expect
2020+-2 Years social optimism, which likely peaked at the time this final trend down to start in the 1st
Until more index market action takes of the European Unions creation. We now have quarter of 2017 and should take longer
place to allow a more definitive market moved in a ratcheting trend toward increasing with a more significant decline to a lasting
top call, a move under the February negative social mood, as reflected in the dis- low. PLUS, the trend down is expected to be
sonance within the Eurozone and among voters accompanied with high volatility!
globally who feel disenfranchised.
Other shorter term cycles impacting russell miCroCap iNDex
economies and markets include: moNtHly CHart
*the Economic Long Wave that entered
its economic winter season in 2000 and is The monthly chart is most clear as it
characterized by deflation lacks all the noise of the daily chart
*the Debt/Credit Cycle that peaked in the Clearly the Index has been in an
hyperinflationary 1980s. This cycle, which uptrend since March 2009, with only
n BY STEVEN M. SHELTON is closely associated with the Economic one short downward penetration of
MS, MBA, CFP , CLU, Long Wave cycle, has been declining ever the trend in 2016, the footprint of an
CHFC, TEP, CIMA , CMT

bottom details will become more ing a major top, ideally mid to late
accessible as index action develops 1st quarter or per the Alternative
scenario, mid/late - December to
russell miCroCap iNDex early 1st quarter
weeKly CHart Index will soon provide clues to which
Scenario will be observed by an tech-
Russell Microcap Index Monthly Chart
The weekly chart, while not as clear as nical analyst observing internal mar-
the monthly, exhibits a bit more detail ket action at short intervals of time
of weekly moves to include indexs
weekly open, high, low and close baCKgrouND
This along with other technical indica-
tors, such as the 50 week and 200 week The Russell Microcap Stock Index is rela-
moving averages, provide a basis for tively new having been created in June
Russell Microcap Index Weekly Chart
trend continuation or trend change 2005 but the data feed available through
The Preferred and Alternate Scenario Mets Stock charting system begins in 2008.
Paths provide more detail and are Without the long term history as found in
expected to exhibit a ratcheting trend the DJIA or S&P 500 Indices, it make its
TAKEAWAY, until more index mar- analysis more challenging from a historical
ket action takes place to allow a more technical perspective but still creditable on a
definitive market top call, a move probability basis.
Russell Microcap Index Daily Chart
under the February low would con- As a refresher, the Index is designed
Intermediate 4th wave firm the long term trend to down to measure the performance of the micro-
The labelings are Elliott Wave and are cap population, which is less than 3% of the
indicating two probable Index path russell miCroCap iNDex US Equity Market. It currently includes the
scenarios Daily CHart smallest securities in the Russell 2000 Index.
The Preferred Scenario (blue line According to the Russel Fact Sheet, as of 30
with arrow) would have the Index The short term daily chart from May November 2016, the Index contained 1,668
ratchet up on the chart to a new crest, 2015 has substantial detail and likely holdings with an average US Dollar weight-
labeled as Intermediate (3), which beyond what a typical investor is ed market cap of $49.4 million, a median
would be followed by a corrective interested in market cap of $18.6 million and the largest
decline and upon completion, it However, for those with a penchant market cap stock at 2.338 billion.
would lead to a final crest, ideally in for details, much is offered up in the As an explanation of the three charts
1st quarter 2017 followed by a final dialog boxes printed on the graph presented earlier, this analyst always starts
major decline Also, note the Indexs orderly moves with the monthly chart with the maximum
The Alternate Scenario (red line with up and down, as it trends up from amount of index data available and work
arrow) would have the index move February 2016, the final leg up to a down to weekly, daily and sometimes hourly.
up one more time and then decline lasting top This allows an analyst to view how The
majorly in late December or January, In regard to the Scenarios, note the index or an asset has performed market wise
much earlier and at a lower peak than detail to the Alternate Top in red as well as baselining many of the technical
the Preferred Scenario and how it relates to the Preferred tools employed to include:
The TAKEAWAY is this Index is in a Scenario in blue Very coordinated! *Trend lines and trend channels that
topping process and when complete A change of Intermediate trend to graphically portrays the short term, inter-
will move down toward C Cycle down, will take a close under its lower mediate and long term trends
in the lower right graph corner and trend channel and its 50 and 200 day *Moving Averages which provide a
toward Index level 150 but does not simple moving averages smoothing of the trend as well as a change
have to go that low, ideally bottoming A change of Long Term trend to of trend indicator
2020+-2 years down, will take a close under the *Statistical technical indicators which pro-
The probable final Index level and February 2016 low vide momentum, strength of trend, volume
probable time of crest as well as the TAKEAWAY, The Index is approach- and much more

*Chart patterns offer clues to market tops a period of sharp under-performance since Steven Shelton is a Financial Services veteran of more
than 30 years, having served in senior management
and bottoms as well as continuation breath- early December 2016 in both the insurance and broker/dealer community,
ers, which are known as corrections, con- on and off shore. He has expertise in economics,
financial market analysis, wealth management, tra-
solidations or compressions Russell Microcap Sectors and Styles
ditional and alternative investments, financial plan-
*Cycles provide top and bottom tenden- currently in a trend of over-performing to ning, marketing, insurance, sales and consulting as
cies at various cycle lengths the Russell Microcap Index are: well as an international speaking regarding global
economics and financial markets. This is evidenced
*The Elliott Wave Principle provides a *Value Microcap style is extremely over- by advanced degrees in business administration and
probability estimate of where the index or performing, beginning in September 2016 economics as well as six professional designations
to include, Certified Financial Planner, Chartered
asset is within its current trend, assisting in *Consumer Staples Sector is currently
Life Underwriter, Chartered Financial Consultant,
predicting probable short term, intermediate in a trend of over-performance since early Certified Investment Management Analyst, Tax and
and long term tops and bottoms December 2016 Estate Practitioner and Chartered Market Technician.
He is the Managing Member of Cornerstone Global
*Financial Services Sector has been Group LLC, an Institutional consultancy and finan-
russell miCroCap iNDex primarily in a trend of extreme over-per- cial services publishing entity
performaNCe Has outper- formance from February 2016 but since
Steven M Shelton CFP, CLU, ChFC, TEP, CIMA,
formeD tHe s&p 500 October has gone nearly vertical CMT
Cornerstone Global Group LLC
Office: 773-697-8021
Russel Microcap Index is up 46% since the Technical Analysis is concerned with Cell: 773-294-8174
February 2016 low and up 314% since the the individual index or asset price market
[email protected]
March 2009 low action, which creates a trend that tends to
www.cornerstoneglobalgroup.com
S&P 500 Index is up 25% since the persist. The concept is to isolate the trend
February 2016 low and up 240% since the as early as possible and ride the trend for Cornerstone Global Group LLC, 3240 North Lake
Shore Drive, Suite 11-D, Chicago Illinois 60657, pro-
March 2009 low as long as possible to end of trend, which is vides institutional consultancy on financial services
the beginning of a new trend. It is assumed marketing, distribution and product/service develop-
ment to and for institutional use only.
Russell Microcap Sectors and Styles the index or asset price reflects all that is
currently in a trend of under-performing known or perceived or believed, thus at each Cornerstone Global Group LLC is also the newslet-
to the Russell Microcap Index are: close the price or index value is a permanent ter publisher of the CGG Global Market Technical
Report, CGG Technical Research Notes and other
*Growth Microcap Style have been in chartable fact and are not modified as are publications, all of which are informational services
extreme under-performance, beginning in estimate in fundamental analysis. and may include opinions as to buying, selling, hold-
ing various securities, asset allocation and strategies.
September 2016 In summary, the combination of both
However, Cornerstone Global Group LLC, its own-
*Health Care Sector has been in a wide approaches is ideal, as technical analysis tends ers, employees and consultants are not investment
amplitude ratcheting trend of under perfor- to alert the analyst of potential market actions advisers. At no time may a reader, caller, viewer or
consultancy client be justified in inferring that any
mance since October 2016 before the fundamentals appear, at which advice is intended as investment advice or as invest-
*Technology Sector has been one of time it confirms or disaffirms the technicals. ment recommendations directed to any particular
person or in view of the particular circumstances of
under-performance since October 2016
any particular person. Investing carries risk of losses,
*Consumer Discretionary is currently CoNClusioN and trading futures or options is especially risky
under-performing since early December because these instruments are highly leveraged, and
traders can lose more than their initial margin funds.
2016 The Russell Microcap index combined with Before investing consult with your investment advi-
*Energy Sector has been in under-per- technical analysis may very well provide a sor. Additionally, Cornerstone Global Group LLC
does not render tax, accounting or legal advice and
formance since December 2016 but has the microcap investor a trend compass in this
the information contained in this communication
look of a trend that may move back to over- aggregate asset class, a general guide to should not be regarded as such. Information pro-
performance consider when to invest, go short, or divest vided by Cornerstone Global Group is expressed in
good faith but is not guaranteed in any way.
*Materials and Processing Sector has microcap equities as well as provide insight
been in an trend of under-performance into the trends and relative performance of
since early December 2016 sectors and styles. Now is the time to be on
*Utilities Sector were in very strong trend the alert for a change in trend and to be pre-
of over-performance since 2015 but have pared to take action to preserve wealth and
moved to under-performance in July 2016 enhance wealth. An exciting and high profit
and more in October 2016 potential era lies ahead as microcaps trend
*Product Durables Sector have been in to its destiny is fulfilled ! n

An investment in clean water
returns health and hope.
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Love Water, Inc is a 501C3 non-profit organization. Tax ID #90-0838636 www.lovewater.org @lovewaterorg
PROFILED COMPANY
biolargo, inc.
biolargos advanced oxidation
system (aos) poised to impact
$862 billion global water market
otCqb: blgo
G lobal Water Intelligence, a leading industry market

researcher, estimates the annual global water market
to be $862 billion.
Goldman Sachs calls water the petroleum drinking water was found with excessive lead
for the next century1 adding, investors who levels in All 50 States3.
know how to play the infrastructure boom While some of the violations involve
will reap huge rewards. With global water pathogens such as Legionella, most violations
consumption doubling every 20 years, they appear to involve recalcitrant contaminants
predict that by 2025 about one third of the such as lead and mercury that are difficult to
global population will not have access to remove with existing water treatment tech-
adequate drinking water. nologies. The EPA lists4 over 80 potentially
harmful contaminants found in their Table
existiNg water treatmeNt of Regulated Drinking Water Contaminants,
teCHNologies are most of which are difficult for existing water
expeNsive aND ofteN treatment plants to remove. Some of the bet-
iNaDequate ter-known contaminants are: lead, arsenic,
mercury, nitrate, benzene, and pharmaceuti-
After examining data from more than 36,000 cal residues.
water samples collected nationwide by the For the most part, modern water treat-
U.S. Environmental Protection Agency from ment plants perform reasonably well for
2013 to 2015, Harvard researchers found disinfection, albeit with high capital and
unsafe levels of toxic chemicals in the drink- operational costs. However, based on the
ing water of 33 states2. In 2016, a USA Today numerous water safety violations, water
Investigation reported that after analyzing treatment plants can fall short when it comes
samples from 2012 through 2015, unsafe to removing recalcitrant contaminants.
1 http://www.telegraph.co.uk/finance/
newsbysector/utilities/2791116/Water-crisis-to- 3 https://weather.com/health/news/lead-
be-biggest-world-risk.html contamination-water-usa-today-study
2 http://news.harvard.edu/gazette/ 4 https://www.epa.gov/ground-water-and-
Dennis Calvert, CEO story/2016/08/unsafe-levels-of-toxic-chemicals- drinking-water/table-regulated-drinking-water-
found-in-drinking-water-of-33-states/ contaminants

biolargos aos: faster than the commonly accepted industry
breaKtHrougH lowest protocol, hydrogen peroxide and ozone.
Cost - HigHest impaCt CleaN The AOS is scalable and modular in
water teCHNology design. The AOS is also unique in its ability
to deliver residual iodine where the custom-
Figure 1 BioLargo AOS Alpha Unit Built by ers desire, or it can remove residual iodine as
Northern Alberta Institute of Technology needed. Its flexibility allows it to be built to
After millions of dollars in R&D and more meet a wide variety of capacity and flow-rate
than 30 government grants (and counting), requirements, and the company is already
BioLargos research and development team working on what it calls Gen 2 for ultra-
recently showcased the first pre-commercial high flow rates. The AOS Beta, which will
prototype of its patented AOS water treat- feature full data-logging and automation
ment system, billed as the lowest cost and features, is planned for early 2017.
highest impact, scalable clean water technol-
ogy in the world. biolargo aND iNDustry
Figure 1 Test results show that the AOS achieves giaNt CHiCago briDge &
unprecedented rates of disinfection, and iroN form relatioNsHip to
eliminates infectious biological pathogens implemeNt aos aND otHer
such as Salmonella enterica, Listeria mono- biolargo teCHNologies
teCHNology gap witH cytogenes and E. coli. The AOS has been
CurreNt water treatmeNt shown to be 100x more effective at eliminat- BioLargo recently announced a new rela-
teCHNologies ing Salmonella than the best-in-class poul- tionship with CB&I to support implemen-
try production water disinfectant, chlorine tation of BioLargos advanced water and
Today, chlorine remains one of the most dioxide. The AOS has also been proven air technologies and provide independent
commonly used water treatment technolo- effective in the elimination of toxic oil & gas performance verification. News of the CB&I
gies for standard disinfection processes, but water contaminants such as naphthenic acids relationship sends a signal to the investment
is under increasing scrutiny due to envi- and polyaromatic hydrocarbons. Research world and to big industry that BioLargos
ronmental concerns regarding its potential suggests the AOS also has the potential to advanced water treatment technology has an
byproducts. UV (ultraviolet light) is gaining remove soluble chemical contaminants such important contribution to help make clean
popularity because it does not leave any toxic as acids, solvents, sulfurs, pharmaceutical water affordable in a wide variety of indus-
residue or byproduct, however, it is costly to by-products, nitrates, phosphates, mercury, tries. The relationship also sets the stage
purchase and operate, requiring substantial copper, lead, aluminum, and most contami- to pursue business opportunities in which
input energy. Ozone is another technology nants identified by the EPA. Lab-scale test- BioLargos technologies or products will be
that can be effective, but is very expensive ing is planned to verify efficient removal used to serve clients of CB&I and BioLargo.
to purchase and operate, and requires high of these contaminants. Past results confirm With 40,000 employees and a 2016 back-
levels of input energy. that the AOS can match the best-in-class log of $20 Billion, CB&I is a world-leading
Filtration and membrane technologies are technologies in performance at destroying engineering, procurement, fabrication, and
also commonly used to filter out unwanted soluble organics while using less than 1/20th construction company, and a provider of
contaminants, but they are fraught with the energy and operating more than 10X environmental and infrastructure services.
high maintenance costs and biofilm fouling.
Some, such as reverse osmosis systems, often
require significant energy and can have lim-
ited efficiency.
Test results show that the AOS achieves
The world needs more effective clean unprecedented rates of disinfection, and eliminates
water technologies that are inexpensive to
build and inexpensive to operate in order to infectious biological pathogens such as Salmonella
meet the ever-increasing demand for clean,
safe water.
enterica, Listeria monocytogenes and E. coli.

development work over the past year, is now
BioLargo recently announced a new relationship scheduled 2017. An additional $5 million
line of credit was committed by the inves-
with CB&I to support implementation of tor to support commercialization once FDA
approval is complete. Clyra is targeting late
BioLargos advanced water and air technologies and 2017 early 2018 to be ready for market.
provide independent performance verification.
looKiNg aHeaD
The opportunities for BioLargo to make a

CB&I builds oil refineries, liquefied natural Clean industrial odor control prod- meaningful contribution for a healthy world
gas terminals, wastewater treatment plants, ucts for the large waste-handling markets. are massive. The company has invested years
offshore platforms, and power plants. CB&I Management reports, We have a number developing, refining and validating innova-
is the worlds largest storage tank construc- of trials underway with leading companies tive products to make life better. As the
tion company, with tanks constructed for in the waste-handling industry, and the feed- Company continues to recruit highly quali-
the oil & gas, mining, municipal water, and back from customers confirms our belief that fied people, engage strategic relationships,
wastewater industries. They are also actively they want and need a reliable and afford- and properly capitalize various business
involved in the remediation and manage- able solution to their inherent odor manage- opportunities, management believes its tech-
ment of hazardous waste. ment issues. CupriDyne Clean eliminates nology and products will continue to find a
According to BioLargo CEO Dennis powerful odor-causing compounds like H2S successful path forward to significant com-
Calvert, all of BioLargos technologies can and ammonia instantly on contact, thereby mercial success as well as an important con-
serve a wide array of industrial customers. maintaining clean, safe, and healthy air. The tribution to helping people and the planet. n
He adds, Our mission to make life better product is safe and non-toxic for humans,
includes helping industry tackle operational animals, and plants. As the word gets out, The company paid consideration to SNN or its affiliates for this article.
cost challenges effectively. That intersection and after clearing the usual lengthy hurdles
of service is likely where our new relationship involved with becoming a vendor for large
with CB&I will shine the brightest and we corporate and government accounts, man-
look forward to working with the exceptional agement believes that sales will grow with
team at CB&I to serve industry. national supplier contracts.
In January of 2016, BioLargo announced
biolargo proDuCts for that its Clyra Medical subsidiary closed
CleaN air aND aDvaNCeD a $5.75 million financing package for its
wouND Care also fiNDiNg Advanced Wound Care products. Cash of
CommerCial patH $750,000 was earmarked for Clyra to com-
plete its product development work, testing,
Since the first sale in May of 2016, BioLargo labeling and ultimately its FDA application
has focused on marketing its CupriDyne and approval which, due to the successful
The opportunities for BioLargo to make a

meaningful contribution for a healthy world
are massive. The company has invested years
developing, refining and validating innovative
products to make life better.

PPMT Capital Advisors, Inc. DO WE HAVE
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QUESTIONS HOW CAN

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CEOs UP AT
NIGHT
WHAT IR
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MUCH WE FIND HAVE THE
SHOULD THE RIGHT CFO? www.ppmtgroup.com
MY AUDIT COST? RIGHT AUDITOR FOR
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[email protected]
Capital Advisors to successful growth companies, their CEOs,
MicroCap Review Magazine 31
Boards and institutional investors since 2009.
FEATURED ARTICLE
Raising Capital in the MicroCap Market

7 Success Factors for Achieving Significant Capital Raise Objectives
2016 represented a year of surprises in many areas. While we were enter-
tained (or stressed out) by the election, many significant changes took place
in the markets.
We saw the coal industry go from bust
to boom, and shale oil go from boom to
bust and ultimately to stability all within 12
months. In addition we saw the Microcap
market outperform every other market by
capitalization. 2017 looks promising for the
markets given some of the tax legislation
being proposed. Now more than any period
since 1998, Microcap CEOs should be on the
trail hunting for that elusive capital. And
investors will be itching to find great deals.
So weve compiled seven of the best practices
we observed in 2016 for raising capital to
arm CEOs with some solid ideas as they hit
the trail in 2017.
The Microcap market has existed for
decades going back to the 1970s. Once
called the Pink Sheets referring to the 5
by 18 stack of pink quotation sheets which regulatory reforms, and tighter FINRA regu- the sails, what do CEOs need to know to tap
were collated and printed daily for market lation has changed the Microcap market for into this exciting alternative?
makers, and often referred to as the Penny the better, to a point where it is fast becom- Seasoned institutional investors such as
Stock market, the Microcap market has ing a legitimate capital raising forum for Perrit Capital, Heartland Advisors and oth-
evolved significantly. Fifteen years of SEC CEOs seeking an alternative to the perceived ers have developed substantive methods of
limited options of the venture capital and due diligence that allow them to value hunt
private equity markets. effectively. And with the presence of serious
US public companies with market caps of institutional funds investing in Microcap
$250M or less, so called Microcaps now stocks, CEOs have an unprecedented oppor-
exceed $200B, yes BILLION, in aggregate tunity to develop a direct to investor audi-
market capitalization across all US exchang- ence. We examined the successes and fail-
es. Its hard to argue that a $200B market ures of several companies that we met in
is anything but legitimate. And that fact 2016, during various phases of capital raises
is being further echoed by value hungry to identify the common best practices being
institutional investors seeking returns that leveraged in the Microcap market. Here are
outperform the major markets. Its fair to seven commonalities that we observed dur-
say that the Microcap market it still evolving 2016:
n BY KARL DOUGLAS
ing. With the winds of opportunity filling

US Listed Companies by Exchange
with the story. Whos in the deal is often as
Exchange Total Listed Microcap important as the deal itself. Prestigious insti-
Amex 319 224 tutional presence often denotes that someone
Nasdaq 2538 1074 did significant due diligence and vetted the
NYSE 2691 298 company and its management.
Although Microcap institutional inves-
OTCBB 74 67
tors are value investors, they are driven by
OTC 4586 4256
the need for capital preservation. Capital
Preservation is code for do we trust manage-
10208 5919 ment. Is there meaningful governance in
Table 1: Microcap companies under $250M by exchange, Source: TD Ameritrade. place?. By attracting a major institution in
the stock, and leveraging company relation-
uNDerstaND tHe marKet iNstitutioNal iNvestors ships with the anchor institution CEOs can
seeK value generate a significant ownership base.
Just understanding that youre competing For early stage companies, the right
with almost 6,000 companies for capital Management for the most successful trans- institutional investor can be the difference
is a great start! The most common point actions we observed understood that funda- between long term capital raising success
among the successful CEOs and other man- mentally speaking, Microcap investors are and falling into the OTC no mans land. Its
agement officers that we met during the bargain hunters. They are looking for com- all about sponsorship: Consider that most
year was that they understand the market panies that can grow at outsized return rates. institutions queue up to invest in venture
dynamics very well. They understand that If your company is growing at a compound and PE funds. They do this for the profes-
there are many institutional investors seek- annual growth rate that is no different to the sional management that ensure proper gov-
ing out-sized returns, seeking alpha based more seasoned larger mid cap companies, its ernance and board structures are in place,
on pure fundamentals of equities listed in difficult to justify Microcap risk. Many of as well as proper management policies and
the inefficient OTC market. Gone are the the more successful companies offered ven- procedures are implemented. So even if it
myths that institutional investors do not ture and private equity value propositions. takes a deep discount to attract an influen-
invest in Microcaps. Their conviction was We feel this is a critical success factor, and tial institution, we recommend the practice.
bolstered by the knowledge that over 1420 that both in deal structuring and marketing, Just make sure the institution in question
of the Microcap companies currently have it is necessary to offer venture and private is committing to put their name on the
institutional ownership of over 10%. equity returns with the promise of a built in deal and work with management to do the
Most companies recognized that NASDAQ eventual liquidity event as the market for work necessary. We strongly recommend
was the ideal exchange on which to be listed. the securities develops. recruiting a strong institutional investor to
But most recognized that there is value to Successful capital raises typically have an sponsor a transaction as critical success
being listed on the OTC. In general most institution on board well before going public. factor. Not only does this create the right
understood that there was significant interest Successful management teams generally perception of a company and its manage-
in various forms of PIPE (Private Investment leverage existing institutional relationships to ment, but the side benefits of oversight and
in Public Equity) offerings. And for good help develop the public market for their shares. proper governance help to avoid many of
reason, according to the PrivateRaise.com, Its important that CEOs understand that their the strategic mistakes often committed in
$82 Billion in PIPE transactions were com- shares are designed to be sold. And large buy- the Microcap space.
pleted during 2016. ers are generally institutions that are familiar
liquiDity builDiNg
Its very difficult to market your stock if you

dont have a good story to tell! Needless
to say, most of the successful deals we saw
during 2016 had a very solid story that was
easily articulated. It was the disruptors
that prevailed in 2016. Combine faster and
Table 2 PIPE deals completed in 2016, Source: PtivateRaise.com cheaper with effective management, perfor-

sell without the consent of the borrower (sub-
ject to certain limitations such as price floor).
However with an ATM, generally speaking
the issuer is in control of issuance. For com-
panies with strong liquidity profiles, this is a
useful vehicle leveraged by many successful
Table 3 PIPE Investments in 2016 by type. Source: PrivateRaise.com
capital raisers in 2016.
mance and solid corporate governance and of a good investment banker. We have had
many investors paid attention. success with firms like GMP Securities and De-risK your Deal for your
The successful CEOs developed a deep Canaccord Genuity. Australia also offers auDieNCe -
management bench, and allocated a significant compelling investment options through the
amount of time pitching buy side investors ASX. And like Canada, offers more of a In the current market there is no substitute
on the fundamentals of their story. The suc- traditional investment banking option for for authenticity. The days of the basic all
cessful companies went well beyond the tradi- microcap companies. In fact, Australia pro- upside, no competition pitch are over. We
tional IR, and went to direct email campaigns vides a gateway to other Asian investment have seen this trend develop over the last
to institutional investors, as well as a consistent markets. few years. Successful managers are actu-
presence at the major conferences. ally helping their investors to de-risk a
Public relations is an area that many com- alterNatives to equity. transaction by frankly and openly defining
panies overlook. We noticed a trend toward the risks and weaknesses their companies
more PR than IR. After all PR is generally Growing the balance sheet doesnt always face. Speak openly about your competitive
more targeted at marketing the products and require equity offerings. In fact we saw sev- threats. Its your strategy to outmaneuver
services of the issuer than marketing the eral companies achieve significant growth the competition which is important. And
stock. But an effective PR campaign has an during 2016 without any significant equity use the competition to show what a great
added benefit that many investors will look issuance. In many case companies were value you are offering. Although this may
to invest in what they see selling. able to access debt at competitive rates in seem counterintuitive, portfolio managers
the BDC business development company are more concerned with identifying the risk
Dual listiNg: market. BDCs offer debt to companies in a transaction than in identifying the huge
with historical cash flow, where sometimes growth that most CEOs think they are inter-
Several international markets offer ways to the borrowers fall short of traditional bank ested in. Preparation of investment materi-
augment liquidity development by attracting criteria. Many BDCs consider the full dis- als which go beyond basic risk factors to an
alternative investors. High net worth retail, closure of public companies as a benefit. In in depth analysis, often lead to a meaningful
often viewed as a necessary component of a addition, for early stage companies, venture conversation, and positive results.
robust liquidity strategy, is a very tough nut lenders and receivables finance are excellent These critical success factors are far from
to crack in the US for newly listed issuers. low cost alternatives to equity issuance. comprehensive as issuers need to put sig-
Brokers typically cannot solicit retail orders Although basically an equity structure, nificant effort into choosing service provid-
of shares under $5 per share. And many US ATM transactions allow companies to access ers such as investment banks, advisors and
retail broker dealers have moved to man- capital with less equity sales. Its sell as you counsel that have a proven track records.
aged money platforms as compared to stock go! ATM or At-the-Market offerings were We compiled this list because selecting an
picking. This limits retail orders to investors the second most popular form of PIPE during simply effective IB, counsel, an audit firm
that hear about the company through public 2016. 37.4% of 2016 PIPES were ATM deals. and IR firm is not an automatic formula
relations exercises. This relatively new structure is best suited to for success. As with everything success is
However our neighbors to the north offer issuers with well developed liquidity and also usually a function of hard work and tireless
several well regulated exchange venues and ability to complete a registration statement. attention to detail. The seven extras we
retail brokers that perform more tradition- During 2016 many ATM transactions were identified are common among many suc-
al investment banking roles, recommend completed at less than 8% discount to market, cessful Microcap CEOs. We hope list will
high value opportunities to no-US investors. with no warrants. This new structure is often dramatically improve your chances of a suc-
Although dual listing on Canadian exchang- misunderstood by issuers and confused with cessful capital raise in 2017! n
es doubles regulatory obligations, its well toxic convertible notes. The primary differ-
Karl Douglas is President of PPMT Capital
worth it if management can get the backing ence is a note allows to owner to convert and
Advisors, a private investment firm based in NY.

Wounded Warrior Project
helped me reclaim my life.
WOUNDED WARRIOR
SEAN KARPF
HELP MAKE AN IMPACT AT iamlivingproofwwp.org

2016 Wounded Warrior Project, Inc. All Rights Reserved.
An Interview with Rick Rule

2016 Review and Looking Ahead to 2017
The following Q&A is transcribed from a recent Shelly Kraft interview with Rick Rule
have any sense it would be up 100% in the SK: Which group did the best over the
precious metals equities. course of 2016 in your opinion; the explor-
The second thing and this is also a pleas- ers, the developers, or the producers?
ant surprise. Unlike the last bull market in RR: None of the above. The optionality plays,
2001, the precious metals mining companies the people had very large deposits that werent
havent greeted the bull market by doing a economic at $1,100 gold, but might have been
whole bunch of stupid things with their new economic at $1,500 gold. The optionality plays
Rick Rule found wealth. They have actually done a were up an average of 500%. On a risk adjusted
SK: Rick, lets start out with an overview of pretty good job with their money. I suspect basis of course the big producers did the best
what you do? given how many mining CEOs got fired in because they did well and they didnt have
RR: I run the US and part of the International the bear market, that this new found intel- too much risk associated with them. I suspect
Business of Sprott, Inc. We manage or admin- ligence could last for two of three years to the market leadership will change in 2017 though.
ister about $11 billion dollars principle in nat- benefit of all concerned.
ural resources and precious metals. In truth SK: What about Mergers & Acquisitions?
Im a credit analyst, but I do a lot of equity SK: When you talk about using the money RR: In 2017, M & A is going to continue.
work as well. I help run worldwide portfolios smartly, do you mean drilling and putting The truth is, that the whole industry needs
in natural resources and precious metals. money in the ground? less general and administrative expense rela-
RR: I mean, no dumb acquisitions yet and tive to assets and the way that you do that is
SK: Lets get an update on the market? not putting marginal projects into produc- through M & A, making redundant teams
Commodities prices surged higher and tion yet. No boards of directors increasing disappear. Now, the best of the best targets
then came down. Where are we now? their emoluments four-fold, year-on-year. have begun to disappear, but this is interest-
RR: Precious metals equity markets were Gold mining companies for the first time ing news for speculators too. You know, the
overbought last summer, that was pretty easy in my lifetime are being run as businesses industry has had a dearth of exploration and
to see and those over valuations have corrected as opposed to warrants on the gold price. expenditures, which means the industry, as
somewhat, sort of 20%. My suspicion in the Which in my opinion is really wonderful. a whole, is shrinking. Gold production will
very near term is that the markets being over- begin to fall by 2018, every other thing left
sold will recover a little bit, but I think it will SK: On a scale of 1-10, how would you unsaid. What that means is that the better
retest the lows. My suspicion is that the bull rate 2016 with 10 being the best and how exploration discoveries; the higher quality
market will get underway in earnest again, sort do you feel 2017 is going to be on a scale discoveries, the Reservoir Minerals of the
of in February or March of 2017. The truth is, I of 1-10? world, the Kaminaks of the world, will disap-
think were in the 3rd inning of a 9 inning ball- RR: 11.2, on a scale of 1-10 for 2016, I had pear into the jaws of larger mining compa-
game. I think we have a lot further to go, but we suspected 35% or 40% compound internal rates nies and they will do so at eye popping pric-
might go lower before we go higher. of return. 35% internal rate of return is aston- es. Very high quality new discoveries will go
ishing. If youre asking for 35% and somebody away much in the way that they went away in
SK: What was the biggest surprise to you gives you 100%, thats truly off the scale. My the 1990s at prices that surprised everyone.
in 2016? suspicion for next year, is what my suspicion for
RR: I guess there are two surprises that this year was. I would be very happy to see the SK: So they dont disappear, they just have
were extraordinary. One, I knew 2016 would juniors composite index up 35% or 40% next new ownership?
be a good year in precious metals. I didnt year. Believe me, I would be delighted to see it RR: Thats correct and by the way, Im
up 100%, but thats not an expectation I have. happy to surrender my ownership for correct
n BY SHELLY KRAFT
compensation.

SK: In reality, miners havent stopped min- places that have political risk that were unfa- Politian, including Mr. Trump.
ing. Theyre taking their own resources out miliar with. There is all the political risk that Investors should also note that most non-
of the ground. How are they going to replace you need in the United States, but the truth is, precious metals extractable commodities
them? Im not talking about the giants, like the big deposits will be found elsewhere. continue to be very weak, but certain very
the Barricks (ABX) going out, Im talking oversold industrial materials, notably iron
about the smaller mining companies. Where SK: So if you wanted to advise investors about ore, metallurgical coal and zinc, have made
are they getting their new gold? the gold market, about what they should do, substantial gains. Very recently oil quotes
RR: Its true on all levels Shelly. Barrick give us a timing answer and give us a little bit have moved up sharply as a consequence of
(ABX) is becoming a smaller company too, but of direction from an expert from Sprott Group. supposed market tightening in the face of
what you say is very important for your read- Tell us what you think and what you tell recent OPEC agreements. The outlook in
ers to understand. This is not a business like a your own investors? these sectors is mixed: the industry pricing is
supermarket, where fresh groceries come in RR: Traditionally, gold has been a flight to often below the industry cost structure (the
the back and go out the front. Every day you quality style asset. Its competed with the U.S. common precondition for a dramatic rally),
mine, your business gets smaller and the truth 10-Year Treasury. Jim Grant, defined the U.S. but global demand and economic output
is, the industry is under invested over the past 10-Year Treasury as return free risk. Meaning continues to be very constrained. If past is
four, five, or ten years. Now, part of this is a the government absolutely, positively guaran- prologue (never a guarantee) the materials
natural and normal function thats happening tees to give you back less than you gave them. sectors equity pricing will advance before a
across all businesses, called outsourcing. The What that means, is that its a less viable com- broad-based rebound in commodities pric-
junior mining companies have cheaper access petitor and that means gold should do well. ing occurs. Investors in the sector need to ask
to capital than the senior mining companies The first thing I can say, is if you dont own themselves whether they believe the recent
because they have less of a book value to gold, buy some gold. Preserve your purchasing strength in these equities is predicting the
defend. So, in one sense the explosion of junior power. If youre prepared to take implementa- inevitable rebound in commodities pricing,
mining companies is a function of outsourcing tion risk, if youre prepared to speculate, buy or is merely a bear market rally. n
the exploration function from the majors to the the gold stock. As the gold price goes up, the
Mr. Rule has dedicated his entire adult life to many
juniors. The truth is though, that this means earnings of gold mining companies will go up
aspects of natural resource securities investing. In
successful efforts will become increasingly and the share prices will follow. addition to the knowledge and experience gained in
valuable. When the major mining companies *The Tethyan Metallogenic Belt (TMB), a long and focused career, he has a worldwide net-
work of contacts in the natural resource and finance
begin to expand as opposed to contracting, and extending from Europe through Anatolia to worlds. As Director, President, and Chief Executive
the CEO calls down to the exploration depart- Iran, is one of the worlds major metal pro- Officer of Sprott US Holdings, Inc., Mr. Rule leads
a highly skilled team of earth science and finance
ment, hell be reminded by the CFO that he ducing belts, and consists of many sectors.
professionals who enjoy a worldwide reputation for
laid them off three years ago. resource investment management.
In addition Rick added: Mr. Rule is a frequent speaker at industry confer-
ences, and is interviewed for numerous radio, television,
SK: How do you feel about the global growth It is worth noting that the dollar strength print and online media outlets concerning natural
in the mining and resource industry? credited to the election of Donald Trump, resource investment and industry topics. He is frequent-
ly quoted and referred by prominent natural resource
RR: That is a very important question for and to the recent interest rate rise has led to a
oriented newsletters and advisories. Mr. Rule and his
your readers to understand Shelly. The truth substantial weakening of the gold price, and a team have long experience in many resource sectors
is, the deposits are where you find them more dramatic weakening of gold related equi- including agriculture, alternative energy, forestry, oil
and gas, mining and water. Mr. Rule is particularly active
and the easy to find projects in places that ty prices. Investors and speculators may want in private placement markets, having originated and
are regarded as safe, have already mostly to consider whether the quarter point increase participated in hundreds of debt and equity transactions
with private, pre-public and public companies.
been found. All those deposits that we could in rates is sufficient to make US treasuries via-
Sprott US Holdings, Inc. is a holding company made
stumble over in Nevada are in production. ble investments, and whether Trumps policies, up of three separate and distinct companies: Sprott
The big deposits we find worldwide are going (maintaining entitlements, restricting trade and Global Resource Investments, Ltd., a FINRA Registered
Broker/Dealer; Sprott Asset Management USA Inc.,
to be in places that are regarded as trickier immigration, increasing infrastructure spend- an SEC Registered Investment Adviser offering man-
and have been less well explored. Theyll be ing) are policies that would either be good for aged accounts; and Resource Capital Investment
Corporation, an SEC Registered Investment Adviser
in big Metallogenic belts, like the Tethyan the economy, or make a dent in the federal gov-
managing partnerships. These three companies make
Metallogenic belt*, and theyll be in Chile, or ernments $20,000,000,000,000 in on-balance up the US Subsidiaries of Sprott Inc. and are active in
the Congo, theyll be in places that we are less sheet liabilities, or the $120,000,000,000,000 securities brokerage, segregated account money man-
agement and investment partnership management
comfortable going to. Not necessarily places in off-balance sheet liabilities. On my own involving both equity and debt instruments, across the
that have more political risk by the way, just account, I prefer gold to the promises of any entire spectrum of the natural resource industry.

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PROFILED COMPANY
strategic metals ltd.

tsx-v: smD, otC piNK: smDZf
S
trategic Metals Ltd. (TSX-V: SMD) is a
highly successful, uncommonly well-
funded generator of mineral projects.
The Company is the largest claim holder in
Canadas Yukon Territory, a politically stable,
mining friendly jurisdiction with world class
mineral potential.
Strategics basic business model is simple.
It acquires mineral projects at low cost dur-
ing times of market weakness, advances
them with early stage work and then, during
robust markets, sells, options or spins-out
projects to other parties. The Company
maintains exposure to projects via work-
ing interests, share payments and/or royal-
ties. Strategic utilizes excess capital to make
investments, providing exposure to promis-
ing exploration projects owned by other
companies, often in other jurisdictions. to hold equity interests of 8.3% and 41.4%,
Share sales are made at times when pricing respectively. Other shareholdings include:
and liquidity are attractive. Royalties are held a 33.4% interest in Precipitate Gold Corp.
or sold when metal prices are peaking. that resulted from a property transaction
Although the majority of the Companys at IPO and subsequent investments made
130 property interests target gold and sil- following discoveries in the Dominican
ver metals Yukon is famous for the Republic; a 16.5% interest in Silver Range
Territorys unique geology allows for diverse Resources Ltd., which was a 2011 spin-
deposit types. Strategics projects also host out from Strategic that is now focused on
base metals such as zinc, copper, and lead, as generating gold projects in NWT, Nunavut up many years of assessment credits on its
well as specialty metals including molybde- and Nevada; and, a 100% interest in Terra most advanced projects. To minimize regu-
num, tungsten, tin, and vanadium. CO2 Technologies Ltd., which is developing latory delays and reduce risk for incoming
Strategics President and CEO, Doug Eaton, processes and equipment relating to carbon partners, Strategic often conducts environ-
has diligently explored the Yukon since 1971, sequestration and mine remediation, based mental and heritage studies and secures explo-
and has contributed to the discovery or on a concept conceived by Mr. Eaton. ration permits, before vending the projects.
advancement of a long list of Yukon deposits. The Company is able to minimize its explo- The Company currently holds permits that
Recent major discoveries that Strategic has ration risk by seeking partners for projects approve 3,000 drill holes, totaling over 500,000
participated in include Carlin-type mineral- prior to conducting large-scale drill programs. m of drilling on various projects. With mod-
ization at ATAC Resources Ltd.s Rackla Gold This has allowed Strategic to maintain a tight est exploration budgets, Strategic continues to
Project, and high-grade epithermal mineral- share structure over many metal cycles. The make new discoveries year after year, which
ization at Rockhaven Resources Ltd.s Klaza Company has extremely low holding costs speaks to the quality of people on the ground
Deposit. Strategic financed early exploration because none of its projects are subject to and the underexplored nature of the Yukon. n
at both of these discoveries and continues option or royalty payments, and it has built The company paid consideration to SNN or its affiliates for this article.

High-Powered Gold and Silver are

Ready to Shine in 2017!
B
y December 2015, the four year a share. Subscribers had almost two weeks Money from the Coming Gold and Silver
cyclical bear market within the larg- to establish a position in the .45-55 cents Shock-Wave.
er and longer secular BULL RUN zone before it took off and ran to $3.60, for a An Exclusive Trade for You? This is a
for the metals and miners gave compelling potential 700% profit. Not bad for a quick trade where risk is balanced by an exceed-
evidence of ending. The Morgan Report trade we saw coming. Demonstrating the ingly high potential reward - in fact one of
Members were notified early and knew big longer-term potential for this profitable sil- the highest reward-to-risk profiles weve seen
things were in store for theresource sector. ver trader is the fact that it had a 2011 high of in over four decades of analysis. Will it work
On January 19, 2016 the Bears last gasp over $16.00 per share. Currently it has over out? At this point we cant say, but if you
failed, causing mining stocks, gold and silver $90m in the bank, and pays a dividend! Now approach it from a good knowledge base, a
to make a six month rocket launch, con- that its trading at around $2.00, it might successful outcome could make a significant
founding the public and most of the experts. make sense to stake out a position for the difference in your lifestyle. It might end up
Technician James Flanagan analyzing initial next upside run! TMR members have ongo- becoming the investment story youll be tell-
bull run legs going back decades, concluded: ing access to our thinking on upcoming high ing others about for years to come.
The 175% Advance in Gold Stocks in 5 reward- to-risk power plays just like this one. This patent-pending, environmentally-safe
Months, 22 Days Now Places Us As the 11th Your Second Chance: For almost two process shows great promise in its ability to
Greatest 1st Leg Up in Any Bull Market in Any years now, weve made resource company safely and reliably extract free-state gold without
of the Tangible Assets During the Past 150 Years. site visits and written about a story we call using mercury or cyanide, from very low to
A month before this historic run became a potential game-changer in our new book high grade ore. Simplified on site processing
obvious to the investing public, The Morgan Second Chance: How to Make and Keep Big promises dramatically lowered production cost.
Report stated to subscribers - Get ready
the bottom is in! We anticipate significant
upside for a couple of months or more; well
keep you posted with our premium video
service. As we are market-driven, an exit
point was established for all to offset with
partial profits during the summer peak.
We also sent out word in early February,
2016, via our exclusive POP-UP Alert
System, recommending a Canadian silver
producer with properties in China, which at
the time was trading for less than $US0.50
n BY DAVID MORGAN
A look at the future?

TMR thinks it could become a silver member of the US Federal Reserve Board Bob Moriarty, whose track record for call-
bullet in dealing with waste (eTrash) from of Governors, created a visually-powerful ing major turns in this sector stacks up with
discarded electronic equipment like moth- inverted triangle chart showing the vari- the best of them, recently said in an interview:
erboards, cell phones, and keyboards - safely ous financial asset classes, known as Exters In 29 years of measuring sentiment in
recycling gold, silver, platinum and palladi- Pyramid. His belief - as is mine - was that the gold, the sentiment is the lowest its ever
um from a potential host of eWaste sources. public will move down through these levels, been. This is exactly the kind of sentiment
This looks to be where the extremely high losing faith in each one until they reach real that marks bottoms, major bottoms...I con-
growth potential lies. To the best of our money - gold, and silver. Notice that the asset tinue to believe that this is the greatest buy-
knowledge, no one else in our industry is class just before reaching gold is paper money. ing opportunity in the history of the precious
covering this special situation. Once confidence - the only thing backing fiat metals mining sector - the last chance to hop
A parent company spinoff is scheduled paper currency - erodes, the final, convulsive aboard the train before it leaves the station.
to trade in the next few months. Current run to gold will massively accelerate. We cant guarantee this will turn out to
paid members to The Morgan Report know Investing is always about probabilities. If be the greatest opportunity, but what if
the name of this operation, probably have youre waiting for an all-clear signal before it is? Do you want to watch what happens?
a position in the original company, and will you jump into this or any other sector, youll be Or make things happen? We at TMR are
have access to ongoing information that can waiting until that market surge has come and already positioned, and have cash from our
help them decide if they want to buy spinoff gone. But if you believe, as we do, that were sell at the 2016 top. How about you? n
shares once trading commences. setting up right now for the continuation of the
David Morgan is a widely recognized analyst in
We feel the potential - especially for the new sector bull run that got underway in January, the precious metals industry. He consults for hedge
operation - is so great that we invite you to 2016, then let us help with your research so you funds, high net-worth investors, mining compa-
nies, depositories and individual investors. He is
come onboard. Even after the spinoff is trad- can start taking action. You dont have to back the publisher of The Morgan Report, author of the
ing, you could still have an excellent chance at up the truck and bite your nails. How about bookThe Silver Manifesto,and a featured speaker at
investment conferences in North America, Europe
a moon shot! As a new subscriber youll receive doing the math on the projects that appeal to
and Asia. As a public service, we provide a weekly
the full story, and what a story it is! you, and plan to buy tranches into weakness, Free E-letter,TheMorganReport.
The Bigger Picture: The late John Exter, while keeping a cash reserve?

PROFILED COMPANY
Neo lithium Corp.

tsx-v: NlC otC piNK: NttHf
Our team is confident that the 3Q Project has the potential to be a large high
grade discovery the brine found in an open reservoir has the right chemistry
for low cost evaporation process, contains potash as a valuable by-product and
lithium grades that are equal or superior to all other known development stage
projects and producing mines.
Waldo Perez, Ph.D., P. Geo.
President & CEO
for final lithium production. Hot springs on Neo Lithiums 3Q Project is the right
the property with elevated lithium content asset in the right location at the right time.
are part of the recharge system of the salar Neo Lithium holds the entire salar complex;
complex. The technical team that recently has discovered a new high grade and low
discovered this unique salar complex is one impurities lithium reservoir in the Lithium
of the most experienced in the modern era in Triangle, and is headed up by a quality
lithium salars, having discovered and led the team of seasoned experts in the lithium sec-
technical work, including resource definition tor. With its strong cash position and fully
and full feasibility study that established the financed through exploration to Lithium
Neo Lithium Corp. is quickly becoming Cauchari lithium salar as the third largest Carbonate PEA report, Neo Lithium is
one of the foremost new names in lithi- lithium brine resource in the world. poised for long term gains.
um brine exploration, rapidly advancing The atmosphere in Argentina is favour- Neo Lithium trades in Canada on the TSX
its newly discovered Tres Quebradas (3Q) able for a lithium boom with the recently Venture Exchange under the symbol NLC.
Lithium Project - a unique high-grade lithi- elected, pro-business President Mauricio www.neolithium.ca n
um brine reservoir and salar complex in the Macri implementing changes to promote
Lithium Triangle, located in the Province of economic growth in the country. Lithium The company paid consideration to SNN or its affiliates for this article.
Catamarca, the largest lithium producer in is emerging as one of the most prized com-
Argentina. modities on earth as prices have tripled since
The 3Q Project covers approximately 2003 and continue to remain strong with
35,000 ha and the salar complex within this lithium demand expected to double by 2020.
area is approximately 160 km2. A high grade This is encouraging data that coincides with
northern target was identified extending Goldman Sachs dubbing lithium as the new
over 14x3 km including a salar and a res- gasoline in a special research series entitled
ervoir. The northern target has high grade What if I told you which explores emerging
lithium with very low key impurities (mag- trends that will change our everyday lives.
nesium and sulphate) - a significant factor in Changes like the long-awaited electric car
traditional low cost evaporation techniques revolution.

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3-time CAF grant recipient
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C H A L L E N G E D AT H L E T E S . O R G 1
Stitch Marketing & Research, 2015
P R O F I L E D C O M PA N Y
otC piNK: Drus
Drone usa, inc.

At Drone USA, we love stuff that flies: piloted, unmanned, optionally piloted,
large and small, rotary, or fixed wing. Irrespective of our backgrounds, we all
share a passion for aeronautical technologies, and especially drones, said Drone USA
Inc. Chairman and CEO, Michael Bannon.
Early in 2016, Mr. Bannon became aware of
high growth market gaps relating to low-alti-
tude drone applications, within the defense,
public safety, and commercial sectors. These
gaps are either not serviced, or inadequately
serviced by system providers worldwide.
Undoubtedly, these market place shortcom-
ings constitute an opportunity for commerce
success, when the right strategy and tactical
attributes are assembled and put into action. ketplace is littered with drone system pro- ery timelines, critical mission protocols, and
Over the course of many years, Mr. Bannon viders that are struggling to survive. These providing impeccable customer support, all
has developed and managed successful busi- companies include innovative and capable equally important.
nesses and understands the importance of developers of drones and sensors, compa- Drone USAs products need to fit the needs
empirical knowledge, relationships, team nies that excel in their technical areas of of its customers mission and must operate
building, and structuring for operational expertise but lack the infrastructure and the flawlessly. For this to happen the Company
excellence. A Harvard graduate with a strong business development capabilities to be suc- supports research & development, supply
entrepreneurial vein, and he has a track cessful yet also provide potential acquisition chain management, configuration control,
record of getting things done effectively and candidates. and producing with repeatable quality and
profitably. To realize sustained revenue growth, reliability.
He set out with a goal to create a drone Drone USA cites that practical and reliable As the Company grows, it must operate a
company that met several objectives: products are needed at competitive prices, credible flight testing program, and possess
that meet compliant regulatory demands, the talent to recommend specific solutions
Operate in the low-altitude drone space, and are built under controlled processes. (aircraft, sensors, data collection and exploi-
in professional high-growth segments Management maintains an intimate knowl- tation packages) for specific operational
Structure to possess two distinct growth edge of various marketplaces and its end- needs. Last, but not least, the products and
vectors: organic growth through sales and users and has experienced understanding of services must be competitively priced.
growth by acquisitions budgetary expenditures and required deliv- Many contemporary leaders in the various
Possess competitive advantages over
other players in the market
Be a candidate for inclusion onto a major
stock exchange
Michael recognized that developing the

appropriate infrastructure, operating proto-
cols, and growth strategy are paramount for
success in todays drone markets. The mar-

drone markets are intimately familiar with lar needs. Additionally, Drone USA estab- high performance without compromising
industry procedures and are quite adept in lished strategic partnerships with producers reliability, maintainability, or price. This is a
excelling within their pertinent domains. DJI of some of the best higher-altitude UAVs in great competitive advantage achieved by the
and Parrot dominate the hobbyist consumer the world. Drone USA plans to offer several integration of the very best in engineering,
markets, AeroVironment Inc. and General services from turn-key flight operations to manufacturing, and operational assets inside
Atomics are the undisputable leaders in pro- approaches where the end-user becomes the Companys infrastructure.
fessional small unmanned aircraft systems progressively more operationally autono- The parallel vector of growth is the
(SUAS) and medium altitude long endur- mous, until full independence is attained. intended acquisition of solid and profitable
ance (MALE) systems respectively, and high- The Company is headquartered on the entities that will bring revenue and strategic
altitude-long-endurance (HALE) platforms 85th floor of the landmark One World Trade benefits into the Drone USA. As examples,
such as Northrops Global Hawk / Triton, Center and has development and produc- the addition of BrVants portfolio of technol-
and Auroras Orion rule the stratospheric tion capabilities near So Paulo, Brazil ogy brought a line of world-class products
realm. Above that, Boeing leads outer space through BrVant Technology Solutions, and into the Companys line-card, and the new-
with the X-37B system, also called Orbital is currently establishing a production and est acquisition (Howco Distributing Co. in
Test Vehicle. development facility in San Luis Obispo, Vancouver, Washington) has brought addi-
Michael Bannon has assembled some of California though a partnership with ES tional revenue into the Company.
this industrys best resources through excep- Aero Inc., a renowned engineering and pro- Drone USA will continue to actively iden-
tional talent hiring, acquisitions, and part- duction entity recognized internationally for tify, qualify and evaluate drone-related com-
nerships, and has established a complete its aeronautical achievements commissioned panies with superior technologies to acquire
operational infrastructure that positions over the years by various global leaders in which will add products into existing sales
Drone USA to become one of the two largest manned and unmanned flight technologies. channels through the Companys proven
players in the professional SUAS space. Most systems offered by Drone USA fit network of sales representatives in the US
The team of seasoned employees and within the new FAA set of flight regulations and worldwide.
collaborators comes from the industrys for the US, therefore enabling the Company Mr. Bannon added, Drone USA (OTC
most successful companies. Drone USAs to reach out to the market and compete for Pink: DRUS) is perfectly positioned to pro-
approach is innovative, with products that sales domestically. vide continued Company growth for our
are technically and operationally advanced, One of Drone USAs principal differentia- shareholders and industry wide recognition
maintaining costs that are lowest in our class. tors is the ability to customize solutions for for our products and services in the future. n
Drone USA acquired exclusive access to specific needs. The company is not verti-
a portfolio of proven and very capable low- cally integrated, which allows it to choose The company paid consideration to SNN or its affiliates for this article.
altitude drones originally developed and sold from the very best sensor packages and data
to several distinct customers with dissimi- exploitation systems available, achieving

F E AT U R E A RT I C L E
Five Keys to Attracting Chinese

Financing
A s China steps up as a major deal player, companies and advisors
need to be able to view the world through Chinese eyes
In just the past few years China has gone provide them with a technology edge and and moving beyond the familiar cast of
from the worlds largest destination for capi- new Chinese venture and private equity characters and deal structures.
tal investment, to a net exporter of capital. funds seeking access to U.S. venture invest- Here are a few keys to making China
This flood of outbound investment is a game ments and even public company buy-outs. investment deals work:
changer for the global economy, and needs The forces that are driving this global
to factor into the strategy of every company shopping splurge are likely to accelerate, Evaluate Policy Alignment Unlike in
that is seeking access capital or maximize rather than slacken. As Chinas economy America, where companies largely chart
value for its assets. slows and its labor markets tighten, the their own M&A strategies, the Chinese
In the first nine months of 2016, China Chinese government has mandated that government provides explicit guidance as
displaced the United States as the num- its companies move up the value chain. to where overseas investment should be
ber one player in cross-border M&A, with Acquiring advanced technology and recog- focused. This takes the form of direct con-
$174 billion of deals, up 68% according nized brands is often faster and surer path trol for state-owned companies and faster
to Dealogic. Just a few years ago, Chinese than developing them internally. regulatory approvals and access to capital for
deals were few and driven primarily by State Downward pressure on Chinas currency private sector. The Made in China 2025
Owned Enterprises (SOEs) acquiring energy has increased the attractiveness of dollar- plan that was released by the State Council in
and raw materials assets to feed heavy indus- denominated assets and cash flow, while the 2015 provides a clear roadmap of where the
try. But recently, sectors like manufacturing, government has made it significantly easier government would like to see capital flowing.
technology, consumer goods, and healthcare for companies to get deals approved and Industry was mandated to become innova-
have all emerged as areas of focus. The U.S. deploy capital overseas. Loosening monetary tion driven, strengthen intellectual property,
was the number one destination for Chinese policy and accommodative lending are fuel- reduce environmental impact, build brands
outbound M&A, accounting for nearly 30% ing the deal binge, given that most sectors of and upgrade its human capital. The plan
of deals announced thus far in 2016, accord- the domestic economy are already overcapaci- also lays out specific sectors that have a
ing to Thomson-Reuters. ty and overleveraged. Companies and wealthy high priority, including advanced informa-
In addition, China is emerging as an business owners are hungry to diversify. tion technology, robotics, electric vehicles,
important source of venture funding, with And while heated campaign rhetoric has advanced materials, biotech and advanced
Chinese internet giants Tencent and Alibaba caused some concerns about a potential U.S.- medical products. Hardly surprising then,
opening offices in Silicon Valley to invest China trade war, this could actually increase that there has been a surge in Chinese invest-
directly in companies that may be able to the interest of Chinas industrial companies to ment in the IT and robotics industries since
own manufacturing assets inside the American the guidelines were promulgated. There is
market as a hedge against future tariffs. evidence that the $1.3 billion acquisition of
For all of these reasons, the management Lattice Semiconductors by a newly-formed
and boards of companies from early stage private equity fund, Canyon Bridge Capital
technology companies to mature industries Partners, operating out of Silicon Valley was
need to consider how Chinas emergence funded by the State Council. Companies that
onto the global stage will factor into their have unique technologies in targeted sec-
own plans to grow and create value for share- tors are likely to find an eager audience with
holders. Taking advantage of this opportu- Chinese buyers and investors.
n BY DREW BERNSTEIN, CPA
nity requires some adjustment in thinking Look Beyond the Usual Suspects One

of the greatest challenges for a U.S. company peers or if it aligns with government man- Ubers China business, and the Chinese gov-
is to understand who the Chinese players are dates. By failing to see a transaction through ernment then legalized ride sharing services a
that may be a fit to invest in or acquire their Chinese eyes or entertain Chinese bids, sell- week after the deal was announced. Expect to
company and how to engage the decision ers may be leaving money on the table. see a wide variety of creative deal structures
makers. Further complicating this is that Prepare to Be Patient In the past, that include Chinese outbound investment
over the past few years, the M&A landscape Chinese companies had a reputation of with the injection of overseas technology and
has exploded well beyond large SOEs to being unprepared to move quickly enough to business models so as to be able to capture
include a wide range of non-state companies, participate in global M&A deals. In addition, part of the value of a Chinese market that
Chinese private equity and venture funds, the financing for these deals was often highly would otherwise be out of reach in many fast-
trust companies, and others. For example, complex and non-transparent, creating anxi- growing sectors of the economy.
more than 50% of outbound technology ety as to whether the deal was capable of
investment used to be dominated by just closing. This is changing as Chinese man- tHe HumaN faCtor
three players Baidu, Alibaba, and TenCent agement teams become more comfortable
known as BAT. But this year nearly 75% of and proficient at completing overseas deals. All these issues are important for companies
deals have been by non-BAT companies, as But management and advisors still need to that want to position themselves to attract
the number and size of outbound technology be prepared for more intensive education the flood of capital investment that will be
investment has surged. In the third quarter of Chinese counterparts, while needing to coming out of China as China Inc. seeks to
of 2016 alone, there have been 30 deals val- evaluate funding sources that can include recalibrate its economic model.
ued at over $1 billion, including the acquisi- government investment vehicles, unknown But the key as to whether these deals are
tion of Finnish game developer Supercell for private equity funds, and trust structures. ultimately successful will largely depend on
$8.6 billion by Tencent, a $4.4 billion deal for The use of escrow funding and increased how both sides are able to align incentives
Israeli online casino game developer Playtika availability of target level financing from and meld their business culture. While M&A
by Shanghai Giant Network Technology and foreign banks can help mitigate the funding may provide a short cut to obtaining tech-
Jack Ma, and Ingram Micros $6.3 billion risk. And the use of meaningful break up nology and expertise, capitalizing on these
acquisition by HNA Group. Companies need fees is becoming more accepted for deals strengths will require careful integration.
to make sure that their advisors have a strong that are likely to be subject to regulatory Chinese management is generally less famil-
understanding of the universe of potential review by CIFUS (Committee on Foreign iar with the norms of operating a business
buyers in China to bring the right suitors to Investment in the United States) in the U.S. and retaining key talent overseas. A success-
the table, and also be able to provide dili- or Chinese regulatory approval. ful deal requires that both sides invest the
gence on potential investors industry posi- Package Investment with Sinofication time leading up to and during a transaction
tion and sources of funding. Strategy The most powerful deals may be to see if there can be a cultural fit and devel-
Understand Chinese Valuation Metrics those that package a strategic investment in op a post-closing operating framework and
Chinese acquirers may be looking at valu- a U.S. company with a viable plan to scale technology roadmap that can keep all parties
ations in a very different way than U.S. the American technology or business model onboard and committed to shared goals.
strategic or financial investors, which can in the Chinese market. Foreign companies Attracting investment from Chinese
be advantageous to informed sellers. Rather are learning the hard way that it is increas- sources may bring with it additional com-
than looking only at publicly traded peers ingly difficult to overcome the home court plexities and a steep learning curve. But the
in U.S., it pays to look at the valuations of advantage that China provides to domestic pay off, whether in the form of enhanced
Chinese public companies in the sector, players through the ability to shape regula- value for an asset or access to capital com-
which may have vastly different multiples or tions, offer economic incentives, and drive bined with entry into one of the worlds
be valued on different metrics (revenue as public opinion. As a result, foreign companies largest markets, will more than reward those
opposed to earnings or EBITDA, for exam- are increasingly adopting various approaches who invest the energy to make it work. n
ple.) Chinese companies that have complet- of Sinofication of their business model, such
Drew Bernstein is a Managing Partner of Marcum,
ed high profile overseas acquisitions have as the recent merger of all of Ubers China
Bernstein & Pinchuk (MBP), which is one of the lead-
often seen outsized leaps in their share price operations into domestic competitor Didi in ing auditors of Chinese companies listed in the U.S.
in China. In general, Chinese management exchange for a minority 20% investment stake and provides due diligence services, human capital
consulting, internal controls, and global tax advisory
can afford to take a longer term view on an in the China business and a $1 billion invest- to both multi-national companies with operations in
investment if they believe it is important to ment by Didi into Ubers global business. China and Chinese companies expanding overseas.
create a strategic advantage with domestic This stanched a reported $2 billion loss from
www.marcumbp.com www.marcumllp.com

Chinese Dj Vu
China Based Companies Look Again to U.S. Capital Markets
C hina based companies created a bit of a frenzy in the U.S. capital

markets during the period from 2005 through 2011.
According to Law360, by late 2011 over 150 though the U.S. capital markets seem closed
Chinese companies had gone public in the to China based companies, it seems that these
U.S. through reverse merger transactions companies have continued to go public in the
with public shell companies. U.S. hedge U.S., however, they are now doing so through
funds, family offices and other investors the front door in the form of a traditional IPO
were clamoring to buy securities of these instead of the back door through a reverse
companies in private placement, or PIPE, merger with a public shell company. In 2014
transactions that closed simultaneously with and 2015, more than 20 China based com-
the closing of the reverse merger. Many of panies listed in the U.S. through IPOs and
these hedge funds and family offices enjoyed they raised a total of approximately $29.5
significant returns on their investments while billion. This year there have been six Chinese
others who came to the party later did not do companies that either completed or are in the
so well. In 2010 short sellers began putting process of completing IPOs in the U.S., rais-
out short reports on some of the China ing a total of approximately $2 billion. Unlike
based public companies. These short sellers during the reverse merger heyday, where most
would first sell the companys stock short companies were in the manufacturing sector,
and then issue an investigative report that these companies are mainly operating in the
identified various irregularities from fraud e-commerce, TMT (technology, media, and
to undisclosed related party transactions. As telecom) and logistics industries.
the stock of many China based companies Chinese technology companies in particu-
began to tank the short sellers would reap lar are interested in listing in the U.S. as the
significant rewards. As a result of these short U.S. markets represent not only a securities
reports, announced audit committee investi- market but a potentially significant com-
gations and SEC enforcement actions involv- mercial market. More and more Chinese
ing China based public companies, investors intellectual property is being exported to the
lost interest and many of the companies that U.S. Of note is the fact that the Shenzhen
remained listed on an exchange in the U.S. market only recently opened up to Hong
or quoted on the over-the-counter market Kong investors (and by extension U.S. inves-
began to go private or go dark. tors with accounts at Hong Kong investment
From 2011 until today it remains very dif- banks) on December 5, 2016. Hong Kong
ficult for China based public companies to investors are now able to trade the securi-
raise capital in the U.S. from U.S. investors. ties listed on the tech heavy Shenzhen Stock
Only the biggest China based companies Exchange through an equity trading link
like Alibaba ($25 billion) or ZTO Express between the mainland and Hong Kong. It
n BY LOUIS A. BEVILACQUA, Esq. ($1.4 billion) are able to raise any significant will be interesting to watch the level of
AND KEVIN (QIXIANG) SUN, Esq. amount of capital from U.S. investors. Even demand for Shenzhen traded securities and

see if that demand correlates with demand sHoulD u.s. iNvestors re- ing, it required the Chinese company to
for China based companies listing in the U.S. CoNsiDer maKiNg iNvest- keep $500,000 in an escrow account for 24
meNts iN CHiNese Compa- months as an indemnification fund to be
wHo is iNvestiNg iN tHese Nies? used if shareholder or other litigation arises
ipos? as a result of the offering and the issuer does
In the reverse merger days, Chinese com- not honor the indemnification clause in the
For the most part, it appears that the Chinese panies were able to go public without the underwriting agreement. According to Doug
companies are bringing the investors with scrutiny of an underwriter or a national Aguililla, Director of Investment Banking at
them from China. Most of the investors in securities exchange and the SEC review only ViewTrade, We believe that this mechanism
these IPOs, in particular the smaller IPOs, are occurred after the company closed its reverse serves to increase market integrity and inves-
Chinese funds, banks and individuals. Even merger and PIPE financing in connection tor confidence. These structural mecha-
though the money is coming from China, with the review of the companys super 8-K nisms are another reason for investors to
these Chinese companies prefer listing in the or resale registration statement. Given that reconsider making investments in Chinese
U.S. because of the prestige associated with a the new generation of Chinese companies public companies.
U.S. listing and the ability to raise capital in are subjecting themselves to added under- The jury is out on whether investors
the U.S. markets is secondary. Another rea- writer, SEC and exchange vetting prior to should reconsider investments in Chinese
son that these companies are listing in the U.S. the sale of securities, perhaps U.S. investors companies. A wait and see approach may be
is that the timeline associated with a U.S. list- should take another look. Another helpful most prudent. However, given the potential
ing is significantly shorter than that for listing factor is that most of the money is coming for significant returns, U.S. investor may
on the Shanghai or Shenzhen stock exchanges from China and the Chinese investors are want to begin testing the waters with this
or even listing in Hong Kong and the costs better able to do their own due diligence on new breed of Chinese issuer. n
associated with a U.S. listing are similarly less Chinese companies than U.S. investors and
Mr. Bevilacqua is the founding member of
than a local listing. The approval-based IPO in a significantly better position to enforce
Bevilacqua PLLC (www.bevilacquapllc.com), a bou-
system in China has built up a queue of more remedies. Given the common language and tique transactional corporate and securities law firm.
than 800 companies that are currently wait- location, these Chinese investors may be able Mr. Bevilacqua counsels companies of every size
ranging from entrepreneurs with just an idea to
ing for approvals, which could take years for to identify red flags that U.S. investors cannot established companies whose securities trade on
the China Securities Regulatory Commission and if a problem does arise, these Chinese the NYSE or NASDAQ. He has broad experience
representing issuers in public offerings and private
to review. In contrast, it takes about four investors can take swift action in Chinese
placements of securities (including private place-
months to list in Hong Kong where as a U.S. courts and do not need to rely only on U.S. ments under Rule 506(c) of the Securities Act,
listing can be done in as little as three months. courts. According to Eddie Wong a partner crowdfunding offerings under Title III of the JOBS
Act, and Regulation A+ offerings), Exchange Act
In addition, it is generally believed that there of top 40 accounting firm Friedman LLP compliance, angel and venture capital financings,
is no significant difference in terms of asso- and a leader of Friedmans China practice, other areas of equity and debt financing and mergers
and acquisitions.
ciated fees for Chinese companies to list in As the Chinese public companies become
Kevin (Qixiang) Sun () is a Senior Counsel
China, Hong Kong or U.S. So, it seems that more mature and sophisticated, unlike those of Bevilacqua PLLC. Mr. Sun has more than 10
even though the U.S. capital markets may be that went public in the reverse merger days, years experience representing public and private
companies in a variety of aspects of corporate and
closed for Chinese companies at the present they are becoming higher quality issuers. securities law, with a particular focus on public
time, cost, efficiency and prestige make it They are aware of their obligations to the and private equity finance, securities compliance
and mergers and acquisitions. In particular, as a
worthwhile to list in the U.S. For instance, U.S. regulators, investors and auditors, and
native mandarin speaker, Mr. Sun has advised more
according to the chief financial officer of are more concerned with transparency than than 20 China-based companies in connection with
Yintech Investment Holdings Limited, a large ever before. their underwritten offerings, private placements and
reverse merger transactions. He also counsels public
Chinese commodities brokerage that raised In addition to the upfront vetting that companies with respect to periodic reporting obliga-
$101 million through an IPO in U.S. in April Chinese companies are subject to in an IPO tions, corporate governance issues and going private
transactions. In addition, Mr. Sun has extensive
2016, the company chose listing in the U.S. as compared to a reverse merger, underwrit-
experience in assisting multiple Over-The-Counter
because of Chinas huge backlog of IPO appli- ers like ViewTrade Securities, which has companies in connection with their NASDAQ/NYSE
cations. The purpose of the IPO is to further underwritten several Chinese IPOs and has listing applications and their continued listing com-
pliance.
enhance our corporate brand and credibility.1 significant connections throughout Asia, are
using structural mechanisms to help pro-
tect investors. For example, in ViewTrades
1 http://www.wsj.com/articles/chinese-
commodities-brokerage-yintech-debuts-on- recent China Customer Service IPO offer-
nasdaq-1461767404

Is a Public Company
Eligible to Do a Reg A+
Offering?
S o-called Regulation A+ has generated a lot of interest, and well over
100 companies have filed with the SEC to raise capital via Reg A+.
In my previous article in MicroCap Review, Yes, privately-owned companies and non-
I stated that Reg A+ is an excellent way reporting public companies (which usu-
for a company to raise up to $50,000,000, ally trade on OTC Markets Pink Sheets as
especially if it sells its products to individual non-reporting issuers), are eligible to raise
consumers. up to $50,000,000 in a Tier 2 Regulation
The SECs commentary to the Regulation A+ offering, if they have audited financial
A amendments states that their mandate statements). Or, these non-reporting but
is to review these amendments after two publicly traded companies can raise up to
years. The rule changes were promulgated $20,000,000 in a tier 1 Reg A+ offering, with-
on March 25, 2015the two year peri- out having audited financials.
od is approaching an end, so its a good However, although US and Canadian
time to review and reflect on certain of the companies have always been eligible to use
Regulation A amendments that were made, Regulation A+, since the inception of Reg
and some that I believe should have been A, most SEC-reporting issuers, explained
made. below, have been ineligible to use Regulation
A question often asked about Reg A+ A. Why? Probably because when the
eligibility is, Is a company that is already Regulation was announced, it was thought
public eligible to raise capital through a that a $300,000 maximum would differenti-
Regulation A+ offering? And the answer, ate it from registered public offerings using
which is a common reply to many questions Form S-1, which hadand still hasno
about SEC laws and regulations, is Yes, and ceiling.
no. Probably the most artificial eligibil-
The SECs commentary to the Regulation A

amendments states that their mandate is to review
these amendments after two years.
n BY JOHN LOWY, Esq.

ity distinctionwhich has survived since
Regulation A was first promulgated, is that The similarities between 12g and 15d reporting
1934 Act Section 12g reporting issuers are
ineligible, but companies which become issuers are, in my opinion, the most important for
voluntary SEC filers one year after their
1933 Act S-1 registration statement becomes
investors: the requirement to file an Annual Report
effective are eligible. on Form 10-K with audited financials, quarterly
Section 15d of the 1934 Act states that an
issuers duty to file reports under Section 13 reports on Form 10-Q (which are reviewed by the
of that Act (Forms 10-K and 10-Q, etc.) is
automatically suspended one year after its auditor), and Reports on Form 8-K when either
S-1 registration statement is declared effec-
required by that Form or appropriate in the issuers
tive, if the issuer has less than 400 sharehold-
ers. Many, if not most, such issuers have less discretion.
than 400 shareholders after one year; thus,
they are no longer subject to the reporting
requirements of Section 13 or 15d; there-
fore, if this voluntary filer continues to file SEC-reporting issuers are eligible to use Reg John Lowy is the founder (in 1993) and CEO of
Olympic Capital Group, Inc. (www.ocgfinance.com),
their 10-K and 10-Qs each year (and 8-Ks A+ (although the subsidiary cannot con-
and is the principal of his law firm John B. Lowy
when appropriate), it is eligible to raise up to solidate the parents assets or business), while PC, both based in New York City. John is a highly-
$50,000,000 in a Reg A+ offering. the parent remains ineligible. respected and acknowledged expert in reverse merg-
ers, capital formation, financial consulting and initial
However, an issuer which either has more So, given that the hallmark of all SEC public listings of all types. He recently founded and
than 400 shareholders one year after its S-1 laws and regulations has always been is the CEO of Platform A+, Inc. (www.platformaplus.
com), which provides a turnkey service to companies
offering, or which files a Form 8-A and DISCLOSURE, I believe that Regulation
that want to raise capital via Regulation A+.
becomes a Section 12g reporting issuer, i.e., A+ should be amended as soon as pos- As an attorney, an advisor and principal, John has
no longer a voluntary filer, is no longer eligi- sible to permit all reporting issuers to use led or participated in more than 200 such transac-
tions, creating market value in excess of $5 billion.
ble to use Regulation A+. Or, if a 12g issuer this Regulation--whether section 12g or 15d He has been instrumental in leading the process by
transfers its assets and business to a newly- issuers, whether voluntary or required to which these companies have raised capital or reverse
merged, and achieved listings on the NASDAQ or the
formed subsidiary, making the 12g parent a report.
AMEX, or were sold to larger companies.
holding company, the subsidiary would be Indeed, OTC Markets filed a petition with In addition to the U.S., John has completed trans-
eligible for Reg A+ but not the parent. the SEC on June 6, 2016 (Petition no. 4-699), actions for clients based in at least 15 foreign coun-
tries. The sectors in which his clients are engaged
The similarities between 12g and 15d to amend Regulation A to allow all reporting range from low tech to high tech, real estate, phar-
reporting issuers are, in my opinion, the issuers to use Reg A+, and I submitted a let- maceuticals, medical devices, biotech, oil and gas,
mining, renewable energy, entertainment, food, agri-
most important for investors: the require- ter in support of that petition.
culture, education and retail, among others.
ment to file an Annual Report on Form 10-K So, my recommendation is that the SEC He received his B.A. from Tufts University and
with audited financials, quarterly reports on add all US and Canadian reporting issuers- graduated from the University of Pennsylvania Law
School. He is a frequent contributor to MicroCap
Form 10-Q (which are reviewed by the audi- -15d and 12g--to the list of companies which Review.
tor), and Reports on Form 8-K when either are eligible to use Regulation A+ (provided
required by that Form or appropriate in the that they are current in their filings and in
issuers discretion. compliance with the other requirements). n
The additional disclosures required by
12g reporting issuers--such as 5% holders
vs. 10% holders, short-swing profits rules,
proxy filings, Williams Act Schedule 13D
rulesare also important for investors, but
in my opinion are not as significant as the
basic reporting requirements for both 12g
and 15d issuers.
Another anomaly is that subsidiaries of

Regulation ASo Far

W
hile the JOBS Act was passed place securities with institutional or inves- companies). Some companies have extensive
in 2012, the amendments to tors or high net worth individuals, all offline. email lists and some companies (such as
Regulation A that the JOBS Just passing through: Regulation A as sport-related enterprises) have both a fan base
Act mandated didnt go into effect until June a stepping stone to full registration and celebrity influencers who can promote
2015. So this market is roughly 18 months Some of these companies doing more tra- their offering. Companies without their own
old and weve seen just over 150 public fil- ditional offerings are just passing through the crowd need to build their own buzz. This
ings (since companies can file confidentially, Reg A universe. These are bigger companies can be done through old-fashioned securities
there may be a few more in the works). using the regulation as a waystation to full reg- brokers smiling and dialling or by specialist
Regulation A offerings are exempt public istration with the SEC and listing on a national publicity outfits who are able to exploit social
offerings. This means there are no restric- stock exchange. They do it this way because media (which makes more sense when a com-
tions on who can invest, and that investors the regulatory burden of doing a Reg A filing pany is willing to accept small minimum dol-
can be publicly solicited. They dont have to is lighter and companies get fewer comments lar investments). The emergence of specialist
be registered with the SEC they way IPOs upon review by the SEC staff than they would if PR shops who coordinate securities offerings
are. Disclosure for these offerings, though, they filed a traditional Form S-1. Additionally, as if they were a launch of a new beverage is
does have to be reviewed by the SEC (for they are able to use a broader range of mar- one of the most striking aspects of the new
Tier 2 offerings) or by both the SEC and keting materials than they would if they were Regulation A market.
the states where the offering is made (Tier doing an old-school style IPO. These compa-
1 offerings). Tier 2 offerings can be up to nies are not going to be staying in the Reg A tHe Data suCK
$50 million and Tier 1 up to $20 million. market. They arent crowdfunding.
Having worked on 16 Reg A filings to date, People ask how much money has been
and having observed the market since incep- seCurities are solD aND raised so far under Regulation A? and its
tion, Ive noticed some consistent themes in Not bougHt surprisingly difficult to answer that question.
this very small, very young market. Reg A permits offerings to be made over a
You cant just post a Reg A offering on an invest- relatively long period, so many of the com-
two types of regulatioN a ment platform and assume that people will panies that have filed under Reg A so far are
offeriNg flock to buy your shares. Retail investors arent still raising funds. When a Tier 1 company
constantly on the lookout for the next sexy deal has finished raising funds, it files a Form
Theres been a lot of discussion of using Reg (at least not yet). You need to drive potential 1-Z to say how much its raised and to end
A for crowdfunding raising relatively small investors to look at your deal and then you need any ongoing disclosure requirements. There
amounts of money from large numbers of to convince them to buy your securities. have only been a handful of these filings.
small retail investors online but Reg A Companies using Tier 2 should be disclosing
can also be used for traditional deals where you Have to Have (or buy the amounts raised in their annual Form 1-K
placement agents who are registered brokers or builD) your owN CrowD and their semi-annual Form 1-SA, but there
is no common presentation for such infor-
For companies seeking a retail investor base, mation, and not all the companies that have
whether they call this process crowdfunding filed have made these ongoing filings yet.
or not, success is going to depend on having a
crowd of potential investors. These may come platforms, broKers aND
from the companys own users and customers goiNg iNDie
(VR hardware and gaming companies, for
example), potential customers, affinity groups Regulation A offerings dont have to use inter-
(national diasporas, for example, or associa- mediaries, although the state dealer registra-
tions relating to particular medical conditions tion rules in states such as Texas and Florida
n BY SARA HANKS, Esq.
who might be interested in specific health make it difficult to sell in those states without a

decision and avoid fraud and help intermediaries as Chief of the Office of International Corporate
brokers involvement. Reg A filings do not yet avoid liability. Finance led the team drafting regulations that put
Saras prior position was General Counsel of the into place a new generation of rules governing the
show a common pattern with respect to inter- bipartisan Congressional Oversight Panel, the over- capital-raising process.
mediary involvement. Some companies make seer of the Troubled Asset Relief Program (TARP). Sara received her law degree from Oxford
Prior to that, Sara spent many years as a partner of University and is a member of the New York and
their offerings through traditional brokers,
Clifford Chance, one of the worlds largest law firms. DC bars and a Solicitor of the Supreme Court of
some through online investment platforms While at Clifford Chance, she advised on capital England and Wales. She serves as co-Chair of the
run by brokers, some through non-broker markets transactions and corporate matters for com- SECs Advisory Council on Small and Emerging
panies throughout the world. Sara began her career Companies. She holds a Series 65 securities license
online platforms. A growing number of Reg with the London law firm Norton Rose. She later as a registered investment advisor. Sara is an aunt,
A offerings go indie they create their own joined the Securities and Exchange Commission and Army wife, skier, cyclist, gardener and animal lover.
online website to attract investments.
Do reservatioNs meaN
aNytHiNg?
Regulation A permits companies to test the

waters and collect indications of interest before
they file anything with the SEC. Many com-
panies advertise the dollar amount of interest
they have attracted and some sites refer to these
indications of interest as reservations. The
relationship between indications of interest and
investments received is not yet clear. For some
companies, less than 10% of the interest indi-
CELEBRATING 46 YEARS OF
cated converts into investments.
wHat NeeDs to HappeN for

tHis to be a suCCess
EXCEPTIONAL SERVICE
Its difficult to assess the success of Reg A
so far. For some companies, its clearly been
a great success and theyve raised several
million dollars. Others have failed to get any
RESOURCES EXPERIENCE RESULTS
traction and have withdrawn their offerings.
Clearly, more investor interest is going to
be crucial. This in turn depends on educa-
tion how many retail investors even know
this market exists? Some argue that the
market will not thrive unless a secondary
market develops to provide liquidity, but
Reg A retail investors may well prove to be
buy-and-hold investors less concerned with
short-term liquidity. It will probably be a
couple of years before we know what works
in the Reg A market. n
CONTACT: MICHAEL PORTER - (212) 564-4700
[email protected]
Sara Hanks, co-founder and CEO of CrowdCheck, is
an attorney with over 30 years of experience in the
corporate and securities field. CrowdCheck provides
due diligence, disclosure and compliance services for
SEVEN PENN PLAZA, SUITE 810
online capital formation. Its services help entrepre- NEW YORK, NY 10001 USA
neurs and project sponsors through the disclosure
and due diligence process, give investors the infor-
mation they need to make an informed investment

Investing Alongside
Private Equity
Tips and Pitfalls
P rivate equity (PE) investment in mining has grabbed headlines over
the last several years and has become a significant market participant
and alternative source of funding to the capital-hungry metals industry.
While mining-specialist PE funds in some ket was reached in 2011 and the impact of
form or another have been involved in the PE funds in the space is still as confusing as
sector since the late 1990s, the business ever. But unlike other more mature sectors,
seemed to blossom around 2012 as approxi- mining PE is extremely active, paradoxically,
mately $10 billion was raised over the fol- in the public equity markets, in part due to
lowing few years to take advantage of the the culture and risk structure of the sector,
downturn. Its been more than five years so for the smaller investor, being able to
since the last peak of the junior mining mar- swim alongside these behemoths is becom-
n BY DAVID STEIN, MSc. CFA TMAC Resources major PE backer increased its position on the IPO a great signal
and the listing has been a big success, tripling in price since trading began in 2015.

ing a basic survival skill for navigating the
stock markets.
PE and traditional micro-cap mining
finance have learned to live alongside one
another and for the executives managing
these companies there is a huge benefit from
the increased flexibility and audience for
financing alternatives. The average inves-
tor needs to be aware that, similar to doing
a joint venture with a multi-billion-dollar
major company, the PE is first and foremost
out for itself (and its partners) and you as
the private micro-cap investor are at best,
an afterthought.
Note: The following is meant to be over-
lain on your own fundamental analysis of an Buffalo Coal has lost 94% of its value since agreeing to a convertible loan with one
of its PE shareholders in 2013. With the company unable to repay the loan, the terms
investment opportunity, not as stand-alone
were repriced downward several times, while interest payments converted to stock at
advice. Not all PE investors are the same. lower and lower prices.
Some are investing their own money and
may have an unlimited timeframe, while
others may be investing for a partnership ability, but multiple PE investors should ing on debt onto an existing equity position.
with stringent limitations. Some only invest keep each other honest. If the company This can (and probably will) be used in the
in equity and use board influence to monitor does require alternative financing in the future to average down, taking a larger posi-
their holdings, while others have flexibility future, having multiple PE investors at the tion with more dilution to you, the common
to do any type of financing imaginable. Use table should help tilt the risk-reward to the shareholder. Secured debt can protect the
the internet and network with other inves- common shareholders, even if the Company PE firms downside but you get no such
tors to find about more about the strengths borrows money, etc. protection. This situation can be a black
and weaknesses of your potential PE co- 3) Converting other securities into equity hole for average investors as the company
investors. This move may happen right at a market can be forced effectively into a below-market
bottom, or for other reasons, but when a acquisition, especially during a period of low
buy situatioNs PE firm is increasing its share position, commodity prices.
while strengthening the balance sheet of the 2) Take-private acquisition Although
1) IPO of company funded by PE, provid- Company that is a good thing for you, the pretty much every mining PE fund should
ed PE investor is not selling out Companies smaller shareholder. Conversions could be have the ability to do this, this tool is seldom
that are funded privately by PE likely have from debt, or even royalties/streams (which used. It takes a lot of intestinal fortitude to
good management and governance practices are another type of liability to the mine buy a company at a market premium, and
in place, and may avoid teething issues that owner i.e. you). If a PE investor owns mul- perhaps more so in the mining sector. But if
can be typical of new public companies. tiple asset classes within the same company, you are fortunate enough for this to happen
As a smaller shareholder your interests are you want to see that their biggest weighting enjoy the premium and move on. n
aligned with the PE investor at this stage. and potential for appreciation will come
David Stein, MSc. CFA has co-invested with many
The fact that bankers and other institutional from common shares not from the return
other private equity funds over the past seven years
investors are buying into the IPO is also a on debt or other instruments. as a metals and mining focused investment manager.
good sign. David now leads Toronto-based Aerecura Capital,
which manages and executes niche strategies in the
2) Two or more PE shareholders An sell situatioNs natural resources sector and is a consultant to, and
even better situation is to have two or more director of Aberdeen International (AAB-TSX), a
publicly traded mining investment company. David
PE shareholders, with more or less equal 1) Adding debt to an existing equity posi-
was recently a recipient of the 2016 Bedford-CIM
positions. This provides you, as a smaller tion - Remembering that a PE firm likely has Young Mining Leaders award. David can be reached
investor, the benefit of a larger PE firms a longer time horizon and deeper pockets at [email protected]
access to due diligence and funding avail- than you, be very wary when they are layer-

COMMODITIES CORNER
Commodities in Review
S ummary: Utilizing a European volatility index for Pan-European volatility
(The full paper can be found at the Eurex Table 2: Correlation matrix of daily spot returns of VSTOXX, EURO STOXX 50
Exchange)1 Index, CAC 40 index, FTSE 100 index, DAX index and STOXX Europe 600 index
from 2 Jan 2007 to 30 Sept 2016 (in EUR).
In past articles, Ive discussed the negative
EURO STOXX
correlation between the VSTOXX Volatility
VSTOXX STOXX 50 CAC 40 FTSE 100 DAX Europe
index and the EURO STOXX 50 Index and Index 600
VSTOXX 1.00 -0.77 -0.76 -0.67 -0.74 -0.76
how the volatility index tends to rally when
EURO STOXX 50 Index 1.00 0.98 0.85 0.95 0.96
equities decline (downside volatility). CAC 40 1.00 0.87 0.93 0.97
The recent passing of the Brexit vote on 23 FTSE 100 1.00 0.82 0.94
DAX 1.00 0.93
June 2016 introduced immediate uncertainty STOXX Europe 600 1.00
and downside volatility to the global capital Source: Bloomberg data
markets. The results of several upcoming

European elections could introduce more strates the relatively high positive correlation value to multiple European equity indexes if
uncertainty and volatility into the capital among various European spot equity indexes the indexes tend to be positively correlated.
markets. According to Bloomberg News,2 40 and a relatively high negative correlation the No one has a crystal ball to identify when
percent of the EU economy will be voting equity indexes tend to experience relative equity markets will decline. The so-called
in 2017. to VSTOXX spot. An initial observation rare Black Swan events have occurred sev-
Does this discussion begin to identify a indicates the volatility index may offer added eral times over the last decade. Beginning
larger macro story of positive correlation
Chart 3: Spot prices of EURO STOXX 50 Index, DAX index, CAC 40 index, STOXX
behaviour of several European equity index-
Europe 600 index FTSE 100 index and VSTOXX from Jan 2007 to Sept 2016.
es? If so, could investors find potential utility
in the VSTOXX Futures volatility index? 14,000
European Indices Price Movement
450
When examining the correlation of sever- Chinese Financial Turmoil
al European equity indexes, Table 2 demon- 12,000

400
2008 Financial Crisis Greek Debt Crisis European debt crisis Brexit
350
10,000
Price of European Equity Indices (in EUR)
300
Price of VSTOXX
8,000
250
200
6,000
150
4,000
100
2,000
50
0 0
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Apr-07
Oct-07
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
EURO STOXX 50 CAC 40 FTSE 100 Dax Index VSTOXX STOXX Europe 600
n BY MARK SHORE
Source: Bloomberg data

Table 3: Returns of spot European equity indexes and VSTOXX spot index during
each of the volatile periods when the EURO STOXX 50 Index declined from peak to several European equity indexes besides the
trough.
underlying EURO STOXX 50 Index.
Financial Greek Debt European Chinese Financial In summary, when examining the correla-
Crisis Crisis Debt Crisis Turmoil Brexit
EURO STOXX 50 Index -60% -18% -35% -21% -14% tions either as a static metric or as a rolling
STOXX Europe 600 -60% -10% -25% -18% -12% metric, the correlations of the European
CAC -59% -18% -31% -17% -13% equity indexes tend to maintain a high
DAX -54% -6% -32% -24% -11%
FTSE 100 (In EUR) -61% -6% -17% -18% -12% positive correlation frequently above 0.8 to
VSTOXX 167% 106% 172% 87% 72% the EURO STOXX 50 Index. During the
various volatile periods the equity indexes
tended to peak, decline and bottom around
in 2008 with the Financial Crisis and fol- the five equity indexes experienced similar the same time. On the flipside, VSTOXX
lowed by the Greek Debt Crisis, and followed negative returns. In the same periods the volatility index tends to maintain a relatively
by the European Debt Crisis, and followed VSTOXX spot index rallied. This is in-line high negative correlation to these respective
by the Chinese Financial Turmoil and fol- with the previous correlation data showing equity indexes.
lowed by the Brexit vote. In each of these negative correlation of the VSTOXX index When viewing the most recent macro
global macro events the five European stock to the European equity benchmarks. event (Brexit), on a rolling 5-day return, the
indexes declined and VSTOXX volatility Based on 5-day rolling returns, the front returns tended to behave in similar fashion
index rallied. month futures contracts of the European to each other leading up to and post the
As noted in Chart 3, the equity indexes indexes traded with similar returns prior Brexit vote. Combining all of these results
tended to peak, decline and find support to and post the Brexit vote. This offers strongly suggests an investor with exposure
around the same time. This suggests when some more evidence to the positive correla- to one or many of these European equity
the global macro events occur, investing in tions among the respective European equity indexes may find an added value in utilizing
equities geographically across Europe may indexes discussed earlier. VSTOXX Futures to reduce portfolio tail
not offer enough diversification to reduce When the 5-day rolling returns of front risk and correlation risk. n
the portfolio correlation risk and tail risk. month VSTOXX Futures is added to the
Mark Shore has more than 25 years of experience
The returns in Table 3 are based on when chart, the negative correlation performance in the futures markets and managed futures, pub-
the EURO STOXX 50 Index peaked and of VSTOXX Futures becomes very pro- lishes research, consults on alternative investments
and conducts educational workshops. His research is
bottomed surrounding each event and how nounced relative to the front month futures found at www.shorecapmgmt.com
the VSTOXX volatility index and the four contract of the four European equity index- Mr. Shore is also an Adjunct Professor at
DePaul Universitys Kellstadt Graduate School of
European equity indexes behaved during es. Once again, the results may offer the
Business where he teaches a graduate level man-
each period. During the five volatile periods option to employ VSTOXX Futures with aged futures/ global macro course. Mr. Shore is a
frequent speaker at alternative investment events.
He is a contributing writer for Eurex Exchange,
Chart 5: 5-day rolling returns of European equity index front month futures and
CBOE, Swiss Derivatives Review, MicroCap Review
VSTOXX Futures front month prior and post the Brexit vote (23 May 2016).
and Seeking Alpha. Mr. Shore graduated from
5 Day Rolling Return of European Equity Index Futures DePaul University with a degree in Finance. He
(2 April 2016 to 1 July 2016) received his MBA from the University of Chicago.
60% Past performance is not necessarily indicative of
future results. There is risk of loss when investing
40% 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
20%
expressed are solely those of the author and are only
for educational purposes. Please talk to your finan-
0% cial advisor before making any investment decisions.
-20% (Endnotes)
VSTOXX DAX 1 http://bit.ly/2eWxAGf
-40% STOXX Europe 600 CAC 40
EURO STOXX 50 2 ht t p s : / / w w w. b l o o m b e r g . c o m / n e w s / a r t i -
-60% cles/2016-07-31/europe-elections-2016-17-the-
votes-to-watch

ASIA CORNER
Hong Kong Shenzhen

Stock Connect Launched
Creates Worlds Second Largest Equity Market
A new cross border stock link between the Hong Kong Stock Exchange
and neighboring Shenzhen Exchange made its historic debut on
December 5, 2016, marking another milestone as China moves towards
opening its capital markets.
With less than 1.6 percent foreign investors with a market capitalization of $3.4 trillion.
as of early 2016, the Shenzhen stock market Individual investors make up the majority
represents the largest untapped investment of traders in Shenzhen owning as much as
opportunity in the world. For the first time 59 percent of the equities compared to 34
foreign investors have the ability to invest percent of Shanghai equities. Trading almost
in hundreds of Chinas fast-growing com- nine times a year with monthly turnover of
panies often attributed to the New China. more than $1 trillion, it is also Asias busiest
The Shenzhen Exchange is Chinas second exchange, according to the World Federation
largest stock exchange, behind Shanghai, of Exchanges data. Shenzhens high turnover
n LESLIE RICHARDSON

is due to a lot of stir-frying, a Chinese term
for frequent buying and selling of equities by Shenzhem stocks by industry
retail investors hoping to make a quick prof- Share of total by market cap (%)
it. The new link unifies Shenzhen, Shanghai Manufacturing 32%
and Hong Kong exchanges essentially creat- Techonology, media and
ing the worlds second-largest equity mar- telecommunications 25%
ket by capitalization, worth more than $10 Consumer goods & services 18%
trillion, and the largest by cash turnover Medical & pharmaceutical 8%
globally. Real estate & construction 5%
Composed of a different universe of Finance 5%
equites than the Shanghai Exchange, the Utilities & transportation 3%
Shenzhen Exchange offers a diverse range Other 3%
of new investment opportunities to for- 0.99
eign investors. The Shenzhen Exchange has
more privately-owned companies compared
Source:WindInformation,FTanalysis
to Shanghai, which has a higher concentra-
tion of state-owned enterprises, financials
and industrial companies. Subsequently,
stocks listed on the tech-heavy Shenzhen
Exchange generally have significantly greater to have a good year in 2017 despite weak to big brands such as Sony, Samsung and
growth prospects than Shanghai listed equi- economic growth. Specifically, consumer, Lenovo. The company is expanding into
ties. Only a fishing village a few decades infrastructure, health care and technology virtual reality software development.
ago, Shenzhen became known as an instant sectors are forecasted to experience strong Hangzhou Hikvision Digital Technology
city which now successfully attracts pri- earnings growth with exporting companies Co., the worlds largest supplier of video sur-
vately run startups, many looking to raise benefiting from a weakening RMB. Some of veillance equipment with internet-enabled
capital in the worlds second-largest econ- analysts favored companies on the Shenzhen cameras installed in more than 100 coun-
omy. Shenzhen and the surrounding Pearl Exchange include: tries.
Delta area are home to an extensive number Wangsu Science and Technology, the Wanda Cinema Line Co., a leading cinema
of technology companies giving the region countrys biggest content delivery network operator in China with a 15% market share
the name Chinas Silicon Delta. Stocks service provider, supporting Internet infra- in terms of box office revenue. The company
on the Shenzhen Exchange include high structure by improving image quality, speed- is outperforming its peers generating 29
growth technology, consumer, healthcare ing up page loading, and maximizing band- percent year-over-year growth compared to
and New China sectors that are the driv- width. The company is expanding overseas industry average of 8 percent.
ers of Chinas new growth engine. Through and into cloud computing. Market share is Shenzhen Inovance Technology Co., a
the Shenzhen link, foreign investors can around 50 per cent. supplier of industrial automation products,
now access an additional 880 stocks more GoerTek, one of Chinas leading acoustic particularly in motion control and power
than doubling the 567 mainland Chinese components companies which sell products inverters. It has gained market share in auto-
stocks global investors can buy through the
Shanghai Hong Kong Stock Connect that
was launched two years ago. The stocks
include 270 on the main board, 410 on Only a fishing village a few decades ago, Shenzhen
the Small and Medium Enterprise (SME)
board and 200 on the Nasdaq-style ChiNext
became known as an instant city which now
board. The ChiNext board is for professional successfully attracts privately run startups, many
investors only due to its speculative nature.
Combined, the Shenzhen Connect and the looking to raise capital in the worlds second-largest
Shanghai Connect cover 70 to 80 percent of
Chinas mainland market capitalization. economy.
Analysts are predicting Chinese stocks

mation products and is likely to continue trading from international investors buy- rest of Euro Asia, Oceana and East Africa.
expanding its market dominance in 2017. ing Shenzhen stocks and HK$923 million OBOR consists of two main components,
Luxshare Precision Industry Co. is expect- ($123.4 million) of southbound by main- the land-based Economic Silk Road and the
ed to benefit from a new speaker-box busi- landers buy into Hong Kong stocks trades, oceangoing Maritime Silk Road. In 2015,
ness and the rising use of Type C connectors volumes are expected to pick up in future. Chinas trade with countries participating in
for smartphones in China. The company Southbound investors are expected to be the belt and road initiative surpassed US$1
also makes the connector dongle that comes stronger than northbound investors as main- trillion. Additionally, Chinas domestic mar-
in every box of the new iPhones which have landers look for ways to hedge against the ket is continuing to grow. The number of
no headphone jack. depreciation of the RMB. With the Hong middle-class and affluent households has
Wuliangye Yibin Co., the second larg- Kong dollar being pegged to the U.S. dol- grown to 116 million, up from 2 million in
est Chinese spirit company in Chinawidely lar, buying Hong Kong dollar assets is like 2000. The continued growth and evolution
known for its famous baijiu brand in China. buying into the U.S. dollar. Additionally, of Chinas consumer market and the emer-
Chinas largest white goods manufacturers Chinese investors typically like fast-grow- gence of a large middle class will remain
Gree Electric and Midea Group. ing small and mid-cap plays. Valuations a major source of future value creation as
The Hong Kong Exchange is also expected of Hong Kong stocks are very low and Chinas citizens move beyond being able to only
to experience significant benefits from the Hong Kongs small caps in particular tend afford the basics of life, and their discretionary
new link with Shenzhen. Chief Executive to have lower valuation and higher dividend spending expands. Boston Global predicts
Leung Chun-ying stated at the launch cer- yields than stocks traded in Shenzhen. With affluent shoppers under the age of 35 and
emony that the link makes Hong Kong the Chinas small-caps 4-6 times more expensive Internet surfers will push Chinas consumer
super-connector between the rest of China than their Hong Kong peers, Hong Kong market up to $6.5 trillion in sales by 2020,
and the rest of the world. While mainland- offers better value to mainland retail inves- an increase of 54% from 2015. Furthermore,
ers already have access to 318 large cap tors. Currently, Chinas small-cap companies while China is losing global market share
Hong Kong listed companies through the trade at over 40 times expected earnings, the in manufacturing low-value-added goods
Shanghai link, the Shenzhen link allows highest in Asia-Pacific, and four times the to countries with lower cost labor, it has
access to about 100 smaller companies in ratio in Hong Kong. become a dominant global and local player
Hong Kong. Already, southbound investors, in high-end electronics and industrial equip-
the term for mainlanders buying Hong Kong New CHiNas growtH ment, with rising momentum in infrastruc-
stocks, outweighs investors buying into the prospeCts ture exports. n
Shanghai market, or northbound investors.
Ms. Leslie Richardson has over 20 years of invest-
In the two years since the Shanghai link Despite Chinas economic growth slowing
ment management and equity research experience.
opened, Chinese investors have purchased to a 25-year low in 2015, the country is She operates a boutique investor relations firm in
$42.8 billion of Hong Kong shares. UBS regarded by the World Bank as an upper- Hong Kong for Asian companies listed in the U.S.
and Hong Kong. She also assists private companies
forecasts net inflows from China into Hong middle class nation on its way to becoming develop investment material and build an inves-
Kong in 2017 will be 160 billion yuan ($23.2 one of the worlds advanced economies. tor following in preparation for a public listing.
Additionally, she is the Asian Correspondent for
billion) under the two links. UBS also pre- China has 16 per cent of the worlds GDP
Micro-Cap Review, www.microcapreview.com, a
dicts Chinese money to account for over a but more than 18.7 per cent of the worlds financial magazine focused on mirco-cap compa-
third of Hong Kongs trading turnover in population and the country is taking an nies. Previously, she worked for CCG Elite in assist-
ing Asian-based, U.S. listed clients formulate key
three years, up from a tenth now. As Chinese increasingly prominent global leadership communication strategies. Ms. Richardson began
investors increase their holdings in Hong role. The country is in a transition from her investment career at U.S. Trust Company then
went on to join Odyssey Advisors as a portfolio
Kongs stock market, they are expected to an economy driven by industrial expansion
manager and Director of Research. Ms. Richardson
increase market turnover and volatility pro- to one based on consumption and techno- specialized in high growth sectors such as bio-tech,
viding much needed liquidity to small and logical efficiency. It has also become the alternative energy, IT and telecommunications. She
earned her M.B.A. from the University of Southern
mid- cap stocks. Additionally, with greater worlds largest trading nationand continues California. Ms. Richardson is based in Hong Kong.
access to Chinese investors, the link could to strengthen its role in world trade. The www.elite-ir.com.
attract more international companies to list One Belt, One Road (OBOR) initiative
in Hong Kong. is a leading example of how the country is
While the first day of trading through increasingly impacting the world. Initiated
the new link was light with 2.67 billion in the fall of 2013, the OBOR, focuses on the
yuan ($393 million) worth of northbound connection and cooperation of China, the

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Moissanite: The Worlds Most Brilliant Gem
M
oissanite, also known as silicon carbide, is a rare, We are passionate about moissanite and our vision to ensure
naturally occurring mineral discovered in 1893 by Dr. a world where socially responsible gemstones are at the
Henri Moissan in a meteorite crater. Decades later, forefront of the marketplace.
through innovation and tirelessly refining our process, weve
taken Moissans discovery and created a colorless gem that Our dedication to creating high-quality products and
rivals any earthly gemstone for fire and brilliance. Moissanites developing better techniques to enhance the stunning
hardness surpasses that of any mineral on earth, and its brilliance of our moissanite is unparalleled. And because of this
refractive properties exceed that of diamond making it the we are able to offer exceptional products to our customers.
worlds most brilliant gem.
As the original creator of lab-created moissanite, Charles & Our Team of Experts.
Colvard has over twenty years of experience in manufacturing
and distributing this ethically sourced gemstone. In late Our management team is led by business veterans with
2015, we changed the playing field for moissanite when we expertise spanning every facet of the fine jewelry
introduced Forever One to the market. Forever One is the industry from manufacturing to distribution and the retail
epitome of created moissanite our first completely colorless store. Additionally, our teams expansive knowledge and
gemstone creating new standards in the fine jewelry industry. experience in the e-commerce and supply chain industries
Our master technicians and gemcutters analyze, polish and serves to bolster the success of our omni-channel,
facet each individual stone to bring out its full natural beauty, go-to-market strategy.
ensuring each of our gemstones are both sustainable and of a
superior quality. Our moissanite jewelry has never been better, or more
competitive, and the jewelry landscape has never been more
favorable for our management team to grow our business.
Were more committed than ever to making our presence felt
Charles & Colvard is driven by an and getting our gemstones and finished jewelry in front of the
ethical promise: create the worlds right audiences.
most brilliant gem, while leading
the way for environmentally The market is ready. The gemstone is here.
and socially responsible choices
in the jewelry industry at a Millennials are the largest and fastest growing generation,
revolutionary value. and their buying power continues to increase.1 By the end of
this decade, they will account for a third of all retail sales.2
Millennials are not impulse buyers. They are nontraditional,
environmentally aware, cost-conscious digital natives. The
decision to purchase a product is about more than material
possessions its about the spiritual, intellectual and cultural
SUZANNE MIGLUCCI values the item invokes.
President & Chief Executive Officer

TARGET AUDIENCE
3
91% 87% 90%

of millennials are likely to would buy a product would like to see more of the
switch brands to one that is with a social and/or products, services, or retailers
associated with a good cause, environmental benefit. they use, support worthy social
given similar price and quality. and/or environmental issues.
Like millennials, we reject the notion that jewelry is simply a symbol

for ones wealth. Rather, we emphasize the personal connection
ROUTES TO MARKET
between the consumer and their purchase. Much like our efforts to CHARLESANDCOLVARD.COM
create sustainable, eco-conscious gemstones, choosing to purchase
moissanite is a conscious choice. We strive to eliminate artificial
distinctions between value and beauty by making artful, eternal jewelry
readily available to more people than ever.
Moissanite was made for millennials. To drive them to our channels,

we are facilitating a conversation through social media and online
channels that encourages them to learn more about the creation and
benefits of moissanite. In turn, this will lead to further growth of our
audience and nurture a new generation of loyal customers.
WHOLESALE CHANNELS
The future of moissanite. 2017 A look ahead.
Millennials are embracing lab-created and diamond alternative options
at a considerable rate. These alternative stones continue to garner
attention and raise awareness for other options to mined gems. To tap
into this trend, we will expand our efforts to educate the market and
consumers on the value and sustainability of moissanite.
Our potential market is significant. The global diamond jewelry market OMNI-CHANNEL
is in excess of $80 billion in annual sales,4 and De Beers estimates
synthetic gems could account for nearly one-tenth of rough-diamond
sales in the next five years.5
Given our more than twenty years of expertise, our Forever One
colorless gemstone and the purchasing needs of our millennial
audience, we are well positioned to garner a share of the global
diamond jewelry market. While other gemstone investments are
dependent on the success of the global economy, our economic price
points and no-debt financing reinforce Charles & Colvard as a value
play in your portfolio. With Forever One, which is colorless or
D-E-F, the climate and culture is now ripe for
1
The Center for Generational Kinetics, 2016
2
Cushman & Wakefield, 2015
moissanite to shine brighter and reach more
3
Cone Communications 2015 Millennials CSR Study young couples.-JCK online
4
The Diamond Insight Report, 2015
5
The Wall Street Journal, 2016
Over twenty years of expertise.

One incredible created gem.

The company paid consideration to SNN or its affiliates for this article.
Coming to America
What You Need to Know About Accessing Public U.S. Markets
T he U.S. equity markets have experienced a noticeable uptick since early

November 2016. Are you a company outside the United States that is thinking
about unlocking additional value by establishing a securities market presence or rais-
ing capital in the States? Here are some things to consider in connection with con-
ducting a public offering in the U.S.:
will you qualify as a U.S. residents, it will qualify as an FPI. Even
foreigN private issuer? if more than 50% of its outstanding voting
securities are held by U.S. residents, an inter-
One of the first questions any company national company will still qualify as an FPI
seeking to access public U.S. capital markets unless any of the following conditions is true:
needs to consider is whether it qualifies the majority of its executive officers or direc-
as a foreign private issuer, or FPI, under tors are U.S. citizens or residents; more than
applicable U.S. securities laws. Whether a 50% of its assets are located in the United
company qualifies as an FPI will affect its States; or the companys business is adminis-
registration and reporting requirements. The tered principally in the United States.
FPI analysis is complex, but generally speak- The U.S. securities laws contain several
ing, if the company is incorporated outside special provisions for FPIs designed to rec-
of the United States and 50% or less of its ognize international jurisdiction standards.
outstanding voting securities are held by In addition to being entitled to use differ-
n BY MARGARET ROSENFELD, Esq.

ent registration and reporting forms that
provide for scaled disclosure in several key Dual listing in both the U.S. and typically the
areas, such as executive compensation, FPIs
generally have additional flexibility in finan- home country promises to broaden a companys
cial statement presentation (being able to
choose among GAAP, IFRS or home country pool of potential investors, increase liquidity and
standards reconciled to GAAP) and remain
exempt from rules under the Securities
potentially raise additional capital.
Exchange Act of 1934, as amended, regard-
ing shareholder proxies, significant owner-
ship reporting and short-swing trading.
market conditions, but companies should listing company. Companies will also need
How will you aCCess tHe remain mindful of the potential impact a to consider establishing a U.S. investor rela-
marKets? particular financing may have on its current tions function in connection with the dual
condition and future financing opportuni- presence.
International companies should consider ties. Generally speaking, convertible debt There is no one-size-fits-all approach for
whether they simply want a securities mar- instruments carry the largest risk for adverse international companies seeking to establish
ket presence in the U.S. or whether they impact on a companys capitalization and a presence in or raise capital in the United
want to actively raise capital in the U.S. financial condition. At the other end of the States. Companies must balance immediate
Many international companies, particularly spectrum, common equity offerings are gen- goals with long-term strategy and should
those in the early growth stage, find that erally the least burdensome. fully investigate all of the potential oppor-
the price of their common equity securities tunities and their consequences before com-
is not within the customary range for U.S. will you seeK Dual listiNg mitting to a course of action. n
trading or public offerings. Those companies of your seCurities?
Partner Margaret Rosenfeld has more than 20 years
may consider offering American Depositary
of experience with public companies and she leads
Receipts (ADRs), which are negotiable cer- Dual listing in both the U.S. and typically the the global Microcap practice at Smith Anderson
tificates evidencing ownership of American home country promises to broaden a com- law firm (SmithLaw.com). Founded in 1912, Smith
Anderson is the largest business and litigation law
Depositary Shares, which in turn represent panys pool of potential investors, increase firm headquartered in the world-renowned Research
an interest in a specified number or fraction liquidity and potentially raise additional Triangle region of North Carolina. Smith Anderson
provides a full range of legal services to a diverse
of the international companys shares (such capital. Many companies pursue dual list-
group of regional, national and international com-
as 1 ADR = 4 shares of Common Stock). ing for the more intangible positive benefits panies and is well-versed in assisting small public
Level 1 or Level 2 ADR programs, estab- on brand awareness, reputation or analyst companies with initial public offerings, ongoing
public reporting and corporate governance require-
lish a securities market presence in the U.S. coverage. Companies considering a dual ments, structured financings such as PIPEs, regis-
(on either an over-the-counter market or a listing should be mindful of the potential tered directs, CMPOs, rights offerings, ATM/equity
lines, convertible preferred and convertible debt, and
U.S. national securities exchange, respec- up-front cost in legal, accounting and appli-
alternative financings under Title II, Title III and
tively) but do not involve a capital raise. cable registration and listing fees, and, more Title IV of the JOBS Act. Smith Anderson is proud
Level 2 ADR programs require registration importantly, ongoing listing standards. So to have represented Groundfloor Finance as the first
company to qualify an offering under Regulation A+.
of the underlying security on Form 20-F, long as the U.S. stock exchange is notified For more information, please contact Margaret
which is roughly analogous to the domestic that the company will be following and is in Rosenfeld at [email protected] or 919-821-
6714.
Form 10-K. Level 3 ADR programs enable compliance with home country governance
companies to both establish a U.S. market practices and appropriate disclosure is made,
presence and raise capital and will implicate international companies may typically con-
a more robust registration statement custom- tinue using their home country governance
arily used for public offerings. practices, subject to input of the companys
If a company is seeking to raise capital, investment banker. Certain areas, however,
the financing instrument used will have such as the composition of the companys
important consequences. The companys audit committee, are inflexible, and dual
bankers can advise on the attractiveness of listing can have important consequences on
particular financing methods given current the board of directors and committees of the

AC C O UN T IN G COR N ER
Get Ready the New Revenue Recognition

Rules are Here
J anuary 1, 2018. Not so far away. That
is the day that the new revenue recogni-
tion standard will become effective for most
lar transactions. One of the goals of this new
standard is to remove the highly segmented,
industry-specific revenue recognition guid-
new rules. Contractors, homebuilders, engi-
neers, architects, and real estate developers that
have contracts with customers are also among
public companies with a calendar year end. ance that currently exists and adopt a more those that will be affected by this new guidance.
It seemed that this day would never come. principles-based standard that will be applied For many of these companies, the new rules
It was long ago that the Financial Accounting consistently regardless of industry. The new may accelerate the timing of revenue recognition
Standard Board (FASB) and the International pronouncement, Revenue from Contracts with versus todays GAAP guidelines. This means the
Accounting Standard Board (IASB) started Customers, establishes a single global standard new rules may allow for a sizable portion of
their noble attempt to converge US Generally on how companies are to recognize revenue. license and other fees to be recognized upon
Accepted Accounting Principles (US GAAP) The new standard provides a 5-step pro- delivery of the license to the customer. Entities
with IFRS, the accounting principles used by cess to recognize revenue. This includes that sell real estate will generally recognize rev-
the rest of the world. While that project has (1) identify the contract with a customer; enue when control of the property is transferred,
pretty much derailed, the two governing bod- (2) identify the performance obligations in subject to the assessment of collectability, which
ies of accounting did agree on a new converged the contract; (3) determine the transaction may generally be earlier than recognition under
revenue recognition standard. Many have price; (4) allocate the transaction price to the current guidance.
referred to this as one of the most major devel- performance obligations in the contract; and In adopting the revenue standard, compa-
opments in accounting since Sarbanes Oxley. (5) ultimately recognize revenue when (or nies can select from two transition methods,
So, is your company ready for this change? as) each performance obligation is satisfied. a full retrospective method or a modified
According to studies by the AICPA, SEC and The new standard provides guidance that retrospective method.
others, many companies are not, and time is isnt in US GAAP now, including guidance Under the full retrospective method, the
running out. If your company hasnt already on contract modifications, costs of revenue new revenue standard will be applied to each
done so, it is imperative that company manage- transactions, service revenue recognition, prior reporting period presented and the com-
ment begin a comprehensive study and analy- changes in estimates of contract life, transac- pany will need to restate its 2017 financial state-
sis to determine if the new pronouncement tion price, level of effort, and deliverables, loy- ments in its 2018 interim and annual financial
affects the companys revenue recognition and alty programs, intellectual property, balance statements as if the guidance had always been
disclosure policies. The entire revenue and sheet presentation, and footnote disclosures. in effect. For companies selecting the modi-
disclosure process will need to be reviewed and For many companies, the new revenue fied retrospective method, prior year financial
aligned with the new standard. Management accounting rules may not significantly affect statements would not be restated. Instead,
will need to ensure that systems are in place to the way revenue transactions are recorded, companies will recognize the cumulative effect
record revenue under the new principles and but could affect the financial statement disclo- of initially applying the standard as an adjust-
capture the necessary disclosures. sures. This would be true for those companies ment to opening retained earnings.
Currently there are numerous accounting that are in a retail business, or where there is There is a lot to comprehend, and the clock
models and industry-specific guidance for the point of sale cash collection. The account- is ticking. The important thing here is to
recognition of revenue. This results in differ- ing for distribution businesses and consumer ensure that Management has started its analysis
ent revenue accounting for economically simi- product companies should also not see too because waiting for year-end will be too late. n
many changes, but may see certain changes in
Corey Fischer, CPA, is Firm Managing Partner
how certain costs are accounted for.
of Weinberg & Company, a multi-office, PCAOB-
However there are certain industries and Registered firm specializing in the audit, assurance
transactions where the accounting could be and tax needs of micro and small cap companies.
He has more than 25 years of experience, having
significantly affected. Software companies, worked with the Big 4 accounting firms, and as an
biotech companies, entertainment companies, SEC reporting officer for a number of NASDAQ-
listed companies. He is based in Los Angeles, and
brand management companies and basically
is an expert in financial reporting, SEC compliance,
any company where a license or royalty is raising debt and equity, mergers and acquisitions, and
n BY COREY FISCHER, CPA involved will be significantly affected by the structuring accounting operations. Email: coreyf@
weinbergla.com or 310-601-2200.

4th Quarter, 2016 adds & subtracts of FINRA
Member Firms
compiled by DAVID ALSUP Financial Industry Broker Dealer Data Aggregator
4th Q: 24 New formations & 43 Withdrawals (est)

New Formations:Three-year average is 10.2 per mo. BDW three year average is 20.5Closures per mo)
Crowdfunding Portals: 21 firms are currently registered with FINRA/SEC a/o 12-9
24 New Firms were admitted 43 Firms Withdrew

5 firms admitted were Equities oriented 24 were equities firms.
10 firms admitted were Private Placement firms 3 were Private Placement firms
6 firms admitted were classified as Other 7 were Mutual Fund firms , 6 firms classified as
2 firms admitted were Mutual Funds Other
9 firms kept their RIA
26 of these firms had less than Ten reps
Monthly New Formations chart showing the number & types of firms admitted
Equities Other Mut F, Pvt
19 27 9 21
23 17 14 17 4 4 14 11 17 24 11 9
1 2 2 10
1 2 5 6 3 2 4 2 3 6
0 4 2
2 4 3 5 5 4 5 11 0 6 2
2 1 17 3 6
8 9 9 8 8 12 12 8 7 9 10 7 10
6 2
2 5
33 31 27 31 17 41 43 32 29 37 26 30 15 34 34 31 24
4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Monthly BDW Chart showing the number & types of firms that are closing
Equities Other Mut F, Pvt
28
16 18 25
13 10 12 5 9
6 9 7 11 11 13
7 8 6 3 12 4
10 9 10 20 3 8 3
5 9 63 5 7
5 4 5 2 14 14
10 10 6
43 40 36 45 9 46 39 42 42 42 34
26 32 24
20 18 21 19 19
79 46 63 63 77 42 41 53 90 55 39 53 82 39 63 43
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
As of November 30, 2016, there are 3963 FINRA Member firm CRD Numbers. (Note: There are some
bankrupt firms still carried in CRD, such as Lehman Bros, & Stanford.)
===========================================================================
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 15 firms NOT included in these statistics and NOT reported that filed for a BDW prior to Nov, 2016.
David Alsup 949-468-0111 [email protected] A Detailed analysis (or Customized data) is available by Subscription
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www.stocknewsnow.com Review
the nancial Magazine
condition 71
of any company.
nvestors should undertake their own due diligence and carefully evaluate companies before investing. 2017 OTC Markets Group Inc. All Rights Reserved.
Perritt Capital Management

History of Small Company Stocks
E ver since financial markets materialized, investors have been devising
schemes to enable them to beat the markets average return.
Some invest in large companies, some invest

in small companies, and others ignore com-
pany size and invest in companies of any
size so long as they have potential to pro- tors for spending so much time trying to portfolios is paid for by the risks they take.
duce excess returns. Some investors buy- predict the future. They point to the plethora The first formidable crack in the so-called
and-hold, while others trade frenetically. of studies that indicate the stock market is a efficient market theory appeared in the late
Some invest in high multiple growth stocks, reasonably efficient mechanism. In an effi- 1970s when a University of Chicago doctoral
while others prefer to shop among compa- cient market, the best guess at tomorrows student discovered a strategy that has pro-
nies whose stocks have recently been beaten stock price is todays price. Most academics duced superior investment returns for more
down. Then there are the technical analysts agree that the only way to produce market- than 80 years. Superior meaning that this
and those who analyze only economic fun- topping long-term investment returns is to strategy has historically produced greater
damentals. Some investors assemble portfo- build and maintain a highly-diversified port- returns than dictated by portfolio risk. This
lios from the top down, while others prefer folio that contains more systematic risk than strategy has come to be known as the small
a bottom up approach. the stock market as a whole. In short, what firm effect. Simply put, the small firm
Academics have long admonished inves- investors ultimately get from their equity effect is the tendency of the common stocks
n BY MICHAEL J. CORBETT

on his economic policies and there is always
a transition from campaign rhetoric to actual
policy. However, it does seem clear that
there will be a push for fewer regulations
and lower taxes. Whether regulations are
modified or not and taxes are reduced or
not, it seems clear that the future may have
a more pro-business orientation. Therefore,
this new environment could pave the road
for more companies wishing to becoming
public companies. Remember that not all
companies go public through the traditional
of small firms to outperform the common banking regulations and costs. The bottom method of an IPO. You could also see new
stocks of large firms given the same level of line is that we believe these increased regula- companies coming public from spin-offs,
risk. According to Ibbotson & Associates, tions resulted in less publicly traded compa- reverse mergers, or moving from the pink
small company stocks have produced annu- nies. As you can see from the chart above, and bulletin board market to the national
alized returns of 10.02% from 1926 through the number of U.S. companies listed on the exchange. The next few years should be an
2015, which compares favorably to large major exchanges has declined from more exciting time to find and invest in new qual-
company stocks return 11.44%. Even when than 7,000 to less than 3,600 today. ity smaller public companies. n
returns are measured over shorter time peri- In addition to companies that are not
Source Ibbotson & Associates:
ods, smaller company stocks perform well interested in having their equity publicly
Large Company Stocks defined as S&P 500
versus other assets classes. The table above traded, merger and acquisition activity also Small Company Stock defined as CRSP 6-8 decile
shows the performance of Large Company contributed to the decline of publicly traded
Stocks, Small Company Stocks, Long Term companies. Furthermore, we believe it is Michael J. Corbett
Government Bonds and Treasury Bills for partially obvious that only quality companies CEO, CIO and Portfolio Manager
Michael is CIO and Portfolio Manager for all
each of the past eight decades. While small are routinely acquired, and that lower quality
equity portfolios with Perritt Capital Management
company stocks have not always been the companies do not get acquired. The point is and The Perritt Funds. Perritt Capital Management
best, there returns are meaningfully positive that as this dynamic increases the percent of first employed Mr. Corbett in 1990 as a research
analyst. He assumed portfolio management respon-
in every period. lower quality companies within the public sibilities in 1996. In late 1999, Mr. Corbett became
Due to these performance results and markets today. president and lead-manager of the Perritt MicroCap
Opportunities Fund (PRCGX). He became port-
the academic research, I have dedicated my With regard to low quality companies, the
folio manager of the Perritt Ultra MicroCap Fund
life and career to following and investing in table below details some interesting history (PREOX) at its inception in 2004 and the Perritt
smaller company stocks. My near 30-year for the Russell 2000 Index and the Russell Low Priced Stock Fund (PLOWX) at its inception in
2012. Mr. Corbett was named to the Barrons/Value
career has brought me both satisfaction and Microcap Index. As you can see, the number Line Top 100 Mutual Fund Manager from 2003-2007.
handsome results, but various changes in the of profitable companies has declined signifi- He is a Registered Investment Advisor. Mr. Corbetts
insight regarding small company investing has been
past 15 years has me pondering the future of cantly in the past 10 years while the number
sought after by a variety of financial media outlets,
small company stocks. The changes in the of unprofitable companies has increased sig- including CNBC and The New York Times. He is
past 15 year are mostly related to increased nificantly. While the universe of publicly a member of the Joliet Diocese Endowment Fund
Board and previously served on the St. Mary Gostyn
regulation and the cost of being a public traded companies is starting to be dominat- Finance Committee and the St. Mary Gostyn School
company. Much of the changes started ed by low quality companies, we believe the Board.
with Sarbanes Oxley Act (SOX) passed by situation may change in the next few years.
U.S. Congress in 2002, which is designed Donald Trumps election as president of
to reduce the risk of fraudulent activities by the United States and the Republicans sweep
corporations. While the act had lofty goals, of control in the legislation caught the finan-
the cost was too prohibitive, particularly for cial world off guard. So, what does a Trump
smaller companies. There have been several presidency mean for the markets and the
other laws and programs introduced after economy? The implications of how a Trump
SOX was passed in 2002. Another example win plays out in the markets are not entirely
is Dodd-Frank, which significantly increased obvious. Trump has not been overly detailed

F E AT U R E A RT I C L E
Planet MicroCap Podcast 2016

Highlights and Looking Ahead at 2017
Successful Investing takes time, discipline and patience. No matter
how great the talent or effort, some things just take time: You cant
produce a baby in one month by getting nine women pregnant.
Warren Buffett on Investing
This quote makes me feel optimistic about tion, not just because they should surround looKiNg aHeaD at 2017
the task at hand. The task is becoming the themselves with appropriate people, but
best MicroCap investor I can, and shar- investors, like you and I, can approach them One thing you will not read here is my pre-
ing that journey with those interested in as an important part of our due diligence. dictions about what will happen in MicroCap
learning more about investing in MicroCap stocks for 2017. As Mike Schellinger from the
stocks. Theres no pressure to be the best Dissecting Reg A+ and 100 Baggers MicroCapClub.com recently said in Episode
right away. 35 when I asked about some of the themes to
I did a couple episodes this year covering look out for in 2017, he said, I have a big pre-
HigHligHts of 2016 Reg A+. I thought this was important as this diction for you I predict October is going
has had a lot of attention over the last couple to be a dangerous month for stocksWant
Understanding the importance of corporate years. If you are at all curious about what to know why?....Its one of the particularly
governance Reg A+ means, I invite you to listen to my dangerous months for speculating in stocks,
interviews with David Weild and Cromwell but the other months that are dangerous are
In Episode 22, I spoke with Adam Epstein Coulson. July, January, September, April, November,
from Third Creek Advisors, and we dis- Dissecting 100 Baggers is an episode I did May, March, June, December, August and
cussed corporate governance, and why it is with Chris Mayer from Bonner & Partners. February, which are all the months (also
important to keep in mind when looking at This was interesting because that is every originally stated by Mark Twain as Mike
MicroCap companies. Before speaking with investors dream find an undervalued says in the interview). At the end of the day,
Adam, I honestly, didnt really keep in mind company, invest at the right time, the com- I continue to look for value using the new
board of directors, whos on the board and pany continues to execute, re-invest profits tools at my disposal.
may have been blinded by the flashy names and enjoy the ride. Easier said, than done! One very exciting thing Id like to
on some corporate boards. After our talk, I However, 100 baggers are out there and it announce is that at the Planet MicroCap
think MicroCap companies have to critically takes hard work and dedication to find them. Showcase, April 26-28, 2017 at the Planet
think about their corporate board formula- Hollywood Resort & Casino is Las Vegas,
Characterizing Intelligent Fanatics I will be hosting the first ever live Planet
MicroCap Podcast with a very special panel
I really enjoyed speaking with Sean Iddings of guests that have previously been guests
discussing his new book he co-wrote with on my program. You can rest assured, it
Ian Cassel about Intelligent Fanatics. I will be educational, potentially contro-
wasnt nave to think that great CEOs grew versial, but above all, FUN. Go to www.
on trees and this book illuminated how suc- PlanetMicroCapShowcase.com and register
cessful leaders that were innovative in ways so you can be an in audience for this, as Im
I didnt realize built sustainable businesses. I very excited for this event. n
n BY ROBERT BOBBY KRAFT
highly recommend picking up a copy.

CANNABIS LEGAL CORNER
By All Measures, 2016 was a Historic Year for Cannabis
B
y all measures, 2016 was a historic an unknown, Attorney General Jeff Sessions. cripple marijuana-related businesses, not to
year for Cannabis. With the possible To say Sessions is a strong opponent of the mention eliminate a tremendous source of
exception of 1996, when California legalization of Marijuana would be an under- tax revenues for the states. Also, given the
became the first state to legalize (medical) statement. During his confirmation hearings, new administrations focus on repealing and
marijuana, and 2012, when Colorado and he stressed he will enforce federal law when replacing the Affordable Care Act, immigra-
Washington legalized recreational marijua- asked about marijuana, after noting that mar- tion reform, building a wall, criminal justice
na, 2016 was probably the best year for mari- ijuana is illegal under federal law. However, reform, and jobs, will it also want to tackle
juana. Following the 2016 elections, eight he was sitting in a confirmation hearing, and this complicated and controversial issue?
states (including Washington, D.C.) have any answer other than I will enforce federal Clearly time will tell, but it seems to me that
legalized recreational marijuana, doubling law would probably be disqualifying. After we have, or at least we should have, reached
the number from the prior year, includ- all, the job of the United States Attorney the tipping point and not go backwards. n
ing California, the 8th largest economy in General is to ENFORCE federal law.
Marc J. Ross is a founding partner of Sichenzia Ross
the world. And, five additional states have The immediate question on everyones mind
Ference Kesner LLP, formerly known as Sichenzia
legalized medical marijuana, increasing that is now what? The appointment of Jeff Sessions Ross Friedman Ference LLP, a firm he started in 1998
number from 23 to 28, with more than half has struck fear in pro-marijuana groups and which specializes in corporate, securities, litigation
and regulatory matters.
the states in the U.S. having legal access to shaken the stock market for cannabis compa- In the securities and corporate area, Mr. Ross
marijuana. Now the question on everyones nies. But what can we expect will really happen? advises companies with their 1934 Act reporting
requirements as well as their NASDAQ, AMEX and
mind is, what impact will be felt by Donald On the one hand, the Trump administra-
NYSE and other exchange listing and compliance
Trumps election as the next President? tion can rip up the Cole Memorandum, which matters. In addition, Mr. Ross assists companies going
According to Forbes, legal sales recorded was issued during the Obama administration public, whether through a reverse merger (RTO), ini-
tial public offering (IPO), or company offering (DPO).
for 2016 were $6.7 billion, up 30% from and provides that, given the federal govern- He also advises clients on investment and capital
2015, and some analaysts are projecting sales ments limited resources, if a state complies raising transactions, including private investments in
public equities (PIPEs), initial public offerings (IPOs),
of $20-25 billion in 2020, which would repre- with eight enumerated points, the federal
registered direct offerings (RDs), and shelf offerings.
sent compound annual growth of 35% over government will not interfere, and enforce In the litigation and regulatory area, Mr. Ross rep-
the next five years. Suffice to say, the indus- federal law. After all, the Rohrabacher- resents clients in commercial/securities matters from
arbitrations before FINRA, the AAA, and JAMS,
try is booming, as everyone predicted, and Farr Amendment, which codified the Cole to court cases nationwide. Mr. Ross also counsels
perception among the public has also dra- Memorandum, and formally prevents the clients in civil regulatory and possible criminal inves-
tigations before self-regulatory organizations, state
matically changed in the last 20 years60% federal government from enforcing federal
agencies, or federal agencies, and he regularly appears
of the public want to see marijuana legalized law, is set to expire on April 28, 2017. before the SEC, FINRA, and state securities agencies
nationally, that number stood at about 25% On the other hand, the Trump admin- in connections with their investigations.
Mr. Ross also specializes in advising marijuana
20 years ago, and 84% of Americans want to istration can continue to enforce the Cole and marijuana-related companies. In particular, he
see medical marijuana legalized nationwide. Memorandum and seek, once again, to is very knowledgeable in, and often speaks on, the
legal issues associated with marijuana and marijuana-
However, with all the growth that mari- extend the Rohrabacher-Farr Amendment.
related businesses, including the interplay between
juana saw in 2016, the industry now faces This would allow more jobs to be created, state laws which legalize recreational and/or medical
a central theme extolled by Donald Trump, marijuana uses, and federal laws which bar such uses.
Mr. Ross teaches the first law school course on
as the industry continues to grow. It will marijuana at Hofstra University School of Law, titled
also allow the states to decide matters for Business and Law of Marijuana. In his course, Mr.
Ross introduces students to the rapidly-developing legal
themselves, which Donald Trump and others
questions encountered in the operation of marijuana-
likely to serve in his cabinet, including Jeff related businesses. The course uses a fictional business,
Sessions, appear to support. Cannabis Inc., to explore (1) the interplay between
state laws legalizing recreational and/or medical mari-
While it is impossible to predict the future, juana uses and the Federal Controlled Substances Act;
given the new administrations emphasis on (2) enforcement and application of other regulatory
regimes governing the operation of marijuana-related
jobs and growth, it may be too tempting for
n BY MARC J. ROSS, Esq. businesses, such as banking and securities laws; and (3)
them to enforce federal law, which would the ethical considerations for an attorney advising a cli-
ent engaged in a marijuana-related business.

Where Have All the Market Makers Gone?

I
recently had a conversation about Where If the firms focus is retail order flow, quotes OTC Markets:
have all the market makers gone? My are often a mix of customer orders and pro- High frequency traders are typically look-
curiosity got the best of me so I turned to prietary interest. When executing marketable ing for a large volume of transactions so they
a Level 2 platform web page to see for myself, orders, brokers-dealers may choose to provide can get in and out of positions quickly. As
who were the market makers commonly seen increased liquidity to the market by executing microcap stocks are often less liquid, you
making markets in microcap stocks? What I a portion or the entire investor order based on tend to see electronic traders focusing on
found was a surprise. I did not recognize many their own inventory. In other cases, firms trade market making strategies and there are very
of the firms making markets and it seemed the their own capital, meaning that they are placing few ETFs in this market.
lists I viewed were much shorter than I remem- their quotes into the market based on where BMA:
ber. I began to wonder if a shorter list of market they feel the price justifies the risk profile. Then, Microcap stocks are not typically subject to
makers would influence liquidity, execution and you have a final group of firms who are running high frequency trading activity. There are day
volume. Some stocks are trading with huge sophisticated electronic models to determine traders and firms that trade heavy volume on
volume and with less market makers too. Most the price points at which they are willing to buy a proprietary basis that do move the markets
investors see stock prices and volume with price and sell a given security. These models take into in both directions.
and volume either delayed or in real-time and account a selection of data points such security High Frequency Trading and Algorithms
most just hope for good fills, but I wanted to dig type, price, time and volatility to identify oppor- have caused ETFs to trade faster and have
deeper into this. Had High Frequency Traders tunities to provide liquidity to the market. added volatility.
and ETFs infiltrated microcaps? Was I missing BMA:
something? If I am asking these questions I We provide liquidity by being on both side 5. Some issuers have more market makers
figured our readers of this magazine might be of the market, by being willing to sell blocks than others. Why is this the case? Does the
wondering whats going on behind the scenes of to buyers as a short sale or buy positions into amount of market makers affect liquidity?
the bid and ask and volume in microcaps too. I inventory based on market demand. In turn, OTC Markets:
reached out for answers to OTC Markets and these positions will eventually have to be sold The number of market makers is a direct
BMA Securities, a market maker, with the same to the street or bought in the open market. result of the perceived opportunity and
list of questions hoping for answers and opinions investor demand in a given security. This
to share with you. The two firms responded with 2. Do market makers specialize in retail or is largely determined by the trading volume
their answers. I would like to thank both Mike institutional order flow? and investor order flow in a security.
Modeski of OTC Markets and Greg Averyt of OTC Markets: Market makers have a direct effect on
BMA Securities for their time and efforts. We Some firms specialize in retail order flow, liquidity. The more market makers in a given
have printed the questions and answers in their meaning quotes are tied to customer intent, security, generally the tighter the spreads and
entirety. Please feel free to contact Mike or Greg while others will focus on institutional. Some the more competition for pricing.
or myself with any questions or comments. firms service both retail and institutional. Unfortunately, the regulatory environment
Finally, there are firms that have no order has a direct impact as well. Market makers
1. How do todays market makers provide flow but choose to make markets in OTC have to be selective about the securities they
liquidity in the market? securities and risk their own capital. We see trade, as there is a FINRA-approved cap on
OTC Markets: substantial liquidity from all types of firms. how many securities they can make a market
In its simplest form, liquidity in the OTC BMA: in. This number will vary based on the size of
markets is the direct result of investor orders We work in both capacities. Our presence in the firm, their capital and the process they have
in a security, and active market makers putting markets we make vary, but typically a small amount with their clearing firm.
quotes into the market. Liquidity is electroni- of orders would generally be placed through an Market makers in lower priced securities
cally priced and accessed by broker-dealers ECN on an agency basis due to costs involved. are also impacted by the structure of regulatory
through OTC Market Groups OTC Link ATS. fees, such as the Trading Activity Fee (TAF).
3. / 4. What are the effects of High Frequency TAF is calculated at a rate per share. As you
n BY SHELLY KRAFT WITH Trading market making firms on microcap tend to see larger transactional size in lower
MIKE MODESKI-OTC MARKETS & stocks? Same for ETFs? priced securities, this results in a higher activity
GREG AVERYT-BMA SECURITIES

fee. Lifting these regulatory burdens would makers from providing liquidity. Michael Modeski
EVP, Trading Services / President,
expand the market in lower price securities. Amending Reg SHO is a prime example. OTC Link LLC
BMA: Under this regulation, a market maker can short Mike joined OTC Markets Group
in 2011. Mike has over 15 years
Stocks with more volume and interest in a stock, but there is increased risk of buy-in with
of experience in the financial mar-
the company will attract market makers to less active securities that are hard to borrow. The kets, with a focus on the OTC mar-
pick up the market. customer may be satisfied with an execution at kets. Previously, Mike served as the Director of Broker-
Dealer Execution Services and Sales at Citigroup and the
the offer, however, now the market participant Director of Execution Services at Lava Technology, a divi-
6. How do market makers gauge their expo- is short the stock and has five days to cover this sion of Citigroup. Before working at Citigroup, Mike was
the Director of OTC Equities at FINRA and held several
sure in the risk vs reward and profit and loss short position before a mandatory buy-in pro-
management positions at Pershing. He graduated from
business of market making? cess. If the five-day window was longer for bona- Lehigh University with a Bachelor of Science in Finance
BMA: fide market makers to cover their short sales in in 1995. Mike is a member of the Board of Directors of
the Securities Traders Association of New York (STANY).
In the OTC space, stocks can move up in less active securities, firms would be more willing
price dramatically overnight or in a few hours, to commit capital on both sides of the market. About OTC Markets Group Inc.
OTC Markets Group Inc. (OTCQX: OTCM) oper-
so short positions are monitored very carefully We should be looking at Reg SHO and other
ates the OTCQX Best Market, the OTCQB Venture
on a real-time basis by the trader and several regulatory reforms thatwill help market makers Market, and the Pink Open Market for 10,000 U.S.
levels of management. Recent improvements provide more liquidity while decreasing spreads. and global securities. Through OTC Link ATS, we
connect a diverse network of broker-dealers that
in technology have increased our ability to BMA: provide liquidity and execution services. We enable
manage risk across our trade desks. The National Securities Clearing investors to easily trade through the broker of their
choice and empower companies to improve the qual-
Corporation now requires the clearing firms
ity of information available for investors.
7. Some market makers only trade and to place massive deposits of capital for low To learn more about how we create better informed
some market makers are full service firms, trades in low priced securities until settlement and more efficient markets, visitwww.otcmarkets.com
OTC Link ATS is operated by OTC Link LLC,
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BMA: twenty-day volume of the security and are
Greg Averyt
Our firm is a full-service brokerage firm required to be put up with NSCC until the
Mr. Averyt is a Managing Director
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nal investment capabilities including
representing internal and dealer to dealer cli- can be sold by the market making brokerage investment strategy, trading, opera-
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BMA in 2004, Mr. Averyt has been
markets is doing so either on a proprietorial ness. While the SEC has proposed changing
instrumental in the expansion and implementation of
or dealer to dealer basis. settlement dates from regular way to a two-day BMAs offices and trade desks across the country. He is
settlement model to reduce this burden, it is an experienced market making trader and settlements
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mals changed the market making process? ments of NSCC, need to be reduced. clients. He brings with him more than 10 years of experi-
ence in the securities industry, holds his series 7, 63 and
BMA:
55 licenses and is also registered with FINRA as a General
The effect of the markets changing 10. With reduced IPOs and Reg A+ private Securities Registered Representative. Mr. Averyt holds a
from fractions to decimals 15 years ago, transactions growing, where do new listings Bachelor of Science in Psychology from Arizona State
University.
was a reduction in the spreads between for market making come from?
the bids and asks. However, the exchanges OTC Markets: BMA Securities LLC
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ence the regulations that limit the market

RESOURCES SECTION
Fatal Flaws and the

Junior Mining Sector
Question: What do Shakespeares plays potential fatal flaws (if they exist) early on,
have in common with investments in rather than chasing metal-price leverage
junior mining? or optionality plays managed by compa-
Answer: Lots of tragic outcomes. nies with marginal projects.
Most of the protagonists in Shakespeares In our experience, quality projects are
plays had tragic or fatal flaws, not unlike more likely to garner an M&A bid because
some projects being promoted by certain they are in short supply due in part to
junior mining companies. falling budgets for grassroots explora-
Our investment thesis for selecting tion programs, Fig. 1. Conversely, owning
junior mining companies involves iden- companies with uneconomic to marginal
tifying the rare quality (economic) proj- deposits is no more than a bet on positive
ects available today and unmasking any market sentiment and rising metal prices.
n BY JOE MAZUMDAR Fig. 1: Major gold discoveries and exploration expenditures

AND BRENT COOK Source: SNL Metals & Mining and S&P Global Market Intelligence)

mining sector, Fig. 2. At the start of an
exploration play, it is never clear where
(or if) a fatal flaw will turn up. Inevitably,
many early stage discoveries generate
considerable share price appreciation as
results suggest the possibility that com-
pany XYZ is on the path to an economic
(real) find.
As the project moves forward, the com-
pany releases increasingly detailed techni-
cal data. This is the point where things can
start to go wrong and potential fatal flaws
surface. It is also the period during which
an investor can make a substantial gain on
a failed project if time was taken to evalu-
ate the companys news in the context of
the likely capital and operating costs of the
project and it was possible to identify the
flaw or flaws ahead of the crowd.
Fig. 2: Junior mining cycle: Where you should buy and sell
Source: Lassonde and Exploration Insights miNiNg projeCt risK assess-
meNt CHart
These plays require almost daily reassess- KNow wHere you are oN
ment of random factors that are beyond an tHis CHart To be able to identify flaws on a project,
investors control, such as global economic a useful tool is a risk matrix. Each of the
and/or geopolitical uncertainty. The following chart is a highly valuable potential risks a project could face is tabu-
tool for speculators investing in the junior lated, Table 1, and graphed on the matrix
as a function of its impact versus the
probability of its occurrence. The matrix is
then colored like a heat map, with the reds
representing risks with a high probability
of occurrence and a significant negative
impact on the project. These hot spots are
what we call fatal flaws.
There are literally thousands of junior
mining companies vying for our attention
and money. It is, therefore, imperative that
they provide us with all the information
needed to make an informed investment
decision. To help us in this process, we
created a chart that shows the majority
of sources of information we rely on and
the degree of success we might achieve in
finding a fatal flaw or flaws by using one or
more of them, Table 2.
Table 1: The heat is on

Source: www.vue-matrix.com

there is no way to value its assets; its like
walking down a grocery aisle with no prices
in sight;
the companys presentation provides a
good overview of what and where it is
focused on and what it intends to find or
mine; and
the news releases provide all the informa-
Table 2: Risk categories for a given project versus their source of information and the
resulting probability of finding a fatal flaw or flaws
tion needed to evaluate the results. They
Source: Exploration Insights should include plan maps with all the trench-
es, samples, and drill locations, including
(and this is important) past results from pre-
tHe sCreeNiNg proCess vious operatorsit is rare that a promising
for filteriNg iNvestmeNt project hasnt seen previous work. Renaming
opportuNities and recycling old dog projects is a favorite
game of junior mining promoters.
We always begin our investigation by
reviewing the publicly available data, a maNagemeNt risKjoCKeys
task often referred to as a desktop study. or Horses?
These sources include the company web-
site and/or presentations, technical reports The investors debate between supporting
filed on SEDAR (System for Electronic jockeys (management) or horses (asset) has
Document Analysis and Retrieval), finan- been prevalent in the junior mining sector
cials, and management discussion and for decades. Unfortunately, given the high
analysis (MD&A). probability of failure, any investor will need
Value of a one-on-one meeting
If the company and the project pass this to look for both a solid management team
cursory assessment, we dig deeper into the and a top-tier project.
geological setting, consult with industry far, the best place to begin. The way the When it comes to a potential M&A
colleagues, and do a background check information is presented is critical: is the transaction, given the number of write-
on the management team. Providing the first image you see on the homepage a downs from the cycle, suitors are ask-
project is still looking good, we follow up sampling crew, a drill rig on site, or a mining for more project de-risking prior to
with a one-on-one meeting with manage- ing truck on the companys operation? any potential transaction. A management
ment and, finally, organize a site visit to You should also make sure that: team, which includes the executive and
complete our analysis. the companys share structure and finan- board members, must have the capacity to
For those inclined to conduct their own cial status are laid out in detail. Without the handle the de-risking.
desktop study, a companys website is, by full share count and working capital details An effective management team should
have excellent technical skills backed by
a previous history of success, relevant
experience and capital market knowl-
For those inclined to conduct their own desktop edge. A competent technical team with no
capital market experience may execute a
study, a companys website is, by far, the best place poor financing plan or sell the project too
to begin. The way the information is presented is cheaply. A capital market-heavy manage-
ment team may get involved in a marginal
critical: is the first image you see on the homepage project with no hope of ever being built or
acquired. Also, a management team with
a sampling crew, a drill rig on site, or a mining minimal insider ownership that considers
the company a lifestyle choice is a sign the
truck on the companys operation? company is best avoided.

Some professionals look good on paper
but are, in fact, unreliable, making speak- Significant execution risks revolve around
ing with management at conferences or by
phone remarkably useful. During site vis- proximity to infrastructure (or the lack thereof) and
its it is possible to observe the interaction
between management and the rest of the
the ability to permit the projects development. If
staff, and make sure everyone is aligned. a company is exploring for or building a mine at
teCHNiCal risKgettiNg tHe the back of beyond of some tin-pot country, the
geology rigHt is CruCial
upfront capital and capital cost escalation could kill
Searching for fatal flaws in the technical
aspects of a project requires further due
an otherwise decent deposit.
diligence based on public sources of infor-
mation (National Instrument 43-101 com-
pliant technical reports) and site visits. extensive footprints that also draw the ire ment teams capacity.
Getting the geology right is critical. The of third party stakeholders. Your ability to find fatal flaws ahead of
market has absorbed a number of failed the crowd is the critical element to profit-
resource estimates over the past few years fiNaNCiNg risKNot a prob- ing from imagined and real discoveries
due to wrongly interpreted geology and/or lem to fuND g&a aND explo- in the junior mining sector. By focusing
faulty metallurgy. ratioN, but No baNK Debt if on reality and discarding enchanted tales
The mineralogy and stratigraphic- its Not feasible emanating from persuasive promoters you
structural controls on mineralization of a will do better over the long run. n
deposit determine if and how the ore can Potential investors in advanced plays must
be profitably mined (open pit or under- consider a companys financial position, Joe Mazumdar is a Co-editor/Analyst at Exploration
Insights. Prior to that, he was a senior mining analyst
ground, dilution percentage, strip ratio) market capitalization, and ability to fund a at Haywood Securities, then Canaccord Genuity. His
and processed (heap leach, milling free project. The number of equity financings work experience includes Director of Strategic plan-
ning, Corporate development at Newmont and Senior
gold, or refractory). in 2016 suggests a recapitalization of the market analyst/trader at Phelps Dodge. Mazumdar
Although grade is often touted as king, junior mining sector. However, the ability also worked in technical roles for IAMGOLD in
it is actually the profit margin that counts to put together a financing package for Ecuador, North Minerals in Argentina/Chile and
Peru, RTZ Mining and Exploration in Argentina,
and the ability to payback the original a marginal project (which includes bank Chile, Peru and Ecuador and MIM Exploration and
capital investment. Note potential suitors debt) is still a significant hurdle. Mining in Queensland, Australia, among others.
Mazumdar has a Bachelor of Science in geology
would seek a quicker the payback for an from the University of Alberta, a Master of Science in
asset located in a higher geopolitical risk summary Geology and Mining from James Cook University and
jurisdiction. a Master of Science in Mineral Economics from the
Colorado School of Mines.
The risks associated with any junior min-
exeCutioN risKgoiNg big ing project are part of the package and Brent Cook
Economic Geologist and Author Exploration
leaDs to bigger HeaDaCHes cant be avoided. The onus is on the man- Insights.
agement team to develop a viable strategy Brent Cook, a renowned exploration analyst and
Significant execution risks revolve around for its asset and execute upon it while miti- geologist, is the author of Exploration Insights,
(www.explorationinsights.com). He has over thirty
proximity to infrastructure (or the lack gating such risks. years of experience providing economic and geologic
thereof) and the ability to permit the proj- All the protagonists of Shakespeares evaluations to major mining companies, resource
funds and investors. He was principal Mining and
ects development. If a company is explor- tragedies had a fatal flaw that sealed their Exploration Analyst to Global Resource Investments
ing for or building a mine at the back fates. In the case of a mining project, an from 1997 through 2003 where he provided analysis
of beyond of some tin-pot country, the extreme risk or fatal flaw has a high poten- to retail brokers and two in-house funds managed
by Rick Rule. He has worked in over 60 countries on
upfront capital and capital cost escalation tial impact and an elevated probability of grassroots through mine feasibility projects evaluat-
could kill an otherwise decent deposit. occurring (red zone on a risk heat chart), ing virtually every mineral deposit type. Exploration
Insights is an independent newsletter that discusses
Large projects can be attractive from a vol- and it will likely end the projects chances what Brent is buying, selling and avoiding in the
ume perspective, but they tend to generate of advancing, regardless of its manage- junior mining and exploration investment sector.

LIFE SCIENCES SECTION
Pricing, People, and Politics

Ending an Era of Bad Management
Innovation is Coming
S o long to the days of finding a new use for an old generic in a small patient popu-
lation and charging a 600% premium, or commercializing drugs with little to no
efficacy (or running over-powered clinical trials in order to achieve statistical signifi-
cance for that matter).
The days of holding on to aging pipelines of drug development policy is the Hatch-
and enjoying hefty annual net-price increas- Waxman Act, which gives drug manufactur-
es are also over. But why is that a bad thing? ers 14 years of exclusivity for their marketed
When did novel drug discovery become drug. The kicker here is the clock starts
pass? When did R&D departments turn when the drug is approved so long as you
from innovation generator to business devel- can prove that you conducted the appropri-
opment validator? Drug discovery and drug ate clinical trials continuously, with a few
development was founded on the notion exceptions. This is ample time to recoup
that through rigorous scientific research and any development costs associated with the
clinical experimentation, we could solve the R&D efforts as well as build a very profitable
worlds deadliest diseases. And the newly business to support future research. The
discovered solutions to such diseases are problem is, biopharmaceutical firms have
meant to have a profound impact on society, used various patent prosecution techniques
not just in the United States, but around the to extend the patent life beyond the 14 years.
world. Not only does this extend the amount of
Every time I see a Hilary Clinton, a Bernie time the drug is listed at a higher price, it
Sanders, or now a Donald Trump tweet also disincentives Pharma from pursuing
about drug pricing my response is dramati- innovation. Why would anyone engage in
cally different than what is exhibited across the 8-year clinical drug development jour-
the pharma and biotech market. I see a ney, spending hundreds of millions of dollars
changing political landscape as a road back on clinical trials, with only a 12% chance of
to supporting true innovation. Lets not focus approval (from IND filing to FDA approval)
primarily on profit maximization but on the when you could essentially do nothing, just
survival of mankind and the resolution of expand your legal team, and sit on your
human suffering, the real goals that motivate currently approved products, growing the
us scientists and the rest of the workforce in business by at least 6-8% per year through
the biopharmaceutical industry. price increases? No brainer, right?! Well,
Today, we have most of the necessary that needs to end, drug exclusivity is limited
framework already in place. We just need for a good reason, now we just need proper
a few minor adjustments and some actual enforcement.
n BY THOMAS BUTLER, MSC, MBA enforcement of existing policies that are cur- Despite the current environment of profit
AND RAMSES ERDTMANN rently being over-stepped. The corner stone maximization, biopharmaceutical innova-

tion is still alive and well. That is, if you stick mercial launch. We have a strong network of worth equity investors and large European
to the ideals of drug discovery and develop- functional experts to help evaluate but also closed-end funds. In addition to co-found-
ment. I listed a few of them in the beginning support the portfolio companies on their ing several companies and serving on boards
of this article. Perfect examples of this in path to clinical or commercial success. of directors, Ramses has also worked with
2016 were Tesaro (TSRO), CoLucid (CLCD), For more information, please visit www. Robert W. Duggan & Associates, provid-
and Akaogen (AKAO). All three companies pointsurinvestors.com ing analysis and due diligence that led to
exhibited true innovation, producing stun- investments in several companies, including
ning clinical data on the back of ground tHomas butler, msC, mba Pharmacyclics, Inc. Ramses began his career
breaking science. Shares of each firm have at Commerzbank AG in Germany, where
more than tripled (+300%) from the produc- Founder and Co-Managing Member he was an investment banker and portfo-
tion of validated clinical data. Focus your Prior to forming the General Partner, from lio manager for international clients. He
investments on innovation, it will always June 2013 through October 2015, Tom man- earned the Diplom Kaufmann degree with
payoff. All three companies represent the aged Investor Relations at Pharmacyclics distinction in Finance and Banking from
type of biotech firm that we continue to Inc., where he helped grow the company the Westfaelische Wilhelms Universitt of
research for future investments here at Point from a market cap of $6.74B to over $21B, Muenster, Germany. n
Sur Investors. which included the execution of one of the
For more information about Point Sur Investors, please
With 2016 now in the books, I am excited largest biotech acquisitions to date. Prior
visit: www.pointsurinvestors.com.
to see how the policy landscape unfolds in to Pharmacyclics, Inc., Tom spent 6 years
2017 and its potential to support innovation as a medicinal chemist at Gilead Sciences
once again. Perhaps this could lead to an Inc. engaging in novel drug design and drug
increase in calculated risk-taking on pro- development for HCV polymerase and pro-
found science that supports new medicine to tease inhibitors. Tom holds an M.B.A. from
make a significant improvement for the bet- the University of California Los Angeles
terment of patients around the world. (2012) and a Masters degree in Organic
Chemistry from the University of California
Santa Barbara (2007). As a research scientist,
Thomas Butler has been awarded numerous
patents in the U.S. and internationally, as
well as published in top academic journals
such as the American Chemical Society
Journal of Medicinal Chemistry.
At Point Sur Investors, we are solely
focused on biopharmaceutical investments. ramses erDtmaNN
We started this fund to help with the inno-
vation of patient friendly therapies that sig- Founder and Co-Managing Member
nificantly improve the standard of care. We Ramses most recently served as the Executive
are a long only fund, we avoid rumors and Vice President of Corporate Affairs for
speculations. Our work is data driven. We Pharmacyclics, Inc. At Pharmacyclics, he
believe that over time valuable innovation helped grow the company from approxi-
in this field will lead to significant value mately 40 employees with a market cap
appreciation. We are experts in this field, of $40M in 2009 to 650 employees and a
as we contributed to create and operate one market cap of $21B in 2015, when it merged
of the most successful biotech companies, with AbbVie, Inc. Ramses was involved in
Pharmacyclics Inc. (formerly PCYC). We the operational expansion of the company
know what a successful biotech company and oversaw various departments during the
looks like and how it operates. We know growth phase including Finance, HR, Legal,
what it takes to develop a novel mechanism Communications, IR, Facilities, Events, and
of action from the first drug design through IT. Prior to joining Pharmacyclics, Inc.,
clinical and regulatory success into a com- Ramses managed assets for US high net-

ENERGY SECTION
OPEC and Oil Stocks in 2017

A fter the OPEC decision, November in Vienna, the NON-OPEC countries are rally-
ing, led by Russia, they have agreed to reduce their monthly output. The reaction was
quick and from a price reference of $45 since early 2016, the new reference is now $50.
The bump in price anticipated by many traders triggered a rally in much of the microcap
US stocks with an average of 20% increase in market valuation among a group of stocks
listed thereafter.
Whats next? bankruptcy. The surviving operators have
First the OPEC members need to follow learned to manage with lower revenue, and
the recommendation. As a reminder, under therefore the higher price is going down
the OPEC deal, Saudi Arabia, will take the directly to the bottom line, this explains
lions share of cuts by reducing production by why prices of such stocks shot up 20% since
almost 500,000 barrels a day to 10.06 million November.
barrels a day. United Arab Emirates, Kuwait WPX Energy, Marathon Oil, Oasis
and Qatar - would cut by a total 300,000 bar- Petroleum, Murphy Oil, and Carrizo Oil &
rels a day. Iraq, agreed to reduce production Gas were among the winners off to the races
by 200,000 barrels a day. Kuwait, Venezuela last month.
and Algeria all agreed to monitor compli- If you look at some of these companies,
ance of the OPEC agreement but there are you understand why OPEC news is impor-
no penalties for non-compliance. It is how- tant.
ever in the interest of everyone to follow Marathon Oil for instance spent much of
the agreement and our opinion is that the the past year repositioning its portfolio so it
members will follow the recommendation. could grow at lower oil prices. These actions
Now the Non-OPEC countries have included sales of non-core assets for nearly
agreed to reduce their output by 558,000 $1.2 billion providing the capital to invest
barrels a day. Lead by Russia, the non- $800 million on additional land in one of
OPEC countries attending a meeting at its core shale plays. This transformation put
OPEC Headquarter on December 9 were: the company in position where it can deliver
Azerbaijan, Oman, Mexico, Malaysia, Sudan, 15% to 20% compound annual production
South Sudan and Bahrain. growth from its shale assets through 2021
Should prices continue to go up? while living within cash flow at about $55 oil.
The first immediate reaction was a higher An oil price which seems to be reachable and
price with a barrel reaching $52 and climb- would allow Marathon to deliver growth at
ing but will it continue? This is where there or above the top end of that range.
are a lot of conflicting agendas. WPX Energy spent the early part of 2016
From a US and Canadian perspective selling assets, including closing the sale of
these announcements are good news because its Piceance Basin subsidiary and San Juan
price is trending up. For the past two years, Basin gathering system for $1.2 billion.
the North American producers have suffered These asset sales enabled the company to
with a depressed price that forced them into clean up its balance sheet and reposition the
n BY FREDERIC SCHEER mergers, staff reduction, debt and eventually portfolio to grow at much lower prices. Thus,

U.S. Energy (NASDAQ:USEG)
Callon Petroleum (NYSE:CPE)
Matador Resources (NYSE:MTDR)
Contango Oil and Gas (NYSEMKT:MCF)
Par Pacific Holdings Inc. (NYSE: PARR)
I wrote this article myself in reviewing

public disclosures, and it expresses my own
opinions. I am not receiving compensation
for it. I have no business relationship with
any company whose stock is mentioned in
this article. Please be aware of the risks asso-
ciated in investing in any of these stocks and
this Article should not be considered as an
invitation to purchase any of these stocks. n
Frederic Scheer is CEO of L6 Chemicals &

Logistics, an Oil trading company. He is also the
CEO of Libra6 Management, Corp, a small private
equity company operating in new alternative tech-
nology, media and chemicals. Scheer was the Ceo
of several public companies including Cereplast a
biomaterial company, the Cannon Group, an enter-
tainment company and Imperials Hotels a hotel
WPX Energy announced that they are in the petition from North America, it looks like
management company.
position to increase oil production by 25% there is a new front line now on the war on
next year at $50 oil and by 50% at $55 oil the oil price and it is Texas versus OPEC.
following year. This war will drive the traders in their
The question now is what will happen evaluation of investing in a few Oil stocks.
to the Price of oil? Will we see $65 a bar- The anticipation of November generated
rel or like the EIA (Energy Information this rally and if you look at the charts of all
Administration) analysis should we expect these stocks, it is a U, value was at the top
to stay below $52 for 2017? According to sev- in Summer 2014 at a bottom in December
eral analysts the level of $55 is the key point 2015 and are climbing back. Can we expect
for shale production to become sustainable to reach the same level from 2014 perhaps
so the question is will OPEC allow it or will not exactly but close to certainly and there is
the price settle around $50 and less than $55. money to bet on the rebound!
Inside OPEC the Saudis need money.
ARAMCO is going public in 2018 so they list of stoCKs we revieweD
need to improve the balance sheet and show for tHis artiCle:
good results and like all the large companies
higher price means higher margins means WPX Energy (NYSE:WPX),
more cash and higher valuation so clearly, Marathon Oil (NYSE:MRO),
they will want a higher price. Iran also needs Murphy Oil (NYSE:MUR),
higher prices. In the past 12 months after the Carrizo Oil & Gas (NASDAQ:CRZO)
sanctions were lifted Iran rushed to go back Pacific Ethanol Inc. (NASDAQ: PEIX)
to output like the prior sanctions period and Tesco Corporation (NASDAQ: TESO)
they continue to do so up to last month but American Midstream Partners LP (NYSE:
like every member of OPEC they will need AMID)
higher pricing. Will $50 enough to satisfy Arc Logistics Partners LP (NYSE: ARCX)
them? Oasis Petroleum (NYSE:OAS)
OPEC must balance price toward com- Abraxas Petroleum (NASDAQ:AXAS)

FEATURED ARTICLE
Cannabis Sector Sentiment

Strong Despite Uncertainty
of Federal Policy
2016 was a great year for can-

nabis stocks, as the market
ended a 23-month downturn in February
regulation of cannabis is sound policy.
After a collapse of 97% from the peak in
March 2014 to the trough in February 2016
and sprinted into end of the year with a big as measured by the 420 Investor Cannabis
run fueled by interest in the elections, which Stock Index, prices exploded. Through
featured 9 different cannabis legalization mid-December, the index was us up 63.4%
votes (5 states for full legalization and 4 for year-to-date to 64.14. For some perspective,
medical initiatives), as well as excitement here is how the market has performed in
over the continuing move towards full legal- 2016, maintaining a large gain despite a big
ization in Canada, where the biggest gains in pullback that began in early November in
the sector were achieved. From a high-level advance of the elections:
perspective, it is very clear where the indus- Cannabis stocks were likely to correct
try is headed in the long-term as society is somewhat after the big run into the elec-
quickly embracing the idea that taxation and tions, as the fundamentals of most of these
n ALAN BROCHSTEIN

companies dont come even close to justify-
ing the valuations, but, despite a landslide for
Cannabis stocks remain highly speculative. Despite
cannabis initiatives, with only legalization
in Arizona failing, the elections introduced the concerns about how the federal government will
a major overhang for the sector. While the
Trump Presidency in and of itself wasnt proceed, the legal cannabis industry is performing
necessarily a negative, the Republican reten-
tion of control of the Senate was a setback, as
well, but the stocks, for the most part, dont really
important legislation that would be benefi- reflect the underlying industry.
cial for the industry has been held up by the
Senate. More importantly, though, Trump
has selected Jeff Sessions as the Attorney For those who wish to invest in the can- for the sector was the first NYSE IPO, a can-
General. Sessions is passionately against nabis sector, the best areas to focus upon nabis-focused REIT, Innovative Industrial
even medical cannabis, and several other include the Canadian licensed producers, Properties (NYSE: IIPR). While the deal,
Trump Cabinet appointments share similar GW Pharmaceuticals (NASDAQ: GWPH) which was priced at the end of November,
views. While its not yet clear how the Trump and the revenue-producing OTC names. The was a bust initially, with the size reduced by
administration will proceed, the entire Canadian story is much better appreciated more than 50% and the price dropping once
industry is at risk due to the reliance upon a today than six months ago, and the stocks it began trading, this stock broadens the base
memorandum issued by the Obama admin- have soared. The country has a robust fed- of potential investors, opening the market
istration in 2013, the Cole Memorandum, erally legal medical cannabis program with to institutions. A lot of money was made
which defined rules for states with legal over 120K registered patients that is growing by people speculating on cannabis stocks in
cannabis programs to follow in order to 10% per month and is on the path to full 2016, and 2017 may be a year when longer-
avoid federal enforcement of the Controlled legalization. Other international markets are term investors will finally have some better
Substances Act within those states. opening up too, including Germany, which options to participate in the growth of the
Sessions isnt yet confirmed and might not is likely to adopt a broad medical cannabis cannabis industry through publicly-traded
be, and Trump hasnt issued any statements program in 2017. As far as GW Pharma, stocks.
since the election regarding his intentions, so it remains on track to file a New Drug
Alan Brochstein, CFA, began his career as a bond
the range of expectations is all over the place. Application with the FDA for its potential
trader in NYC in 1986 with Kidder, Peabody and
Some are not concerned at all, as Trump has blockbuster drug Epidiolex by mid-2017, worked with CS First Boston and Criterion invest-
previously spoken positively about medical with potential approval by the end of the ments until transitioning to equities as a analyst/
portfolio manager in 2000. In 2007, he began AB
cannabis and has said he supports the rights year or early 2018. Epidiolex, which contains Analytical Services, where he provided research and
of states. Others are worried that the entire CBD extracted from cannabis, has been consulting to several investment advisors while also
becoming one of the most popular contributors at
industry could be shut down. The likeli- shown to be safe and effective in late-stage
Seeking Alpha. In 2013, Alan launched 420 Investor,
hood is that there is little risk of pushback clinical trials in the treatment of rare child- an online community focused on publicly-traded
from the federal government with respect hood epilepsies and has broader potential. companies in the cannabis sector, and, more recently,
he began New Cannabis Ventures, a news & infor-
to states with medical programs, but there Finally, I recently identified nine names that mation platform that highlights the most promising
is a reasonable chance that new rules could trade on the OTC that have annual revenue companies and influential investors in the cannabis
be introduced with respect to recreational in excess of $5mm, with some at or near industry. n
cannabis. An extreme view would be that $10mm. Most of these are ancillary com-
www.420investor.com
it could be shut down, but a more likely panies that dont grow, process or sell can-
outcome is regulation that could limit it to nabis, and a few of these have moved to cash
some degree. The genie is out of the bottle, flow breakeven, reducing their reliance upon
though, and trying to roll back legalization external financing.
in four states (soon to be eight) is extremely Cannabis stocks remain highly specula-
unpractical. An alternative extreme view is tive. Despite the concerns about how the
that the Republicans will look to Canada and federal government will proceed, the legal
see the light! How the federal government cannabis industry is performing well, but
will deal with the issue is likely to be the big- the stocks, for the most part, dont really
gest driver of cannabis stocks in 2017. reflect the underlying industry. A milestone

PROFILED COMPANY
amplitech group, inc.

otCqb: ampg
iNtroDuCtioN Awards. As an electronics design and manu- ogy was only available to government divi-
facturing leader, AmpliTech represents a sions and telecommunications giants. Why
AmpliTech was founded by CEO, Fawad source of innovation in high-technology would consumers want LNAs? These high
Maqbool in 2002 to fill the need for high products and is one of the few commodities performance LNAs, once commercialized
quality, reliable, state-of-the-art, RF com- that cannot be replaced by inexpensive labor into high volume consumer applications,
ponents at an affordable cost, with quick forces from outside the U.S. such as next generation cell phones, airline/
deliveries, hassle-free customer service and Low Noise Amplifiers, or LNAs as they hotspot Wi-Fi, drones, automotive radar,
a passion for taking on complex customer are called, are devices that boost the ampli- etc. will greatly improve the quality of life
requirements that competitors would not tude of signals without amplifying the inher- of the average consumer. The actual method
touch. ent noise, thus allowing for better signal of accomplishing this goal is to reinvent our
Mr. Maqbool is a Biomedical and Electrical integrity and extending the distances signals current discrete designs in the form of low-
Engineer and has over 33 years of experience can travel. The improvement of signal integ- cost, specialized, patented ICs, or Integrated
in the design of microwave amplifiers and rity allows for better signal clarity, higher Circuits.
components. He has developed a wide vari- bandwidth and much higher reliability, all
ety of amplifier product lines, from LNAs of which are critical in ANY type of wire- DeDiCatioN to New
(Low Noise Amplifiers) and MPAs (Medium less communication from cellular networks, teCHNologies
Power Amplifiers), to broadband telecom radar, satellite communications in many dif-
amplifiers for the microwave and fiber optic ferent sectors including commercial, military Company R&D efforts are creating designs
communications firms. Among the many and space exploration. The Company man- for a new generation of communications
leading companies were MITEQ, Motorola, ages to minimize research and development products that include automotive sensors,
ITT, Harris, Northrop Grumman, Raytheon, and production costs so that AmpliTechs long range cell tower front ends, high-
L3 Communications, Aeroflex, and TRW. revolutionary technology can be introduced speed satellite internet service, 4G/5G, IoT
Mr. Maqbool has been at the fore-front of to retail and individual consumer markets (Internet of Things) devices and secure serv-
developing, and managing the development in addition to OEM manufacturers of vari- ers/routers that prevent cyber-attacks. These
of high performance, low noise amplifier ous products such as cell phones, handheld are just a few of the many applications of the
products, as well as other amplifier products devices, drones, etc. Companys proprietary LNA technology. In
and has received a Best Technology Award addition to the many communications appli-
from one of the industrys leading trade marKet strategy cations, AMPG will apply its High-Power
magazines, and various Supplier Quality Amplifier (HPA) technology towards Life
As a specialized high-tech provider, Science and medical solutions, especially for
AmpliTech believes in keeping intellectual the non-invasive diagnosis and treatment of
property from leaving the U.S. in the quest to cancers and other anomalies.
save American jobs. The Company business AmpliTech is positioned to provide both
model is to use a contract manufacturer for industry and consumers with new advanced
high-volume production in the U.S. instead technologies and provide shareholders with
of outsourcing to foreign countries. Mr. an experienced management team focused
Maqbools vision is to make advanced tech- on corporate and technical excellence. n
nology affordable enough so it can be avail-
able to individual consumer retailers in the The company paid consideration to SNN or its affiliates for this article.
commercial sector. Previously, the technol-

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Looking Beyond
Lithium
Lithium was one of the best-performing commodities of 2016,
with spot prices more than doubling from below $10,000 per
tonne of lithium carbonate to over $20,000.
The obvious driver is the market for lithium supply woes ahead. Many small and micro- rushing in and staking claims or consolidat-
for batteries. Deutsche Bank has forecast cap graphite companies are out there. When ing assets wherever they can for lithium,
global lithium battery manufacturing capac- evaluating them, make sure they can eco- cobalt, graphite, and all of a sudden theres 50
ity to quadruple by 2020. Everybody has a nomically get to spherical graphite produc- companies traded on the TSXV with lithium
smartphone in their pocket nowadays. And tion, which is needed for batteries. Most of in the name.
electric vehicle sales are forecast to pick up them cant. Thats the nature of the mining sector, the
in a dramatic way, so we need an increase in Theres also more cobalt in a lithium bat- ebbs and flows. It comes in cycles. It may be
supply of lithium to make all these batteries. tery than there is lithium. Its the main ingre- a different metal, but the storys the same.
But theres a host of metals and minerals dient in the cathode. Its cobalt that gives the But the gains are always real. Investors who
that go along with that beyond lithium alone. lithium-ion battery the high energy density can identify microcap companies early that
Theres more graphite in a lithium battery that allows it to power cell phones and lap have the management prowess, dealmaking
than there is lithium, since graphite is the tops for long times. Like weve already seen ability, and capital market experience to get
main ingredient in battery anodes. Hitachi with lithium and graphite, look for new it done will be handsomely rewarded.
recently announced that it is quadrupling cobalt companies popping up this year look- I dont think this is going to play out
its lithium battery anode material producing to ride this trend. overnight. New mineral supply doesnt come
tion capacity by 2020. And China, which And lets not forget about rare earths, online imminently. There is permitting,
produces most of the worlds graphite, has either, which are also needed for todays environmental tests, engineering, mine con-
announced that it is starting to build a hi-tech electronics. That supply is still domi- struction, and many more steps that come
stockpile that will equate to a 20% increase nated by China and new supply will eventu- between listing a company on an exchange
in graphite demand a sure sign they see ally need to come online. and extracting metal from the ground.
We saw a lot of companies run up last year Find the companies that are aggressively
in the initial lithium mania. Some of them pursuing a path to bring new lithium, graph-
were up several thousand percent. ite, cobalt, and rare earth supply online not
These equity gains are being made pos- just a path to market a stock in a hot sector. n
sible by the price disparity in these strategic
Founder and President of The Outsider Club, and
metals right now. The lithium price is run-
Investment Director of Early Advantage, Nick Hodge
ning up because a supply gap is emerging, has been in the investment publishing business since
and so the commodity price is rising so graduating Loyola University in 2006.
Known for a call it like you see it approach to
producers are incentivized to bring more money and policy, his insights have led to numerous
online. You have a situation being created appearances on television and in various outlets on
n NICK HODGE the Web, including the Business News Network and
now where dozens of companies are now
Yahoo!s Daily Ticker.

FitzGerald Yap Kreditor LLP
AwardWinning Business Lawyers for Over 30 Years
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and leverage our experience to deliver unparalleled results.
Contact Lynne Bolduc

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16148 Sand Canyon Avenue, Irvine, California 92618
LEGAL CORNER
The Risks of Engaging Unregistered Finders in Securities Offerings
M any start-up and small-cap companies

seeking to raise capital employ find-
ers to assist in locating and introducing quali-
state securities laws, investors may have the
right to rescind their investment in an issuers
securities on the basis that they were materially
ment in the sale of securities.
While any one or more of the activities out-
lined above may lead a regulator to scrutinize a
fied investors. However, in light of increased misled by not being informed that the finder particular private placement offering for possible
enforcement activity by the SEC and many was not a registered broker-dealer. Some states unregistered broker-dealer activity, the existence
state securities commissioners aimed at unreg- may also permit investors to seek monetary of transaction or success-based compensation is
istered broker-dealers, issuers should be mind- damages from the issuer. Moreover, issuers that one of the two activities that are most likely to
ful of the risks associated with using finders to engage unregistered broker-dealers may be draw regulatory scrutiny and result in the clas-
obtain capital. Failure to do so could result in barred from future private placements under sification of a finder as a broker-dealer.
severe monetary penalties and other negative Regulation D, which is an important element Although early no-action letters to the SEC
consequences, not only for finders, but also for in confirming an exempt offering. did not prohibit percentage-based commissions
issuers and their senior executives, and other There is no bright-line rule for determin- for successful introductions absent any of the
agents who employ them. ing whether a finder effects a transaction in other activities outlined above, in a recent no-
Federal and state securities laws prescribe securities and has therefore acted as an unreg- action request the SEC determined that the
a comprehensive regulatory scheme for any istered broker-dealer. Instead, the SEC and receipt of compensation directly tied to the
person or entity engaged in the business of state securities regulators typically employ success of investments in an offering gave a
effecting transactions in securities for the a facts and circumstances analysis. Under finder a salesmans stake in the offering, there-
account of others. Whether a person char- this approach, finders who merely open up fore heightening the incentive for the finder to
acterizes himself as a finder is irrelevant in their contact lists and make introductions to engage in sales efforts, which, in turn, required
the analysis of the securities administrators. potential investors have not been required to broker-dealer registration. As such, the most
Unregistered broker-dealer activity can register as broker-dealers. In contrast, those cautious compensation route for issuers and
arise in the context of a private securities who take on incremental responsibilities in finders today is to provide a fixed fee for the
offering where persons not registered as connection with an offering often tip the finder, regardless of the outcome of the offering
broker-dealers act as bankers, consultants, analysis toward the need to register. or the success of the finder in introducing inves-
advisers or finders. In these instances, the Activities which have been found to cre- tors. Unfortunately, this is not a possible alterna-
SEC has taken the position that finders who ate a presumption that a finder is acting as a tive for many early-stage companies.
are engaged in such activities and fail to broker include: The second most scrutinized factor is the
become associated with a registered broker- Soliciting prospective investors for an finders prior involvement in securities offer-
dealer have denied investors the protections offering of securities; ings. This provides evidence as to whether the
of regulatory oversight and firm supervision. Offering or providing advice or recom- finder is engaged in the business of effecting
While the consequences to an unregistered mendations with respect to the merits of an securities transactions. However, a finders
broker-dealer can include both civil and crimi- offering of securities, or the likelihood of prior experience and success in raising capital
nal penalties and potential bars from partici- success of the issuers business activities; is often a critical factor in an issuers will-
pating in the securities industry, issuers who Negotiating the price or other material ingness to pay a flat fee that is not based
employ such persons also face adverse conse- terms of an offering of securities; upon success. Without a successful prior track
quences. For example, under federal and many Assisting the issuer with the preparation record, a finder is unlikely to be retained.
of offering documents; In conclusion, any issuer contemplating engag-
Distributing offering or sales materials ing an unregistered finder to assist with a private
or other related financial data; placement of securities should carefully consider
Handling or assisting in the transfer of the compensation scheme paid to such finder,
investor funds in a securities offering; the activities of the finder in connection with
The payment of transaction-based compen- the offering, and the interactions of such finder
sation (i.e., compensation that is based on the with potential investors. In most cases, it may be
size or success of the securities transaction); and more prudent to limit the individuals or entities
n BY ERIC HELLIGE, Esq. AND Previous involvement, the frequency of engaged in the solicitation of potential investors
FRANCESCA DJEREJIAN, Esq. involvement and possible future involve- to those that are registered broker-dealers. n

CompaNy profile oN page 10
C E S I U M - 1 3 1 D E L I V E R S E F F E CT I V E
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