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
24 The Russell Microcap Index, A Current View
Steven M. Shelton, MS, MBA, CFP, CLU,
ChFC, TEP, CIMA, CMT
32 Raising Capital in the MicroCap Market
Karl B. Douglas
36 An Interview with Rick Rule
www.stocknewsnow.com
By Shelly Kraft
46 Five Keys to Attracting Chinese Financing 74 Planet MicroCap Podcast Robert K. Kraft
Drew Bernstein, CPA
75 Cannabis Legal Corner Mark J. Ross, Esq.
54 Regulation A . . . So Far Sara Hanks, Esq. 76 Where
Reddit Have All the Market Makers Gone?YouTube
FriendFeed LinkedIn
56 Investing Alongside Private Equity By Shelly Kraft with Mike Modeski-
David Stein, MSc., CFA OTCMarkets & Greg Averyt -BMA Securities
66 Coming to America Margaret N. Rosenfeld, Esq. 82 Pricing,
Newsvine
People, and SlideShare
Politics Google Google Talk
72 Perritt Capital Management - History of Thomas Butler, MSC, MBA & Ramses Erdtmann
Small Company Stocks Michael J. Corbett 84 OPEC and Oil Stocks in 2017 Frederic Scheer
otC piNK: Drus

Page 24

CUSTOMIZED SOLUTIONS FOR THE COMMERCIAL,

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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,
skraft@snnwire.com
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
rkraft@snnwire.com
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,
info@snnwire.com
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
info@snnwire.com 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!
info@unitronmedia.com getting ahead of itself? Is it time to sell? Just
maybe the microcap bull market is hap- Shelly Kraft, Publisher n
SNN CONFERENCES
info@snnwire.com
424-227-9018

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 The Premier Event in MicroCap Finance
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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
24 The Russell Microcap Index - A Current View
By Steven M. Shelton, MS, MBA, CFP, CLU, CHFC,
TEP, CIMA, CMT
32 Raising Capital in the MicroCap Market By Karl Douglas
36 Interview with Rick Rule By Shelly Kraft
40 High-Powered Gold and Silver are Ready to Shine in
2017! By David Morgan
46 Five Keys to Attracting Chinese Financing
By Drew Bernstein, CPA
50 Chinese Dj Vu
By Louis A. Bevilacqua, Esq. and Kevin (Qixiang) Sun, Esq.
52 Is a Public Company Eligible to Do a Reg A+ Offering?
By John Lowy, Esq.
54 Regulation ASo Far By Sara Hanks, Esq.
56 Investing Alongside Private Equity Tips and
Pitfalls By David Stein, MSc. CFA
66 Coming to America By Margaret Rosenfeld, Esq.
72 Perritt Capital Management History of Small
Company Stocks
By Michael J. Corbett
74 Planet MicroCap Podcast 2016
Highlights and Looking Ahead at 2017
By Robert Kraft
76 Where Have All the Market Makers Gone?
By Shelly Kraft with Mike Modeski- OTCMarkets &
Greg Averyt BMA Securities
86 Cannabis Sector Sentiment Strong Despite
Uncertainty of Federal Policy
By Alan Brochstein
91 Looking Beyond Lithium By Nick Hodge

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

www.stocknewsnow.com MicroCap Review Magazine 7

 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
top-down ETF-driven world. There are still
a few of us out there, however, who believe
that individual stocks can produce returns
far in excess of the market. A good threshold
would be to double the markets returns in
a given time period, and so far in the brief
history of the Microcap Guru, we have had
two such winners, Navios Maritime and
Evolution Petroleum.
n BY JIM COLLINS, CFA
8 MicroCap Review Magazine
We were all conditioned to believe a
Trump Victory would be the worst thing
for the markets, but a funny thing happened
on the way to the Crash. This Trump Jump
has been a lightning move driven by gains
in financials and energy. It has rendered the
fears of most pundits as moot as the opinion
polls, which were once again wrong in call-
ing the election. But is it real?
So, thats when The Guru hits the road and
starts doing the most fundamental part of
equity research: management due diligence.
Id love to have time to fly all over Creation
and visit every corporate headquarters and
manufacturing facility in the world, but
thats not feasible.
So, investment conferences are the next
best thing, and the Granddaddy of Them All
to me, LD Micro, happened recently in Los
Angeles. With 240 companies presenting,
LD is a Microcap-palooza (or something
like that.)
When I started out at Lehman Brothers
in 1992 we had a terrific industrials analyst,
Bob Cornell. Bob referred to the job of equi-
ty analyst as professional cynic and I think
in these bull runs the analyst community
forgets that job description.
So, when management teams are exuber-
ant, as many, but of course not all, were at
LD Micro, I immediately ask myself if it
is time to take the other side of the trade.
Exuberance is healthy; irrational exuberance
is expensive.
The striking lack of volatility in the mar-
kets is a flashing red signal to me. I believe
people are too happy, and that extends to
microcaps as well as the blue chips.
The Russell 2000s volatility index, RVX,
has been just as deflated since the election
as its cousin, the VIX, which follows moves
in option pricing for the megacap S&P 500.
RVX stands at 17.68 as I write this, down
sharply from the 25 level that stood in the
days leading up to the election. So RVX has
collapsed as the VIX has, and actually tested
a 2016 low of 16 in early December before
recovering somewhat in later December.
But microcaps inherently are riskier than
Apple, J&J, JPMorgan and Exxon. Every
investor at LD Micro knows that, and virtu-
ally every management team does as well.
Its the managements that dont understand
that, have the worst presentations, and I tune
them out immediately. Its always good to
have a few minutes to check e-mails or fan-
tasy football scores.
But dont forget to make your macro
decision before you start picking stocks.
Valuations in the Russell 2000 have increased
sharply in the last month, just as they have
in the S&P 500, especially the XLF. So dont
let FOMO--Fear Of Missing Out--drive you
into a buy-high scenario. n
For more information and to subscribe to the MicroCap
Guru Newsletter, please visit: www.MicroCapGuru.com.
www.stocknewsnow.com

MicroCap Guru is a
monthly email newsletter
that delivers actionable insights
from a MicroCap expert.
Subscribe Now at
Subscription
MicroCapGuru.com
www.stocknewsnow.com
Delivered to your inbox every month:
Stock Picks
Each monthly newsletter will contain actionable
recommendations on undervalued, underfollowed
and undiscovered MicroCap companies.
In-Depth Company Specific Research
Each month at least two companies will be
highlighted via detailed Wall Street quality
research notes with earnings estimates,
valuations and price targets.
Macro Context
The MicroCap Guru will also provide research
driven analysis on the overall MicroCap market and
attractive subsectors within the MicroCap universe.
Highly Experienced Analysis
Jim Collins, the author of the MicroCap Guru, has
25 years of experience with major Wall Street
Investment Banks and with his own money
management firm, Portfolio Guru, LLC
Yearly
$595
MicroCap Review Magazine 9
 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

10 MicroCap Review Magazine www.stocknewsnow.com

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
with Cesium-131 brachytherapy with Joe,
and as a result, Joe had Isorays Cesium-131
seeds implanted in August 2015. Prior to
receiving Cesium-131 treatment, I thought
the side effects would be minimal and the
cancer would be gone, Joe said. That is
exactly what happened.
In many ways, it is remarkable that
patients like Joe even have an option like
Cesium-131. The idea of implanting cancer
with radiation (brachytherapy) is not new
Alexander Graham Bell first speculated on
the idea in 1903. [1] And early brachytherapy
showed promise, becoming an alternative
cancer therapy in the 1930s. The problem
was that the only radio-isotopes that were
available for cancer treatments at the time
emitted high energy gamma rays that made
working with them hazardous for both the
patient and for the healthcare worker.
That started to change in the 1960s, when
scientists identified a new generation of
brachytherapy isotopes that emitted more
controlled radiation. These isotopes would
pose little hazard to health care personnel
and would achieve the objective of treating
malignancies more precisely than the higher
energy isotopes.
The initial low dose rate radio-isotope,
Iodine-125, was introduced as an implant-
Prior to receiving Cesium-131 treatment, I thought the side
effects would be minimal and the cancer would be gone, Joe said.
That is exactly what happened.
www.stocknewsnow.com
able seed in 1965, and it drew the attention
of physicians who treated prostate cancer.
But some biologists considered the half-life
of Iodine-125 (60 days) too long to treat fast-
growing cancers. In 1985, Palladium-103,
with its shorter half-life of 17 days, was
introduced as a brachytherapy isotope and
quickly became an alternative isotope, even
as its energy was less than Iodine-125
meaning the radiation penetrated less deeply
into targeted tissue.
Cesium-131, with its short 10 day half-
life and energy comparable to Iodine-125,
seemed the ideal isotope. However, no one
was aware of a means by which to produce
high purity, medical grade Cesium-131.
Cesium-131 by isoray a New
isotope, a New opportuNity
Chemists at the Pacific Northwest National
Laboratory in Richland, Washington, had
developed a means to chemically separate
highly radioactive Cesium-137 from con-
taminated water. The separation process had
been developed at the Hanford Facility in
Richland where a large amount of aging
nuclear material is stored.
Since Cesium-137 and Cesium-131 are
identical chemically, it was theorized that
similar purification procedures should also
work for Cesium-131. With this concept
Isoray was born in the mid-1990s and
soon developed the process for separating
and purifying Cesium-131. FDA cleared
IsoRays Cesium-131 brachytherapy in 2003
for use in all types of cancers and tumors
and was certified for EU sales in 2012.
Pioneers in brachytherapy theorized
about the use of Cesium131 for cancer
treatment, says Isoray CEO Tom LaVoy.
However, scientific and economic limita-
tions prevented development until the late
1990s when Isoray scientists developed the
patented processes to make Cesium-131 a
product.
The Cesium-131 seed delivers a unique
balance of therapeutic treatment and con-
trol, LaVoy continued. Because of its
shorter half-life and higher energy (30 keV)
than the other isotopes, Cesium-131 pro-
vides a fast treatment delivery with low
radiation exposure to surrounding tissue.
Since its introduction over 10,000
patients have been treated using Isorays
Cesium-131.
While the majority of those patients have
been prostate cancer patients, the impact
of Cesium-131 is gaining momentum for
aggressive cancers in the brain, head and
neck, lung, and gynecological tumors, as
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.
The team at Weill Cornell Medical College
noted that Patients with brain metasta-
[1]
(citation: http://www.karger.com/Article/
Abstract/400869)
MicroCap Review Magazine 11
sis who received intra-operative permanent
[Cesium-131] brachytherapy implants saw
an improvement of their neurocognitive sta-
tus and self-assessment of [quality of life].
In addition to the excellent local control of
metastasis, this approach may contribute to
the improvements in cognitive function and
[quality of life.] [http://link.springer.com/
article/10.1007/s11060-015-2009-5]
The Barrow Neurological Institute has
also published their experience on the use
of Cesium-131 for the treatment of brain
tumors. We are seeing 95% local control of
the treated tumors in our study using sur-
gery and Cesium implants, says Dr. David
Brachman, Director of Radiation Oncology,
Barrow Neurological Institute, Clinical
Professor of Radiation Oncology, University
of Arizona College of Medicine-Phoenix. In
addition, we observed a very low rate of radi-
ation injury, which has been a major concern
in the past for patients who have undergone
multiple treatments for their brain tumors.
Another area of excitement with
Cesium-131 is for the treatment of recurrent
gynecological cancers. In a presentation enti-
tled, Permanent Interstitial Re-Irradiation
with Cesium-131: A Highly Successful
Second Chance for Cure in Recurrent Pelvic
Malignancies, Dr. Jonathan Feddock, MD,
Assistant Professor of Radiation Medicine
at the University of Kentucky College of
Medicine at the 2016 Annual Meeting of the
American Brachytherapy Society and World
Congress of Brachytherapy, described 26
implants performed in 21 women who had
experienced recurrent cancers of the uterus,
cervix or vagina.
These women had previously been treated
Cesium is the ultimate solution between the Iodine and
Palladium choice in brachytherapy for prostate cancer. I find our
patients tolerate the short term effects of their treatment quite
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.
12 MicroCap Review Magazine
We are seeing 95% local control of the treated tumors in
our study using surgery and Cesium implants. In addition, we
observed a very low rate of radiation injury, which has been a
major concern in the past for patients who have undergone mul-
tiple treatments for their brain tumors.
with surgery and/or radiation and standard months follow up, they are almost always
of care for retreatment would have been back to their baseline and have essentially
radical surgery with removal of all pelvic forgotten that they did it.
organs. Instead Cesium-131 was implanted. For Isoray Medical, the passion extends
Of the 26 implants, 21 cancer sites remained to both aggressive tumors like those being
visually free of can52cer at a median of 14 treated by Dr. Feddock and Dr. Brachman,
months following Cesium-131 implantation, and for the thousands of men facing prostate
resulting in a local control rate of 80.7%. cancer treatments like those delivered by Dr.
These women were facing very radical Kurtzman.
surgery to address their recurrent cancers Isoray remains fully committed to realiz-
and it turned out that Cesium-131 therapy ing the value-based potential for Cesium-131
offered a much better solution for them, Dr. brachytherapy for cancer treatment, LaVoy
Feddock said. This is the first study utilizing says. As its efficacy continues to reveal itself
Cesium-131 therapy for these gynecologic in the scientific literature for multiple cancer
cancers and we have followed these women types, in the improvement in the quality
closely in order to evaluate the effectiveness of lives for our patients and in the reduc-
of this treatment. We are very pleased with tion of associated hospital days and clinical
the results. visits required with other treatment options
These initial results for treatment of including surgery, I am confident we will see
aggressive cancers provides more patients it near, if not achieve, standard of care status
with hope for their cancer treatments. But for in multiple indications.
today, most Cesium-131 patients are like Joe, Isorays patented Cesium-131 technol-
looking for a better option for their prostate ogy was named as one of 2006s 100 most
cancer treatment. For these men, Cesium technologically significant products by R&D
is the ultimate solution between the Iodine Magazine. In 2010, the company was recog-
and Palladium choice in brachytherapy for nized within the IRS Qualifying Therapeutic
prostate cancer, says Dr. Kurtzman. I find Discovery Program (QTDP), which is a
our patients tolerate the short term effects project of U.S. Department of Health and
of their treatment quite well, Dr. Kurtzman Human Services.
says. When I see my patients at two or three
On the web: www.isoray.com
Contact: Thomas LaVoy, Chairman and
CEO, tlavoy@isoray.com
(509) 375-1202 n
The company paid consideration to SNN or its affiliates for this article.
www.stocknewsnow.com
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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
Venture Exchange with the goal of taking
advantage of the bear market and the com-
pany aggressively embarked on its strategy of
acquiring financially distressed junior min-
ing equities which held high-quality min-
eral assets. According to Patrick Donnelly,
President of FMF, The market was so bro-
ken that it was cheaper to buy a million
ounces of gold than it was to drill a million
ounces.
Mr. Keith Neumeyer, the Chairman,
founder and visionary behind FMF, has a
track record of identifying the bottom of
mining cycles. In the past, Mr. Neumeyer
Keith Neumeyer, Chairman and Founder
Figure 1: NI 43-101 Compliant Resources by Project
14 MicroCap Review Magazine
benefited from similar market conditions
when he founded First Majestic Silver Corp.
and First Quantum Minerals Ltd., which,
under his leadership, became multibillion
dollar companies. During his time at First
Quantum, Mr. Neumeyer assembled the cur-
rent management team and together they
acquired greatly undervalued yet excellent
quality copper assets in southern Africa.
First Quantum was one of the first North
American mining companies to invest in
southern Africa and today its one of the
largest publicly-listed base-metal companies
in the world. When Mr. Neumeyer created
First Majestic Silver in 2003, precious metal
1
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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.

www.stocknewsnow.com MicroCap Review Magazine 15


Science in Mining Engineering, a Master
of Science in Geological Engineering and a
Ph.D. in Geology. Dr. Osterman has thirty
years of experience in mineral exploration
and mining and played an integral role in
the discovery of the San Jose silver deposit in
Oaxaca, Mexico and the Zuun Mod molyb-
denum deposit in Mongolia. Dr. Osterman
is an expert in project reconnaissance and
assessment which has proven to be essential
in assisting FMFs selection of the right proj-
ects to acquire.
The FMF management team is bolstered
by Mr. Patrick Donnelly, who is President of
the company. Mr. Donnelly has a Bachelor
of Science in Geology and a Masters of
Business Administration. He comes with 10
years of experience as a mineral exploration
geologist in Canada and he was a former
base metals analyst with a sell-side securities
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.
16 MicroCap Review Magazine
around the world.
featureD fmf projeCt:
spriNgpole, oNtario,
CaNaDa.
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. Springpole is one of Canadas
largest undeveloped gold projects and it cov-
ers a total of 32,240 hectares. The project is
located in northern Ontario, about 110 kilo-
meters northeast of Red Lake and it hosts an
indicated resource of 4.4 million gold ounces
(128.2 million tonnes grading 1.07 grams per
tonne) and an inferred resource of 0.69 mil-
lion gold ounces (25.7 million tonnes grad-
ing 0.83 grams per tonne). n
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.
The company paid consideration to SNN or its affiliates for this article.
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www.stocknewsnow.com MicroCap Review Magazine 17

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

www.stocknewsnow.com MicroCap Review Magazine 19

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

www.stocknewsnow.com MicroCap Review Magazine 21

 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
projects of Denison Mines (DML.TO) in as 266.8 million pounds U3O8 by 2030 from
exchange for GoviEx common shares, and an estimated 179.3 million pounds of U3O8
now has a portfolio including four projects in in 2015. Over the same period uranium
four African countries: Niger, Zambia, Mali supply is forecast to decline 4%. As a result,
and Namibia. With this acquisition, GoviEx many market analysts are forecasting ura-
obtained its second mining permitted project nium supply to go into deficit by 2020.
at the Mutanga in Zambia. According to a Fasken Martineau paper
The looming uranium supply deficit is the (a leading international law firm founded in
key higher prices in the uranium market. Canada), the permitting of Canadian ura-
Global nuclear power capacities are project- nium projects has historically taken 7 - 23
ed to increase by 44%, from 376.6 gigawatts years to complete, causing a long backlog of
in 2015 to 540.6 gigawatts in 2030. Uranium Canadian projects that will not have their
development permits in time for the upswing
in uranium price that analysts are forecasting.
GoviEx was founded by Govind Friedland,
son of mining magnate Robert Friedland,
whose family background and qualification
in geology from the Colorado School of
Mines enabled him to identify the oppor-
tunity to acquire some of the most prospec-
tive exploration ground in Niger, adjacent
to Arevas mines (producing approximately
7% of global uranium supply for almost 50
years). From 2002 to 2011, Mr. Friedland
was based in Beijing adding to his multicul-
tural background having lived much of his
life in Asia immersed in the mineral explo-
ration industry, providing him a unique
insight into Chinas requirement of clean
Daniel Major, CEO energy.
22 MicroCap Review Magazine
In 2012, as the company transitioned
from exploration to development, Govind
appointed Daniel Major as CEO. Mr. Major
is a mining engineer who graduated from
the Camborne School of Mines in the UK.
Daniels career spans over 30 years in the
mining industry with a solid track record
that includes: production and planning at Rio
Tintos Rossing Uranium Mine in Namibia
and chief planning engineer for the develop-
ment of Amplats Mogalakwena mine. Other
leadership roles include Chief Executive
and later Non-Executive Chairman of Basic
Element Mining and Resource Division in
Russia, responsible for 8% of global ferro-
molybdenum production, and leadership
positions in several Canadian-listed mining
companies with exploration and production
assets in Canada, Russia and South America.
GoviEx has built a strong shareholder base
including some major players in the uranium
mining and nuclear energy industry. In 2008,
Cameco, the worlds largest publicly traded
uranium company became a shareholder,
investing US$28 million and is currently
a 6% shareholder. In 2014, when GoviEx
became a publicly traded company Toshiba
converted their US$60 million loan to equity.
Toshiba, parent company of Westinghouse,
is one of the worlds leading suppliers of
nuclear technology, and represents about
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GoviEx has one of the largest total resource bases amongst its peers with
197Mlb U3O8, with Madaouela in Niger having 117Mlb, Mutanga in Zambia
reported at 49Mlb and 31Mlb at Falea in southern Mali. Within this, global
Measured and Indicated resources are 124Mlb.
one half of the global reactor construction.
In 2015, Ivanhoe Industries, majority owned
by Robert Friedland, an international finan-
cier, a major player in the junior mining
industry, and the founder of Ivanhoe Mines,
acquired a 10% stake in GoviEx. In 2016,
Denison Mines acquired a 25% shareholding
in exchange for its advanced African proj-
ects. These A-list institutions, together with
management and the Board, currently own
approximately 64% of GoviExs common
shares outstanding.
GoviExs acquisition of Denisons African
projects has transformed the company into
an advanced African uranium champion
with a clear pipeline of three advanced, large-
scale development projects, two of which are
fully licenced.
With over US$220m invested in its proj-
ects to date, GoviEx presents a compelling
Figure: Total Mineral Resource (Mlb U3O8)
www.stocknewsnow.com
value as its current market cap is less than
US$30 million despite a strong development
pipeline of projects with advanced metal-
lurgical test work and engineering studies
having been completed on its three principal
development projects.
GoviExs acquisition strategy has targeted
well-established and pro-mining jurisdic-
tions such as Mali and Zambia, which are
major gold and copper producers respec-
tively, as well as Niger, which is the 4th larg-
est uranium producer globally (uranium
exports account for up to 70% of Nigers
annual exports). Given the pedigree of these
mining jurisdictions, GoviExs projects are
located in regions with excellent infrastruc-
ture and access to skilled, mining labour.
GoviEx has two fully-licenced uranium
projects ready for development. As the mar-
ket has taken note of, permitting uranium
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
systematically de-risk the Madaouela project
since discovery while building a portfolio
of advanced African uranium projects with
the strategic acquisition of Denisons African
projects. Management is taking a long-term
approach to structuring financing for the
development of its project portfolio with
an initial sounding of global debt markets
returning a positive result for Export Credit
Agency (ECA) covered debt project financing
for Madaouela. A systematic and integrat-
ed process to structure Madaouelas project
financing has begun, including dialogue with
ECAs, commercial banks, uranium off-takers
and, potentially, strategic equity investment at
the project level, stated Mr. Major.
Despite holding one of the largest ura-
nium resources of its peer group, and two
fully permitted uranium projects in rec-
ognized mining districts with substantial
infrastructure GoviEx, is currently trading
at a 76% discount to the development peer
group average. GoviEx trades at $0.18 per
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.
MicroCap Review Magazine 23
 F E AT U R E D A R T I C L E
The Russell Microcap Index
A Current View
iN brief
Russell Microcap Index has enjoyed a peri-
od of over performance to the S&P 500.
However, various technical indicators and
cycles are warning that a probable top is
expected in 1st quarter 2017, if not sooner.
This major crest will likely lead to a final
volatile ratcheting trend down to a lasting
long term bottom.
The exciting news is that once the antici-
pated low occurs, it will be one of the most
exciting times in modern financial history
to buy equities, especially microcap equi-
ties, a virtual fire sale to take advantage of!
Given this technical outlook, the T-Report
contains these major takeaways:
Index is in a topping process that has somewhat the look and feel of today.
takes time to complete, unlike a bot-
tom which is an event
The Preferred Scenario has Index
approaching a major top, ideally
mid to late 1st quarter or per the
Alternative Scenario, mid/late -
December to early 1st quarter
As for the final low, it is expected
2020+-2 Years
Until more index market action takes
place to allow a more definitive market
top call, a move under the February
n BY STEVEN M. SHELTON
MS, MBA, CFP , CLU,
CHFC, TEP, CIMA , CMT
24 MicroCap Review Magazine
a CORNERSTONE GLOBAL GROUP T-REPORT
2016 low would confirm the long
term trend to down
To well establish these takeaways, the report will
comment on the economic and general mar-
ket outlook, monthly, weekly and daily charts,
Russell Microcap index, Indexs performance,
technical analysis, as well as a conclusion.
eCoNomiC aND marKet
CommeNtary
From an economic perspective the equity
markets, such as the DJIA, are reflecting the
cresting, a long term topping process, of a
250 year cycle.
It began in the 1700s around the time of
the American Revolution and the French
Revolution, a time of great change that
economic and equity market decline. Such
Currently we are witnessing an ongoing
revolution in many parts of the world:
*a revolution at the ballot box (BREXIT,
Trump, Dec. 4 Italian referendum, etc.) and
*a familiar cyclical revolution from glo-
balism to nationalism with an increasing
disdain for the so called elites.
Truly this is an era that has moved from
social optimism, which likely peaked at the time
of the European Unions creation. We now have
moved in a ratcheting trend toward increasing
negative social mood, as reflected in the dis-
sonance within the Eurozone and among voters
globally who feel disenfranchised.
Other shorter term cycles impacting
economies and markets include:
*the Economic Long Wave that entered
its economic winter season in 2000 and is
characterized by deflation
*the Debt/Credit Cycle that peaked in the
hyperinflationary 1980s. This cycle, which
is closely associated with the Economic
Long Wave cycle, has been declining ever
since the 80s and has yet to bottom; an
event characterized by personal and corpo-
rate bankruptcies, debt write-downs, severe
economic contraction and so on that purg-
es the global economies, governments and
commerce of over indebtedness and excess
capacity.
NOTE The bottoms for the Long Wave
Cycle and Debt/Credit cycle are approxi-
mately due 2020+-2 years. This naturally
occurring cleansing process creates the
foundation for the next long term upward
trend.
Looking back over the years, I believe a
recession tends to occur after every 8 year
presidential incumbent leaves office. If true
again, that would fit nicely with an expected
major 1st quarter top and a return to an
a decline should be the end of a secular bear
market that began in 2000 and has yet to
crest, over 16 years and counting. Remember
that the 1966 to 1983 secular bear market
lasted approximately 16 years but that was
not a 250 year cycle crest. Please note the
following charts and accompanying analysis.
NOTETherefore, one would expect
this final trend down to start in the 1st
quarter of 2017 and should take longer
with a more significant decline to a lasting
low. PLUS, the trend down is expected to be
accompanied with high volatility!
russell miCroCap iNDex
moNtHly CHart
The monthly chart is most clear as it
lacks all the noise of the daily chart
Clearly the Index has been in an
uptrend since March 2009, with only
one short downward penetration of
the trend in 2016, the footprint of an
www.stocknewsnow.com

Russell Microcap Index Monthly Chart
Russell Microcap Index Weekly Chart
Russell Microcap Index Daily Chart
Intermediate 4th wave
The labelings are Elliott Wave and are
indicating two probable Index path
scenarios
The Preferred Scenario (blue line
with arrow) would have the Index
ratchet up on the chart to a new crest,
labeled as Intermediate (3), which
would be followed by a corrective
decline and upon completion, it
would lead to a final crest, ideally in
1st quarter 2017 followed by a final
major decline
The Alternate Scenario (red line with
arrow) would have the index move
up one more time and then decline
majorly in late December or January,
much earlier and at a lower peak than
the Preferred Scenario
The TAKEAWAY is this Index is in a
topping process and when complete
will move down toward C Cycle
in the lower right graph corner and
toward Index level 150 but does not
have to go that low, ideally bottoming
2020+-2 years
The probable final Index level and
probable time of crest as well as the
www.stocknewsnow.com
bottom details will become more
accessible as index action develops
russell miCroCap iNDex
weeKly CHart
The weekly chart, while not as clear as
the monthly, exhibits a bit more detail
of weekly moves to include indexs
weekly open, high, low and close
This along with other technical indica-
tors, such as the 50 week and 200 week
moving averages, provide a basis for
trend continuation or trend change
The Preferred and Alternate Scenario
Paths provide more detail and are
expected to exhibit a ratcheting trend
TAKEAWAY, until more index mar-
ket action takes place to allow a more
definitive market top call, a move
under the February low would con-
firm the long term trend to down
russell miCroCap iNDex
Daily CHart
The short term daily chart from May
2015 has substantial detail and likely
beyond what a typical investor is
interested in
However, for those with a penchant
for details, much is offered up in the
dialog boxes printed on the graph
Also, note the Indexs orderly moves
up and down, as it trends up from
February 2016, the final leg up to a
lasting top
In regard to the Scenarios, note the
detail to the Alternate Top in red
and how it relates to the Preferred
Scenario in blue Very coordinated!
A change of Intermediate trend to
down, will take a close under its lower
trend channel and its 50 and 200 day
simple moving averages
A change of Long Term trend to
down, will take a close under the
February 2016 low
TAKEAWAY, The Index is approach-
ing a major top, ideally mid to late
1st quarter or per the Alternative
scenario, mid/late - December to
early 1st quarter
Index will soon provide clues to which
Scenario will be observed by an tech-
nical analyst observing internal mar-
ket action at short intervals of time
baCKgrouND
The Russell Microcap Stock Index is rela-
tively new having been created in June
2005 but the data feed available through
Mets Stock charting system begins in 2008.
Without the long term history as found in
the DJIA or S&P 500 Indices, it make its
analysis more challenging from a historical
technical perspective but still creditable on a
probability basis.
As a refresher, the Index is designed
to measure the performance of the micro-
cap population, which is less than 3% of the
US Equity Market. It currently includes the
smallest securities in the Russell 2000 Index.
According to the Russel Fact Sheet, as of 30
November 2016, the Index contained 1,668
holdings with an average US Dollar weight-
ed market cap of $49.4 million, a median
market cap of $18.6 million and the largest
market cap stock at 2.338 billion.
As an explanation of the three charts
presented earlier, this analyst always starts
with the monthly chart with the maximum
amount of index data available and work
down to weekly, daily and sometimes hourly.
This allows an analyst to view how The
index or an asset has performed market wise
as well as baselining many of the technical
tools employed to include:
*Trend lines and trend channels that
graphically portrays the short term, inter-
mediate and long term trends
*Moving Averages which provide a
smoothing of the trend as well as a change
of trend indicator
*Statistical technical indicators which pro-
vide momentum, strength of trend, volume
and much more
MicroCap Review Magazine 25
 *Chart patterns offer clues to market tops
and bottoms as well as continuation breath-
ers, which are known as corrections, con-
solidations or compressions
*Cycles provide top and bottom tenden-
cies at various cycle lengths
*The Elliott Wave Principle provides a
probability estimate of where the index or
asset is within its current trend, assisting in
predicting probable short term, intermediate
and long term tops and bottoms
russell miCroCap iNDex
performaNCe Has outper-
formeD tHe s&p 500
Russel Microcap Index is up 46% since the
February 2016 low and up 314% since the
March 2009 low
S&P 500 Index is up 25% since the
February 2016 low and up 240% since the
March 2009 low
Russell Microcap Sectors and Styles
currently in a trend of under-performing
to the Russell Microcap Index are:
*Growth Microcap Style have been in
extreme under-performance, beginning in
September 2016
*Health Care Sector has been in a wide
amplitude ratcheting trend of under perfor-
mance since October 2016
*Technology Sector has been one of
under-performance since October 2016
*Consumer Discretionary is currently
under-performing since early December
2016
*Energy Sector has been in under-per-
formance since December 2016 but has the
look of a trend that may move back to over-
performance
*Materials and Processing Sector has
been in an trend of under-performance
since early December 2016
*Utilities Sector were in very strong trend
of over-performance since 2015 but have
moved to under-performance in July 2016
and more in October 2016
*Product Durables Sector have been in
26 MicroCap Review Magazine
a period of sharp under-performance since
early December 2016
Russell Microcap Sectors and Styles
currently in a trend of over-performing to
the Russell Microcap Index are:
*Value Microcap style is extremely over-
performing, beginning in September 2016
*Consumer Staples Sector is currently
in a trend of over-performance since early
December 2016
*Financial Services Sector has been
primarily in a trend of extreme over-per-
formance from February 2016 but since
October has gone nearly vertical
Technical Analysis is concerned with
the individual index or asset price market
action, which creates a trend that tends to
persist. The concept is to isolate the trend
as early as possible and ride the trend for
as long as possible to end of trend, which is
the beginning of a new trend. It is assumed
the index or asset price reflects all that is
known or perceived or believed, thus at each
close the price or index value is a permanent
chartable fact and are not modified as are
estimate in fundamental analysis.
In summary, the combination of both
approaches is ideal, as technical analysis tends
to alert the analyst of potential market actions
before the fundamentals appear, at which
time it confirms or disaffirms the technicals.
CoNClusioN
The Russell Microcap index combined with
technical analysis may very well provide a
microcap investor a trend compass in this
aggregate asset class, a general guide to
consider when to invest, go short, or divest
microcap equities as well as provide insight
into the trends and relative performance of
sectors and styles. Now is the time to be on
the alert for a change in trend and to be pre-
pared to take action to preserve wealth and
enhance wealth. An exciting and high profit
potential era lies ahead as microcaps trend
to its destiny is fulfilled ! n
Steven Shelton is a Financial Services veteran of more
than 30 years, having served in senior management
in both the insurance and broker/dealer community,
on and off shore. He has expertise in economics,
financial market analysis, wealth management, tra-
ditional and alternative investments, financial plan-
ning, marketing, insurance, sales and consulting as
well as an international speaking regarding global
economics and financial markets. This is evidenced
by advanced degrees in business administration and
economics as well as six professional designations
to include, Certified Financial Planner, Chartered
Life Underwriter, Chartered Financial Consultant,
Certified Investment Management Analyst, Tax and
Estate Practitioner and Chartered Market Technician.
He is the Managing Member of Cornerstone Global
Group LLC, an Institutional consultancy and finan-
cial services publishing entity
Steven M Shelton CFP, CLU, ChFC, TEP, CIMA,
CMT
Cornerstone Global Group LLC
Office: 773-697-8021
Cell: 773-294-8174
steven.shelton@cornerstoneglobalgroup.com
www.cornerstoneglobalgroup.com
Cornerstone Global Group LLC, 3240 North Lake
Shore Drive, Suite 11-D, Chicago Illinois 60657, pro-
vides institutional consultancy on financial services
marketing, distribution and product/service develop-
ment to and for institutional use only.
Cornerstone Global Group LLC is also the newslet-
ter publisher of the CGG Global Market Technical
Report, CGG Technical Research Notes and other
publications, all of which are informational services
and may include opinions as to buying, selling, hold-
ing various securities, asset allocation and strategies.
However, Cornerstone Global Group LLC, its own-
ers, employees and consultants are not investment
advisers. At no time may a reader, caller, viewer or
consultancy client be justified in inferring that any
advice is intended as investment advice or as invest-
ment recommendations directed to any particular
person or in view of the particular circumstances of
any particular person. Investing carries risk of losses,
and trading futures or options is especially risky
because these instruments are highly leveraged, and
traders can lose more than their initial margin funds.
Before investing consult with your investment advi-
sor. Additionally, Cornerstone Global Group LLC
does not render tax, accounting or legal advice and
the information contained in this communication
should not be regarded as such. Information pro-
vided by Cornerstone Global Group is expressed in
good faith but is not guaranteed in any way.
www.stocknewsnow.com
 An investment in clean water
returns health and hope.
LOVE WATER-providing access to clean water in order to restore
health and create opportunity in global communities, and
to lighten the burden of living one family at a time
Love Water, Inc is a 501C3 non-profit organization. Tax ID #90-0838636 www.lovewater.org @lovewaterorg
www.stocknewsnow.com MicroCap Review Magazine 27
 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
for the next century1 adding, investors who
know how to play the infrastructure boom
will reap huge rewards. With global water
consumption doubling every 20 years, they
predict that by 2025 about one third of the
global population will not have access to
adequate drinking water.
existiNg water treatmeNt
teCHNologies are
expeNsive aND ofteN
iNaDequate
After examining data from more than 36,000
water samples collected nationwide by the
U.S. Environmental Protection Agency from
2013 to 2015, Harvard researchers found
unsafe levels of toxic chemicals in the drink-
ing water of 33 states2. In 2016, a USA Today
Investigation reported that after analyzing
samples from 2012 through 2015, unsafe
1 http://www.telegraph.co.uk/finance/
newsbysector/utilities/2791116/Water-crisis-to-
be-biggest-world-risk.html
2 http://news.harvard.edu/gazette/
Dennis Calvert, CEO story/2016/08/unsafe-levels-of-toxic-chemicals-
found-in-drinking-water-of-33-states/
28 MicroCap Review Magazine
drinking water was found with excessive lead
levels in All 50 States3.
While some of the violations involve
pathogens such as Legionella, most violations
appear to involve recalcitrant contaminants
such as lead and mercury that are difficult to
remove with existing water treatment tech-
nologies. The EPA lists4 over 80 potentially
harmful contaminants found in their Table
of Regulated Drinking Water Contaminants,
most of which are difficult for existing water
treatment plants to remove. Some of the bet-
ter-known contaminants are: lead, arsenic,
mercury, nitrate, benzene, and pharmaceuti-
cal residues.
For the most part, modern water treat-
ment plants perform reasonably well for
disinfection, albeit with high capital and
operational costs. However, based on the
numerous water safety violations, water
treatment plants can fall short when it comes
to removing recalcitrant contaminants.
3 https://weather.com/health/news/lead-
contamination-water-usa-today-study
4 https://www.epa.gov/ground-water-and-
drinking-water/table-regulated-drinking-water-
contaminants
www.stocknewsnow.com

Figure 1
teCHNology gap witH
CurreNt water treatmeNt
teCHNologies
Today, chlorine remains one of the most
commonly used water treatment technolo-
gies for standard disinfection processes, but
is under increasing scrutiny due to envi-
ronmental concerns regarding its potential
byproducts. UV (ultraviolet light) is gaining
popularity because it does not leave any toxic
residue or byproduct, however, it is costly to
purchase and operate, requiring substantial
input energy. Ozone is another technology
that can be effective, but is very expensive
to purchase and operate, and requires high
levels of input energy.
Filtration and membrane technologies are
also commonly used to filter out unwanted
contaminants, but they are fraught with
high maintenance costs and biofilm fouling.
Some, such as reverse osmosis systems, often
require significant energy and can have lim-
ited efficiency.
The world needs more effective clean
water technologies that are inexpensive to
build and inexpensive to operate in order to
meet the ever-increasing demand for clean,
safe water.
www.stocknewsnow.com
biolargos aos:
breaKtHrougH lowest
Cost - HigHest impaCt CleaN
water teCHNology
Figure 1 BioLargo AOS Alpha Unit Built by
Northern Alberta Institute of Technology
After millions of dollars in R&D and more
than 30 government grants (and counting),
BioLargos research and development team
recently showcased the first pre-commercial
prototype of its patented AOS water treat-
ment system, billed as the lowest cost and
highest impact, scalable clean water technol-
ogy in the world.
Test results show that the AOS achieves
unprecedented rates of disinfection, and
eliminates infectious biological pathogens
such as Salmonella enterica, Listeria mono-
cytogenes and E. coli. The AOS has been
shown to be 100x more effective at eliminat-
ing Salmonella than the best-in-class poul-
try production water disinfectant, chlorine
dioxide. The AOS has also been proven
effective in the elimination of toxic oil & gas
water contaminants such as naphthenic acids
and polyaromatic hydrocarbons. Research
suggests the AOS also has the potential to
remove soluble chemical contaminants such
as acids, solvents, sulfurs, pharmaceutical
by-products, nitrates, phosphates, mercury,
copper, lead, aluminum, and most contami-
nants identified by the EPA. Lab-scale test-
ing is planned to verify efficient removal
of these contaminants. Past results confirm
that the AOS can match the best-in-class
technologies in performance at destroying
soluble organics while using less than 1/20th
the energy and operating more than 10X
Test results show that the AOS achieves
unprecedented rates of disinfection, and eliminates
infectious biological pathogens such as Salmonella
enterica, Listeria monocytogenes and E. coli.
faster than the commonly accepted industry
protocol, hydrogen peroxide and ozone.
The AOS is scalable and modular in
design. The AOS is also unique in its ability
to deliver residual iodine where the custom-
ers desire, or it can remove residual iodine as
needed. Its flexibility allows it to be built to
meet a wide variety of capacity and flow-rate
requirements, and the company is already
working on what it calls Gen 2 for ultra-
high flow rates. The AOS Beta, which will
feature full data-logging and automation
features, is planned for early 2017.
biolargo aND iNDustry
giaNt CHiCago briDge &
iroN form relatioNsHip to
implemeNt aos aND otHer
biolargo teCHNologies
BioLargo recently announced a new rela-
tionship with CB&I to support implemen-
tation of BioLargos advanced water and
air technologies and provide independent
performance verification. News of the CB&I
relationship sends a signal to the investment
world and to big industry that BioLargos
advanced water treatment technology has an
important contribution to help make clean
water affordable in a wide variety of indus-
tries. The relationship also sets the stage
to pursue business opportunities in which
BioLargos technologies or products will be
used to serve clients of CB&I and BioLargo.
With 40,000 employees and a 2016 back-
log of $20 Billion, CB&I is a world-leading
engineering, procurement, fabrication, and
construction company, and a provider of
environmental and infrastructure services.
MicroCap Review Magazine 29

BioLargo recently announced a new relationship
with CB&I to support implementation of
BioLargos advanced water and air technologies and
provide independent performance verification.
CB&I builds oil refineries, liquefied natural
gas terminals, wastewater treatment plants,
offshore platforms, and power plants. CB&I
is the worlds largest storage tank construc-
tion company, with tanks constructed for
the oil & gas, mining, municipal water, and
wastewater industries. They are also actively
involved in the remediation and manage-
ment of hazardous waste.
According to BioLargo CEO Dennis
Calvert, all of BioLargos technologies can
serve a wide array of industrial customers.
He adds, Our mission to make life better
includes helping industry tackle operational
cost challenges effectively. That intersection
of service is likely where our new relationship
with CB&I will shine the brightest and we
look forward to working with the exceptional
team at CB&I to serve industry.
biolargo proDuCts for
CleaN air aND aDvaNCeD
wouND Care also fiNDiNg
CommerCial patH
Since the first sale in May of 2016, BioLargo
has focused on marketing its CupriDyne
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.
30 MicroCap Review Magazine
Clean industrial odor control prod-
ucts for the large waste-handling markets.
Management reports, We have a number
of trials underway with leading companies
in the waste-handling industry, and the feed-
back from customers confirms our belief that
they want and need a reliable and afford-
able solution to their inherent odor manage-
ment issues. CupriDyne Clean eliminates
powerful odor-causing compounds like H2S
and ammonia instantly on contact, thereby
maintaining clean, safe, and healthy air. The
product is safe and non-toxic for humans,
animals, and plants. As the word gets out,
and after clearing the usual lengthy hurdles
involved with becoming a vendor for large
corporate and government accounts, man-
agement believes that sales will grow with
national supplier contracts.
In January of 2016, BioLargo announced
that its Clyra Medical subsidiary closed
a $5.75 million financing package for its
Advanced Wound Care products. Cash of
$750,000 was earmarked for Clyra to com-
plete its product development work, testing,
labeling and ultimately its FDA application
and approval which, due to the successful
development work over the past year, is now
scheduled 2017. An additional $5 million
line of credit was committed by the inves-
tor to support commercialization once FDA
approval is complete. Clyra is targeting late
2017 early 2018 to be ready for market.
looKiNg aHeaD
The opportunities for BioLargo to make a
meaningful contribution for a healthy world
are massive. The company has invested years
developing, refining and validating innova-
tive products to make life better. As the
Company continues to recruit highly quali-
fied people, engage strategic relationships,
and properly capitalize various business
opportunities, management believes its tech-
nology and products will continue to find a
successful path forward to significant com-
mercial success as well as an important con-
tribution to helping people and the planet. n
The company paid consideration to SNN or its affiliates for this article.
www.stocknewsnow.com
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MicroCap Review Magazine 31
Boards and institutional investors since 2009.
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 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 evolv- ing 2016:
n BY KARL DOUGLAS
ing. With the winds of opportunity filling

32 MicroCap Review Magazine www.stocknewsnow.com

 US Listed Companies by Exchange
Exchange Total Listed
Amex
Nasdaq
NYSE
OTCBB
OTC
Table 1: Microcap companies under $250M by exchange, Source: TD Ameritrade.
uNDerstaND tHe marKet
Just understanding that youre competing
with almost 6,000 companies for capital
is a great start! The most common point
among the successful CEOs and other man-
agement officers that we met during the
year was that they understand the market
dynamics very well. They understand that
there are many institutional investors seek-
ing out-sized returns, seeking alpha based
on pure fundamentals of equities listed in
the inefficient OTC market. Gone are the
myths that institutional investors do not
invest in Microcaps. Their conviction was
bolstered by the knowledge that over 1420
of the Microcap companies currently have
institutional ownership of over 10%.
Most companies recognized that NASDAQ
was the ideal exchange on which to be listed.
But most recognized that there is value to
being listed on the OTC. In general most
understood that there was significant interest
in various forms of PIPE (Private Investment
in Public Equity) offerings. And for good
reason, according to the PrivateRaise.com,
$82 Billion in PIPE transactions were com-
pleted during 2016.
Table 2 PIPE deals completed in 2016, Source: PtivateRaise.com
www.stocknewsnow.com
Microcap
319 224
2538 1074
2691 298
74 67
4586 4256
10208 5919
iNstitutioNal iNvestors
seeK value
Management for the most successful trans-
actions we observed understood that funda-
mentally speaking, Microcap investors are
bargain hunters. They are looking for com-
panies that can grow at outsized return rates.
If your company is growing at a compound
annual growth rate that is no different to the
more seasoned larger mid cap companies, its
difficult to justify Microcap risk. Many of
the more successful companies offered ven-
ture and private equity value propositions.
We feel this is a critical success factor, and
that both in deal structuring and marketing,
it is necessary to offer venture and private
equity returns with the promise of a built in
eventual liquidity event as the market for
the securities develops.
Successful capital raises typically have an
institution on board well before going public.
Successful management teams generally
leverage existing institutional relationships to
help develop the public market for their shares.
Its important that CEOs understand that their
shares are designed to be sold. And large buy-
ers are generally institutions that are familiar
with the story. Whos in the deal is often as
important as the deal itself. Prestigious insti-
tutional presence often denotes that someone
did significant due diligence and vetted the
company and its management.
Although Microcap institutional inves-
tors are value investors, they are driven by
the need for capital preservation. Capital
Preservation is code for do we trust manage-
ment. Is there meaningful governance in
place?. By attracting a major institution in
the stock, and leveraging company relation-
ships with the anchor institution CEOs can
generate a significant ownership base.
For early stage companies, the right
institutional investor can be the difference
between long term capital raising success
and falling into the OTC no mans land. Its
all about sponsorship: Consider that most
institutions queue up to invest in venture
and PE funds. They do this for the profes-
sional management that ensure proper gov-
ernance and board structures are in place,
as well as proper management policies and
procedures are implemented. So even if it
takes a deep discount to attract an influen-
tial institution, we recommend the practice.
Just make sure the institution in question
is committing to put their name on the
deal and work with management to do the
work necessary. We strongly recommend
recruiting a strong institutional investor to
sponsor a transaction as critical success
factor. Not only does this create the right
perception of a company and its manage-
ment, but the side benefits of oversight and
proper governance help to avoid many of
the strategic mistakes often committed in
the Microcap space.
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
cheaper with effective management, perfor-
MicroCap Review Magazine 33

Table 3 PIPE Investments in 2016 by type. Source: PrivateRaise.com
mance and solid corporate governance and
many investors paid attention.
The successful CEOs developed a deep
management bench, and allocated a significant
amount of time pitching buy side investors
on the fundamentals of their story. The suc-
cessful companies went well beyond the tradi-
tional IR, and went to direct email campaigns
to institutional investors, as well as a consistent
presence at the major conferences.
Public relations is an area that many com-
panies overlook. We noticed a trend toward
more PR than IR. After all PR is generally
more targeted at marketing the products and
services of the issuer than marketing the
stock. But an effective PR campaign has an
added benefit that many investors will look
to invest in what they see selling.
Dual listiNg:
Several international markets offer ways to
augment liquidity development by attracting
alternative investors. High net worth retail,
often viewed as a necessary component of a
robust liquidity strategy, is a very tough nut
to crack in the US for newly listed issuers.
Brokers typically cannot solicit retail orders
of shares under $5 per share. And many US
retail broker dealers have moved to man-
aged money platforms as compared to stock
picking. This limits retail orders to investors
that hear about the company through public
relations exercises.
However our neighbors to the north offer
several well regulated exchange venues and
retail brokers that perform more tradition-
al investment banking roles, recommend
high value opportunities to no-US investors.
Although dual listing on Canadian exchang-
es doubles regulatory obligations, its well
worth it if management can get the backing
34 MicroCap Review Magazine
of a good investment banker. We have had
success with firms like GMP Securities and
Canaccord Genuity. Australia also offers
compelling investment options through the
ASX. And like Canada, offers more of a
traditional investment banking option for
microcap companies. In fact, Australia pro-
vides a gateway to other Asian investment
markets.
alterNatives to equity.
Growing the balance sheet doesnt always
require equity offerings. In fact we saw sev-
eral companies achieve significant growth
during 2016 without any significant equity
issuance. In many case companies were
able to access debt at competitive rates in
the BDC business development company
market. BDCs offer debt to companies
with historical cash flow, where sometimes
the borrowers fall short of traditional bank
criteria. Many BDCs consider the full dis-
closure of public companies as a benefit. In
addition, for early stage companies, venture
lenders and receivables finance are excellent
low cost alternatives to equity issuance.
Although basically an equity structure,
ATM transactions allow companies to access
capital with less equity sales. Its sell as you
go! ATM or At-the-Market offerings were
the second most popular form of PIPE during
2016. 37.4% of 2016 PIPES were ATM deals.
This relatively new structure is best suited to
issuers with well developed liquidity and also
ability to complete a registration statement.
During 2016 many ATM transactions were
completed at less than 8% discount to market,
with no warrants. This new structure is often
misunderstood by issuers and confused with
toxic convertible notes. The primary differ-
ence is a note allows to owner to convert and
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
capital raisers in 2016.
De-risK your Deal for your
auDieNCe -
In the current market there is no substitute
for authenticity. The days of the basic all
upside, no competition pitch are over. We
have seen this trend develop over the last
few years. Successful managers are actu-
ally helping their investors to de-risk a
transaction by frankly and openly defining
the risks and weaknesses their companies
face. Speak openly about your competitive
threats. Its your strategy to outmaneuver
the competition which is important. And
use the competition to show what a great
value you are offering. Although this may
seem counterintuitive, portfolio managers
are more concerned with identifying the risk
in a transaction than in identifying the huge
growth that most CEOs think they are inter-
ested in. Preparation of investment materi-
als which go beyond basic risk factors to an
in depth analysis, often lead to a meaningful
conversation, and positive results.
These critical success factors are far from
comprehensive as issuers need to put sig-
nificant effort into choosing service provid-
ers such as investment banks, advisors and
counsel that have a proven track records.
We compiled this list because selecting an
simply effective IB, counsel, an audit firm
and IR firm is not an automatic formula
for success. As with everything success is
usually a function of hard work and tireless
attention to detail. The seven extras we
identified are common among many suc-
cessful Microcap CEOs. We hope list will
dramatically improve your chances of a suc-
cessful capital raise in 2017! n
Karl Douglas is President of PPMT Capital
Advisors, a private investment firm based in NY.
www.stocknewsnow.com
 Wounded Warrior Project
helped me reclaim my life.

WOUNDED WARRIOR
SEAN KARPF

HELP MAKE AN IMPACT AT iamlivingproofwwp.org

www.stocknewsnow.com MicroCap Review Magazine 35
2016 Wounded Warrior Project, Inc. All Rights Reserved.
 F E AT U R E D A R T I C L E
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
Rick Rule
SK: Rick, lets start out with an overview of
what you do?
RR: I run the US and part of the International
Business of Sprott, Inc. We manage or admin-
ister about $11 billion dollars principle in nat-
ural resources and precious metals. In truth
Im a credit analyst, but I do a lot of equity
work as well. I help run worldwide portfolios
in natural resources and precious metals.
SK: Lets get an update on the market?
Commodities prices surged higher and
then came down. Where are we now?
RR: Precious metals equity markets were
overbought last summer, that was pretty easy
to see and those over valuations have corrected
somewhat, sort of 20%. My suspicion in the
very near term is that the markets being over-
sold will recover a little bit, but I think it will
retest the lows. My suspicion is that the bull
market will get underway in earnest again, sort
of in February or March of 2017. The truth is, I
think were in the 3rd inning of a 9 inning ball-
game. I think we have a lot further to go, but we
might go lower before we go higher.
SK: What was the biggest surprise to you
in 2016?
RR: I guess there are two surprises that
were extraordinary. One, I knew 2016 would
be a good year in precious metals. I didnt
n BY SHELLY KRAFT
36 MicroCap Review Magazine
have any sense it would be up 100% in the
precious metals equities.
The second thing and this is also a pleas-
ant surprise. Unlike the last bull market in
2001, the precious metals mining companies
havent greeted the bull market by doing a
whole bunch of stupid things with their new
found wealth. They have actually done a
pretty good job with their money. I suspect
given how many mining CEOs got fired in
the bear market, that this new found intel-
ligence could last for two of three years to the
benefit of all concerned.
SK: When you talk about using the money
smartly, do you mean drilling and putting
money in the ground?
RR: I mean, no dumb acquisitions yet and
not putting marginal projects into produc-
tion yet. No boards of directors increasing
their emoluments four-fold, year-on-year.
Gold mining companies for the first time
in my lifetime are being run as businesses
as opposed to warrants on the gold price.
Which in my opinion is really wonderful.
SK: On a scale of 1-10, how would you
rate 2016 with 10 being the best and how
do you feel 2017 is going to be on a scale
of 1-10?
RR: 11.2, on a scale of 1-10 for 2016, I had
suspected 35% or 40% compound internal rates
of return. 35% internal rate of return is aston-
ishing. If youre asking for 35% and somebody
gives you 100%, thats truly off the scale. My
suspicion for next year, is what my suspicion for
this year was. I would be very happy to see the
juniors composite index up 35% or 40% next
year. Believe me, I would be delighted to see it
up 100%, but thats not an expectation I have.
SK: Which group did the best over the
course of 2016 in your opinion; the explor-
ers, the developers, or the producers?
RR: None of the above. The optionality plays,
the people had very large deposits that werent
economic at $1,100 gold, but might have been
economic at $1,500 gold. The optionality plays
were up an average of 500%. On a risk adjusted
basis of course the big producers did the best
because they did well and they didnt have
too much risk associated with them. I suspect
market leadership will change in 2017 though.
SK: What about Mergers & Acquisitions?
RR: In 2017, M & A is going to continue.
The truth is, that the whole industry needs
less general and administrative expense rela-
tive to assets and the way that you do that is
through M & A, making redundant teams
disappear. Now, the best of the best targets
have begun to disappear, but this is interest-
ing news for speculators too. You know, the
industry has had a dearth of exploration and
expenditures, which means the industry, as
a whole, is shrinking. Gold production will
begin to fall by 2018, every other thing left
unsaid. What that means is that the better
exploration discoveries; the higher quality
discoveries, the Reservoir Minerals of the
world, the Kaminaks of the world, will disap-
pear into the jaws of larger mining compa-
nies and they will do so at eye popping pric-
es. Very high quality new discoveries will go
away much in the way that they went away in
the 1990s at prices that surprised everyone.
SK: So they dont disappear, they just have
new ownership?
RR: Thats correct and by the way, Im
happy to surrender my ownership for correct
compensation.
www.stocknewsnow.com
SK: In reality, miners havent stopped min-
ing. Theyre taking their own resources out
of the ground. How are they going to replace
them? Im not talking about the giants, like
the Barricks (ABX) going out, Im talking
about the smaller mining companies. Where
are they getting their new gold?
RR: Its true on all levels Shelly. Barrick
(ABX) is becoming a smaller company too, but
what you say is very important for your read-
ers to understand. This is not a business like a
supermarket, where fresh groceries come in
the back and go out the front. Every day you
mine, your business gets smaller and the truth
is, the industry is under invested over the past
four, five, or ten years. Now, part of this is a
natural and normal function thats happening
across all businesses, called outsourcing. The
junior mining companies have cheaper access
to capital than the senior mining companies
because they have less of a book value to
defend. So, in one sense the explosion of junior
mining companies is a function of outsourcing
the exploration function from the majors to the
juniors. The truth is though, that this means
successful efforts will become increasingly
valuable. When the major mining companies
begin to expand as opposed to contracting, and
the CEO calls down to the exploration depart-
ment, hell be reminded by the CFO that he
laid them off three years ago.
SK: How do you feel about the global growth
in the mining and resource industry?
RR: That is a very important question for
your readers to understand Shelly. The truth
is, the deposits are where you find them
and the easy to find projects in places that
are regarded as safe, have already mostly
been found. All those deposits that we could
stumble over in Nevada are in production.
The big deposits we find worldwide are going
to be in places that are regarded as trickier
and have been less well explored. Theyll be
in big Metallogenic belts, like the Tethyan
Metallogenic belt*, and theyll be in Chile, or
the Congo, theyll be in places that we are less
comfortable going to. Not necessarily places
that have more political risk by the way, just
www.stocknewsnow.com
places that have political risk that were unfa-
miliar with. There is all the political risk that
you need in the United States, but the truth is,
the big deposits will be found elsewhere.
oversold industrial materials, notably iron
SK: So if you wanted to advise investors about
the gold market, about what they should do,
give us a timing answer and give us a little bit
of direction from an expert from Sprott Group.
Tell us what you think and what you tell
your own investors?
RR: Traditionally, gold has been a flight to
quality style asset. Its competed with the U.S.
10-Year Treasury. Jim Grant, defined the U.S.
10-Year Treasury as return free risk. Meaning
the government absolutely, positively guaran-
tees to give you back less than you gave them.
What that means, is that its a less viable com-
petitor and that means gold should do well.
The first thing I can say, is if you dont own
gold, buy some gold. Preserve your purchasing
power. If youre prepared to take implementa-
tion risk, if youre prepared to speculate, buy
the gold stock. As the gold price goes up, the
earnings of gold mining companies will go up
and the share prices will follow.
*The Tethyan Metallogenic Belt (TMB),
extending from Europe through Anatolia to
Iran, is one of the worlds major metal pro-
ducing belts, and consists of many sectors.
In addition Rick added:
It is worth noting that the dollar strength
credited to the election of Donald Trump,
and to the recent interest rate rise has led to a
substantial weakening of the gold price, and a
more dramatic weakening of gold related equi-
ty prices. Investors and speculators may want
to consider whether the quarter point increase
in rates is sufficient to make US treasuries via-
ble investments, and whether Trumps policies,
(maintaining entitlements, restricting trade and
immigration, increasing infrastructure spend-
ing) are policies that would either be good for
the economy, or make a dent in the federal gov-
ernments $20,000,000,000,000 in on-balance
sheet liabilities, or the $120,000,000,000,000
in off-balance sheet liabilities. On my own
account, I prefer gold to the promises of any
Politian, including Mr. Trump.
Investors should also note that most non-
precious metals extractable commodities
continue to be very weak, but certain very
ore, metallurgical coal and zinc, have made
substantial gains. Very recently oil quotes
have moved up sharply as a consequence of
supposed market tightening in the face of
recent OPEC agreements. The outlook in
these sectors is mixed: the industry pricing is
often below the industry cost structure (the
common precondition for a dramatic rally),
but global demand and economic output
continues to be very constrained. If past is
prologue (never a guarantee) the materials
sectors equity pricing will advance before a
broad-based rebound in commodities pric-
ing occurs. Investors in the sector need to ask
themselves whether they believe the recent
strength in these equities is predicting the
inevitable rebound in commodities pricing,
or is merely a bear market rally. n
Mr. Rule has dedicated his entire adult life to many
aspects of natural resource securities investing. In
addition to the knowledge and experience gained in
a long and focused career, he has a worldwide net-
work of contacts in the natural resource and finance
worlds. As Director, President, and Chief Executive
Officer of Sprott US Holdings, Inc., Mr. Rule leads
a highly skilled team of earth science and finance
professionals who enjoy a worldwide reputation for
resource investment management.
Mr. Rule is a frequent speaker at industry confer-
ences, and is interviewed for numerous radio, television,
print and online media outlets concerning natural
resource investment and industry topics. He is frequent-
ly quoted and referred by prominent natural resource
oriented newsletters and advisories. Mr. Rule and his
team have long experience in many resource sectors
including agriculture, alternative energy, forestry, oil
and gas, mining and water. Mr. Rule is particularly active
in private placement markets, having originated and
participated in hundreds of debt and equity transactions
with private, pre-public and public companies.
Sprott US Holdings, Inc. is a holding company made
up of three separate and distinct companies: Sprott
Global Resource Investments, Ltd., a FINRA Registered
Broker/Dealer; Sprott Asset Management USA Inc.,
an SEC Registered Investment Adviser offering man-
aged accounts; and Resource Capital Investment
Corporation, an SEC Registered Investment Adviser
managing partnerships. These three companies make
up the US Subsidiaries of Sprott Inc. and are active in
securities brokerage, segregated account money man-
agement and investment partnership management
involving both equity and debt instruments, across the
entire spectrum of the natural resource industry.
MicroCap Review Magazine 37
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38 MicroCap Review Magazine www.stocknewsnow.com

 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.

www.stocknewsnow.com MicroCap Review Magazine 39

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

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?

40 MicroCap Review Magazine www.stocknewsnow.com

 TMR thinks it could become a silver
bullet in dealing with waste (eTrash) from
discarded electronic equipment like moth-
erboards, cell phones, and keyboards - safely
recycling gold, silver, platinum and palladi-
um from a potential host of eWaste sources.
This looks to be where the extremely high
growth potential lies. To the best of our
knowledge, no one else in our industry is
covering this special situation.
A parent company spinoff is scheduled
to trade in the next few months. Current
paid members to The Morgan Report know
the name of this operation, probably have
a position in the original company, and will
have access to ongoing information that can
help them decide if they want to buy spinoff
shares once trading commences.
We feel the potential - especially for the new
operation - is so great that we invite you to
come onboard. Even after the spinoff is trad-
ing, you could still have an excellent chance at
a moon shot! As a new subscriber youll receive
the full story, and what a story it is!
The Bigger Picture: The late John Exter,
www.stocknewsnow.com
member of the US Federal Reserve Board
of Governors, created a visually-powerful
inverted triangle chart showing the vari-
ous financial asset classes, known as Exters
Pyramid. His belief - as is mine - was that the
public will move down through these levels,
losing faith in each one until they reach real
money - gold, and silver. Notice that the asset
class just before reaching gold is paper money.
Once confidence - the only thing backing fiat
paper currency - erodes, the final, convulsive
run to gold will massively accelerate.
Investing is always about probabilities. If
youre waiting for an all-clear signal before
you jump into this or any other sector, youll be
waiting until that market surge has come and
gone. But if you believe, as we do, that were
setting up right now for the continuation of the
sector bull run that got underway in January,
2016, then let us help with your research so you
can start taking action. You dont have to back
up the truck and bite your nails. How about
doing the math on the projects that appeal to
you, and plan to buy tranches into weakness,
while keeping a cash reserve?
Bob Moriarty, whose track record for call-
ing major turns in this sector stacks up with
the best of them, recently said in an interview:
In 29 years of measuring sentiment in
gold, the sentiment is the lowest its ever
been. This is exactly the kind of sentiment
that marks bottoms, major bottoms...I con-
tinue to believe that this is the greatest buy-
ing opportunity in the history of the precious
metals mining sector - the last chance to hop
aboard the train before it leaves the station.
We cant guarantee this will turn out to
be the greatest opportunity, but what if
it is? Do you want to watch what happens?
Or make things happen? We at TMR are
already positioned, and have cash from our
sell at the 2016 top. How about you? n
David Morgan is a widely recognized analyst in
the precious metals industry. He consults for hedge
funds, high net-worth investors, mining compa-
nies, depositories and individual investors. He is
the publisher of The Morgan Report, author of the
bookThe Silver Manifesto,and a featured speaker at
investment conferences in North America, Europe
and Asia. As a public service, we provide a weekly
Free E-letter,TheMorganReport.
MicroCap Review Magazine 41
 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

Neo Lithium Corp. is quickly becoming
one of the foremost new names in lithi-
um brine exploration, rapidly advancing
its newly discovered Tres Quebradas (3Q)
Lithium Project - a unique high-grade lithi-
um brine reservoir and salar complex in the
Lithium Triangle, located in the Province of
for final lithium production. Hot springs on
the property with elevated lithium content
are part of the recharge system of the salar
complex. The technical team that recently
discovered this unique salar complex is one
of the most experienced in the modern era in
lithium salars, having discovered and led the
technical work, including resource definition
and full feasibility study that established the
Cauchari lithium salar as the third largest
lithium brine resource in the world.
The atmosphere in Argentina is favour-
able for a lithium boom with the recently
elected, pro-business President Mauricio
Macri implementing changes to promote
economic growth in the country. Lithium
Neo Lithiums 3Q Project is the right
asset in the right location at the right time.
Neo Lithium holds the entire salar complex;
has discovered a new high grade and low
impurities lithium reservoir in the Lithium
Triangle, and is headed up by a quality
team of seasoned experts in the lithium sec-
tor. With its strong cash position and fully
financed through exploration to Lithium
Carbonate PEA report, Neo Lithium is
poised for long term gains.
Neo Lithium trades in Canada on the TSX
Venture Exchange under the symbol NLC.
www.neolithium.ca n
The company paid consideration to SNN or its affiliates for this article.

Catamarca, the largest lithium producer in
Argentina.
The 3Q Project covers approximately
35,000 ha and the salar complex within this
area is approximately 160 km2. A high grade
northern target was identified extending
over 14x3 km including a salar and a res-
ervoir. The northern target has high grade
lithium with very low key impurities (mag-
nesium and sulphate) - a significant factor in
traditional low cost evaporation techniques
is emerging as one of the most prized com-
modities on earth as prices have tripled since
2003 and continue to remain strong with
lithium demand expected to double by 2020.
This is encouraging data that coincides with
Goldman Sachs dubbing lithium as the new
gasoline in a special research series entitled
What if I told you which explores emerging
trends that will change our everyday lives.
Changes like the long-awaited electric car
revolution.

42 MicroCap Review Magazine www.stocknewsnow.com

 I am thankful for my friends,
my family, my dog, sports,
my legs and my Xbox :)
Braylon O'Neill
6-year-old bilateral above knee amputee
3-time CAF grant recipient
Determined to be the fastest kid on the block

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www.stocknewsnow.com MicroCap Review Magazine 43
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-

44 MicroCap Review Magazine www.stocknewsnow.com

drone markets are intimately familiar with
industry procedures and are quite adept in
excelling within their pertinent domains. DJI
and Parrot dominate the hobbyist consumer
markets, AeroVironment Inc. and General
Atomics are the undisputable leaders in pro-
fessional small unmanned aircraft systems
(SUAS) and medium altitude long endur-
ance (MALE) systems respectively, and high-
altitude-long-endurance (HALE) platforms
such as Northrops Global Hawk / Triton,
and Auroras Orion rule the stratospheric
realm. Above that, Boeing leads outer space
with the X-37B system, also called Orbital
Test Vehicle.
Michael Bannon has assembled some of
this industrys best resources through excep-
tional talent hiring, acquisitions, and part-
nerships, and has established a complete
operational infrastructure that positions
Drone USA to become one of the two largest
players in the professional SUAS space.
The team of seasoned employees and
collaborators comes from the industrys
most successful companies. Drone USAs
approach is innovative, with products that
are technically and operationally advanced,
maintaining costs that are lowest in our class.
Drone USA acquired exclusive access to
a portfolio of proven and very capable low-
altitude drones originally developed and sold
to several distinct customers with dissimi-
www.stocknewsnow.com
lar needs. Additionally, Drone USA estab-
lished strategic partnerships with producers
of some of the best higher-altitude UAVs in
the world. Drone USA plans to offer several
services from turn-key flight operations to
approaches where the end-user becomes
progressively more operationally autono-
mous, until full independence is attained.
The Company is headquartered on the
85th floor of the landmark One World Trade
Center and has development and produc-
tion capabilities near So Paulo, Brazil
through BrVant Technology Solutions, and
is currently establishing a production and
development facility in San Luis Obispo,
California though a partnership with ES
Aero Inc., a renowned engineering and pro-
duction entity recognized internationally for
its aeronautical achievements commissioned
over the years by various global leaders in
manned and unmanned flight technologies.
Most systems offered by Drone USA fit
within the new FAA set of flight regulations
for the US, therefore enabling the Company
to reach out to the market and compete for
sales domestically.
One of Drone USAs principal differentia-
tors is the ability to customize solutions for
specific needs. The company is not verti-
cally integrated, which allows it to choose
from the very best sensor packages and data
exploitation systems available, achieving
high performance without compromising
reliability, maintainability, or price. This is a
great competitive advantage achieved by the
integration of the very best in engineering,
manufacturing, and operational assets inside
the Companys infrastructure.
The parallel vector of growth is the
intended acquisition of solid and profitable
entities that will bring revenue and strategic
benefits into the Drone USA. As examples,
the addition of BrVants portfolio of technol-
ogy brought a line of world-class products
into the Companys line-card, and the new-
est acquisition (Howco Distributing Co. in
Vancouver, Washington) has brought addi-
tional revenue into the Company.
Drone USA will continue to actively iden-
tify, qualify and evaluate drone-related com-
panies with superior technologies to acquire
which will add products into existing sales
channels through the Companys proven
network of sales representatives in the US
and worldwide.
Mr. Bannon added, Drone USA (OTC
Pink: DRUS) is perfectly positioned to pro-
vide continued Company growth for our
shareholders and industry wide recognition
for our products and services in the future. n
The company paid consideration to SNN or its affiliates for this article.
MicroCap Review Magazine 45
 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
from the worlds largest destination for capi-
tal investment, to a net exporter of capital.
This flood of outbound investment is a game
changer for the global economy, and needs
to factor into the strategy of every company
that is seeking access capital or maximize
value for its assets.
In the first nine months of 2016, China
displaced the United States as the num-
ber one player in cross-border M&A, with
$174 billion of deals, up 68% according
to Dealogic. Just a few years ago, Chinese
deals were few and driven primarily by State
Owned Enterprises (SOEs) acquiring energy
and raw materials assets to feed heavy indus-
try. But recently, sectors like manufacturing,
technology, consumer goods, and healthcare
have all emerged as areas of focus. The U.S.
was the number one destination for Chinese
outbound M&A, accounting for nearly 30%
of deals announced thus far in 2016, accord-
ing to Thomson-Reuters.
In addition, China is emerging as an
important source of venture funding, with
Chinese internet giants Tencent and Alibaba
opening offices in Silicon Valley to invest
directly in companies that may be able to
n BY DREW BERNSTEIN, CPA
46 MicroCap Review Magazine
provide them with a technology edge and
new Chinese venture and private equity
funds seeking access to U.S. venture invest-
ments and even public company buy-outs.
The forces that are driving this global
shopping splurge are likely to accelerate,
rather than slacken. As Chinas economy
slows and its labor markets tighten, the
Chinese government has mandated that
its companies move up the value chain.
Acquiring advanced technology and recog-
nized brands is often faster and surer path
than developing them internally.
Downward pressure on Chinas currency
has increased the attractiveness of dollar-
denominated assets and cash flow, while the
government has made it significantly easier
for companies to get deals approved and
deploy capital overseas. Loosening monetary
policy and accommodative lending are fuel-
ing the deal binge, given that most sectors of
the domestic economy are already overcapaci-
ty and overleveraged. Companies and wealthy
business owners are hungry to diversify.
And while heated campaign rhetoric has
caused some concerns about a potential U.S.-
China trade war, this could actually increase
the interest of Chinas industrial companies to
own manufacturing assets inside the American
market as a hedge against future tariffs.
For all of these reasons, the management
and boards of companies from early stage
technology companies to mature industries
need to consider how Chinas emergence
onto the global stage will factor into their
own plans to grow and create value for share-
holders. Taking advantage of this opportu-
nity requires some adjustment in thinking
and moving beyond the familiar cast of
characters and deal structures.
Here are a few keys to making China
investment deals work:
Evaluate Policy Alignment Unlike in
America, where companies largely chart
their own M&A strategies, the Chinese
government provides explicit guidance as
to where overseas investment should be
focused. This takes the form of direct con-
trol for state-owned companies and faster
regulatory approvals and access to capital for
private sector. The Made in China 2025
plan that was released by the State Council in
2015 provides a clear roadmap of where the
government would like to see capital flowing.
Industry was mandated to become innova-
tion driven, strengthen intellectual property,
reduce environmental impact, build brands
and upgrade its human capital. The plan
also lays out specific sectors that have a
high priority, including advanced informa-
tion technology, robotics, electric vehicles,
advanced materials, biotech and advanced
medical products. Hardly surprising then,
that there has been a surge in Chinese invest-
ment in the IT and robotics industries since
the guidelines were promulgated. There is
evidence that the $1.3 billion acquisition of
Lattice Semiconductors by a newly-formed
private equity fund, Canyon Bridge Capital
Partners, operating out of Silicon Valley was
funded by the State Council. Companies that
have unique technologies in targeted sec-
tors are likely to find an eager audience with
Chinese buyers and investors.
Look Beyond the Usual Suspects One
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of the greatest challenges for a U.S. company
is to understand who the Chinese players are
that may be a fit to invest in or acquire their
company and how to engage the decision
makers. Further complicating this is that
over the past few years, the M&A landscape
has exploded well beyond large SOEs to
include a wide range of non-state companies,
Chinese private equity and venture funds,
trust companies, and others. For example,
more than 50% of outbound technology
investment used to be dominated by just
three players Baidu, Alibaba, and TenCent
known as BAT. But this year nearly 75% of
deals have been by non-BAT companies, as
the number and size of outbound technology
investment has surged. In the third quarter
of 2016 alone, there have been 30 deals val-
ued at over $1 billion, including the acquisi-
tion of Finnish game developer Supercell for
$8.6 billion by Tencent, a $4.4 billion deal for
Israeli online casino game developer Playtika
by Shanghai Giant Network Technology and
Jack Ma, and Ingram Micros $6.3 billion
acquisition by HNA Group. Companies need
to make sure that their advisors have a strong
understanding of the universe of potential
buyers in China to bring the right suitors to
the table, and also be able to provide dili-
gence on potential investors industry posi-
tion and sources of funding.
Understand Chinese Valuation Metrics
Chinese acquirers may be looking at valu-
ations in a very different way than U.S.
strategic or financial investors, which can
be advantageous to informed sellers. Rather
than looking only at publicly traded peers
in U.S., it pays to look at the valuations of
Chinese public companies in the sector,
which may have vastly different multiples or
be valued on different metrics (revenue as
opposed to earnings or EBITDA, for exam-
ple.) Chinese companies that have complet-
ed high profile overseas acquisitions have
often seen outsized leaps in their share price
in China. In general, Chinese management
can afford to take a longer term view on an
investment if they believe it is important to
create a strategic advantage with domestic
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peers or if it aligns with government man-
dates. By failing to see a transaction through
Chinese eyes or entertain Chinese bids, sell-
ers may be leaving money on the table.
Prepare to Be Patient In the past,
Chinese companies had a reputation of
being unprepared to move quickly enough to
participate in global M&A deals. In addition,
the financing for these deals was often highly
complex and non-transparent, creating anxi-
ety as to whether the deal was capable of
closing. This is changing as Chinese man-
agement teams become more comfortable
and proficient at completing overseas deals.
But management and advisors still need to
be prepared for more intensive education
of Chinese counterparts, while needing to
evaluate funding sources that can include
government investment vehicles, unknown
private equity funds, and trust structures.
The use of escrow funding and increased
availability of target level financing from
foreign banks can help mitigate the funding
risk. And the use of meaningful break up
fees is becoming more accepted for deals
that are likely to be subject to regulatory
review by CIFUS (Committee on Foreign
Investment in the United States) in the U.S.
or Chinese regulatory approval.
Package Investment with Sinofication
Strategy The most powerful deals may be
those that package a strategic investment in
a U.S. company with a viable plan to scale
the American technology or business model
in the Chinese market. Foreign companies
are learning the hard way that it is increas-
ingly difficult to overcome the home court
advantage that China provides to domestic
players through the ability to shape regula-
tions, offer economic incentives, and drive
public opinion. As a result, foreign companies
are increasingly adopting various approaches
of Sinofication of their business model, such
as the recent merger of all of Ubers China
operations into domestic competitor Didi in
exchange for a minority 20% investment stake
in the China business and a $1 billion invest-
ment by Didi into Ubers global business.
This stanched a reported $2 billion loss from
Ubers China business, and the Chinese gov-
ernment then legalized ride sharing services a
week after the deal was announced. Expect to
see a wide variety of creative deal structures
that include Chinese outbound investment
with the injection of overseas technology and
business models so as to be able to capture
part of the value of a Chinese market that
would otherwise be out of reach in many fast-
growing sectors of the economy.
tHe HumaN faCtor
All these issues are important for companies
that want to position themselves to attract
the flood of capital investment that will be
coming out of China as China Inc. seeks to
recalibrate its economic model.
But the key as to whether these deals are
ultimately successful will largely depend on
how both sides are able to align incentives
and meld their business culture. While M&A
may provide a short cut to obtaining tech-
nology and expertise, capitalizing on these
strengths will require careful integration.
Chinese management is generally less famil-
iar with the norms of operating a business
and retaining key talent overseas. A success-
ful deal requires that both sides invest the
time leading up to and during a transaction
to see if there can be a cultural fit and devel-
op a post-closing operating framework and
technology roadmap that can keep all parties
onboard and committed to shared goals.
Attracting investment from Chinese
sources may bring with it additional com-
plexities and a steep learning curve. But the
pay off, whether in the form of enhanced
value for an asset or access to capital com-
bined with entry into one of the worlds
largest markets, will more than reward those
who invest the energy to make it work. n
Drew Bernstein is a Managing Partner of Marcum,
Bernstein & Pinchuk (MBP), which is one of the lead-
ing auditors of Chinese companies listed in the U.S.
and provides due diligence services, human capital
consulting, internal controls, and global tax advisory
to both multi-national companies with operations in
China and Chinese companies expanding overseas.
www.marcumbp.com www.marcumllp.com
MicroCap Review Magazine 47
 F E AT U R E D A RT I C L E
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.
n BY LOUIS A. BEVILACQUA, Esq.
AND KEVIN (QIXIANG) SUN, Esq.
50 MicroCap Review Magazine
According to Law360, by late 2011 over 150
Chinese companies had gone public in the
U.S. through reverse merger transactions
with public shell companies. U.S. hedge
funds, family offices and other investors
were clamoring to buy securities of these
companies in private placement, or PIPE,
transactions that closed simultaneously with
the closing of the reverse merger. Many of
these hedge funds and family offices enjoyed
significant returns on their investments while
others who came to the party later did not do
so well. In 2010 short sellers began putting
out short reports on some of the China
based public companies. These short sellers
would first sell the companys stock short
and then issue an investigative report that
identified various irregularities from fraud
to undisclosed related party transactions. As
the stock of many China based companies
began to tank the short sellers would reap
significant rewards. As a result of these short
reports, announced audit committee investi-
gations and SEC enforcement actions involv-
ing China based public companies, investors
lost interest and many of the companies that
remained listed on an exchange in the U.S.
or quoted on the over-the-counter market
began to go private or go dark.
From 2011 until today it remains very dif-
ficult for China based public companies to
raise capital in the U.S. from U.S. investors.
Only the biggest China based companies
like Alibaba ($25 billion) or ZTO Express
($1.4 billion) are able to raise any significant
amount of capital from U.S. investors. Even
though the U.S. capital markets seem closed
to China based companies, it seems that these
companies have continued to go public in the
U.S., however, they are now doing so through
the front door in the form of a traditional IPO
instead of the back door through a reverse
merger with a public shell company. In 2014
and 2015, more than 20 China based com-
panies listed in the U.S. through IPOs and
they raised a total of approximately $29.5
billion. This year there have been six Chinese
companies that either completed or are in the
process of completing IPOs in the U.S., rais-
ing a total of approximately $2 billion. Unlike
during the reverse merger heyday, where most
companies were in the manufacturing sector,
these companies are mainly operating in the
e-commerce, TMT (technology, media, and
telecom) and logistics industries.
Chinese technology companies in particu-
lar are interested in listing in the U.S. as the
U.S. markets represent not only a securities
market but a potentially significant com-
mercial market. More and more Chinese
intellectual property is being exported to the
U.S. Of note is the fact that the Shenzhen
market only recently opened up to Hong
Kong investors (and by extension U.S. inves-
tors with accounts at Hong Kong investment
banks) on December 5, 2016. Hong Kong
investors are now able to trade the securi-
ties listed on the tech heavy Shenzhen Stock
Exchange through an equity trading link
between the mainland and Hong Kong. It
will be interesting to watch the level of
demand for Shenzhen traded securities and
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see if that demand correlates with demand
for China based companies listing in the U.S.
wHo is iNvestiNg iN tHese
ipos?
For the most part, it appears that the Chinese
companies are bringing the investors with
them from China. Most of the investors in
these IPOs, in particular the smaller IPOs, are
Chinese funds, banks and individuals. Even
though the money is coming from China,
these Chinese companies prefer listing in the
U.S. because of the prestige associated with a
U.S. listing and the ability to raise capital in
the U.S. markets is secondary. Another rea-
son that these companies are listing in the U.S.
is that the timeline associated with a U.S. list-
ing is significantly shorter than that for listing
on the Shanghai or Shenzhen stock exchanges
or even listing in Hong Kong and the costs
associated with a U.S. listing are similarly less
than a local listing. The approval-based IPO
system in China has built up a queue of more
than 800 companies that are currently wait-
ing for approvals, which could take years for
the China Securities Regulatory Commission
to review. In contrast, it takes about four
months to list in Hong Kong where as a U.S.
listing can be done in as little as three months.
In addition, it is generally believed that there
is no significant difference in terms of asso-
ciated fees for Chinese companies to list in
China, Hong Kong or U.S. So, it seems that
even though the U.S. capital markets may be
closed for Chinese companies at the present
time, cost, efficiency and prestige make it
worthwhile to list in the U.S. For instance,
according to the chief financial officer of
Yintech Investment Holdings Limited, a large
Chinese commodities brokerage that raised
$101 million through an IPO in U.S. in April
2016, the company chose listing in the U.S.
because of Chinas huge backlog of IPO appli-
cations. The purpose of the IPO is to further
enhance our corporate brand and credibility.1
1 http://www.wsj.com/articles/chinese-
commodities-brokerage-yintech-debuts-on-
nasdaq-1461767404
www.stocknewsnow.com
sHoulD u.s. iNvestors re-
CoNsiDer maKiNg iNvest-
meNts iN CHiNese Compa-
Nies?
In the reverse merger days, Chinese com-
panies were able to go public without the
scrutiny of an underwriter or a national
securities exchange and the SEC review only
occurred after the company closed its reverse
merger and PIPE financing in connection
with the review of the companys super 8-K
or resale registration statement. Given that
the new generation of Chinese companies
are subjecting themselves to added under-
writer, SEC and exchange vetting prior to
the sale of securities, perhaps U.S. investors
should take another look. Another helpful
factor is that most of the money is coming
from China and the Chinese investors are
better able to do their own due diligence on
Chinese companies than U.S. investors and
in a significantly better position to enforce
remedies. Given the common language and
location, these Chinese investors may be able
to identify red flags that U.S. investors cannot
and if a problem does arise, these Chinese
investors can take swift action in Chinese
courts and do not need to rely only on U.S.
courts. According to Eddie Wong a partner
of top 40 accounting firm Friedman LLP
and a leader of Friedmans China practice,
As the Chinese public companies become
more mature and sophisticated, unlike those
that went public in the reverse merger days,
they are becoming higher quality issuers.
They are aware of their obligations to the
U.S. regulators, investors and auditors, and
are more concerned with transparency than
ever before.
In addition to the upfront vetting that
Chinese companies are subject to in an IPO
as compared to a reverse merger, underwrit-
ers like ViewTrade Securities, which has
underwritten several Chinese IPOs and has
significant connections throughout Asia, are
using structural mechanisms to help pro-
tect investors. For example, in ViewTrades
recent China Customer Service IPO offer-
ing, it required the Chinese company to
keep $500,000 in an escrow account for 24
months as an indemnification fund to be
used if shareholder or other litigation arises
as a result of the offering and the issuer does
not honor the indemnification clause in the
underwriting agreement. According to Doug
Aguililla, Director of Investment Banking at
ViewTrade, We believe that this mechanism
serves to increase market integrity and inves-
tor confidence. These structural mecha-
nisms are another reason for investors to
reconsider making investments in Chinese
public companies.
The jury is out on whether investors
should reconsider investments in Chinese
companies. A wait and see approach may be
most prudent. However, given the potential
for significant returns, U.S. investor may
want to begin testing the waters with this
new breed of Chinese issuer. n
Mr. Bevilacqua is the founding member of
Bevilacqua PLLC (www.bevilacquapllc.com), a bou-
tique transactional corporate and securities law firm.
Mr. Bevilacqua counsels companies of every size
ranging from entrepreneurs with just an idea to
established companies whose securities trade on
the NYSE or NASDAQ. He has broad experience
representing issuers in public offerings and private
placements of securities (including private place-
ments under Rule 506(c) of the Securities Act,
crowdfunding offerings under Title III of the JOBS
Act, and Regulation A+ offerings), Exchange Act
compliance, angel and venture capital financings,
other areas of equity and debt financing and mergers
and acquisitions.
Kevin (Qixiang) Sun () is a Senior Counsel
of Bevilacqua PLLC. Mr. Sun has more than 10
years experience representing public and private
companies in a variety of aspects of corporate and
securities law, with a particular focus on public
and private equity finance, securities compliance
and mergers and acquisitions. In particular, as a
native mandarin speaker, Mr. Sun has advised more
than 20 China-based companies in connection with
their underwritten offerings, private placements and
reverse merger transactions. He also counsels public
companies with respect to periodic reporting obliga-
tions, corporate governance issues and going private
transactions. In addition, Mr. Sun has extensive
experience in assisting multiple Over-The-Counter
companies in connection with their NASDAQ/NYSE
listing applications and their continued listing com-
pliance.
MicroCap Review Magazine 51
 F E AT U R E D A RT I C L E
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,
I stated that Reg A+ is an excellent way
for a company to raise up to $50,000,000,
especially if it sells its products to individual
consumers.
The SECs commentary to the Regulation
A amendments states that their mandate
is to review these amendments after two
years. The rule changes were promulgated
on March 25, 2015the two year peri-
od is approaching an end, so its a good
time to review and reflect on certain of the
Regulation A amendments that were made,
and some that I believe should have been
made.
A question often asked about Reg A+
eligibility is, Is a company that is already
public eligible to raise capital through a
Regulation A+ offering? And the answer,
which is a common reply to many questions
about SEC laws and regulations, is Yes, and
no.
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.
52 MicroCap Review Magazine
Yes, privately-owned companies and non-
reporting public companies (which usu-
ally trade on OTC Markets Pink Sheets as
non-reporting issuers), are eligible to raise
up to $50,000,000 in a Tier 2 Regulation
A+ offering, if they have audited financial
statements). Or, these non-reporting but
publicly traded companies can raise up to
$20,000,000 in a tier 1 Reg A+ offering, with-
out having audited financials.
However, although US and Canadian
companies have always been eligible to use
Regulation A+, since the inception of Reg
A, most SEC-reporting issuers, explained
below, have been ineligible to use Regulation
A. Why? Probably because when the
Regulation was announced, it was thought
that a $300,000 maximum would differenti-
ate it from registered public offerings using
Form S-1, which hadand still hasno
ceiling.
Probably the most artificial eligibil-
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ity distinctionwhich has survived since
Regulation A was first promulgated, is that
1934 Act Section 12g reporting issuers are
ineligible, but companies which become
voluntary SEC filers one year after their
1933 Act S-1 registration statement becomes
effective are eligible.
Section 15d of the 1934 Act states that an
issuers duty to file reports under Section 13
of that Act (Forms 10-K and 10-Q, etc.) is
automatically suspended one year after its
S-1 registration statement is declared effec-
tive, if the issuer has less than 400 sharehold-
ers. Many, if not most, such issuers have less
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
their 10-K and 10-Qs each year (and 8-Ks
when appropriate), it is eligible to raise up to
$50,000,000 in a Reg A+ offering.
However, an issuer which either has more
than 400 shareholders one year after its S-1
offering, or which files a Form 8-A and
becomes a Section 12g reporting issuer, i.e.,
no longer a voluntary filer, is no longer eligi-
ble to use Regulation A+. Or, if a 12g issuer
transfers its assets and business to a newly-
formed subsidiary, making the 12g parent a
holding company, the subsidiary would be
eligible for Reg A+ but not the parent.
The similarities between 12g and 15d
reporting issuers are, in my opinion, the
most important for investors: the require-
ment to file an Annual Report on Form 10-K
with audited financials, quarterly reports on
Form 10-Q (which are reviewed by the audi-
tor), and Reports on Form 8-K when either
required by that Form or appropriate in the
issuers discretion.
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
www.stocknewsnow.com
The similarities between 12g and 15d reporting
issuers are, in my opinion, the most important for
investors: the requirement to file an Annual Report
on Form 10-K with audited financials, quarterly
reports on Form 10-Q (which are reviewed by the
auditor), and Reports on Form 8-K when either
required by that Form or appropriate in the issuers
discretion.
SEC-reporting issuers are eligible to use Reg
A+ (although the subsidiary cannot con-
solidate the parents assets or business), while
the parent remains ineligible.
So, given that the hallmark of all SEC
laws and regulations has always been
DISCLOSURE, I believe that Regulation
A+ should be amended as soon as pos-
sible to permit all reporting issuers to use
this Regulation--whether section 12g or 15d
issuers, whether voluntary or required to
report.
Indeed, OTC Markets filed a petition with
the SEC on June 6, 2016 (Petition no. 4-699),
to amend Regulation A to allow all reporting
issuers to use Reg A+, and I submitted a let-
ter in support of that petition.
So, my recommendation is that the SEC
add all US and Canadian reporting issuers-
-15d and 12g--to the list of companies which
are eligible to use Regulation A+ (provided
that they are current in their filings and in
compliance with the other requirements). n
John Lowy is the founder (in 1993) and CEO of
Olympic Capital Group, Inc. (www.ocgfinance.com),
and is the principal of his law firm John B. Lowy
PC, both based in New York City. John is a highly-
respected and acknowledged expert in reverse merg-
ers, capital formation, financial consulting and initial
public listings of all types. He recently founded and
is the CEO of Platform A+, Inc. (www.platformaplus.
com), which provides a turnkey service to companies
that want to raise capital via Regulation A+.
As an attorney, an advisor and principal, John has
led or participated in more than 200 such transac-
tions, creating market value in excess of $5 billion.
He has been instrumental in leading the process by
which these companies have raised capital or reverse
merged, and achieved listings on the NASDAQ or the
AMEX, or were sold to larger companies.
In addition to the U.S., John has completed trans-
actions for clients based in at least 15 foreign coun-
tries. The sectors in which his clients are engaged
range from low tech to high tech, real estate, phar-
maceuticals, medical devices, biotech, oil and gas,
mining, renewable energy, entertainment, food, agri-
culture, education and retail, among others.
He received his B.A. from Tufts University and
graduated from the University of Pennsylvania Law
School. He is a frequent contributor to MicroCap
Review.
MicroCap Review Magazine 53
 F E AT U R E D A RT I C L E
Regulation ASo Far
W
hile the JOBS Act was passed
in 2012, the amendments to
Regulation A that the JOBS
Act mandated didnt go into effect until June
2015. So this market is roughly 18 months
old and weve seen just over 150 public fil-
ings (since companies can file confidentially,
there may be a few more in the works).
Regulation A offerings are exempt public
offerings. This means there are no restric-
tions on who can invest, and that investors
can be publicly solicited. They dont have to
be registered with the SEC they way IPOs
are. Disclosure for these offerings, though,
does have to be reviewed by the SEC (for
Tier 2 offerings) or by both the SEC and
the states where the offering is made (Tier
1 offerings). Tier 2 offerings can be up to
$50 million and Tier 1 up to $20 million.
Having worked on 16 Reg A filings to date,
and having observed the market since incep-
tion, Ive noticed some consistent themes in
this very small, very young market.
two types of regulatioN a
offeriNg
Theres been a lot of discussion of using Reg
A for crowdfunding raising relatively small
amounts of money from large numbers of
small retail investors online but Reg A
can also be used for traditional deals where
placement agents who are registered brokers
n BY SARA HANKS, Esq.
54 MicroCap Review Magazine
place securities with institutional or inves-
tors or high net worth individuals, all offline.
Just passing through: Regulation A as
a stepping stone to full registration
Some of these companies doing more tra-
ditional offerings are just passing through the
Reg A universe. These are bigger companies
using the regulation as a waystation to full reg-
istration with the SEC and listing on a national
stock exchange. They do it this way because
the regulatory burden of doing a Reg A filing
is lighter and companies get fewer comments
upon review by the SEC staff than they would if
they filed a traditional Form S-1. Additionally,
they are able to use a broader range of mar-
keting materials than they would if they were
doing an old-school style IPO. These compa-
nies are not going to be staying in the Reg A
market. They arent crowdfunding.
seCurities are solD aND
Not bougHt
You cant just post a Reg A offering on an invest-
ment platform and assume that people will
flock to buy your shares. Retail investors arent
constantly on the lookout for the next sexy deal
(at least not yet). You need to drive potential
investors to look at your deal and then you need
to convince them to buy your securities.
you Have to Have (or buy
or builD) your owN CrowD
For companies seeking a retail investor base,
whether they call this process crowdfunding
or not, success is going to depend on having a
crowd of potential investors. These may come
from the companys own users and customers
(VR hardware and gaming companies, for
example), potential customers, affinity groups
(national diasporas, for example, or associa-
tions relating to particular medical conditions
who might be interested in specific health
companies). Some companies have extensive
email lists and some companies (such as
sport-related enterprises) have both a fan base
and celebrity influencers who can promote
their offering. Companies without their own
crowd need to build their own buzz. This
can be done through old-fashioned securities
brokers smiling and dialling or by specialist
publicity outfits who are able to exploit social
media (which makes more sense when a com-
pany is willing to accept small minimum dol-
lar investments). The emergence of specialist
PR shops who coordinate securities offerings
as if they were a launch of a new beverage is
one of the most striking aspects of the new
Regulation A market.
tHe Data suCK
People ask how much money has been
raised so far under Regulation A? and its
surprisingly difficult to answer that question.
Reg A permits offerings to be made over a
relatively long period, so many of the com-
panies that have filed under Reg A so far are
still raising funds. When a Tier 1 company
has finished raising funds, it files a Form
1-Z to say how much its raised and to end
any ongoing disclosure requirements. There
have only been a handful of these filings.
Companies using Tier 2 should be disclosing
the amounts raised in their annual Form 1-K
and their semi-annual Form 1-SA, but there
is no common presentation for such infor-
mation, and not all the companies that have
filed have made these ongoing filings yet.
platforms, broKers aND
goiNg iNDie
Regulation A offerings dont have to use inter-
mediaries, although the state dealer registra-
tion rules in states such as Texas and Florida
make it difficult to sell in those states without a
www.stocknewsnow.com

brokers involvement. Reg A filings do not yet
show a common pattern with respect to inter-
mediary involvement. Some companies make
their offerings through traditional brokers,
some through online investment platforms
run by brokers, some through non-broker
online platforms. A growing number of Reg
A offerings go indie they create their own
online website to attract investments.
decision and avoid fraud and help intermediaries
avoid liability.
Saras prior position was General Counsel of the
bipartisan Congressional Oversight Panel, the over-
seer of the Troubled Asset Relief Program (TARP).
Prior to that, Sara spent many years as a partner of
Clifford Chance, one of the worlds largest law firms.
While at Clifford Chance, she advised on capital
markets transactions and corporate matters for com-
panies throughout the world. Sara began her career
with the London law firm Norton Rose. She later
joined the Securities and Exchange Commission and
as Chief of the Office of International Corporate
Finance led the team drafting regulations that put
into place a new generation of rules governing the
capital-raising process.
Sara received her law degree from Oxford
University and is a member of the New York and
DC bars and a Solicitor of the Supreme Court of
England and Wales. She serves as co-Chair of the
SECs Advisory Council on Small and Emerging
Companies. She holds a Series 65 securities license
as a registered investment advisor. Sara is an aunt,
Army wife, skier, cyclist, gardener and animal lover.

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
INFO@PLRINVEST.COM
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

www.stocknewsnow.com MicroCap Review Magazine 55

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

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.

56 MicroCap Review Magazine www.stocknewsnow.com

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
investment opportunity, not as stand-alone
advice. Not all PE investors are the same.
Some are investing their own money and
may have an unlimited timeframe, while
others may be investing for a partnership
with stringent limitations. Some only invest
in equity and use board influence to monitor
their holdings, while others have flexibility
to do any type of financing imaginable. Use
the internet and network with other inves-
tors to find about more about the strengths
and weaknesses of your potential PE co-
investors.
buy situatioNs
1) IPO of company funded by PE, provid-
ed PE investor is not selling out Companies
that are funded privately by PE likely have
good management and governance practices
in place, and may avoid teething issues that
can be typical of new public companies.
As a smaller shareholder your interests are
aligned with the PE investor at this stage.
The fact that bankers and other institutional
investors are buying into the IPO is also a
good sign.
2) Two or more PE shareholders An
even better situation is to have two or more
PE shareholders, with more or less equal
positions. This provides you, as a smaller
investor, the benefit of a larger PE firms
access to due diligence and funding avail-
www.stocknewsnow.com
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
were repriced downward several times, while interest payments converted to stock at
lower and lower prices.
ability, but multiple PE investors should
keep each other honest. If the company
does require alternative financing in the
future, having multiple PE investors at the
table should help tilt the risk-reward to the
common shareholders, even if the Company
borrows money, etc.
3) Converting other securities into equity
This move may happen right at a market
bottom, or for other reasons, but when a
PE firm is increasing its share position,
while strengthening the balance sheet of the
Company that is a good thing for you, the
smaller shareholder. Conversions could be
from debt, or even royalties/streams (which
are another type of liability to the mine
owner i.e. you). If a PE investor owns mul-
tiple asset classes within the same company,
you want to see that their biggest weighting
and potential for appreciation will come
from common shares not from the return
on debt or other instruments.
sell situatioNs
1) Adding debt to an existing equity posi-
tion - Remembering that a PE firm likely has
a longer time horizon and deeper pockets
than you, be very wary when they are layer-
ing on debt onto an existing equity position.
This can (and probably will) be used in the
future to average down, taking a larger posi-
tion with more dilution to you, the common
shareholder. Secured debt can protect the
PE firms downside but you get no such
protection. This situation can be a black
hole for average investors as the company
can be forced effectively into a below-market
acquisition, especially during a period of low
commodity prices.
2) Take-private acquisition Although
pretty much every mining PE fund should
have the ability to do this, this tool is seldom
used. It takes a lot of intestinal fortitude to
buy a company at a market premium, and
perhaps more so in the mining sector. But if
you are fortunate enough for this to happen
enjoy the premium and move on. n
David Stein, MSc. CFA has co-invested with many
other private equity funds over the past seven years
as a metals and mining focused investment manager.
David now leads Toronto-based Aerecura Capital,
which manages and executes niche strategies in the
natural resources sector and is a consultant to, and
director of Aberdeen International (AAB-TSX), a
publicly traded mining investment company. David
was recently a recipient of the 2016 Bedford-CIM
Young Mining Leaders award. David can be reached
at david@aerecuracapital.com
MicroCap Review Magazine 57
 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
uncertainty and volatility into the capital
markets. According to Bloomberg News,2 40
percent of the EU economy will be voting
in 2017.
Does this discussion begin to identify a
larger macro story of positive correlation
behaviour of several European equity index-
es? If so, could investors find potential utility
in the VSTOXX Futures volatility index?
strates the relatively high positive correlation value to multiple European equity indexes if
among various European spot equity indexes the indexes tend to be positively correlated.
and a relatively high negative correlation the No one has a crystal ball to identify when
equity indexes tend to experience relative equity markets will decline. The so-called
to VSTOXX spot. An initial observation rare Black Swan events have occurred sev-
indicates the volatility index may offer added eral times over the last decade. Beginning
Chart 3: Spot prices of EURO STOXX 50 Index, DAX index, CAC 40 index, STOXX
Europe 600 index FTSE 100 index and VSTOXX from Jan 2007 to Sept 2016.
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

58 MicroCap Review Magazine www.stocknewsnow.com

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
Source: Bloomberg data
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

Source: Bloomberg data

www.stocknewsnow.com MicroCap Review Magazine 59

 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
as of early 2016, the Shenzhen stock market
represents the largest untapped investment
opportunity in the world. For the first time
foreign investors have the ability to invest
in hundreds of Chinas fast-growing com-
panies often attributed to the New China.
The Shenzhen Exchange is Chinas second
largest stock exchange, behind Shanghai,
with a market capitalization of $3.4 trillion.
Individual investors make up the majority
of traders in Shenzhen owning as much as
59 percent of the equities compared to 34
percent of Shanghai equities. Trading almost
nine times a year with monthly turnover of
more than $1 trillion, it is also Asias busiest
exchange, according to the World Federation
of Exchanges data. Shenzhens high turnover

n LESLIE RICHARDSON

60 MicroCap Review Magazine www.stocknewsnow.com

is due to a lot of stir-frying, a Chinese term
for frequent buying and selling of equities by
retail investors hoping to make a quick prof-
it. The new link unifies Shenzhen, Shanghai
and Hong Kong exchanges essentially creat-
ing the worlds second-largest equity mar-
ket by capitalization, worth more than $10
trillion, and the largest by cash turnover
globally.
Composed of a different universe of
equites than the Shanghai Exchange, the
Shenzhen Exchange offers a diverse range
of new investment opportunities to for-
eign investors. The Shenzhen Exchange has
more privately-owned companies compared
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
growth prospects than Shanghai listed equi-
ties. Only a fishing village a few decades
ago, Shenzhen became known as an instant
city which now successfully attracts pri-
vately run startups, many looking to raise
capital in the worlds second-largest econ-
omy. Shenzhen and the surrounding Pearl
Delta area are home to an extensive number
of technology companies giving the region
the name Chinas Silicon Delta. Stocks
on the Shenzhen Exchange include high
growth technology, consumer, healthcare
and New China sectors that are the driv-
ers of Chinas new growth engine. Through
the Shenzhen link, foreign investors can
now access an additional 880 stocks more
than doubling the 567 mainland Chinese
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
the Small and Medium Enterprise (SME)
board and 200 on the Nasdaq-style ChiNext
board. The ChiNext board is for professional
investors only due to its speculative nature.
Combined, the Shenzhen Connect and the
Shanghai Connect cover 70 to 80 percent of
Chinas mainland market capitalization.
Analysts are predicting Chinese stocks
www.stocknewsnow.com
Shenzhem stocks by industry
Share of total by market cap (%)
Manufacturing 32%
Techonology, media and
telecommunications 25%
Consumer goods & services 18%
Medical & pharmaceutical 8%
Real estate & construction 5%
Finance 5%
Utilities & transportation 3%
Other 3%
0.99
Source:WindInformation,FTanalysis
to have a good year in 2017 despite weak to big brands such as Sony, Samsung and
economic growth. Specifically, consumer, Lenovo. The company is expanding into
infrastructure, health care and technology virtual reality software development.
sectors are forecasted to experience strong Hangzhou Hikvision Digital Technology
earnings growth with exporting companies Co., the worlds largest supplier of video sur-
benefiting from a weakening RMB. Some of veillance equipment with internet-enabled
analysts favored companies on the Shenzhen cameras installed in more than 100 coun-
Exchange include: tries.
Wangsu Science and Technology, the Wanda Cinema Line Co., a leading cinema
countrys biggest content delivery network operator in China with a 15% market share
service provider, supporting Internet infra- in terms of box office revenue. The company
structure by improving image quality, speed- is outperforming its peers generating 29
ing up page loading, and maximizing band- percent year-over-year growth compared to
width. The company is expanding overseas industry average of 8 percent.
and into cloud computing. Market share is Shenzhen Inovance Technology Co., a
around 50 per cent. supplier of industrial automation products,
GoerTek, one of Chinas leading acoustic particularly in motion control and power
components companies which sell products inverters. It has gained market share in auto-
Only a fishing village a few decades ago, Shenzhen
became known as an instant city which now
successfully attracts privately run startups, many
looking to raise capital in the worlds second-largest
economy.
MicroCap Review Magazine 61
mation products and is likely to continue
expanding its market dominance in 2017.
Luxshare Precision Industry Co. is expect-
ed to benefit from a new speaker-box busi-
ness and the rising use of Type C connectors
for smartphones in China. The company
also makes the connector dongle that comes
in every box of the new iPhones which have
no headphone jack.
Wuliangye Yibin Co., the second larg-
est Chinese spirit company in Chinawidely
known for its famous baijiu brand in China.
Chinas largest white goods manufacturers
Gree Electric and Midea Group.
The Hong Kong Exchange is also expected
to experience significant benefits from the
new link with Shenzhen. Chief Executive
Leung Chun-ying stated at the launch cer-
emony that the link makes Hong Kong the
super-connector between the rest of China
and the rest of the world. While mainland-
ers already have access to 318 large cap
Hong Kong listed companies through the
Shanghai link, the Shenzhen link allows
access to about 100 smaller companies in
Hong Kong. Already, southbound investors,
the term for mainlanders buying Hong Kong
stocks, outweighs investors buying into the
Shanghai market, or northbound investors.
In the two years since the Shanghai link
opened, Chinese investors have purchased
$42.8 billion of Hong Kong shares. UBS
forecasts net inflows from China into Hong
Kong in 2017 will be 160 billion yuan ($23.2
billion) under the two links. UBS also pre-
dicts Chinese money to account for over a
third of Hong Kongs trading turnover in
three years, up from a tenth now. As Chinese
investors increase their holdings in Hong
Kongs stock market, they are expected to
increase market turnover and volatility pro-
viding much needed liquidity to small and
mid- cap stocks. Additionally, with greater
access to Chinese investors, the link could
attract more international companies to list
in Hong Kong.
While the first day of trading through
the new link was light with 2.67 billion
yuan ($393 million) worth of northbound
62 MicroCap Review Magazine
trading from international investors buy-
ing Shenzhen stocks and HK$923 million
($123.4 million) of southbound by main-
landers buy into Hong Kong stocks trades,
volumes are expected to pick up in future.
Southbound investors are expected to be
stronger than northbound investors as main-
landers look for ways to hedge against the
depreciation of the RMB. With the Hong
Kong dollar being pegged to the U.S. dol-
lar, buying Hong Kong dollar assets is like
buying into the U.S. dollar. Additionally,
Chinese investors typically like fast-grow-
ing small and mid-cap plays. Valuations
of Hong Kong stocks are very low and
Hong Kongs small caps in particular tend
to have lower valuation and higher dividend
yields than stocks traded in Shenzhen. With
Chinas small-caps 4-6 times more expensive
than their Hong Kong peers, Hong Kong
offers better value to mainland retail inves-
tors. Currently, Chinas small-cap companies
trade at over 40 times expected earnings, the
highest in Asia-Pacific, and four times the
ratio in Hong Kong.
New CHiNas growtH
prospeCts
Despite Chinas economic growth slowing
to a 25-year low in 2015, the country is
regarded by the World Bank as an upper-
middle class nation on its way to becoming
one of the worlds advanced economies.
China has 16 per cent of the worlds GDP
but more than 18.7 per cent of the worlds
population and the country is taking an
increasingly prominent global leadership
role. The country is in a transition from
an economy driven by industrial expansion
to one based on consumption and techno-
logical efficiency. It has also become the
worlds largest trading nationand continues
to strengthen its role in world trade. The
One Belt, One Road (OBOR) initiative
is a leading example of how the country is
increasingly impacting the world. Initiated
in the fall of 2013, the OBOR, focuses on the
connection and cooperation of China, the
rest of Euro Asia, Oceana and East Africa.
OBOR consists of two main components,
the land-based Economic Silk Road and the
oceangoing Maritime Silk Road. In 2015,
Chinas trade with countries participating in
the belt and road initiative surpassed US$1
trillion. Additionally, Chinas domestic mar-
ket is continuing to grow. The number of
middle-class and affluent households has
grown to 116 million, up from 2 million in
2000. The continued growth and evolution
of Chinas consumer market and the emer-
gence of a large middle class will remain
a major source of future value creation as
Chinas citizens move beyond being able to only
afford the basics of life, and their discretionary
spending expands. Boston Global predicts
affluent shoppers under the age of 35 and
Internet surfers will push Chinas consumer
market up to $6.5 trillion in sales by 2020,
an increase of 54% from 2015. Furthermore,
while China is losing global market share
in manufacturing low-value-added goods
to countries with lower cost labor, it has
become a dominant global and local player
in high-end electronics and industrial equip-
ment, with rising momentum in infrastruc-
ture exports. n
Ms. Leslie Richardson has over 20 years of invest-
ment management and equity research experience.
She operates a boutique investor relations firm in
Hong Kong for Asian companies listed in the U.S.
and Hong Kong. She also assists private companies
develop investment material and build an inves-
tor following in preparation for a public listing.
Additionally, she is the Asian Correspondent for
Micro-Cap Review, www.microcapreview.com, a
financial magazine focused on mirco-cap compa-
nies. Previously, she worked for CCG Elite in assist-
ing Asian-based, U.S. listed clients formulate key
communication strategies. Ms. Richardson began
her investment career at U.S. Trust Company then
went on to join Odyssey Advisors as a portfolio
manager and Director of Research. Ms. Richardson
specialized in high growth sectors such as bio-tech,
alternative energy, IT and telecommunications. She
earned her M.B.A. from the University of Southern
California. Ms. Richardson is based in Hong Kong.
www.elite-ir.com.
www.stocknewsnow.com
 A Global Vision With A Social Focus.

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companies can empower a community,
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companies making a positive impact around the world.

Join us in Miami on February 22, 2017 for the 3rd Annual Innovations Investor Conference!
Details at: www.seethruequity.com

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#GlobalVisionSocialFocus

NasdaqGS: CTHR
Moissanite: The Worlds Most Brilliant Gem
M
oissanite, also known as silicon carbide, is a rare,
naturally occurring mineral discovered in 1893 by Dr.
Henri Moissan in a meteorite crater. Decades later,
through innovation and tirelessly refining our process, weve
taken Moissans discovery and created a colorless gem that
rivals any earthly gemstone for fire and brilliance. Moissanites
hardness surpasses that of any mineral on earth, and its
refractive properties exceed that of diamond making it the
worlds most brilliant gem.
As the original creator of lab-created moissanite, Charles &
Colvard has over twenty years of experience in manufacturing
and distributing this ethically sourced gemstone. In late
2015, we changed the playing field for moissanite when we
introduced Forever One to the market. Forever One is the
epitome of created moissanite our first completely colorless
gemstone creating new standards in the fine jewelry industry.
Our master technicians and gemcutters analyze, polish and
facet each individual stone to bring out its full natural beauty,
ensuring each of our gemstones are both sustainable and of a
superior quality.
Charles & Colvard is driven by an
ethical promise: create the worlds
most brilliant gem, while leading
the way for environmentally
and socially responsible choices
in the jewelry industry at a
revolutionary value.
SUZANNE MIGLUCCI
President & Chief Executive Officer
64 MicroCap Review Magazine
We are passionate about moissanite and our vision to ensure
a world where socially responsible gemstones are at the
forefront of the marketplace.
Our dedication to creating high-quality products and
developing better techniques to enhance the stunning
brilliance of our moissanite is unparalleled. And because of this
we are able to offer exceptional products to our customers.
Our Team of Experts.
Our management team is led by business veterans with
expertise spanning every facet of the fine jewelry
industry from manufacturing to distribution and the retail
store. Additionally, our teams expansive knowledge and
experience in the e-commerce and supply chain industries
serves to bolster the success of our omni-channel,
go-to-market strategy.
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
and getting our gemstones and finished jewelry in front of the
right audiences.
The market is ready. The gemstone is here.
Millennials are the largest and fastest growing generation,
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
values the item invokes.
www.stocknewsnow.com
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.

www.stocknewsnow.com MicroCap Review Magazine 65

The company paid consideration to SNN or its affiliates for this article.
 F E AT U R E D A R T I C L E

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.

66 MicroCap Review Magazine www.stocknewsnow.com

ent registration and reporting forms that
provide for scaled disclosure in several key
areas, such as executive compensation, FPIs
generally have additional flexibility in finan-
cial statement presentation (being able to
choose among GAAP, IFRS or home country
standards reconciled to GAAP) and remain
exempt from rules under the Securities
Exchange Act of 1934, as amended, regard-
ing shareholder proxies, significant owner-
ship reporting and short-swing trading.
How will you aCCess tHe
marKets?
International companies should consider
whether they simply want a securities mar-
ket presence in the U.S. or whether they
want to actively raise capital in the U.S.
Many international companies, particularly
those in the early growth stage, find that
the price of their common equity securities
is not within the customary range for U.S.
trading or public offerings. Those companies
may consider offering American Depositary
Receipts (ADRs), which are negotiable cer-
tificates evidencing ownership of American
Depositary Shares, which in turn represent
an interest in a specified number or fraction
of the international companys shares (such
as 1 ADR = 4 shares of Common Stock).
Level 1 or Level 2 ADR programs, estab-
lish a securities market presence in the U.S.
(on either an over-the-counter market or a
U.S. national securities exchange, respec-
tively) but do not involve a capital raise.
Level 2 ADR programs require registration
of the underlying security on Form 20-F,
which is roughly analogous to the domestic
Form 10-K. Level 3 ADR programs enable
companies to both establish a U.S. market
presence and raise capital and will implicate
a more robust registration statement custom-
arily used for public offerings.
If a company is seeking to raise capital,
the financing instrument used will have
important consequences. The companys
bankers can advise on the attractiveness of
particular financing methods given current
www.stocknewsnow.com
Dual listing in both the U.S. and typically the
home country promises to broaden a companys
pool of potential investors, increase liquidity and
potentially raise additional capital.
market conditions, but companies should
remain mindful of the potential impact a
particular financing may have on its current
condition and future financing opportuni-
ties. Generally speaking, convertible debt
instruments carry the largest risk for adverse
impact on a companys capitalization and
financial condition. At the other end of the
spectrum, common equity offerings are gen-
erally the least burdensome.
will you seeK Dual listiNg
of your seCurities?
Dual listing in both the U.S. and typically the
home country promises to broaden a com-
panys pool of potential investors, increase
liquidity and potentially raise additional
capital. Many companies pursue dual list-
ing for the more intangible positive benefits
on brand awareness, reputation or analyst companies with initial public offerings, ongoing
coverage. Companies considering a dual
listing should be mindful of the potential
up-front cost in legal, accounting and appli-
cable registration and listing fees, and, more
importantly, ongoing listing standards. So
long as the U.S. stock exchange is notified
that the company will be following and is in
compliance with home country governance
practices and appropriate disclosure is made,
international companies may typically con-
tinue using their home country governance
practices, subject to input of the companys
investment banker. Certain areas, however,
such as the composition of the companys
audit committee, are inflexible, and dual
listing can have important consequences on
the board of directors and committees of the
listing company. Companies will also need
to consider establishing a U.S. investor rela-
tions function in connection with the dual
presence.
There is no one-size-fits-all approach for
international companies seeking to establish
a presence in or raise capital in the United
States. Companies must balance immediate
goals with long-term strategy and should
fully investigate all of the potential oppor-
tunities and their consequences before com-
mitting to a course of action. n
Partner Margaret Rosenfeld has more than 20 years
of experience with public companies and she leads
the global Microcap practice at Smith Anderson
law firm (SmithLaw.com). Founded in 1912, Smith
Anderson is the largest business and litigation law
firm headquartered in the world-renowned Research
Triangle region of North Carolina. Smith Anderson
provides a full range of legal services to a diverse
group of regional, national and international com-
panies and is well-versed in assisting small public
public reporting and corporate governance require-
ments, structured financings such as PIPEs, regis-
tered directs, CMPOs, rights offerings, ATM/equity
lines, convertible preferred and convertible debt, and
alternative financings under Title II, Title III and
Title IV of the JOBS Act. Smith Anderson is proud
to have represented Groundfloor Finance as the first
company to qualify an offering under Regulation A+.
For more information, please contact Margaret
Rosenfeld at mrosenfeld@smithlaw.com or 919-821-
6714.
MicroCap Review Magazine 67
 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
public companies with a calendar year end.
It seemed that this day would never come.
It was long ago that the Financial Accounting
Standard Board (FASB) and the International
Accounting Standard Board (IASB) started
their noble attempt to converge US Generally
Accepted Accounting Principles (US GAAP)
with IFRS, the accounting principles used by
the rest of the world. While that project has
pretty much derailed, the two governing bod-
ies of accounting did agree on a new converged
revenue recognition standard. Many have
referred to this as one of the most major devel-
opments in accounting since Sarbanes Oxley.
So, is your company ready for this change?
According to studies by the AICPA, SEC and
others, many companies are not, and time is
running out. If your company hasnt already
done so, it is imperative that company manage-
ment begin a comprehensive study and analy-
sis to determine if the new pronouncement
affects the companys revenue recognition and
disclosure policies. The entire revenue and
disclosure process will need to be reviewed and
aligned with the new standard. Management
will need to ensure that systems are in place to
record revenue under the new principles and
capture the necessary disclosures.
Currently there are numerous accounting
models and industry-specific guidance for the
recognition of revenue. This results in differ-
ent revenue accounting for economically simi-
n BY COREY FISCHER, CPA
www.stocknewsnow.com
lar transactions. One of the goals of this new
standard is to remove the highly segmented,
industry-specific revenue recognition guid-
ance that currently exists and adopt a more
principles-based standard that will be applied
consistently regardless of industry. The new
pronouncement, Revenue from Contracts with
Customers, establishes a single global standard
on how companies are to recognize revenue.
The new standard provides a 5-step pro-
cess to recognize revenue. This includes
(1) identify the contract with a customer;
(2) identify the performance obligations in
the contract; (3) determine the transaction
price; (4) allocate the transaction price to the
performance obligations in the contract; and
(5) ultimately recognize revenue when (or
as) each performance obligation is satisfied.
The new standard provides guidance that
isnt in US GAAP now, including guidance
on contract modifications, costs of revenue
transactions, service revenue recognition,
changes in estimates of contract life, transac-
tion price, level of effort, and deliverables, loy-
alty programs, intellectual property, balance
sheet presentation, and footnote disclosures.
For many companies, the new revenue
accounting rules may not significantly affect
the way revenue transactions are recorded,
but could affect the financial statement disclo-
sures. This would be true for those companies
that are in a retail business, or where there is
point of sale cash collection. The account-
ing for distribution businesses and consumer
product companies should also not see too
many changes, but may see certain changes in
how certain costs are accounted for.
However there are certain industries and
transactions where the accounting could be
significantly affected. Software companies,
biotech companies, entertainment companies,
brand management companies and basically
any company where a license or royalty is
involved will be significantly affected by the
new rules. Contractors, homebuilders, engi-
neers, architects, and real estate developers that
have contracts with customers are also among
those that will be affected by this new guidance.
For many of these companies, the new rules
may accelerate the timing of revenue recognition
versus todays GAAP guidelines. This means the
new rules may allow for a sizable portion of
license and other fees to be recognized upon
delivery of the license to the customer. Entities
that sell real estate will generally recognize rev-
enue when control of the property is transferred,
subject to the assessment of collectability, which
may generally be earlier than recognition under
current guidance.
In adopting the revenue standard, compa-
nies can select from two transition methods,
a full retrospective method or a modified
retrospective method.
Under the full retrospective method, the
new revenue standard will be applied to each
prior reporting period presented and the com-
pany will need to restate its 2017 financial state-
ments in its 2018 interim and annual financial
statements as if the guidance had always been
in effect. For companies selecting the modi-
fied retrospective method, prior year financial
statements would not be restated. Instead,
companies will recognize the cumulative effect
of initially applying the standard as an adjust-
ment to opening retained earnings.
There is a lot to comprehend, and the clock
is ticking. The important thing here is to
ensure that Management has started its analysis
because waiting for year-end will be too late. n
Corey Fischer, CPA, is Firm Managing Partner
of Weinberg & Company, a multi-office, PCAOB-
Registered firm specializing in the audit, assurance
and tax needs of micro and small cap companies.
He has more than 25 years of experience, having
worked with the Big 4 accounting firms, and as an
SEC reporting officer for a number of NASDAQ-
listed companies. He is based in Los Angeles, and
is an expert in financial reporting, SEC compliance,
raising debt and equity, mergers and acquisitions, and
structuring accounting operations. Email: coreyf@
weinbergla.com or 310-601-2200.
MicroCap Review Magazine 69
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 david@fishbowlstrategies.com A Detailed analysis (or Customized data) is available by Subscription
70 MicroCap Review Magazine www.stocknewsnow.com
 TAKE THE PAIN OUT OF
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Neither OTC Markets Group Inc. nor any of its afliates makes any recommendation to buy or sell any security or any representation aboutMicroCap
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.
 F E AT U R E D A R T I C L E

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

n BY MICHAEL J. CORBETT

72 MicroCap Review Magazine www.stocknewsnow.com


of small firms to outperform the common
stocks of large firms given the same level of
risk. According to Ibbotson & Associates,
small company stocks have produced annu-
alized returns of 10.02% from 1926 through
2015, which compares favorably to large
company stocks return 11.44%. Even when
returns are measured over shorter time peri-
ods, smaller company stocks perform well
versus other assets classes. The table above
shows the performance of Large Company
Stocks, Small Company Stocks, Long Term
Government Bonds and Treasury Bills for
each of the past eight decades. While small
company stocks have not always been the
best, there returns are meaningfully positive
in every period.
Due to these performance results and
the academic research, I have dedicated my
life and career to following and investing in
smaller company stocks. My near 30-year
career has brought me both satisfaction and
handsome results, but various changes in the
past 15 years has me pondering the future of
small company stocks. The changes in the
past 15 year are mostly related to increased
regulation and the cost of being a public
company. Much of the changes started
with Sarbanes Oxley Act (SOX) passed by
U.S. Congress in 2002, which is designed
to reduce the risk of fraudulent activities by
corporations. While the act had lofty goals,
the cost was too prohibitive, particularly for
smaller companies. There have been several
other laws and programs introduced after
SOX was passed in 2002. Another example
is Dodd-Frank, which significantly increased
www.stocknewsnow.com
banking regulations and costs. The bottom
line is that we believe these increased regula-
tions resulted in less publicly traded compa-
nies. As you can see from the chart above,
the number of U.S. companies listed on the
major exchanges has declined from more
than 7,000 to less than 3,600 today.
In addition to companies that are not
interested in having their equity publicly
traded, merger and acquisition activity also
contributed to the decline of publicly traded
companies. Furthermore, we believe it is
partially obvious that only quality companies
are routinely acquired, and that lower quality
companies do not get acquired. The point is
that as this dynamic increases the percent of
lower quality companies within the public
markets today.
With regard to low quality companies, the
table below details some interesting history
for the Russell 2000 Index and the Russell
Microcap Index. As you can see, the number
of profitable companies has declined signifi-
cantly in the past 10 years while the number
of unprofitable companies has increased sig-
nificantly. While the universe of publicly
traded companies is starting to be dominat-
ed by low quality companies, we believe the
situation may change in the next few years.
Donald Trumps election as president of
the United States and the Republicans sweep
of control in the legislation caught the finan-
cial world off guard. So, what does a Trump
presidency mean for the markets and the
economy? The implications of how a Trump
win plays out in the markets are not entirely
obvious. Trump has not been overly detailed
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
method of an IPO. You could also see new
companies coming public from spin-offs,
reverse mergers, or moving from the pink
and bulletin board market to the national
exchange. The next few years should be an
exciting time to find and invest in new qual-
ity smaller public companies. n
Source Ibbotson & Associates:
Large Company Stocks defined as S&P 500
Small Company Stock defined as CRSP 6-8 decile
Michael J. Corbett
CEO, CIO and Portfolio Manager
Michael is CIO and Portfolio Manager for all
equity portfolios with Perritt Capital Management
and The Perritt Funds. Perritt Capital Management
first employed Mr. Corbett in 1990 as a research
analyst. He assumed portfolio management respon-
sibilities in 1996. In late 1999, Mr. Corbett became
president and lead-manager of the Perritt MicroCap
Opportunities Fund (PRCGX). He became port-
folio manager of the Perritt Ultra MicroCap Fund
(PREOX) at its inception in 2004 and the Perritt
Low Priced Stock Fund (PLOWX) at its inception in
2012. Mr. Corbett was named to the Barrons/Value
Line Top 100 Mutual Fund Manager from 2003-2007.
He is a Registered Investment Advisor. Mr. Corbetts
insight regarding small company investing has been
sought after by a variety of financial media outlets,
including CNBC and The New York Times. He is
a member of the Joliet Diocese Endowment Fund
Board and previously served on the St. Mary Gostyn
Finance Committee and the St. Mary Gostyn School
Board.
MicroCap Review Magazine 73
 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
the task at hand. The task is becoming the
best MicroCap investor I can, and shar-
ing that journey with those interested in
learning more about investing in MicroCap
stocks. Theres no pressure to be the best
right away.
HigHligHts of 2016
Understanding the importance of corporate
governance
In Episode 22, I spoke with Adam Epstein
from Third Creek Advisors, and we dis-
cussed corporate governance, and why it is
important to keep in mind when looking at
MicroCap companies. Before speaking with
Adam, I honestly, didnt really keep in mind
board of directors, whos on the board and
may have been blinded by the flashy names
on some corporate boards. After our talk, I
think MicroCap companies have to critically
think about their corporate board formula-
n BY ROBERT BOBBY KRAFT
74 MicroCap Review Magazine
tion, not just because they should surround
themselves with appropriate people, but
investors, like you and I, can approach them
as an important part of our due diligence.
Dissecting Reg A+ and 100 Baggers
I did a couple episodes this year covering
Reg A+. I thought this was important as this
has had a lot of attention over the last couple
years. If you are at all curious about what
Reg A+ means, I invite you to listen to my
interviews with David Weild and Cromwell
Coulson.
Dissecting 100 Baggers is an episode I did
with Chris Mayer from Bonner & Partners.
This was interesting because that is every
investors dream find an undervalued
company, invest at the right time, the com-
pany continues to execute, re-invest profits
and enjoy the ride. Easier said, than done!
However, 100 baggers are out there and it
takes hard work and dedication to find them.
Characterizing Intelligent Fanatics
I really enjoyed speaking with Sean Iddings
discussing his new book he co-wrote with
Ian Cassel about Intelligent Fanatics. I
wasnt nave to think that great CEOs grew
on trees and this book illuminated how suc-
cessful leaders that were innovative in ways
I didnt realize built sustainable businesses. I
highly recommend picking up a copy.
looKiNg aHeaD at 2017
One thing you will not read here is my pre-
dictions about what will happen in MicroCap
stocks for 2017. As Mike Schellinger from the
MicroCapClub.com recently said in Episode
35 when I asked about some of the themes to
look out for in 2017, he said, I have a big pre-
diction for you I predict October is going
to be a dangerous month for stocksWant
to know why?....Its one of the particularly
dangerous months for speculating in stocks,
but the other months that are dangerous are
July, January, September, April, November,
May, March, June, December, August and
February, which are all the months (also
originally stated by Mark Twain as Mike
says in the interview). At the end of the day,
I continue to look for value using the new
tools at my disposal.
One very exciting thing Id like to
announce is that at the Planet MicroCap
Showcase, April 26-28, 2017 at the Planet
Hollywood Resort & Casino is Las Vegas,
I will be hosting the first ever live Planet
MicroCap Podcast with a very special panel
of guests that have previously been guests
on my program. You can rest assured, it
will be educational, potentially contro-
versial, but above all, FUN. Go to www.
PlanetMicroCapShowcase.com and register
so you can be an in audience for this, as Im
very excited for this event. n
www.stocknewsnow.com
 CANNABIS LEGAL CORNER
By All Measures, 2016 was a Historic Year for Cannabis
B
y all measures, 2016 was a historic
year for Cannabis. With the possible
exception of 1996, when California
became the first state to legalize (medical)
marijuana, and 2012, when Colorado and
Washington legalized recreational marijua-
na, 2016 was probably the best year for mari-
juana. Following the 2016 elections, eight
states (including Washington, D.C.) have
legalized recreational marijuana, doubling
the number from the prior year, includ-
ing California, the 8th largest economy in
the world. And, five additional states have
legalized medical marijuana, increasing that
number from 23 to 28, with more than half
the states in the U.S. having legal access to
marijuana. Now the question on everyones
mind is, what impact will be felt by Donald
Trumps election as the next President?
According to Forbes, legal sales recorded
for 2016 were $6.7 billion, up 30% from
2015, and some analaysts are projecting sales
of $20-25 billion in 2020, which would repre-
sent compound annual growth of 35% over
the next five years. Suffice to say, the indus-
try is booming, as everyone predicted, and
perception among the public has also dra-
matically changed in the last 20 years60%
of the public want to see marijuana legalized
nationally, that number stood at about 25%
20 years ago, and 84% of Americans want to
see medical marijuana legalized nationwide.
However, with all the growth that mari-
juana saw in 2016, the industry now faces
n BY MARC J. ROSS, Esq.
www.stocknewsnow.com
an unknown, Attorney General Jeff Sessions.
To say Sessions is a strong opponent of the
legalization of Marijuana would be an under-
statement. During his confirmation hearings,
he stressed he will enforce federal law when
asked about marijuana, after noting that mar-
ijuana is illegal under federal law. However,
he was sitting in a confirmation hearing, and
any answer other than I will enforce federal
law would probably be disqualifying. After
all, the job of the United States Attorney
General is to ENFORCE federal law.
The immediate question on everyones mind
is now what? The appointment of Jeff Sessions
has struck fear in pro-marijuana groups and
shaken the stock market for cannabis compa-
nies. But what can we expect will really happen?
On the one hand, the Trump administra-
tion can rip up the Cole Memorandum, which
was issued during the Obama administration
and provides that, given the federal govern-
ments limited resources, if a state complies
with eight enumerated points, the federal
government will not interfere, and enforce
federal law. After all, the Rohrabacher-
Farr Amendment, which codified the Cole
Memorandum, and formally prevents the
federal government from enforcing federal
law, is set to expire on April 28, 2017.
On the other hand, the Trump admin-
istration can continue to enforce the Cole
Memorandum and seek, once again, to
extend the Rohrabacher-Farr Amendment.
This would allow more jobs to be created,
a central theme extolled by Donald Trump,
as the industry continues to grow. It will
also allow the states to decide matters for
themselves, which Donald Trump and others
likely to serve in his cabinet, including Jeff
Sessions, appear to support.
While it is impossible to predict the future,
given the new administrations emphasis on
jobs and growth, it may be too tempting for
them to enforce federal law, which would
cripple marijuana-related businesses, not to
mention eliminate a tremendous source of
tax revenues for the states. Also, given the
new administrations focus on repealing and
replacing the Affordable Care Act, immigra-
tion reform, building a wall, criminal justice
reform, and jobs, will it also want to tackle
this complicated and controversial issue?
Clearly time will tell, but it seems to me that
we have, or at least we should have, reached
the tipping point and not go backwards. n
Marc J. Ross is a founding partner of Sichenzia Ross
Ference Kesner LLP, formerly known as Sichenzia
Ross Friedman Ference LLP, a firm he started in 1998
which specializes in corporate, securities, litigation
and regulatory matters.
In the securities and corporate area, Mr. Ross
advises companies with their 1934 Act reporting
requirements as well as their NASDAQ, AMEX and
NYSE and other exchange listing and compliance
matters. In addition, Mr. Ross assists companies going
public, whether through a reverse merger (RTO), ini-
tial public offering (IPO), or company offering (DPO).
He also advises clients on investment and capital
raising transactions, including private investments in
public equities (PIPEs), initial public offerings (IPOs),
registered direct offerings (RDs), and shelf offerings.
In the litigation and regulatory area, Mr. Ross rep-
resents clients in commercial/securities matters from
arbitrations before FINRA, the AAA, and JAMS,
to court cases nationwide. Mr. Ross also counsels
clients in civil regulatory and possible criminal inves-
tigations before self-regulatory organizations, state
agencies, or federal agencies, and he regularly appears
before the SEC, FINRA, and state securities agencies
in connections with their investigations.
Mr. Ross also specializes in advising marijuana
and marijuana-related companies. In particular, he
is very knowledgeable in, and often speaks on, the
legal issues associated with marijuana and marijuana-
related businesses, including the interplay between
state laws which legalize recreational and/or medical
marijuana uses, and federal laws which bar such uses.
Mr. Ross teaches the first law school course on
marijuana at Hofstra University School of Law, titled
Business and Law of Marijuana. In his course, Mr.
Ross introduces students to the rapidly-developing legal
questions encountered in the operation of marijuana-
related businesses. The course uses a fictional business,
Cannabis Inc., to explore (1) the interplay between
state laws legalizing recreational and/or medical mari-
juana uses and the Federal Controlled Substances Act;
(2) enforcement and application of other regulatory
regimes governing the operation of marijuana-related
businesses, such as banking and securities laws; and (3)
the ethical considerations for an attorney advising a cli-
ent engaged in a marijuana-related business.
MicroCap Review Magazine 75
 F E AT U R E D A R T I C L E
Where Have All the Market Makers Gone?
I
recently had a conversation about Where
have all the market makers gone? My
curiosity got the best of me so I turned to
a Level 2 platform web page to see for myself,
who were the market makers commonly seen
making markets in microcap stocks? What I
found was a surprise. I did not recognize many
of the firms making markets and it seemed the
lists I viewed were much shorter than I remem-
ber. I began to wonder if a shorter list of market
makers would influence liquidity, execution and
volume. Some stocks are trading with huge
volume and with less market makers too. Most
investors see stock prices and volume with price
and volume either delayed or in real-time and
most just hope for good fills, but I wanted to dig
deeper into this. Had High Frequency Traders
and ETFs infiltrated microcaps? Was I missing
something? If I am asking these questions I
figured our readers of this magazine might be
wondering whats going on behind the scenes of
the bid and ask and volume in microcaps too. I
reached out for answers to OTC Markets and
BMA Securities, a market maker, with the same
list of questions hoping for answers and opinions
to share with you. The two firms responded with
their answers. I would like to thank both Mike
Modeski of OTC Markets and Greg Averyt of
BMA Securities for their time and efforts. We
have printed the questions and answers in their
entirety. Please feel free to contact Mike or Greg
or myself with any questions or comments.
1. How do todays market makers provide
liquidity in the market?
OTC Markets:
In its simplest form, liquidity in the OTC
markets is the direct result of investor orders
in a security, and active market makers putting
quotes into the market. Liquidity is electroni-
cally priced and accessed by broker-dealers
through OTC Market Groups OTC Link ATS.
n BY SHELLY KRAFT WITH
MIKE MODESKI-OTC MARKETS &
GREG AVERYT-BMA SECURITIES
76 MicroCap Review Magazine
If the firms focus is retail order flow, quotes
are often a mix of customer orders and pro-
prietary interest. When executing marketable
orders, brokers-dealers may choose to provide
increased liquidity to the market by executing
a portion or the entire investor order based on
their own inventory. In other cases, firms trade
their own capital, meaning that they are placing
their quotes into the market based on where
they feel the price justifies the risk profile. Then,
you have a final group of firms who are running
sophisticated electronic models to determine
the price points at which they are willing to buy
and sell a given security. These models take into
account a selection of data points such security
type, price, time and volatility to identify oppor-
tunities to provide liquidity to the market.
BMA:
We provide liquidity by being on both side
of the market, by being willing to sell blocks
to buyers as a short sale or buy positions into
inventory based on market demand. In turn,
these positions will eventually have to be sold
to the street or bought in the open market.
2. Do market makers specialize in retail or
institutional order flow?
OTC Markets:
Some firms specialize in retail order flow,
meaning quotes are tied to customer intent,
while others will focus on institutional. Some
firms service both retail and institutional.
Finally, there are firms that have no order
flow but choose to make markets in OTC
securities and risk their own capital. We see
substantial liquidity from all types of firms.
BMA:
We work in both capacities. Our presence in
markets we make vary, but typically a small amount
of orders would generally be placed through an
ECN on an agency basis due to costs involved.
3. / 4. What are the effects of High Frequency
Trading market making firms on microcap
stocks? Same for ETFs?
OTC Markets:
High frequency traders are typically look-
ing for a large volume of transactions so they
can get in and out of positions quickly. As
microcap stocks are often less liquid, you
tend to see electronic traders focusing on
market making strategies and there are very
few ETFs in this market.
BMA:
Microcap stocks are not typically subject to
high frequency trading activity. There are day
traders and firms that trade heavy volume on
a proprietary basis that do move the markets
in both directions.
High Frequency Trading and Algorithms
have caused ETFs to trade faster and have
added volatility.
5. Some issuers have more market makers
than others. Why is this the case? Does the
amount of market makers affect liquidity?
OTC Markets:
The number of market makers is a direct
result of the perceived opportunity and
investor demand in a given security. This
is largely determined by the trading volume
and investor order flow in a security.
Market makers have a direct effect on
liquidity. The more market makers in a given
security, generally the tighter the spreads and
the more competition for pricing.
Unfortunately, the regulatory environment
has a direct impact as well. Market makers
have to be selective about the securities they
trade, as there is a FINRA-approved cap on
how many securities they can make a market
in. This number will vary based on the size of
the firm, their capital and the process they have
with their clearing firm.
Market makers in lower priced securities
are also impacted by the structure of regulatory
fees, such as the Trading Activity Fee (TAF).
TAF is calculated at a rate per share. As you
tend to see larger transactional size in lower
priced securities, this results in a higher activity
www.stocknewsnow.com
fee. Lifting these regulatory burdens would
expand the market in lower price securities.
BMA:
Stocks with more volume and interest in
the company will attract market makers to
pick up the market.
6. How do market makers gauge their expo-
sure in the risk vs reward and profit and loss
business of market making?
BMA:
In the OTC space, stocks can move up in
price dramatically overnight or in a few hours,
so short positions are monitored very carefully
on a real-time basis by the trader and several
levels of management. Recent improvements
in technology have increased our ability to
manage risk across our trade desks.
7. Some market makers only trade and
some market makers are full service firms,
whats the difference?
BMA:
Our firm is a full-service brokerage firm
in that we accept deposits of stock from retail
clients and institutions and make markets
representing internal and dealer to dealer cli-
ents. A firm that is only trading and making
markets is doing so either on a proprietorial
or dealer to dealer basis.
8. How has the change from fractions to deci-
mals changed the market making process?
BMA:
The effect of the markets changing
from fractions to decimals 15 years ago,
was a reduction in the spreads between
the bids and asks. However, the exchanges
have begun pilot programs for Nasdaq and
OTC stocks which will trade in 5 and 10
cent increments, similar to some markets
for options contracts, and will effectively
increase the spreads as well.
9. What is needed by market makers to help
provide more liquidity to issuers?
OTC Markets:
One of the biggest opportunities to affect
the liquidity in microcap stocks is to influ-
ence the regulations that limit the market
www.stocknewsnow.com
makers from providing liquidity.
Amending Reg SHO is a prime example.
Under this regulation, a market maker can short
a stock, but there is increased risk of buy-in with
less active securities that are hard to borrow. The
customer may be satisfied with an execution at
the offer, however, now the market participant
is short the stock and has five days to cover this
short position before a mandatory buy-in pro-
cess. If the five-day window was longer for bona-
fide market makers to cover their short sales in
less active securities, firms would be more willing
to commit capital on both sides of the market.
We should be looking at Reg SHO and other
regulatory reforms thatwill help market makers
provide more liquidity while decreasing spreads.
BMA:
The National Securities Clearing
Corporation now requires the clearing firms
to place massive deposits of capital for low
trades in low priced securities until settlement
date. These deposits are based on the average
twenty-day volume of the security and are
required to be put up with NSCC until the
settlement of trades. This has caused clearing
firms to put limits on the number of shares that
can be sold by the market making brokerage
firms and put many broker dealers out of busi-
ness. While the SEC has proposed changing
settlement dates from regular way to a two-day
settlement model to reduce this burden, it is
not enough. The regulator supported require-
ments of NSCC, need to be reduced.
10. With reduced IPOs and Reg A+ private
transactions growing, where do new listings
for market making come from?
OTC Markets:
Reg A+ / crowdfunding
Brokers making Form 211 filings with market-making and trade execution. BMA merges an
FINRA to allow them to publish quotes
Voluntary exchange switches and delist-
ings from exchanges due to stocks no longer
meeting listing requirements
Reverse mergers n
Michael Modeski
EVP, Trading Services / President,
OTC Link LLC
Mike joined OTC Markets Group
in 2011. Mike has over 15 years
of experience in the financial mar-
kets, with a focus on the OTC mar-
kets. Previously, Mike served as the Director of Broker-
Dealer Execution Services and Sales at Citigroup and the
Director of Execution Services at Lava Technology, a divi-
sion of Citigroup. Before working at Citigroup, Mike was
the Director of OTC Equities at FINRA and held several
management positions at Pershing. He graduated from
Lehigh University with a Bachelor of Science in Finance
in 1995. Mike is a member of the Board of Directors of
the Securities Traders Association of New York (STANY).
About OTC Markets Group Inc.
OTC Markets Group Inc. (OTCQX: OTCM) oper-
ates the OTCQX Best Market, the OTCQB Venture
Market, and the Pink Open Market for 10,000 U.S.
and global securities. Through OTC Link ATS, we
connect a diverse network of broker-dealers that
provide liquidity and execution services. We enable
investors to easily trade through the broker of their
choice and empower companies to improve the qual-
ity of information available for investors.
To learn more about how we create better informed
and more efficient markets, visitwww.otcmarkets.com
OTC Link ATS is operated by OTC Link LLC,
member FINRA/SIPC and SEC regulated ATS.
Greg Averyt
Mr. Averyt is a Managing Director
at BMA. In his current role, Mr.
Averyt helps oversee the firms inter-
nal investment capabilities including
investment strategy, trading, opera-
tions and execution. Since joining
BMA in 2004, Mr. Averyt has been
instrumental in the expansion and implementation of
BMAs offices and trade desks across the country. He is
an experienced market making trader and settlements
expert and uses his in-depth knowledge of industry best
practices to provide integrated solutions to the Firms
clients. He brings with him more than 10 years of experi-
ence in the securities industry, holds his series 7, 63 and
55 licenses and is also registered with FINRA as a General
Securities Registered Representative. Mr. Averyt holds a
Bachelor of Science in Psychology from Arizona State
University.
BMA Securities LLC
Established in 2001, BMA Securities (BMA) is a
recognized leader in financial services specializing in
accessible client service approach with modern tech-
nology to provide clients with the personalized service
they deserve and the cutting edge technology required
to keep up with todays rapidly evolving and volatile
financial markets. BMAs clients include: hedge funds,
family offices, broker dealers, venture capital firms,
law firms, institutional money management firms,
investment banks, and accredited investors.
www.bmasecurities.com (P)310-544-3545
MicroCap Review Magazine 77
 RESOURCES SECTION

Fatal Flaws and the

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

78 MicroCap Review Magazine www.stocknewsnow.com


Fig. 2: Junior mining cycle: Where you should buy and sell
Source: Lassonde and Exploration Insights
These plays require almost daily reassess-
ment of random factors that are beyond an
investors control, such as global economic
and/or geopolitical uncertainty.
Table 1: The heat is on
Source: www.vue-matrix.com
www.stocknewsnow.com
KNow wHere you are oN
tHis CHart
a useful tool is a risk matrix. Each of the
The following chart is a highly valuable
tool for speculators investing in the junior
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.
miNiNg projeCt risK assess-
meNt CHart
To be able to identify flaws on a project,
potential risks a project could face is tabu-
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.
MicroCap Review Magazine 79
 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 min- ing 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.

80 MicroCap Review Magazine www.stocknewsnow.com

 Some professionals look good on paper
but are, in fact, unreliable, making speak-
ing with management at conferences or by
phone remarkably useful. During site vis-
its it is possible to observe the interaction
between management and the rest of the
staff, and make sure everyone is aligned.
teCHNiCal risKgettiNg tHe
geology rigHt is CruCial
Searching for fatal flaws in the technical
aspects of a project requires further due
diligence based on public sources of infor-
mation (National Instrument 43-101 com-
pliant technical reports) and site visits.
Getting the geology right is critical. The
market has absorbed a number of failed
resource estimates over the past few years
due to wrongly interpreted geology and/or
faulty metallurgy.
The mineralogy and stratigraphic-
structural controls on mineralization of a
deposit determine if and how the ore can
be profitably mined (open pit or under-
ground, dilution percentage, strip ratio)
and processed (heap leach, milling free
gold, or refractory).
Although grade is often touted as king,
it is actually the profit margin that counts
and the ability to payback the original
capital investment. Note potential suitors
would seek a quicker the payback for an
asset located in a higher geopolitical risk
jurisdiction.
exeCutioN risKgoiNg big
leaDs to bigger HeaDaCHes
Significant execution risks revolve around
proximity to infrastructure (or the lack
thereof) and the ability to permit the proj-
ects development. If a company is explor-
ing for or building a mine at the back
of beyond of some tin-pot country, the
upfront capital and capital cost escalation
could kill an otherwise decent deposit.
Large projects can be attractive from a vol-
ume perspective, but they tend to generate
www.stocknewsnow.com
Significant execution risks revolve around
proximity to infrastructure (or the lack thereof) and
the ability to permit the projects development. If
a company is exploring for or building a mine at
the back of beyond of some tin-pot country, the
upfront capital and capital cost escalation could kill
an otherwise decent deposit.
extensive footprints that also draw the ire
of third party stakeholders.
fiNaNCiNg risKNot a prob-
lem to fuND g&a aND explo-
ratioN, but No baNK Debt if
its Not feasible
Potential investors in advanced plays must
consider a companys financial position,
market capitalization, and ability to fund a
project. The number of equity financings
in 2016 suggests a recapitalization of the
junior mining sector. However, the ability
to put together a financing package for
a marginal project (which includes bank
debt) is still a significant hurdle.
summary
The risks associated with any junior min-
ing project are part of the package and
cant be avoided. The onus is on the man-
agement team to develop a viable strategy
for its asset and execute upon it while miti-
gating such risks.
All the protagonists of Shakespeares
tragedies had a fatal flaw that sealed their
fates. In the case of a mining project, an
extreme risk or fatal flaw has a high poten-
tial impact and an elevated probability of
occurring (red zone on a risk heat chart),
and it will likely end the projects chances
of advancing, regardless of its manage-
ment teams capacity.
Your ability to find fatal flaws ahead of
the crowd is the critical element to profit-
ing from imagined and real discoveries
in the junior mining sector. By focusing
on reality and discarding enchanted tales
emanating from persuasive promoters you
will do better over the long run. n
Joe Mazumdar is a Co-editor/Analyst at Exploration
Insights. Prior to that, he was a senior mining analyst
at Haywood Securities, then Canaccord Genuity. His
work experience includes Director of Strategic plan-
ning, Corporate development at Newmont and Senior
market analyst/trader at Phelps Dodge. Mazumdar
also worked in technical roles for IAMGOLD in
Ecuador, North Minerals in Argentina/Chile and
Peru, RTZ Mining and Exploration in Argentina,
Chile, Peru and Ecuador and MIM Exploration and
Mining in Queensland, Australia, among others.
Mazumdar has a Bachelor of Science in geology
from the University of Alberta, a Master of Science in
Geology and Mining from James Cook University and
a Master of Science in Mineral Economics from the
Colorado School of Mines.
Brent Cook
Economic Geologist and Author Exploration
Insights.
Brent Cook, a renowned exploration analyst and
geologist, is the author of Exploration Insights,
(www.explorationinsights.com). He has over thirty
years of experience providing economic and geologic
evaluations to major mining companies, resource
funds and investors. He was principal Mining and
Exploration Analyst to Global Resource Investments
from 1997 through 2003 where he provided analysis
to retail brokers and two in-house funds managed
by Rick Rule. He has worked in over 60 countries on
grassroots through mine feasibility projects evaluat-
ing virtually every mineral deposit type. Exploration
Insights is an independent newsletter that discusses
what Brent is buying, selling and avoiding in the
junior mining and exploration investment sector.
MicroCap Review Magazine 81
 LIFE SCIENCES SECTION
Pricing, People, and Politics
Ending an Era of Bad Management
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).
n BY THOMAS BUTLER, MSC, MBA
AND RAMSES ERDTMANN
82 MicroCap Review Magazine
Innovation is Coming
The days of holding on to aging pipelines
and enjoying hefty annual net-price increas-
es are also over. But why is that a bad thing?
When did novel drug discovery become
pass? When did R&D departments turn
from innovation generator to business devel-
opment validator? Drug discovery and drug
development was founded on the notion
that through rigorous scientific research and
clinical experimentation, we could solve the
worlds deadliest diseases. And the newly
discovered solutions to such diseases are
meant to have a profound impact on society,
not just in the United States, but around the
world.
Every time I see a Hilary Clinton, a Bernie
Sanders, or now a Donald Trump tweet
about drug pricing my response is dramati-
cally different than what is exhibited across
the pharma and biotech market. I see a
changing political landscape as a road back
to supporting true innovation. Lets not focus
primarily on profit maximization but on the
survival of mankind and the resolution of
human suffering, the real goals that motivate
us scientists and the rest of the workforce in
the biopharmaceutical industry.
Today, we have most of the necessary
framework already in place. We just need
a few minor adjustments and some actual
enforcement of existing policies that are cur-
rently being over-stepped. The corner stone
of drug development policy is the Hatch-
Waxman Act, which gives drug manufactur-
ers 14 years of exclusivity for their marketed
drug. The kicker here is the clock starts
when the drug is approved so long as you
can prove that you conducted the appropri-
ate clinical trials continuously, with a few
exceptions. This is ample time to recoup
any development costs associated with the
R&D efforts as well as build a very profitable
business to support future research. The
problem is, biopharmaceutical firms have
used various patent prosecution techniques
to extend the patent life beyond the 14 years.
Not only does this extend the amount of
time the drug is listed at a higher price, it
also disincentives Pharma from pursuing
innovation. Why would anyone engage in
the 8-year clinical drug development jour-
ney, spending hundreds of millions of dollars
on clinical trials, with only a 12% chance of
approval (from IND filing to FDA approval)
when you could essentially do nothing, just
expand your legal team, and sit on your
currently approved products, growing the
business by at least 6-8% per year through
price increases? No brainer, right?! Well,
that needs to end, drug exclusivity is limited
for a good reason, now we just need proper
enforcement.
Despite the current environment of profit
maximization, biopharmaceutical innova-
www.stocknewsnow.com
tion is still alive and well. That is, if you stick
to the ideals of drug discovery and develop-
ment. I listed a few of them in the beginning
of this article. Perfect examples of this in
2016 were Tesaro (TSRO), CoLucid (CLCD),
and Akaogen (AKAO). All three companies
exhibited true innovation, producing stun-
ning clinical data on the back of ground
breaking science. Shares of each firm have
more than tripled (+300%) from the produc-
tion of validated clinical data. Focus your
investments on innovation, it will always
payoff. All three companies represent the
type of biotech firm that we continue to
research for future investments here at Point
Sur Investors.
With 2016 now in the books, I am excited
to see how the policy landscape unfolds in
2017 and its potential to support innovation
once again. Perhaps this could lead to an
increase in calculated risk-taking on pro-
found science that supports new medicine to
make a significant improvement for the bet-
terment of patients around the world.
At Point Sur Investors, we are solely
focused on biopharmaceutical investments.
We started this fund to help with the inno-
vation of patient friendly therapies that sig-
nificantly improve the standard of care. We
are a long only fund, we avoid rumors and
speculations. Our work is data driven. We
believe that over time valuable innovation
in this field will lead to significant value
appreciation. We are experts in this field,
as we contributed to create and operate one
of the most successful biotech companies,
Pharmacyclics Inc. (formerly PCYC). We
know what a successful biotech company
looks like and how it operates. We know
what it takes to develop a novel mechanism
of action from the first drug design through
clinical and regulatory success into a com-
www.stocknewsnow.com
mercial launch. We have a strong network of worth equity investors and large European
functional experts to help evaluate but also closed-end funds. In addition to co-found-
support the portfolio companies on their ing several companies and serving on boards
path to clinical or commercial success. of directors, Ramses has also worked with
For more information, please visit www. Robert W. Duggan & Associates, provid-
pointsurinvestors.com ing analysis and due diligence that led to
investments in several companies, including
tHomas butler, msC, mba Pharmacyclics, Inc. Ramses began his career
at Commerzbank AG in Germany, where
Founder and Co-Managing Member he was an investment banker and portfo-
Prior to forming the General Partner, from lio manager for international clients. He
June 2013 through October 2015, Tom man- earned the Diplom Kaufmann degree with
aged Investor Relations at Pharmacyclics distinction in Finance and Banking from
Inc., where he helped grow the company the Westfaelische Wilhelms Universitt of
from a market cap of $6.74B to over $21B, Muenster, Germany. n
which included the execution of one of the
For more information about Point Sur Investors, please
largest biotech acquisitions to date. Prior
visit: www.pointsurinvestors.com.
to Pharmacyclics, Inc., Tom spent 6 years
as a medicinal chemist at Gilead Sciences
Inc. engaging in novel drug design and drug
development for HCV polymerase and pro-
tease inhibitors. Tom holds an M.B.A. from
the University of California Los Angeles
(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.
ramses erDtmaNN
Founder and Co-Managing Member
Ramses most recently served as the Executive
Vice President of Corporate Affairs for
Pharmacyclics, Inc. At Pharmacyclics, he
helped grow the company from approxi-
mately 40 employees with a market cap
of $40M in 2009 to 650 employees and a
market cap of $21B in 2015, when it merged
with AbbVie, Inc. Ramses was involved in
the operational expansion of the company
and oversaw various departments during the
growth phase including Finance, HR, Legal,
Communications, IR, Facilities, Events, and
IT. Prior to joining Pharmacyclics, Inc.,
Ramses managed assets for US high net-
MicroCap Review Magazine 83
 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,

84 MicroCap Review Magazine www.stocknewsnow.com


WPX Energy announced that they are in the
position to increase oil production by 25%
next year at $50 oil and by 50% at $55 oil the
following year.
The question now is what will happen
to the Price of oil? Will we see $65 a bar-
rel or like the EIA (Energy Information
Administration) analysis should we expect
to stay below $52 for 2017? According to sev-
eral analysts the level of $55 is the key point
for shale production to become sustainable
so the question is will OPEC allow it or will
the price settle around $50 and less than $55.
Inside OPEC the Saudis need money.
ARAMCO is going public in 2018 so they
need to improve the balance sheet and show
good results and like all the large companies
higher price means higher margins means
more cash and higher valuation so clearly,
they will want a higher price. Iran also needs
higher prices. In the past 12 months after the
sanctions were lifted Iran rushed to go back
to output like the prior sanctions period and
they continue to do so up to last month but
like every member of OPEC they will need
higher pricing. Will $50 enough to satisfy
them?
OPEC must balance price toward com-
www.stocknewsnow.com
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
petition from North America, it looks like
management company.
there is a new front line now on the war on
oil price and it is Texas versus OPEC.
This war will drive the traders in their
evaluation of investing in a few Oil stocks.
The anticipation of November generated
this rally and if you look at the charts of all
these stocks, it is a U, value was at the top
in Summer 2014 at a bottom in December
2015 and are climbing back. Can we expect
to reach the same level from 2014 perhaps
not exactly but close to certainly and there is
money to bet on the rebound!
list of stoCKs we revieweD
for tHis artiCle:
WPX Energy (NYSE:WPX),
Marathon Oil (NYSE:MRO),
Murphy Oil (NYSE:MUR),
Carrizo Oil & Gas (NASDAQ:CRZO)
Pacific Ethanol Inc. (NASDAQ: PEIX)
Tesco Corporation (NASDAQ: TESO)
American Midstream Partners LP (NYSE:
AMID)
Arc Logistics Partners LP (NYSE: ARCX)
Oasis Petroleum (NYSE:OAS)
Abraxas Petroleum (NASDAQ:AXAS)
MicroCap Review Magazine 85
 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
and sprinted into end of the year with a big
run fueled by interest in the elections, which
featured 9 different cannabis legalization
votes (5 states for full legalization and 4 for
medical initiatives), as well as excitement
over the continuing move towards full legal-
ization in Canada, where the biggest gains in
the sector were achieved. From a high-level
perspective, it is very clear where the indus-
try is headed in the long-term as society is
quickly embracing the idea that taxation and
n ALAN BROCHSTEIN
86 MicroCap Review Magazine
regulation of cannabis is sound policy.
After a collapse of 97% from the peak in
March 2014 to the trough in February 2016
as measured by the 420 Investor Cannabis
Stock Index, prices exploded. Through
mid-December, the index was us up 63.4%
year-to-date to 64.14. For some perspective,
here is how the market has performed in
2016, maintaining a large gain despite a big
pullback that began in early November in
advance of the elections:
Cannabis stocks were likely to correct
somewhat after the big run into the elec-
tions, as the fundamentals of most of these
www.stocknewsnow.com
companies dont come even close to justify-
ing the valuations, but, despite a landslide for
cannabis initiatives, with only legalization
in Arizona failing, the elections introduced
a major overhang for the sector. While the
Trump Presidency in and of itself wasnt
necessarily a negative, the Republican reten-
tion of control of the Senate was a setback, as
important legislation that would be benefi-
cial for the industry has been held up by the
Senate. More importantly, though, Trump
has selected Jeff Sessions as the Attorney
General. Sessions is passionately against
even medical cannabis, and several other
Trump Cabinet appointments share similar
views. While its not yet clear how the Trump
administration will proceed, the entire
industry is at risk due to the reliance upon a
memorandum issued by the Obama admin-
istration in 2013, the Cole Memorandum,
which defined rules for states with legal
cannabis programs to follow in order to
avoid federal enforcement of the Controlled
Substances Act within those states.
Sessions isnt yet confirmed and might not
be, and Trump hasnt issued any statements
since the election regarding his intentions, so
the range of expectations is all over the place.
Some are not concerned at all, as Trump has
previously spoken positively about medical
cannabis and has said he supports the rights
of states. Others are worried that the entire
industry could be shut down. The likeli-
hood is that there is little risk of pushback
from the federal government with respect
to states with medical programs, but there
is a reasonable chance that new rules could
be introduced with respect to recreational
cannabis. An extreme view would be that
it could be shut down, but a more likely
outcome is regulation that could limit it to
some degree. The genie is out of the bottle,
though, and trying to roll back legalization
in four states (soon to be eight) is extremely
unpractical. An alternative extreme view is
that the Republicans will look to Canada and
see the light! How the federal government
will deal with the issue is likely to be the big-
gest driver of cannabis stocks in 2017.
www.stocknewsnow.com
Cannabis stocks remain highly speculative. Despite
the concerns about how the federal government will
proceed, the legal cannabis industry is performing
well, but the stocks, for the most part, dont really
reflect the underlying industry.
For those who wish to invest in the can-
nabis sector, the best areas to focus upon
include the Canadian licensed producers,
GW Pharmaceuticals (NASDAQ: GWPH)
and the revenue-producing OTC names. The
Canadian story is much better appreciated
today than six months ago, and the stocks
have soared. The country has a robust fed-
erally legal medical cannabis program with
over 120K registered patients that is growing
10% per month and is on the path to full
legalization. Other international markets are
opening up too, including Germany, which
is likely to adopt a broad medical cannabis
program in 2017. As far as GW Pharma,
it remains on track to file a New Drug
Application with the FDA for its potential
blockbuster drug Epidiolex by mid-2017,
with potential approval by the end of the
year or early 2018. Epidiolex, which contains
CBD extracted from cannabis, has been
shown to be safe and effective in late-stage
clinical trials in the treatment of rare child-
hood epilepsies and has broader potential.
Finally, I recently identified nine names that
trade on the OTC that have annual revenue
in excess of $5mm, with some at or near
$10mm. Most of these are ancillary com-
panies that dont grow, process or sell can-
nabis, and a few of these have moved to cash
flow breakeven, reducing their reliance upon
external financing.
Cannabis stocks remain highly specula-
tive. Despite the concerns about how the
federal government will proceed, the legal
cannabis industry is performing well, but
the stocks, for the most part, dont really
reflect the underlying industry. A milestone
for the sector was the first NYSE IPO, a can-
nabis-focused REIT, Innovative Industrial
Properties (NYSE: IIPR). While the deal,
which was priced at the end of November,
was a bust initially, with the size reduced by
more than 50% and the price dropping once
it began trading, this stock broadens the base
of potential investors, opening the market
to institutions. A lot of money was made
by people speculating on cannabis stocks in
2016, and 2017 may be a year when longer-
term investors will finally have some better
options to participate in the growth of the
cannabis industry through publicly-traded
stocks.
Alan Brochstein, CFA, began his career as a bond
trader in NYC in 1986 with Kidder, Peabody and
worked with CS First Boston and Criterion invest-
ments until transitioning to equities as a analyst/
portfolio manager in 2000. In 2007, he began AB
Analytical Services, where he provided research and
consulting to several investment advisors while also
becoming one of the most popular contributors at
Seeking Alpha. In 2013, Alan launched 420 Investor,
an online community focused on publicly-traded
companies in the cannabis sector, and, more recently,
he began New Cannabis Ventures, a news & infor-
mation platform that highlights the most promising
companies and influential investors in the cannabis
industry. n
www.420investor.com
MicroCap Review Magazine 87
 PROFILED COMPANY
amplitech group, inc.
otCqb: ampg
iNtroDuCtioN
AmpliTech was founded by CEO, Fawad
Maqbool in 2002 to fill the need for high
quality, reliable, state-of-the-art, RF com-
ponents at an affordable cost, with quick
deliveries, hassle-free customer service and
a passion for taking on complex customer
requirements that competitors would not
touch.
Mr. Maqbool is a Biomedical and Electrical
Engineer and has over 33 years of experience
in the design of microwave amplifiers and
components. He has developed a wide vari-
ety of amplifier product lines, from LNAs
(Low Noise Amplifiers) and MPAs (Medium
Power Amplifiers), to broadband telecom
amplifiers for the microwave and fiber optic
communications firms. Among the many
leading companies were MITEQ, Motorola,
ITT, Harris, Northrop Grumman, Raytheon,
L3 Communications, Aeroflex, and TRW.
Mr. Maqbool has been at the fore-front of
developing, and managing the development
of high performance, low noise amplifier
products, as well as other amplifier products
and has received a Best Technology Award
from one of the industrys leading trade
magazines, and various Supplier Quality
88 MicroCap Review Magazine
Awards. As an electronics design and manu-
facturing leader, AmpliTech represents a
source of innovation in high-technology
products and is one of the few commodities
that cannot be replaced by inexpensive labor
forces from outside the U.S.
Low Noise Amplifiers, or LNAs as they
are called, are devices that boost the ampli-
tude of signals without amplifying the inher-
ent noise, thus allowing for better signal
integrity and extending the distances signals
can travel. The improvement of signal integ-
rity allows for better signal clarity, higher
bandwidth and much higher reliability, all
of which are critical in ANY type of wire-
less communication from cellular networks,
radar, satellite communications in many dif-
ferent sectors including commercial, military
and space exploration. The Company man-
ages to minimize research and development
and production costs so that AmpliTechs
revolutionary technology can be introduced
to retail and individual consumer markets
in addition to OEM manufacturers of vari-
ous products such as cell phones, handheld
devices, drones, etc.
marKet strategy
As a specialized high-tech provider,
AmpliTech believes in keeping intellectual
property from leaving the U.S. in the quest to
save American jobs. The Company business
model is to use a contract manufacturer for
high-volume production in the U.S. instead
of outsourcing to foreign countries. Mr.
Maqbools vision is to make advanced tech-
nology affordable enough so it can be avail-
able to individual consumer retailers in the
commercial sector. Previously, the technol-
ogy was only available to government divi-
sions and telecommunications giants. Why
would consumers want LNAs? These high
performance LNAs, once commercialized
into high volume consumer applications,
such as next generation cell phones, airline/
hotspot Wi-Fi, drones, automotive radar,
etc. will greatly improve the quality of life
of the average consumer. The actual method
of accomplishing this goal is to reinvent our
current discrete designs in the form of low-
cost, specialized, patented ICs, or Integrated
Circuits.
DeDiCatioN to New
teCHNologies
Company R&D efforts are creating designs
for a new generation of communications
products that include automotive sensors,
long range cell tower front ends, high-
speed satellite internet service, 4G/5G, IoT
(Internet of Things) devices and secure serv-
ers/routers that prevent cyber-attacks. These
are just a few of the many applications of the
Companys proprietary LNA technology. In
addition to the many communications appli-
cations, AMPG will apply its High-Power
Amplifier (HPA) technology towards Life
Science and medical solutions, especially for
the non-invasive diagnosis and treatment of
cancers and other anomalies.
AmpliTech is positioned to provide both
industry and consumers with new advanced
technologies and provide shareholders with
an experienced management team focused
on corporate and technical excellence. n
The company paid consideration to SNN or its affiliates for this article.
www.stocknewsnow.com
www.stocknewsnow.com MicroCap Review Magazine 89
Tuesdays Children has spent the past 15 years serving all those directly
impacted by the events of Tuesday, September 11, 2001.
Today, we continue to Keep The Promise to those children and families,
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90 MicroCap Review Magazine www.stocknewsnow.com
 F E AT U R E D A RT I C L E
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
for batteries. Deutsche Bank has forecast
global lithium battery manufacturing capac-
ity to quadruple by 2020. Everybody has a
smartphone in their pocket nowadays. And
electric vehicle sales are forecast to pick up
in a dramatic way, so we need an increase in
supply of lithium to make all these batteries.
But theres a host of metals and minerals
that go along with that beyond lithium alone.
Theres more graphite in a lithium battery
than there is lithium, since graphite is the
main ingredient in battery anodes. Hitachi
recently announced that it is quadrupling
its lithium battery anode material produc-
tion capacity by 2020. And China, which
produces most of the worlds graphite, has
announced that it is starting to build a
stockpile that will equate to a 20% increase
in graphite demand a sure sign they see
n NICK HODGE
www.stocknewsnow.com
supply woes ahead. Many small and micro-
cap graphite companies are out there. When
evaluating them, make sure they can eco-
nomically get to spherical graphite produc-
tion, which is needed for batteries. Most of
them cant.
Theres also more cobalt in a lithium bat-
tery than there is lithium. Its the main ingre-
dient in the cathode. Its cobalt that gives the
lithium-ion battery the high energy density
that allows it to power cell phones and lap
tops for long times. Like weve already seen
with lithium and graphite, look for new
cobalt companies popping up this year look-
ing to ride this trend.
And lets not forget about rare earths,
either, which are also needed for todays
hi-tech electronics. That supply is still domi-
nated by China and new supply will eventu-
ally need to come online.
We saw a lot of companies run up last year
in the initial lithium mania. Some of them
were up several thousand percent.
These equity gains are being made pos-
sible by the price disparity in these strategic
metals right now. The lithium price is run-
ning up because a supply gap is emerging,
and so the commodity price is rising so
producers are incentivized to bring more
online. You have a situation being created
now where dozens of companies are now
rushing in and staking claims or consolidat-
ing assets wherever they can for lithium,
cobalt, graphite, and all of a sudden theres 50
companies traded on the TSXV with lithium
in the name.
Thats the nature of the mining sector, the
ebbs and flows. It comes in cycles. It may be
a different metal, but the storys the same.
But the gains are always real. Investors who
can identify microcap companies early that
have the management prowess, dealmaking
ability, and capital market experience to get
it done will be handsomely rewarded.
I dont think this is going to play out
overnight. New mineral supply doesnt come
online imminently. There is permitting,
environmental tests, engineering, mine con-
struction, and many more steps that come
between listing a company on an exchange
and extracting metal from the ground.
Find the companies that are aggressively
pursuing a path to bring new lithium, graph-
ite, cobalt, and rare earth supply online not
just a path to market a stock in a hot sector. n
Founder and President of The Outsider Club, and
Investment Director of Early Advantage, Nick Hodge
has been in the investment publishing business since
graduating Loyola University in 2006.
Known for a call it like you see it approach to
money and policy, his insights have led to numerous
appearances on television and in various outlets on
the Web, including the Business News Network and
Yahoo!s Daily Ticker.
MicroCap Review Magazine 91
92 MicroCap Review Magazine www.stocknewsnow.com
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 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-
fied investors. However, in light of increased
enforcement activity by the SEC and many
state securities commissioners aimed at unreg-
istered broker-dealers, issuers should be mind-
ful of the risks associated with using finders to
obtain capital. Failure to do so could result in
severe monetary penalties and other negative
consequences, not only for finders, but also for
issuers and their senior executives, and other
agents who employ them.
Federal and state securities laws prescribe
a comprehensive regulatory scheme for any
person or entity engaged in the business of
effecting transactions in securities for the
account of others. Whether a person char-
acterizes himself as a finder is irrelevant in
the analysis of the securities administrators.
Unregistered broker-dealer activity can
arise in the context of a private securities
offering where persons not registered as
broker-dealers act as bankers, consultants,
advisers or finders. In these instances, the
SEC has taken the position that finders who
are engaged in such activities and fail to
become associated with a registered broker-
dealer have denied investors the protections
of regulatory oversight and firm supervision.
While the consequences to an unregistered
broker-dealer can include both civil and crimi-
nal penalties and potential bars from partici-
pating in the securities industry, issuers who
employ such persons also face adverse conse-
quences. For example, under federal and many
n BY ERIC HELLIGE, Esq. AND
FRANCESCA DJEREJIAN, Esq.
94 MicroCap Review Magazine
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
misled by not being informed that the finder particular private placement offering for possible
was not a registered broker-dealer. Some states unregistered broker-dealer activity, the existence
may also permit investors to seek monetary of transaction or success-based compensation is
damages from the issuer. Moreover, issuers that one of the two activities that are most likely to
engage unregistered broker-dealers may be draw regulatory scrutiny and result in the clas-
barred from future private placements under sification of a finder as a broker-dealer.
Regulation D, which is an important element Although early no-action letters to the SEC
in confirming an exempt offering. did not prohibit percentage-based commissions
There is no bright-line rule for determin- for successful introductions absent any of the
ing whether a finder effects a transaction in other activities outlined above, in a recent no-
securities and has therefore acted as an unreg- action request the SEC determined that the
istered broker-dealer. Instead, the SEC and receipt of compensation directly tied to the
state securities regulators typically employ success of investments in an offering gave a
a facts and circumstances analysis. Under finder a salesmans stake in the offering, there-
this approach, finders who merely open up fore heightening the incentive for the finder to
their contact lists and make introductions to engage in sales efforts, which, in turn, required
potential investors have not been required to broker-dealer registration. As such, the most
register as broker-dealers. In contrast, those cautious compensation route for issuers and
who take on incremental responsibilities in finders today is to provide a fixed fee for the
connection with an offering often tip the finder, regardless of the outcome of the offering
analysis toward the need to register. or the success of the finder in introducing inves-
Activities which have been found to cre- tors. Unfortunately, this is not a possible alterna-
ate a presumption that a finder is acting as a tive for many early-stage companies.
broker include: The second most scrutinized factor is the
Soliciting prospective investors for an finders prior involvement in securities offer-
offering of securities; ings. This provides evidence as to whether the
Offering or providing advice or recom- finder is engaged in the business of effecting
mendations with respect to the merits of an securities transactions. However, a finders
offering of securities, or the likelihood of prior experience and success in raising capital
success of the issuers business activities; is often a critical factor in an issuers will-
Negotiating the price or other material ingness to pay a flat fee that is not based
terms of an offering of securities; upon success. Without a successful prior track
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
Previous involvement, the frequency of engaged in the solicitation of potential investors
involvement and possible future involve- to those that are registered broker-dealers. n
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 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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Accounting Corner Column on Page 69