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SPRING 2019 The Official Magazine of the MicroCap Stock Market Since 2006

Hemispherx Biopharma, Inc. NYSE American: HEB Orgenesis, Inc. NASDAQ CM: ORGS

14 8
Page Thomas K. Equels, CEO Page Vered Caplan, Chairman, CEO & President

Citius Pharmaceuticals, Inc. NASDAQ CM: CTXR Taronis Technologies, Inc. NASDAQ CM: TRNX

18 12
Page Leonard Mazur, Chairman Scott Mahoney, CEO, President & Director
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21 My 8 Rules for MicroCap Value Investors 60 Public Venture Capital in Canada 80 Dos and Don’ts for Private Companies
By Tobias Carlisle By Brady Fletcher when Reverse Merging By JohnSlash
Dot Esq. Mixx Skype Technorati

26 MicroCap Investing By Brandon Mackie 64 Understanding Short Sale Activity 82 Hand Over Fist . . . Picking Teams and
By Cromwell Coulson Making Money By Jae Sly, PhD MBA
32 Microcaps’ 2009 Trend has been Your Friend Reddit FriendFeed YouTube LinkedIn

but did it END? By Steven M. Shelton, MS, 66 Reading the Proxy Statement to Evaluate 84 A Cannabis Play that Won’t Get Smoked
MBA, CFP®, CLU, CHFC, EP, CIMA®, CMT Management By Sam Namiri By Sean Peasgood
Newsvine SlideShare Google Google Talk

38 Family Offices are Investing Heavily in 68 Form 4 Filings By Maj Soueidan 86 The Impact of the Repeal of PASPA on the
Artificial Intelligence By Karl Douglas Tribal Gaming Market
72 Australian Non-Resource Microcaps By Ralph Garcea, P.Eng, MBA
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In Loving Memory of Our Precious Daughter, oday, the MicroCap Review mag- trend of increasing the stocks available for US
and Sister, Sammi Kane Kraft
azine, Stock News Now, Planet investors, which is a good thing for both the
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SNN Founder & Chairman
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The content is designed for retail and insti- Technology is also covered in this issue
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SNN Chief Executive Officer & Director
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424-227-9018 Harry Miller, December 28, 1933-March 25, 2019. Harry Miller was born in
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4 MicroCap Review Magazine
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21 My 8 Rules for MicroCap Value Investors 66 Reading the Proxy Statement to Evaluate
By Tobias Carlisle Management By Sam Namiri

26 MicroCap Investing: 4 Reasons Why Share Structure 68 Form 4 Filings By Maj Soueidan
is Critical By Brandon Mackie
80 Dos and Don’ts for Private Companies when
32 Microcaps’ 2009 Trend has been Your Friend but did Reverse Merging By John Lowy, Esq.
it END? By Steven M. Shelton, MS, MBA, CFP®, CLU,
CHFC, TEP, CIMA®, CMT 82 Hand Over Fist . . . Picking Teams and Making
Money By Jae Sly, PhD MBA
41 The Dual Listing Process for Foreign Issuers in the
United States By Richard Revelins 84 A Cannabis Play that Won’t Get Smoked
By Sean Peasgood
60 Public Venture Capital in Canada By Brady Fletcher
86 The Impact of the Repeal of PASPA on the Tribal
64 Understanding Short Sale Activity Gaming Market By Ralph Garcea, P.Eng, MBA
By Cromwell Coulson

Profiled Companies 25 Marrone Bio Innovations 50 OptimizeRx Corporation

28 Jerash Holdings (US), Inc. 56 SRAX
12 Taronis Technologies, Inc NASDAQ CM: JRSH NASDAQ CM: SRAX
30 KNeoMedia Limited 59 Imugene Limited
14 Hemispherx Biopharma Inc. ASX: KNM ASX: IMU
31 Tinybeans Group Ltd. 74 First AU Limited
18 Citius Pharmaceuticals, Inc. ASX: TNY ASX: FAU
48 CBD Unlimited, Inc. 78 ShiftPixy, Inc.

Cybersecurity Corner Commodities Corner Australia Corner

11 How to Protect Your Clients’ 42 Managed Futures for Microcap 72 Australian Non-Resource
Investments from Cyber Investors Microcaps
Attacks By Mark Shore, MBA By Mark Tobin
By Jake Lehmann
Legal Corner Resources Corner
Accounting Corner 46 Uplisting – More Than Meets 76 Q&A with Brent Cook,
36 Life After Regulatory The Eye Geologist
Onslaught By Joe Lucosky, Esq. By Shelly Kraft
By Corey Fischer, CPA
Life Sciences Corner Comic Strip
Family Office Corner 54 Now, More than Ever 83 WallStreet Chicken
38 Family Offices are Investing By Ramses Erdtmann and A look back to Episode 1
Heavily in Artificial Intelligence Thomas Butler
By Karl Douglas Asia Corner
Beltway Corner 92 Hong Kong Stock Market
62 Taking Stock Robust in 2019
By Dina Ellis Rochkind, Esq. and By Leslie Richardson
Lara Kaplan, Esq. MicroCap Review Magazine 7


Orgenesis, Inc.
A Seismic Shift In Cell Biology Is Fueling A New Breed
Of Biotech Companies

t’s the transformation in healthcare ment team have proven they can execute:
Estimated Global Cell & Gene Therapy Market
where many investors are just at the the company has inked manufacturing deals
beginning of an investment surge. 180 with some of the most respected companies
160 150
Orgenesis, Inc. (NASDAQ: ORGS) stands to 140
in the industry, and they continue signing
Global Market 105
benefit from this transformation. Volume (USD, in bn)
80 75 on new partners every month and evolv-
60 56
Cell therapies and regenerative medicines, 40
21 23 26
30 36 ing innovations even faster. Their revenue
where cells or cell materials are used to 0
20 6 has been increasing consistently, and the
20 7
20 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
treat diseases, are transforming a variety company is making a name for itself as a top

~26$ billion ~150$ billion 33%

Annual growth
of previously untreatable conditions. Cell Current value of global Market volume
Cell & Gene Therapy anticipated by expected between partner in the sciences industries.
market 2025 2020-2025

therapies called CAR-T cells are curing can-

cer patients; gene therapies are correcting Figure 1: Data source Roland Focus:
Global Cell & Gene Therapy Clinical Trials
Regenerative Medicine, Sept 2017
genetic disorders by replacing faulty DNA 250 225 Gene Therapy
200 Gene-modified Cell Therapy
and bone marrow transplants are becoming # of Clinical
144 Cell Therapy
113 106
safer and faster. first two drugs of this type, called CAR-T 100 90

50 30 38

Advances in technology and our under- cells, were approved in 2017. Industry lead- 0

Phase I Phase II Phase III

standing of human biology have created and ing Gilead Sciences (NASDAQ:GILD) and 925
Clinical trials underway
That utilize Cell & Gene Therapies
rapidly progressed an entirely new class of Novartis (NASDAQ:NVS) led the charge,
potential drug products. Cell therapies are each with their own new product. Industry Figure 2: Data source Roland Focus:
Regenerative Medicine, Sept 2017
taking the biotech sector by storm. sources anticipate the need for these drugs
Cancer has been the biggest success story to be within billions of dollars in the coming
so far, and lives are being transformed at 5-10 years. DRUG DEVELOPERS AREN’T
an increasing pace in the U.S., where the Now that the first few cell therapies are ALWAYS GREAT DRUG
across the finish line and approved by reg- MANUFACTURERS
ulators, it’s smaller companies with deep
development pipelines and quality know- Cell therapies are products that use human
how that are taking the baton. cellular material, sometimes modified, to
Orgenesis, Inc. (NASDAQ: ORGS) is one treat disorders.
of the fastest-growing companies in this sub- An immense host of companies and
sector. Orgenesis both develops a Point of research facilities are developing products
Care platform for new therapy products, and based around this modality. In Figure 2, it’s
processing of therapeutics (“POC”), devel- apparent that most of these are still early
oping and collaborating with third parties in development (Phase 1 and 2 of clinical
for therapeutics, and also provides manufac- trials), while only a minority are in phase 3
turing expertise for other companies in its development, near the end of their research
CDMO business. In doing so, they’re build- phase or before possible expedited approval
ing a unique pipeline of products and reve- by regulatory agencies like the FDA.
nue, and the company benefits economically Though not the very first cell thera-
from advancements across the sector. CEO pies approved, CAR-T cells were the first
Vered Caplan, Chairman, CEO & President
Vered Caplan and the experienced manage- resounding success for modified cell thera-

8 MicroCap Review Magazine

Orgenesis Revenue, in Thousand $
pies. CAR-T stands for Chimeric Antigen in Masthercell’s gross margins, which have

Receptor T-cells, a process through which increased to about 40% in the last year. 17,500

a cancer patient’s immune “T” cells are 15,000

removed and modified to give them pre- POINT OF CARE (POC) (USD, in thousand) 10,000

7,500 6,397
cise cancer-seeking capabilities. They are COMPONENT… 5,000

then multiplied and re-infused back into a 0

2015 2016 2017 2018
patient. So far, they’ve been able to produce Orgenesis is also growing their own Point
amazing and sometimes curative effects in of Care development platform for advance- Figure 3: Orgenesis Financial Statements
certain types of cancers. ment of autologous therapeutics in collabo-
Cell therapies are extremely costly and can ration with leading research and medical
Cell Therapy manufacturing market, in millions $
go up to $500K per patient treated. Why the institutes. One of their lead programs alters 4,500 US Annual growth, %

cost? For one, many of these cell therapies human liver cells to produce insulin, called 4,000 EU
3,500 305
RoW 498 46.2

are one-time treatments. The companies that “Autologous Insulin Producing Cells” (AIP)
Market size 2,500

(USD, in millions) 167 290

1,587 40.7
develop them need to make as much as they and they’ve inked licensing deals with sev- 1,500 49


23 785
1,000 267

can from this single, possibly curative treat- eral collaborations.

6 7.3 11 30 260 599
7.6 9.5
44 66
128 438 988 1,254 1,535 40.6
43 65 760
36 579

ment. But second, these are also very costly 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

and time-consuming to manufacture and THUS, A MULTI-BILLION

Figure 4: Data source Roots Research.
supply. This process for autologous therapy DOLLAR OPPORTUNITY AS Cell Therapy Manufacturing Market, 2017-
involves removing a patient’s cells, sending NEW DRUGS EMERGE 2027
them around the country for specialized
modification and manipulation, and finally, The addressable market for those in the roles in operations. This kind of collabora-
re-infusion with ongoing long-term moni- business of manufacturing cell therapies is tion is a rare sight in the world of biotech-
toring in the hospital. This can take in some growing rapidly as more of these potential nology and it speaks to the potential of this
instances weeks to complete. products enter development. business.
Enter Orgenesis and their dual business Orgenesis’ revenues through their
model. The company’s core expertise is in Masthercell subsidiary has been growing ORGENESIS’ MULTI-VERTICAL
processing cells efficiently utilizing innova- steadily as a result. PLATFORM DIVERSIFIES THE
tive technologies for the advancement of Masthercell has an expanding global FUTURE
autologous therapies. Their Masthercell sub- footprint, with their primary facilities in
sidiary is a specialized contract development Belgium, South Korea, Israel and North Orgenesis’ multi-pronged business strategy
and manufacturing organization (“CDMO”) America. This expansion is a top priority builds on the company’s core expertise in
focused on cell and regenerative therapies, for the coming years, and the company has manufacturing and scaling cell therapies.
like CAR-T cells therapies. Orgenesis has an intriguing financing and collaboration Masthercell is a strong business growing
made a name for themselves as a high- agreement with a top healthcare invest- steadily with an increasing number of high-
quality provider of manufacturing services ment fund in the U.S. for just this purpose. profile clients. Meanwhile, the company is
for other companies developing new cell In 2018, Great Point Partners invested up expanding their own Point of Care develop-
therapies; they can also help the compa- to $25 million in Masthercell to fund their ment program among them, the AIP cells.
nies streamline their development processes. CDMO expansion plans, with some of Great The first indication for AIP cells is in the
Orgenesis’ expertise in this field can be seen Point Partners’ own people taking direct treatment of severe diabetes following a total
pancreatectomy. Orgenesis has developed
a novel approach to utilizing liver cells as a
source of insulin production after cell modi-
fication, in essence creating new insulin
producing cells in patients who no longer
make their own. In fact, the company signed
a collaboration agreement with the New
York Blood Center (NYBC), one of the larg-
est independent, community-based blood
centers in the world in order to collect liver MicroCap Review Magazine 9

prior to which she was Interim President • Kangstem Biotech Co., Ltd. (KOSDAQ:
and CEO since December 23, 2013. Since 217730)
2008, Ms. Caplan had been CEO of several • Hemogenyx Pharmaceuticals Plc (LSE:
biotech companies. Ms. Caplan has an M.Sc. HEMO)
in biomedical engineering from Tel Aviv
University specializing in signal processing And, this list includes only those clients
as well as a B.Sc. in mechanical engineer- that have been discussed publicly; there
ing from the Technion-Israel Institute of are undoubtedly more that the company is
Technology specialized in software and CAD unable to name in public.
Professor Sarah Ferber – Chief Scientific If 2018 is any indicator Orgenesis will con-
Officer tinue to move quickly in 2019. The company
Professor Ferber was appointed on signed on additional major clients during
February 2, 2012. Since 2017, Professor last year and a number of new licensing and
Ferber has been the Principle Investigator collaboration agreements. Global expansion
of cell therapy for TMU DiaCure. Professor is their top priority, and as manufacturing
Ferber studied biochemistry at the Technion needs climbs so too will their revenue poten-
cells for the therapy validation. The company under the supervision of Professor Avram tial. There’s little doubt that this nascent
also expects to receive approval for collection Hershko and Professor Aharon Ciechanover industry is growing by leaps and bounds –
and processing of such cells for use in human winners of the Nobel Prize in Chemistry in the question is who will provide solutions
research in 2019, setting up a key catalyst for 2004. Most of the research was conducted and who will soak up the demand. Orgenesis
Orgenesis when the first results emerge. in Professor Ferber’s Endocrine Research is well-positioned for the new century of cell
The company has taken a licensing Lab. Professor Ferber received Teva, Lindner, therapies. n
approach to Point of Care collaborative Rubin and Wolfson awards for this research.
development. In 2018, they began a collabo- Professor Ferber’s research work has been
ration on the development of Hemogenyx’s funded over the past 15 years by the JDRF,
(LSE: HEMO) Human Postnatal Hemogenic the Israel Academy of Science Foundation
Endothelial (Hu-PHEC) technology. (ISF), BIODISC and DCure. Professor Ferber
Hu-PHEC is a cell replacement product can- earned her B.Cs. from Technion-Haifa and a
didate being designed to generate cancer- Ph.D. in Medical Sciences from Technion-
free, patient-matched blood stem cells after Haifa. She also holds a Post Doctorate degree
transplantation into the patient. in Molecular Biology from Harvard and a
degree in Cell Therapy Sciences from UTSW,
EXECUTE The quality of Orgenesis clients speaks to
the quality of the business. Orgenesis counts
Orgenesis’ management team brings together among their development and manufactur-
a broad background, pairing strong business ing clients and partners:
acumen with the research and cell therapy
experience to attract and retain cell therapy • Servier (private)
clients and partners. • Imcyse (private)
• Adaptimmune (NYSE: ADAP)
Vered Caplan, Chairman, CEO and • Gamida Cell (NASDAQ: GMDA)
President • CRISPR Therapeutics (NASDAQ: CRSP)
Ms. Caplan has been the Chairman of • Iovance Biotherapeutics, Inc. (NASDAQ:
the Board of Directors and CEO since 2014, IOVA)
The company paid consideration to SNN or its affiliates for this article.

10 MicroCap Review Magazine


How to Protect Your Clients’ Investments from Cyber Attacks

I nvesting personal funds in the digital age

has never been easier—from placing sizable
investments via mobile devices to establishing
leverage everything from look-alike display
names to proxies hiding their actual locations.
processes, but allows our team of profes-
sionals to detect and respond if a user
falls victim to clicking a phishing email.
regular wire transfers from your laptop during HERE ARE STEPS YOU CAN TAkE
a flight layover. When banks, brokerage firms, TO PREVENT AND PROTECT For any questions you have about protect-
mutual fund companies and high-net-worth AGAINST CYBER CRIMINALS: ing your financial assets, contact Managing
individuals turn to you as an asset manager, Director of CyZen, Jake Lehmann at jlehm-
they rely on you to protect their finances— • Train your employees through Spear n
wherever they are. According to recent cyber Phishing Simulations. CyZen’s advi-
Jake Lehmann
security studies, the average cost of lost busi- sors design and execute campaigns to
Managing Director 
ness for a U.S. company is $3.8 million. Taking raise awareness, and help lower the Jake works to quantify and remediate clients’ cyber
a personalized approach to protecting your cli- success of these threats to your com- risks, leading engagements across industries and
spanning small and medium businesses and high-
ents’ financial assets will help you keep wealth pany. The team leverages techniques net-worth individuals to big enterprise-level engage-
in the hands of its rightful owners. that teach employees how to be more ments and successful start-ups. For more than 10
years, he has spearheaded pro-active, innovative and
According to the 2018 Verizon Data Breach mindful when opening and responding
custom-tailored solutions that help safeguard clients
Investigations Report (DBIR), 95 percent of to emails, especially with links, attach- from cybersecurity risks.
all attacks on enterprise networks are carried ments, or money transfer requests. Jake focuses on each client and their needs, bring-
ing deep-rooted service, industry knowledge and
out through the email vector. Business Email • Hire a third party to perform a vulnerabil- a passion for delivering excellence. He has helped
Compromise (BEC) is a type of advanced email ity or penetration test of your business’s clients target and remediate security vulnerabilities
including IT misconfigurations, exploitable systems,
attack that relies on identity deception. BEC systems. This will let you know how vul-
open source intelligence and information leaks. His
evades detection by avoiding the use of a detect- nerable your business is by scanning and toolbox of technical services includes cyber defense,
able payload such as a spear phishing email that testing databases and networks for weak- vulnerability/risk assessments, penetration testing,
architectural reviews, cybersecurity training, open
contains a fraudulent URL or attachment. A nesses. These scans should be conducted source intelligence and spear phishing simulations.
hacker will pose as someone you know or trust regularly and our cyber security experts As a cybersecurity thought leader, Jake has led inter-
nal client awareness trainings and presented at educa-
– a colleague, vendor, or client – and either ask have the capability to perform thorough
tional retreats. He received a Bachelor’s of Technology
you to perform a payment or share sensitive data. testing in order to evaluate the level of in Information Technology with a concentration in
your systems’ vulnerabilities. Network Administration from SUNY Morrisville.
When Jake isn’t combatting cyber-attacks, you can
THERE ARE THREE DIFFERENT • Advise your employees to create strong find him globetrotting with his wife, deep-sea diving
TYPES OF IDENTITY DECEPTION: passwords that are long and hard to with sharks, or spending quality time with his four-
legged friends, Chloe and Teddy.
guess, but easy to remember. Using a
• Spoofing password manager application to orga- Company bio:
• look-alike domains nize and store all passwords in one place In today’s digital world of emerging cyber-threats, it is
increasingly difficult to know the right steps needed to
• display name deception (12 characters minimum) is another protect your business. The security experts at CyZen will
BEC scams have a wide range of sophistica- way to safely keep track of passwords. help your organization achieve peace of mind by empow-
ering you to make sense of cybersecurity and defend
tion. These scams span simple display name • Use two-factor authentication, or 2FA.
against attacks. We draw on the inspiration of the ensō,
attacks using free webmail accounts to sophis- This adds an additional layer of security to or the circle of enlightenment, to shape our values and
ticated multi-level hacker organizations, which verify that the person trying to gain access influence our human-centric way of conducting business.

to an account is really your client. After Note: This article is not an attempt to provide invest-
submitting their username and password, ment advice. The content is purely the author’s per-
sonal opinions and should not be considered advice
they will be required to provide another
of any kind. Investors are advised to conduct their
piece of information, like a passcode. own research or seek the advice of a registered invest-
• Deploying “next-gen” endpoint solu- ment professional.

tions is another service that CyZen

offers. This approach gives your com-
pany an added layer of heuristic based
n BY JAKE LEHMANN software that not only blocks malicious MicroCap Review Magazine 11


Taronis Technologies, Inc.

M agneGas Applied Technology Solutions, Inc. got a new

name in 2019: Taronis Technologies, Inc. (Taronis or
the Company).
Taronis recently expanded their technol-
ogy offerings and launched a new corporate
brand that can be used across its various
businesses comprised of industrial gas, a
new fluid decontamination and sterilization
business, and also emerging power gen-
eration capabilities. As part of this initiative,
the Company initiated a shift of emphasis
towards resource management, facilitating
an expanding portfolio of renewable fuels,
water management, and eventually power
generation. These activities now enable
Taronis to enhance the market’s perception
and understanding of the Company’s busi-
ness model. irrigation purposes rather than incurring dis-
The company’s core technology centers posal costs. The gasification units may also be
on plasma arc applications, which is a very used to convert many types of hydrocarbon-
scientifically complex version of lightning based waste into syngas or biodiesel, both of
in a bottle. What better way to remind the which can be used as substitute fuels.
consumer of the power of Taronis’ patented It was a busy and productive year for the
technology than by referencing the Celtic Company after acquiring seven companies
God of lightning? Taronis has developed a in 2018, an additional purchase in January
plasma-based system for the sterilization and and two more in February. Each of these
gasification of waste. This process generates transactions were necessary and enabled the
a hydrogen-based fuel called MagneGas as Company to achieve several of its corporate
a by-product, which is sold as an alternative objectives including establishing itself as a
metal-cutting fuel to acetylene. MagneGas leading independent gas distributor in the
is a safer, more efficient, and cost-effective two largest industrial gas markets in the U.S.
replacement for acetylene. The company also – California and Texas. Taronis is now well
sells a variant of the gasification technology positioned to pursue its future ambitions from
for sterilizing bio-contaminated liquid waste a stronger market position and with greater
such as pig manure or water draining from financial stability.
landfills. This variant of its gasification tech- “We have a clear focus on building a top
Scott Mahoney, CEO, President & Director
nology can be sold for use as a fertilizer for tier competitive position in the best markets

12 MicroCap Review Magazine

deliver a renewable fuel product that could
Taronis has a unique, patented technology that be a direct substitute for compressed natural
enables the company to deliver innovative, gas as well as a renewable propane product.
Early testing results appear to be encouraging
industry-changing solutions. Equally importantly, and management is confident due to feedback
from its engineering team.
the Company has a committed team of experienced, Taronis has a unique, patented technology
that enables the company to deliver inno-
passionate employees that service their customers vative, industry-changing solutions. Equally
with an incredible sense of responsibility and pride. importantly, the Company has a committed
team of experienced, passionate employees
that service their customers with an incred-
ible sense of responsibility and pride.
in the U.S. today,” according to Taronis’ CEO, tion in Europe later in 2019 with a focus Mr. Mahoney said of the recent rebrand,
Scott Mahoney. “Taronis delivers excellent on the highly trafficked port regions of “We are now a resource conservation com-
customer service and competitive pricing to Amsterdam and Rotterdam as initial bases of pany, and we help manage two of our most
our clients. We are beginning to grow our operations in Europe. precious resources – fuel and water. Our
market share well above industry norms. With respect to its European plans, Mr. new corporate mission statement is: Cleaner
As a result, we have been approached by a Mahoney says, “We are very focused on mak- – Safer – Smarter. Our technology will drive
number of potential partners, and we selec- ing our European expansion a success. The global solutions that meet these three criteria
tively evaluate the opportunity to grow our European market is rapidly moving towards at all times as we seek to solve some of the
business when the right situation arises. Our adopting more renewable fuel solutions mak- most pressing global issues at hand today.” n
recent expansion in Tyler, Texas, is an excel- ing our product a natural fit. With the added
lent example. We acquired a dominant local cost savings and proven safety attributes of
player with a fantastic reputation. The entire our product, we believe this market repre-
management team came aboard as part of this sents an exceptional growth opportunity for
transaction, and we are excited to build on the Company for many years to come.”
their 45 years of success together.” Mr. Mahoney says, “We expect our exist-
As for Taronis’ strategy for 2019, CEO ing operations to generate upwards of 50%
Scott Mahoney says, “We are very focused on revenue growth in 2019, and we believe our
building a world-class industrial gas business recent acquisitions, as well as potential future
in the best markets in the U.S. We have made acquisitions, could help us to accelerate our
ten acquisitions the past 15 months, with a growth model even further. When you com-
clear focus on the Texas and California mar- pare this to industry-wide growth rates that
kets. These are the two strongest markets for rarely exceed 5%, we are very grateful for the
industrial gases in the U.S., and our renew- growth we are experiencing.”
able metal cutting fuel products are a pow- Taronis operates 17 locations across
erful competitive advantage for marketing, California, Texas, Louisiana, and Florida,
business expansion, and building customer and sells MagneGas into the metal work-
loyalty. We have the most cost-efficient, and ing market as a replacement to acetylene
most highly-discussed, metal cutting fuel on which it distributes through its wholly owned
the market today.” distributors: ESSI, Green Arc Supply, Paris
In addition to U.S. expansion plans, Taronis Oxygen, Latex Welding Supplies, Tyler
wants to continue its work at unlocking Welders Supply, United Welding Supplies,
potential in the European market. European Trico Welding Supply and Complete Welding
operations are also a part of the rebranding, of San Diego.
as MagneGas Europe LLC was launched in Taronis is also working on some new prod-
December of 2017. The Company plans to ucts potentially being brought to market,
launch their first metal cutting fuel produc- including developing a long-term plan to
The company paid consideration to SNN or its affiliates for this article. MicroCap Review Magazine 13


Hemispherx Biopharma Inc.

The Coming Ampligen Revolution

“Ten shots on goal.” cal studies. All of those successes would

Spend a bit of time with Thomas K. mean nothing but for the great work of
Equels, or Tom, as he prefers to be called, as our manufacturing team in New Brunswick.
he goes about his workday — and nights and Hemispherx’ Chief Manufacturing Officer,
weekends — and this sports metaphor will Carol Smith, Ph.D. and her team have nailed
quickly become familiar. In analyst meet- it, and have provided more than 16,000 vials
ings, during investor presentations, on inter- of Ampligen to support these clinical tri-
nal phone calls and even in casual conversa- als in humans. Our clinical, quality control
tions in the hallways of his office in Ocala, and quality assurance departments, under
Fla., he talks about his goals for the future of the leadership of David Strayer, M.D., Chief
Hemispherx Biopharma Inc. Medical Officer, and Vickie Scott, M.S., have
When Tom talks about those “ten shots,” succeeded in coordinating clinical trials and
he’s talking about the Ampligen oncology maintaining the highest levels of quality in
clinical trials designed to save lives. the process. On behalf of Team Hemispherx,
Ampligen (rintatolimod) is being evalu- we also deeply appreciate the commitments
ated in a variety of oncology indications. In from the major cancer research institutes
addition to its cancer-fighting potential, it is and big-pharma for funding the clinical tri-
also used in an Early Access Program (EAP) als that are currently underway,” said Equels.
for the treatment of myalgic encephalomy-
elitis/chronic fatigue syndrome (ME/CFS), AMPLIGEN IN ONCOLOGY
and with regulatory approval in Argentina
it is the world’s only approved therapeutic Hemispherx has seen tremendous success in
for ME/CFS. its research in the field of immuno-oncol-
ogy, which has guided the company’s focus
THE COMPANY toward the potential use of Ampligen as
a combinational therapy with checkpoint
Hemispherx is an immuno-pharma com- inhibitors for the treatment of a variety of
pany focused on the research and develop- solid tumors.
ment of therapeutics to treat multiple types Checkpoint inhibitors are powerful immu-
of cancers, as well as immune-deficiency no-therapy drugs that block the signals that
disorders. Hemispherx’s corporate head- restrain the body’s immune system from
quarters is in Ocala, Fla., and its 30,000 sq. fighting cancer, and are, therefore, used in
ft. Manufacturing and Research Facility is in the treatment for a number of advanced
New Brunswick, N.J. solid tumor malignancies. The object of
“I initiated the current oncology clini- these combination clinical trials is to mea-
cal trials/programs and Dutch EAP over sure synergistic improvements in therapeutic
the past three years. We have had success outcomes.
after success in animal experiments, human “Or, to put it more plainly, to determine
Thomas K. Equels
tumor explants, and proof-of-concept clini- whether combining an already proven drug
Chief Executive Officer

14 MicroCap Review Magazine

with Ampligen can create an even more
effective synergistic cancer-fighting therapy,”
said Equels.
Dr. David Strayer states, “Checkpoint
blockade therapies work best with what are
known as ‘hot’ tumors. Unfortunately, many
solid tumors are ‘cold.’ Clinical proof-of-
concept findings using an Ampligen cocktail
in colorectal carcinoma have demonstrat-
ed an ability to convert ‘cold’ tumors into
‘hot’ tumors. The Ampligen cocktail accom-
plishes a conversion from ‘cold’ to ‘hot’ by
stimulating a more favorable ratio of killer
T-cells to regulatory T-cells in the tumor
microenvironment. Killer T-cells attack can-
cer cells but their presence in the tumor
microenvironment can be inhibited by regu-
latory (suppressor) T-cells. Therefore, the
suppressor cells essentially reduce a patient’s
immune response to cancer. An increase
in killer T-cells, without a corresponding
increase in suppressor T-cells, is therefore
an indicator of the body’s increased abil-
ity to mount a potentially effective immune
response and through this mechanism of
action supports the strong pre-clinical evi-
dence of Ampligen’s activity in converting
‘cold’ tumors into ‘hot’ tumors.”

HEMISPHERX’S ONCOLOGY 3 patients are still alive with a current mean Dr. R. Edwards, PI. Study underway. An
EFFORTS survival of 26 months after resection and interim report from Dr. Edwards’ team is
subsequent Ampligen treatment. expected within thirty days and a summa-
An Early Access Program (EAP) approved All patients reported improvement in ry of same will be disclosed upon receipt.
by the Inspectorate of Healthcare in the quality of life during treatment. A more com- • Colorectal cancer  - Phase 2a study of
Netherlands for pancreatic cancer at Erasmus prehensive update from the Erasmus team Ampligen as a component of chemokine
Medical Center has been ongoing for two on the immunological response in relation modulatory regimen on colorectal can-
years. Supervised by Prof. Casper van Eijck, to survival is expected soon. Hemispherx cer metastatic to liver at Roswell Park
MD, a world-renowned specialist in this hopes to work with Dr. Van Eijck, Dr. Latifi, Comprehensive Cancer Center. Dr. P.
dread malignancy, and Diba Latifi, MD, and Erasmus M.C. to initiate a combination Boland, PI. Study underway.
the team at Erasmus is making progress. As therapy program to extend the results seen • Metastatic triple negative breast cancer  -
disclosed recently, the Dutch government thus far in the Netherlands by combining Open label study of metastatic triple-
has approved and extended the therapeutic Ampligen with checkpoint blockade therapy. negative breast cancer using chemokine
program for an additional year. The four Ampligen immuno-oncology modulation therapy, including Ampligen
At Erasmus 8 out of 24 patients with either clinical trials initiated/ongoing in the U.S. and pembrolizumab, at Roswell Park
locally advanced or metastatic disease have are: Comprehensive Cancer Center. Dr.
survived for more than one year since the • Recurrent ovarian cancer  - Phase 1 / 2 M. Opyrchal, PI. Initiation of study is
start of Ampligen. Further, Ampligen was study of intraperitoneal chemo-immuno- expected in the near future and will be
administered to 5 resected patients, 2 died at therapy in recurrent ovarian cancer at announced forthwith.
24 and 27 months after resection. The other University of Pittsburgh Medical Center. • Recurrent ovarian cancer - This is a Phase MicroCap Review Magazine 15

years served as a court-appointed receiver
“Success in any of these trials has the potential turning around businesses in a number of
different fields. Equels received his J.D. with
to light a path to a new and more effective way high honors from Florida State University.
of fighting cancer and dramatically change the He is also a summa cum laude graduate of
Troy University and obtained his Masters’
immuno-oncology landscape. This is all about R&D Degree in Management from Troy. Equels is
also a highly decorated combat aviator, twice
to develop therapies aimed for those fighting lethal awarded the Distinguished Flying Cross

malignancies who currently have no real hope,” said and awarded the Purple Heart, the Bronze
Star and 15 Air Medals, including three for
Equels. “There can be no higher calling.” extraordinary valor. In 2012 he was knighted
by Pope Benedict as a knight of the Papal
2 investigator-sponsored trial being con- and budget being developed. David R. Strayer, M.D. — Chief Scientific &
ducted in advanced recurrent ovarian can- 5. Phase 2 study of neoadjuvant condition- Medical Officer
cer at the University of Pittsburgh Medical ing of prostate cancer using Ampligen as Dr. Strayer was appointed Chief Scientific
Center that will evaluate Ampligen in a component of chemokine modulation Officer in February 2016 and has acted as
combination with pembrolizumab. Patient at Roswell Park Comprehensive Cancer Hemispherx’s Medical Director since 1986.
enrollment has been initiated in this study Center. Dr. G. Chatta, PI. An Independent With this background and experience, he
designed for 45 subjects. Dr. Robert New Drug application has been filed and is the world’s foremost medical expert on
Edwards, world renowned expert in ovar- is under review by the FDA. both Ampligen and Alferon. He served as
ian cancer is the lead investigator. These ten trials/programs include nine Professor of Medicine at the Medical College
In addition, five Ampligen clinical trials different solid tumor types: pancreatic, ovar- of Pennsylvania and Hahnemann University
are planned for initiation in 2019, subject to ian, colorectal, prostate, lung, bladder, breast, from 1987 to 1998. Dr. Strayer is Board
funding: melanoma and renal cell carcinoma. These Certified in Medical Oncology and Internal
1. Phase 2 study that will evaluate Ampligen are what Equels is referring to when he talks Medicine, with research interests in the
in combination with pembrolizumab in about Hemispherx’s “ten shots on goal.” fields of cancer and immune system disor-
refractory metastatic colorectal carcinoma “Success in any of these trials has the ders. He has served as principal investigator
at Roswell Park Comprehensive Cancer potential to light a path to a new and more in studies funded by the Leukemia Society of
Center. Dr. P. Boland, PI. Study design and effective way of fighting cancer and dramati- America, the American Cancer Society, and
budget being developed. cally change the immuno-oncology land- the National Institutes of Health. Dr. Strayer
2. Phase 2 study of advanced urothelial scape. This is all about R&D to develop received his M.D. in 1972 from the School of
(bladder), melanoma and renal cell car- therapies aimed for those fighting lethal Medicine at the University of California at
cinoma, resistant to checkpoint blockade malignancies who currently have no real Los Angeles. n
that will evaluate Ampligen in combina- hope,” said Equels. “There can be no higher
tion with a checkpoint blockade therapy calling.”
at Roswell Park Comprehensive Cancer
Center. Dr. M. Opyrchal, PI. MANAGEMENT
3. First-line therapy for non-small cell lung
cancer with SOC chemotherapy that will Thomas K. Equels, M.S., J.D. — Chief
evaluate Ampligen in combination with Executive Officer
pembrolizumab at University of Nebraska Equels was named Chief Executive Officer in
Medical Center. Dr. V. Ernani, PI. Study February 2016 and has served as President
design and budget being developed. since August 2015, having first joined
4. Phase 2 study in advanced pancreatic Hemispherx in 2010 as General Counsel
cancer using checkpoint blockade plus from 2010 to 2016. Prior to that, Equels’ suc-
Ampligen at University of Nebraska cessful legal career included extensive expe-
Medical Center. Dr. K. Klute, PI. Protocol rience in the pharma sector. He has over the
The company paid consideration to SNN or its affiliates for this article.
16 MicroCap Review Magazine
Heroes of sport believe we are more alike than we are different. We’re all striving
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individuals with physical challenges expensive adaptive equipment can be a barrier
to participate.

For 25 years, the Challenged Athletes Foundation (CAF) has empowered thousands
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Help join their efforts this year to do more and become a hero of sport that will
help break financial barriers and make sport possible. Together, let’s provide
more access to sports. Donate online at MicroCap Review Magazine 17


Citius Pharmaceuticals, Inc.

EXECUTIVE SUMMARY and efficacy data, Citius seeks to reduce currently no approved therapies to salvage
the risks associated with product develop- infected CVCs. Mino-Lok is an antibiotic
Citius Pharmaceuticals, Inc. (Nasdaq: ment. The Company is focused on obtain- lock solution used to treat patients with
CTXR) is a specialty pharmaceutical com- ing intellectual property protection for a CRBSIs in combination with appropriate
pany dedicated to the development and significant post approval period, and also systemic antibiotic(s), to preserve central
commercialization of drug products and seeks to identify regulatory opportunities venous access and to avoid the complica-
devices that address important unmet medi- for market exclusivity. Citius is advancing 3 tions and morbidities associated with cath-
cal needs. The Company focuses on adjunc- product candidates – Mino-Lok is in Phase eter removal and reinsertion. Mino-Lok
tive cancer therapies, critical care medicine, 3 trials and is enrolling patients, CITI-002 penetrates biofilm, eradicates bacteria and
infectious disease and special opportunities. is being prepared for a phase 2b trial later salvages infected, indwelling vascular cath-
Citius’ products offer new expanded indica- this year, and Mino-Wrap (CITI-101) has eters while providing anti-clotting proper-
tions for existing pharmaceutical entities recently been licensed and is being submit- ties. Mino-Lok has the potential to change
to achieve leading market positions. The ted to FDA to determine the appropriate the standard-of-care for the management of
Company primarily utilizes the U.S. Food regulatory pathway – device or drug. The these serious infections.
and Drug Administration’s (FDA’s), 505(b) markets for these products are large and
(2) pathway for new drug approvals. Citius underserved, and provide unique positions Market Opportunity –
believes this pathway is comparatively faster, for the Company. Gastrointestinal
lower risk and less expensive than other new In the U.S., hemorrhoids affect nearly 5%
drug approval pathways. By using previ- INVESTMENT CATALYSTS of the population, with approximately 10
ously approved drugs with substantial safety million patients annually reporting symp-
Market Opportunity – Critical toms of hemorrhoidal disease; approxi-
Care/Infectious Disease mately one-third visit a physician for evalu-
The Mino-Lok therapy market is estimated ation and treatment of their hemorrhoids.
at >$700 million per year in the U.S., and Between 50% and 90% of the general popu-
more than $1 billion worldwide. Central lation will experience hemorrhoidal disease
venous catheters (CVCs) are life-saving at least once in life. According to IMS, over
vascular access ports in patients requir- 25 million units of topical combination pre-
ing long term intravenous therapy. Of the scription products for hemorrhoids are sold
approximately 7 million CVCs used annu- in the U.S. Hemorrhoids are a common gas-
ally, up to 500,000 become infected leading trointestinal disorder characterized by pain,
to serious, life threatening infections called swelling, itching, tenderness, and bleeding.
catheter-related blood stream infections Although hemorrhoids are not life-threat-
(CRBSIs). Infected CVCs must be removed ening, individual patients often suffer pain-
and most need to be replaced; these pro- ful symptoms that can limit social activities
cedures are costly and 15-20% of the pro- and have a negative impact on the quality of
cedures are associated with significant life. Citius believes the market for hemor-
morbidity. Although ALTs are sometimes rhoid treatment is large and underserved;
attempted when venous access is unavail- an effective prescription product would
able, there are not adequate data available be unique and highly welcomed by both
to evaluate their efficacy; additionally, it professionals and consumers alike offering
has been shown that antibiotics alone are a prescription-strength therapy for hemor-
unable to penetrate the biofilm formed by rhoids.
Leonard L. Mazur, Chairman bacteria to protect the colonies. There are

18 MicroCap Review Magazine

Market Opportunity – Post- antimicrobial solution prior to insertion of designation providing fast track status, prior-
Mastectomy/Infectious the device, and/or (c) immediate postop- ity review, and additional market exclusivity.
Disease erative oral antimicrobials. Except for (a), Mino-Lok provides a superior alternative to
The frequency of post-mastectomy breast all of the other preventive modalities are of removing and replacing a CVC, a reduction in
reconstruction, following breast cancer treat- debatable use. patient discomfort, and cost savings to health-
ment, has been increasing on an annual care system. In February 2018, the Company
basis. In 2017, the American Society of PRODUCT DEVELOPMENT announced the first patient was randomized
Plastic Surgeons reported that over 105,000 PIPELINE into the Mino-Lok Phase 3 clinical trial for
women in the United States underwent a catheter related bacteremias (“CRBSIs”) at
postmastectomy breast reconstructive proce- Mino-Lok® the Henry Ford Health System in Detroit,
dure. 30% of the time breast reconstruction Mino-Lok is a late-stage development prod- Michigan. When fully-recruited, it is planned
occurs simultaneously with the mastectomy; uct that is expected to complete Phase 3 trials that there will be 700 patients enrolled in 50
most occur weeks after. A common breast within 18 months. Citius has partnered with participating institutions, throughout the U.S.
reconstruction technique is tissue expansion, a world leading cancer center to develop On October 2, 2018, received notice from
which involves expansion of the breast skin Mino-Lok. Mino-Lok has received QIDP MD Anderson Cancer Center (“MDACC”)
and muscle using a temporary implanted tis-
sue expander. Approximate 80% of the time, major research based pharmaceutical company. During
Company Highlights
a tissue expander (TE) is used to prepare the • Over $24 million invested privately by the found- his tenure as President of Roche, Holubiak transformed
surgical site for permanent breast implants ers and insiders; $16.5 million by the public Roche Labs into a major antibiotic company.
• Announced $5.3 million registered direct offering
either immediately after mastectomy or in Leonard Mazur, Chairman
• Announced $10.0 million underwritten offering
a separate procedure afterwards. A TE is a priced at-the-market Mr. Mazur is a highly accomplished industry executive
• Announced $2.0 million registered direct offering with notable accomplishments in founding, building
silicone implant that serves as a temporary and creating value and returns for investors. Mr. Mazur
• Provided a status report on the Mino-Lok® Phase 3 trial
device that is placed within a surgical pocket • Reported Phase 2b development plan for the hem- is a founder/co-founder of the following companies:
in the mastectomy space and inflated with orrhoid program Genesis; Triax, Akrimax, and Rouses Point. He previ-
• Published expert roundtable discussion on treat- ously served as Executive VP at Medicis Pharmaceutical
saline over a period of time to prepare the Corporation and VP of Sales & Marketing at ICN
ment consideration for catheter related bacteremias
area for a permanent breast implant. After • International study at MD Anderson sister Pharmaceuticals, Inc/, Knoll Pharma.
a few months, the expander is removed and Institutions supports Mino-Lok® Phase 2b results:
95% efficacy in salvaging infected catheters Jamie Bartushak, CFO
the patient receives either microvascular flap • Received “Fast Track” designation by FDA for Mr. Bartushak is an experienced finance professional
reconstruction, or the insertion of a perma- Mino-Lok® investigational trial for early stage pharmaceutical companies, and has
• Targeting large market opportunities with unmet over 20 years of corporate finance, business develop-
nent breast implant. ment and strategic planning experience.
medical needs with cost-effective products. High
There is a reported rate of TE-related growth categories with low developmental risk
• Highly experienced and successful management Gary F. Talarico, EVP Operations
infections of between 2.5% and 24%, Mr. Talarico is highly experienced and successful
team investing significantly in company
depending on the extent of surgery, duration • Multiple near-term milestones in developing and leading commercial activities for
of post-operative drainage and many other a number of p[harmaceutical companies. He has
Upcoming Milestones directed all of the commercial disciplines including
factors. It is assumed that mean infection marketing, sales, operations, training, trade and
rate is around 10%. There is a high asso- Milestone When managed markets, KOL development.
ciation of positive microbial cultures with Mino-Lok® FPFV Q1 ’18 Alan Lader, PhD, VP Clinical Operations
TE-associated infections, the most preva- M-L Phase 3 Status Q2 ’19 Dr. Lader, has over 25 years of experience in medical
lent culprit organisms being Staphylococcus research. Dr. Lader earned his Masters degree from the
M-L Phase 3 Interim Data Q4 ’19 Hartford Graduate Center of Rensselaer Polytechnic
aureus, Staphylococcus epidermidis and Institute, He went on to receive his Ph.D. in Biomedical
CITI-101Jurisdictional Decision Q2 ’19
Pseudomonas aeruginosa. TE infections fre- Science and Physiology from the University of South
CITI-002 Animal Tox Data Q3 ’19 Carolina School of Medicine, then returned for post-doc-
quently require removal of the TE, treat- toral training at Harvard Medical School and Massachusetts
CITI-002 Phase 2b Trial Initiation Q4 ’19
ment with culture-directed antibiotics, and General Hospital. Following his post-doctoral training, Dr.
could result in further complications for the Lader was an Instructor in Medicine at Harvard Medical
Management School and Brigham and Women’s Hospital.
patient. Currently, the preventive measures Myron Holubiak, President & CEO
used to decrease the rate of TE infections Mr. Holubiak has extensive experience in managing both Disclaimer: This fact sheet contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and
large and emerging pharmaceutical companies. Most
are (a) systemic perioperative antimicro- recently he was the Founder, Director and CEO of Leonard
Section 21E of the Securities Exchange Act of 1934. Such statements are
valid only as of today, and we disclaim any obligation to update this
bial agents, (b) immersion of the implant Meron Biosciences, Inc. which merged with Citius. He is information. Actual results may differ significantly from management’s
the former President of Roche Laboratories, Inc., USA, a expectations.
or irrigation of the surgical pocket with an MicroCap Review Magazine 19

that the US Patent and Trademark Office TE and provide prophylaxis against infec- DEVELOPMENT &
(“USPTO”) issued United States Patent tion for an extended period of time. Mino- COMMERCIALIzATION
Number 10/086,114 entitled “Antimicrobial Wrap is designed to allow the temporary STRATEGY
Solutions with Enhanced Stability”. The tissue expander to be inflated without any
patent will provide and strengthen intel- restrictions, protect tissue from inflam- Citius’ goal is to build a successful pharma-
lectual property protection for Mino-Lok matory responses, and also prevent infec- ceutical company through developing and
through November of 2036. Citius also tion and biofilm formation on the implant commercializing innovative, efficacious, and
received official notification from MDACC over longer durations than current practice, cost-effective products that address compel-
that the European Patent Application (No. which are primarily irrigation with an anti- ling market opportunities. Citius seeks to
16806326.1) for Mino-Lok with Enhanced microbial solution. Mino-Wrap would also leverage the FDA’s, 505(b)(2) pathway for
Stability was published (September 12, 2018) be used with breast implants during recon- new drug approvals and bring products to
under serial number 3370794. struction post-TE removal. market faster and with less cost as compared
Mino-Wrap has been studied preclinically to other FDA new drug approval pathways.
CITI-002 - Hemorrhoid and the following are the conclusions of Objectives include:
Topical Program those experiments: • Identifying new drug product candidates
Citius is developing a topical formulation • Mino-Wrap remains intact at least for 1 that are typically prescribed by a relatively
of a corticosteroid and lidocaine to provide week after being submerged in a collage- small number of specialist physicians and
anti-inflammatory and anesthetic symptom- nase-saline solution at 37⁰C; can therefore be successfully commercial-
atic relief to persons with hemorrhoids. • Mino-Wrap Is safe and not cytotoxic ized;
Several corticosteroids and lidocaine have towards human fibroblasts; • Obtain licenses for the most relevant and
each been separately approved by the FDA • The active ingredients remain active after advanced technologies to provide our new
for other indications, and are commercially gamma radiation sterilization; and, product candidates with superior product
available and marketed by other compa- • The antibacterial components are active characteristics and intellectual property
nies. Citius is advancing its combination against the most common bacterial clini- protection;
therapy for hemorrhoids as being synergistic cal isolates responsible for TE infections, • Outsource formulation development and
to its individual components and has com- for at least 10 days. manufacturing in order to reduce upfront
pleted Phase 2a studies. If Citius receives Mino-Wrap appears to have the char- capital investment;
FDA approval for its topical corticosteroid- acteristics necessary for an advance in the • Leverage in-house clinical and regulatory
lidocaine combination cream for the treat- protection of human implants from subse- expertise to advance the development of
ment of hemorrhoids, it will qualify for quent infection. product candidates in the pipeline more
at least three years of market exclusivity. In January 2019, Citius signed a defini- rapidly;
Citius will be pursuing a patent for the new tive license agreement with MD Anderson • Establish strategic relationships with mar-
formulation. Citius may have the only FDA- Cancer Center (MDACC) to develop and keting partners to maximize sales poten-
approved prescription product on the mar- commercialize a novel approach to reduc- tial of products that require significant
ket proven to be safe and effective for the ing post-operative infections associated commercial support; and,
treatment of hemorrhoids. In March 2018, with surgical implants • Manage our business in a financially disci-
the Company selected a higher potency cor- A US Patent was filed on April 17, 2014 plined and cost-conscious manner. n
ticosteroid in its steroid/anesthetic topical and issued on Dec. 26, 2017.
formulation program for the treatment of Citius is filing an application with the
hemorrhoids. While not used in combina- Center for Devices and Radiological Health
tion in currently marketed products, the (CDRH) of the FDA to determine if Mino-
proposed corticosteroid is included as an Wrap could be considered a device since
FDA-approved topical product to treat a there are a number of predicates with simi-
variety of dermatological disorders. lar components that have been accepted by
this regulatory route; and, such a pathway
CITI 101 - Mino-Wrap would expedite the development time to
Mino-WrapTM is a bioabsorbable, antimi- bring this important new technology to the
crobial solid film wrap that is placed in the market.
surgical pocket to provide cushioning of the
The company paid consideration to SNN or its affiliates for this article.

20 MicroCap Review Magazine


My 8 Rules for
MicroCap Value
1. zIG WHEN THE CROWD zAGS A small downside and a big upside. The
downside is small because the price already
For any potential investment we compare assumes the worst-case scenario. That cre-
the crowd’s view—the consensus—with our ates a margin for error. If we’re wrong, we
own. How do we find the consensus? It’s won’t lose much. If we’re right, we’ll make
revealed in the difference between the price a lot. An upside bigger than the downside
of a stock and its value. We do our own means we break even though we err more
research to work out the value. We look for often than we succeed. If we manage to suc-
stocks where our estimate diverges from the ceed as often as, or more often than we err,
crowd’s. In other words, we try to zig when we’ll do well.
the crowd zags. Undervalued and out-of-favor companies
Here’s why: The only way to get a good offer lots of chances to zig—make contrarian
price is to buy what the crowd wants to sell, bets. When a company owns a scary, bad,
and sell what the crowd wants to buy. or boring business, the crowd overreacts or
A “good” price implies a lopsided bet: grows impatient and sells. That’s how the

n BY TOBIAS CARLISLE MicroCap Review Magazine 21

stock becomes undervalued. Given time, 3. SEEk A MARGIN OF SAFETY We look at both the business and the bal-
many businesses turn out to be less scary, ance sheet to find financial robustness. A
bad, or boring than they seem at first. The This is a threefold test of the discount to business can be worth a great deal, worthless,
reason is mean reversion. the valuation, the balance sheet and the or worth less-than-nothing (if it’s a regular
business. money loser).
2. BUY UNDERVALUED COMPA- First, the greater the company’s discount In the same way, a balance sheet can hold
NIES to its value, the safer the purchase. A wide great value, or have a negative net worth if
discount allows for errors and any decay in the debt outweighs the assets.
The bigger the discount to value the bet- value. This is the corollary to the last rule, Many investors follow profits—the fruits
ter the return. This is true in the US, UK, that the biggest returns flow from the big- of the business—but ignore assets on the
Europe, Africa, Asia, Australia and New gest discounts. It breaks the received wis- balance sheet. They ignore cash. A seem-
Zealand. It’s true in developing and emerg- dom of the market and academia that higher ingly poor business with a strong balance
ing markets. It’s true globally. Deep dis- returns mean more risk. Here, the greater sheet could represent hidden value. The asset
counts and good returns go together. the margin of safety, the higher the returns value offers a free call option on any recovery
For most industrial companies, the and lower the risk. in the business.
Acquirer’s Multiple is the best single mea- Second, on the balance sheet we favor
sure of undervaluation. The Acquirer’s cash and other liquid securities over debt. 5. BE WARY OF HIGH EARNINGS
Multiple is a company’s enterprise value We watch for off-balance debts like leases GROWTH AND PROFITS
compared to its operating earnings. It is the and underfunded pensions. We look for
metric private equity firms use when buying credit issues and signs of financial distress. Mean reversion is a powerful force. It pushes
companies whole, and activist investors use No company ever “won” with too much down on fast growth rates and high profits.
when seeking hidden value. cash, but many have sunk with too much And it pushes up on low growth and losses.
The enterprise value is the “true” price debt. Fast growth and good profits attract
we must pay for a company. It includes the Finally, the company should own a real competition. And competition eats away
market cap. Market cap is the share price business. The business should have strong at the growth and profit. Investors follow-
multiplied by the number of shares on issue. operating earnings with matching cash flow. ing Warren Buffett’s example seek highly
The market cap alone can mislead because it Matching cash flows ensures the account- profitable businesses with a “moat”—a com-
ignores other costs borne by the owner. The ing earnings are real, and not merely the petitive advantage. But moats are harder to
enterprise value also examines the balance figment of a clever embezzler’s mind. We find—and easier to cross—than most inves-
sheet and off-balance sheet items. It rewards look for signs of earnings manipulation. tors realize.
companies for cash. And it penalizes com- Companies that own science experiments, Researchers have studied how businesses
panies for debt, preferred stock, minority or toys in search of a business model are for sustain high profits. The data show most
interests and off-balance sheet debts. These speculators. But weak current profits in a highly profitable companies’ profits mean
are all real costs paid by the owner. stock with a good past record offer a good revert down over time. A small subset of
Operating earnings are the income flow- chance for mean reversion in those profits. businesses do earn persistent, high profits.
ing from a business’s operations. It excludes But we have not yet been able to identify the
one-off items like sales of assets and legal 4. TREAT A SHARE AS AN causal factors ex ante—before the fact. In
settlements. We adjust operating earnings OWNERSHIP INTEREST, NOT A other words, we don’t know beyond broad
for interest and tax payments because they MERE TICkER SYMBOL observations what factors predict steady
are affected by the capital structure: the mix growth and profits.
of debt or equity. The adjustment makes A share is an ownership interest in a com- The evidence shows the odds of finding
possible an apples-to-apples comparison pany. This has two implications: the next high-growth or high-profit stock are
between two companies with different mixes First, a shareholder has rights as an owner about the same as flipping a coin. Buffett’s
of debt and equity. of a company. Shareholder exercise those genius has been to identify these businesses.
For non-industrial businesses like finan- rights by voting. Mere mortals are better served buying at a
cials—banks and insurers—book value is the Second, shareholders should pay atten- steep discount to value.
better single measure. Whatever the proxy, tion to everything a company owns. That The best place to find future growth and
the goal is deep undervaluation. includes its business and its assets, chiefly profit is in businesses enduring hard times.
its cash. These businesses are also likely to trade at a

22 MicroCap Review Magazine

wide discount to value. Buyers of these busi- portfolio is down while the market is up. (2017). Harriman’s New Book of
nesses can enjoy both an improvement in Academics have found high tracking error Investing Rules: The do’s and don’ts of
the business and a narrowing of the market to be associated with good long-term perfor- the world’s best investors. London, UK.
price discount. mance. But the market can beat portfolios of Harriman House. n
undervalued stocks for a long time. Tracking
Tobias Carlisle is the founder and portfolio manager
6. USE SIMPLE, CONCRETE error won’t feel good then.
of Acquirers Funds, LLC.
RULES TO AVOID MAkING Don’t become too concentrated. Assume He is the author of the bestselling book The
ERRORS your calculations and thinking are wrong. Acquirer’s Multiple: How the Billionaire
Contrarians of Deep Value Beat the Market
Remember, it’s more likely you are wrong (2017), Deep Value: Why Activists Investors
Cognitive errors happen when we make and the rest of the market is right. and Other Contrarians Battle for Control of
Losing Corporations (2014). He is a co-author
odds-based decisions about uncertain future
of Concentrated Investing: Strategies of the
outcomes. Investing in the stock market 8. AIM TO MAXIMIzE AFTER-TAX World’s Greatest Concentrated Value Investors
presents exactly this type of problem. GAINS OVER THE LONG TERM (2016), and Quantitative Value: A Practitioner’s
Guide to Automating Intelligent Investment
The secret to avoiding these errors is to and Eliminating Behavioral Errors (2012). His
use a set of simple, concrete rules. Ideally, we Our aim is to maximize the real, after-tax books have been translated into six languages. Tobias
also runs the website—home
should write them down and strictly follow return over the long term. This has three
of The Acquirer’s Multiple® stock screeners. His
them. important implications: Twitter handle is @greenbackd.
Simple, concrete rules are testable. They First, thinking long term—beyond the He has broad experience in investment manage-
ment, business valuation, corporate governance,
should be back tested and battle tested. The next few quarters or years—offers a huge and corporate law. Before founding the precursor
back test makes sure the rules work over his- advantage to investors. Companies often to Acquirers Funds in 2010, Tobias was an analyst
at an activist hedge fund, general counsel of a com-
torical data sets, ideally in different countries become mispriced because the next year or
pany listed on the Australian Stock Exchange, and a
and stock markets. The battle test makes sure so looks tough. This creates a good spot for corporate advisory lawyer. As a lawyer specializing
the rules work in practice. No strategy has investors willing to lag over the short term. in mergers and acquisitions he has advised on deals
across a range of industries in the United States,
ever failed in theory. Almost all have failed We call this “time arbitrage.” It offers an the United Kingdom, China, Australia, Singapore,
in reality. enduring edge available to patient investors, Bermuda, Papua New Guinea, New Zealand, and
no matter the size of their portfolio.
He is a graduate of the University of Queensland
7. CONCENTRATE, BUT NOT Second, the effects of compounding take in Australia with degrees in Law (2001) and Business
TOO MUCH a long time to become observable. But inter- (Management) (1999).

est-on-interest or gains-on-gains become Note: This article is not an attempt to provide

If you want to match the market, buy the significant over the long term. investment advice. The content is purely the author’s
personal opinions and should not be considered
market. If you want to beat the market, you Third, taxes and fees are hidden enemies
advice of any kind. Investors are advised to conduct
must do something different. That means of long-term compounding. High-fee mutu- their own research or seek the advice of a registered
buying only the best ideas, or “focusing.” al funds and other flow-through vehicles will investment professional.

The trade-off for focus is twofold: struggle to beat passive indexes. But low-fee,
First, concentrated portfolios tend to be active ETFs are more tax efficient and can do
more volatile than the broader stock mar- so over the long term.
ket. This means they move around more, Value investing is a logical, time-tested
both up and down. Good years for the mar- investment method. The best value investors
ket can be great years for the portfolio. Bad zig while others zag. They maximize their
years for the market can be terrible years for margin of safety and minimize their costs
the portfolio. and taxes. They treat high growth and profits
Second, concentrated portfolios don’t skeptically. And they assume their calcula-
closely follow the market. We call this “track- tions and thinking are wrong. Skepticism,
ing error.” It means concentrated portfolios humility and low costs maximize our chance
can go down when the market goes up, and of surviving. With luck and time, we can beat
up when the market goes down. The second the market.
kind of tracking error—portfolio up, market Note: This article was Adapted from
down—is great to have. But you won’t notice Carlisle, T.E. (2017) Zig when the invest-
it. You’ll only notice when your concentrated ing crowd zags. In Parker, C. (Ed.). MicroCap Review Magazine 23


Femeda Ltd.
emale health company Femeda Bladder leakage is not life-threatening,
develops Pelviva® – a pioneer- but it is life-changing – it affects women psy-
ing Pelvic Floor muscle re-trainer, chologically, emotionally, socially and sexu-
clinically proven to have a life-changing ally. This is a global problem, affecting women
impact on women’s quality of life. of all ages, often exacerbated by childbirth
Femtech (female technology) is one of the and menopause. Only one in four women
fastest growing sectors of healthcare, forecast with this condition is likely to consult with a
to reach $50bn by 2025. Urinary Incontinence stress and urinary continence. It offers women healthcare professional due to embarrassment
is the largest unmet need in female health and a clinically effective, safe and discrete treat- over the nature of the condition.
a $14bn global opportunity. ment for bladder leakage. Each single-use, The recent issues with mesh and tape sur-
Life changing clinically proven technol- disposable intra-vaginal device incorporates a gery are prompting an immediate rethink into
ogy: One in three women (over 750 mil- revolutionary pattern of neuromuscular elec- treatment pathways which Pelviva can become
lion worldwide) experience bladder leakage, trical stimulation using a programme devel- 1st line recommendation – the UK, Australia,
which has a negative impact on daily life oped by Professor Oldham at The University New Zealand and others have banned surgical
and relationships This is a condition which of Manchester. Reactive Pulse Technology mesh in UI, and a major medical device sup-
changes the lives of millions of women, causes the Pelvic Floor muscles to contract, plier has recently announced withdrawal of
though over 60% of US women haven’t told mimicking the way the body works natu- mesh across the whole of Europe.
their partners/husbands. Femeda is a spe- rally, helping to restore speed and strength to Introducing Femeda: a UK based health-
cialist UK-based company driving strategic the power fibres, preventing bladder leakage care company focused on the development of
innovation to develop a range of technically when women cough, laugh, sneeze or exer- an innovative female health portfolio and is
groundbreaking medical devices for female cise. It is made of a Body Responsive Foam, positioning itself to be a global Femtech leader. 
urinary incontinence (UI), just launching the so adapts to each woman’s individual shape. With its specialism in female health, it has
unique Pelviva® device life changing clinically The unique development is the result of recently launched its first product Pelviva, a
proven technology. With no drug-related side combining advanced research and patents treatment for female urinary incontinence
effects, this multiple award-winning product from University of Manchester with internal (UI). The product is a result of an innova-
is unique in a rapidly accelerating market. product development expertise to deliver tive research and development activity led
Pelviva addresses THE biggest unmet need a product which meets core patient needs. by highly skilled internal R&D resource,
in female health – Urinary incontinence (UI). Pelviva is CE marked,  Class IIa medical which has integrated leading technology
It is the first product of its kind that is clini- device which can be recommended by the from world class academia.
cally proven and is really easy to use. Pelviva hospital practitioner, and bought directly by The Femeda team is led by Andrew Tasker,
is a pioneering medical device that has a life- the end consumer. The business is now com- Chief Executive who has extensive phar-
changing impact on women’s quality of life. mencing a global out licensing programme.  maceutical, medical device and consumer
Supported by an in-depth research and Pelviva offers a long-awaited treatment healthcare experience in global markets. He
development programme and driven by con- supported by a comprehensive package has set a culture of instinctive innovation,
sumer needs, Pelviva is the first of its kind of clinical data. In single-blind controlled integral understanding of patient and con-
to provide one combined treatment for both trial, women using Pelviva® reported a four- sumer insights, and continued delivery of
times greater improvement in quality of life core business objectives. The business has
than those who simply followed an exercise put in place a highly experienced senior
programme, with 84% reporting improved management team with international health-
symptoms of bladder leakage. Having an care and operational skills. 
ongoing programme of clinical evaluation Femeda has recently opened a new
is paramount to Femeda’s development and London headquarters, and has it own
a post marketing 330 women patient ran- advanced ISO13485 manufacturing plant in
domised real world primary care study has Cramlington (North East UK). n
Andrew Tasker, CEO been commissioned for Q2 2019.
The company paid consideration to SNN or its affiliates for this article.
24 MicroCap Review Magazine

Marrone Bio Innovations

A Clear Leader in the Emerging Biological Pest Control Industry

onsumers are increasingly con- The total global pesticide market is more An area of growth and opportunity for
cerned about the environment, than $50 billion annually and is growing at the company is the rapidly growing can-
health, and food safety. The world a compound annual growth rate of about nabis industry, where MBII products are
needs effective, sustainable pest manage- 2%. The newly emerging biological market impacting cannabis production through
ment solutions that are both safe for human is approximately $3-4 billion but is growing the reduction of toxic chemicals and pesti-
consumption and protect the earth’s natural at a compound annual growth rate between cide residues that are harmful to both the
resources. Dr. Pamela Marrone, CEO of 10% and 20%. environment and to consumers. To provide
Marrone Bio Innovations (NASDAQ: MBII), MBII’s growth is significantly outpacing some scale of the market opportunity, a
was acutely focused on these challenges back both the traditional pesticide market and the study from the UC Davis Graduate School
in 2006 when she founded MBII to discover biologicals market – revenues grew 29% in of Management estimated the current
and develop effective, sustainable, biologi- Q3 2018 YoY to $5.4 million at the same time Cannabis inputs market in just Colorado,
cally-based products for pest management achieving a record gross margin of 48.3% Oregon, and Washington alone to be $91
and plant health. and climbing. million. The study estimates the pesticide
MBII is the only public pure-play com- MBII’s proprietary products are not only and fertilizer inputs market for Cannabis,
pany in biological pest management and used in organic farming, where historically including California due to recent changes
plant health and is widely recognized as the the Company has provided pest control in California Cannabis legislation, will grow
thought leader in the space given the com- solutions where no good alternative previ- to $1.4 billion within the next five years in
pany’s industry-leading product portfolio ously existed, but in conventional farming, just those four states.
consisting of 6 EPA approved products. where farmers traditionally use synthetic MBII has made significant progress in
chemicals but are increasingly looking for penetrating its target markets in the U.S. and
sustainable programs that utilize biologicals. is expanding rapidly abroad, where there
Conventional farmers account for approxi- are similar drivers for both consumers and
mately 70% of the company’s sales. “The farmers. MBII is well positioned to continue
benefits are significant,” explained Pam to gain market share in the emerging bio-
Marrone, MBII’s CEO. “First, by implement- logical pest management and plant health
ing our products as one part of an integrated market. n
program, conventional growers can improve
yields and crop quality, creating a higher
return on investment than chemical pesti-
cides alone. A notable example was in straw-
berries, where a trial implementing MBII’s
products resulted in a $1,400/acre increase
in revenues, or a >9x ROI on investment.
In addition, pests developing resistance to
synthetic chemicals is reduced or eliminated
by using our products in a sustainable, inte-
grated program, again increasing return on
investment. And our products do not harm
the beneficials, such as bees, also an impor-
Dr. Pamela Marrone, President & CFO tant yield issue for today’s farmers.”
The company paid consideration to SNN or its affiliates for this article. MicroCap Review Magazine 25


MicroCap Investing:
4 Reasons Why Share Structure is Critical
The choice is yours!

ou have the choice of investing in industry dynamics. All these can turn on a
two microcaps. Both are in the same dime and threaten a microcap’s existence.
industry. They have the same profit- The wise management team recognizes this
ability and growth metrics. They even have and runs lean, raising only what is necessary
the same valuation. to iterate to a successful business model –
The only difference is Stock A is trading and only at prices they can’t turn down.
at $1.00 per share with 100 million shares As the company gains customers, valida-
outstanding and Stock B is trading at $10.00 tion, and moves closer to profitability, it
per share with 10 million shares out. gains leverage in the markets. More leverage
Which would you invest in? Does it even = less dilution = higher returns for you.
matter if the valuations are the same? They’re Your job as an investor is to study history
mathematically equivalent... right? to inform the future. History as they say,
Not quite. In this article we will look at 4 doesn’t repeat but it often rhymes. And few
reasons why share structure is critical and things will teach you more about a com-
discover why one of these stocks is likely to pany’s history than the share structure.
produce much better returns over the long-
HISTORY Investing in a good share structure is criti-
cal. But it’s not enough. Share structure is
Share structure has two primary compo- dynamic – it can change in an instant with
nents: 1) the total number of shares out- a single decision by the CEO. And how that
standing – the pieces of the pie – and 2) the structure changes over your holding period
type of shares – common stock, options, will often be one of the biggest predictors of
warrants, etc. success.
A company is not assigned a share struc- Every day management is faced with
ture upon founding or listing on an exchange. countless decisions. Should we fund a new
Nor is it the result of a single decision by the product development program? Should we
founding team. Rather, it’s the cumulative acquire a key competitor? Should we issue
impact of thousands of decisions by the shares and raise capital?
founders and management team over the life All these decisions come down to trans-
of the company. forming capital into value. The better man-
This single data point then gives you a agement becomes at capital allocation, the
major clue into the company’s history – more value they will create.
everything from how successfully the origi- In his bestselling book, The Outsiders,
nal business plan was executed to manage- William N. Thorndike explains most CEOs
ment’s capital markets savvy. get to the top by being really good at one
Early on in a company’s life, everything thing. Maybe they’re a great salesperson or
n BY BRANDON MACKIE is in flux. The target markets, product lines, product innovator. But it’s rare to find a CEO

26 MicroCap Review Magazine

sky-high cost bases that can weigh on the
More important than the number of shares is often share price.
That said, we’ve been amazed over the
who owns them. Because if insiders don’t own a years by how many multi-baggers – compa-
nies with 10, 20, even 50x returns – all had
significant piece, how can you expect them to treat 20-30 million shares outstanding.
your shares like gold? These companies often had no warrants,
convertible notes, or even options outstand-
ing. Employees were bonused in cash and
that can operate and allocate capital well. through options, they have big upside if the went in the open market to buy their posi-
The greatest capital allocator ever accord- share price goes up. But if shares languish, tions. It was an investor’s dream.
ing to Warren Buffett was Henry Singleton, or decline, the options expire worthless and There are management teams that treat
CEO of Teledyne. In the 1960’s, when they’re in the same place as before. It’s an their shares like gold. And then there are
Teledyne’s shares were flying high in the con- asymmetric structure that incentivizes man- teams that treat their shares like toilet paper.
glomerate boom, Singleton diluted heavily agement to take big swings – say with a risky Make sure you know which side manage-
to acquire companies and build his empire. acquisition – to increase the share price. ment is on before you invest. n
But when the stock plummeted in the early We always want to see management own a
1980’s, Singleton changed course and began good chunk, 25-40%, and ideally that equity
buying back his shares, eventually reducing is worth at least 3 times their annual sal-
Brandon is a passionate microcap investor. He has
the share count by 90%. ary. The more they acquire with their own developed a specific set of criteria for selecting
The lesson here? It’s all context. Dilution money, the more bullish we become. investment ideas. The key attributes include:
Attractive business models
can be horrible. It can also be great. You
Compelling valuations
must constantly assess management’s capital 4) SUPPLY AND DEMAND Quality management teams
allocation and ask the question: are they cre- He then conducts intensive research, talking to
management teams, industry contacts, and other
ating or destroying value? Our final reason has little to do with a like-minded investors. His philosophy is to know his
Watching revenue and earnings growth company’s fundamental value. Stock trading stocks better than anyone else and build a concen-
trated portfolio around them.
per share is one of the best ways we know follows economics 101: supply and demand.
Based in Texas, Brandon spent several years as a
to do this. The fewer shares in the float, the higher the project manager and engineer with a multi-nation-
price will be for a given level of demand. al oil company, a place where he could use BSc
in Chemical and Biomolecular Engineering. That’s
3) UNDERSTAND THE INCEN- This becomes important when a fund where he developed his technical writing skills.
TIVES wants to build a position in a promising But then he got the investing bug. He started read-
ing articles and books by the gurus of value investing:
microcap. Large institutional demand com-
Warren Buffett and Ben Graham. He was hooked.
More important than the number of shares bined with a tight share structure can be a After following boring large cap stocks for a while,
is often who owns them. Because if insiders recipe for a rocketing share price – often he began channeling all that experience to microcap
stocks with cash flow. After being completely self-
don’t own a significant piece, how can you going far beyond what the fundamentals taught in the investing arena, he couldn’t get enough.
expect them to treat your shares like gold? justify. He started getting all these ideas about stocks and
companies, so he began writing a blog, which he has
With microcaps, though, share structure These boons are unique opportunities
now rolled into
incentives can get tricky. You may find a you’ll rarely see happen to companies with Brandon writes about stocks he likes, but he also
promising company where the CEO owns over 100 million shares outstanding. writes about process, how he thinks, and he analyzes
his mistakes in an honest, raw manner. That’s where
20% and think, “great our interests are a lot of the best information is for retail investors.
aligned.” Check the box. THE BOTTOM LINE
But what if that CEO is making $350,000 Note: This article is not an attempt to provide invest-
ment advice. The content is purely the author’s per-
per year in salary and because the company So, is there a magic number of shares out- sonal opinions and should not be considered advice
is so small, his or her shares are worth only standing? Not exactly. Like most things in of any kind. Investors are advised to conduct their
own research or seek the advice of a registered invest-
$200,000? Here the incentives say it’s better investing, it’s more art than science.
ment professional.
to coast along than risk capital to try and A company can do a reverse split and over-
grow the business. night go from 100 million shares outstand-
Options can pose another problem. If ing to 2 million. Don’t be fooled though...
management has exposure primarily all those existing shareholders will still have MicroCap Review Magazine 27


Jerash Holdings (US), Inc.

Jerash Holdings is a profitable, growing global manufacturer of sport
and outerwear garments for top global brands at facilities located in
US & EU tariff-free zones in Jordan.

Middle East boasts a low cost, highly trained Dedication to its workers has paid off,
global work force and key free trade zones as Jerash has reported five years of record
that generate duty-free imports to the US revenue, rising profitability and increased

and EU. When import duties on popular demand from customers. Through the first
ordan may not be the best-known man- fleece jackets and outerwear can run 30%- nine months of fiscal 2019 (fiscal year end-
ufacturing location to US investors, but plus, that tariff savings is critical to the final ing March 31, 2019), Jerash has reported a
it is quickly becoming one of the most price consumers pay, and to profits at major record $70.5 million in revenue, $5.3 million
important in the garment industry, and for clothing brands. in GAAP net income, or $0.47 per share,
US consumers. This stable US ally in the Jerash has leveraged its Jordanian facto- and $11.9 million in cash from operations.
ries and duty-free capabilities to become a The company recently initiated a $0.20 per
key strategic manufacturer to 17 top global year dividend to further enhance shareholder
brands such as The North Face, Columbia, returns.
VF Corp, and PVH, with more on the way. In order to meet rapidly rising customer
Its sterling reputation for quality and pen- demand for manufacturing capacity, Jerash
chant for on-time delivery have consistently recently announced a 1.5 million piece capac-
filled its factories to maximum capacity, even ity expansion, on top of its current 6.5 mil-
as the company announces new expansion lion pieces of annual production. The new
plans. capacity begins production in April 2019,
and included 800,000 pieces in new customer
DOING WELL BY DOING GOOD orders even before the doors opened.

As a socially responsible employer, Jerash’s WHY JERASH

factories are audited by Jordanian agencies,
the United Nations, its customers and other While the new capacity positions Jerash for
global organizations. The company was even another year of growth and financial records,
an invited speaker at the United Nations for the company is not resting on its laurels. It is
its efforts in hiring Syrian refugees. presently looking for opportunities to further
Jerash’s workforce comes to Jordan from augment its organic growth, averaging 15%
around the world seeking stable employ- or more annually, with strategic acquisitions
ment. In fact, 75% of the workforce are to grow more quickly, diversify its produc-
immigrants on work visas. Employees typi- tion capabilities and enhance its geographic
cally sign three-year contracts with wages footprint. n
averaging $300 a month, a significant cost
savings compared with popular garment Jerash Holdings (NASDAQ: JRSH)
manufacturing markets such as China. For more information, visit:
Immigrant workers are provided housing,
Richard J. Shaw, CFO meals, healthcare, child care and more.
The company paid consideration to SNN or its affiliates for this article.
28 MicroCap Review Magazine
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Tuesday's Children provides a lifetime of healing for those whose lives have been forever changed by
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keeps the promise to support all those impacted by 9/11; builds resilience and common bonds in
communities worldwide recovering from tragedies; and serves and supports our nation's military Families
the Fallen. MicroCap Review Magazine 29

kNeoMedia Limited
NeoMedia Limited (ASX:KNM) is student performance analytics. KneoMedia’s integral part of childhood education. Growth in
an Australian listed company in the learning programs are quite remarkable as educational markets, combined with advances
process of obtaining an OTCQB list- detailed in a recent university study strong- in mobile devices and connectivity, will con-
ing. The company has operations in 4 conti- ly supporting the highly positive results tinue to accelerate innovation, adoption, and
nents, principally in the US and delivers SaaS received to date. affordability of our products around the world.
products via its portal KneoWorld programs inspire students to The Company’s primary focus during the
to schools and districts on a Business 2 Schools want to learn through the power of play year was the refinement of its operating
basis. The main activity of the company is and digital game-based learning is non- platform to deliver sustainable sales through
online education publishing to assist education discriminatory. All children, at any level of four key pillars:
of children with learning difficulties, whether ability can learn and progress with the right • Partnerships that deliver access to mul-
they are genetic or socio-economic. digital tools. tiple funding channels from govern-
In excess of 10 percent of all students are We create programs to help educators ment and private enterprise;
present as challenged learners and while the bridge the achievement gap to provide edu- • Leading technology to ensure we main-
Company focuses on elementary students, cational equity to all students, regardless of tain a commanding position in Special
this represents a very substantial market that learning ability. Needs education;
is far less competitive and under-catered for Our intuitive programs target four student • Validated content by globally recognised
in comparison to the crowded general educa- ability levels: and credible health and education bodies;
tion online market. • Early Learner • Recruitment of top talent in Special Needs
KneoMedia has pioneered and devel- • Emerging Learner learning and development to deliver scale
oped a highly sophisticated suite of game- • Developing Learner in the markets where we deploy content.
based  learning programs that engage chal- • Proficient Learner Using the four key pillar strategy plus the
lenged learners enabling improved educa- All programs are geared to a continuum continued recruitment of key sales personal,
tion and behavior within the classroom and of learning. the Company will continue to remain fully
beyond. Curated to enhance teaching and Whether teacher directed or student ini- focused on its Software as a Service (SaaS)
learning in both general education and special tiated, our audio assisted programs are a platform under a Business-to-School sales
needs classrooms, KneoWorld work closely powerful in-class learning tool that mea- model in its now defined markets
with educators and administrators of cur- sures performance mapped to global stan- The Company recognises the education
ricula to develop programs that help students dards. Identified in six categories of learn- markets have a lengthy sales lead time, much
of all abilities master academic and life skills ing: Literacy, Science, Maths and Art, in line of which has been deployed and together with
to reach their full potential. All programs are with US based standards and alternative the investment to date in both the SaaS strat-
COPPA and GDPR security compliant. assessments, plus Critical Thinking and Life egy and the opening of those markets at the
Educators are further assisted by detailed Skills  to address the practical skills of daily earliest opportunity and the extensive work
living as well as the social and emotional of curriculum alignment within those mar-
skills necessary to navigate in the world. kets, will, the Company believes, provide long
• Game-based programs term sustainable income and further growth
• For students of all abilities in new markets due to the readily translatable
• Engaging and empowering design of the KneoWorld platform. n
• Mapped and measured
• Integrates to curriculum
Appointed Executive Chairman October 2015. Mr
• Meaningful analytics
Kellett has over 30 years’ experience in global cor-
• Real time feedback porate finance and business management and has
• Ongoing PDs and support held senior executive positions in the finance and
communications industries, including ASX listed
We believe all children should be given every companies. Mr Kellett has been the driving force in
opportunity to succeed, regardless of their aca- establishing KNeoWorld Inc. in the game-based edu-
demic ability and game-based learning is an cation sector in America and other global markets.
James Kellett, Executive Chairman
The company paid consideration to SNN or its affiliates for this article.

30 MicroCap Review Magazine


Tinybeans Group Limited The largest family only

platform on the planet!

inybeans is a mobile and web-based
technology platform that connects
now over 3 Million parents with
the most trusted tools and resources on the
planet to help every family thrive.
Tinybeans offers an experience without
the distractions or privacy concerns that arise
on other platforms when sharing a child’s
memories. Tinybeans generates revenue from
advertising from brands, premium subscrip- the incredible journey on which it takes us.
tions and printed products. Founded in We’re connecting with a global community
Sydney, Australia in 2012, Tinybeans serves of parents over what we have in common and
a deeply engaged user base of over 3 Million sharing a unique way to capture the emo-
members and over 1.1 Million monthly active tional moments that mean so much.” Eddie
in over 200 countries/territories and keeps Geller, Tinybeans’ CEO said.
over 200 million precious memories safe. campaigns. More brands are signing up for Tinybeans has recently been getting a
From that small sprout in Sydney, Tinybeans, direct advertising deals plus more advertis- lot of press and was included in a Harvard
now with a Net Promoter Score (NPS) of 80, ers are increasing their investments across Business Review1 article, stating…
has grown to add headquarters in New York the programmatic platform. These results “Consider TinyBeans, a fast growing private
and is now a must-have app for every new demonstrate the value to advertisers in the social media network with over 3 million users.
parent, with over 55,000 5-star reviews in the Tinybeans audience and our targeting capa- It’s a photo and video sharing site focused
Apple App and Google Play stores. bilities based on the unique data set to get to on newborns and the many delightful mile-
As the audience continues to grow, so do the right people with the right message. stones they achieve over the next months. Unlike
the company’s revenues. In the December “We want to provide for parents a product Facebook where everyone can see your posts,
half of 2018, Tinybeans generated over that meets the needs they have now around photos and videos, TinyBeans is private and
$1.2M USD, which was nearly as much as organizing their children’s stories and shar- invite only to close friends and family so there is
what it delivered the previous 12 months. ing,” said Geller, “and the needs they don’t a tremendous amount of trust which encourages
This growth reflects the momentum even know they have yet, like easy ways to more sharing. This newborn Maximum Density
continuing to build across the Company’s look back on those first moments and con- Market (MDM) sparks a cornucopia purchase
revenue drivers, largely advertising, with venient ways to print.” behavior related to becoming a parent—like life
supported recurring revenues in premium To December 2018, Tinybeans attracted insurance, a ~$700 billion dollar industry that is
subscriptions and printed product sales. many new advertisers on the platform. Some normally unpleasant to talk about. But becom-
Advertising revenues increased to over $800k running tests, while others re-signed for ongo- ing a parent unlocks greater motivation to make
USD representing growth of over 185% on ing programs. Some of the advertising part- it through the purchase funnel.”
the previous year, driven by seasonal holiday ners that have recently run on the Tinybeans Looking ahead, Tinybeans has cash and
platform include Macmillan Kids, Haven Life, solid runway—and has confirmed many
Peppa Pig, Mixbook, DK Books, BuyBuyBaby, times to the market it’s confidence of reach-
BarkBox & Kabrita to name but a few. ing cashflow positive in calendar 2019.
“With Tinybeans, we want to harness the Tinybeans is traded on the Australian
power of the trust we have with our audi- Stock Exchange (TNY) and https://www.
ence—other parents—on an emotional level. n
We speak to our audience as peers: those
who’ve been in our shoes; shared the same For more:
joys and worries; who understand the awe- 1
some responsibility of parenting, but also
The company paid consideration to SNN or its affiliates for this article. MicroCap Review Magazine 31


Microcaps’ 2009 Trend has been Your

Friend but did it END?
CORNERSTONE GLOBAL potential crash 2018-2019”.
GROUP “T-REPORT” • “Until more definitive index market
action takes place that allows for calling
IN BRIEF a high probability end of the 2009 “cycli-
cal” bull market trend and a lasting crest,
• Prior analysis of 29 January 2018 contin- a decisive breakdown from its lower 2009
ues to be relevant and accurate, per details trend line and 200 week moving average, will
and charts provided in this technical note. strongly indicate a trend change. A decisive
• As the Preferred Scenario, expecting move under the February 2016 low will con-
Index to crest and rollover to confirm a firm the long term trend is down.”
major TOP and trend down to establish a
major low, parameters provided below. SECOND, HOW DID WE DO? – A
• Alternative Scenario, if the 2018 high is REVIEW OF 29 JANUARY 2018
taken out, the final top will only be delayed ANALYSIS AND COMMENTS
to the last quarter 2019 or no later than mid-
2020, possible but not probability favored at • As of date, the 2018 Primary Scenario
this time. comments and analysis continue to be in line
with market action from 29 January 2019 to
COMMENTARY AND ANALYSIS 20 March 2019, a rather long stretch in time!
• Indeed, there was a deep correction in
First, below is a verbatim Restatement of early 2018, 8 February 2018 to be exact, pro-
Noteable Comments, written 29 January jected as chart point 4 in blue on the above
2018 and published in the Spring 2018 weekly chart.
MicroCap Review • That correction penetrated the 200 week-
ly simple moving average but closed above
• “The Russell Microcap® Index breaking that line.
out of a six month near sideways consolida- • In fact, the daily move created a bullish
tion, led to an impulsive bullish move up to daily key reversal, which led to a decisive
the current testing of its upper trend line. It crest, at least as of date.
remains in a confirmed uptrend but is sub- • Thus far, a major top, as projected for
ject to downward corrections, as it moves between mid-2018 to end of 2018, may have
toward its end of trend, an anticipated his- occurred on 31 August 2018, pending market
toric crest or at least a “truncated” crest”. action confirmation.
• “Select technical indicators, stock market • In fact, it was the highest top of what
cycles, Elliott Wave analysis, Prof. Wheeler’s would be considered a triple top, painted on
cycle analysis, Benner cycle analysis and 21 June 2018 at 682.83, 10 July 2018 at 684.1
more are suggesting a near term short term and 31 August 2018 at 686.14, only a 3.3
n BY STEVEN M. SHELTON, top, followed by a corrective decline into point spread between crests!
MS, MBA, CFP®, CLU, CHFC, TEP, early 2018 and a major top ideally in mid- • As for the potential crash, suggested
CIMA®, CMT 2018 but no later than end of 2018, with a for the time frame of 2018-2019, the Index

32 MicroCap Review Magazine

Weekly Russell Microcap® Index bar chart – 29 January 2018

did indeed decline 29.51% over about 4 least short term to intermediate term. December 2018 low would “structurally”
months into 24 December 2018, a “proper • However, as stated in the 2018 publi- confirm a major top and the progression
crash”. cation, for such a move to go beyond an of a long term move down to a meaning-
• Additionally, the Index broke its lower intermediate trend change to a confirmed ful low.
2016 channel trend line and its 200 week long term trend change down, the Index
simple moving average in a decisive manner must take out not only its 2009 lower trend THIRD, CURRENT WEEkLY
but “bounced” off its 2009 trend line, most channel line but the 29 February 2018 low of CHART ANALYSIS – 20 MARCH
interesting and important!! 364.89, per basic technical analysis. 2019
• This action met the “partial” stated • It should be noted that from an “Elliott
parameters for a trend change to down, at Wave perspective”, a move under its • The 20 March 2019 weekly Index chart

Weekly Russell Microcap® Index bar chart – 30 March 2019 MicroCap Review Magazine 33

Monthly Russell Microcap® Index bar chart – 20 March 2019

clearly indicates the Index closed below its will provide a high probability of a major top, has much more market history and such
2016 lower trend line channel and did close which should be followed by an upward cor- history has noted that after each market rise
below its 200 week and 50 week Simple rection, an opportunity to consult with your from 1998 to 2000 and 2002 to 2007, the
Moving Averages, as well as creating a bear- financial advisors to consider exiting long index has returned to its origin; that would
ish “Death Cross” on the daily bar chart, positions, rebalance portfolios, and potential suggest a potential decline of the Russell
confirming the short term and intermedi- shorting opportunities Microcap® Index to around 130-150 for
ate term trend to down a major low during the 2020-2023 time
• Unless the Index takes out its October FOURTH, CURRENT MONTHLY frame.
2018 high, the intermediate trend remains CHART ANALYSIS – 20 MARCH
down but the short term trend is up, as the 2019 LASTLY, IN SUMMARY
Index is likely in an upward correction
• Looking next for a crest and a move • Monthly chart puts it all together and • Historically, markets top on GOOD
under the 2018 low, creation of a weekly extols the order and trend of the 2009 advance news, not bad news, as well as extreme opti-
“Death Cross” and ultimately, taking out the and pending decline, as well as the potential mism and compliancy.
2016 low path of an Alternative Scenario in red • Therefore, it is not a surprise that
• However, a close under the 2018 low • NOTE: the Russell 2000 small cap index extreme optimism and complacency toward
financial asset prices has emerged in the
currently perceived “Good Times”, setting
the stage for explosive volatility in various
However, a close under the 2018 low will provide asset classes, as many believe the “Fed has
their backs”!
a high probability of a major top, which should be • Look back at prior markets for guid-
followed by an upward correction, an opportunity ance, as market crashes tend not to occur
at the top of the market but come later in
to consult with your financial advisors to consider an already established downtrend, just as
the DJIA and S&P 500 did in 1968, 1987,
exiting long positions, rebalance portfolios, and 2000, 2007!
potential shorting opportunities. • Add in the global backdrop of the cresting
and decline of the 125 year “Revolutionary”

34 MicroCap Review Magazine

Cornerstone Disclaimer
Broker/Dealer services and investments are offered
Therefore, it is not a surprise that extreme by Steven M. Shelton, independent contractor and
FINRA Registered Representative, through Weild &
optimism and complacency toward financial asset Co.,, a Member of FINRA and SIPC,

prices has emerged in the currently perceived Cornerstone Global Group LLC is not affiliated
with Weild & Co.; Cornerstone Global Group LLC
does not offer securities nor securities advice and is
“Good Times”, setting the stage for explosive not a member of FINRA/SIPC.
Cornerstone Global Group LLC, 3240 North Lake
volatility in various asset classes, as many believe Shore Drive, Suite 11-D, Chicago Illinois 60657, may
provide institutional non-FINRA related consultan-
cy on farming as well as marketing, distribution and
the “Fed has their backs”! product/service development to and for institutional
use only, without contact with any of the individual
clients of the consulted firms
Cornerstone Global Group LLC is also a financial
Cycle, Long Wave Cycle and many shorter from the “Thundering Herd”! literacy newsletter publisher of the CGG Global
Market Technical Report and CGG Technical
term cycles, all pointing to a potential his- • Oh, ponder upon the wisdom of King Research Notes, all of which are general informa-
toric economic and equity market decline Solomon, considered to have been one of tional services regarding Global Macro Economics
and Market Technical Analysis. Cornerstone Global
that is synch with global history, a grand the wisest men ever, who was attributed
Group LLC’s independent contractor consultants are
economic “reset” to cleanse economies of in Ecclesiastes for this “market applicable” not investment advisers. At no time may a reader,
excess debt and overcapacity, much like the statement, “The thing that has been, it is caller, viewer or consultancy client be justified in
inferring that any advice from Cornerstone Global
Biblical Year of Jubilee. what will be, and that which has been done, Group or its Non-FINRA registered consultants
• These cyclical tendencies are clearly and there is nothing new under the sun.” n is intended as investment advice or as investment
recommendations directed to any particular person
evidenced by nationalism not seen since
or in view of the particular circumstances of any
About the Author:
the 1930s, rising global protectionism, a particular person. Investing carries risk of losses,
Steven Shelton is a Financial Services veteran of more
fractured European Union, yellow jackets in and trading futures or options is especially risky
than 30 years, having served in senior management
because these instruments are highly leveraged,
France, BREXIT, 5 Star Movement in Italy, in both the insurance and broker/dealer commu-
and traders can lose more than their initial margin
nity, on and off shore. He has expertise in econom-
far left political agendas emerging globally, ics, financial market analysis, wealth management,
funds. Before investing consult with your investment
advisor. Cornerstone Global Group LLC does not
Anti-Semitism on the rise, large and violent traditional and alternative investments, financial
render tax, accounting or legal advice and the infor-
planning, marketing, insurance, sales and consult-
global demonstrations, the toppling of once mation contained in this communication should
ing as well as an international speaking regarding
honored statues of patriots, desecration of not be regarded as such. Information provided by
global economics and financial markets. This is
Cornerstone Global Group is expressed in good faith
once sacred memorials, a decisive slowing evidenced by advanced degrees in business admin-
but is not guaranteed in any way.
istration and economics as well as six professional
Chinese economy, liquidity on the decline, designations to include, Certified Financial Planner,
reversing credit cycle, extremely divided cit- Chartered Life Underwriter, Chartered Financial Note: This article is not an attempt to provide
Consultant, Certified Investment Management investment advice. The content is purely the author’s
izenry and sabre rattling around the world. personal opinions and should not be considered
Analyst, Tax and Estate Practitioner and Chartered
• It is a slow and steady build, with spurts Market Technician. He is the Managing Member advice of any kind. Investors are advised to conduct
of Cornerstone Global Group LLC, an Institutional their own research or seek the advice of a registered
and pauses in between, all leading to a trend-
consultancy and financial services publishing entity, investment professional.
ing conclusion to be witnessed by those who as well as, Managing Partner of Shelton Farms and
are aware of a long and well documented Enterprises LLC. He is a personal affiliate of Weild &
Co., member FINRA/SIPC, an institutional Broker/
global history and who think independently
Dealer focused on investment banking.

Look back at prior markets for guidance, as market

crashes tend not to occur at the top of the market
but come later in an already established downtrend,
just as the DJIA and S&P 500 did in 1968, 1987,
2000, 2007! MicroCap Review Magazine 35


Life After Regulatory Onslaught

inancial reporting executives, audit auditors must augment their traditional audit CHANGES TO EMPLOYEE
committees, and independent audi- opinion with a discussion of “critical audit BENEFIT PLAN AUDITS
tors have been wrestling with a num- matters” (CAMs), essentially matters that “kept
ber of developments in the U.S. recently, the auditor up at night.” A CAM is defined A new standard for employee benefit plan
including new accounting standards, tech- as any matter that is required to be commu- audits is coming soon that primarily focuses on
nological impacts on financial reporting, tax nicated to the audit committee that relates to expanded reporting and disclosures. It follows a
reform and other regulatory developments. accounts or disclosures that are material to the collaborative effort by the Department of Labor
Implementation of new accounting standards financial statements and involve especially chal- (DOL) and Auditing Standards Board (ASB), in
has been burdensome for many companies, lenging, subjective or complex auditor judgment. response to weaknesses found in a number of
including new standards for equity linked Disclosure of CAMs will be effective for large benefit plan audits. A new report format will
derivatives, credit losses, nonemployee stock accelerated filers for fiscal years ending after replace what is currently known as a limited-
compensation, the definition of a business June 30, 2019 (and all other filers for fiscal scope audit. The new standard will require new
in business combinations, and, the two most years ending after December 15, 2020). procedures for engagement acceptance; audit
significant changes, the new revenue and leas- A CAM could include matters related to risk assessment and response; and communica-
ing standards. But these are all effective now, revenue recognition, management override of tions with those charged with governance. The
so the accounting onslaught is over for the controls, receivables, inventories, intangibles, standard is expected to be issued in the first half
foreseeable future. So what is on the horizon? covenants, investment valuations, deriva- of 2019 and for audits of financial statements
tives, fixed assets, lease accounting, pension for periods ending on or after Dec. 15, 2020 (i.e.
SIMPLIFICATION NOT SO SIMPLE accounting, expenses, reserves, and related December 31, 2020 audits).
parties, just to name a few. The PCAOB has
Effective November 5, 2018, the SEC issued its said it expects that, in most audits, the auditor AUDIT COMMITTEE
final rule that eliminates or revises a number will identify at least one CAM. RESPONSIBILITIES
of disclosure requirements that are redundant
or outdated in light of changes in US GAAP, INEFFECTIVE INTERNAL Both the SEC and the PCAOB continue to
or the business or technological environment. CONTROLS focus on the responsibility of the audit com-
The simplification rules are 308 pages long, mittee to understand financial reporting
and actually add a new requirement to dis- In January 2019, the SEC settled charges requirements fully, and to challenge senior
close interim changes in stockholders’ equity. against four public companies for failing management on major, complex decisions
This results in a new equity statement format to maintain internal control over financial if necessary. The audit committee should
to replace a single statement of changes in reporting (ICFR) for seven to 10 consecu- review all financial communications to satisfy
stockholders’ equity with up to four equity tive annual reporting periods. According itself that all information is presented fairly
statements for interim and year to date peri- to the SEC’s orders, year after year, the four and in a transparent and consistent manner.
ods for two comparable years. companies disclosed material weaknesses Also, as part of their oversight of the external
in ICFR involving certain high-risk areas audit, audit committees need to ask probing
INTRODUCING CRITICAL AUDIT of their financial statement presentation. questions of external auditors related to audits
MATTERS Each of the four companies took months, and any significant deficiencies or material
or years, to remediate their material weak- weaknesses that were identified. n
Under the newly-revised PCAOB standard, nesses after being contacted by the SEC staff. 
Corey Fischer, CPA, is Firm Managing Partner of
The companies involved three accelerated
Weinberg & Company, a multi-office PCAOB and
filers and one smaller reporting company CPAB-Registered firm specializing in the audit, assur-
that all had audits of their ICFR. Three ance and tax needs of micro and small cap companies. 
He has more than 25 years of experience, having worked
of these companies had clean ICFR audit with Big 4 accounting firms, and as an SEC reporting
reports in their most recent fiscal year, but officer for a number of NASDAQ-listed companies. 
Based in Los Angeles, he is an expert in financial report-
the SEC still charged them for continually
ing, SEC compliance, raising debt and equity, mergers
having ineffective controls in prior years. and acquisitions and structuring accounting operations.
n BY COREY FISCHER, CPA E-mail: or 310-601-2200.

36 MicroCap Review Magazine

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MicroCap Review Magazine 37 | | 877.481.4014

Family Offices are Investing

Heavily in Artificial Intelligence
Here are Five Reasons Why . . .

s our fourth article on family offices REASON 1: BIGGEST ECONOMIC
for Microcap Review, we’re focusing CATALYST IN 150 YEARS
on new investment trends in invest-
ment practices seen in the family office inves- AI is too big to be ignored. The smart money
tor space as well as related investment man- realizes that sitting on the sidelines is tanta-
dates presented to us over the last 12 months. mount to putting money in a mattress.
The second half of 2018, and to a greater Imagine knowing what you know today
degree, the first quarter of 2019 has been about the last 100+ years of economic his-
marked by a continued expansion of family tory, and being a peer of John D. Rockefeller,
office mandates from the traditional focus Henry Ford, Alexander Graham Bell,
on real estate assets to more diverse invest- Thomas Edison, and Charles Babbage. Your
ment strategies. Smart money always seems “crystal ball” would have resulted in one of
to have the ability to identify and capitalize the more impressive investment portfolios
on mega-trends before those trends become of all time, because you’d have gone long in
mainstream. And the major anomaly that the petroleum, automobile, telecommunica-
we’ve seen develop since last year is a spike tions, power and computer sectors in their
in inquiries about investments in artificial infancy before most investors understood
intelligence. that those industries would define the 20th
century economy. You would have shorted

Figure 1. The Era of Deep Learning. Source: Nvidia, JP Morgan

38 MicroCap Review Magazine

iterative basis to “learn” and generate an
algorithmic understanding of a dataset. In
effect, rather than requiring a program-
mer to code specific instructions based on
the programmer’s knowledge. The comput-
er analyzes data and “learns” based on a
defined data set, and refines a series of algo-
rithms. Take driver automation for example:
The computer analyzes programmer defined
data such as maps, obstacle data, traffic rules
and laws and derives a series of complex
algorithms to seamlessly guide a level three
enabled autonomous vehicle down a major
highway without incident. In ML, the dataset
Figure 2. Source: Morgan Stanley is largely defined. The Adoption Cycle for
New Technology is Getting Progressively



Deep learning is the next generation of ML

in the sense that DL is unstructured. In DL,
the program analyzes all data, determines all
correlations and determines its own datasets
and algorithms, not a predetermined subset,
and identifies correlations, and then creates
Figure 3. Deep Learning Will Drive Industries. Source: ARM Limited
algorithms. Imagine a program that rather
than figuring out how to move a car down a
dying industries and focused on the emerg- Machine Learning, or ML, relies on algo- highway, analyzes all available data and cor-
ing ones. AI, and the Fourth Revolution that rithms and statistical formulas run on an relations and designs the most efficient way
it’s creating is the modern-day equivalent of
that period, but with an effect on logarithmic
proportions. And that is the reason that AI
as an investment area cannot be ignored.


Ask anyone in the AI field to describe arti-

ficial intelligence and they’ll talk about
Machine Learning (ML) and Deep Learning
(DL) as the two major components. Where
these two components are the basis of AI,
in translation they bear little resemblance
to the actual effect that AI will have on our
economy, sociology and culture. That being
said, it is useful to have a basic understand-
ing of the two components. Figure 4. ImageNet - Superbowl of Image Computing. Source: Pacific Crest MicroCap Review Magazine 39

standard with 72% accuracy vs the human
Time is being compressed and innovation is benchmark of 95% accuracy. As of 2016,
increasing at a pace beyond our comprehension. computers are 97% accurate in image rec-
ognition, two percent better that the human
For a basic investment approach look at the eye. From an investment perspective con-
sider the various components of the image
requirements of AI. By its very nature AI uses and recognition value chain. From the lens man-

creates massive amount of data. ufacturers to the chip manufacturers, these

companies will see significant growth.
An example of this is the average smart-
phone currently has one to two cameras.
to move people from point A to point B. That participate in the AI processing arena. The However by the end of 2019, the average
is the second generation of ML. It’s far closer value associated with ability to move the phone will have eight cameras to support the
to what we view as invention. But imagine an massive amounts of data that this model growing functionality increasingly revealed.
inventor that can seamlessly access terrabytes requires lies in the rollout of 5G. So think 5G A clear understanding of these drivers will
of data. The speed and complexity of innova- value chain. And data storage is tantamount set your company and your capital raising
tion is infinite. And the rate of adoption is to the modern utility. However the fourth efforts well ahead of your competition in
shrinking. industrial economy, or AI economy will terms of securing a family office backer. n
Welcome to the fourth industrial revolu- reach far beyond those three areas.
tion. Time is being compressed and innova- Mobile phones and autonomous vehicles
tion is increasing at a pace beyond our com- are going to have the most obvious direct
prehension. For a basic investment approach influence in the near term for the consum-
About the author:
look at the requirements of AI. By its very er. And the combination of AI chips, and
Karl B. Douglas is Chief Investment Officer at
nature AI uses and creates massive amount additional AI programming will dramati- PPMT Capital Advisors, Ltd.., a multi family office
of data. So data storage, data processing and cally enhance the user experience in both advisory firm. Mr. Douglas has a career that spans
over 30 years investing in private and public compa-
ability to move massive amounts of data are examples. From the hardware perspective nies. PPMT Capital invests in private equity and debt
three core categories of investment opportu- alone, the revenue growth could be signifi- investments of $15M to $100M in Energy, Mining,
Industrials and Real Estate.
nity. In effect data warehousing, data mining cant. Certain technological breakthroughs
For further information contact:
and networks are broad categories of invest- which have been in the works for the last 15
ment opportunities. years are poised to drive significant growth. 800-401-9017

Consider the improvements made in image Note: This article is not an attempt to provide invest-
REASON 4: MANY ENTIRELY recognition for example. ment advice. The content is purely the author’s per-
sonal opinions and should not be considered advice
of any kind. Investors are advised to conduct their
CREATED REASON 5 - PREDICTABLE own research or seek the advice of a registered invest-
GROWTH ment professional.

In terms of data processing, think in terms

of GPU manufacturers such as Nvidia to Just nine years ago, NEC Corp was the

Mobile phones and autonomous vehicles are going

to have the most obvious direct influence in the
near term for the consumer. And the combination
of AI chips, and additional AI programming will
dramatically enhance the user experience in both

40 MicroCap Review Magazine


The Dual Listing Process for Foreign Issuers

in the United States
US investors crave high quality new their securities on the OTCQB and OTCQX additional and often onerous US reporting
investment ideas. Today there are less markets respectively, which creates invest- obligations, as long as its filings are com-
ment opportunities for US-based investors plete and accurate on its home exchange.
US companies going public, as a result,
and exposure to US investors for companies. OTC Markets automatically uploads or
investors are looking elsewhere. Foreign
From the onset it is important to dis- “EDGARizes” the announcements from the
listed companies are turning to OTC tinguish OTCQB and QX from the “pink ASX, and other approved exchanges, to the
Markets for access to US investors. OTC sheet” and “grey sheet” companies, which are OTC Markets platform ensuring that US
provides a cost-effective solution: a listing regarded as far more speculative investment investors are fully informed of all mate-
on the OTCQB or OTCQX makes it far markets. The QB and QX markets offer a far rial developments as and when they are
easier to for US investors to get exposure greater degree of transparency and disclo- announced and have access to historical
sure. ASX listed companies are subject to the reports and financial information.
to earlier stage, high value opportunities
very exacting reporting rules imposed under Microcap companies in Australia tend to
and take positions. This is known as the
the ASX listing rules, including the continu- go public at an earlier stage than their US
dual listing process. ous disclosure of all material information counterparts and at far lower multiples and
and a very strong duty of care by the man- relative market capitalizations. This creates
Less US companies are looking at going agement and directors. Historically, foreign an opportunity for US investors to gain
public, particularly in the MicroCap space. issuers have been attracted to US Exchanges exposure to prospective microcap companies
The reasons for this include structural mar- like the NYSE, AMEX and NASDAQ to and investment opportunities at earlier stag-
ket considerations (i.e. availability of pri- gain exposure to US investment markets. es of development than is usually available
vate equity funding), cost, complexity, time, However, foreign issuers are increasingly from traditional US stock market investing
legal liability and regulatory and compliance becoming more concerned with cost, time with the probity offered by the strong com-
considerations. Consequently, astute inves- obligations and legal liability associated with pliance regime of the ASX.
tors are turning toward companies listed becoming and maintaining their status as US We see dual listing of “suitable” foreign
on foreign exchanges to identify interest- reporting issuers. OTCQB and QX allows companies on OTCQB and QX as a win/win
ing, undervalued opportunities which have foreign issuers direct exposure to the US situation for the company and the investor.
the potential to generate superior invest- investment community at a far more cost The company gains exposure to the larg-
ment returns. The issue for many US inves- effective and less time-consuming impost est investment market in the world and the
tors, including funds and family offices, is than is offered by the other US exchanges. investor has the ability to gain exposure to
often the burden of having to set up and From an investor’s perspective, the dual list- new and interesting investment opportuni-
administer banking arrangements, broker ing allows investors to buy and sell securities in ties, often at an earlier stage of development,
agreements and trading facilities in overseas foreign entities in real time through the inves- than is generally being offered through tradi-
jurisdictions. As an ex-pat Australian invest- tor’s existing broking and trading arrange- tional US listed companies. n
ment banker and corporate adviser living in ments. In this context, it is important that the
Richard Revelins has worked as an international
the US, I have been working with a number foreign issuer be DTC eligible (Depository
investment banker for over 30 years and specializes in
of Australian Securities Exchange (“ASX”) Trust Clearing Corporation, which is a mem- listed public companies. He is a co-founder of Peregrine
listed entities, assisting them to dual list ber of the US Federal Reserve System). DTC Corporate Limited based in Australia and is also a
Managing Director at Cappello Group Limited based
compliance allows for both electronic and in Los Angeles, USA. He currently resides in Venice,
broker-initiated trading of OTCQB and QX California and divides his time between the US and
listed stocks and many funds are unwilling,
or specifically excluded from trading in stocks Note: This article is not an attempt to provide invest-
that are not DTC compliant. ment advice. The content is purely the author’s per-
sonal opinions and should not be considered advice
The foreign issuer operates on the basis of any kind. Investors are advised to conduct their
of its primary listing, in this case the ASX, own research or seek the advice of a registered invest-
ment professional.
Richard Revelins without the requirement to comply with MicroCap Review Magazine 41


Managed Futures
for Microcap
T here is both academic and practitioner research literature that dis-
cusses the use case of managed futures as potential benefits when
employed with large cap equity indices, such as the S&P 500 index
(SPX) for portfolio allocation.
However, there is very little, if any, literature DEFINITIONS
discussing the comparison of microcap indi-
ces to managed futures. In researching these Microcap stocks are defined as firms with
4) investments, the results
correlation difference is more pronouncedain low
demonstrate market capitalization
the three-year between
rolling correlation $50
chart (Figure
2) as it filters out some of the shorter-term noise of the one-year rolling
how managed futures may be a beneficial million and $300 million. Managed futures correlation.
2 Except for
the downward correlation spike in 1999/ early 2000s, the correlation between micro and large
allocation to a microcap
cap remained consistent over the lastare
relativelyportfolio. fewprofessional
decades and managers
more so who trade the
in roughly futures
last 15
years. The chart also supports evidence of thecontracts, options on futures contracts and
diversification of managed futures to microcap

Figure One-YearRolling
Rolling Correlation
Micro to CTA Micro to SPX



























Source: Bloomberg data
Source: Bloomberg data

42 MicroCap Review Magazine

Figure Three-Year
Year Rolling
Rolling Correlation
Micro to CTA Micro to SPX

I compared the monthly returns of the
0.80 BarclayHedge CTA index to the Wilshire
0.60 U.S. Micro-Cap index. The Wilshire U.S.
Micro-Cap Index is a cap-weighted index
with constituents of all stocks in the Wilshire
5000 Index below the 2501st rank of the
0.00 Wilshire 5000 Index.4 The BarclayHedge
-0.20 CTA index is an equal-weighted managed
futures index and rebalanced annually. For
2018, there were 541 programs included in
the managed futures index. Between 1992
-0.80 and 2018 the index had an average of 396
-1.00 programs.5








The data is January 1992 to November





2018, nearly 27 years of monthly returns.
This period includes economic expansions,
Source: Bloomberg data
contractions and various volatility regimes.
Tail Risk
Figure 3 is often referred to as the Ò managed futures smileÓ or the Ò CTA smileÓ . The
forex markets.
quarterly Thereturns
microcap managers arethe
are on alsox axis
known day strategies
(horizontal or managed
axis) and the hold positions
futuresfor only a METHODOLOGY/ RESULTS
as Commodity
returns are on the Trading Advisors
y axis (vertical axis).(CTAs). fewofdays,
The right side whiledemonstrates
the chart others will hold
whenfor several
stocks are
positive, many times managed futures is also positive. But there are plenty of times when microcap
They are known for being systematic, trend- months or longer. Some managers trade only This research was broken into multiple parts:
stocks are positive and managed futures are not, often when microcap stocks have relatively
smaller strategists.
returns, However,
as managed some
futures manag-
tend commodityinvestment
to be a diversifying futures, while
for theothers trade
portfolio, butonly
itÕ s 1. Examining both static correlations
ers are discretionary and there are a variation financial futures, and some will trade a and rolling correlations (Jan 1992 to Nov
not a hedge. However, the more imperative characteristic is found on the left (negative) side of the
scatter plot.
of strategies and time horizons employed, combination of commodity and financial 2018). The static correlation is -0.08 between
such asWhen
tradingstocks experience
strategies a negative
and option quarter,
futures. 3 there are several moments when microcap stocks and CTAs, thus implying
managed futures will be positive, thus offering potential reduction in both tail risk and correlation
risk. Some
The black managers
dotted trend linemay use intra-
in Figure 3 offers evidence for potential non-correlation in periods non-correlation between the two indices.
of both positive and negative months. It also demonstrates the relationship between the two The correlation of the microcap index to
indices is non-linear.
Figure 3: Managed Futures Smile with quarterly returns of microcap stocks and man- the S&P 500 index is 0.70, noting, over
aged futures time a relatively strong positive correlation
between the two indices.
2. The rolling correlation chart (Figure
1) supports the above results of a positive
correlation between microcap stocks and
large cap stocks on a 12-month basis. And
a non-correlation between microcap stocks
and managed futures. This suggests when
investing in microcap stocks, an allocation
to large cap investments offers some diversi-
fication for microcap investments, but it may
not offer a strong diversifier or vice versa.
3. Figure 1 notes when investing in micro-
cap stocks, allocating to managed futures
may offer greater diversification than allo-
cating to large cap stocks may offer, as the
correlation tends to cycle between positive
and negative, thus non-correlated.
4. The correlation difference is more pro-
Source: Bloomberg data MicroCap Review Magazine 43

Figure 4: Managed Futures Smile with quarterly returns of SPX and managed futures
often when microcap stocks have relatively
smaller returns, as managed futures tend to
be a diversifying investment for the portfo-
lio, but it’s not a hedge.6 However, the more
imperative characteristic is found on the left
(negative) side of the scatter plot.
When microcap stocks experience a nega-
tive quarter, there are several moments when
managed futures will be positive, thus offer-
ing potential reduction in both tail risk and
correlation risk. The black dotted trend line
in Figure 3 offers evidence for potential
non-correlation in periods of both positive
and negative months. It also demonstrates
the relationship between the two indices is
The managed futures smile in Figure 4
Source: Bloomberg data
with the S&P 500 index on the X axis and
managed futures on the Y axis, demonstrates
nounced in the three-year rolling correla- TAIL RISk a similar relationship between large cap
tion chart (Figure 2) as it filters out some stocks and managed futures as the orange
of the shorter-term noise of the one-year Figure 3 is often referred to as the “man- trendline is parabolic with a u-shaped curve
rolling correlation. Except for the downward aged futures smile” or the “CTA smile”. The at the extremes of the return distribution.
correlation spike in 1999/ early 2000s, the quarterly microcap returns are on the x axis The correlation results are also supported in
correlation between micro and large cap (horizontal axis) and the managed futures evidence with a low R2 of 1.3% for microcap
remained relatively consistent over the last quarterly returns are on the y axis (vertical stocks to managed futures. R2 of 0.72% of
few decades and more so in roughly the last axis). The right side of the chart demon- SPX to managed futures. Lastly, an R2 of 55%
15 years. The chart also supports evidence strates when stocks are positive, many times for SPX to microcap stocks.
of the diversification of managed futures to managed futures is also positive. But there Figure 5 demonstrates the greater volatil-
microcap stocks. are plenty of times when microcap stocks ity of microcap stocks vs managed futures
are positive and managed futures are not, on a quarterly basis. Microcap stocks had
the maximum and minimum quarterly
Figure 5: Quarterly returns of Microcap stocks and managed futures returns of 48.65% and -39.02%. Whereas, the
managed futures benchmark experienced
a smaller dispersion between positive and
negative tails with maximum and minimum
quarterly returns of 12.39% and -8.70%,
Figure 6 exhibits the change of portfolio
performance metrics as the allocation shifts
from 100% microcap stocks to 100% man-
aged futures (X axis). As the allocation shifts,
the gap between the monthly maximum and
minimum returns narrows. The monthly
standard deviation and the monthly returns
decline. This is due to the larger return tails
of microcap stocks. However, the portfolio’s
skewness (yellow line, based on the right
axis) moves from -0.25 to 0.42, indicating as
Source: Bloomberg data

44 MicroCap Review Magazine

Figure 6: Performance metrics with microcap stocks and managed futures portfolio
allocations 7 Shore, M. (2005). Skewing Your Diversification.
Retrieved from

Mark Shore, Director of Educational Research

at Coquest Advisors LLC, has more than 30 years
of experience in alternative investments, publishes
research, consults on alternative investments and
conducts educational workshops. mshore@coquest.
Mr. Shore is also an Adjunct Professor at DePaul
University’s Kellstadt Graduate School of Business
where he teaches a managed futures / global macro
course. He is a board member of the Arditti Center
for Risk Management at DePaul University. Mr. Shore
is a frequent speaker at alternative investment events.
He is a contributing writer for the Eurex Exchange,
Cboe, Swiss Derivatives Review, MicroCap Review,
ReachX and Seeking Alpha.
Prior to Coquest Advisors, Mr. Shore founded
Shore Capital Research, a research/ consulting firm
for alternative investments. Prior to Shore Capital,
Mr. Shore was Head of Risk for Octane Research
Source: Bloomberg data Inc ($1.1 billion AUM), where he was responsible
for quantitative risk management analysis and due
diligence of Fund of Funds. He chaired the Risk
Management Committee and was a voting mem-
the standard deviation decreases, there is a tions shift from microcap stocks to managed ber of the Investment Committee. Prior to joining
Octane, he was the COO of VK Capital Inc, a wholly
potential for tail returns to be derived more futures. n
owned Commodity Trading Advisor unit ($300 mil-
from the positive returns than the negative lion AUM) of Morgan Stanley. Mr. Shore provided
(Endnotes) research and risk management expertise on portfolio
returns, thus potentially reducing the port-
1 10 compelling reasons to consider adding man- construction, product development and business
folio’s tail risk. As I’ve often stated, volatil- aged futures ... (n.d.). Retrieved from https://www. strategy.
ity is like cholesterol, there is good and bad He received his MBA from the University of
sider-managed-futures.pdf. Chicago and is currently a doctoral candidate at
volatility. Volatility derived from positive Shore, M. (2005). Skewing Your Diversification. DePaul University.
returns is the “good’ volatility. While the bad Retrieved from
cation/alternative-investment-resource-center/ Past performance is not necessarily indicative of
volatility is derived from the negative returns
research/skewing-your-diversification.html future results. There is risk of loss when investing in
and is what investors would like to control Kat, H. M. (2002). Managed Futures and Hedge futures and options. Futures can be a volatile and
or reduce.7 Funds: A Match Made in Heaven.  SSRN Electronic risky investment; only use appropriate risk capital; this
Journal. investment is not for everyone. The opinions expressed
2 are solely those of the author and are only for educa-
CONCLUSION lications/investorpubsmicrocapstockhtm.html tional purposes. Please talk to your financial advisor
3 Shore, M. (2018). Managed Futures Lecture before making any investment decisions.
In summary, the results show, managed 4 Note: This article is not an attempt to provide invest-
futures may offer diversification for a micro- indexes/wilshire-us-micro-cap-index ment advice. The content is purely the author’s per-
5 sonal opinions and should not be considered advice
cap investment as noted in the rolling cor- ces/barclay-cta-index/ of any kind. Investors are advised to conduct their
relations, the managed futures smile and the 6 Shore, M. (2015). Decoding the Myths of own research or seek the advice of a registered invest-
Managed Futures. Retrieved from https://www.cme- ment professional.
change of portfolio metrics as the alloca-

When microcap stocks experience a negative

quarter, there are several moments when managed
futures will be positive, thus offering potential
reduction in both tail risk and correlation risk. MicroCap Review Magazine 45


Uplisting – More Than

Meets The Eye
T rading on a national securities exchange is often the goal of most micro-
cap companies. Unless a company qualifies to engage in an initial public
offering directly onto a national exchange, reaching this goal is accomplished
by uplisting.
This is the process of moving a company requirements, keeping in mind possible con-
from having its stock quoted on the OTC tingencies, both generally and with respect
Capital Markets to trading on a national to the three main uplisting criteria discussed
exchange, such as the NASDAQ or NYSE. in detail below.
The potential benefits of uplisting include
increased marketplace attention, improved I. MINIMUM SHARE PRICE
liquidity for existing shareholders and
potential investors, ease of depositing shares, Regarding the minimum share price, most
and improved availability of capital (includ- people believe that a company simply needs
ing the possibility of doing an S-3 shelf take- to obtain a $3 or $4 share price prior to
down quickly following the uplist), among uplisting and that the company can simply
many other benefits. complete a reverse stock split if its shares are
As is the case in many things in life, how below that price. In reality, however, the first
you begin often dictates how you end up. question is the length of time the minimum
The first step is the most important. For a share price needs to be sustained prior to
microcap company to succeed in this pro- uplisting. Is it five business days? Thirty of
cess, the company must engage a competent sixty trading days? Does the stock trade on
team of professionals – each of whom have every trading day? The answer to the tim-
a track-record of successfully bringing OTC ing question depends upon whether the
companies to the next level. Typically, a company seeking to uplist is the product of
competent attorney should quarterback the a reverse merger. If so, how long ago did the
process – outlining the macro plan and reverse merger take place?
keeping the team of professionals on track to For the reverse split, the complexity arises
meet each of the company’s micro objectives because a reverse split raises numerous legal
throughout the process. and business issues. Does the company have
The three main initial listing require- the legal authority to consummate the reverse
ments are well-known: minimum share split (common versus preferred votes)? From
price, number of shareholders, and stock- a business standpoint, there could be objec-
holders’ equity; however, there are often tions from existing shareholders concerned
misconceptions as to the simplicity of these with a depressed stock price following such
requirements. Upon committing to begin- an action. When should the company effect
ning the uplisting process, the company and the reverse split and how large of a split does
n BY JOE LUCOSKY, Esq. its advisors should outline the timeline and the company need in light of possible price

46 MicroCap Review Magazine

reductions in the market? Finally, as dis- balance sheet. Is the company’s debt widely offering for at least 1 year? Each of these
cussed below, reverse splits could negatively held? Is erasing these liabilities as simple as questions must be discussed with company
impact the company’s ability to comply with a 3(a)(9) exchange? A tender offer? Both? counsel to properly outline a plan for achiev-
other listing requirements. Organic growth Who will coordinate those efforts and at ing the company’s uplist objectives.
does not carry the dilution inherent to a what cost? Again, has the company made A competent attorney should quarterback
reverse split, however, it brings uncertainty a profit during the last year? If not, what the process – outlining the macro plan and
with respect to the timeframe in which (and about Nasdaq’s informal rule regarding burn keeping the team of professionals on track to
whether) the threshold will be met. rate which could require subtracting certain meet each of the company’s micro objectives
When considering whether the lower $3 amounts from your stockholders’ equity cal- throughout the process. To be sure you are
price can be used, do the company’s latest culations? leaving as little to chance as possible when
audited financial statements reflect net tan- The other initial listing requirements, you are thinking of starting the uplisting
gible assets? How much revenue has the com- while understandably rarely the focus of process, please email the corporate and secu-
pany averaged per year over the last 3 years? uplisting candidates, cannot be ignored: Will rities professionals at Lucosky Brookman
1 million shares still be held by non-affiliates LLP at for a free analysis
II. NUMBER OF SHAREHOLDERS following the reverse split? Does the com- of your company’s ability to uplist, an action
pany have the required number of indepen- timeline, and a master strategic plan. n
A common misconception about the mini- dent directors and does it have the needed
Lucosky Brookman is a corporate finance and secu-
mum number of shareholders required is Board of Director’s committees in place? If rities law firm with offices in New York and New
that the company only needs to have 300 not, does the company have enough D&O Jersey, representing both domestic and internation-
al clients in sophisticated corporate and securities
shareholders prior to uplisting. This seem- Insurance and indemnification policies to transactions, mergers and acquisitions, secured and
ingly straightforward requirement still leaves attract quality directors? unsecured lending transactions, PIPEs, commercial
and securities litigation, insurance coverage and
a number of questions unanswered: Do they
defense, real estate, and general corporate matters.
have to be round lot shareholders? Do shares THE WAY FORWARD: SEEk
held in street name count or must they LEGAL COUNSEL FROM Joseph M. Lucosky is the founding and managing
partner of Lucosky Brookman LLP and oversees both
be held by shareholders of record? If the COMPETENT PROFESSIONALS the transactional and litigation departments. Mr.
company is doing a reverse split, will the AND OUTLINE A STRATEGY FOR Lucosky has a broad multidisciplinary practice that
includes extensive experience in litigation and dis-
company still have the required number SUCCESS
pute resolution, regulatory investigations (including
of shareholders following the split? If the FINRA and SEC matters), negotiated mergers and
company is doing a registered offering in In summary, to uplist, companies need to acquisitions (including reverse mergers); domestic
and cross-border investments/joint ventures; the
connection with the uplist and it does not have a clear path to meeting the seemingly representation of private equity; venture capital and
meet the shareholder requirement prior to straightforward yet often tricky require- other private investment funds; securities offerings;
private and public financings (including secured
the offering, can the company’s underwriter ments of a proven share price of at least
and unsecured lending); bankruptcy transactions;
sell securities to enough small shareholders $3.00, at least 300 shareholders with a large real estate matters; and various other types of com-
to meet this requirement? enough float value, and sufficient stockhold- mercial transactions. In addition, he counsels cor-
porate boards, board committees (including special
What about the value of the shares out- ers’ equity, among many other criteria. committees) as well as being a personal adviser to
standing? The misconception is that there is In addition, prior to even beginning the many entrepreneurs, business leaders and corporate
executives. He has counseled clients on significant
just a $15 million value requirement for the uplisting process, there are numerous legal,
litigation, regulatory and transactional matters across
publicly held shares. Who counts as an affili- practical, and strategic questions that must a number of industry sectors.
ate? Has the company made a profit during be answered, including, for example, might
Note: This article is not an attempt to provide invest-
the last year? What about a profit in two of the company qualify for an “organic” uplist-
ment advice. The content is purely the author’s per-
the last three years? If so, the requirement ing? Can the company afford to enter the sonal opinions and should not be considered advice
could be $5 million instead of $15 million. “quiet period” associated with the regis- of any kind. Investors are advised to conduct their
own research or seek the advice of a registered invest-
tration process? Does the company have ment professional.
III. STOCkHOLDERS’ EqUITY enough capital to complete the uplist pro-
cess and, if not, must the company hire an
Far too often we hear that the $5 million investment bank to access bridge financing?
stockholders’ equity requirement is simply Following a successful uplist, will the com-
a matter of converting liabilities into equity pany have enough operating capital so that it
to increase the stockholders’ equity on the does not need to do another private or public MicroCap Review Magazine 47

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OptimizeRx Corporation
Delivering Results in Digital Health


taken a sea change in a major industry and turned it into a powerhouse of
high-margin revenue and earnings. This is OptimizeRx (NASDAQ: OPRX).
In recent years, the U.S. healthcare system Yet doctors want to help. A recent survey
has become exceedingly complex and costly of 642 physicians by OptimizeRx revealed
for everyone, and not only for patients, but several key trends:
also for doctors and hospitals. Even pharma Nearly all physicians believe they have a
is feeling the pinch. role to play in discussing the cost of health
Patients are facing an increasing cost bur- care with patients (91%) and are comfortable
SUBMIT ePrescription
den due to expensive medications, and record- doing so (86%).
high deductibles and co-pays. The Kaiser Patients raise the issue of prescription
Family Foundation reports that deductibles drug costs with their doctors nearly 40% of OptimizeRx’s proprietary technology alerts 
have risen 300 percent since 2006, while co- the time. doctors of prescription savings and automatically 
sends info to patient’s pharmacy.
insurance costs have nearly doubled. Prescription drug costs are “very impor-
Combined with fewer generic drug tant” or “extremely important” to the vast days more and more doctors, and now more
options, this has created a ‘perfect storm’ that majority of doctors (73%) and impact their than half the hospitals in the U.S., will not
is undermining patient adherence to their prescribing decisions. even let pharma reps in the door.
doctor-prescribed medications. Patients So, it’s clear that patients and providers As a result, millions of dollars in coupons
simply cannot afford them, and doctors are want to discuss the cost of prescriptions. and vouchers from pharmaceutical manu-
increasingly frustrated. Providers also want to help patients look facturers are going unused due to patient
for savings opportunities, like through co- lack of information and access.
pay coupons and other patient assistance Further, new research is showing that the
programs. increasing widespread failure to take pre-
But how? Both parties are ham-strung scribed medications is now costing the U.S.
by the prevailing lack of information show- healthcare system more than $100 billion
ing total drug price, including true patient annually due to poor healthcare outcomes,
out-of-pocket price, as well as access to cost- disease progression and other avoidable
savings coupons. healthcare issues.
Largely to blame is the continuing break- All this is not good for drug companies
down in doctor/patient education tradition- either. Despite spending billions of dollars
ally provided by pharma companies. It has on developing new drugs, pharma compa-
become increasingly more difficult for phar- nies are increasingly challenged with not
ma companies, acting through their sales being able to communicate with and educate
reps in the field, to provide clinical informa- healthcare providers on clinical benefits and
tion, drug samples and savings coupons. encourage prescribing. This hits the bottom
Due to the Sunshine Act and other bur- line.
densome reporting requirements related to There is hope, however. According to
Will Febbo, CEO sales reps providing such materials, these research published by the National Institutes

50 MicroCap Review Magazine

pharmacy. This phenomenally high number
reflects how 90 percent of ambulatory care
providers now use EHRs, and that ePrescrib-
ing now exceeds 85 percent of all prescrip-
tions written, according to a 2018 Surescripts
report. In fact, most hospital systems now
require that all medications be ePrescribed.
OptimizeRx’s powerful digital health care
messaging platform improves critical com-
munication between pharma companies and
healthcare providers, where providers can be
of Health, simply by lowering the cost of alerted to available financial programs right
patient co-payments, doctors can improve at the point-of-care. In real-time, the patient-
patient adherence and outcomes. Yet, still, savings solution checks eligibility and deliv-
the question is, how? ers an offer to the prescribing physician. The
voucher or coupon is then printed for the
ENTER OPTIMIzERX patient to present to their pharmacist or is
sent along with the prescription electroni-
OptimizeRx has emerged as the only public cally. viders to extract greater value from their
company that has been able to effectively By delivering patient savings and clinical EHR investments by streamlining the pro-
address this challenge of escalating drug content from pharmaceutical manufacturers cess of identifying cost savings for patients.
costs, patient adherence and pharma-doctor directly through the EHR and at the point- In addition to savings information, the
communication, while providing a simple of-care, doctors are alerted to opportunities intelligent point-of-care technology can also
solution right within a doctor’s everyday during the ePrescribing process as a natural alert physicians about recommended tests or
workflow. part of their workflow. The content is deliv- procedures related to a patient’s condition,
As the largest digital health network of its ered, tracked and reported across a large prompting additional action if needed.
kind, OptimizeRx provides patient access to point-of-prescribe promotional network.
savings directly through the doctor-man- Physicians can search for a brand name drug A WIN-WIN WITH POWERFUL
aged electronic health records (EHR) and within the EHR and be instantly alerted to RESULTS
ePrescribing system. alternatives or potential savings for a specific
This point-of-care presence has become patient. The OptimizeRx digital communication
increasingly essential, given how EHRs This technology not only helps improve platform now reaches more than half of
today dominate the attention of healthcare patient adherence to medications and clini- the office-based healthcare providers in the
providers. Most physicians now spend more cal outcomes, it also allows healthcare pro- country. This highly-effective solution to a
than five hours a day interacting with patient growing problem has not only been good for
health records through an EHR interface, doctors, patients and major drug brands, it
whether it be viewing test results and logging has also generously rewarded the sharehold-
notes, or issuing ePrescriptions. ers of OptimizeRx.
In 2017 alone, more than 2 billion in ePre- For 2018, revenue hit a record $21.2 mil-
scriptions were transmitted from doctor to lion, growing at a 53% CAGR since 2011.
For the fourth quarter of 2018, the company
reported its seventh quarter in a row of rev-
enue growth and its first year of profitability.
At $6.6 million, fourth quarter revenue was
up 64% from the year-ago quarter.
These results demonstrated how the com-
pany’s low fixed-overhead model contin-
ues to support a highly-scalable financial
opportunity, which was also evident in its MicroCap Review Magazine 51

expanding margins. In fact, at 62.2% for the increase. The pharma industry has report- lying technology that powers its solutions
quarter, the company for the third time in edly set aside more than $8 billion to cover and is investing in a broader data strategy.
a row surpassed its previously announced co-pay programs. It has hired new technical leadership and
gross margin goal of 55%. Based on these factors and indicators from increased the size of its software develop-
Driving this growth is the record addition OptimizeRx clients, agencies and partners, ment team.
of new pharmaceutical brands on the plat- the company estimates its total addressable A new data warehouse represents the
form, fast-growing digital health messaging market is worth well north of a $1 billion underpinning of new reporting and data
volume sponsored by these brands, and an once the market fully adopts this channel. analytic capabilities that will provide valu-
expanding distribution channel of EHRs “Using our digital health platform, major able insights to its customers. These changes
and ePrescribing systems. The company’s pharma brands are discovering that the are expected to support future growth, pro-
recent entry into hospital systems and physi- point-of-care, where the patient and doctor vide recurring revenue, and significantly
cal decision support is expected to fuel this are directly engaged, is now the most effec- enhance the company’s value proposition.
growth even further. tive space for them to communicate their “Investments in our growth initiatives
In just the last year, OPRX more than message,” said Febbo. may result in quarterly fluctuations in prof-
doubled. The stock climbed above $14.00 As personalized medicine grows in popu- itability,” noted company president, Miriam
per share the day after its recent quarterly larity and specialty treatments are more com- Paramore, who has been leading these
report. But according to company CEO, Will monly prescribed, platforms like OptimizeRx efforts, “but our shareholders can expect
Febbo, they have only just begun. that exist at the point-of-care will be the these investments to drive further strong
“We believe we are in the earlier days of greatest technology-based enablers of com- topline growth and margin expansion while
this opportunity with a huge first-mover munication between the pharma industry sustaining our position as the clear market
advantage and are truly a pure play in this and healthcare professionals. “In this way, we leader.”
space,” said Febbo. “We have advanced tech- are becoming an increasingly critical com- Any way you look at it, the company’s
nological infrastructure in place at the right ponent for improving outcomes and reduc- current and in-development solutions have
time in this industry sea-change, where we ing costs throughout the healthcare system,” tremendous mar-
are able to reconnect pharmaceutical manu- added Febbo. ket potential. This
facturers and physicians in a seamless, effi- potential is being
cient way, and generate high-ROI for our MARkET EXPANSION realized more and
pharma customers.” more every day as
For 2019, Febbo says the company will OptimizeRx plans to use a portion of the OptimizeRx expands
remain focused on revenue generation from proceeds from a recent $9 million raise to its client base and
core products and expanding its channel make additional sales and channel invest- channel reach, and President Miriam
and partner networks both domestically and ments for expanding further into its core integrates deep- Paramore
internationally. “We see doing this while ambulatory market where it continues to er within the ePrescription workflow and
maintaining strong gross margin as we demonstrate high ROI for pharma market- point-of-care. n
scale,” noted Febbo. ing spend. It also plans to further expand
For more, go to
into the hospital market, a new channel for
MULTI-BILLION DOLLAR OptimizeRx that also represents a significant CONTRIBUTING PHOTOGRAPHERS
OPPORTUNITY growth opportunity. Isabella Febbo and Tito Febbo
The company’s recent strategic acquisition
Of the 2 billion ePrescriptions transmitted of CareSpeak Communications allows it to
annually, 10% of these transactions involve complement and diversify its revenue streams
brands with a co-pay savings program. This while continuing to scale. Febbo added:
means OptimizeRx has the potential to “CareSpeak allows us to further bridge the
deliver more than 200 million transactions critical communication gaps between phar-
annually. ma, healthcare providers and patients.”
Given the escalating cost of healthcare
and especially the cost prescriptions being PLATFORM DEVELOPMENT
shifted increasingly to patients, the need
for co-pay saving programs is expected to OptimizeRx continues to invest in the under-
The company paid consideration to SNN or its affiliates for this article.
52 MicroCap Review Magazine
A Unique Perspective

Imagine corporate and securities lawyers who are as interested in your business as you are. Who
understand and value it and who are prepared to work with you to create it, grow it, protect it and
ultimately maximize your return on it. Who will help you to finance it, or bring it to the public
markets, or eventually sell it. Imagine lawyers with passion, creativity and, most importantly,
dedication. This is Lucosky Brookman.

• NYSE, NASDAQ and NYSE Amex Listings • General Corporate Matters & Governance
• Public Offerings • Term and Revolving Lending transactions
• Private Placements / PIPEs • Asset-based Lending transactions
• Equity Lines of Credit • Revolving Lines of Credit
• Recapitalizations (Reverse / Forward Splits) • Bridge Loans
• Rule 144 Matters • Registration Statements (S-1, S-3, S-8, Form 10)
• Mergers and Acquisitions • Commercial Litigation and Arbitration
• Joint Ventures • Regulatory Investigations (SEC / FINRA)
• SEC Compliance Matters


111 Broadway, Suite 807, New York, NY 10060 101 Wood Avenue South, 5th Floor, Woodbridge, NJ 08830
Tel: (212) 332-8160, Fax: (212) 332-8161 Tel: (732) 395-4400, Fax: (732) 395-4401 MicroCap Review Magazine 53 | www.
Now, More than Ever
O ver the past years we have seen a shift
in the biotech market. A truly deep
dive into the science was often not necessary
of success has attracted also those that play the
odds. With a 90% probability of losing, short-
ing an early biotech stock makes ‘good’ sense,
efits to patients all over the world. We have
a defined research approach to analyze novel
therapies, and to identify the lasting patient
to make an investment. Many decisions were with odds that are better than in Las Vegas. A benefits within them. We use a long-term
made based on general analytical work, and short seller lives off bad news, unclear signals, oriented investment approach with disci-
when combined with some good luck and the uncertainty, delays, missed outcome and disap- plined buying and selling rules that guide
overall appreciation in the field - due to the pointments. Our beloved biotech sector is a our portfolio allocation. Our analytical and
solutions created by a few companies - many perfect investment target for the new-age short disciplined approach has resulted in success-
investors were able to achieve great returns. seller. Good news of a successfully executed trial fully beating the NASDAQ Biotech Index as
If you did a thorough job, digging deep into travels fast and is promoted by the company, its of March 1 by 1.63x over the past three years.
the science, analyzing preclinical as well as investors, employees and can cast a wide net. Now, more than ever, a biotech investor has to
clinical data, did a check with physicians, However, the biotech short seller knows this recognize that the market is very dynamic and
understood the differences in the often times as well and will actively spread news that will often purports conflicting viewpoints. Now, more
strong competitive field, and really did your convince the community of the potential, or the than ever, a biotech investor has to be mindful
homework, the pay out was formidable. presumed reality, of failure and live off the dam- not to miss things that were subtly evident in
The world has since changed. Venture fund- aged share price. Long as well as short investors early clinical and preclinical data sets. Now, more
ing more than doubled over the past 10 years for will do their best to gain mind share, creating than ever, in order for a biotech investor to be
biotech companies, with more than $8 billion tremendous confusion in the market place. successful in the long run, he or she has to do
invested by VCs this past year (1). The number There is a lot of news-flow in biotech today, the extra work and go the extra mile to separate
of trials has also exploded, with over 300,000 with more Phase I, II and III studies being initiat- real solutions, providing benefits to patients, from
studies filed on in 2018 up ed than ever before, more money dedicated to an those that will stall somewhere in the long clinical
from about 130,000 just 5 years ago (2). There ever-increasing number of chemical compounds, development pathway. n
are currently over 6,000 clinical studies ongoing a plethora of incremental updates, and a healthy
The authors are portfolio managers of Point Sur
in oncology alone (3)(4) and R&D expenditures long as well as a very active short investment
Investors Fund I. Please find further information on
by big and small pharma currently exceeds $70 community. The general investment public has Point Sur Investors at or call
billion in the US (5). There is a massive focus gotten a bit fatigued by much of the news flow 650-600-8302. Since its inception in April of 2016, Point
Sur Investors has consistently beat the Nasdaq Biotech
on biotech research. Unfortunately, the dollars and often confused by the conflicting data dis- Index, cumulatively 1.63 fold as of 1 March 2018.
invested have not translated to patient benefits semination from the various market participants.
Note: This article is not an attempt to provide invest-
per se. In 2018, the FDA only approved 59 new An analyst must understand the innovative
ment advice. The content is purely the author’s per-
drugs and biologics (6) and an even more character of a molecule, dig in deep to under- sonal opinions and should not be considered advice
frightening trend is the overall drop in the clini- stand and properly value the scientific advances of any kind. Investors are advised to conduct their
own research or seek the advice of a registered invest-
cal success rate of new chemical compounds in and the real patient benefits, in order to properly ment professional.
development. Today, the probability is less than evaluate what new and innovative therapies are
10% that a Phase I asset makes it all the way to a promising. The modern analyst has to practice
governmental approval (7). patience and resist the increasing pressure for a-look-at-the-latest-trends-and-offer-their-
While many invest in the biotech sector performance. Scientific progress is rarely mono thoughts-on-2018/
because they are interested in fostering progress directional - it evolves, it lives, and it develops – esOfRegisteredStudies
and helping others, the known low likelihood the analyst can easily get swayed to sell too early 3. Thomas D and Wessel C. Emerging Therapeutic
Company Investment and Deal Trends, BIO
as the fundamentals still unfold. There is also a
Industry Analysis; 2018.
lot of messaging, with many copy-cat develop- 4. Lloyd I and Shimmings A. Pharma R&D Annual
ers and often weak market participants, to sort Reviews 2018.
through and discern. research-and-development-expenditure-us-
At Point Sur Investors, we have been suc- pharmaceutical-industry/
cessful because we are at heart with biotech
operators and scientists, with experience new-drug-approva
n BY RAMSES ERDTMANN AND in building and growing successful biotech 7. Clinical Development Success Rates 2006-2015,
THOMAS BUTLER OF BIO Industry Analysis-2016.
programs that today are providing great ben-

54 MicroCap Review Magazine


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

Figure 1: SRAX IR insights feature highlighting shareholder behavior including buyers, sellers, and share change over time.

RAX is a [digital marketing and] con- people in January of 2018 to 30 team mem-
sumer data management technology bers in January of 2019. Two illustrations of
company that builds valuable verticals the company’s expanded technology stack
around specific data sets. Since 2010, SRAX are the rapid advancement of consumer data
has actualized multiple revenue-generating management platform, BIGtoken, and the
products centered on identifying and engag- launch of new investor relations vertical,
ing brands’ core audiences. The company’s SRAX IR.
major driving growth is leveraging its verti-
cal model, proven successful with the sale TRACkING SHAREHOLDER
of healthcare vertical, SRAXmd, for total BUYING AND SELLING
consideration of $52.5 million in August BEHAVIOR
2018. Recently, the company’s efforts have
been focused on fueling growth by expand- As a publicly-traded company since 2012,
ing its sales infrastructure and technology SRAX recognizes the challenges companies
Chris Miglino, CEO stack. SRAX increased its sales force from six face in attracting new investors to their

56 MicroCap Review Magazine


BIGtoken, or BIG, a wholly owned subsid-

iary of SRAX, is the first consumer-managed
data marketplace where people can get paid
for their data. Now available for all to down-
load on the App Store and Google Play, BIG
enables consumers to manage their digital
data and earn rewards for opting to share
that data in the marketplace.
For consumers, BIG gives them control
over what pieces of their data are for sale
and who can buy them—all while rewarding
them with cash, gift cards, charitable dona-
tions, or assets. For advertisers, BIG solves
the inefficiencies and inaccuracies that affect
how they acquire and target consumer data.
A recent study shows that while 95% of mar-
Figure 2. Source: Roland Berger Focus. Regenerative Medicine, 2017. Orgenesis keters use personal data to form their strat-
Investor Presentation.
egy, 64% don’t fully understand where that
data comes from. BIG provides advertisers
with accurate, consumer-verified and opted-
stories and holding onto existing ones. In target investors with mobile ads at specific in data for targeting and enhanced campaign
January 2019, SRAX IR joined the roster locations such as investment conferences, performance. In addition, BIG supports
of SRAX’s verticals including SRAX Auto, trade desks, and at home on both desktop third-party application integrations to help
SRAX Shopper, and SRAX Social. SRAX IR and mobile. SRAX IR is just one example marketers learn more about their consumers
is a software as a service (SaaS) platform that of SRAX’s strength in addressing vertical- and earn revenue through data sales.
analyzes stock buyer behavior and trends for specific challenges with unique technology. In February, SRAX integrated major bank-
issuers of publicly traded companies. With Learn more at ing and financial institutions such as TD
SRAX IR, executives can understand their Ameritrade, Chase, Citibank, and Bank
shareholder base behavior including who of America into the BIGtoken app. BIG’s
is buying and selling stock, and can engage
with those investors across marketing chan-
The platform currently consists of three
key offerings. The first enables users to
identify key shareholders and market mak-
ers to discover trends in their buying and
selling behavior. The second enables man-
agement teams using multiple advisors to
attribute acquired shareholder credit to spe-
cific banks, analysts, and investor relations
firms to track return on investment. Lastly,
SRAX IR offers precise audience building,
targeting, and delivery across marketing
channels, including but not limited to pro-
grammatic display, social, and hyperlocal.
Figure 3: BIGtoken’s user growth and revenue potential (January 2020 –January 2022)
Hyperlocal campaigns enable companies to MicroCap Review Magazine 57

timeframe to purchase. Only SRAX Shopper
SRAX Auto effectively surfaces the full range of can deliver a cross channel, premium digital
experience at scale targeted to high value
accurate, actionable data on your target customer audiences and optimized to performance
and engages them across the customer journey. whether targeting by demographics, behav-
ioral or lifestyle, category and brand past,
Fueled by data-driven technology, SRAX Auto purchase data, or geographic location.

delivers digital ads to a matched list of people ENGAGING AUTO INTENDERS

leasing and/or looking to buy. ON THE PATH TO PURCHASE

SRAX Auto effectively surfaces the full range

of accurate, actionable data on your tar-
machine learning technology analyzes a marketing tool that makes it easy for busi- get customer and engages them across the
user’s transaction log to identify patterns in nesses and individuals to manage, grow, and customer journey. Fueled by data-driven
spending and places that user into the appro- measure engagement across multiple social technology, SRAX Auto delivers digital ads
priate advertising segments. For example, media networks. The platform’s most nota- to a matched list of people leasing and/or
if a user’s log shows multiple transactions ble feature, Auto Boost, enables marketers looking to buy. Additionally, advertisers can
from Walmart, the user would be placed to automatically trigger social media cam- reach test drivers after leaving a location
into the following segments: Walmart shop- paigns beyond their Facebook Page com- or visitors to a competitor’s location. The
per, Superstore shopper, Value shopper. munities. Users can set up rules that trigger company’s proprietary technology also uses
A user’s personal account information a new social media campaign based on cookie-less real-time fingerprinting from
is never accessible to BIGtoken. Users are specific parameters such as number of reac- users’ browsing behavior and social media
rewarded in BIGtoken points for the initial tions, likes, or comments. Creating multiple engagement to develop high value audiences
bank integration, on a monthly basis if the rules enables users to A/B test different audi- that can be targeted across SRAX.
bank account remains integrated, and each ences and rules to maximize performance SRAX is dedicated to creating positive
time an advertiser buys access to their and guide future campaigns. This data can and repeatable outcomes, which is why in
segments based on transaction data. All be analyzed through the platform’s powerful addition to being named a Deloitte Fast 500
in all, the BIGtoken platform is looking analytics component, eliminating the need winner two years in a row, the company is
promising for user growth and revenue to export data from multiple platforms. The also part of the Russell Microcap® Index,
potential. As reported on November 15, platform also comes free with an intelligent which remains in place for one year and
2018, by January 2020, the platform is budget that allows users to load funds and means automatic inclusion in the appropri-
expected to serve one million users, gener- easily allocate spending to multiple cam- ate growth and value style indexes. n
ating $3.5 million in monthly revenue ($90 paigns. Learn more at
million annualized). By January 2022, the For more information, please visit:
intended user base is estimated to hit 10 STRATEGICALLY TARGETING
million, which would generate $30 mil- SHOPPERS’ BUYING BEHAVIOR
lion in monthly revenue ($400+ million
annualized revenue). The best part of BIG SRAX’s shopper marketing solution, SRAX
is that SRAX can leverage this consumer- Shopper, enables marketers to engage shop-
verified and opted-in data across our other pers, drive foot traffic into stores and boost
verticals like SRAX Social, SRAX Auto, sales lift. Businesses can use SRAX Shopper
and SRAX Shopper. Learn more at bigto- to layer both social and shopping data with media buying. This approach enables mar-
keters to target a single, verified shopper
AUTOMATING SOCIAL MEDIA across multiple devices and inventory sourc-
CONTENT AND PROMOTIONS es. Marketers will no longer have few oppor-
tunities for meaningful interactions with
SRAX Social is a free artificial intelligence their target shoppers within a very limited
The company paid consideration to SNN or its affiliates for this article.
58 MicroCap Review Magazine

Imugene Limited
Emerging Leader in Cancer Immuno-Oncology

mugene Limited (ASX:IMU) is a clinical
stage cancer immuno-oncology compa-
ny based in Sydney, Australia. Immuno-
oncology is an innovative area of research
that seeks to help the body’s own immune
system fight cancer. Immuno-oncology
treatments are at the forefront of cancer
innovation with the leading drugs generat-
ing over USD $ 23 billion in 2018. Imugene’s Imugene currently has 2 therapies (HER- delivered by members of the company’s
cancer immunotherapies (B-cell peptide Vaxx and B-Vaxx) in Phase 2 studies with a Scientific Advisory Board which consists
vaccines) harness the body’s immune sys- pipeline of other therapies and combinations of world leading oncologists, research-
tem to generate antibodies against tumors, undergoing earlier stage development and ers and developers from esteemed centers
potentially achieving similar or greater effect the company anticipates a number of key including the Mayo Clinic (USA), Medical
than synthetically manufactured monoclo- clinical and preclinical catalysts in 2019. University of Vienna (Austria), Memorial
nal antibody therapies. Following promis- HER-Vaxx activates and stimulates the Sloan Kettering Cancer Centre (USA), City
ing Phase 1 clinical trial results across lead patient’s B-cells to produce antibodies that of Hope (USA), Queen Mary University
candidate B-cell vaccines, the company is target only those cancer cells with HER-2 (London), Ohio State University (USA)
recruiting patients for Phase 2 trials with all (Human Epidermal Growth Factor Receptor) and Vall D’Hebron (Spain). The company’s
clinical research programs fully funded from overexpressed on their surface. Imugene’s Managing Director and CEO, Leslie Chong
the company’s existing cash resources. products have the potential to improve has had over 20 years’ experience in oncol-
upon well-known HER-2 treatments such as ogy and was the former Senior Clinical
Herceptin ($7.1 bn in 2018 sales) and Perjeta Program Lead at Genentech, one of the
($2.8 bn in 2018 sales). world’s most successful biotech businesses
Similar to HER-Vaxx, B-Vaxx is a B-cell which sells the bestselling breast cancer drug
peptide cancer vaccine designed to treat Herceptin.
tumors that overexpress the HER-2 receptor, With a strong cash balance sheet (cash of
such as gastric and breast cancers. USD $ 17 million as at December, 2018) and
KEY-Vaxx is a B-cell peptide cancer vac- fully funded Phase 2 clinical trials underway
cine designed to treat tumors such as lung for key indications, Imugene is very well
cancer by interfering with the PD-1/PD-L1 positioned to build upon its past success
binding and interaction and produce an anti- and deliver highly anticipated further results
cancer effect similar to Keytruda ($ 7.2 bn in moving forward. n
2018 sales), Opdivo ($6.7 bn in 2018 sales)
and other immune checkpoint inhibitor
monoclonal antibodies that are transforming
treatment of a range of cancers.
Imugene recently presented a number
of its clinical programs at the American
Association for Cancer Research (AARC)
Leslie Chong, CEO & Managing
Annual Meeting. These presentations were
The company paid consideration to SNN or its affiliates for this article. MicroCap Review Magazine 59


Public Venture Capital in Canada

A unique opportunity for US companies and investors

oronto Stock Exchange (TSX) and two-tiered marketplace - unlike any in the ering the size of the Canadian population.
TSX Venture Exchange (TSXV) are a world - serving companies from early stage Approximately 40% of TSX/V daily trading
unique funding and listing platform pre-revenue companies on TSXV to multi- originates from outside of Canada (a major-
for high growth US companies looking to billion dollar established businesses on TSX. ity of that coming from US sources), provid-
raise Series B+ capital. Companies with early • TSX is the senior market for larger, more ing access to international investors.
revenue, a strong management team, and a stable companies with a track record. As an alternative to private venture capital, a
growth strategy to eventually list on a US The average financings on TSX fall in the TSXV listing can provide the benefit of raising
exchange should consider the Canadian capital $25-$100M range and have an average small, subsequent rounds of capital. Financings
markets as an alternative that may be the right market cap of $2.0B. These companies on TSXV in 2018 were up 11% for a total of
fit. For US investors, TSX and TSXV provide benefit from increased analyst coverage $6.8B raised by TSXV companies, with an
an opportunity to access investment opportu- and being eligible for our index products. average financing of $4M. These are small pub-
nities not necessarily available in the US. • For smaller, early-stage growth compa- lic companies raising “public venture capital”,
nies, TSXV is a unique platform that is as companies are accessing rounds of capital
FINANCING OPPORTUNITY FOR tailored to companies of this size. TSXV similar to the typical VC route of Series A, B,
US COMPANIES provides financings typically in the and C rounds. TSX companies raised $34B
$5-$25M range and TSXV issuers have with an average financing of $64.8M… still
Every entrepreneur and management team an average market cap of about $30M. considered venture capital in US terms.
should consider all of their funding options. For currently listed OTC companies, the
With the introduction of equity crowdfund- opportunity is to dual list on TSXV to access 2. Tailored to Small Public Companies
ing and Initial Coin Offerings (ICOs), there new pools of capital, gaining exposure to With a 165-year history of financing explora-
are now more financing options than ever, new research analysts and investors. tion companies, the Canadian public markets
including the public markets. have evolved to support small cap public com-
However, in the US going public typical- WHY CONSIDER A LISTING OR panies. From the securities commissions, the
ly means being quoted on the unregulated DUAL-LISTING ON TSX OR TSXV? exchanges, and analysts to the retail and insti-
over-the-counter markets on one end of the tutional investors… everyone in the Canadian
spectrum, or completing a large initial public 1. A Source of Growth Capital ecosystem understands and embraces small
offering (IPO) on one of the country’s main Last year, TSX and TSXV issuers raised over public companies. This is not the case in the
exchanges on the other end. The average IPO $40B, a significant amount of capital consid- US. TSXV companies benefit from right-sized
in the US is currently around $250M… result-
ing in the US regulated exchanges being more
of an exit market than a growth capital market.
The Canadian capital markets are unique
in that TMX Group owns and operates a


60 MicroCap Review Magazine

corporate governance and reduced time and
costs to listing. Listing vehicles like the Capital Company Sector Ticker Market 2018 Share Location
Cap Trading Price
Pool Company (CPC) program allow growth Change Volume Change
companies to access the public markets with-
Aleafia Health Inc. Cleantech ALEF 762% 300,836,368 107% BC
out the high costs and risk of a large IPO. & Life

theScore, Inc. Diversified SCR 112% 79,532,269 88% ON

3. No Longer Just a Resource Exchange Industries
While TSX has historically been known as
Alvopetro Energy Ltd. Energy ALV 169% 14,919,645 137% AB
a natural resource market - given our 165
Westhaven Ventures Inc. Mining WHN 1386% 65,908,876 980% BC
years financing mining and energy compa-
Kraken Robotics Inc. Technology PNG 218% 51,569,562 111% BC
nies - today our stock list is quite diverse. In
fact, our mining issuers currently account Several US companies also made the 2019 TSX Venture 50 ranking:
for just 10% of the market cap of all issuers,
Company Sector Ticker Market 2018 Share Location
with other sectors surpassing them. Cap Trading Price
Change Volume Change
For the past five years, the number one
source of new listings has been tech and life Hamilton Thorne Ltd. Cleantech HTL 33% 30,123,350 20% MA
& Life
sciences companies (including cannabis). Sciences

2018 was a record year for the innovation XPEL Technologies Diversified DAP.U 343% 6,748,522 343% TX
Corp. Industries
sector with 59 new listings (#1 sector for new
listings) and $14.7B in capital raised (#1 sec- Evergreen Gaming Diversified TNA 53% 10,936,163 53% WA
Corporation Industries
tor for equity capital raised).
POET Technologies Technology PTK 39% 148,041,191 26% CT
4. A Platform for Long Term Growth Trackx Holdings Inc. Technology TKX 21% 41,685,711 21% CO
The key benefit of this two-tiered market is
Universal mCloud Corp. Technology MCLD 78% 25,890,725 -17% CA
the potential for early stage growth companies
to list on TSXV, raise several rounds of capital, markets to the high-performing companies on the not be relied upon for such advice. The information
provided is not an invitation to purchase securities
and when ready, graduate to TSX. In the past venture board, TSX and TSXV provide unique listed on Toronto Stock Exchange and/or TSX Venture
20 years, over 650 companies graduated from investment opportunities for US investors. Exchange. TMX Group and its affiliated companies do
the junior board to the senior board, and almost This is most evidenced by the 2019 TSX not endorse or recommend any securities referenced in
this document/presentation.
40% of current TSX-listed technology compa- Venture 50®, a ranking of top performers
nies started on TSXV. on TSXV over the last year. The rank- A Computer Engineer by background, Brady spent
almost a decade in investment banking, primarily
TSX is also a true stepping stone to the US ing is comprised of 10 companies from focused on financing and advising technology and
markets. Once a TSX issuer is large enough and each of five industry sectors, selected diversified issuers through strategic transactions,
relevant enough, it can look to interlist on a US based on three equally weighted criteria: before leaving to found Coastr.
With Coastr, Brady successfully took a concept
stock exchange. If your end goal is to be listed Market Capitalization Growth, Share Price through ideation, building a development team,
on Nasdaq or NYSE, TSXV and TSX are a viable Appreciation, and Trading Volume Amount. and launching the platform. We successfully sold a
network of almost 30 venues locally while using cus-
path to get there. Currently there are 183 com- For the full 2019 TSX Venture 50 list and tomer feedback to drive iterative revisions to the app
panies dual listed on TSX/V and a US exchange. videos of the companies, go to: www.tsx. and back-end platform.
For the growth company that is looking to com/venture50 Throughout his investment banking career, Brady
has advised hundreds of companies on business strat-
build a long-term sustainable business that For more information, contact Delilah egy, capital raising, public and private markets, and
requires ongoing access to capital, TSX and TSXV Panio, VP Capital Formation, Toronto Stock exit strategies – having successfully executed over
$500million in growth equity financings, secondary
are important financing options to consider. Visit Exchange and TSX Venture Exchange at transactions, and sell-side advisory mandates.
the US landing page for more information and to n Brady joined TMX Group recently and is
access the Guide to Listing: Managing Director of TSX Venture, the world’s lead-
Note: All numbers are quoted in Canadian dollars. ing public venture capital marketplace.
INVESTMENT OPPORTUNITIES The views, opinions, and advice provided in this article
reflect those of the individual author and do not reflect Note: This article is not an attempt to provide investment
FOR US INVESTORS advice. The content is purely the author’s personal opin-
the opinions or views of, nor are they endorsed by,
TMX Group Limited or its affiliated companies. This ions and should not be considered advice of any kind.
From the cannabis stocks not available on US article is not intended to provide legal, accounting, Investors are advised to conduct their own research or
tax, investment, financial or other advice and should seek the advice of a registered investment professional. MicroCap Review Magazine 61


Taking Stock
Latest in US FinTech Legislation and Regulation

e are at the beginning stages of encourage responsible fintech innovation and abuse of FinTech. Congressman Juan Vargas
legislators working to under- promote diversity and inclusion. The expect- (D-CA) sponsored H.R. 502, the “Fight Illicit
stand and influence potential ed creation of a new House Task Force on Networks and Detect Trafficking Act or the
FinTech regulation and legislation – with Financial Technology will aid her endeavors. FIND Trafficking Act” which directs the
many players operating at the federal and Congressman Bill Foster (D-IL), who also co- Government Accountability Office (GAO)
state level. The ultimate goal of reducing the chairs the Blockchain Caucus, has expressed to report on the use of virtual currencies
complexity of regulation to encourage inno- interest in leading the newly formed task force and online marketplaces in sex and drug
vation will require a delicate balance among to tackle issues such as marketplace lending, trafficking. Another similar bill, H.R. 56 the
competing priorities. cryptocurrencies, and artificial intelligence. “Financial Technology Protection Act” was
On the Senate side, Senator Chuck Grassley introduced by Congressmen Ted Budd and
CONGRESS (R-IA) took over the Chairmanship of the Stephen Lynch (D-MA) intended to deter
Senate Finance Committee, and therefore abuse of FinTech by bad actors.
Following the November midterms, Senator Mike Crapo (R-ID) remains Chair
Democrats retook control of the House of the Banking Committee, with and Senator STATE LEVEL ACTION
while Republicans expanded their majority Sherrod Brown (D-OH) serving as Ranking
in the Senate. The resultant shift in power Member. The loss of red state Democrats Joe There have also been some interesting legis-
dynamics and personalities will influence Donnelly (IN) and Heidi Heitkamp (ND) on lative drives at the individual state level, with
the direction of legislation and action at the the Senate Banking Committee may decrease a patchwork of regulation evolving. Some
agencies. As the Democrats have gained the the likelihood of bipartisan compromise on states are seeking to encourage innovation,
chairmanship of the House committees and financial services bills. such as Wyoming which recently passed a
therefore the ability to issue subpoenas and bill, HB 185, which would authorize corpo-
call hearings, we can expect an uptick in CONGRESSIONAL INITIATIVES rations to issue certificate tokens in lieu of
investigations and targeted hearings. stock certificates. The Wyoming Senate also
In the 116th Congress, the House There have been a number of bipartisan bill recently passed SF0125, the “Digital Assets
Financial Services Committee is chaired by proposals in the House aimed at promoting Existing Law” making Wyoming the first
Congresswoman Maxine Waters (D-CA), with innovation, clarifying regulation or combat- state to enact a law promoting the private
Congressman Patrick McHenry (R-NC) serv- ing anti-money laundering in FinTech and ownership of digital assets, giving crypto-
ing as Ranking Member. Rep. Waters is known digital currencies. currencies a legal status. Following Arizona’s
as a bipartisan deal maker who has vowed to Congressmen Darren Soto (D-FL) and Ted Fintech Regulatory Sandbox1, The District
Budd (R-NC) have sponsored two bills, H.R. of Columbia recently launched its own
922 - Virtual Currency Consumer Protection 21 member Financial Services Regulatory
Act; and H.R. 923 - Virtual Currency Market Sandbox to analyze the risks and benefits to
and Regulatory Competitiveness Act, with residents of FinTech companies. Colorado’s
the aim to “direct the CFTC and other finan- Senate recently unanimously passed SB19-
cial regulators to make critical recommenda- 023, the “Colorado Digital Token Act,” which
tions for how to improve the regulatory envi- exempts digital tokens that are sold to con-
ronment for both the consumer and business sumers rather than investors from being
development side” of virtual currencies. deemed securities. The idea behind this law
n BY DINA ELLIS ROCHKIND, Esq. Increasingly, Congress is becoming more is to address the issues involved in ICOs
sophisticated about the potential malevolent 1

62 MicroCap Review Magazine

often accused of being vehicles for fraud, and of the markets where digital currencies trade.” Dina Ellis Rochkind is Of Counsel in the Paul
Hastings Government Affairs practice and is based
enabling entrepreneurs to raise capital. SEC Commissioner Peirce voiced different in the firm’s Washington, D.C. office. Her practice
concerns over cryptocurrencies, noting that focuses on representing clients before Members of
AGENCY ACTIONS “While the application of the Howey test seems Congress on Capitol Hill and the Executive Branch.
Ms. Rochkind represents clients in matters involving
generally to make sense in this space, we need regulatory initiatives, policymaking and legislation,
The longest partial government shutdown to tread carefully,” as ICOs don’t map squarely and enforcement actions. Ms. Rochkind’s legislative
experience allows her to advise her clients on the lat-
in US history constrained the activity of on the existing traditional security offering est client initiatives, from starting a business to crowd-
the regulatory agencies over the new year, legal framework. The SEC has also had two sourcing; bitcoin ($bitcoin) and ICOs; and block-
limiting oversight of the cryptocurrency ICO registration enforcement actions that set- chain technologies. Ms. Rochkind has over 20 years
of experience on Capitol Hill, lobbying, and working
market, registration applications and rules. tled in November 2018; its first cases imposing for the Executive Branch. Prior to joining Paul
However, as industry and congress become civil penalties solely for ICO securities offering Hastings, she served as Washington Director in the
office of Rep. Mike Coffman (R-CO). Other Capitol
more fluent in the potential of FinTech, the registration violations. In early February 2019, Hill experience includes serving as senior staff for
US agencies are trying to avoid stifling inno- the SEC has announced that it wants to hire a various Congressional Committees and for Senator
vation through unnecessary regulation. To private vendor to gather data from the “most Pat Toomey (R-PA). Ms. Rochkind also served in the
George W. Bush Administration as Deputy Assistant
that end, multiple banking regulators have widely used blockchain ledgers” to help it over- Secretary at the Treasury Department. She has been
set up tech focused task forces, which have see digital assets. involved in drafting major pieces of legislation over
the last two decades, including: the 2005 bankruptcy
each been up to different things: The agencies’ actions are not without their reform legislation, the FACT Act, E-Sign, Check 21,
1. FDIC in October 2018 launched criticisms however, 22 democratic Attorney Federal Deposit Insurance Reform Act, Gramm-
its Office of Innovation, with the goal of Generals wrote a comment letter to the Leach-Bliley Act, and, most recently, the comprehen-
sive and bipartisan JOBS Act, for which she was the
encouraging innovation in the FinTech space CFPB criticizing its sandbox proposal and lead staffer in the Senate.
for banks. FDIC Chair, Jelena McWilliams, policies on innovation. Cryptocurrency fund
T 1(202) 551-1938
has been vocal on the negative effects of Blockvest LLC argued that evidence submit- F 1(202) 551-0438
regulation on FinTech innovation. ted by the SEC in its enforcement case was
2. CFPB in July 2018 under former act- based upon hearsay and “self-serving out-of-
Lara Kaplan is a foreign qualified professional in
ing director Mick Mulvaney established an court statements” that are “masquerade[ing] the Corporate department of Paul Hastings and is
Office of Innovation, which in September as foundational evidence” and therefore based in the firm’s Washington DC office. Her prac-
tice focuses on financial services regulation, FinTech
proposed the creation of a “disclosure sand- should not be considered in the agency’s and payment systems. She has worked as a lawyer
box” which  will “focus on creating poli- effort to block their initial coin offering. for the UK Financial Conduct Authority in London
cies to facilitate innovation, engaging with and prior to that, she spent two years in the London
and Brussels offices of an international law firm. She
entrepreneurs and regulators, and reviewing AN EYEGLASS TO THE FUTURE: completed the Accelerated Legal Practice Diploma
outdated or unnecessary regulations”. with Distinction at the University of Law, gained an
MPhil in History from Cambridge University and
3. CFTC established the LabCFTC which It may be a while until we see results at the received a first class Law with Politics degree from
“is the focal point for the CFTC’s efforts to federal level, due to the lengthy legislative the University of Manchester. Ms Kaplan is an inter-
promote responsible FinTech innovation and process with bills in initial stages. However, national Attorney admitted in England and Wales
only. She is not engaged in the practice of law of the
fair competition” and held its first Fintech with state legislature and agencies growing District of Columbia.
conference in October. CFTC’s LabCFTC their guidance and surveillance of crypto
At Paul Hastings, our purpose is clear — to help
released a primer about smart contracts assets and FinTech firms, we can expect our clients and people navigate new paths to growth.
as part of its effort to engage with innova- continued growth with increased coopera- With a strong presence throughout Asia, Europe,
tors and market participants on a range of tion amongst the states. This could pressur- Latin America, and the U.S., Paul Hastings is recog-
nized as one of the world’s most innovative global
FinTech topics. ize Congress to take more concrete action. law firms.
4. SEC launched a strategic hub for inno- There is a lot of global action in the FinTech
vation and financial technology in October Sphere, with the Global Financial Innovation Note: This article is not an attempt to provide invest-
2018 and issued a statement on digital assets, Network, the European banking Authority ment advice. The content is purely the author’s per-
noting how technological advances of block- publishing its assessment of crypto-assets sonal opinions and should not be considered advice
of any kind. Investors are advised to conduct their
chain and distributed ledger technologies have and the UK Financial Conduct Authority own research or seek the advice of a registered invest-
impacted the markets. SEC Chair Jay Clayton consulting on its approach to crypto-assets ment professional.
has discussed concerns over cryptocurrencies and when they would be considered a secu-
being manipulated and stolen on exchanges rity. This will also influence the pace of
by noting that “safeguards don’t exist in many American development in FinTech. n MicroCap Review Magazine 63


Understanding Short Sale Activity

Q uality data is essential to well-function- OTC Markets Group (OTCQX: OTCM) SHORT INTEREST Data
ing markets. Improving the availabil-
ity, relevance and usefulness of data aligns with INTEREST CHANGE DAILY TO ISSUE
OTC Market Group’s mission to create better VOL
informed, more efficient financial markets.  In
09/28/2018 97 11.49 5,551 1 No No
our experience, short selling remains one of the
09/14/2018 87 8.75 4,423 1 No No
most highly-debated topics among academics,
companies, investors, market makers and broker- 08/31/2018 80 100.00 6,818 1 No No

dealers. As a market operator and company CEO, 07/31/2018 103 -48.24 3,197 1 No No

I believe it’s critical to address the misconceptions 07/13/2018 199 -27.64 2,124 1 No No
that still exist around short sale data and the cor- 06/29/2018 275 166.99 3,239 1 No No
relation to a stock’s fundamental value.  
06/15/2018 103 24.10 2,739 1 No No
  Short selling, the sale of a security that
05/31/2018 83 -72.33 3,925 1 No No
the seller does not own, has long been a
05/15/2018 300 1.69 3,944 1 No No
controversial practice in public markets. 
Advocates for short selling believe it builds 04/30/2018 295 100.00 4,278 1 No No

price efficiency, enhances liquidity and helps

improve the public markets, while critics are on the company quote pages. ed data is the Daily Short Volume, sometimes
concerned that it can facilitate illegal market As an example, OTC Markets Group has a referred to as Naked Short Interest. This
manipulation and is detrimental to investors few hundred shares sold short on average, data shows the percentage of published trade
and public companies.  Given the diverse which represents a fraction of our daily trad- reports3 (called media transactions in FINRA
range of opinions and opposing views, we ing volume and shares outstanding. Rules) that were marked short. As an exam-
believe the first step is to take a deeper dive FINRA Rule 45601 requires FINRA member ple, the recent data for OTC Markets Group
into the data and help separate out the noise. firms to report their total short positions in shows that up to 90% of the trading volume
all over-the-counter (“OTC”) equity securities comes from short selling on some days. If
“THE RELIABLE” - FINRA that are reflected as short as of the settlement we did not carefully track our bi-weekly Short
EqUITY SHORT INTEREST DATA date. In 2012 FINRA clarified that firms must Interest, we could easily be led to believe that
report short positions in each individual firm short selling is rampant in our stock.
The most accurate measure of short selling or customer account on a gross basis2 under Seeing the above data can be alarming for
is the data reported by all broker-dealers to FINRA Rule 4560. Therefore, firms that main- public companies and their investors, until
FINRA on a bi-weekly basis. These num- tain positions in master/sub-accounts or par- they understand the inner workings of how
bers reflect the total number of shares in the ent/child accounts must calculate and report dealer markets function and broker trades
security sold short, i.e. the sum of all firm and short interest based on the short position in are reported—which render the data virtu-
customer accounts that have short positions. each sub- or child account. ally meaningless.
This information is available on www.otc- Since this data is part of a clearing firm’s Since this data also comes from FINRA,
books and records, it is of high quality what gives? The daily short selling volume
and FINRA regularly inspects broker-dealer is misleading because market makers and
compliance with the rule. Of course, it principal trading firms report a large num-
would be great if this data was collected and ber of trades as short sales in positions that
published daily (with an appropriate delay). they quickly cover. For market makers with a
customer order to sell, they will temporarily
“THE MISLEADING” – DAILY sell short (which gets published to the tape
SHORT VOLUME as a media transaction for public dissemina-
tion) and then immediately buy from their
In contrast, the most frequently misinterpret- customer in a non-media transaction that

64 MicroCap Review Magazine

Historical Short Volume Data for OTC Markets Group (OTCX: OTCM)
want good public data sources that bring greater
Date Volume Short Volume % of Vol Shorted
Oct 18 3,341 1,399 41.87
transparency to legal short selling activity as well
Oct 17 5,989 3,198 53.40 as shine a light on manipulative activities. All
Oct 16 16,120 7,509 46.58 while not restricting bona fide market makers
Oct 15 24,155 12,991 53.78 from providing short-term trading liquidity that
Oct 12 6,297 4,914 78.04
reduces volatility. n
Oct 11 4,059 1,553 38.26
Oct 10 2,185 999 45.72
Oct 09 7,473 4,556 60.97
1. 4560. Short-Interest Reporting
Oct 05 880 525 59.66
Oct 04 492 200 40.65 (a) Each member shall maintain a record of total
Oct 03 2,041 801 39.25 “short” positions in all customer and proprietary
firm accounts in all equity securities (other than
Oct 02 4,786 1,560 32.60
Restricted Equity Securities as defined in Rule
Oct 01 3,973 2,607 65.62 6420) and shall regularly report such information
Sep 28 244 23 9.43 to FINRA in such a manner as may be prescribed
by FINRA. Reports shall be received by FINRA
Sep 27 882 805 91.27 no later than the second business day after the
Sep 26 259 189 72.97 reporting settlement date designated by FINRA.
Sep 25 3,085 2,250 72.93
(b) Members shall record and report all gross short
Sep 24 967 571 59.05
positions existing in each individual firm or
Sep 21 2,350 825 35.11 customer account, including the account of a
Sep 20 7,164 6,453 90.08 broker-dealer, that resulted from (1) a «short
sale,» as that term is defined in Rule 200(a) of SEC
Sep 19 297 202 68.01
Regulation SHO, or (2) where the transaction(s)
that caused the short position was marked “long,”
is not publicly disseminated to avoid double tributes to efficient price formation, enhances consistent with SEC Regulation SHO, due to the
firm’s or the customer’s net long position at the time
counting share volumes. SEC guidance also liquidity and facilitates risk management. of the transaction. Members shall report only those
short positions resulting from short sales that have
mandates that almost all principal trading Experience shows that short sellers provide settled or reached settlement date by the close of the
firms that provide liquidity at multiple price benefits to the overall market and investors reporting settlement date designated by FINRA.
levels, or arbitrage international securities, in other important ways which include iden-
must mark orders they enter as short, even tifying and ferreting out instances of fraud html?rbid=2403&element_id=6288

though those firms might also have strate- and other misconduct taking place at public 2.
gies that tend to flatten by end of day. Since companies. That said, we agree with the New
3. “certain matching principal trades involving
the trade reporting process for market mak- York Stock Exchange and National Investor a Market Maker are now explicitly included
ers and principal trades makes the Daily Relations Institute that there is a serious gap within the riskless definition, and reported to the
public tape only once.” Notice of change to the
Short Volume easily misleading, we do not in the regulation of short sellers related to NASD’s trade reporting rules designed to reduce
fees charged under Section 31 of the Securities
display it on their disclosure obligations4. We under- Exchange Act and to limit the double-counting
Making daily short reporting data easily- stand that well-functioning markets rely on of volume for trades executed in the over-the-
counter market.
digestible and relevant is not hard. On the powerful players who cannot be allowed to default/files/NoticeDocument/p004191.pdf
contrary, it should be easy to aggregate all of hide in the shadows. Since we require large
4.NYSE Group. Inc., along with the National Investor
the short selling that is reported as agency investors, who accumulate long positions, to Relations Institute (“NIRI”), hereby respectfully
trades, as well as all of the net sum of buy- publicly disclose their holdings, why aren’t submits this petition for rulemaking to the
U.S. Securities and Exchange Commission (the
ing and selling by each market maker and there disclosure obligations for large short “Commission”) pursuant to Rule 192(a) of the
Commission’s Rules of Practice, requesting that the
principal trading firm. This would paint a sellers? This asymmetry deprives companies Commission promulgate rulemaking pursuant to
clear picture for investors of overall daily of insights into their trading activity and Sections 10 and 13(f) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), which
short selling activity. Fixing the misleading limits their ability to engage with investors. were amended by the Dodd-Frank Wall Street
daily short selling data would bring greater It also harms market functions and blocks Reform and Consumer Protection Act of 2010
(the “Dodd-Frank Act”), in order to require the
transparency and trust to the market. investors from making meaningful invest- periodic public disclosure of short-sale activities by
institutional investment managers. https://www.sec.
ment decisions.
“THE MISSING PIECE”– SHORT One point is clear, we all need to continue to
POSITION REPORTING BY work collaboratively with regulators to improve Note: This article is not an attempt to provide invest-
ment advice. The content is purely the author’s per-
LARGE INVESTORS transparency, modernize regulations and pro- sonal opinions and should not be considered advice
vide investors with straightforward, understand- of any kind. Investors are advised to conduct their
own research or seek the advice of a registered invest-
There is ample evidence that short selling con- able information about short selling activity. We
ment professional. MicroCap Review Magazine 65


Reading the Proxy Statement

to Evaluate Management
O ne of the main focuses in my microcap investment strategy
is to find high quality companies. However, a high qual-
ity company needs a high quality management team and board
members as well. Thoroughly reviewing the Proxy Statement From the company’s perspective, the
also known as the DEF 14A, as referred to Proxy is meant to disclose compensation
by the SEC, gives valuable information that guidelines and governance policies, show-
investors can use in their evaluation of the case board members and their committee
management of any company. roles, explain what is being voted on at the
I believe that there are only a small minor- annual meeting, and present materials that
ity of investors who read the Proxy Statement shareholders can use to understand what
thoroughly. Even those that do, likely only they are voting on.
glance at the management compensation However as an investor and shareholder,
section and ignore the rest. The Proxy the Proxy Statement is helpful to understand
Statement is meant to provide shareholders the motivations and incentives of the people
with valuable information that allows them managing the company to make sure that
to be informed as shareholders of the com- they are aligned with shareholders. Warren
pany when voting their shares. Buffett stated on CNBC: “You want to figure


66 MicroCap Review Magazine

out ... how well that they treat their owners,” Per Share (EPS) is a metric that management however, in the MicroCap space where com-
he said. “Read the proxy statements, see what is evaluated against for their annual bonuses, panies are not as much in the spotlight and
they think of —see how they treat them- they may push for a stock buyback to lower are more likely to suffer with poor manage-
selves versus how they treat the shareholders the share count and boost EPS for their ment and corporate governance, the Proxy
… The poor managers also turn out to be the own benefit even though buying back the Statement can be an indispensable resource
ones that really don’t think that much about shares is not the best use of capital. I prefer in helping investors to sniff out the good, the
the shareholders, too.” companies that set targets and evaluate man- bad, and the downright ugly. n
So what are some of the key things that I agement on multi-year return on invested
Sam Namiri is a Portfolio Manager and Analyst at
look for? First I evaluate the board members capital and free cash flow metrics instead of
Ridgewood Investments, where he concentrates on
and their backgrounds and prior experience. metrics that can be more easily manipulated managing the Ridgewood Select Value Fund, our
In addition to reading the Proxy to learn such as EPS and adjusted EBITDA. fund focused on investing in small and micro-cap
companies. Ridgewood focuses on implementing
about their biographies and backgrounds, I Equity compensation is another metric intelligent value-oriented investing strategies (mod-
run a simple web search and also look on that I look at closely. I want to make sure eled after investors like Warren Buffett, Ben Graham,
and Phil Fisher). Prior to Ridgewood, Mr. Namiri
social media to learn more about them. If I that the company isn’t just giving out shares
was an analyst at a small cap hedge fund and the
have any mutual connections, I talk to them annually just for showing up, but truly values founder of a jewelry television and manufactur-
as well to see what they think or know about its shares and gives them for truly good per- ing company. Mr. Namiri has a BS in Industrial
Engineering and Operations Research from the
the board member. My goal is to find out if formance. I also prefer that companies give University of California, Berkeley and an MBA from
the board member is an active contributor or restricted stock that vests over a few years Columbia Business School.
if they are just golfing buddies with the CEO instead of options, as this better aligns man-
looking to cash an extra check. The easiest agement with shareholders. When granted This article is informational in nature and should not
way to tell if a board member is truly aligned options, management is more likely to swing be construed as providing individualized investment
advice. Investors are advised to conduct their own
with the shareholders is to find out if he or big and take more risk. research and due diligence or seek the advice of a
she owns a meaningful position in the stock Finally, in particular with microcap com- registered investment professional. Both the Author
and Ridgewood Investments disclaim any liability
of the company. panies, it is important to look at the employ-
from the use or misuse of this information.
The Board structure of a company is ee agreements and severance agreements of
very important as well. One important the key executives and learn about how they Note: This article is not an attempt to provide invest-
consideration is whether the CEO is also benefit from a potential change in control or ment advice. The content is purely the author’s per-
sonal opinions and should not be considered advice
the Chairman of the Board. The Chairman acquisition. You ideally want a good balance of any kind. Investors are advised to conduct their
holds a lot of power and having both roles where they are incentivized to accept a good own research or seek the advice of a registered invest-
ment professional.
may vest too much authority in one per- deal from an acquirer, but also not be too
son, which can potentially cause problems. expensive where their payout from an acqui-
Especially if the CEO is well paid yet doesn’t sition would be so expensive that it deters a
own many shares, his or her goal often potential acquirer.
becomes to do whatever they can to keep A few other things that are important to
collecting paychecks for as long as possible. notice and look for in the Proxy Statement
If the CEO is also Chairman then they are are insider ownership and how much of the
more likely to be able to stay in the CEO company management owns, who the major
position longer regardless of performance. outside shareholders are, whether there are
Compensation is another extremely different classes of shares, who the peer com-
important section to analyze. Something to panies are according to the compensation
pay attention to is the percentage of execu- consultant, perks and related party transac-
tive compensation that is fixed versus vari- tions and also who the auditor is and wheth-
able. Look at the past and see the rate of er the audit firm has changed frequently. All
increase in compensation and compare their of this information helps provide more data
compensation to other companies of similar points to paint either a pretty or ugly picture
size. Read about the short term metrics that of the people leading the company that you
the company looks at to evaluate manage- might invest in.
ment and what the targets are. Do these As a shareholder in any size company, it
align with shareholder interests? If Earnings is important to read the Proxy Statement, MicroCap Review Magazine 67


Form 4 Filings Insider Buying 101

n my last article about how multi-baggers TRACkING FORM 4 FILINGS I know it’s subtle, but any task that takes
hide out in “easy money” places, I  dis- the slightest extra effort for other investors
cussed five strategies microcap investors I monitor Form 4’s for several reasons: can be your investing advantage. Luckily,
can add to their tool box.  Deep “in the 1. To see when insiders or large investors there are some services that allow you to
trenches” microcap and nanocap investors start loading the boat after shares have fallen track Form 4 activity such as  SECFilings.
are always looking for an information edge to hard com, where you can track stock symbols for
exploit positive or negative information and 2. To see if insiders start buying stock after free (to a limit).  You can also set up an RSS
to make money or protect portfolios.  One a hit piece has been published feed  from the SEC website that will send
of these Information Arbitrage (“InfoArb”) 3. To see if management is buying stock Form 4 filings to your email, free of charge.
tools is tracking buy and sell stock transac- near new 52 week highs Or you can link to the RSS feed directly from
tions disclosed in Form 4 filings (Form 4. To find patterns that set a near-term the page that lists the Form 4 filings of a
4’s) by  Management,  Employees,  Board of bottom in a stock target company (see above).  However, you
Directors or 10% Owners (MEBO).  I wrote 5. To see if insiders are selling as they can’t really customize your searches.
this article for beginner investors, and for glowingly talk about their company We conveniently track the last handful
those who may still have a vague under- Why do I consider the Form 4 as a type of  Form 4’s at GeoInvesting  here, and are
standing of the overall layout of Form 4 of InfoArb? The default view at that planning to address some of the shortcomings
filings, including related codes contained lists a company’s filings does not include of different services that allow you to track
within them. Form 4’s. The example below is that of Evans Form 4 activity in the microcap universe.
“The insider anomaly advantage has been & Sutherland (OOTC:ESCC). It really irks me when a microcap man-
estimated to be as much as 11 percentage I even bet that some beginner microcap agement team does not have skin in the
points over the market return annually. The and nanocap investors may not even know game, as opposed to just “acquiring” shares
advantage tops out closer to seven percentage that they can track Form 4’s. However, all through indirect methods with little cash
points, says Ian Dogan, founder of Insider you need to do is select “include” or “only” outlay.  That’s why it’s important to learn how
Monkey, who wrote his doctoral dissertation under the “Ownership” header to view Form to read a Form 4 filing.
on insider trading.” 4 and other types of ownership filings.


68 MicroCap Review Magazine

stock at predetermined prices (usually below
market prices and sometimes at zero), the
transaction shows up in the Non-Derivative
table. That is why it’s important to reference
codes that are included in the filings.


The codes are outlined  here  on page 6 so

that you can determine if a purchase was
or was not related to a derivative security
THE FORM 4 in his own name (“D”).   Column 5 shows reported on various transaction filings
how much a filer owns after each transac- such as Form 4 and Form 5. The direct
The Form 4 must be filed before the end tion. purchase non-derivate codes you should
of the second business day after the execu- We began to take notice of Mr. Kellogg’s be most interested in are “P” for buy and
tion of a transaction resulting in a change purchase of shares on  September 16, “S” for sale. Essentially, all other codes are
in beneficial ownership. There are many 2016  when the stock was trading at $0.83. mainly related to derivative instruments or
transactions that can result in purchases by Looking into it further, we saw that he already other transactions that are not the result of
MEBO.  Some of these include “FREE” or had a sizable ESCC position. Whenever we meaningful “skin in the game” transactions.
below-the-current-price instances such as notice large blocks or high volume in ESCC, As you can see, Peter Kellogg executed his
options, warrants, share based compensa- we speculate that “Peter is back in town.” purchase of ESCC shares indirectly through
tion and other indirect transactions.  Boiling Next, notice that the filing is divided into open market transactions as evidenced by
it down to what it is important, we focus on two sections the code “P” in column 3 next to the corre-
the buys that took place directly in the open • Non-Derivative Table sponding transaction (as opposed as “D” for
market where MEBO is taking on the same • Derivative Table disposed).  Leave it to the SEC to use similar
risks as any other market participants. The non-derivative section is what you letters for different codes.
Above is an image of a Form 4 filed on want to focus on when searching for bullish Take another example of a stock we
January 27, 2017 by billionaire Peter Kellogg signals related to purchases by insiders at are long, GSE Systems Inc. Common
on microcap ESCC, highlighting two open market prices. This is where it gets a little Stock (AMEX:GVP).
market purchases made on January 25 and tricky, as you can’t automatically assume that A constant flow of non-derivative direct
26: a transaction outlined in this section did not market purchases by insiders confirmed by
The first thing to take note of is that Mr. originate from a derivative security. Form 4 analysis was a big reason we placed
Kellogg bought his shares through one of his For example, insiders often own stock a bullish bet on microcap GVP at around
companies, Bermuda Partners.   Still, “cold options or warrants awarded to them by their $1.40 (even though shares appeared expen-
hard cash” was laid out to execute these two company (approved by the Board). The ini- sive at face value). Similar purchases have
purchases at open market prices.   The “I” in tial grant of these derivatives is first recorded continued at prices over $3.00.   You can see
column 6 signifies that the recent purchases in the Derivative section of a Form 4.  But our initial coverage on GVP here.
were indirect (through Bermuda) and shows when/if insiders convert them (also referred GVP Insiders were also awarded perfor-
that he also owns 2.9 million shares acquired to as  exercise) into ownership of common mance based stock warrants that can be
exercised in different tranches when shares
reach certain predetermined levels. Some
of these levels have been reached, which
prompted insiders to exercise some of their
warrants. Notice that even though the trans-
action is included in the Non-Derivative
Table, the codes “M” and “F” show that it
was the result of a conversion of derivative
security (performance rights). A peek at the
Derivative Table supports this fact. These MicroCap Review Magazine 69

performance rights have a zero cost basis. shares in a change of control transaction the stake exceeds 20%, a 13D must be filed.
Here is a list of all the Form 4 codes: I hope this summary helped you if you In a follow up article, I will go over end-
General Transaction Codes were unsure of how to properly use Form of-year insider transaction arbitrage and
P – Open market or private purchase of 4 filings in your research process.  Other highlight examples where you could have
non-derivative or derivative security MEBO purchase forms also exist (Source: used Form 4 research to find microcap
S – Open market or private sale of non- Investopedia): stocks in which insiders were telegraphing
derivative or derivative security • Form 3  – This document must be filed expectations of higher prices or confidence
V – Transaction voluntarily reported ear- with the SEC no later than 10 days after an that sharp drops in share prices were buying
lier than required insider becomes affiliated with a company, opportunities. Tracking insider purchases
Rule 16b-3 Transaction Codes and it must be filed for each company in correctly is a great tool anyone can use to
A – Grant, award or other acquisition pur- which a person is an insider, regardless of increase conviction when making short-
suant to Rule 16b-3(d) whether the insider has an equity position in term or long-term bets alongside manage-
D – Disposition to the issuer of issuer the company at that time. ment.  Notice that I mainly talked about
equity securities pursuant to Rule 16b-3(e) • Form 5  – Insider transactions insider buys — why? Peter Lynch said it best:
F – Payment of exercise price or tax liabil- involving small amounts of money and “Insiders might sell their shares for any
ity by delivering or withholding securities certain transactions such as gifts of shares number of reasons, but they buy them for only
incident to the receipt, exercise or vesting received from another party are sometimes one: They think the price will rise.” n
of a security issued in accordance with Rule exempt from the usual Form 4 reporting
16b-3 requirements; therefore, a Form 5 submission
I lead the GeoInvesting Team on a daily basis to
I – Discretionary transaction in accor- is required from an insider who has at least increase build a healthy investment opportunity
dance with Rule 16b-3(f) resulting in acqui- one transaction which was not reported pipeline and heighten GeoInvesting’s awareness in
the financial market. I stress the concept of “informa-
sition or disposition of issuer securities x during the year. Form 5 submissions are tion arbitrage” in an era where information overload
M – Exercise or conversion of derivative due to the SEC no later than 45 days after has actually made it more difficult for investors to
locate profitable information. An arbitrage exists
security exempted pursuant to Rule 16b-3 the company’s fiscal year ends, or within
when a disconnect between stock prices and available
Derivative Securities Codes (Except for six months after an insider ends his or her public information on a company is noticeable, and
transactions exempted pursuant to Rule 16b- affiliation with the company. monetarily worth pursuing. 

3) • Form 144  – A form that must be filed ABOUT GEOINVESTING

C – Conversion of derivative security with theSEC  when an executive officer, GeoInvesting is a research boutique which specializes
in microcap stock research and portfolio protection
E – Expiration of short derivative position director, or  affiliate  of a company places
investigations for its members. Co-founders Maj
H – Expiration (or cancellation) of long an order to sell that company’s stock. Also Soueidan and Dan David find money-making oppor-
derivative position with value received known as Rule 144. tunities that others flat out miss. In a nutshell:
** We share our ideas in hopes that others can
O – Exercise of out-of-the-money deriva- • 13D  – The Schedule 13D is a form profit alongside our team.
tive security that must be filed with the SEC under Rule ** We clarify the dynamics of the micro-cap space
to show you that big investments can come in small
X – Exercise of in-the-money or at-the- 13D. The form is required when a person
money derivative security or group acquires more than 5% of any ** We provide education on how to do conduct
Other Section 16(b) Exempt Transaction class of a company’s shares (and wishes real research, leading by example.
** Our expertise gives us,  and therefore you, an
and Small Acquisition Codes (except for Rule to reserve the right to exert control). This advantage over the everyday investor.
16b-3 codes above) information must be disclosed within 10
G – Bona fide gift days of the transaction. Rule 13D requires
L – Small acquisition under Rule 16a-6 the owner to also disclose any other person Note: This article is not an attempt to provide invest-
W – Acquisition or disposition by will or who has voting power or the power to sell ment advice. The content is purely the author’s per-
sonal opinions and should not be considered advice
the laws of descent and distribution the security. of any kind. Investors are advised to conduct their
Z – Deposit into or withdrawal from vot- • 13G – To be able to file 13G instead of own research or seek the advice of a registered invest-
ment professional.
ing trust Other Transaction Codes 13D, the party must own between 5 and
J – Other acquisition or disposition 20% in the company. It must also be clearly
(describe transaction) understood that the party acquiring the
K – Transaction in equity swap or instru- stake in the company is only a passiveinves-
ment with similar characteristics tor  and does not intend to exert control. If
U – Disposition pursuant to a tender of these criteria are not met, and if the size in

70 MicroCap Review Magazine MicroCap Review Magazine 71

Australian Non-Resource Microcaps

ustralian microcap stocks provide currently. However, outside of the top 200 and a host of downstream customers in
an abundance of undiscovered largest stocks is an extremely long tail of order to effectively manage their supply and
non-resource focused microcap microcap stocks for investors to delve into. demand at the optimum price. The company
stocks for US investors who are looking ASX microcap stocks, for the most part, are is the market leader in both gas and electric-
for such stocks listed on the Australian largely overlooked by both Australian and ity trading in Australia and New Zealand
Securities Exchange (ASX). A bit similar to international investors. with a small presence in Singapore and the
the Canadian market, the Australian micro- The ASX provides its own microcap Philippines. The company recently entered
cap market is considered a junior resource index, the S&P/ASX Emerging Companies the European energy market through the
market primarily but there is so much more Index. Comprised of 157 stocks currently acquisition of Contigo Software which was
listed on the ASX than just junior resource with a median market cap of AUD$158m/ a non-core asset from Trayport a subsid-
microcap stocks. This article provides a brief USD$114m. The index is heavily weighted iary business of the TSX which it acquired
overview of the Australian microcap market to resource stocks with the materials and in 2017. The company has successfully
and highlights 6 ASX microcap stocks which energy sectors comprising 34% of the index. deployed capital into acquisitions over recent
exhibit some of the diversity to be found However, comparing this with TSX.V, for years to build out its product and market
within the ASX microcap stock universe. example, and adding together the mining presence with funding for these acquisitions
and energy sectors weightings on the TSX.V chiefly coming through deploying existing
ASX MICROCAP MARkET you get a combined index weighting of 43%. cash reserves or through debt financing. To
OVERVIEW So yes, like Canada, there are a lot of junior date, all debt has been repaid timeously and
resources stocks on the ASX, but it’s not no major integration problems have been
The ASX has circa 2,100 stocks listed on as heavily skewed as the TSX.V and offers encountered. This speaks to the quality of
the exchange. Unlike the US and Canada, more non resource stocks for US investors both the capital allocation and post deal
there is only one main ASX board/exchange to research. execution of the integration by the manage-
where everything is listed. A few legacy Some other differences I find when ment team. The executive management and
competing stock exchanges remain but are comparing ASX microcap stocks to US or the board are also large shareholders in the
so small as to be irrelevant for all practi- Canadian microcap stocks is that the bal- company so are well aligned with minority
cal purposes. The S&P/ASX 200 Index is ance sheets are usually “cleaner” for ASX holders. A profitable, dividend-paying, high
widely used as the main barometer for the microcap stocks. You rarely see convertible return on equity microcap stock with a solid
performance of the Australian equity market notes or debt on ASX microcap stocks bal- and aligned management team in place it’s
ance sheets. The norm is usually just listed one of the more interesting ASX microcap
stock, listed options and/or unlisted options. stocks.
The amount of litigation being faced by Avita Medical (AVH: AU / OTCQX:
the ASX stocks is also substantially less AVMXY) Mkt Cap AUD$261m/
than the volume of cases reported by US USD$188m is a healthcare technology
and Canadian microcap stocks I find in company focused on regenerative medi-
general. This means you don’t have to worry cine in the treatment of burns, aesthetic
about these contingent legal liabilities com- indications and chronic wounds. The com-
ing through and severely denting the stocks pany’s RECELL products have recently
profitability and cash reserves. gained FDA approval, after a near decade
Below are some ASX non-resource stocks in development. This comes on the back of
which typify some of the opportunities avail- RECELL’s approval in China, Australia and
able. Europe. Since its USA regulatory market
Six Non-Resource ASX Microcap Stocks approval the company has had significant
Energy One (EOL: AU) Mkt Cap interest from both medical profession-
AUD$28m/USD$20m is a provider of als and insurers in getting the RECELL
energy trading software to both generators product into the market as quickly as

72 MicroCap Review Magazine

possible. The RECELL product provides Credible Labs Inc. (CRD: ASX) Mkt Cap CONCLUSION
better patient outcomes at a lower cost AUD$263m/USD$189m is fintech business
than conventional treatments so it is a real focused on providing a marketplace for loans Hopefully, US investors will recognize the
win-win for all stakeholders. The company to US millennials. It is a San Francisco based latent opportunity which exists in some of
is now in full commercialization mode and company that is listed on the ASX. The com- the non-resource ASX microcaps as dis-
is expecting a solid uptake of the product pany has spent the last few years building out played by some of the names above.
and associated sales in the US market its marketplace to bring millennial consum-
over the coming quarters. While currently ers and financial product providers together ABOUT INDEPENDENT
unprofitable, this marks a major milestone for the benefit of both parties. The business INVESTMENT RESEARCH
for the company and currently looks to be specifically targets millennials with a slick Independent Investment Research, “IIR”, is an
at an inflection point in its development. mobile-only offering that appeals to its core independent investment research house based in
Australia and the United States. IIR specializes in
City Chic Collective (CCX: AU) Mkt Cap customers. The company started out with the analysis of high quality commissioned research
AUD$271m/USD$195m is an omnichan- student loans, then moved into personal for Brokers, Family Offices and Fund Managers. IIR
distributes its research in Asia, United States and the
nel apparel retailer specializing in plus size loans and is now about to launch into the Americas. IIR does not participate in any corporate
women’s fashion. While predominately home mortgage market. The company is still or capital raising activity and therefore it does not
operating in Australia and New Zealand, very much in the growth phase and seeking have any inherent bias that may result from research
that is linked to any corporate/ capital raising activity.
they have started to achieve success in the volume through its platform in order to reap No ownership by IIR of individuals of shares. n
US market in recent times. Indeed 16% of the benefits of both scale and the associated
For more information about Independent Investment
their total sales now come from the north- network effects at significant scale down the Research, please visit: 
ern hemisphere. The business was previ- line.
ously known as Specialty Fashion but after a Dubber (DUB: AU) Mkt Cap AUD$137m/
boardroom battle a few years ago the current USD$99m provides call recording as a ser- Mark Tobin Senior Analyst at IIR
After graduating with a Master’s Degree in Economic
management team has executed a superb vice on an enterprise level scale. Their cus- Science from University College Cork in Ireland in
repositioning of the business by selling off tomers are telecommunication providers 2004 Mark spent several years working as a hedge
fund accountant both on the service provider side and
non-core brands and assets and working on such as AT&T and Cisco Broadcloud pro- the client side in Dublin, London and Sydney. During
the company’s strategic direction, the results viding them with call recording functional- which time he attained Fellowship of The Association
of which are now starting to filter through ity but also some more advanced features of Chartered Certified Accountants one of the largest
professional accounting bodies in the world. Mark then
their data. such as analytics and keyword searches as changed careers becoming a small cap equity analyst
Jayride (JAY: ASX) Mkt Cap AUD$32m/ required. The end users are primarily gov- with highly respected Australian fund management
group Wilson Asset Management in Sydney. After a
USD$23m listed on the ASX in only January ernments at various levels of governance, be few years working in Sydney, Mark relocated to South
2019. Think of it as the Uber for airport that federal, state or local level. The service is Africa for family reason and took up an opportunity
transfers. They service individuals, fami- provided on an SAAS monthly subscription to work at the coal face of the family food business so
has actually worked in small business and gained a
lies, groups in getting from the airport to type basis. The business is still run by the day to day operational perspective of what it is like to
their accommodation by allowing people founder who founded the business almost run a small company. Mark has been providing ASX
microcap consulting services to IIR for the last couple
to search for appropriate transport and 30 years ago. The business is seeing increas- of years and is a regular contributor to Australian finan-
compare prices between similar transport ing uptake in its product offering over the cial media on microcaps. Mark maintains an extensive
operators. They offer their service to DIY last 12/24 months and has been hitting new network of relationships with Australian microcap fund
managers, brokers and companies in the Australian
customers or travel agents making a book- monthly revenue records over that time. It microcap space.
ing on behalf of their customers. They are has signed quite a few new telecommunica-
Note: This article is not an attempt to provide
in the midst of a large global rollout and tion customers to use its platform but the investment advice. The content is purely the author’s
currently operate in 44 countries around the billing for these has yet to start in earnest so personal opinions and should not be considered
globe and nearly 700 airports. The company there is a lag in the revenue from contract advice of any kind. Investors are advised to conduct
their own research or seek the advice of a registered
has an aggressive rollout plan for the next signing to the actual first billing. This situ- investment professional. The author does not own
12/24 months and a large runway of airports ation should normalize over the course of shares or any equity or debt interest in any companies
mentioned in this article before or at its publishing.
and customers still in front of it. Given the 2019 and will lead to a step change in the
hoopla currently surrounding the Uber and company’s revenue profile moving forward.
Lyft IPO’s, it will be interesting to compare The company looks to be at a noteworthy
the valuation multiples they achieve to what point in its growth.
JAY is currently trading on. MicroCap Review Magazine 73


First Au Limited Brand New Gold Discovery in the heart of

“Gold Town” Kalgoorlie, Western Australia

A ustralia is the world’s

second largest gold pro-
ducer behind China, producing
currently host JORC classified
resources of 289,000 ounces
of gold. Over recent years the
around 10.4 million ounces of Kalgoorlie region has seen sig-
gold a year, worth around USD$ nificant merger and consolida-
13.2 billion. Kalgoorlie, Western tion activity as junior companies
Australia, is undoubtedly the gold capital of have sought to maximize their reach and
Australia and gold has been mined there con- development opportunities by merging with
tinuously for over 125 years. The Golden Mile, similar or larger listed companies.
which sits within the Kalgoorlie gold region, First Au’s Executive Chairman, Bryan Frost of the Hardy Formation and other disseminated
has produced over 60 million ounces of gold. recently commented “We are delighted with conglomerate gold occurrences. First Au’s Emu
Accordingly, some market observers found it the excellent results from our follow up RC Creek Project, which also contains unexplored
surprising when a recently listed junior min- program. We believe these results, together Hardy Formation conglomerates, is located
ing and exploration company announced a with our previous drilling programs, provide a 23kms northwest of Nullagine, and 25kms north
brand-new gold discovery in one of the most solid basis to undertake further work aimed at of Novo Resources’ Beatons Creek conglomerate
heavily explored and historically successful pursuing FAU’s first JORC classified resource.” gold deposit (6.4mt @ 2.7g/t Au for 658,000
gold regions in the world. ozs of gold), the largest known conglomerate
After listing on the Australian Securities Assay result reported to the ASX, from the latest gold resource discovered in the Pilbara to date
Exchange less than a year ago, First Au RC Drilling program include: and is considered to geologically similar. First Au
Limited (ASX: FAU) announced on March recently increased its exposure to the conglom-
18 this year that it had intersected significant Drillhole 19GRC005- 3m @ 4.0 g/t Au from 48m erate gold story in the East Pilbara, by entering
lode gold mineralization at its 100% owned Drillhole 19GRC011- 4m @2.9 g/t Au from 98m into a Joint Venture with fellow junior West Wits
Drillhole 19GRC013- 15m @7.2 g/t Au from 93m
flagship Gimlet Gold Project, which sits 9.3 Mining Limited (ASX: WWI) which holds a
(including 2m @ 16.4 g/t from 101m & 2m @ 17.4
miles northwest of Kalgoorlie. The Company’s number of granted mining leases in the area,
g/t Au from 105m)
recent 2,900m reverse circulation (“RC”) drill- Drillhole 19GRC015- 26m @3.1 g/t Au from 90m known as the Tambina project.
ing program followed up outstanding results (including 1m @ 19.1 g/t Au from 94m) First Au boasts a highly experienced and
from its previous RC and aircore programs, Drill hole 19GRC019- 5m @ 3.9g/t Au from 89m successful exploration team headed by Brian
which returned strong intersections, includ- (including 1m @ 9.7 g/t Au from 90m & 2m @ 2.7 Richardson (formerly Thunderlara Resources
g/t Au from 111m)
ing 3m at 462 g/t gold (15 ounces per tonne) and Royal Resources) and Gavin England (PhD
Drillhole 19GRC022- 4m@ 18.8 g/t Au from 38m
from 52m (refer ASX release dates November in conglomerate gold, substantial public com-
(including 1m @ 71.2 g/t Au from 38m)
8, 2018 and December 14, 2018). Drillhole 19GRC025- 11m @ 4.0 g/t Au from 99m pany experience), as well as Brett Keillor (for-
First Au’s exploration results have delineated Drillhole 19GRC029- 16m @ 1.2 g/t Au from 53m merly Independence Group Chief Geologist
mineralization over a strike length of over Drillhole 19GRC030- 15m @ 6.6 g/t Au from 157m and two-time winner of AMEC Prospector of
400m with mineralization remaining open (including 2m @ 31.4 g/t Au from 169m) the Year Award) and Denis O’Meara (highly
to the north and at depth. Gimlet adjoins respected Australian mining identity and win-
the tenements of Intermin Resources Limited The Company recently applied for a mining ner of AMEC Prospector of the Year Award).
(ASX: IRC), which contain the Teal, Jacques lease in respect to the Gimlet Mineralized Zone, Richard Revelins, Executive Director at First
Find and Peyes Farm gold deposits which which represents the majority of the project area. Au, commented. “We are indeed fortunate to
In addition to the new gold discovery at have such a well credentialled exploration team,
Gimlet, First Au is also involved in exploration who have achieved so much in a very short time-
for gold and base metals in the East Pilbara frame. We are moving into the 2019 field season
region of Western Australia. This region recently full of confidence with the knowledge that we are
came to prominence with announcements by onto something quite significant.”
Novo Resources (CN: NVO), and other explor- Further information and analyst reports
ers, in respect to the discovery of numerous can be accessed from the Company’s website
Richard Revelins, Executive Director “watermelon style “characterized gold nuggets at n
The company paid consideration to SNN or its affiliates for this article.
74 MicroCap Review Magazine
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Q&A with Brent Cook, Geologist

e recently conducted a Q & A the mining industry is not finding enough Markets, Nasdaq or NYSE …etc.
with Brent Cook about US inves- new metal deposits to meet demand. The
tors investing in resource com- bloated and bureaucratic nature of the major It is very easy for US residents to buy
panies within a diversified MicroCap portfolio. mining companies means they are relying Canadian listed stocks. Any stockbro-
Brent writes the Resource Corner column for more and more on nimble and innovative ker can facilitate the trade (I use Sprott
MicroCap Review magazine and has years of microcap junior exploration companies to USA which specifically deals in resource
experience and expertise in the field. make these new metal discoveries to fill their stocks) and many online brokers allow
future production gaps. Majors will pay a US residents to trade Canadian stocks,
Question 1. As a microcap company inves- significant premium for a legitimate deposit, although do be cautious with fees on
tor why should I invest in resource com- one that may deliver 5 to 10 times returns to penny stocks. Additionally, many micro-
panies? (Please discuss diversification, an early speculator in the junior exploration cap explorers are dual listed in the US.
relationship to EV market, explain the dif- company.
ference between exploration, developers, Question 4.  As a value investor how do I
and producers). Question 2. Are resource companies compare a resource company balance sheet
mostly Canadian and traded on Canadian to companies with revenues? 
There is virtually nothing in our modern exchanges?
society that does not require metal, from the The Toronto main and Venture exchang- Exploration is a risky and expensive busi-
antimony, silver, zinc, cadmium, chrome, es host the vast majority of mining and ness that often requires additional funds via
aluminum, gold, palladium, etc., that go exploration companies. There are over 1,000 financings or contributions from mining
into your computer to the iron, lead, copper, exploration and mining companies listed on partners. The risk to reward is extremely
nickel, etc., that go into the farm equipment, the Toronto exchange, 700 on the Australian high. It can be compared to biotech com-
processing facilities, trucks and stores that exchange, and far fewer on the US and panies searching for a cure to diabetes, or
bring you food. London exchanges. technology companies working on the next
The global push towards cleaner energy app or video game and therefore requires
and electrification will increase the demand Question 3. Can a US citizen buy Canadian constant due diligence on the speculator’s
for copper, lithium and a number of other resource stocks through their US broker part. However, an early stage exploration
metals as shown below. Significantly, the or online? (I would answer this by saying program sufficient to make a discovery and
whole world wants the same lifestyle as most many Canadian and foreign based resource significant impact on a microcap explorer’s
Americans enjoy meaning the demand for companies are dual listed in US on OTC share price can take as little as $1M to $2M.
metals will continue to grow.
The problem, but more importantly, the
opportunity, for microcap investors is that


76 MicroCap Review Magazine

herein is believed to be accurate and reliable, it is
Question 5. How would an investor cre- think the depressed level of the mining sec- not guaranteed or implied to be so. The information
herein may not be complete or correct; it is provided
ate a portfolio of both base metals and tor offers a fine opportunity to diversify one’s in good faith but without any legal responsibility or
precious metals, and would you suggest microcap portfolio. obligation to provide future updates. Research that
was commissioned and paid for by private, insti-
mostly exploration companies?
tutional clients is deemed to be outside the scope
Question 8. How do resource commodity of the newsletter, and certain companies that may
I think an intelligent mining and explora- prices affect microcap resource stocks? be discussed in the newsletter could have been the
subject of such private research projects done on
tion portfolio should consist of a few high behalf of private institutional clients. Neither Brent
quality royalty companies, some solid and Metal prices are certainly a key compo- Cook, nor Joe Mazumdar, nor anyone else, accepts
any responsibility, or assumes any liability, whatso-
growing base and precious metal mining nent of any surge of interest into the mining ever, for any direct, indirect or consequential loss
companies, and a select group of explora- sector. The gold price is the big mover and arising from the use of the information in this letter/
tion companies. Royalty companies generate I expect the gold price to rise over the next article. The information contained herein is subject
to change without notice, may become outdated, and
profits by taking a cut of a mine’s produc- few years. Gold is essentially the reciprocal may not be updated. The opinions are both time and
tion and therefore face minimal operat- of the US dollar and given a wide range of market sensitive. Brent Cook, Joe Mazumdar, and the
entities that they control, family, friends, employees,
ing challenges. Mining companies should geopolitical issues related to the US, its allies, associates, and others, may have positions in securi-
be growing their reserves organically and China, plus the massive debt and decreased ties mentioned, or discussed, in this letter/article.
have a cost of production in the lower purchases of US treasuries by foreign inves- While every attempt is made to avoid conflicts of
interest, such conflicts do arise from time to time.
third of the industry unit cost. Exploration tors, odds are the dollar declines while the Whenever a conflict of interest arises, every attempt
companies should be run by competent, gold price increases. If gold gets even close is made to resolve such conflict in the best possible
interest of all parties, but you should not assume
experienced professionals who know the to $1,400/ounce I expect that will trigger a that your interest would be placed ahead of anyone
difference between a mineral deposit and significant rally into the sector. else’s interest in the event of a conflict of interest. No
a geochemical anomaly. They should be part of this letter/article may be reproduced, copied,
emailed, faxed, or distributed (in any form) without
exploring for a deposit that is large enough Question 9. Please explain your newsletter the express written permission of Brent Cook or Joe
to attract a major mining company buyout. and how it helps investors remain informed. Mazumdar. Everything contained herein is subject to
international copyright protection.

Question 6. As an investor how would you Just as the biotech and technology sectors
describe the liquidity in resource stocks?  require an in depth understanding of the
underlying sciences, so does the exploration
The larger mining and exploration com- business. Geology, metal recovery, processing
panies generally have sufficient liquidity for options, social and environmental issues, as
a modest sized investor to execute trades. well as local and national politics all play into
For instance, Newmont Mining (NEM. valuing and assessing a junior explorer’s chanc-
NYSE) trades 5 to 10 million shares a day, es of success. Exploration Insights is a newslet-
and Kirkland Lake (KL.T) trades 1 to 2 ter written by Joe Mazumdar and myself, both
million shares a day. At the other end of seasoned economic geologists who travel the
the spectrum, microcap exploration com- world evaluating exploration projects. The let-
panies can be very illiquid, trading only a ter is about what Joe and I are doing with our
few tens of thousands of dollars per day. own money in the sector. We are completely
independent, paid only by subscriptions plus
Question 7. Do you think it is prudent what we make from our investments. That’s
to diversify a microcap portfolio with about as straightforward as it gets. n
resource companies? If so why?
The mining and exploration space has had
a rough few years while the “hot money”
This letter/article is not intended to meet your specif-
chased crypto and weed stocks. However, ic individual investment needs, and it is not tailored
the mining space has always been cyclical, to your personal financial situation. Nothing con- Note: This article is not an attempt to provide invest-
tained herein constitutes, is intended, or deemed to ment advice. The content is purely the author’s per-
and, when it comes back, provides returns be--either implied or otherwise--investment advice. sonal opinions and should not be considered advice
equal to any other specialty microcap sector. This letter/article reflects the personal views and of any kind. Investors are advised to conduct their
opinions of Brent Cook and Joe Mazumdar, and own research or seek the advice of a registered invest-
The demand for new deposits is real and I ment professional.
that is all it purports to be. While the information MicroCap Review Magazine 77


ShiftPixy, Inc.

ShiftPixy is a California-based technology ShiftPixy was established to address a nation- Scott W. Absher
company that designs, manages, and sells al labor market weakness that was identified Co-Founder, Chairman, President & CEO

access to a disruptive, revolutionary plat- by management during its decades of expe-

form that facilitates employment in the rap- rience delivering essential employer ser- process fees for each hour that a Shifter
idly growing Gig Economy. The cloud-based vices to small businesses. The Company has works.
ShiftPixy ecosystem offers businesses an out- developed a nationwide platform providing Our target market is the 30+ million
sourced employment solution for securing a unique service and support ecosystem to part time workers in the US
part-time employees, and offers individuals connect shift workers (Shifters) with open For the employer, the ShiftPixy platform
such as Millennials access to a pool of tem- shift opportunities at employers provides a legally compliant, outsourced
porary employment opportunities. The com- (Providers). The ShiftPixy ecosystem payroll and employment solution that auto-
pany primarily focuses on the restaurant, delivers and supports a legally compliant mates and accelerates the entire staffing
hospitality and maintenance services indus- engagement between shift workers and shift process to include pre-qualification, hiring,
tries, and aims to differentiate its offering by work providers, one shift at a time. on-boarding, scheduling, payroll processing,
leveraging sophisticated technology to help ShiftPixy’s keys to success are rooted taxes and benefits. For the employee, the
businesses and employees efficiently connect in management’s deep experience helping mobile application provides easy access to
on mobile devices. The ShiftPixy platform small business owners with risk, compli- multiple shifts and “gigs” and provides fric-
is designed to automate the matching of ance and process management over the past tionless and flexible scheduling and payroll
companies with a pre-approved pool of pre- 25 years. Given the unique nature of the fulfillment of a classic PEO.
vetted employees for shift-based work, while Millennials and Generation Z, the ShiftPixy Initially targeting hotel and restau-
managing the wide variety of burdensome solution arrives at a perfect time to quickly rant industries (13 million workers) in
regulatory employment mandates, thereby become a disruptive market influence. major metro markets
reducing administrative hassles for small Using an already existing, well-estab- ShiftPixy has experienced rapid growth from
businesses and workers alike. lished national network of business a pre-revenue start up in 2015 to gross billings of
Our purpose is to bring efficiency to insurance agents to introduce our prod- $51 million in fiscal 2016, $126 million in fiscal
the part time labor markets by deliver- ucts to their clients based on insurance 2017, and $222 million in fiscal 2018.
ing workplace level liberation and ease coverage needs Additional monetization opportunities, once
through an ecosystem designed to lever- clients and shift workers are in the ShiftPixy
age mobile technology to better engage FINANCIAL MODEL ecosystem, such as restaurant self-delivery and
workers to work opportunities. driver management.
The ShiftPixy business model generates rev-
kEY POINTS enue from both the Shifter and Provider UNDERLYING TECHNOLOGY
sides of the transaction. The Shifter pays a
• A sophisticated, technology-driven nominal monthly subscription fee to access Artificial Intelligence
solution to the unique challenges faced the shift network, while the Provider pays Active User Engagement
by employers and employees alike in the Active User Workflows
Millennial-driven Gig Economy. Blockchain
• A nationwide “Uber-like” technology pro- Ultimate Transaction Security
viding critical connections between shift Distributed Ledger Integrity
workers and the open shifts they seek. Amazon Web Service Server Infrastructure
ShiftPixy has experienced rapid growth Rapid SaaS Scalability
since its founding, and positive secular forces Deep Global Operating Capacity n
can help drive profitable growth even in
weaker economies.
The company paid consideration to SNN or its affiliates for this article.
78 MicroCap Review Magazine
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Capital Advisors to successful growth companies, their CEOs,
Boards and institutional investors since 2009. MicroCap Review Magazine 79

Dos and Don’ts for

Private Companies
when Reverse Merging
o principals of, and advisors to, should be considered carefully:
privately-owned companies: The Dos:
It’s well-documented that pub- Do retain experienced attorneys—espe-
licly-held companies are generally worth cially those who have completed many
considerably more than similar private com- reverse mergers—to represent your private
panies.  There are many good reasons for company. The documents that are required,
the disparity--liquidity, of course, is para- especially the Reorganization Agreement,
mount. Also, it’s much easier to raise capital, the “Super 8-K,” and the filings with the
because investors see the exit strategy; and, SEC, FINRA, OTC Markets, the state of
public companies can use stock options to incorporation of the public company and
hire more qualified employees, whose tal- probably the private company (depending
ent enables public companies to increase on the structure of the transaction), are
revenues, profits and value. Not to mention, often complex and very detailed.
of course: the added prestige and personal Do engage experienced, PCAOB-
wealth of the principal shareholders (which registered accountants to audit the private
I just mentioned). company’s financial statements. The repu-
To be sure, however, going public isn’t for tation of the accounting firm is important
the faint of heart. So, before a private com- in establishing and maintaining credibility
pany embarks upon this route, the follow- of the new-public company in the investing
ing not all-inclusive list of Dos and Don’ts community.


80 MicroCap Review Magazine

Don’t ignore your shareholders: as a public
Don’t go into the reverse merger process blindly. company, they can be your biggest sup-
porters (or your adversaries). They, and
Going public is an important milestone for the investing public in general, need to be
informed of company developments as they
any private company. So, and as noted above, occur. Also, have a good website—essential.
communicate early in the process, and often, with Going public is a major step in a com-
pany’s corporate history. Like any other
experienced advisers who have gone this route endeavor, there are good ways and bad ways
to go about it. But by working with experi-
before. enced and competent advisers following the
other “dos” above, and avoiding the “don’ts,”
the process of becoming and then being a
Do try to hire a CEO and a CFO with is to file periodic reports (three 10-Qs and public company can be a lot less arduous,
previous public company experience. These the 10-K each year), plus 8-Ks as and when and far more rewarding, both emotionally
two persons will be the “face” of the public material events occur. So, for example, it and financially. n
company at most, if not all, shareholder would be inconsistent, and probably a viola-
meetings, conferences, telephone conferenc- tion of securities laws, to make a glowing
es, etc. with investment bankers, company announcement and then, shortly after, file a
podcasts and presentations, etc. In my expe- dismal 10-Q without making an announce- John Lowy is the founder (in 1990) and senior part-
ner of John B. Lowy, P.C. (,
rience, if the private company’s principal ment with the same distribution. And take
and (in 1993) of Olympic Capital Group, Inc. (www.
does not have this background, he or she is note that there are different newswire servic-, both based in New York City.
often “kicked upstairs” to be Chairperson, es, some of which provide better distribution John is a highly-respected and acknowledged expert
thus allowing the new CEO to fend with than others; be sure to use one which has the in reverse mergers, representing public companies,
Wall Street, among other duties. Finding, widest distribution, and use it consistently. capital formation, strategic consulting and initial
hiring and retaining quality persons with The above are many, but not all, of the Dos private and public offerings of all types.
As an attorney, an advisor and principal, John
the requisite experience and reputation to be for private companies that want to go public
has led or participated in more than 200 such
CEO and CFO isn’t easy, and—candidly—it by reverse merging. Here are some of the
transactions, creating market value well in excess
will probably be expensive; but in the long don’ts (many are the opposite of the Dos): of $5 billion. He has been instrumental in leading
run, it will be a bargain. Don’t go into the reverse merger process the process by which these companies have raised
Do carefully check the backgrounds of the blindly. Going public is an important mile- capital or reverse merged, and achieved listings on
people you are dealing with on the public stone for any private company. So, and as the NASDAQ or the AMEX, or were sold to larger
company side, before the reverse merger noted above, communicate early in the pro-
In addition to the U.S., John has completed trans-
is completed. There are many “bad boys” cess, and often, with experienced advisers
actions for clients based in at least 15 foreign coun-
lurking, looking for unsuspecting private who have gone this route before. tries. The sectors in which his clients are engaged
companies to reverse merge into what could Don’t think that going public via reverse range from low tech to high tech, cryptocurrency/
become a “pump and dump” scheme. merger is a “get rich quick” deal. As noted blockchain, real estate, pharmaceuticals, medical
Do retain a reputable Investor Relations above, there are many reasons why a private devices, biotech, oil and gas, mining, renewable
energy, entertainment, food, agriculture, education
firm to best get the company’s message out company can gain important advantages by
and retail, among others.
to the investment community, shareholders being public; but most of those advantages
He received his undergraduate degree from Tufts
and others. Using an IR firm is usually help- take time to take effect. And, they don’t University and graduated from the University of
ful in several areas: getting the word out to take effect automatically; rather, they require Pennsylvania Law School, and is a licensed attorney
the Street about the company, introductions additional time and effort beyond what exec- in New York and New Jersey. He is a frequent con-
to broker-dealers, investment bankers, and utives devote to running their business. Put tributor to MicroCap Review.

in some instances to direct sources of capital. another way: executives should devote 100% Note: This article is not an attempt to provide invest-
Do: prepare and disseminate, as widely of their time to running their business, as ment advice. The content is purely the author’s per-
sonal opinions and should not be considered advice
and as often as possible, news/announce- usual, and an additional 50% or more to
of any kind. Investors are advised to conduct their
ments about the company. This can be tricky, what is involved with being a public com- own research or seek the advice of a registered invest-
because your obligation as a public company pany. Difficult math, but it makes the point. ment professional. MicroCap Review Magazine 81

FEATURED ARTICLE Hand Over Fist . . . Picking Teams and Making Money

W hy do we say someone is mak-

ing money  hand  over  fist? Does it
have to do with two competitors putting
pipelines. Many are also outsourcing R&D, while
reducing product development efforts internally.
New investments for startup trends are
in the venture world, early stage could simply
mean a new company, or a preclinical program,
or a new drug discovery initiative.  Unfortunately,
one  hand  over  the other on a baseball  bat  to accelerating at a rapid pace. Behind the without common and easily measured defini-
determine who’s up first?  This idiom of the scenes, pint-size ventures are driving pharma tions, generalizations about early stage biotech
English language paints a vivid picture of the innovation. This scramble is multifaceted. venture data are challenging. New company for-
BioPharma Industry, regarding the competi- Small BioPharma start-ups are quick on their mation has grown as an important route to com-
tion within the Industry and the scramble to feet, and many can do research and product mercializing technologies from research institu-
invest in start-ups that fuel innovation. development faster. By investing in a broad tions. Although new company formation may
Start-ups are driving biopharma innovation, portfolio of young ventures, a big drug com- not be the most efficient route to market for all
accounting for 63% of all new technology and pany can leverage outside scientific talent technologies, to those concerned with economic
drug approvals over the last eight years. and cast a wide net in order to gain access development, the formation of new, successful
New approaches to combat drug resistance, to breakthrough discoveries in areas of the companies is seen as a route to create and support
elimination of side effects, more targeted thera- company’s strategic interest. For investors jobs. Many countries have specifically developed
pies are urgently in need to be developed. the sheer market size of the industry can- programs to support this trend by the formation
Despite growing recognition of this threat, not be ignored. It’s a global market growing of “business incubators” and science parks to cre-
there is an early stage funding gap for new at 6.5 percent compounded annually that is ate a supportive environment.
technologies.Top of FormBottom of Form This expected to reach $1.06 trillion by 2022. Incubators are expanding opportunities
is a huge global problem in need of R&D, Johnson & Johnson invests over $10 billion for research to develop into startups, various
but many Big Pharma companies have pulled on R&D annually across the company’s differ- research institutions are spinning technologies
out in the last 10 to 15 years because they ent sectors — medical devices, Biotech, pre- out into New Companies, and Venture Capital
see a challenging ROI. Most Big Pharma or scription drugs — they also invest over $250 and Investors developing Start up Studios that
Investing Partners would rather wait as startup million a year in everything from seed invest- take scientific discoveries made at universities
biopharma take the risk out of development. ments to Private Investment of Public Equity. are turning them into companies focused on
The economic challenge the industry faces is The League of Companies leading the growth. Big Pharma Companies are employing
undeniable. That’s because the average cost to field are those working to develop creative “fostering” investment payments on milestones
develop and FDA approval for a new prescrip- approaches to the R&D productivity crisis with that encourage early stage to success! The play-
tion drug in the United States is about $2.6 all kinds of early stage collaborations. Applying field is changing and the will to win is not near-
billion, reports the Tufts Center for the Study of business service teams that help manage start- ly so important as the will to prepare to win.
Drug Development. Despite high development up’s operations and navigate the regulatory The field is expansive, the Stake Holders are
costs, most drug launches achieve modest sales and product development pathway, facilitate lining the stands, new innovative technologies are
in the first five years on the market. Only  19 permits and licenses and foster the funding on deck and teamwork makes the dream work! n
drugs have reached $1 billion in annual sales startups need to grow. Cultivate relationships
Jae Sly is the CEO of Strategic BioPharm Consulting,
within five years  of launch over the past 20 with fresh Start ups and Institutions that have Inc. Jae has over 20 years in the Biopharmaceutical
years, reported by QuintilesIMS Institute. great ideas and build a newco around them. Industry, from R&D to Clinic. Jae is an Industry
Leader providing strategic partnering of Biopharma
An Industry shift has Big BioPharma  and Prime example is a unit of the R&D group technologies and services.  Jae has initiated cross
others looking to become more entrepreneurial. formed out of Sanofi’s global R&D. Sanofi- border partnering platforms, investment forums and
is a corporate mentor in the DE and MD Incubator
Increasingly, these big players are setting up Sunrise, a company creation that seeks to invest
Startup Programs. Much of Jae’s career has been with
venture capital funds and investing in start-ups in seed ideas or co-invest with venture capitalists numerous start-up and small BioPharma Companies
and licensing technology to fuel their own drug on promising new technologies. Leading the seeking to expand infrastructure, technology expo-
sure on an International level.. Contract negoti-
effort is a team of scientists with Sanofi’s global ations and technology evaluation for Investment
R&D department who have ties or actively seek Opportunities, has been primary expansion within
Jae’s portfolio of services in last few years. Jae main-
out venture capitalists and academic networks.
tains a strong Industry presence by presenting and
Companies leading the league are those devel- attending at major conferences. Jae received her
oping creative approaches to the R&D productiv- Ph.D. in Immunology from University of Washington
and MBA from San Diego State University. Jae is
ity crisis with all kinds of early stage collabora- a member of LES, Maryland ICOY, ESACT,  BIO
tions.  That then comes down to what do we and is Adjunct Faculty at University of Delaware,
Bioinformatics Core.. Jae possesses the skills of being
n BY JAE SLY, PhD, MBA mean by “early stage”.  To a biotech hedge fund
Multi-lingual and well versed in Cultural negotia-
trader, it might be pre-Phase 2.  To those of us tions.
82 MicroCap Review Magazine Note: This article is not an attempt to provide investment advice. The content is purely the author’s personal opinions and should not be considered
advice of any kind. Investors are advised to conduct their own research or seek the advice of a registered investment professional. MicroCap Review Magazine 83

A Cannabis Play that

Won’t Get Smoked
THE “CANNABIS IS A the product. So, the way beverage alcohol
COMMODITY” DEBATE companies add value to ethanol is by brand-
ing and creating illusory experiences around
Let’s be clear – THC and CBD, the canna- the product – think “natural spring water;”
bis components that affect our cannabinoid “aged in oak casks;” and “king of beers.”
receptors, are commodities. This has caused
many bearish cannabis investors to claim CANNABIS DIFFERENTIATION
that cannabis company valuations are ripe
for share price destruction. We, at Sophic A cannabis company relying solely upon grow-
Capital, believe that although market valu- ing plants likely won’t last. But cannabis com-
ations for public cannabis companies are panies with branding strategies that differenti-
lofty, many licensed producers of cannabis ate strains, packaging, or storefronts could be
will survive by branding, just like other com- good investments. But differentiation can be
modity companies do. expensive: Coke spent almost US$4 billion in
For example, ethanol is the active ingre- 2017 to differentiate itself from Pepsi and Dr.
dient in alcoholic beverages and is a com- Pepper. That’s a lot of dough to convince people
modity. Most consumers of beverage alcohol to drink branded sugar water. Even crazier,
products don’t focus on the type or source of Centers for Disease Control and Prevention
ethanol; they are more concerned with the reported that cigarette manufacturers spent
taste, smell, labelling, and the story behind $9.5 billion in 2016 marketing their products,


84 MicroCap Review Magazine

and a lot of that was spent marketing the nega- domestic producers ramp, and c) licensed sive sales cycles that make it difficult for
tive health effects of tobacco. That’s about $26 producers will have to backfill lofty valua- the vendor to switch solutions, or unique
million a day to convince consumers whose tions or risk share price contraction. data-collecting, hardware platforms that are
brand (not necessarily tobacco) was best while We don’t like any of these scenarios. But difficult to replicate. The #1 and #2 best per-
trying to convince those consumers that they we like the cannabis industry – not for the forming companies in 2018 on the Toronto
shouldn’t smoke tobacco. commodities or plants but for the evolving Stock Exchange Venture Technology Index
supporting technologies. And one technol- are creating these types of data moats.
A BIGGER POTENTIAL THREAT ogy we think could be big targets medicinal
become commoditized (we are often wrong). REALLY ISN’T
One technology could outright displace can- Data exists in medical cannabis clinics, but
nabis growers - synthetic cannabinoids. In a typical scenario where a physician no standard protocols exist to collect it. CB2
Synthetic cannabinoids are created in a lab- decides to treat a patient with FDA-approved Insights (CSE: CBII) is going to change that.
oratory. Pundits have vilified synthetic canna- pharmaceuticals, the physician must assess They operate profitable cannabis evaluation
binoids since many illegal designer drugs are the benefit to harm outcomes and determine and education centers in 12 states, servicing
synthesized to stimulate cannabinoid recep- what medication could help the patient. 65,000 patients and plan to continue consoli-
tors. But some labs have “grown” legal syn- Over 2,000 approved pharmaceutical drugs dating profitable clinics. The clinics are a data
thetic cannabinoids for medical treatments. exist. We can’t expect doctors to know all of pool for CB2 to collect and aggregate what
In fact, they can do it cheaper, cleaner, and them, but diagnostic tools exist to help doc- clinicians are prescribing for specific condi-
faster than licensed producers – (one com- tors recommend medications. These tools tions. More patient data refines recommenda-
pany we met can synthesize grape plants in 3 consolidate medical research to provide phy- tions, leading to better patient outcomes and
weeks and claims cannabinoids will take no sicians with the knowledge base, guiding improving doctor and practitioner cannabis
longer!). These could be why licensed pro- them to provide informed decisions that will recommendations. The Company will also
ducer Cronos Group (TSX:CRON) invested best help their patients use this data to create a software knowledge
US$22 million in Ginko Bioworks, a private No such evidenced-based tools exist for base of possible cannabis treatments that
firm that uses biology to build sustainable cannabis treatments, and doctors do not doctors, clinicians and patients can access
products in food, pharma, manufacturing, have the time to absorb whatever peer- (another data collection tool). Big pharma
and more. The partnership will see Ginkgo reviewed clinical cannabis trials researchers is already losing tens of billions to cannabis
work with Cronos Group on research and publish. Doctors therefore hesitate to recom- substitutions - it needs data. This is the type of
development of microorganisms capable of mend cannabis treatments for patients. For data moat Sophic Capital loves - and we didn’t
producing certain target cannabinoids. If all those that do, cannabis-based treatments are even get into CB2’s machine learning plans. n
milestones are met, the deal could be worth guesses, at best, based on anecdotal infor-
US$100 million. mation. We need science to define the best
potential patient outcomes. Disclosures
WHERE TO LOOk IF THE Sean Peasgood, Sophic Capital, and Sophic Capital’s
employees own common shares of Legend Power

Legend Power Systems has contracted Sophic Capital

Achieving the quality, scale, cost reductions, In an interview with The Globe and Mail,
for investor relations services.
and time savings of synthesizing cannabi- Professor Janice Stein from the University of
noids strengthens our thesis that THC and Toronto said, “Tomorrow’s challenge is who’s Here is a link to Sophic Capital Disclosures and
CBD are commodities. But assuming we’re got access to the largest amount of data in the
wrong (again) and labs cannot achieve the cheapest and fastest way.” We agree. Access to Note: This article is not an attempt to provide invest-
ment advice. The content is purely the author’s per-
aforementioned benefits, investors need to data is a moat. Aggregating data from several
sonal opinions and should not be considered advice
consider that: a) licensed producers will sources is a bigger moat. of any kind. Investors are advised to conduct their
need to spend big bucks to compete on We’ve seen data moats before. They come own research or seek the advice of a registered invest-
ment professional.
brand, b) as new jurisdictions legalize can- from onboarding major industry players
nabis, export markets will likely shrink as before competitors have a chance, exten- MicroCap Review Magazine 85


The Impact of the Repeal of PASPA

on the Tribal Gaming Market

T he tribal gaming sector generates between 45-50% of all gam-

ing revenue in the U.S. Since the passage of the Indian Gaming
Regulatory Act (IGRA) in 1988, tribal gaming has grown from a $121
million to a $37 billion plus segment in 28 states in 2018 (Source:
AGA, Meister, NIGA).
That revenue allows tribal casinos across the potential tribal online gambling market of Virginia, Pennsylvania, Rhode Island and
country to provide diverse career opportu- $3.4 billion. And if we assume that sports New Mexico.
nities, support local businesses and fund betting is 50% of the online market, that New Mexico provides an interesting
critical state, local, and tribal government yields a potential tribal sports betting market study as the Santa Ana Star Casino & Hotel
programs. of $1.7 billion. launched a sportsbook in October 2018.
According to a recent study by Eilers & Under the Professional and Amateur Santa Ana is a tribal casino, and the tribe
Krejcik Gaming (EKG), 32 states will likely Sports Protection Act (PASPA) of 1992, can take sports bets on its property even
have legalized sports gambling within five sports betting in the U.S. was banned from though sports betting is not yet legal in the
years and as many as 14 could be ready 1992 to 2018 (except for four states that state. In this case, sports betting is regu-
for legislation within two years. Based on were grandfathered in under PASPA since lated by the Pueblo of Santa Ana Gaming
32 states, EKG estimates that the overall they had previously allowed sports betting Regulatory Commission.
U.S. sports betting market could generate - Nevada, Delaware, Oregon, and Montana). According to the National Indian Gaming
approximately $6 billion in revenue, with an Since PASPA’s repeal in May 2018, six other Commission (NIGC), there are 460 tribal
annual turnover of $100 billion. states have passed laws to allow for legal gaming casinos in the U.S., operated by 240
sports betting – Delaware (allowing single- federally recognized tribes. We believe the
HOW BIG CAN THE TRIBAL game bets), New Jersey, Mississippi, West

If we assume that online gambling is ~10%

of the overall market, that would yield a

Exhibit 1 - Economic Impact of Tribal Gaming (2016) Source: American Gaming Association
(AGA), Meister Economic Consulting

86 MicroCap Review Magazine

tribal sports betting market will be a frag- Regulatory Act (IGRA) and existing Pennsylvania, we believe most estimates are
mented one because not all tribes have com- tribal-state gaming compacts must be conservative and the US could grow to be the
pacts with their respective states. Compacts protected; largest sports betting market globally over
outline what kind of gambling tribal casinos • IGRA should not be opened up for the next 10 years. n
can offer, and how much taxes are paid to the amendments;
About the Author
state as a percentage of revenue. To compli- • Tribal governments must receive a pos- Mr. Garcea co-founded Focus Merchant Group in
cate matters further, each state compact is itive economic benefit in any federal September 2018 and has more than 22 years experi-
ence in senior analyst positions at major domes-
different. sports betting legalization proposals; tic and international firms. He was a top-ranked
The National Indian Gaming Association • Indian tribes possess the inherent right research analyst, well regarded for the depth and
breadth of knowledge he brings to bear on his cover-
(NIGA), led by Chairman Ernie Stevens Jr., to opt into a federal regulatory scheme
age of technology, gaming and industrial companies
supports sports betting on tribal land, and to ensure broad-based access to markets; across a broad range of market capitalizations. Over
issued a set of guidelines just a few months • Tribal governments acknowledge the the years, he has received top three rankings from
Brendan Woods, Greenwich, Starmine and Thomson
after the U.S. Supreme Court repealed integrity and protection of the game and Reuters surveys. One of Mr. Garcea’s clients currently
PASPA and ruled that sport betting could patron protections for responsible gam- is Newgioco Group (NWGI-OTC QB), where he is
the VP Corporate and Business Development.
be legalized on a state-by-state basis. The ing are of the utmost importance;
guidelines are as follows: • Any consideration of the use of mobile, Note: This article is not an attempt to provide
• Tribes must be acknowledged as govern- online or internet gaming must adhere to investment advice. The content is purely the author’s
personal opinions and should not be considered
ments with authority to regulate gaming; these principles. advice of any kind. Investors are advised to conduct
• Tribal government sports betting rev- Source: their own research or seek the advice of a registered
investment professional. Mr Garcea does not own
enues will not be subject to taxation;
any shares in companies mentioned.
• Customers may access tribal government FINAL THOUGHTS
sports betting sites as long as sports
betting is legal where the customer is Just looking at the recent growth in sports
located; betting handle and gross gaming revenue
• Tribal rights under the Indian Gaming (GGR) in New Jersey, Mississippi and MicroCap Review Magazine 87

88 MicroCap Review Magazine

Lucosky Brookman LLP, a leading corporate and securities law firm with offices in New York and New Jersey, is
devoted to contributing time and resources to giving back to the community through a hands-on approach to
charitable activities. Since 2014, Lucosky Brookman, together with its friends, clients and colleagues, has
donated over $775,000 to charitable endeavors throughout the world. In 2017, Lucosky Brookman founded the
Lucosky Brookman Foundation, a public 501(c)(3) charity, through which the Firm uses the power of
philanthropy to impact the lives of those less fortunate.

Lucosky Brookman invites you to join it in supporting The Save A Child’s Heart Foundation (SACH). SACH
is a global humanitarian organization, with a mission to provide life-saving cardiac care to children of all
backgrounds, regardless of race, religion, gender, nationality, or financial status, who suffer from congenital
and acquired heart defects and have no access to quality care in their native countries. SACH is
also committed to providing training to doctors from developing countries to set up local centers
of competence. To date, SACH has have saved the lives of 5,000 children from 58 countries and has
trained over 120 international medical personnel.

To learn more or make a donation visit MicroCap Review Magazine 89

90 MicroCap Review Magazine MicroCap Review Magazine 91

Hong Kong Stock

Market Robust in 2019
T he Heng Seng Index has recovered most of its losses from 2018
with a robust start this year, up 13.2 percent as of March 14th,
rebounding from a 14 percent drop in 2018.
Despite having the Index’s worst perfor- just 9.5 percent of all fundraising, compared wear industry which Euromonitor estimates
mance in seven years, Hong Kong won to 32 percent the previous year. will increase to US$58 billion in 2023 from
back the title for top global IPO market in This year, more than 200 companies are US$40 billion in 2018. Another highly
2018, beating the previous year’s winner: already lined up to list on the exchange to anticipated IPO is Koolearn, an online edu-
New York. Fundraising through initial pub- raise an expected US$29.4 billion, the major- cation company under New Oriental. The
lic offerings increased to US$36.8 billion, the ity of which are new economy companies company has plans to file for a Hong Kong
highest fundraising in eight years. A record in the TMT, biotech and education sector. initial public offering (IPO) this year to raise
218 companies listed in Hong Kong’s main Small and medium size IPOs are expected US$90 million to US$104 million. Koolearn
board and GEM during the year. More than to dominate the landscape with only one is the largest online education brand in the
70 percent of the funds raised were from or two mega-sized IPO anticipated, accord- Chinese college-exam preparation market,
mainland companies, including 36 high ing to PWC.  Companies preparing to list holding 8.2% market share in 2017 by rev-
growth mainland “new economy” compa- in Hong Kong this year include Shenzhen- enue, according to consulting firm Frost &
nies as Hong Kong remains their number based Belle International. With a 6.7 per- Sullivan. ESR-Reit  is also planning an IPO
one choice to raise capital from international cent share of China’s apparel and footwear on the Hong Kong stock exchange expecting
investors. The surge in tech company list- specialist retailer segment, according to to raise US$1 billion to US$1.5 billion. ESR
ings was driven by the change in listing rules Euromonitor, Belle is aiming for a valuation is the largest Asia-Pacific-focused logistics
allowing dual class shares structure to go of at least HK$20 billion (US$2.55 billion) real estate platform, formed by a merger of
public on the exchange. Telecommunications to HK$25 billion. The company has a solid Shanghai-based warehousing services firm
and hi-tech were the two biggest fundraising position in China’s rapidly growing sports- e-Shang and Singaporean logistics real estate
sectors in Hong Kong, representing 39 per
cent of funds raised, compared to 10 per cent
in 2017. The financial sector, traditionally
the largest sector in Hong Kong, represented


92 MicroCap Review Magazine

investment firm The Redwood Group in growth against its environment, health-care 20 and 29, according to the China Internet
2016. With Hong Kong revamping its listing and overall social welfare responsibilities. Network Information Centre. This group
rules, it is generating increased interest from Consumption is expected to be the major known as the “post-90s” generation is one of
overseas companies. Controlled by Chinese component of GDP growth in 2019, contrib- the fastest-growing and increasingly influen-
investors, U.K.-based data center operator, uting over 80 percent, up from 76.2 percent tial segments of Chinese consumers. China’s
Global Switch is in the process to list in the in 2018. post-90s, the first generation to fully benefit
HKEX later this year, raising up to US$1 bil- China’s economic future is being fueled from China’s reform, grew up in a country
lion and Erdenes Tavan Tolgoi, a Mongolian by its two major programs, the Greater Bay unknown to their parents, one with rap-
state company controlling one of the world’s Area and The Belt and Road which are to idly growing levels of wealth, exposure to
largest coal mines, plans to raise up to $3 bil- act as a catalyst to further drive the opening- Western culture, and access to new technolo-
lion in a public stock offering in Hong Kong. up of its economy. The Guangdong-Hong gies. They are expected to represent more
As the world’s third largest exchange by Kong-Macao Greater Bay Area is expected than 20 percent of total consumption growth
capitalization, Hong Kong Exchange contin- to create unprecedented opportunities for a in China between now and 2030, higher
ues to expand its offerings with the goal of wide range of sectors including infrastruc- than any other demographic segment, mak-
becoming the go to giant for investment in ture, financial services, capital markets and ing them the engine of consumption.   This
Asia. In March, it announced a new three- technology. While the Belt and Road project generation, born on the internet and living
year strategy to add currencies, fixed-income which reached its 5th year in March, is intend- on their mobile devices, are non-savers,
products and other financial derivatives to ed to help facilitate economic and social willing to spend on themselves. They spend
its offerings. Included in the plan, the development of the countries and regions most on smartphones, fashion, travel, expe-
HKEX will shorten the IPO settlement cycle along the B&R routes, mainly Euroasia, by riences, products where brand and qual-
and work to attract more ETFs to list in the providing cutting-edge technologies and ity matter and on things that make their
SARS. It is also looking at ways to expand high-quality products and services. As B&R life more comfortable and convenient. With
its yuan products, by offering more yuan construction enters new stage of econom- younger generations driving consumption,
futures and yuan bond products as well as ic and trade cooperation, China’s outward they are powering transformational eco-
develop infrastructure to help international investment is expected to expand to wider nomic and social change across the country,
investors access the onshore yuan markets. fields from large-scale infrastructure, energy which Fung Business Intelligence believes
It is providing foreign investors new tools and resources to tourism, e-commerce, as combined with technological advances will
to hedge their risk and better manage their well as cultural, educational and people-to- continue to disrupt the retail landscape. n
exposure to mainland equity by introduc- people exchanges, according to CGG. A
Ms. Leslie Richardson has over 20 years of investment
ing futures contracts on the MSCI Ching A noteworthy absence from the annual policy
management and equity research experience. She oper-
Index, which represents the A-share portion blueprint was the mention of “Made in ates a boutique investor relations firm in Hong Kong
of MSCI’s flagship Emerging Markets Index. China 2025” a strategy that has caused sus- for Asian companies listed in the U.S. and Hong Kong.
She also assists private companies develop investment
While northbound trading under the stock picion within the United States and Europe. material and build an investor following in prepara-
connect mechanism between the mainland Still, Beijing remains committed to build- tion for a public listing. Additionally, she is the Asian
Correspondent for Micro-Cap Review, www.microcap-
and Hong Kong bourses had a slow start ing a powerful manufacturing country as, a financial magazine focused on mirco-cap
when initially launched, net inflow into the it enhances its industrial development and companies. Previously, she worked for CCG Elite in
A-share market through northbound trading technology innovation. Along with increas- assisting Asian-based, U.S. listed clients formulate key
communication strategies. Ms. Richardson began her
hit a record high of 60.69 billion yuan ($8.97 ing technology advancement, a number of investment career at U.S. Trust Company then went
billion) in January. high-quality new mainland brands such as on to join Odyssey Advisors as a portfolio manager
and Director of Research. Ms. Richardson specialized
China Continues to Build for the Future Lenovo and Alibaba are emerging and look-
in high growth sectors such as bio-tech, alternative
In March, China revealed its annual policy ing to expand their market globally. energy, IT and telecommunications. She earned her
blueprint with a set growth target of 6.0 to With consumption now China’s largest M.B.A. from the University of Southern California. Ms.
Richardson is based in Hong Kong.
6.5 percent for 2019 as the country faces power for growth, retail sales in China are
graver and more complex risks and chal- forecasted to grow 7.5 percent to $5.6 trillion
Note: This article is not an attempt to provide
lenges. The PRC stated it is reorganizing and this year, surpassing the US retail sales of
investment advice. The content is purely the author’s
restructuring its economy toward a more $5.5 trillion for the first time to become the personal opinions and should not be considered
rational and healthier pattern of growth world’s top retail market, according to eMar- advice of any kind. Investors are advised to conduct
their own research or seek the advice of a registered
and consumption that aims to balance the keter. Of China’s 802 million-strong online investment professional. Leslie does not own shares
global expectations of China’s high GDP population, 28 percent are aged between in IPOs or companies mentioned. MicroCap Review Magazine 93

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